A Barrier Option Utility Framework for Bank Interest Margin under Government Bailout

[[abstract]]The barrier options theory of corporate security valuation is applied to the contingent claims of a distressed bank under a bailout program of distressed loan purchases. In particular, the bank acts as if it has a single utility function that positively weights equity returns like, but negatively weights bankruptcy dislike. We show that an increase in the amount of distressed loan purchases decreases the loan amount at an increased margin when buying distressed loan amount is high. Bailout as such makes the bank less prone to loan risk taking, thereby contributing the stability of the banking system. A numerical exercise shows that the market-based estimates of the expected utility of bank equity returns which ignore the weights (a standard down-and-out call option) or the dislike (a standard call option) lead to significant overestimation.[[journaltype]]國外[[ispeerreviewed]]Y[[booktype]]電子版[[countrycodes]]CA

Credit Risk Hedging, Deposit Insurance Fund Protection, and Default Risk in Retail Banking during a Financial Crisis

[[abstract]]The barrier options theory of corporate security valuation is applied to the contingent claims of a regulated bank. The regulator/insurer of the bank owns a down-and-in call option on the bank’s assets which can be balanced against the expected coverage cost. This paper examines how the bank’s credit risk hedging operation affects its spread behavior and performance and how these effects vary at various levels of the regulatory insurance fund protection. We find that an increase in the bank’s credit risk hedging has a negative effect on its loan rate, deposit rate, default risk, and liability value. The regulatory deposit insurance fund protection reinforces the reduction in bank default risk, thereby contributing to the stability of the banking system. The insurance fund protection with credit risk hedging confirms the requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.[[notice]]補正完畢[[journaltype]]國外[[ispeerreviewed]]Y[[booktype]]紙本[[countrycodes]]CA

Employee Participation, Trust and Affective Commitment

[[abstract]]Human capital enhances corporate competitiveness. In order to retain talent within organization, employee attitude becomes a critical issue. This study investigates the relationship between employee participation, trust and affective commitment. We take path analysis and find out that both perceptions of financial participation and degree of non financial participation are positively associated with affective commitment. Also, the relationship between financial participation and affective commitment was mediated by trust. However, trust doesn’t have complete mediation effects on the relationship between non financial participation and affective commitment. The result is offered to corporation officers for the reference of making human capital retention decisions.[[sponsorship]]Oxford Journal (ISSN 1551-4498); Association for Business & Economics Research (ABER)[[conferencetype]]國際[[conferencedate]]20120627~20120628[[booktype]]電子版[[iscallforpapers]]Y[[conferencelocation]]Cambridge, Englan

Is corporate governance a better estimator of financial crises than financial ratios?

[[abstract]]In order to provide accurate forecast of financial crises, researcher nowadays argue that leading indicators such as Corporate Governance may be a better estimator than lag indicators such as Financial Ratios. Using sample data from Taiwan Economic Journal (TEJ), this research examines Corporate Governance, Financial Ratios and financial crises information for all public trading companies in Taiwan from 2003 to 2010. Data from financial, banking and security companies are excluded because of the nature of such industries. The empirical evidence suggests that: First, Corporate Governance is a good estimator; compared to Financial Ratios it is also able to forecast a financial crisis earlier and with better accuracy. Second, when a general manager (GM) is also the chairman of the board, the extent of such dual identities’ influence on financial crisis is negatively intervened by the GM’s shareholding ratio. Moreover, auditors with characteristics such as available resources, qualifications and professionalism are better able to serve as estimator of corporate financial crises. Finally, this research considers influence factors from one to three years, and compares models consisting of just one factor vs. a model combining Corporate Governance and Financial Ratios. The result shows that a Composite Index based on Corporate Governance and Financial Ratios may better help determine whether the company would suffer from financial crisis in the future. In addition, the forecasting power of Financial Ratios declines over a three-year period. In terms of the goodness fit for model development, model explanatory power and variable prediction capability, Corporate Governance is a better tool compared to Financial Ratios, and works better with the Composite Index (of Corporate Governance plus Financial Ratios).[[sponsorship]]American Accounting Association[[conferencetype]]國際[[conferencedate]]20140802~20140806[[booktype]]電子版[[iscallforpapers]]Y[[conferencelocation]]Atlanta, US