Volume 2, Issue 1:
ACRN Journal of Finance and Risk Perspectives
Vol. 2, Issue 1, Nov. 2013, ISSN 2305-7394
TABLE OF CONTENTS
EDITORIAL BOARD
SOLVENCY-TESTS – AN ALTERNATIVE TO THE RULES FOR CAPITAL-MAINTENANCE WITHIN THE BALANCE SHEET IN THE EUROPEAN UNION
Josef Arminger 1
1 Professor of International Financial Accounting, University of Applied Sciences Upper Austria; School of Management, Steyr
Abstract. Creditor protection in the European Union (EU) is based on the principle of capital maintenance within the balance sheet in accordance with the Second Company Law Directive issued in 1976. Developments in financial reporting, especially the trends towards internationalization in connection with the adoption of International Financial Reporting Standards (IFRS), have a major impact on the current principles of capital maintenance. Accounting law in the EU is based on the Fourth Council Directive which allows a wide range of accounting options leading to a different basis for distributions to shareholders. As a consequence creditor protection may be endangered. As a consequence the European Commission has initiated projects with the aim to modernize company law. Solvency tests are seen as a possible alternative to the existing principles of capital maintenance.
This contribution provides an overview of the current rules within the EU to limit distributions to shareholders. On the other hand, a critical analysis of both systems, as well as an overview of current developments, shows a need for political action.
Keywords: Solvency-test, Capital-maintenance, Creditor Protection
CREDIT RISK MANAGEMENT IN MICROFINANCE: THE CONCEPTUAL FRAMEWORK
Baklouti Ibtissem 1, Abdelfettah Bouri 1
1 University of Sfax- Tunisia, Unit of research: Corporate Finance and Financial Theory (COFFIT)
Abstract. Microfinance gained tremendous attention and became a buzz-word in policy-makers as well academic researchers mainly when Muhammad Yunus, the founder of Microcredit, received the Nobel Prize for Peace in 2006. This field attracted a considerable interest in the financial world and Micofinance institution sustainability problem was one of the main topics that has been hotly debated. In this paper, we traced developments in the credit risk management in microfinance institutions. We also discussed the interaction of judgemental and statistical forecasting methods as screening mechanism in the process of selecting individual microfinance borrowers.
JEL: G15, G21, G32
Keywords: Microfinance institutions, Default, Credit Risk Management
PSEUDO MARKET TIMING OF PREMIUM AND STANDARD LISTING IPOS
Rama Prasad Kanungo 1
1 Senior Lecturer in Business Finance, TME, University of Greenwich, Email:kr43@gre.ac.uk
Abstract. Recently, the IPOs are classified into premium listings and standard listings under the new FSA (Financial Services Authority) issuance regime at the time of flotation. The pseudo market timing of 231 IPOs is examined over a window of April 2010 to September 2012 from a panel of UK Initial Public Offerings (IPOs). The study shows contrasting results for both the categories. The premium listing IPOs register on an average -12.03% return over 1-24 post calendar months, while the standard listings yield an average 0.04% excess return. The premium listing IPOs indicate underperformance of between -0.43% to -5.89% over one calendar year. Whereas, the standard listing registers marginal excess positive return over the same post calendar month period. The supplementary analysis suggests that underpricing is a significant character of the premium listing but does not feature in the standard listing offers. Therefore, the results support to some extent that the timing effects are observable and can be explained by the pseudo market hypothesis.
Keywords: Pseudo Market timing, Standard and Premium listing, IPO aftermarket performance
FORECASTING VALUE AT RISK: A STRATEGY TO MINIMIZE DAILY CAPITAL COSTS
Cheng-Kun Kuo 1, Chih-Wei Lee 2, Weiru Kuo 3
1 Professor of Finance, Department of International Business, College of Management, National Taiwan University
2 Associate Professor, Department of Finance, National Taipei College of Business
3 Analyst, Flyberry Capital, LLC
Abstract. Reporting daily risk estimates by banks to the monetary authorities is re-affirmed in the Basel III Accord. The risk estimates can be computed from an approved internal Value-at-Risk (VaR) model, among others.
It is well-noted that reporting either too high or too low risk estimates can lead to high capital costs. For profit-seeking banks, there is an unambiguous incentive to hold a minimum capital reserve in order to minimize capital costs. This is a typical financial trade-off problem.
In this paper, we suggest a modification to a previously proposed decision rule to tackle the problem in a more realistic way. The empirical results show less capital costs for banks under the condition of restricting the number of violations.
Keywords: risk estimates, value-at-risk, capital reserves, capital charges, market risk, internal models, GARCH, RiskMetrics
ASSESSING CORPORATE RISK: A PD MODEL BASED ON CREDIT RATINGS
Vicente S. Cardoso 1, André L. S. Guimarães 1, Henrique F. Macedo 1, Jorge C. C. O. Lima 1
1 Credit Division, BNDES – Brazilian Development Bank
Abstract. This paper proposes a model which tries to mimic agencies’ corporate ratings. Using financial data for more than 1,400 firms across several years, a model based on financial statements was estimated and yielded reasonable accuracy for companies of diverse sizes and industries. The model was able to predict ratings within 3 notches of accuracy for about 90% of the cases.
Keywords: risk metrics, corporate risk, credit, rating
ACRN Journal of Finance and Risk Perspectives
Vol. 2, Issue 1, Nov. 2013, ISSN 2305-7394
TABLE OF CONTENTS EDITORIAL BOARD SOLVENCY-TESTS – AN ALTERNATIVE TO THE RULES FOR CAPITAL-MAINTENANCE WITHIN THE BALANCE SHEET IN THE EUROPEAN UNION Josef Arminger 1
1 Professor of International Financial Accounting, University of Applied Sciences Upper Austria; School of Management, Steyr
Abstract. Creditor protection in the European Union (EU) is based on the principle of capital maintenance within the balance sheet in accordance with the Second Company Law Directive issued in 1976. Developments in financial reporting, especially the trends towards internationalization in connection with the adoption of International Financial Reporting Standards (IFRS), have a major impact on the current principles of capital maintenance. Accounting law in the EU is based on the Fourth Council Directive which allows a wide range of accounting options leading to a different basis for distributions to shareholders. As a consequence creditor protection may be endangered. As a consequence the European Commission has initiated projects with the aim to modernize company law. Solvency tests are seen as a possible alternative to the existing principles of capital maintenance.
This contribution provides an overview of the current rules within the EU to limit distributions to shareholders. On the other hand, a critical analysis of both systems, as well as an overview of current developments, shows a need for political action.
Keywords: Solvency-test, Capital-maintenance, Creditor Protection
CREDIT RISK MANAGEMENT IN MICROFINANCE: THE CONCEPTUAL FRAMEWORKBaklouti Ibtissem 1, Abdelfettah Bouri 1
1 University of Sfax- Tunisia, Unit of research: Corporate Finance and Financial Theory (COFFIT)
Abstract. Microfinance gained tremendous attention and became a buzz-word in policy-makers as well academic researchers mainly when Muhammad Yunus, the founder of Microcredit, received the Nobel Prize for Peace in 2006. This field attracted a considerable interest in the financial world and Micofinance institution sustainability problem was one of the main topics that has been hotly debated. In this paper, we traced developments in the credit risk management in microfinance institutions. We also discussed the interaction of judgemental and statistical forecasting methods as screening mechanism in the process of selecting individual microfinance borrowers.
JEL: G15, G21, G32
Keywords: Microfinance institutions, Default, Credit Risk Management
PSEUDO MARKET TIMING OF PREMIUM AND STANDARD LISTING IPOSRama Prasad Kanungo 1
1 Senior Lecturer in Business Finance, TME, University of Greenwich, Email:kr43@gre.ac.uk
Abstract. Recently, the IPOs are classified into premium listings and standard listings under the new FSA (Financial Services Authority) issuance regime at the time of flotation. The pseudo market timing of 231 IPOs is examined over a window of April 2010 to September 2012 from a panel of UK Initial Public Offerings (IPOs). The study shows contrasting results for both the categories. The premium listing IPOs register on an average -12.03% return over 1-24 post calendar months, while the standard listings yield an average 0.04% excess return. The premium listing IPOs indicate underperformance of between -0.43% to -5.89% over one calendar year. Whereas, the standard listing registers marginal excess positive return over the same post calendar month period. The supplementary analysis suggests that underpricing is a significant character of the premium listing but does not feature in the standard listing offers. Therefore, the results support to some extent that the timing effects are observable and can be explained by the pseudo market hypothesis.
Keywords: Pseudo Market timing, Standard and Premium listing, IPO aftermarket performance
FORECASTING VALUE AT RISK: A STRATEGY TO MINIMIZE DAILY CAPITAL COSTS Cheng-Kun Kuo 1, Chih-Wei Lee 2, Weiru Kuo 3
1 Professor of Finance, Department of International Business, College of Management, National Taiwan University
2 Associate Professor, Department of Finance, National Taipei College of Business
3 Analyst, Flyberry Capital, LLC
Abstract. Reporting daily risk estimates by banks to the monetary authorities is re-affirmed in the Basel III Accord. The risk estimates can be computed from an approved internal Value-at-Risk (VaR) model, among others.
It is well-noted that reporting either too high or too low risk estimates can lead to high capital costs. For profit-seeking banks, there is an unambiguous incentive to hold a minimum capital reserve in order to minimize capital costs. This is a typical financial trade-off problem.
In this paper, we suggest a modification to a previously proposed decision rule to tackle the problem in a more realistic way. The empirical results show less capital costs for banks under the condition of restricting the number of violations.
Keywords: risk estimates, value-at-risk, capital reserves, capital charges, market risk, internal models, GARCH, RiskMetrics
ASSESSING CORPORATE RISK: A PD MODEL BASED ON CREDIT RATINGSVicente S. Cardoso 1, André L. S. Guimarães 1, Henrique F. Macedo 1, Jorge C. C. O. Lima 1
1 Credit Division, BNDES – Brazilian Development Bank
Abstract. This paper proposes a model which tries to mimic agencies’ corporate ratings. Using financial data for more than 1,400 firms across several years, a model based on financial statements was estimated and yielded reasonable accuracy for companies of diverse sizes and industries. The model was able to predict ratings within 3 notches of accuracy for about 90% of the cases.
Keywords: risk metrics, corporate risk, credit, rating