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About this book

The aim of this book is twofold: Firstly to focus on the development of new instruments and topics in the financial industry. Secondly to analyze the development of “old” themes applied to different international contexts, such as cross-border banking and the role of government financial resources in China. With these goals in mind, the book explores the investigation of new instruments for the financing of SMEs and new ventures, such as mini bonds and equity crowdfunding. Additionally, it covers the field of corporate governance and corporate social responsibility including financial inclusion, gender roles, disclosure, social media roles and litigation. The book also investigates the choices followed by the Royal Swedish Academy in the selection of Nobel laureates in economics science to analyze their influence on the financial industry. Geared to banking academics, researchers and students, this book uncovers the most prominent issues within the banking industry today.

Table of Contents

Frontmatter

Overture

Frontmatter

Chapter 1. Nobel Prize in Economic Sciences: The Role of Financial Studies

Abstract
This chapter analyzes the influence of Nobel Prize-winning financial theories on strategic and managerial decisions relating to financial markets and intermediaries. As the study explains, the Royal Swedish Academy of Sciences has been responsible for selecting Nobel laureates in economic sciences since 1969. In these 50 years, 81 academics have been awarded the Nobel Prize in Economic Sciences, and the Royal Swedish Academy has awarded the prize to pure economists, experts in finance, and scholars investigating topics on the borderlines between economics and finance. The chapter provides a brief introduction to this important prize and its origin and then analyzes the fields and research in financial economics which have received it. The core part of the chapter investigates the decisions of the Royal Swedish Academy, with a special focus on the financial theories selected for the prize, in order to highlight the contributions of the Nobel Prize-winning academics to the development of the most accredited financial theories and practices.
Gianfranco Vento, Paola Vezzani

The Financing of SMEs

Frontmatter

Chapter 2. Risk and Pricing on the Italian Minibond Market

Abstract
The Italian Minibond market was born in 2013 and was expected to ease debt financing of SMEs as a complementary channel to bank credit. In this chapter, we investigate what were the determinants of the issuing prices of Minibonds in the ExtraMotPro market from 2013 to 2016, with a special focus on small listings by non-financial issuers and on default risk. We find evidence that the rating of Minibond issuers by credit rating agencies did not help investors reduce information asymmetries about their creditworthiness.
Minibonds had credit-risk premia similar to speculative grades’ and higher than those of non-rated issues. We evaluate the credit standing of issuers through a statistical and a financial approach. In both cases, we find that issuers rated as investment grade by agencies are generally riskier than those rated speculative grade. Furthermore, the premia related to our credit-risk assessment are higher for riskier firms than for safer firms. However, we also find evidence that safer borrowers might have signaled their quality to investors through underpricing. Our evidence calls for interventions aimed at improving the information efficiency of the Italian Minibond market.
Alessandro Giovanni Grasso, Francesco Pattarin

Chapter 3. Exploring Factors Influencing the Success of Equity Crowdfunding Campaigns: Findings from Italy

Abstract
Since small and medium-sized enterprises and innovative start-ups always face greater difficulties in obtaining capital from traditional sources of finance, the development of alternative funding tools such as equity crowdfunding has helped them to bridge their financing gap. The purpose of this chapter is to examine which factors influence the performance of equity crowdfunding campaigns in the Italian equity crowdfunding market. The study is based on proprietary data that considers the entire Italian equity crowdfunding market, and analyses 175 projects from all Italian equity crowdfunding platforms between 2013 and 2018.
Campaigns’ success is driven by ex ante characteristics of the company itself, such as a large number of shareholders and the presence of an industrial partner among them. Since Italian equity crowdfunding is still in its infancy, the chapter is the first to explore success drivers right across the market. The results have practical implications relevant for seekers of both funding and crowdfunding platforms.
Stefano Cosma, Alessandro Giovanni Grasso, Francesco Pagliacci, Alessia Pedrazzoli

Chapter 4. From Seeker Side to Investor Side: Gender Dynamics in UK Equity Crowdfunding Investments

Abstract
Crowdfunding has come to play a significant role in the democratisation of financial markets and provides more accessible funding, especially for women entrepreneurs. The aim of this work was to analyse gender dynamics from both the seeker and the investor sides. From the seeker side, we attempted to establish whether female-led campaigns are correlated with a high success rate in terms of overfunding level and the number of investors involved. From the investor side, we examined which aspects drive female investments. Our analysis was conducted on Crowdcube, a British equity crowdfunding platform, from 2011 to 2016, and we explored 81 equity crowdfunding campaigns participated by 5966 investors. Results show that equity crowdfunding campaigns’ success is not correlated to the proponent’s gender, and that female investment decisions show a similarity effect between seekers and investors. From a theoretical perspective, our findings shed new light on how individual characteristics can be an important factor in financing situations. Our results allow entrepreneurs and equity crowdfunding platforms to better understanding potential investor behaviour and highlight the role of equity crowdfunding as a tool for women’s financial inclusion and the empowerment of female entrepreneurs.
Valeria Venturelli, Alessia Pedrazzoli, Elisabetta Gualandri

Banks and Their Customers

Frontmatter

Chapter 5. Financial Inclusion: Trends and Determinants

Abstract
This chapter provides a background on financial inclusion and examines the progress and trends across different indicators of financial inclusion and different macro and income regions. The data show positive growth in different indicators of financial inclusion over recent years; however, the variation across regions and the gap between genders are still considerable. The chapter also reviews factors that could explain variations in financial inclusion across countries and reports key correlations between financial inclusion indicators and selected country characteristics. We find differences in the associations with country characteristics when comparing traditional banking services and mobile money services.
Mais Sha’ban, Claudia Girardone, Anna Sarkisyan

Chapter 6. Framing, Overconfidence and Regret in Italian Mortgage Banking Litigations

Abstract
This chapter aims at analysing banking litigations according to a behavioural perspective. The purpose is to uncover the intensity of affection for distortions or cognitive biases suffered by customers and to do an impact assessment. In fact, perfect rationality during the decision-making process might not be applicable due to several interferences. We focused on mortgage litigations, which, according to a pre-sampling procedure, resulted to be one of the most prone categories of case law to show behavioural distortion. We exploited the dataset managed by the Italian alternative dispute resolution mechanism, that is, the Arbitro Bancario Finanziario (hereinafter, ABF), and focused on three well-known cognitive biases in a financial environment: narrow framing, overconfidence and regret. In our empirical analysis, firstly, we built up the sample by randomly selecting 75 decisions from the ABF archive through an extraction algorithm. This procedure guarantees a homogeneous distribution and subsequently allowed to apply a statistical hypothesis testing of proportions to the sample. Secondly, we studied each litigation singly to state its degree of distortion. Guidelines used for this goal have been stated ex ante in the form of fundamental parameters for each kind of bias to ensure an objective and impartial statement. Thirdly, we run a statistical hypothesis testing to infer the sample to the whole population. Finally, but not marginally, we run a multivariate analysis to assess the impact of the presence of such biases. Our results indicate that if a litigation arises with the presence of a cognitive bias, the probability that the appeal is successful is low after controlling for time and the variability of the judge committee composition.
Caterina Lucarelli, Francesco James Mazzocchini

Chapter 7. ‘Share this pic!’: A Picture of the Adoption of Online Social Media by Italian Banks

Abstract
Banks are increasingly using online social media to engage with their existing and potential customers; however, the use of technology can both strengthen and weaken these ‘virtual’ relationships. We analyse the adoption of online social media for 151 Italian banks and test how it affected bank profitability in 2013–2016. Although the adoption rate is lower than what is required by customers, and banks’ popularity on online social media is poor, we find that the effects of online social media vary. In particular, the presence and popularity of banks on Facebook negatively affect their profitability, whereas their presence on YouTube and in interactions on LinkedIn increases bank performance.
Elisa Giaretta, Giusy Chesini

Chapter 8. Central Banks’ Commitment to Stakeholders: CSR in the Eurosystem: 2006–2016

Abstract
Central banks’ commitment to public interest goes beyond monetary policy. A wide range of areas are under the control of central banks (price and financial stability, services for the economy, e.g., economic analysis, payments, financial education, customer protection); central banks also have specific responsibilities regarding external and internal stakeholders. Corporate social responsibility (CSR) and stakeholder management (SM) should be under the care of management in central banks. The academic literature about central banking ignores these topics; some theoretical thoughts about this absence are presented. The chapter, following an initial explorative approach, tries to assess the attention paid to CSR in communication practices of central banks in the Eurosystem (ECB and NCBs) by applying text analysis tools to annual reports for the period 2006–2016. Our findings could make the degree of development of CSR communication practices visible and could generate some useful initial insights for designing CSR communication tools in central banks.
Vincenzo Farina, Giuseppe Galloppo, Daniele A. Previati

Regulation and Bank Management

Frontmatter

Chapter 9. Bank’s Asset Quality Review Using Debt Service Coverage Ratio: An Empirical Investigation Across European Firms

Abstract
In the asset quality review (AQR) framework, bank authorities have defined several financial measures for use to determine loan portfolio risk, and consequently, the adequate level of provisioning and capitalization. In concrete terms, with regard to a firm’s loans, the AQR exercises and ECB non-performing loans (NPLs) guidelines highlight a strict dependence between provisions and some financial and economic ratios. Among them, the debt service coverage ratio (DSCR) is largely used to detect the firm’s ability to repay its debts. In this chapter, the authors analyse the structure and economic meaning of the DSCR, in particular suggesting a dynamic approach to the DSCR, using a simple stochastic model. They also provide a general picture of the creditworthiness of the larger European firms, and consequently, of the intrinsic quality of European banks’ loans.
Maurizio Polato, Federico Beltrame

Chapter 10. Credit Risk Disclosure Practices in the Annual Financial Reporting of Large Italian Banks

Abstract
Risk disclosure in banking is particularly important for the efficacy of market discipline, the assessment of bank performance, the efficiency of the financial market, and the overall stability of the financial system. The European banking union and the financial crisis have enhanced the strategic role of credit risk disclosure in banking. The topic of this chapter is the evaluation of credit risk disclosure practices in banks’ annual financial reporting. The empirical research is conducted on a sample of ten large Italian banks. The authors employ content analysis and provide a hybrid scoring model for the assessment of credit risk disclosure. The chapter provides empirical findings which reveal significant differences between banks’ credit risk reporting practices, even though they are subject to similar regulatory and accounting frameworks.
Enzo Scannella, Salvatore Polizzi

Chapter 11. The Impact of Recent Regulatory Reforms on Cross-Border Banking: A Study of the Nordic Markets

Abstract
This chapter investigates the relationships between banks in different countries through an empirical study based on interviews with the six leading Nordic banks and the Swedish export credit agency. The authors find that although all six banks have significantly reduced the number of correspondent banking relationships, they approach the reduction in different ways. This means that their regulatory responses are similar at an aggregate level but quite different on the individual basis. The results further indicate that compliance costs have risen extensively with potential implications on trade. The topic is interesting in light of the new Basel III regulatory agenda and with regard to money laundering and terrorist financing norms.
Viktor Elliot, Ted Lindblom, Magnus Willesson

Chapter 12. The Effectiveness of the ‘Belt and Road’ Initiative in Tackling China’s Economic Slowdown and Its Financial Implications Within a Policy Trilemma Context

Abstract
The research question is to what extent the Belt and Road initiative (BRI) plan will be effective in helping China bounce back from its economic slowdown and what its financial implications are in a policy trilemma context. The BRI was implemented in 2013 as a response to the economic slowdown in China and was intended to help the country's transition to a slower, but structurally more balanced ‘new normal’ economic growth model. At the same time, China is facing many serious problems, such as a credit binge, a debt problem, and international trade and investment conflicts. The implementation of BRI and the accompanying financial liberalization and exchange rate and monetary adjustments will test the theory that it is impossible to combine free capital mobility, stable exchange rate management, and monetary autonomy.
Piotr Łasak, René W. H. van der Linden

Backmatter

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