【CFRI 第十一卷 第4期】

CFRI 2021年第4期共6篇文章。扫描文中二维码可免费下载本期文章，感谢您对CFRI的关注和支持！

01

Familial altruism and reputation risk: evidence from China

Authors

Hanqing “Chevy” Fang

Missouri University of Science and Technology, Rolla, Missouri, USA.

Yulin Shi

YAsper School of Business, University of Manitoba, Winnipeg, Canada.

Zhenyu Wu

YAsper School of Business, University of Manitoba, Winnipeg, Canada.

Abstract

Purpose

The authors study the effects of altruism and intention for succession on family firm’s reputation risk-taking behaviors in Chinese publicly listed companies.

Design/methodology/approach

The authors use earnings management as a proxy for reputation risk in family firms, and hand-collected relationship between family members to measure the closeness of incumbent family members and their potential successors as a proxy for the altruistic degree.

Findings

Results show that, in developing countries like China, familial altruism in family firms with succession plans, which does not reduce the practice of earnings management, should be considered by practitioners while detecting it.

Originality/value

The hand collected data are very unique; the authors have focused on the relationship between incumbents and successors and the authors define their closeness by using genes shared between them.

Keywords

Altruism, Family firm, Succession, Reputation risk

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02

Earnings management when firms face mandator contributions

Authors

Yiyi Qin

School of Finance, Southwestern University of Finance and Economics, Chengdu, China.

Jun Cai

Department of Economics and Finance, City University of Hong Kong, Kowloon Tong, Hong Kong.

Steven Wei

School of Accounting and Finance, Faculty of Business, The Hong Kong Polytechnic University, Kowloon, Hong Kong.

Abstract

Purpose

In this paper, we aim to answer two questions. First, whether firms manipulate reported earnings via pension assumptions when facing mandatory contributions. Second, whether firms alter their earnings management behavior when the Financial Accounting Standard Board (FASB) mandates disclosure of pension asset composition and a description of investment strategy under SFAS 132R.

Design/methodology/approach

Our basic approach is to run linear regressions of firm-year assumed returns on the log of pension sensitivity measures, controlling for current and lagged actual returns from pension assets, fiscal year dummies and industry dummies. The larger the pension sensitivity ratios, the stronger the effects from inflated ERRs on reported earnings. We confirm the early results that the regression slopes are positive and highly significant. We construct an indicator variable DMC to capture the mandatory contributions firms face and another indicator variable D132R to capture the effect of SFAS 132R. DMC takes the value of one for fiscal years during which an acquisition takes place and zero otherwise. D132R takes the value of one for fiscal years after December 15, 2003 and zero otherwise.

Findings

Our sample covers the period from June 1992 to December 2017. Our key results are as follows. The estimated coefficient (t-statistic) onDMCis 0.308 (6.87). Firms facing mandatory contributions tend to set ERRs at an average 0.308% higher. The estimated coefficient (t-statistic) on D132R is _2.190 (_13.70). The new disclosure requirement under SFAS 132R constrains all firms to set ERRs at an average 2.190% lower. The estimate (t-statistic) on the interactive term DMA3D132R is _0.237 (_3.29). When mandatory contributions happen during the post-SFAS 132R period, firms tend to set ERRs at 0.237% lower than they would do otherwise in the pre-SFAS 132R period.

Originality/value

When firms face mandatory contributions, typically firm experience negative stock market returns. We examine whether managers manage earnings to mitigate such negative impact. We find that firms inflate assumed returns on pension assets to boost their reported earnings when facing mandatory contributions. We also find that managers alter earnings management behavior, in the case of mandatory contributions, following the introduction of new pension disclosure standards under SFAS 132R that become effective on December 15, 2003. Under the new SFAS 132R requirement, firms need to disclose asset allocation and describe investment strategies. This imposes restrictions on managers’ discretion in making ERR assumptions, since now the composition of pension assets is a key determinant of the assumed expected rate of return on pension assets. Firms need to justify their ERRs with their asset allocations.

Keywords

Defined benefit pension plans, Earnings management, Mandatory contributions, Pension assumptions, Disclosure standards

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03

What do we know about cryptocurrency? 

Past, present, future

Author

Mohammed Sawkat Hossain

Chairman, Finance and Banking Department, Faculty of Business Studies, Jahangirnagar University, Savar, Bangladesh.

Abstract

Purpose

The authors make a fundamental initial effort to conduct a systematic review analysis on “cryptocurrency,” mainly to analyze the way it has been changing the “stereotype” financial transactions, and also identify the probable unexplored research avenues on this innovative investment regime. The study aims to draw the landscape of the current state, prospects, challenges, trends and possible agendas of cryptocurrency in the global market.

Design/methodology/approach

Using a quali-quantitative approach widely known as meta-literature review, the synthesis analysis on “cryptocurrency” is conducted. Methodologically, the authors review and analyze the most recent and relevant papers preferably published between 2016 and 2020 in leading business and finance journals of ISI Web of Science (ISI WOS) through bibliometric analysis particularly coupled with content analysis.

Findings

The findings of the meta-analysis summarize the relevant stylized facts of the cryptocurrency market: distinctive features of blockchain technology, decentralized payment method, low-cost facility, ensuring pseudo-anonymity, independence from central authority, double spending attack protection, organic and instantaneous nature, among others. In addition, the analysis identified several future research regimes: pricing model, prospect of investment regime, hedging properties, volatility dynamics, information asymmetry, underlying risk factors and bubble-like nature in global cryptocurrency market.

Originality/value

Cryptocurrency, virtual currency or digital asset having cryptography for idiosyncratic security features, seems to be a persistent paradigm shift in the digitalized financial system. Despite the continuing growth, the academic research on cryptocurrency is still at nascent stage, particularly because researchers did not deeply draw attention at this financial innovation. In addition, the authors argue that none of the earlier studies yet conducted a meta-analysis on this latest investment regime. Therefore, this review study is the initial attempt to fill up the gap in the finance literature.

Keywords

Cryptocurrency, Blockchain technology, Financial innovation, Digitalized financial system, Investment regime

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04

The global business cycle and speculative demand for crude oil

Authors

Elisabete Neves

Polytechnic of Coimbra, Coimbra Business School Research Centre, ISCAC, Coimbra, Portugal and Centre for Transdisciplinary Development Studies (CETRAD), Universidade de Tras-os Montes e Alto Douro, Vila Real, Portugal.

Vitor Oliveira

Polytechnic of Coimbra, Coimbra Business School, ISCAC, Coimbra, Portugal.

Joana Leite

Polytechnic of Coimbra, Coimbra Business School Research Centre, ISCAC, Coimbra, Portugal and Centre for Mathematics of the University of Coimbra (CMUC), Coimbra, Portugal.

Carla Henriques

Polytechnic of Coimbra, Coimbra Business School Research Centre, ISCAC, Coimbra, Portugal; INESC Coimbra - DEEC, University of Coimbra, Coimbra, Portugal and CeBER, University of Coimbra, Coimbra, Portugal.

Abstract

Purpose

This paper aims to better understand if speculative activity is a factor or even the main factor in the run-up of oil prices in the spot market, particularly in the recent price bubble that occurred in the period from mid-2003 to 2008.

Design/methodology/approach

The methodology used is based on an existing vector autoregressive model proposed by Kilian and Murphy (2014), which is a structural model of the global market for crude oil that accounts for flow demand and flow supply shocks and speculative demand oil shocks.

Findings

From the output of the authors’ structural model, the authors ruled out speculation as a factor of rising oil prices. The authors have found instead that the rapid oil demand caused by an unexpected increase in the global business cycle is the most accurate culprit. Despite the change of perspective in the speculative component, the authors’ conclusions concur with the findings of Kilian and Murphy (2014) and others.

Originality/value

As far as the authors are aware, this is the first time that a study has used as a spread oil variable, a speculative component of the real price, replacing the oil inventories considered by Kilian and Murphy (2014). Another contribution is that the model used allows estimating traditional oil demand elasticity in production and oil supply elasticity in spread movements, casting doubt on existing models with perfect price-inelastic output for crude oil.

Keywords

Demand, Supply, Speculation, Inventories, Spreads, Futures, Crude oil, Elasticity, Global markets

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05

Catastrophe risk, reinsurance and securitized risk-transfer solutions: 

a review

Authors

Yang Zhao

School of Finance, Nankai University, Tianjin, China.

Jin-Ping Lee

Feng Chia University, Taichung, Taiwan.

Min-Teh Yu

Providence University, Taichung, Taiwan and National Tsing Hua University, Hsinchu, Taiwan.

Abstract

Purpose

Catastrophe (CAT) events associated with natural catastrophes and man-made disasters cause profound impacts on the insurance industry. This research thus reviews the impact of CAT risk on the insurance industry and how traditional reinsurance and securitized risk-transfer instruments are used for managing CAT risk.

Design/methodology/approach

This research reviews the impact of CAT risk on the insurance industry and how traditional reinsurance and securitized risk-transfer instruments are used for managing CAT risk. Apart from many negative influences, CAT events can increase the net revenue of the insurance industry around CAT events and improve insurance demand over the post-CAT periods. The underwriting cycle of reinsurance causes inefficiencies in transferring CAT risks. Securitized risk-transfer instruments resolve some inefficiencies of the reinsurance market, but are subject to moral hazard, basis risk, credit risk, regulatory uncertainty, etc. The authors introduce some popular securitized solutions and use Merton’s structural framework to demonstrate how to value these CAT-linked securities. The hybrid solutions by combining reinsurance with securitized CAT instruments are expected to offer promising applications for CAT risk management.

Findings

The authors introduce some popular securitized solutions and use Merton’s structural framework to demonstrate how to value these CAT-linked securities. The hybrid solutions by combining reinsurance with securitized CAT instruments are expected to offer promising applications for CAT risk management.

Originality/value

This research reviews a broad array of impacts of CAT risks on the (re)insurance industry. CAT events challenge (re)insurance capacity and influence insurers’ supply decisions and reconstruction costs in the aftermath of catastrophes. While losses from natural catastrophes are the primary threat to property–casualty insurers, the mortality risk posed by influenza pandemics is a leading CAT risk for life insurers. At the same time, natural catastrophes and man-made disasters cause distinct impacts on (re) insures. Man-made disasters can increase the correlation between insurance stocks and the overall market, and natural catastrophes reduce the above correlation. It should be noted that huge CAT losses can also improve (re)insurance demand during the postevent period and thus bring long-term effects to the (re)insurance industry.

Keywords

Catastrophe risk, Reinsurance, Insurance, Securitized risk-transfer solutions, Hybrid solutions

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06

Geopolitical risk, economic policy uncertainty and asset returns 

in Chinese financial markets

Author

Thomas C. Chiang

Finance, Drexel University Bennett S LeBow College of Business, Philadelphia, Pennsylvania, USA.

Abstract

Purpose

This paper investigates the impact of a change in economic policy uncertainty （∆EPU_t） and the absolute value of a change in geopolitical risk |∆GPR_t | on the returns of stocks, bonds and gold in the Chinese market.

Design/methodology/approach

The paper uses Engle’s (2009) dynamic conditional correlation (DCC) model and Chiang’s (1988) rolling correlation model to generate correlations of asset returns over time and analyzes their responses to  （∆EPU_t）and|∆GPR_t |.

Findings 

Evidence shows that stock-bond return correlations are negatively correlated to （∆EPU_t）, whereas stock-gold return correlations are positively related to the |∆GPR_t |, but negatively correlated with （∆EPU_t） : This study finds evidence that stock returns are adversely related to the risk/uncertainty measured by downside risk, （∆EPU_t） and |∆GPR_t |. whereas the bond return is positively related to a rise in（∆EPU_t）; the gold return is positively correlated with a heightened |∆GPR_t |.

Research limitations/implications 

The findings are based entirely on the data for China’s asset markets; further research may expand this analysis to other emerging markets, depending on the availability of GPR indices. 

Practical implications 

Evidence suggests that the performance of the Chinese market differs from advanced markets. This study shows that gold is a safe haven and can be viewed as an asset to hedge against policy uncertainty and geopolitical risk in Chinese financial markets.

Social implications

This study identify the special role for the gold prices in response to the economic policy uncertainty and the geopolitical risk. Evidence shows that stock and bond return correlation is negatively related to the （∆EPU_t） and support the flight-to quality hypothesis. However, the stock-gold return correlation is positively related to |∆GPR_t |, resulting from the income or wealth effect.

Originality/value

The presence of a dynamic correlations between stock-bond and stock-gold relations in response to（∆EPU_t） and  |∆GPR_t | has not previously been tested in the literature. Moreover, this study finds evidence that bond-gold correlations are negatively correlated to both （∆EPU_t ）  and  |∆GPR_t |.

Keywords

Stock–bond return correlation, Stock-gold return correlation, Downside risk, Economic policy uncertainty, Geopolitical risk, Safe haven

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