Introduction

NETNOMICS: Economic Research and Electronic Networking -     

Banks’ capital buffer,risk and performance in the Canadian banking system: Impact of business cycles and regulatory changes

Using quarterly financial statements and stock market data from 1982 to 2010 for the six largest Canadian chartered banks, this paper documents positive co-movement between Canadian banks’ capital buffer and business cycles. The adoption of Basel Accords and the balance sheet leverage cap imposed by Canadian banking regulations did not change this cyclical behavior of Canadian bank capital. We find Canadian banks to be well-capitalized and that they hold a larger capital buffer in expansion than in recession, which may explain how they weathered the recent subprime financial crisis so well. This evidence that Canadian banks ride the business and regulatory periods underscores the appropriateness of a both micro- and a macro-prudential “through-the-cycle” approach to capital adequacy as advocated in the proposed Basel III framework to strengthen the resilience of the banking sector.     

The impact of the Gramm-Leach-Bliley act on the financial services industry

This paper examines the impact of Gramm-Leach-Bliley Act across three main sectors of the financial services industry: commercial banks, insurance companies, and brokerage firms, taking account of the wealth effect associated with the announcement. We find that the law has a differential impact across the financial services industry. All three industries have gained due to this law with commercial banks benefiting most, followed by the insurance industry. Further, the results show that larger firms benefited more in both the banking and insurance industries and exposure to systematic risk was reduced for all sectors of the financial services industry after this regulation passed.     

An empirical examination of vacillation theory

Research summary : Since Nickerson and Zenger (2002) proposed how vacillation may lead to organizational ambidexterity, large‐sample empirical tests of their theory have been missing. In this paper, we empirically examine the performance implications of vacillation. Building upon vacillation theory, we predict that the frequency and scale of vacillation will have inverted U‐shaped relationships with firm performance. We test our hypotheses using patent‐based measures of exploration and exploitation in the context of technological innovation and knowledge search. Managerial summary : Firms often shift their focus on technological innovation and knowledge search from seeking new and novel knowledge (i.e., exploration) to extending and refining existing knowledge (i.e., exploitation) or vice versa. We examine how the frequency and scale of firms vacillating between exploration and exploitation may affect their performance. We find that both too infrequent or too frequent changes and a too small or too large scale of changes are not desirable. Copyright © 2016 John Wiley & Sons, Ltd.     

Audit Hours and Unit Audit Price of Industry Specialist Auditors: Evidence from Korea

Higher audit fees associated with auditor industry specialization could represent higher unit price charged by industry specialist auditors (ISAs) or the provision of a greater quantity of audit services. This study exploits a field setting in Korea, where the disclosure of audit hours is required in company annual reports, and finds that ISAs charge significantly higher total audit fees but also expend significantly greater audit hours than non‐ISAs. When audit fees and hours are considered together, the unit audit price of ISAs is significantly lower than that of non‐ISAs. This indicates that higher total audit fees associated with ISAs are likely to be attributable to greater audit hours associated with ISAs. However, greater audit hours for ISAs may suggest higher audit quality or may simply indicate that the additional audit work performed by ISAs is conducted by relatively cheaper junior auditors. Our work provides an alternative explanation for the higher total audit fees documented in the previous studies.     

The Effects of Variations in Laxity (or Strictness) of Closure Rules on the Valuation of Deposit Insurance

The passage of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), which removed some of the freedom or latitude the FDIC had in resolving and closing insolvent institutions, makes it clear that regulatory closure rules are not invariant with regard to time and events. Therefore, this paper analyzes the effects of variations in the laxity or strictness of bank closure rules on the valuation of deposit insurance. Hardly predictable state variables, such as political, economic and bureaucratic constraints, represent potential sources of uncertainty that drive changes in the stringency of closure policy. A variation of Ronn and Verma's [14] model is extended to consider situations where the insurance agency's closure rule is uncertain.     

The role of foreign affiliate productivity in the integration strategies of multinational firms

We study the role of foreign affiliate productivity in the operations of multinational firms. We use the panel data of Multinational Corporations (MNCs) headquartered in South Korea during 2006–2013 and exploit the significant variation in affiliate productivity and its operation. With other variables held constant, including the parent firm or affiliate fixed effects, we find that a more (less) productive affiliate exports less (more) to the parent and sells more (less) to other unaffiliated entities. We then provide a possible theoretical scenario that is based on the MNC's optimal integration strategy literature. By allowing foreign affiliates to have varying productivity levels, the model bears predictions consistent with the empirical findings.     

VACATION LIFESTYLE AND TRAVEL BEHAVIORS

In marketing research, tourism scholars have often developed a variety of scales and integrated them into segmentation studies. Since vacation lifestyle variables, which could be utilized as a base for marketing research, have not received much attention from market researchers, this article attempts to further purify the extant scale and use Taiwanese travelers as a case study. The study survey was conducted of 443 tourists staying at least one night at the Ken‐Ting National Park in Taiwan from April to May, 2002. This study collected 420 useful samples. Three groups of users merged from the cluster analysis: (a) Family Oriented Travelers, (b) Social Oriented Travelers, and (c) Stylish Travelers. The study shows that the differences in trip characteristics are the frequencies of domestic travel, the frequencies of international travel, the hotel preferences, and the average expenditure on accommodations. The variations in demographic characteristics relate to age, family life cycle, education, and household income. This study on vacation lifestyle subsequently renders a new assessment tool to tourism professionals in Taiwan to grasp the lifestyle profile of their customers and develop strategies to entice the travel market.     

Linking Organizational Justice to Job Performance: Evidence from the Restaurant Industry in East Asia

This study examines the role of justice in a leader–subordinate dyadic relationship and the effect of the relationship quality on job performance in the restaurant industry. Based on the well-established framework of justice, the social exchange theory, and Confucian cultural background (collectivism) in East Asia, the study proposes and tests a model that attempts to understand a dynamic relationship among four dimensions of justice, two types of trust, and job performance. Using the data collected from restaurant employees in South Korea, the study finds that distributive justice and interactional justice are critical for nurturing an affect-based trust in East Asia.