With the incidence of financial crises, the financial stability of banks has become a matter of great importance. In light of this fact, the accurate prediction of bank distress has been a central concern of bank supervisory authorities and regulators and, in addition, has received considerable attention in research. In this chapter, we identify the determinants of Russian bank failure by means of Cox proportional hazard models, with time-varying covariates and a sample of Russian banks for 2006–2013. We use an early warning system and a contemporaneous model based on the CAMELS approach to the independent variables. The overall results exhibit the expected signs, with interesting differences if we compare the results of the two models and if we compare smaller and larger banks. We also test the importance of sensitivity to market risk as a determinant of bank failure. We find, as expected, a negative sign and strong statistical significance for that variable in both models, albeit only for larger banks. Our findings suggest that the Central Bank of Russia should pay particular attention to the dynamics of CAMELS variables when assessing Russian bank solvency
Viktoryia Tankoyeva, Flavio Bazzana and Roberto Gabriele
Kizito Uyi Ehigiamusoe and Hooi Hooi Lean
The establishment of Sovereign Wealth Funds (SWFs) has gained more global popularity in recent decades because many countries view the fund as a vehicle for macroeconomic stability. But after several years of operation, the relationship between SWFs and macroeconomic stability seems unclear. This chapter examines the nexus between SWFs and macroeconomic stability in countries that operate SWFs. It analyses the performances of gross domestic product (GDP) growth rates, inflation rates, exchange rates, interest rates and fiscal deficits relative to GDP and government debts relative to GDP before and after the establishment of SWFs. These variables are used to determine the macroeconomic stability of a country according to the Maastricht Criteria. It was found that the establishment and operation of SWFs concurred with the reduction in inflation and interest rates as well as deficits and debts to GDP ratios in most countries. One implication of this study is that SWFs that are integrated into a country’s fiscal policy can be utilized for macroeconomic stability. The chapter recommends the operation of SWFs with definitive objectives, effective management, accountability and transparency for macroeconomic stabilization.
Julia M. Puaschunder
In the light of the current growth of Financial Social Responsibility, and to complement classic finance theories, this chapter explores the potential socio-psychological SRI motives of socially conscientious investors. As a first step towards a unified Financial Social Responsibility approach, a preliminary SRI framework will be presented to delineate the potential circumstances under which SRI is likely to occur and by which financial social conduct could be triggered. The theoretical framework will introduce social and psychological factors contributing to financial social conscientiousness. Being knowledgeable about SRI motives has manifold advantages. Overall, describing SRI helps in resolving societal losses imbued in the novelty, complexity and ambiguity of Financial Social Responsibility. Evaluating up-to-date research on financial social consideration will increase the effectiveness of Financial Social Responsibility and allow promoting SRI to the finance community.
Mohammed Amidu and Haruna Issahaku
Increased financial innovation is changing the role of financial markets in the global economy. This research provides a comprehensive literature review on the work done so far on the role financial markets play in building a safe and enduring world, and, on the basis of the review, builds a research framework for assessing the link between finance and sustainable development. The study provides an assemblage of empirical evidence and highlights the burning issues that require the attention of policy makers, researchers, practitioners, global development finance institutions and other stakeholders. The study concludes by elaborating critical research gaps. We find that the majority of the research is concentrated on Financing Sustainability & Responsible Investing and Sustainability & Performance while the sustainability implications of Islamic Finance and the Policy and Regulation dimensions of sustainability have received little attention.
Finance, Society and the Environment
Edited by Sabri Boubaker, Douglas Cumming and Duc K. Nguyen
Wei Rong Ang and Olaf Weber
In this chapter we analyze the performance of a Korean SRI index, the Dow Jones Sustainability Korea Index (DJSIK), with regard to its financial performance compared to conventional indexes over a span of ten years using daily returns from January 2006 to December 2015. These years include the period of the implementation of Korea’s Green New Deal that was initiated in 2009. Our analysis suggests that DJSIK performed equally to the market benchmark. Generally, the performance and persistence of the SRI index was relatively stable and no different from most of the conventional Korean portfoliosWe found, however that the Korean Green New Deal has a positive impact on the performance of socially responsible investments (SRIs) in Korea. Based on the assessment of downside risks, we conclude that the DJSIK has a lower sensitivity with regard to market returns during bearish conditions. Furthermore, our results suggest that neither negative nor positive shocks have stronger impacts on the volatility of the DJSIK than on conventional indexes.
Narjess Boubakri and Jocelyn Grira
This chapter discusses three corporate socially responsible banking models: (1) cooperative financial institutions; (2) the Islamic banking model; and (3) microfinance institutions. We shed more light on the distinctive characteristics of these corporate socially responsible financial institutions, highlight their contributions to socio-economic development, and emphasize the role they play in promoting ethical business standards and practices, as well as their contribution to community.
Gang Nathan Dong
Existing empirical studies that attempt to relate environmental to financial performance using pooled regressions of companies in all sectors have often led to conflicting results and they may well reflect the significant variations in characteristics of different industries. This chapter takes a more focused approach to examine the relationship between sustainability performance and market valuation of firms in a very special sector often associated with a strong social mission. It finds that publicly traded for-profit businesses in the health-care sector are valued at a premium relative to their counterparts in other industries; however, the premium is discounted for firms with higher levels of environmental pollution, suggesting that deviations from the presumed mission would have disastrous consequences on market valuation.
Edited by Sabri Boubaker, Douglas Cumming and Duc K. Nguyen
François Aubert, Jean-François Gajewski and Lamya Kermiche
This chapter examines the ability of the managed earnings component metric (MEC) and discretionary accrual-based models to detect financial reporting fraud. By using a comprehensive sample of Accounting and Auditing Enforcement Releases (AAERs) issued by the SEC during the reporting period January 1, 1993 to December 31, 2014, we show that using the innovative managed earnings component metric of a firm as an independent variable (Aubert and Grudnitski, 2012, 2014) – appears to be a more relevant indicator of accounting fraud than cross sectional models based on inspecting abnormal accruals estimated in the literature (Dechow et al., 2011; Hui et al., 2014). Overall, our findings contribute to substantially enhancing prior literature on corporate earnings materially misstated and should be of great interest for regulatory bodies interested in identifying and preventing voluntary financial misreporting such as the US Security and Exchange Commission, which has been continually improving its Accounting Quality Model (AQM or Robocop) fraud detection tool for many years.