Financial Modernization in US Banking Markets: A Local or Global Event?

Abstract:   We test the hypothesis that the passage of the Financial Services Modernization Act (FSMA) of 1999 has spillover effects cross‐nationally, using a sample of US, non‐US transactional (Australian, Canadian, and UK), and relationship (German, Japanese, Dutch, and Swiss) banks. Our results suggest that financial modernization in the US has limited cross‐national effects. We find strong evidence that US banks were affected favorably. Although we detect some evidence of significant reactions by banks in certain countries, a closer examination reveals that the reaction is most likely attributable to events in the respective countries during the event period. We do find, however, that non‐US transactional banks have been more likely to elect financial holding company status compared to relationship banks, suggesting they are positioning themselves to exploit the expanded opportunity set created by the FSMA. Nonetheless, the majority of elections have been made by US banks. In general, the results suggest that the respective banking markets are efficient in filtering events that are largely country‐specific with only limited implications for other international banks.     

Productivity measurement for a distribution firm

The paper derives a consistent accounting framework for the treatment of inventories when measuring the productivity of a distribution firm. The average purchase price of an inventory item during an accounting period must be distinguished from its average selling price and these two average prices should be distinguished from the corresponding balance sheet prices. The accounting framework is implemented for a distribution firm which sold 76,000 separate items. The firm achieved a 9.6 percent per quarter total factor productivity growth rate over 6 quarters.The first author is a Professor of Economics at the University of British Columbia and a research associate of the NBER. He thanks the SSHRC of Canada for research support. The second author is a recent graduate of the University of British Columbia.     

Seasonality in industry specific indices

This study examines seaonality in three industry specific stock market indices; the Standard and Poor's (S&P) 20 Transportation, the S&P 40 Utilities, and the S&P 40 Financial. The results support the existence of a weekend effect in the transportation index. There is no evidence of a weekend effect in the utilities and financial indices. Both the transportation and financial indices exhibit the January effect. The utilities index, however, shows no evidence of a January effect. The finding of a weekend and a January effect at the industry level is significant because select mutual funds enhance the ability of investors to capitalize on such anomalies.     

Shareholder‐ Versus Stakeholder‐Focused Japanese Companies: Firm Characteristics and Accounting Valuation*

Recent research has found that the value‐relevance of accounting variables depends not only on whether a country's accounting rules are code‐law oriented or common‐law oriented, but also on the reporting incentives created by the legal and business environment in which a firm operates. Therefore, for example, the earnings of firms in some countries with common‐law oriented rules but with code‐law incentives have more code‐law‐type characteristics. We further this research by examining whether this is true for firms facing the same accounting regime and institutional environment but different stakeholder‐related incentives. We find significant stakeholder‐related incentives across 23 Japanese firms listed in the United States and 23 Japanese firms not listed in the United States that are matched by industry and size. Although these firms face the same institutional environment and the same accounting regime, consistent with the differences in stakeholder‐related incentives, the earnings and book values of the firms listed in the more shareholder‐oriented U.S. markets have significantly more explanatory power for market value than those for firms not cross‐listed in the United States. These findings are unaffected by whether the reports are based on consolidated or parent‐only accounting or whether they are based on U.S. or Japanese GAAP, emphasizing the potential influence of reporting incentives at all levels on the effect of standardization, conversion, or harmonization of accounting methods globally.     

Comecon, trade and the west :

Though uninsured depositors are recognized as a source of market discipline, the possible disciplinary effect of decisions made by fully insured depositors have gone largely unexamined. Using proprietary administrative deposit data at the account level, this paper analyzes depositor behavior at a recently failed institution. The results suggest that although uninsured deposits exited at a greater rate than insured deposits, the vast majority of deposits withdrawn were fully insured. Among types of deposit accounts, the rates of withdrawal for fully insured individual, joint, and trust accounts were relatively high. Uninsured business account owners were highly sensitive to the bank's deteriorating condition. In contrast, owners of uninsured individual retirement accounts effectively exerted no market discipline. The opinions expressed in this paper are ours and do not necessarily reflect those of the Federal Deposit Insurance Corporation. All errors are our own.     

The Depositor Behind the Discipline: A Micro-Level Case Study of Hamilton Bank

Though uninsured depositors are recognized as a source of market discipline, the possible disciplinary effect of decisions made by fully insured depositors have gone largely unexamined. Using proprietary administrative deposit data at the account level, this paper analyzes depositor behavior at a recently failed institution. The results suggest that although uninsured deposits exited at a greater rate than insured deposits, the vast majority of deposits withdrawn were fully insured. Among types of deposit accounts, the rates of withdrawal for fully insured individual, joint, and trust accounts were relatively high. Uninsured business account owners were highly sensitive to the bank's deteriorating condition. In contrast, owners of uninsured individual retirement accounts effectively exerted no market discipline. The opinions expressed in this paper are ours and do not necessarily reflect those of the Federal Deposit Insurance Corporation. All errors are our own.     

Ethics in the Czech Transformation Process

Despite the social, economic and ethical problems facing government in the Czech Republic, there are positive signs of a growing concern for ethical business, including the development of codes of conduct and a striking example of new corporate social responsibility. Dr Bohatá is a member of the Economics Institute of the Academy of Sciences, Politickych Veznu 7, 111 21 Prague 1, and an Associate Editor of this Review.