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  5. Banking and Finance in Emerging Markets
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Banking and Finance in Emerging Markets

Paper Session

Saturday, Jan. 8, 2022 12:15 PM - 2:15 PM (EST)

Hosted By: Society for the Study of Emerging Markets
  • Chair: Evzen Kocenda, Charles University

Share Pledging and Corporate Securities Fraud

Lawrence Kryzanowski
,
Concordia University
Mingyang Li
,
Zhongnan University of Economics and Law
Sheng Xu
,
Zhongnan University of Economics and Law
Jie Zhang
,
Trent University

Abstract

We examine the effect of insider share pledges on corporate fraud. We find a positive, causal relation between share pledges by controlling shareholders and detected corporate fraud. Firms whose controlling shareholders pledge have longer fraud detection cycles and receive lighter punishments. Firms with pledging controlling shareholders who hold pledging contracts with multiple financial institutions or continuous pledge commitments that exceed three years are more like to commit fraud. We examine two economic mechanisms through which firms with pledging controlling shareholders are more likely to commit detected fraud. Our baseline results are robust to bank monitoring and share repurchases, and to the use of difference-in-differences, instrumental variables, and two types of covariate balancing. Our paper quantifies the real effects of a widespread yet under-explored corporate governance phenomenon on detected corporate fraud.

Bank Margins, Financial Frictions and Bail-In Regulatory Framework: Empirical Evidence from Emerging Markets

Bilge Canbaloglu
,
Ankara Yıldırım Beyazıt University
Svatopluk Kapounek
,
Mendel University in Brno
Zuzana Kučerová
,
Mendel University in Brno

Abstract

We examine the cyclical behaviour of banks' lending margins and financial
frictions and dynamics of the price of capital during the economic turmoils,
especially during the financial crisis, European debt crisis and global COVID
crisis. We show the heterogeneous impact of macroprudential policy,
especially bail-in framework, on emerging market systems. In addition, we
put special emphasis on bank bond purchases with respect to bail-in regulatory
framework.

How Does the Market Power Affect the Market-Based Default Risk? Evidence from Indian Banks

Mohammad Azeem Khan
,
Indian Institute of Technology Kanpur
Wasim Ahmad
,
Indian Institute of Technology Kanpur

Abstract

Addressing some of the issues of accounting-based bank default risk measures, this study
highlights the role of two market-based bank default risk measures - Distance-to-Default (DD)
and Distance-to-Capital (DC), in indicating the banks' fragility by using the information on 32
Indian scheduled commercial banks for the period ranging over 2005 to 2019. Precisely, the
study investigates the nature of the relationship of bank default risk with market power
measured through the efficiency-based Lerner index and other bank-level and macroeconomic
indicators. Our results suggest a strong and negative association between bank market power
and banks' default risk measured through DD and DC. Among other important determinants of
default, the risk is Gross Non-performing Assets (GNPAs), economic growth, and stock market
volatility. The results are consistent with alternative variables and methodologies employed
under robustness analysis. In the Indian context, this is the first study that employs the bank
risk measure, i.e., DC, that incorporates the capital adequacy thresholds embedded in the
revised Prompt Corrective Action (PCA) framework.

Macroeconomic Responses of Emerging Market Economies to Oil Price Shocks: Analysis by Region and Resource Profile

Sophio Togonidze
,
Charles University
Evzen Kocenda
,
Charles University

Abstract

We analyze the impact of oil price shocks on the macroeconomic fundamentals in a panel of emerging economies from three regions and with different resource endowments. The existing literature on emerging economies remains inconclusive on how regional factors and resource characteristics affect the response of macroeconomic variables against oil price shocks. We find that, across the regions, Latin America and the Caribbean are the least affected by oil price fluctuations while the impact of oil price shocks on East Asia and the Pacific is positive on inflation and negative on output growth. Analysis by resource endowment fails to demonstrate how oil price shocks may be used to explain huge variations in macroeconomic variables in oil-importing economies. However, in mineral-exporting and less resource-intensive economies, one standard deviation in oil prices can explain the approximately two-percent variation in consumption in the short-run. Our results confirm that one-policy-fits-all cannot be applied across diverse regions and in economies with different resource endowments.

Discussant(s)
Evzen Kocenda
,
Charles University
Wasim Ahmad
,
Indian Institute of Technology Kanpur
Svatopluk Kapounek
,
Mendel University in Brno
Jie Zhang
,
Trent University
JEL Classifications
  • F3 - International Finance
  • E3 - Prices, Business Fluctuations, and Cycles