CGF Seminar Series  2017/2018

1. Bank opacity and risk-taking: Evidence from analysts' forecasts. By Victor Murinde (SOAS)

Abstract: We depart from existing literature by invoking analysts’ forecasts to measure banking system opacity and then investigate the impact of such opacity on bank risk-taking, using a large panel of US bank holding companies, over the 1995–2013 period. We uncover three new results. Firstly, we find that opacity increases insolvency risks among banks. Secondly, we establish that the relationship between opacity and bank risk-taking is accentuated by the degree of banking market competition. Thirdly, we show that the bank business model moderates the risk-taking incentives of opaque banks, albeit only marginally. Overall, these findings suggest that the analysts forecast measure of bank opacity is useful for understanding risk-taking by publicly-traded banks, with important implications for bank stability.

2. To what extent does bank financing matter for innovation? Evidence from Chinese listed firms. By Hong Bo (SOAS)

Abstract: Using a panel of 1774 Chinese listed firms over the period 2007-2014, we examine the role played by different sources of financing in supporting R&D investment. We find that, contrary to what is typically observed in mature economies, bank loans play an important role in funding R&D investment in China. We also show that banks are more likely to direct funds towards those firms whose R&D investment is already supported by a government grant. The receipt of the grant in fact provides the bank with a signal that the firm’s R&D project is valuable. This signaling effect is particularly important for non-state-owned firms, for young firms, for firms facing high demand uncertainty, and for firms operating in less financially developed provinces. As these groups of firms are all more likely to face asymmetric information problems and financing constraints, we conclude that bank lending aimed at financing firms’ R&D investment in China follows market principles. Our results are robust to using various estimation methods and to excluding the financial crisis years from our sample.

3. IPO lockups and insider trading. By Ranko Jelic (University of Sussex)

Abstract: We examine directors’ and VC firms’ dealings before, at and after lockup expiry. Our sample encompasses 1,781 purchase and 1,115 sale transactions of the insiders in 201 UK IPOs during the period 1999-2015. Overall, directors and VC firms tend to sell and purchase in contrast to the prevailing market sentiment. The exceptions are directors’ purchases before expiry and VC firms’ sales after expiry. Director dealings, especially purchases, produce a stronger price impact than dealings of VC firms. Among insiders, dealings of founders and founder-CEOs generate the strongest price impact.

4. Dividend Decisions of UK listed firms: Beyond Agency Theory. By Ciaran Driver (SOAS), Anna Grosman (Loughborough University) and Pasquale Scaramozzino (SOAS)

Abstract: Standard dividend pay-out specifications are identified only under a tight set of maintained hypotheses that may not apply uniformly across jurisdictions.  We develop an approach that is relevant for the institutional setting of frequent trading and a liberal takeover market. We posit that firms in such markets are pressured to make high dividend payouts. Adopting this social norm investor pressure theory, we study the channels of influence for such pressure on dividend payments. We develop a set of hypotheses that are tested using analysts’ forecasts and institutional shareholders data. Overall, the results show that perceived investor pressure on firms to disgorge earnings, particularly under conditions of heightened takeover risk, is an important determinant of dividend payout. Traditional agency views receive only qualified support and there is only weak evidence for signaling.

5. Political economy of capital flows and financial inclusion. By Stephen Spratt (IDS)

6. Financial inclusion in China: Conceptual, methodological and policy issues. By Vanesa Cela (SOAS)

Abstract: The issue of “financial inclusion” has risen to the top of international and national development agendas in recent years. Improving access to formal financial services is increasingly regarded as having a critical role in promoting inclusive growth in developing countries. However, despite the current policy enthusiasm for financial inclusion, our understanding of the relationship between financial sector outreach and growth is limited and constrained by persistent conceptual and methodological weaknesses in the literature. Against this background, this seminar will critically examine financial inclusion policies, practices and research in China, the country with the second highest number of financially excluded adults in the world after India

7. Capital flows by sector in SSA and their implications. By Judith Tyson (ODI)

8. Corporate Diversity in Financial Services: Efficiency, Resilience and Stability. By Christine Oughton (SOAS)

Abstract: Recent research (Goodhart and Wagner, 2012, Haldane and May, 2011 and Kay (2011, 2012) has highlighted the impact of diversity on systemic stability and market efficiency.  In particular, Haldane and May (2011) and Beale et al (2011) explore the impact of bank diversification on competition, resilience and stability.  Work in this area has also begun to shape policy, for example, the UK Coalition Government made a commitment in 2010 to foster diversity in financial services and promote a variety of corporate forms, including mutual; which begs the question of how we measure corporate diversity?

This paper extends the theoretical and empirical research in this area by providing a measure of diversity in financial services and looking at the role of corporate diversity and associated differences in balance sheet strategies and risk taking, on efficiency, financial system resilience and stability.   

9. Measuring Financial Inclusion: A meta confirmatory factor analysis.By Gerhard Kling (SOAS)

Abstract: Financial inclusion has emerged as a research topic recently, being promoted by the World Bank and other organisations. With an increase in research funding and public awareness, financial inclusion has entered the policy domain. There are many ways to define and measure financial inclusion, which as a social construct is latent. This abundance of concepts and measures might serve to stimulate academic debate – but contributes to ambiguity in setting targets for optimal levels of financial inclusion. This study conducts a systematic review of definitions, measures and associated data sources highlighting methodological issues and discrepancies. Drawing on methods developed in psychometrics, we apply a meta confirmatory factor analysis to test various measures using cross-country and Chinese data sources. Our contribution is threefold: (1) we integrate Western and Chinese perspectives on financial inclusion, (2) we identify data sources, (3) we derive methods to measure financial inclusion. Our methodology can be applied to different contexts.

*The main focus of the presentation was on the methodology, i.e. the meta confirmatory factor analysis of the study.

10. Trust in Finance. By Reinhard Bachmann (SOAS)

Abstract: This presentation discussed the concept of trust as a social mechanism. It featured an ongoing research that explores the role of trust in finance.

11. Modelling the Impact of Macroprudential Bank Regulations for South Africa. By Laurence Harris (SOAS)

Abstract: There is growing recognition that macroprudential bank regulations have wide economic effects beyond the financial sector (Boar, Gambacorta, Lombardo, and Pereira da Silva, BIS Quarterly Review, September 2017). We employ modelling techniques to study the impact on the South African economy of one type of hypothetical regulatory change, a rise in banks’ required leverage ratios. The model differs from both standard CGE and DSGE models and is calibrated for South Africa. One key innovation is that the model incorporates a well specified financial sector and links it to the real sectors while preserving stock-flow consistency; its incorporation reflects the role of South Africa’s typically highly developed financial institutions and markets. In our model, the financial sector’s behaviour is based on a theory of the relationship between bank capital, the risk taking behaviour of the financial sector, lending spreads and economic activity. In line with the economic literature, our simulation results indicate that regulators’ introduction of a higher leverage ratio for banks would generate negative economic impacts in the short-run that depend on the banks’ choice of adjustment strategy. A general implication is that macroprudential regulatory requirements affect the transmission mechanisms of monetary policy. Effective execution of monetary policy requires an understanding of how banks adjust balance sheets to meet new regulatory requirements and how banks’ perceptions of risk are affected. 

* This presentation is an output of the Macroeconomic Modelling for Policy Analysis workstream of the SA National Treasury/UNU-WIDER research programme, South Africa-Towards Inclusive Economic Development (SA-TIED).

12. Bank failure in fragile states. By Kat Woodford (IMF)

Abstract: In this seminar, Kat Woolford from International Monetary Fund (IMF) delivered an inspiring and interactive presentation on issues relating to banking supervision and bank failures in fragile states. Drawing on her extensive working experiences, Kat provided the audience with a rich collection of cases that shed light on causes to bank failures in fragile states.

13. An empirical analysis of the largest sovereign foreign wealth fund in the Japanese stock market. By Yoshikatsu Shinozawa (SOAS)

Abstract: The objective of this paper is to identify what characteristics of a firm attract the large sovereign wealth fund investing in Japanese shares and to examine the possible impact on the target share performance. The focus of this paper is on the sovereign wealth fund ranked as the fifth largest shareholder in the Tokyo stock market whereas the published literature on this subject usually uses the aggregated data of various sovereign wealth funds investing in many host countries. Using sample firms from the top 500 companies in the Tokyo market from 2008 to 2013, the panel data analysis shows that the SWF prefers relatively small value shares with high ROE from the large cap market index. The analysis also provides little evidence of superior returns of the target firms, suggesting no impact on these target firms. All in all, the investment strategy and subsequent impact of the SWF in Japan should not cause concerns about political interference.

14. Financial Crisis, Bailout and Corporate Capital Structural Adjustment: Evidence from China. By Deming Luo (Visiting Scholar, Zhejiang University)

Abstract: This research considers the spillover effect of bailout policy. We identify zombies and construct the region-industry bailout exposure index. We show that when firms suffer a secular negative financial shock, SOEs accumulate the leverage while NSOEs deleverage their capital structure; Both SOEs and NSOEs are reluctant to deleverage their capital structure when they are exposed to the region-industry bailout policy. These results are robust.