Competitiveness and Efficiency of the Banking Sector and Economic Growth in Egypt

Abstract: This paper investigates the impact of financial reforms on competitiveness and production efficiency of the banking sector, as well as the short‐term and long‐term impact on economic growth, in Egypt during 1992–2007. The results suggest that the reforms have a positive and significant effect on competitiveness and production efficiency. Also, the evidence shows that state‐owned banks are generally less competitive than private banks and foreign banks are less competitive than domestic banks. The average x‐inefficiency of Egyptian banks is around 30 per cent, which is comparable to those reported for other African countries. Finally, there is evidence to suggest a significant relationship between financial bank productive efficiency and economic growth in the short run but not in the long run. Overall, the results support the argument for continuing the financial sector reform programme in Egypt.     

Competition among mutual funds

We examine the impact of the entry of new mutual funds on incumbents using the overlap in their portfolio holdings as a measure of competitive intensity. This simple metric delivers powerful economic results. Incumbents that have a high overlap with entrants subsequently engage in price competition by reducing management fees. Distribution fees, however, rise so that investors do not benefit as much from price competition. Funds with high overlap also experience quantity competition through lower investor flows, have lower alphas, and higher attrition rates. These effects only appear after the late 1990s, at which point there appears to be an endogenous structural shift in the competitive environment. We conclude that the mutual fund market has evolved into one that displays the hallmark features of a competitive market.     

Leading Indicator Variables, Performance Measurement, and Long-Term Versus Short-Term Contracts

In this article we develop a multiperiod agency model to study the role of leading indicator variables in managerial performance measures. In addition to the familiar moral hazard problem, the principal faces the task of motivating a manager to undertake “soft” investments. These investments are not directly contractible, but the principal can instead rely on leading indicator variables that provide a noisy forecast of the investment returns to be received in future periods. Our analysis relates the role of leading indicator variables to the duration of the manager's incentive contract. With short‐term contracts, leading indicator variables are essential in mitigating a holdup problem resulting from the fact that investments are sunk at the end of the first period. With long‐term contracts, leading indicator variables will be valuable if the manager's compensation schemes are not stationary over time. The leading indicator variables then become an instrument for matching the future investment return with the current investment expenditure. We identify conditions under which the optimal long‐term contract induces larger investments and less reliance on the leading indicator variables as compared with short‐term contracts. Under certain conditions, though, the principal does better with a sequence of one‐period contracts than with a long‐term contract.     

The profitability and investment premium: Pre-1963 evidence

I investigate the profitability and investment premium in stock returns using hand-collected data from Moody's Manuals for 1940–1963. Controlling for value, the profitability premium emerges as important in this period. In contrast, there is no reliable relation between investment and returns, regardless of whether investment is measured using growth in total assets or book equity and even after extending the data back to 1926. In spanning regressions, factors constructed from profitability and book-to-market ratios (RMW and HML, respectively) improve the mean-variance efficient tangency portfolio but the investment factor (CMA) does not.     

On the strength of intellectual property protection that nations provide

Researchers studying the commitment of countries to intellectual property rights run into the claim that the technology-haves (the developed countries) opt for relatively stronger protection of intellectual property, whereas the technology-have-nots (the developing countries) opt for weaker protection. It is but a short step from this assertion to the claim that this results in huge trade losses for the former. Using cross-national panel data for 1981–2000 we find that the evidence is only weakly consistent with this conjecture at best; and that the technology-have-nots more likely provided weaker protection due to paucity of financial resources and human capital, and their inward-looking trade-orientation.     

Travel using managed lanes: An application of a stated choice model for Houston,Texas

Managed lane (ML) travel adds flexibility, but also complexity, to travel choices. Stated choice models (SCMs) are often used for modeling complex transportation choices such as these in an effort to predict demand for these travel options. The design methods for SCMs have evolved from simple orthogonal designs to more sophisticated designs such as D-efficient design that can increase efficiency in estimation. We used three different survey design strategies to produce the stated preference portion of surveys, which were used to elicit travel choices for a sample of Houston travelers. Apart from the D-efficient design we also used random and adaptive random designs to generate attribute levels. There were observable differences in choice behavior depending on what design strategy was used. These differences appear to influence estimates of the value of travel time savings (VTTS) obtained from the random parameter logit (RPL) models estimated using these data. This, in turn, would greatly impact the percentage of travelers predicted to use the MLs.The adaptive random strategy was superior to the other design methods in several categories, and it had similar efficiency to the D-efficient design. However, the mean of VTTS estimate obtained from a D-efficient design was closer to what is typically found in the literature. The difference was considerable and could greatly influence traffic and revenue estimates for the MLs, illustrating the importance of the survey design strategy.     

Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market

We provide robust evidence of the impact on spot market liquidity and the pricing efficiency of FBM-FKLI index futures following the introduction of lower tick sizes for the stocks listed in the Bursa Malaysia. Our findings show a significant increase in unexpected trading volume and the speed of mean reversion of the futures mispricing. We find that the increase in the unexpected trading volume of the underlying stocks helps in reducing inter-market price discrepancies. The findings offer new evidence that lowering of tick sizes improves pricing efficiency in the Malaysian futures market.

     

The Interpretation of Information and Corporate Disclosure Strategies

This paper analyzes a setting in which a firm's manager can credibly disclose facts, but not their valuation implications. Consequently, he is uncertain as to how those disclosed facts will be interpreted by investors. Introducing such uncertainty affects the manager's disclosure strategy in two important ways. First, it becomes a function of the market's prior valuation of the firm since that valuation provides a clue as to how future disclosures are likely to be interpreted by investors. Second, the disclosure strategy is no longer characterized, in general, by a single good news/bad news partition of the manager's private information.     

Did efficiency of Indian public sector banks converge with banking reforms?

This paper examines the issue of convergence of efficiency levels among Indian public sector banks (PSBs) during the post-reforms period spanning from 1992/1993 to 2005/2006. The empirical results indicate that the majority of PSBs have observed an ascent in technical efficiency during the post-reforms years. Further, the inefficient PSBs have been noted to be catching up with the efficient ones. That is, the banks with low level of efficiency at the beginning of the period are growing more rapidly than the highly efficient banks. In sum, the study confirms a presence of convergence phenomenon in the Indian public sector banking industry.

Country-specific equity market characteristics and foreign equity portfolio allocation

Do country-specific equity market characteristics explain variations in foreign equity portfolio allocation? We study this question using comprehensive foreign equity portfolio holdings data and different measures of country-specific equity market factors for 36 host countries. Employing panel data econometric estimations, our investigation shows that foreign investors prefer to invest more in larger and highly visible developed markets which are more liquid, exhibit a higher degree of market efficiency and have lower trading costs. The findings imply that by improving the preconditions necessary for well-functioning capital markets, policymakers should be able to attract higher levels of foreign equity portfolio investments.