Browsing by Subject "G34"

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  • Hasan, Iftekhar; Xie, Ru (2012)
    BOFIT Discussion Papers 8/2012
    Published in Emerging Markets Finance and Trade, Volume 49, Issue 2, 1 March 2013, Pages 4-18 as Foreign bank entry and bank corporate governance in China
    China employs a unique foreign bank entry model. Instead of allowing full foreign control of domestic banks, foreign investors are only permitted to be involved in the local banks as minority shareholders. At the same time, foreign strategic investors are expected to commit to bank corporate governance improvement and new technology support. In this context, the paper examines the effect of foreign strategic investors on Chinese bank performance. Based on a unique data set of bank ownership, performance, corporate governance and stock returns from 2003 to 2007, our regression and event study analysis results suggest that active involvement of foreign strategic investors in bank management have improved the corporate governance model of Chinese banks from a control based model to a market oriented model, and accordingly have promoted bank performance. JEL Classification Code: G21, G28, G34, F23 Keywords: China, Foreign Market Entry, Corporate Governance
  • Francis, Bill; Hasan, Iftekhar; Song, Liang (2012)
    Bank of Finland Research Discussion Papers 12/2012
    Published in Journal of Financial Research, Volume 35, Issue 3, October 2012: 343-374
    We investigate how borrowers corporate governance influences bank loan contracting terms in emerging markets and how this relation varies across countries with different country-level governance. We find that borrowers with stronger corporate governance obtain favorable contracting terms with respect to loan amount, maturity, collateral requirements, and spread. Firm-level and country-level corporate governance are substitutes in writing and enforcing financial contracts. We also find that the distinctiveness of borrowers characteristics affect the relation between firm-level corporate governance and loan contracting terms. Our findings are robust, irrespective of types of regression methods and specifications. JEL Classification: G20, G30, G31, G34, G38.
  • Berger, Allen N.; Hasan, Iftekhar; Zhou, Mingming (2007)
    Bank of Finland Research Discussion Papers 16/2007
    Published in Journal of Banking & Finance, Volume 33, Issue 1, January 2009, Pages 113-130
    China is reforming its banking system, partially privatizing and permitting minority foreign ownership of three of the dominant 'big four' state-owned banks. This paper seeks to help predict the effects of this change by analysing the efficiency of virtually all Chinese banks in the years 1994-2003. Our findings suggest the big four banks are by far the least efficient and foreign banks the most efficient while minority foreign ownership is associated with significantly improved efficiency. We present corroborating robustness checks and offer several credible mechanisms through which minority foreign owners can increase Chinese bank efficiency. These findings suggest that minority foreign ownership of the big four is likely to significantly improve performance. Keywords: China, foreign banks, efficiency, foreign ownership JEL classification numbers: G21, G28, G34, F23
  • Dang, Tri Vi; He, Qing (2016)
    BOFIT Discussion Papers 13/2016
    Chinese companies sometimes appoint a government official (bureaucrat) as CEO on the expectation of benefiting from the political connections of the new hire. Based on a sample of 2,454 CEO transitions our empirical findings are consistent with the implications of a simple contract model in oligopolistic markets. Firms that appoint a bureaucrat as CEO obtain more credit and subsidies. They have positive abnormal announcement returns, negative abnormal long-run returns and larger variance of long-run returns. Furthermore, they experience a deterioration in operating performances, increased rent-seeking behavior of the management and weakening of corporate governance. The results from the split share structure reform in 2005 corroborate the supportive findings for the preferential treatment hypothesis.
  • Bui, Dien Giau; Chen, Yan-Shing; Hasan, Iftekhar; Lin, Chih-Yung (2018)
    Journal of Banking and Finance February
    We investigate the effect of managerial ability versus luck on bank loan contracting. Borrowers showing a persistently superior managerial ability over previous years (more likely due to ability) enjoy a lower loan spread, while borrowers showing a temporary superior managerial ability (more likely due to luck) do not enjoy any spread reduction. This finding suggests that banks can discern ability from luck when pricing a loan. Firms with high-ability managers are more likely to continue their prior lower loan spread. The spread-reduction effect of managerial ability is stronger for firms with weak governance structures or poor stakeholder relationships, corroborating the notion that better managerial ability alleviates borrowers’ agency and information risks. We also find that well governed banks are better able to price governance into their borrowers’ loans, which helps explain why good governance enhances bank value.
  • Ripatti, Kirsi (2004)
    Suomen Pankin keskustelualoitteita 30/2004
    A Central Counterparty (CCP) is an entity that interposes itself between transacting counterparties - a seller vis-à-vis the original buyer and a buyer vis-àvis the original seller - to guarantee execution of the transaction.Thus, the original transacting parties substitute their contractual relationships with each other with contracts with the CCP.Central Counterparty Clearing has become increasingly popular in Europe, not just in derivatives markets, where, due to the high risk involved, it has been common for decades, but also in equities markets.Within the European Union, the main factor motivating the increased sophistication in clearing arrangements is the ongoing process of European economic integration, ie the euro's introduction, the ongoing organisation of an internal market for financial services and the corresponding objective of creating a pan-European financial infrastructure for payments and securities clearing and settlement.Central counterparty clearing houses exert a broad influence on the functioning of financial markets.They can increase the efficiency and stability of financial markets to the extent that their smooth functioning results in a more efficient use of collateral, lower operating costs and greater liquidity.As market players actively try to achieve economies of scale and scope with mergers and through harmonising their technical processes, they inevitably have had to focus on one of the most fragmented areas in Europe's securities market infrastructure - clearing and settlement.Because of the importance of its role, a CCP must have sound risk management.The CCP assumes responsibility in the aggregate and reallocates risk among participants.Moreover, if the CCP fails to perform risk management well, it can increase risk in the markets.While the big market players dominate the current CCP market in Europe, it is not only the big players who can benefit from a functioning CCP.With the right structure, a CCP enables small players to stay in the market and makes it possible for issuers in a regional marketplace to achieve market funding. Indeed, this is the tendency currently seen in the newest EU member states - and one of the main arguments against the single European CCP model.Although, the purpose has been to leave CCP questions to market participants, regulatory, oversight and supervisory issues can drive the actions of market participants.Indeed, authorities must sometimes be actively involved in boosting a CCP project to keep their home markets competitive.This may well be the situation faced by the Nordic/Baltic market in the near future.Thus, this paper attempts to give a neutral evaluation of the risks and benefits related to the functionality of CCPs in integrating markets and construct a framework for possible future risk-benefit analysis in a Finnish/Nordic-Baltic clearing and settlement infrastructure that incorporates a CCP solution.This is an updated version of a Bank of Finland working paper (Financial Markets Department 01/04).1 Key words: central counterparty clearing, clearing, settlement, securities markets, infrastructure, integration JEL classification numbers: G15, G20, G28, G33, G34
  • Francis, Bill; Hasan, Iftekhar; Wu, Qiang; Koetter, Michael (2012)
    Bank of Finland Research Discussion Papers 14/2012
    Published in Journal of Financial Research, Volume 35, Issue 4, December 2012: 521-552
    We investigate the role of corporate boards in bank loan contracting. We find that when corporate boards are more independent, both price and nonprice loan terms (e.g., interest rates, collateral, covenants, and performance-pricing provisions) are more favorable, and syndicated loans comprise more lenders. In addition, board size, audit committee structure, and other board characteristics influence bank loan prices. However, they do not consistently affect all nonprice loan terms except for audit committee independence. Our study provides strong evidence that banks tend to recognize the benefits of board monitoring in mitigating information risk ex ante and controlling agency risk ex post, and they reward higher quality boards with more favorable loan contract terms. JEL Classification: G21, G34
  • Mäkinen, Mikko; Solanko, Laura (2017)
    BOFIT Discussion Papers 16/2017
    Published in Russian Journal of Money and Finance, 77, 2, 2018, 3–21
    This study examines whether changes in CAMEL variables matter in explaining bank closure. Using a unique set of monthly bank-specific balance sheet data from Russia, we estimate determinants of bank license withdrawals during 2013m7-2017m7. We make two key findings. First, changes in CAMEL indicators are always significantly correlated with probability of bank closure, and the magnitude of parameter estimates decreases with the lag length. Second, while the one-month lagged levels of capital, earnings, and liquidity are significantly associated with the probability of bank closure in the subsequent month, the level of liquidity is the only significant indicator for longer lags. Our key contribution that changes in CAMEL variables matter more than levels is robust to various robustness checks.
  • Francis, Bill B.; Hasan, Iftekhar; Shen, Yinjie (Victor); Wu, Qiang (2021)
    Journal of Financial Economics 1 ; July
    Using a comprehensive US hedge fund activism dataset from 2003 to 2018, we find that activist hedge funds are about 52% more likely to target firms with female CEOs compared to firms with male CEOs. We find that firm fundamentals, the existence of a “glass cliff,” gender discrimination bias, and hedge fund activists’ inherent characteristics do not explain the observed gender effect. We also find that the transformational leadership style of female CEOs is a plausible explanation for this gender effect: instead of being self-defensive, female CEOs are more likely to communicate and cooperate with hedge fund activists to achieve intervention goals. Finally, we find that female-led targets experience greater increases in market and operational performance subsequent to hedge fund targeting.
  • Berglund, Tom; Mäkinen, Mikko (Elsevier, 2019)
    Research in International Business and Finance January ; 2019
    Published in Bank of Finland Research Discussion Papers 30/2016.
    Using a large panel data set of Nordic (Finland, Norway and Sweden) and European banks for the period 1994–2010, we study whether banks can retain their lessons from the experience of a severe financial crisis. Our key finding is that the Nordic banks had better returns and greater financial stability compared to other European banks during the 2008 crisis, after controlling for key bank characteristics and macroeconomic factors. Our findings are consistent with the learning hypothesis of Fahlenbrach et al. (2012), suggesting that the Nordic banks were able internalize the lessons from the Nordic systemic banking crisis of the early 1990s.
  • Francis, Bill; Hasan, Iftekhar; Wu, Qiang (2012)
    Bank of Finland Research Discussion Papers 11/2012
    Published in Review of Financial Economics, Volume 21, Issue 2, April 2012: 39-52
    This study uses the current financial crisis as a quasi-experiment to examine whether and to what extent corporate boards affect the performance of firms. Using cumulative stock returns over the crisis to measure of firm performance, we find that board independence, as traditionally defined, does not significantly affect firm performance. However, when we re-define independent directors as outside directors who are less connected with current CEOs, a measure we call true independence, there is a positive and significant relationship between this measure and firm performance. Second, outside financial experts are important for firm performance. Third, board meeting frequencies, director attendance behaviors, and director age also affect firm performance during the crisis. Overall, our results suggest that firm performance during a crisis is a function of firm-level differences in corporate boards. JEL Classification: G01; G30; G34 Keywords: Financial crisis; Boards of directors; Firm performance; True independence
  • Hasan, Iftekhar; Meslier, Céline; Tarazi, Amine; Zhou, Mingming (2018)
    Journal of Economics and Business January-February
    This paper examines the effects of bank alliance network on bonds issued by European banks during the period 1990–2009. We construct six measures capturing different dimensions of banks’ network characteristics. In opposition to the results obtained for non-financial firms, our findings indicate that being part of a network does not create value for bank’s bondholders, indicating a dark side effect of strategic alliances in the banking sector. While being part of a network is perceived as a risk-increasing event by market participants, this negative perception is significantly lower for the larger banks, and, to a lesser extent, for the more profitable banks. Moreover, during crisis times, the positive impact on bond spread of a bank’s higher centrality or of a bank’s higher connectedness in the network is stronger, indicating that market participants may fear spillover effects within the network during periods of banks’ heightened financial fragility.
  • Francis, Bill B.; Hasan, Iftekhar; Sun, Xian (2006)
    Bank of Finland Research Discussion Papers 24/2006
    Julkaisun kansilehdellä nimi Xian Sun on muodossa Zian Sun. Published in Journal of Banking & Finance, Volume 32, Issue 8, August 2008, pp. 1522-1540.
    Using theories of internal capital markets, this paper examines the link between financial market integration and the value of global diversification.Based on a sample of 1,491 completed cross-border mergers and acquisitions (M&As) conducted by US acquirers during the 1990-2003 period, we find that, in general, US shareholders gain significant positive abnormal returns following the announcement of the merger/acquisition.Specifically, firms that acquire/merge with targets from countries with financially segmented markets experience significantly higher positive abnormal returns than those that acquire/merge with targets from countries with financially integrated capital markets.We find that the significantly higher positive returns are driven particularly by deals between firms from unrelated industries.These firms with higher announcement returns are also characterized by positive and significant post-merger operating performance.This finding is consistent with our event study results and suggests that the overall improvement in the merged firms' performance is likely due to the influx of internal capital from wholly integrated acquirers to segmented targets, firms that, on average are usually faced with higher capital constraints. Keywords: financial market integration, global diversification, internal capital markets, mergers, acquisitions JEL classification numbers: G15, G31, G34
  • Berger, Allen N.; Hasan, Iftekhar; Klapper, Leora F. (2004)
    Suomen Pankin keskustelualoitteita 8/2004
    Published in Journal of Financial Services Research, Vol. 25, No. 2-3, 2004: 169-202
    We seek to contribute to both the finance-growth literature and the community banking literature by testing the effects of the relative health of community banks on economic growth and investigating potential transmission mechanisms for these effects using data from 1993- 2000 on 49 nations.Data from both developed and developing nations suggest that larger market shares and higher efficiency rankings for small, private, domestically owned banks are associated with better economic performance, and that the marginal benefits of larger shares are greater when the banks are more efficient.Only mixed support is found for hypothesized transmission mechanisms through improved financing for SMEs or greater overall bank credit flows.The data from developing nations is also consistent with favourable economic effects from foreign-owned banks, but unfavourable effects from state-owned banks. Key words: banks, community banking, SMEs, financial development, economic growth, international JEL classification numbers: G21, G28, G34, F36
  • Berglund, Tom; Mäkinen, Mikko (2016)
    Bank of Finland Research Discussion Papers 30/2016
    Available also in Research in International Business and Finance 47 ; January ; 2019
    To study whether banks retain their lessons from the experience of a severe financial crisis, we examine the effects of the systemic banking crisis of the early 1990s in three Nordic countries (Finland, Norway, and Sweden). While this crisis largely bypassed the rest of Europe, we hypothesize that banks in the three affected Nordic countries took their crisis experiences to heart and as a result outperformed other European banks during the 2008 global financial crisis. Based on a large panel data set of Nordic and European banks for the period 1994–2010, our findings support our main hypothesis that the Nordic banks learned from the 1990s crisis and adjusted their business models accordingly. Our descriptive analysis of Nordic banks finds evidence of “lessons learned” in such precautions as robust capital cushions, improvements in management efficiency and higher credit quality demands relative to the rest of Europe.
  • Chatterjee, Sris; Gu, Xian; Hasan, Iftekhar; Lu, Haitian (2019)
    BOFIT Discussion Papers 18/2019
    Drawing upon evidence from the Chinese corporate bond market, we study how ownership structure affects the cost of debt for firms. Our results show that state, institutional and foreign ownership formats reduce the cost of debt for firms. The benefits of state ownership are accentuated when the issuer is headquartered in a province with highly developed market institutions, operates in an industry less dominated by the state or during the period after the 2012 anti-corruption reforms. Institutional ownership provides the most benefits in environments with lower levels of marketization, especially for firms with low credit quality. Our evidence sheds light on the nexus of ownership and debt cost in a political economy where state and private firms face productivity and credit frictions. It is also illustrative of how the market environment interacts with corporate ownership in affecting the cost of bond issuance.
  • Korkeamäki, Timo; Koskinen, Yrjö; Takalo, Tuomas (2007)
    Bank of Finland Research Discussion Papers 1/2007
    Published in Journal of Financial Stability, 3, 2007, pp. 33-58 ja Ilmestynyt myös Boston University . School of management . working paper 2006-18.
    Finland experienced an extremely severe economic depression in the early 1990s.In the midst of this crisis, significant new legislation was passed that increased supervisory powers official market regulators and reformed bankruptcy procedures significantly decreasing the protection of creditors.We show that the introduction of these new laws resulted in positive abnormal stock returns.The new laws also lead to increases in firms'Tobin's q, especially for more levered firms.In contrast to previous studies, our results also suggest that public supervision of financial markets fosters rather than hampers financial market development. JEL Classification: G34, K22 Keywords: corporate governance, bankruptcy, financial supervision,shareholder protection, creditors' rights, corporate valuations, political economy
  • Molnár, József (2007)
    Bank of Finland Research Discussion Papers 17/2007
    This paper proposes and tests an explanation as to why rational managers seeking to maximize shareholder value can pursue value-decreasing mergers. It can be optimal to overpay for a target firm and decrease shareholder value if the loss is less than in an alternative where the merger is undertaken by a product market rival. This paper presents a model based on synergies, market power and competition for merger targets. Consistent with the model the empirical results obtained here show a strong correlation between the returns of acquiring firms and close rivals around merger events. Keywords: acquisitions, auction, event study, oligopoly, preemption JEL classification numbers: G34, G14, D43, D44, L13
  • Lin, Chih-Yung; Tsai, Wei-Che; Hasan, Iftekhar; Tuan, Le Quoc (2018)
    Journal of Corporate Finance April 2018
    This paper investigates whether or not private benefits of control by managers and large shareholders influence the financing cost of firms. Evidence shows that lending banks demand a significantly higher loan spread, higher fees, shorter loan maturity, smaller loan size, stricter covenants, and greater collateral on firms with greater private benefits of control. Results are stronger for firms with weak corporate governance quality, supporting the agency cost viewpoint. Such evidence implies that banks consider higher private benefits of control as a type of agency problem when they make lending decisions.
  • Francis, Bill B.; Hasan, Iftekhar; Küllü, A. Melih; Zhou, Mingming (2018)
    Economic Systems 1
    The paper investigates whether diversification/focus across assets, industries and borrowers affects bank performance when banks’ abilities (screening and monitoring) are considered. The initial results show that diversification (focus) at the asset, industry and borrower levels is expected to decrease (increase) returns. However, once banks’ screening and monitoring abilities are controlled for, the effect of diversification/focus either gets weaker or disappears. Further, in some cases, these abilities enhance banks’ long-run performance, but in others they prove to be costly, at least, in the short run. Thus, the level of monitoring and screening abilities should be taken into consideration in understanding, planning and implementing diversification/focus strategies.