International Journal of Financial Services Management (11 papers in press)
Corporate governance practices of banks in developed countries after the financial crisis of 2008
by Nesrine Ayadi
Abstract: This paper suggests a classification of 30 banks of four member countries of the eurozone, according to their governance practices, through a principal component analysis. The governance convergence mechanisms of the banks in 2009 are analysed on the basis of a consistent measurement with this approach. Bringing banks together according to the directors' compensation seems more appropriate to identify the similarities in the behaviour. This will lead us to classify banks into three categories: the first consists of the banks that award a very high incentive pay to their CEO, the second group provides a high compensation to the CEO, and the third category gives a relatively low compensation to their CEO.
Keywords: board of directors; CEO compensation; banks.
Barriers to adopt internet banking: analysing the influence of information availability and consumer demographics
by Vikas Chauhan, Vipin Choudhary
Abstract: The present research aims to analyse the barriers that impact consumers intention to adopt internet banking with the influence of information availability. The study has also investigated the demographic effect on perceived barriers towards internet banking. The data were collected through a self-administered questionnaire from 305 non-users of internet banking in India. A two-step SEM approach, i.e. measurement model and structural model, was used for analysing the data. The finding shows a significant negative relationship between perceived barriers to innovation (usage, value, risk, image and tradition barriers) with intention to adopt internet banking. Availability of information (guiding and security information) was found to have a significant positive relationship with intention to use internet banking and significant negative relationship with perceived barriers. Demographic variables were also found to have significant effect on perceived barriers. The study provides a structural model for barriers to use internet banking.
Keywords: internet banking; e-banking; psychological barriers; functional barriers; information availability.
Minimal required rate of return for ex-ante profitability calculation of bank medium-sized enterprises clients
by Stepanka Kreckova
Abstract: This article summarises and analyses various approaches for the determination of minimal rate of return that should be required from provided credit exposures to bank clients in order for added value for the bank shareholders to be created. The most widely used measurement for the so-called ex-ante profitability calculation of a bank
Keywords: hurdle rate; cost of equity; rate of return; economic value added; risk-adjusted return on capital.
Investigating the factors affecting the performance of offshore high-yield bond funds
by Yensen Ni, Paoyu Huang, Yaochia Ku, Yuhsin Chen
Abstract: We investigate the factors affecting the performance of offshore high-yield bond funds and reveal two impressive findings, which might contribute to the existing literature. First, we disclose that the funds registered in Luxembourg perform better than those registered in Ireland, which seems unrevealed in the existing literature. Second, we show that the funds with high volatilities might not have better performance. We infer that high volatilities incorporating systematic and unsystematic risks might not enhance bond returns, even though we reveal that systematic risks would enhance bond returns in this study.
Keywords: high-yield bond funds; asset allocation; fund performance; funds registered.
Furthering inclusive banks and inclusive capital market: emerging markets perspective
by Josephine Ofosu-Mensah Ababio, Kofi Osei, Godfred Alufar Bokpin, Eric Osei-Assibey
Abstract: This paper examines how increased financial inclusion fosters an inclusive well-functioning banking sector and well-developed capital market, and whether that, in turn, promote greater financial inclusion in emerging markets. The System-GMM and Panel Granger Causality Test were employed for the analyses. The paper documents that bank account penetration augments accessibility and efficacy in the banking sector, borrowers penetration intensifies deepening and accessibility in the banking sector, and ATM penetration strengthens deepening and efficacy of the banking sector. But bank account penetration hampers deepening of the banking sector. The paper also finds that financial intermediation amplifies deepening and efficacy of the bond market, and credit to private firms enhances deepening and accessibility of the bond market. But financial intermediation impedes the accessibility of the bond market. Additionally, it finds that listed firms penetration boosts deepening and accessibility of the stock market, and the number of firms listed on local stock market augments accessibility and efficacy of the stock market. But firms listed on local stock market hinder the deepening of the stock market in emerging markets. Besides, the Granger test results reported a uni-causality linkage for banks and stock market, while it confirmed a bi-causality linkage for the bond market in emerging markets. It concludes that increased financial inclusion stimulates inclusive banks and capital market, but the reverse does not apply to stock market. The findings of this paper imply that greater financial inclusion is needed in building inclusive banks and capital market in emerging market nations. Policy-makers of emerging markets must therefore not ignore the large local population and enterprises engaged in the informal sector, who serve as a major source of mobilising savings, capital resources and accessing credit facilities.
Keywords: increased financial inclusion; inclusive well-functioning banking sector; inclusive well-developed capital market; System-GMM; emerging markets.
South African financial planners perceptions on professionalism: an exploratory study
by Tony Matchaba-Hove
Abstract: Since the introduction of the Financial Advisory and Intermediary Services Act 37 of 2002, and the Treating Customers Fairly (TCF) outcomes in 2014, South Africas financial planning industry has been undergoing the process of becoming a professionalised industry, meeting international standards and benchmarks. Professionalism is an important aspect of being a financial planner in the current climate of treating clients fairly. The purpose of this study was to investigate the factors influencing financial planners perceptions of professionalism. A conceptual model for assessing the factors that may have an influence on a financial planners perceptions of professionalism was proposed. A quantitative research approach was implemented to test the model. The findings indicated that interactions with clients, pride in the profession, and interactions with colleagues had a significant influence on a financial planners perceptions of professionalism.
Keywords: financial planning; treating clients fairly; professionalism; financial advisor; South African financial services.
Personal touch or convenient tech? An investigation of customer channel preferences in retail banking
by Madhavi Ayyagari, Sanjai K. Parahoo
Abstract: In a highly competitive sector like banking, services are provided through multiple channels (e.g. branch services, online, smartphones, and ATMs) to meet varied customer preferences. Despite the recognised importance of these different channels, few studies have investigated the relative contribution each channel makes to customer satisfaction and to relationship continuity. The objective of the present exploratory study is therefore to examine the relative impact of three factors (ATM, face-to-face interaction and tangibles) as independent constructs on customer satisfaction and customer relationship continuity intention. Using a sample of 152 banking customers in Dubai, the study unearthed an important finding that interaction with the customer service representatives (CSRs) was the key determinant of customer satisfaction and continuity intention, while ATMs and branch tangibles did not have a significant effect on these two outcomes. Therefore, the role of CSR is paramount for banks in satisfying and retaining customers. Implications for theory and practice are discussed, and directions for further research are charted out.
Keywords: channel preferences; retail banking; UAE; United Arab Emirates Banks; ATM; customer satisfaction; face-to-face interaction; tangibles; customer continuity intention; service quality; SERVQUAL; SERVPERF; service technology; SST; service management; motivators; hygiene factors.
Antecedents and short-run causal relationship between foreign direct investment and infrastructure development in Ghana
by Sikanery Ibrahim, Kingsley Opoku Appiah, Stephen Zamore
Abstract: This paper examines the antecedents and short-run causal relationships between Foreign Direct Investment (FDI) and infrastructure development in Ghana. Using time series data spanning 1966-2015, we find that that FDI net inflow positively influences electricity consumption in Ghana; however, electricity consumption does not Granger-cause FDI net inflows. The results further indicate that the electricity consumption shocks contribute 100% of the variance in the one-period-ahead forecast error for electricity consumption growth. An important implication of the findings is that, governments need to liberalise FDI policies for investments by multinational corporations since FDI contributes to infrastructure development.
Keywords: GDP growth; openness; electricity consumption; FDI inflows; Granger-causality; cointegration; vector auto-regression.
Efficiency measurement of open-ended mutual fund schemes with respect to Indian mutual fund industry
by Sweta Goel, Mukta Mani
Abstract: This paper investigates whether Indian mutual funds are performing efficiently and explores the corrective measures to improve their performance. It analyses 143 mutual fund schemes for 11 years through Data Envelopment Analysis (DEA) methodology by carrying out five DEA runs. Sharpe ratio and Jensen's alpha are the output and load fee, expense ratio, minimum initial investment needed and risk (β and α) are the inputs. Empirical analysis shows that fewer mutual fund schemes are performing efficiently and need to reduce their load and expense ratio. Also, maximum number of efficient schemes is of ELSS investment style followed by Income, Growth and Balance. DEA provides a set of peer group for each inefficient scheme and the targeted value of inputs has been computed. The present study is an exhaustive one and is useful for retail investors, mutual fund companies and policy makers.
Keywords: mutual funds; efficiency; data envelopment analysis; attributes; performance; open-ended; investment style; expense ratio; load; Sharpe ratio; Jensen's alpha; risk.
Can information disclosure technology improve investment efficiency? Empirical evidence from China
by Songsheng Chen, Sophie X. Kong, Shaodong Luo
Abstract: We study the impact of adopting a new financial reporting technology, XBRL (eXtensible Business Reporting Language) on firms' investment efficiency in the Chinese market. Our primary finding is that adoption of XBRL is associated with improvement in investment efficiency. Specifically, XBRL implementation significantly curbs both under- and over-investment for all listed Chinese firms and the impact on over-investment is six to nine times larger than that on under-investment. This negative association of XBRL adoption and investment inefficiencies is robust after controlling for firms' financial constraints as well as whether a firm is SOE (state-owned-enterprise), both of which affect a firm's availability of capital and thus investment efficiency.
Keywords: XBRL; eXtensible Business Reporting Language; financial reporting quality; investment efficiency; state-owned enterprise.
The relationship between insurer solvency and reinsurance: evidence from the Taiwan property-liability insurance industry
by Chen-Ying Lee
Abstract: This study examines the relationship between insurer solvency and reinsurance. Taiwan provides an interesting environment for studying this issue with its relatively shallow market and natural catastrophe risk in the property-liability (P/L) insurance industry. The results of this investigation suggest that insurer solvency and reinsurance are interdependent. I find that insurers with higher solvency tend to purchase more reinsurance, and insurers with higher reinsurance dependence tend to have a higher level of solvency. Other empirical results show that underwriting risks, business concentration, return on investment (ROI) and business mix have a significant impact on reinsurance. Furthermore, I also find that insurers used less reinsurance after the RBC regime. In addition, firm size, return on asset (ROA), ROI, marine insurance, financial holdings and listed firms have a significant influence on an insurer's solvency. My results have practical implications for the P/L insurance industry and competent authorities in Taiwan.
Keywords: reinsurance; property-liability insurance; panel data; solvency.