Finance and Financial Management Commons^™

Bank Stability Under Global Risk Uncertainty: The Interplay Of Internal Characteristics And External Regulatory Environment, Erfan Rachmadi, Bowo Setiyono, Bimo Saktiawan, Muizzuddin Muizzuddin

Bulletin of Monetary Economics and Banking

This study examines the impact of global political and climate uncertainty on bank stability, utilizing panel data from 604 banks across 40 countries during the period 2011–2022. Through fixed effects and difference GMM methodologies, the analysis reveals that both geopolitical and climate risks adversely affect bank stability. Notably, tightening governance creates a ‘regulatory compliance paradox’ which leads to lower climate readiness and bank stability. We also identified that capital buffers matter in enhancing bank readiness to face geopolitical and climate uncertainty. However, efficiency plays a dual role. In times of geopolitical risk, it is necessary, but we also can’t achieve …

Hard Lessons, Stronger Banks, Gloria Yang Yu

Asian Management Insights

The enduring wisdom of the Savings and Loan crisis veterans.

"What's A Computer?" Exploring Insurance Agents' Role In Small Business Cyber Insurance Transactions, Dalton A. Crabtree

USF Tampa Graduate Theses and Dissertations

This mixed-methods study examined how insurance agents' role identity impacts cyber insurance transactions, addressing gaps in professional practice and academic literature. Small businesses increasingly rely on cyber insurance for protection as cyber risk continues to evolve. The study employed sequential explanatory methodology with 25 interviews across three groups: insurance agents (n=15), corporate cyber insurance professionals (n=5), and small business owners (n=5). Thematic analysis using Katz and Khan's Role Episode Model informed development of the Cyber Insurance Role Identity Scale (CIRIS), tested with 100 agents. Six themes emerged. Key findings reveal that successful cyber insurance transactions require agents to transition from …

When Positive Sentiment Is Not So Positive: Textual Analytics And Bank Failures, Aparna Gupta, Cheng Lu, Majeed Simaan, Mohammed J. Zaki

Department of Accounting and Finance Faculty Scholarship and Creative Works

We examine U.S. publicly traded bank holding companies (BHCs) that failed during the 2007–2009 global financial crisis. Using consolidated data at the BHC level and 10-K filings, we investigate the determinants of bank failures during this period using nonlinear machine learning (ML). The in-sample analysis demonstrates that 90% of the failed banks can be classified during 2007–2009. In addition, our sensitivity analysis for interpretable ML shows that net tone is among the top five important features. However, the power of tone/text is less evident when we consider predictive (out-of-sample) analysis. While nonlinear ML models such as random forest and support …

Unlocking Private Equity Investing: A Primer, Yin Wang, Steve Balaban

Asian Management Insights

Private equity might provide higher returns, but investors should be aware of the associated risks.

Rooted Resilience: Preventative Care For Your Personal Finances, Seth Thompson Cfp®, Ricp®, Aep®, Ea

Metro Denver Dental Society Articulator Magazine

In this article Mr. Seth Thompson outlines key strategies to build financial resilience, including establishing a comprehensive financial plan, maintaining an emergency fund, diversifying investments and staying disciplined during market swings. It also highlights the importance of avoiding emotional decisions, leveraging market opportunities and partnering with a qualified financial advisor to stay aligned with long-term goals.

Agile Effects On Risk Management In The Financial Industry, Harasees Kaur

Harrisburg University Dissertations and Theses

The study investigates the ways in which agile practices are combined with traditional risk management frameworks within financial services institutions to achieve digital transformation, regulatory compliance, and stakeholder management. Three research questions drive the study: the ways in which financial institutions are adopting agile practices without undermining compliance, the challenges they face in adopting agile practices, and the mechanisms that enable alignment between agile values and risk governance. Grounded in stakeholder theory and agile transformation models, this study used open questionnaires to gather qualitative data from financial services professionals. Thematic analysis revealed a trend towards hybrid governance solutions that insource …

Cds Channels Of Influence On Discretionary Accruals, Hao Cheng, Kian Guan Lim

Research Collection Lee Kong Chian School Of Business

Existing studies indicated that firm debt holders can use the credit default swap (CDS) market to hedge their credit risk, and thus they would reduce their monitoring of the firms, leading to largely distressed firms shirking and increasing positive abnormal earnings accruals. Besides providing insurance, however, the CDS spreads also perform price discovery of credit risk information sought by trade creditors and potential lenders who are not protected. High absolute abnormal discretionary accruals or bad earnings quality, especially negative abnormal accruals, would lead adverse CDS price signals that are very costly to the firm. This compels the firm under nondistressed …

Navigating Risk Terrain In The Twenties: Understanding Age-Linked Gender Dynamics In Risk Aversion Between 20-29 Year Old Men And Women​, Mollie Dostalek

Undergraduate Honors Theses

This research aims to explore the age and gender-linked dynamics of risk aversion in investment decisions among adults aged 20-29, focusing on the disparities between men and women. While most literature often portrays young men as having higher risk appetites, this study aims to evaluate such assumptions, shedding light on the nuanced relationship between gender and risk aversion across the early adult years. This research seeks to discern patterns and variations in risk aversion, investigating whether age plays a significant role in shaping these dynamics. By analyzing data that demonstrates the relationship between gender, age, and risk aversion, this study …

Financial Assessment Of Executive Decision-Making And Risk Management: A Case Study Of Autozone, Carolina Hollis

Honors Theses

This area of investigation pertains to the business organizational structure, executive summary, and risk management decisions of AutoZone within the 2022-2023 fiscal year. This analysis was performed by examining previous financial records, the yearly 10-K report, and various research databases regarding the financial performance of retail auto part companies. Many different sources were used to gather information about AutoZone. AutoZone has an intricate financial system that maintains the going concern by addressing current issues within the financial world to combat problems they could face in the future. These risk factors include inflation, interest rates, energy prices, political climates, and supply …

Historical Perspectives In Volatility Forecasting Methods With Machine Learning, Zhiang Qiu, Clemens Kownatzki, Fabien Scalzo, Eun Sang Cha

Seaver College Research And Scholarly Achievement Symposium

Volatility forecasting in the financial market plays a pivotal role across a spectrum of disciplines, such as risk management, option pricing, and market making. However, volatility forecasting is challenging because volatility can only be estimated, and different factors influence volatility, ranging from macroeconomic indicators to investor sentiments. While recent works suggest advances in machine learning and artificial intelligence for volatility forecasting, a comprehensive benchmark of current statistical and learning-based methods for such purposes is lacking. Thus, this paper aims to provide a comprehensive survey of the historical evolution of volatility forecasting with a comparative benchmark of key landmark models. We …

Tail Risk Hedging: The Search For Cheap Options, Poh Ling Neo, Chyng Wen Tee

Research Collection Lee Kong Chian School Of Business

The authors find that a simple heuristic of sorting liquid equity options by dollar price to construct a portfolio of cheap put options leads to a surprisingly robust hedge for tail risk – the superior performance holds even when compared against more advanced empirical strategies. Further investigation reveals the asymmetry in market correlation under different market conditions as the mechanism of this robust hedging performance. The cheap options selected by the heuristic comprises of stocks with diverse firm characteristics. The correlation spike accompanying tail risk events leads to the majority of these put options moving into-the-money (ITM), thus compensating the …

Hedging Cryptos With Bitcoin Futures, Francis Liu, Natalie Packham, Meng-Jou Lu, Wolfgang Karl Haerdle

Sim Kee Boon Institute for Financial Economics

The introduction of derivatives on Bitcoin enables investors to hedge risk exposures in cryptocurrencies. Because of volatility swings and jumps in cryptocurrency prices, the traditional variance-based approach to obtain hedge ratios may not be suitable for hedgers. In this work, we consider two extensions of the traditional approach: first, different dependence structures are modelled by different copulae, such as the Gaussian, Student-t, Normal Inverse Gaussian and Archimedean copulae; second, different risk measures, such as value-at-risk, expected shortfall and spectral risk measures are employed to find the optimal hedge ratio. Extensive out-of-sample tests using the data from the time …

Financial Planning: What The Social And Brain Sciences Have To Offer, Ray Forbes, Martina Peng

All Faculty and Staff Scholarship

This paper addresses the potential linkage of the disciplines of financial planning and the social and brain sciences from the combined perspectives of a financial planning expert and a business psychologist. It seeks to offer practical guidance on how to utilize insights from recent research and practice in the social and brain sciences to address the issue of effective financial planning in a time of multiple widespread international crises. The article will review the traditional approach to financial planning, indicate where the profession appears to stand now, describe advances in social and brain science, and provide some practical tools for …

Red Flags And Risks: Unpleasant Surprises When An Office Manager Suddenly Leaves, David Harris Cpa

The Journal of the Michigan Dental Association

Losing an office manager can pose significant challenges for dental practices. This article delves into the red flags and potential risks that may accompany an office manager's sudden departure, shedding light on the importance of understanding the circumstances surrounding their exit. The article highlights how embezzlement can be a reason behind unexplained departures and emphasizes the need to assess the situation more deeply. It explores account ownership issues that can hinder practice owners from accessing crucial business information, particularly in embezzlement investigations. The article recommends proactive measures for practice owners to secure access to vital accounts to prevent potential issues …

Case Study In Enterprise Risk Management: Lion Rock Summer Camps, Inc., Arthur Meaney

Honors Theses

Enterprise risk management is a crucial part of the modern business world. Being unprepared to handle risks that a company may face can lead to financial demise. Since the 1960s, the insurance industry has steadily moved away from the focus on insurance buying. Enterprise risk management strives to identify company-wide risks, evaluate their frequency and severity, come up with risk management and loss control methods, implement said methods, and monitor their effectiveness over time. In this case study, I identify risks for Lion Rock Summer Camps, Inc. and suggest various risk management and loss control methods. Lion Rock Summer Camps, …

The Impact Of Different Worldviews On The Financial Planning Process, Luke Osterhus

Senior Honors Theses

An individual's worldview has an effect on all aspects of their life. Worldview affects the decisions people make, the clothes they wear, the people they interact with, and so much more. What is often overlooked is the impact of worldview on one's view and use of money. Money is universal and everyone has some form of currency or assets. However, the way money is used, whether it is saved, spent, or invested, is often determined by an individual's own concept of money. Additionally, relationships between people are often chosen or influenced by an individual's worldview. Human beings are seen differently …

The Effect Of Risk Management Committee On Audit Fees: Malaysian Evidence, Masturah Malik, Rohami Shafie

DLSU Business & Economics Review

The global financial crises that have occurred in the past have caused a growing number of firms to establish a risk management committee (RMC) at their board level. By adopting 208 nonfinancial listed firms in Bursa Malaysia for the year end 2014, our study explores whether the establishment of an RMC and its attributes (having independent members, experts and female members) affect the audit fees charged towards the firms. Apart from the demand perspective of an audit, the study reports that independent members of the RMC are associated with higher audit fees. The result is derived from the basis that …

Lessons Learned: Greg Feldberg, Sandra Ward, Rosalind Z. Wiggins

Journal of Financial Crises

Greg Feldberg was a senior supervisory financial analyst at the Board of Governors of the Federal Reserve experienced in regulating large banks when he was recruited to the Financial Crisis Inquiry Commission (FCIC) where he worked from 2010-11, becoming its Director of Research. The FCIC was a bipartisan commission charged with investigating the causes of the global financial crisis of 2007-09. Feldberg shared thoughts about some of the challenges faced by the commission and why its report is important. This "Lessons Learned" is based on an interview with Mr. Feldberg.

Teres: Tail Event Risk Expectile Shortfall, Andrija Mihoci, Wolfgang Karl Hardle, Cathy Yi-Hsuan Chen

Sim Kee Boon Institute for Financial Economics

We propose a generalized risk measure for expectile-based expected shortfall estimation. The generalization is designed with a mixture of Gaussian and Laplace densities. Our plug-in estimator is derived from an analytic relationship between expectiles and expected shortfall. We investigate the sensitivity and robustness of the expected shortfall to the underlying mixture parameter specification and the risk level. Empirical results from the US, German and UK stock markets and for selected NASDAQ blue chip companies indicate that expected shortfall can be successfully estimated using the proposed method on a monthly, weekly, daily and intra-day basis using a 1-year or 1-day time …

Corporate Social Responsibility And Ceo Risk-Taking Incentives, Zhichuan Li

Business Publications

We examine how firms adjust CEO risk-taking incentives in response to risk environments associated with their corporate social responsibility (CSR) standing. We find strong evidence that as a firm's CSR status improves (declines), increasing (decreasing) its risk-taking capacity, the firm responds by adjusting compensation contracts to increase (decrease) CEO risk-taking incentives (Vega). One channel of the adjustment is through stock option grants. Further analyses indicate that the positive CSR-Vega association is stronger in firms with better corporate governance and in industries where riskiness is more important. Our evidence indicates that firms are not passive in response to changes in CSR …

Derivative Initiative: Does The Use Of Financial Derivatives Influence Firm Value In The Philippine Context?, Julia Alfonso D. Arrastia, Christina Angela N. Balagot, Joseph Anthony C. Go, Dominique Ann Philomena V. Lacuna

Angelo King Institute for Economic and Business Studies (AKI)

Firms use financial derivatives as a way to hedge risky transactions to avoid financial risks. Studies have focused on firms’ use of financial derivatives in developed countries. However, there is limited research done on emerging markets like the Philippines because these economies have only recently adapted advanced reporting standards that obligate the disclosure of the nature and extent of risks resulting from the use of financial instruments. We used Tobin’s Q ratio to proxy for firm value and determine the presence of a hedging premium. Because derivatives are used by firms to hedge against currency risks, interest rate risks, and …

Compensation Strategies That Support Commercial Banks’ Effective Risk Management Practices, Elias Kagumya

Walden Dissertations and Doctoral Studies

Compensation structures with relatively high levels of contingent pay encouraged managers to engage in excessive risk-taking behavior at financial institutions, which contributed to the global financial crisis of 2008. The purpose of this study, guided by the theory of the firm, was to explore compensation strategies that some executives in Uganda used to support effective risk-management practices. This multiple case study was an in-depth inquiry into compensation strategies that encouraged prudent risk-taking behavior. The target population comprised 5 risk-management executives from 5 separate commercial banks who had successfully implemented compensation strategies that supported risk management practices. Data were collected through …

Jpmorgan Chase London Whale E: Supervisory Oversight, Arwin G. Zeissler, Andrew Metrick

Journal of Financial Crises

As a diversified financial service provider and the largest United States bank holding company, JPMorgan Chase (JPM) is supervised by multiple regulatory agencies. JPM’s commercial bank subsidiaries hold a national charter and therefore are regulated by the Office of the Comptroller of the Currency (OCC). Since the bank’s Chief Investment Office (CIO) invested the surplus deposits of JPM’s commercial bank units, the OCC was also CIO’s primary regulator. During the critical period from late January through March 2012, when CIO traders undertook the failed derivatives strategy that ultimately cost the bank $6 billion, JPM did not provide the OCC with …

Swaption Portfolio Risk Management: Optimal Model Selection In Different Interest Rate Regimes, Poh Ling Neo, Chyng Wen Tee

Research Collection Lee Kong Chian School Of Business

We formulate a risk-based swaption portfolio management framework for profit-and-loss (P&L) explanation. We analyze the implication of using the right volatility backbone in the pricing model from a hedging perspective, and demonstrate the importance of incorporating stability and robustness measure as part of the calibration process for optimal model selection. We also derive a displaced-diffusion stochastic volatility (DDSV) model with a closed-form analytical expression to handle negative interest rates. Finally, we show that our framework is able to identify the optimal pricing model, which leads to superior P&L explanation and hedging performance.

The Lehman Brothers Bankruptcy B: Risk Limits And Stress Tests, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

Investment banks are in the business of taking calculated risks. Risk management infrastructure facilitates the safe pursuit of profits and the balancing of associated risks. By 2006, Lehman Brothers was thought to have a very respectable risk management system, and even its regulator, the Securities and Exchange Commission, viewed its risk framework as being fully compliant with regulatory requirements. In its public disclosures, Lehman characterized its risk controls as “meaningful constraints on its risk taking” and evidence of its continued financial stability. Beginning in late 2006, however, Lehman began dismantling its carefully crafted risk management framework as it pursued a …

Dynamic Credit Default Swap Curves In A Network Topology, Xiu Xu, Cathy Yi-Hsuan Chen, Wolfgang Karl Härdle

Sim Kee Boon Institute for Financial Economics

Systemically important banks are connected and their default probabilities have dynamic dependencies. An extraction of default factors from cross-sectional credit default swap (CDS) curves allows us to analyze the shape and the dynamics of default probabilities. In extending the Dynamic Nelson Siegel (DNS) model to an across firm multivariate setting, and employing the generalized variance decomposition of Diebold and Yilmaz [On the network topology of variance decompositions: Measuring the connectedness of financial firms. J. Econom., 2014, 182(1), 119–134], we are able to establish a DNS network topology. Its geometry yields a platform to analyze the interconnectedness of long-, middle- and …

Compensation Clawback Policies And Corporate Lawsuits, Matteo P. Arena, Nga Nguyen

Finance Faculty Research and Publications

Purpose

The purpose of this paper is to study the relation between compensation clawbacks and lawsuits and analyze how these two corporate disciplinary forces interact. This paper hypothesizes that by allowing firms to recoup compensation from managers who breach their fiduciary duty, clawbacks provide a form of discipline that potentially reduces the likelihood of managerial wrongdoing, which, in turn, lowers the risk of corporate lawsuits.

Design/methodology/approach

This paper identifies whether or not a company in the S&P 1500 had a clawback policy between 2007 and 2014 by searching the company filings and press releases. The authors also construct different proxies …

Managing Swaption Portfolio Risk Under Different Interest Rate Regimes, Poh Ling Neo, Chyng Wen Tee

Research Collection Lee Kong Chian School Of Business

Efficient risk managing of swaption portfolios is crucial in the hedging of interest rate exposure. This paper formulates a portfolio risk management framework under stochastic volatility models. The implication of using the right volatility backbone in the stochastic-alpha-beta-rho (SABR) model is analyzed. In order to handle negative interest rates, we derive a displaced-diffusion stochastic volatility (DDSV) model with closed-form analytical expression for swaption pricing. We demonstrate that the dynamics naturally allow for negative rates, and is also able to fit the market well. Finally, we show that choosing the right backbone in the DDSV model results in optimal hedging performance …

How Do Financial Institutions In China Mitigate Risks In Securitization Markets?, Tiantian Lyu

Honors College Theses

Asset securitization as the essential financial tool has increased the liquidity of underlying assets and promoted rapid economic development. In 2008, the outbreak of Subprime Mortgage Crisis that brought by the collapse of securitization triggered the U.S. securitization market to realize the risks involved in structured financial products, and thus facilitated the development of risk controlling tools. Through the analysis of securitization process, drivers, and credit rating agencies, the study concentrates on the formation of risks and modeling evaluation with evidence in both China and the U.S. markets. Statistical analysis was conducted on Chinese securitized products combining with risk management …