Trends, Issues, and Challenges in Banking and Finance

Inhaltsverzeichnis

1. Frontmatter

2. 1. Impact of COVID-19 on European Real Estate Investment Trusts

   The Role of Property Type, Localization, and Diversification Licia Ferranna, Giorgio Stefano Bertinetti, Gloria Gardenal

   Abstract

   The pandemic caused by the COVID-19 virus has severely impacted the real estate industry. The research investigates the relationship between the spread of the virus and Real Estate Investment Trusts’ performances in Europe, considering the role played by localization and diversification of properties in the real estate portfolios. The results show that COVID-19 had heterogeneous impacts depending on property types. Moreover, risks associated with COVID-19 may be described by synthetic indexes that represent the degree of vulnerability of economic activities carried out in the real estate.

3. 2. Climate Risks in Banking

   State of the Art and Future Research Directions Violeta Bringas Fernández, Begoña Torre Olmo, María Cantero Saiz

   Abstract

   This chapter presents a review of the extant scholarly research focusing on climate risk in banking and its effects on financial stability. The chapter provides suitable guidelines to facilitate a comprehensive understanding of the significance of climate risks for sustainable finance and economic stability. It analyzes the risks that banking institutions face, how financial stability is affected, and the regulations and policies implemented. The extant literature on the subject is also reviewed, with the existing measures used to assess climate risks analyzed. Despite the recent and growing interest in research related to climate risk and its implications for the financial field, the literature is still in its formative stage. We therefore provide an agenda for future research, identifying and discussing the most influential and trending themes that will provide guidance to potential researchers and set future trends in the literature.

4. 3. A Note on the Employment Dynamics of Credit-Constrained Small- and Medium-sized Enterprises

   Ioannis Vlassas, Christos Kallandranis

   Abstract

   Examining the effects of credit rationing for small- and medium-sized enterprises (SMEs), on employment development from 2014 to 2022, this study employs a comprehensive survey microdata set compiled by the European Central Bank. Our primary findings demonstrate that considerations regarding fixed investments can be applied to employment dynamics as well. This is especially true when considering the impact of rejected borrowers, because such a credit outcome has an inverse relationship with the employment decisions of businesses. Additionally, the transmission of macroeconomic effects via the economic sentiment is investigated, which has a favorable impact on the firms’ employment growth.

5. 4. Managerial Social Capital and Firm Risk

   Evidence from the United Kingdom Omar Al-Bataineh, Abdullah Iqbal, Timothy King

   Abstract

   There has been recent interest in the role of social capital in the business environment, yet relatively little is known as to how social capital influences firm risk. We examine the relationship between managerial social capital (MSC), based on a structural definition of social capital (SC), and firm risk in the United Kingdom—a high social capital country. Using data on listed firms from 2006 to 2017, we find that MSC is associated with lower firm risk (idiosyncratic and total). Furthermore, employing corporate social responsibility (CSR), an alternative SC measure more aligned with a cognitive SC perspective, we show it is associated with higher idiosyncratic and total firm risks, consistent with a shareholder expense view. Although our main results are robust to endogeneity concerns, we also conduct numerous robustness tests, including industry-adjusted MSC measure, controlling for a firm’s risk management committee, controlling for board of directors’ national diversity mix, and using alternative risk estimations.

6. 5. Are Investors More Reactive to Simultaneous Changes in Chief Executive Officer and Chair Positions?

   Myriam García-Olalla, Eleuterio Vallelado, Jonathan Williams

   Abstract

   We estimate cumulative average abnormal returns for 2644 announcements of turnover in the chief executive officer (CEO) and Chair positions at 915 nonfinancial European companies between 2002 and 2021. Specifically, we determine investors’ reaction to news of simultaneous turnover in the two positions. Our results show, on average, that investors perceive turnover as a vehicle to enhance firm performance. Markets react negatively to the simultaneous exit of CEO and Chair and positively albeit insignificantly to simultaneous entry. There is mixed, insignificant reaction to cases of CEO exit and a new Chair. Markets respond unfavorably to simultaneous turnover in the CEO position but react positively to news of an incoming CEO and negatively to news of a CEO firing or exit. Our evidence shows that markets respond vigorously to news of changes in CEO than to changes in the Chair which are smaller and mostly insignificant.

7. 6. The Value Relevance of Banking Loans

   A Comparison Between IFRS 9 and IAS 39 in European Banks Federico Beltrame, Marco Boso, Gianni Zorzi, Maurizio Polato

   Abstract

   The aim of this chapter is to test the value relevance of IFRS 9, in comparison to its predecessor, the IAS 39 accounting standard, both on an overall and bank loans level. In order to do this, we investigate a sample of 139 European banks. Results highlight that both principles are shown to be value relevant. However, the introduction of IFRS 9 can be linked with an increased ability to explain market stock price compared to IAS 39, but exclusively at the individual loans level. Moreover, the significance of this finding is comparatively better when considering equity-strong countries. Inside this framework, the classic net income information is price relevant only within the EU 15 countries, as well as in the aforementioned equity-strong countries. This indicates that net income can be deemed as value relevant only in countries where accounting standard are applied in a more accurate way, as well as where more value relevance is considered more important by investors.

8. 7. The Perks of Market Timing in Mergers and Acquisitions

   Gimede Gigante, Beatrice Gobbo, Andrea Cerri

   Abstract

   European mergers and acquisitions (M&A) market has been subject to a series of merger waves from the 1980s. According to the behavioral school, merger waves occur because during hot stock market periods companies exploit their overvalued price to enter M&A transactions. This chapter tries to assess the benefit of market timing in the M&A market. Specifically, the analysis will be devoted to the short- and long-run returns for bidding companies that decided to time the market and others who chose not to exploit their stock overvaluation. Results show that companies timing the market and using their overvalued equity as a payment method generate higher returns than those companies that do not. The results are consistent in both the short and the long run. On the contrary, companies using cash as the method of payment of the transaction generate positive returns in the short run but suffer long-run losses. Cash acquiring companies show a long-run reversal in the bidder’s stock price. The results provided in this chapter are in line with the market timing theory. European stock acquiring companies should time the market when their stock is overvalued because they benefit from long-run returns. The same is not true for cash acquiring companies. They are worse off because they pay with cash during a hot stock market period.

9. 8. Quid Pro Quotes

   Liquidity Provision Opportunity Distribution in the Investment Grade Corporate Bond Market Karim Henide

   Abstract

   We review the findings of Giannetti et al. (2023) relating to the alpha generated by bank-affiliated liquidity-supplying mutual funds, following the introduction of the Basel III leverage ratio. We outline the gaps in the literature illuminated by the research, and explore the implications of bank-affiliated dealers directing their best trades to [same-]bank-affiliated mutual funds, which are relevant to anti-competitive behavior, long-term consumer welfare, sound market functioning and systemic stability, by extension. We posit a series of propositions in support of a future research agenda, motivated by the different agents within the ecosystem, in pursuit of redressing the balance of liquidity provision opportunity distribution, or mitigating the need for liquidity provision from unregulated market participants altogether. The understanding of liquidity opportunity distribution behavior is of primary concern for regulators safeguarding the market’s core underpinning principles of fairness and efficiency.

10. 9. Regulatory and Performance Differences in US and European Banks in Light of the 2023 Failures

    Giusy Chesini

    Abstract

    In March 2023, the crisis of a handful of US banks caused turmoil in global financial markets. National governments and supervisory authorities reacted promptly, with extraordinary measures within hours. Hence, these events would not have seemed like such a big concern in those days if it had not reminded the spectrum of the 2008 global financial crisis when the world was plunged into a devastating situation caused by the collapse of the US housing market.

    As it is known, each bank failure has different intrinsic characteristics and can be triggered by different economic environments. In this case, the inflation and the tightening of monetary policies represented the macroeconomic causes. At the same time, uninsured financial leverage (i.e., uninsured debt/assets) appeared as an essential ratio to understand how banks can suddenly become insolvent. Immediately after these failures, some scholars (Jiang et al. 2023) demonstrated how the decline in bank asset values—due to the increase of interest rates—could significantly increase the fragility of the banking system and make it prone to runs by uninsured depositors.

    Building on analyzing those events, the paper investigates the differences in bank regulation and performance in the United States and EU and the possibility that banks become insolvent again. Moreover, it compares different methodologies commonly used in practice and literature to forecast bank defaults.

11. 10. The Impact of Nonperforming Loan Restructuring Programs in the European Union Following the Global Financial Crisis

    Ewa Miklaszewska, Krzysztof Kil, Radosław Ciukaj

    Abstract

    A sharp decline in bank loans to nonfinancial corporations in many European Union (EU) countries after the global financial crisis (GFC) has raised a public concern over sustainable economic growth. By implementing specific public policies, governments aimed to stimulate bank lending. In particular, many banks and governments in the EU countries have established systems and measures to manage the nonperforming loan (NPL) portfolios and to deal with the accumulation of nonperforming exposures. The aim of this chapter is to assess whether the post–GFC restructuring programs, particularly aiming to reduce the NPL portfolios, have been effective in incentivizing banks to extend loans in general, and corporate loans in particular. The main objective was to assess the impact of selected methods of restructuring the portfolio of low-quality loans and the intensity of their application not only on changes in the value of the NPL ratio, but also on the overall improvement of bank lending, particularly for corporations. As the research methodology, an index of the intensity and diversity of application of NPLs’ restructuring actions and tools was constructed, then linear regression of panel data was used (based on dynamic models GMM-SYS) to assess its impact on the access and allocation of credit by banks operating in the EU. The econometric analysis covers the period 2014–2022. The positive verification of the main hypothesis allowed us to draw the conclusion that public policy toward areas of banking fragility has a significant impact on credit availability and structure.

12. Backmatter