Selected Works @ DiSEA

The political economy of distress in East Asian financial institutions

Paola Bongini et al. — Tue, 17 Jan 2012 05:48:33 PST

The 1997±1999 East Asian crisis is an interesting case for studying the determinants of distress and closure of ®nancial institutions. Of a sample of 283 ®nancial institutions from Indonesia, Korea, Malaysia, the Philippines, and Thailand, 120 experienced distress, and by July 1999, 38 were closed. We ®nd that traditional, CAMEL-type ®nancial data for 1996 help predict distress and closure. ``Connections''Ðwith industrial groups or in¯uential familiesÐincreased the likelihood of distress, however, suggesting that supervisors had granted selective prior forbearance from prudential regulations. Since closure was more, not less, likely with connections, the closure processes themselves appear transparent. We also ®nd evidence of ``too big to fail'' policies.

How good is the market at assessing bank fragility? A horse race between different indicators

Paola Bongini et al. — Tue, 17 Jan 2012 05:42:15 PST

For a sample of individual banks, active in the East Asian countries during the years 1995-1998, we explore the performance of three sets of indicators of bank fragility computed on the basis of publicly available information. We compare the behavior of traditional “early warning” indicators, based on balance sheet information, with that of implicit deposit insurance premia, based on the stock prices dynamics, and with the behavior of credit rating agencies’ assessments. We find significantly different patterns among the three groups of indicators in their ability of forecasting financial distress at both a specific point in time and through time. More specifically in the South East Asia crisis episode the information based on stock prices or on judgmental assessments of credit rating agencies did not outpace backward looking information contained in balance sheet data. Stock market based information, though, has responded more quickly to changing financial conditions than ratings of credit risk agencies. Overall, the evidence supports the policy conclusion that, where the information processing is quite costly, as in most developing countries, it is important to simultaneously use a plurality of indicators of banks’ fragility.

Is financial innovation a still relevant issue?

Paola Bongini et al. — Tue, 17 Jan 2012 05:36:21 PST

In this study we investigate the effects of financial innovation on performance and asset growth for a sample of EU large banks. The novel contribution of this study is the use of a unique dataset that identifies banks’ attitude towards innovation across time and the level of information conveyed to market participants in order to understand: a) to what extent, in recent years, banks have focused their attention on financial innovation; b) to what extent an innovating attitude translates into greater asset growth and higher profitability;

Ownership, bank organization and retail lending in a low income area

Paola Bongini et al. — Tue, 17 Jan 2012 05:06:12 PST

The focus of this study is on the organizational features of banks operating in the South of Italy, namely major Italian banking groups and local independent banks. In our opinion, in order to evaluate the allocative and operational efficiency of the Southern Italian banking system, the issue to be addressed relates to the potential heterogeneous behavior between banks which are “truly local” – i.e. those banks whose real decisional centres are located in the Southern regions – with respect to those banks operating in the South but which have their decisional centres located in the Centre-North of the country (“outer banks”). The fact that bank strategies are defined in decisional centres located outside the Southern area could indeed explain the reduced credit support perceived by Southern SMEs. Two are the main research questions of the study. First, have the benefits of localism and relationship lending been deeply and negatively affected by the transfer of control rights outside the area (Mezzogiorno)? Second, is the organizational model adopted by local and independent banks (i.e. truly local banks) more effective in dealing with the needs of the local customer base?. Such questions are relevant not only with specific reference to southern Italy, but also to any region which experienced a reduction of locally based banks in favour of foreign banks (i.e. Central Eastern European Countries).

The role of pension funds in a global economy (in Italian)

Paola Bongini et al. — Tue, 17 Jan 2012 04:56:29 PST

Was there a “small-bank” anomaly in the Great Crisis of 2007-09?

Paola Bongini et al. — Thu, 07 Jul 2011 07:56:50 PDT

Drawing on a large set of listed banks from Europe, the US and Japan we start noticing that smaller-sized banks suffered less than larger banks in conjunction with the unfolding of the Great Crisis of 2007-09. Was this a small-bank anomaly analogous to the classic small firm effect? We conjecture that what seems to be a small bank anomaly might, in fact, signal a generalized market reassessment of the banking business model and tested whether stock markets penalized less the banks that kept more rooted to the traditional “originate-to-hold” (OTH) model while forgoing the opportunities disclosed by the “originate-to-distribute” (OTD) model. By an event study methodology, we focus on September 29, 2008, the day in which the initial rejection by Congress of the Paulson Plan provoked a true panic on the instability of banking worldwide and led the VIX (the main index measuring equity market volatility) to shoot to the highest level in 6 years. Our results detect that, indeed, banks that had kept closer to the OTH model – as proxied by a higher net interest income/operating income – experienced less negative abnormal returns. In spite of this, we still keep finding that larger-sized banks’ share prices were penalized more than the share prices of their smaller-sized homologues. Presumably, the “Too Big (or Interconnected) To Fail” credence, at least for a while, had been overruled. We also find that European and Japanese banks experiences less negative abnormal returns.

Respect for persons through respect for the environment: the activities of nonprofit companies in the field of environmental protection for the “creation of social capital”.

Alessandra Tami — Wed, 22 Apr 2009 02:34:04 PDT

The starting point of the research is the observation that the environment is the forgotten stakeholder in the society’s development policies, both in the decisions of public operators and private ones. In the past the richness of natural resources could justify an industrial development where financial capital was considered a scarce resource with the corollary of actions aiming at minimizing its return through actions meant for taking the utmost profit from environment, however after 200 years of industrial development it stands out that the purpose of business cannot be simply the financial dimension of development, but mainly the wellbeing of human persons through a strong defence of what is becoming the actual scarce resource: the environment.

Ownership Structure, Family Control, and Acquisition Decisions

Ettore Croci et al. — Tue, 04 Nov 2008 08:56:11 PST

Italian family agreements and business continuity

Cinzia Vallone — Mon, 27 Oct 2008 09:00:11 PDT

Italian family firms comprise 80% of all business enterprises belonging to all economic sectors and their main distintive feature is the founder’s will to transfer ownership and management to the heirs so that family traditions are transmitted together with corporate values. Less than half of all family-owned firms, however, survive into the second generation and less than a fifth are still viable into the third generation. The risk of a failure in generational transitions is linked to many variables often operating jointly, as for example: - lack of a clear succession plan; - lack of agreement among stakeholders; - lack of skills on the part of the chosen successor; - dissension within the family; - infragenerational jealousy; - lack of a clear outline of roles; - a fragmented decision-making power; Thanks to a stronger attention to the generational transition, some of these problems could be pre-emptively recognized so that it would be possibile to identify solutions apt to hold back or solve them. Scholars and insiders have shown concern for the critical succession phase and encouraged legislators to modify the transition system allowing entrepreneurs to make a choice regarding the future of their family business through an agreement which is not only an informal one. Therefore, family agreements arise out of the need to allow the founder to transmit ownership and management to one or more heirs. Such new prerogative presents positive implications both for corporate continuity and the reinforcement of a succession plan.

Evolution of corporate governance control in manufacturing firms

Alberto Nobolo et al. — Thu, 28 Aug 2008 23:32:23 PDT