Essays on the role of institutional ownership in bank governance

This dissertation consists of three chapters, focusing on U.S. bank holding companies from 2007 to 2013 to explore the role of institutional ownership in bank governance. In addition to the impact of ownership proportion, I explore the impact of ownership dispersion among institutional investors on bank safety, profitability and performance. In Chapter I, I show that the proportion of institutional ownership in banks has increased significantly after the recent financial crisis. Moreover, I examine the impact of institutional ownership proportion and dispersion on bank safety using capital ratios (i.e., Tier 1 and Tier 2 capital ratios) and credit risk (i.e. impaired loans, loan loss reserves, and net charge-off ratios). More importantly, I disentangle the impact of passive institutions (i.e., bank and insurance companies) from active institutions (i.e., mutual & pension funds, financial companies, private equity firms, and venture capitals). The results indicate that institutional investors alleviate risk and improve bank safety; active institutions significantly enhance capital ratios while passive institutions significantly alleviate credit risk. In Chapter II, I examine the impact of institutional ownership proportion and dispersion on bank profit margins (i.e., net interest, net noninterest, and net operating margins) and performance (i.e., ROA and Tobin’s Q). After disentangling passive institutions from active institutions, and controlling for the endogeneity of institutions decision to invest in bank holding companies using dynamic panel GMM two-step estimations with Windmaijer’s finite-sample robust standard errors, I find evidence that institutional investors, especially passive institutions, play a key role in bank governance by enhancing profitability and performance. In Chapter III, I summarize the findings of this dissertation and provide concluding remarks. Given the overall findings, bank safety, profitability and performance are not entirely the sole responsibility of executives and regulators. I provide evidence that the extent, type and distribution of institutional investors can be used as a proxy for additional monitoring of banks over and above that done by government regulators. Investors and regulators would do well to factor in institutional holdings in bank evaluations as institutional investors play a vital role not only in alleviating risk and improving safety but also in enhancing profitability and performance

Date stamping bubbles in Real Estate Investment Trusts

We test for the existence of single and multiple bubble periods in four Real Estate Investment Trust (REIT) indices using the Supremum Augmented Dickey-Fuller (SADF) and the Generalized SADF. These methods allow us to estimate the beginning and the end of bubble periods. Our results provide statistically significant evidence of speculative bubbles in the REIT index and its three components: Equity, Mortgage and Hybrid REITs. These results may be valuable for real estate financial managers and for investors in REITs

Disentangling the impacts of industrial and global diversification on firm risk

We examine the impact of corporate diversification on firm risk exposure from 1998 to 2016. We find that both global and industrial diversification mitigate idiosyncratic and world market risk while having a negligible impact on U.S. market risk, but the effects vary before, during, and after the financial crisis of 2007–2009. Before the crisis, only global diversification mitigates idiosyncratic risk, but it increases firms\u27 exposure to world market risk. During the crisis, industrial diversification increases idiosyncratic risk, but both types of diversification increase exposure to U.S. market risk. After the crisis, both types of diversification increase firms\u27 exposure to U.S. market risk but have negligible impact on idiosyncratic and world market risk. Our findings remain robust after we control for the potential endogeneity of the diversification decision through various self-selection models

Investors’ Uncertainty and Stock Market Risk

We propose a novel approach to model investors' uncertainty using the conditional volatility of investors' sentiment. Working with weekly data on investor sentiment, six major U.S. stock indices, and alternative measures of uncertainty, we run various tests to validate our proposed measure. The estimates show that investors' uncertainty is greater during economic downturns, and it is linked with lower investors' sentiment. In addition, the results support the existence of a positive conditional correlation between sentiment and returns. This positive spillover between sentiment and returns is interpreted as a positive link between investors' uncertainty and market risk. We also find that investors’ uncertainty and market risk are strongly driven by their lagged values. Our measure consistently captures periods of high uncertainty as shown by a positive and highly statistically significant correlation with other existing measures of uncertainty

Investors’ Uncertainty and Stock Market Risk

We propose a novel approach to model investors' uncertainty using the conditional volatility of investors' sentiment. Working with weekly data on investor sentiment, six major U.S. stock indices, and alternative measures of uncertainty, we run various tests to validate our proposed measure. The estimates show that investors' uncertainty is greater during economic downturns, and it is linked with lower investors' sentiment. In addition, the results support the existence of a positive conditional correlation between sentiment and returns. This positive spillover between sentiment and returns is interpreted as a positive link between investors' uncertainty and market risk. We also find that investors’ uncertainty and market risk are strongly driven by their lagged values. Our measure consistently captures periods of high uncertainty as shown by a positive and highly statistically significant correlation with other existing measures of uncertainty

Date Stamping Bubbles in Real Estate Investment Trusts

We test for the existence of single and multiple bubble periods in four Real Estate Investment Trust (REIT) indices using the Supremum Augmented Dickey-Fuller (SADF) and the Generalized SADF. These methods allow us to estimate the beginning and the end of bubble periods. Our results provide statistically significant evidence of speculative bubbles in the REIT index and its three components: Equity, Mortgage and Hybrid REITs. These results may be valuable for real estate financial managers and for investors in REITs

Disentangling the Impacts of Industrial and Global Diversification on Firm Risk

We examine the impact of corporate diversification on firm risk exposure from 1998 to 2016. We find that both global and industrial diversification mitigate idiosyncratic and world market risk while having a negligible impact on U.S. market risk, but the effects vary before, during, and after the financial crisis of 2007–2009. Before the crisis, only global diversification mitigates idiosyncratic risk, but it increases firms\u27 exposure to world market risk. During the crisis, industrial diversification increases idiosyncratic risk, but both types of diversification increase exposure to U.S. market risk. After the crisis, both types of diversification increase firms\u27 exposure to U.S. market risk but have negligible impact on idiosyncratic and world market risk. Our findings remain robust after we control for the potential endogeneity of the diversification decision through various self-selection models

The effects of institutional ownership on the value and risk of diversified firms

We study the link between institutional ownership and firms' diversification strategy, value and risk. Our sample includes US-listed firms with segment data from 1998 to 2012. We find that not all kinds of diversification are value-destroying; unlike industrially-diversified firms, global single-segment firms are trading at a premium relative to their imputed value. The presence of institutional investors and the stability of their shareholdings positively influence the likelihood that a firm is diversified. The proportion (volatility) of institutional ownership is higher (lower) among diversified firms compared to domestic single-segment firms. More importantly, the higher the proportions of institutional shareholdings, the higher the excess value of the diversified firm and the lower the firm idiosyncratic risk. Institutional ownership volatility, on the other hand, is inversely related to a firm excess value but positively related to its idiosyncratic risk. Thus, the presence of long-term stable institutional investors enhances the value of diversified firms. Our findings remain robust to various model specifications and estimation techniques

Application of Sulfur-Modified Magnetic Nanoparticles for Cadmium Removal from Aqueous Solutions

Even at low levels, heavy metals are toxic and can damage living things. They do not break down or decompose and tend to build up in plants, animals, and people causing health concerns. Magnetic nanoparticles (MNPs) can be considered as potential adsorbents for the removal of cadmium (Cd2+) from aqueous solutions because of their high surface area and the combined effect of adsorption and separation under external magnetic fields. In this study, a novel sulfur-modified magnetic nanoparticle was applied as an adsorbent for the removal of Cd2+ ions from aqueous solutions. The adsorbent was characterized by scanning electron microscopy (SEM), Fourier transform-infrared (FT-IR) spectroscopy, and thermogravimetric analysis (TGA). The effects of pH, contact time, and initial concentration of Cd2+ on the removal efficiency of it were investigated in batch adsorption experiments. The equilibrium data fitted the Langmuir isotherm model better than the Freundlich isotherm model, and they were well explained in terms of pseudo-second-order kinetics. The maximum monolayer capacity qm and KL the Langmuir constant were calculated from the Langmuir as 5.1867 mg/g and 0.1562 L/mg, respectively