Essays on Liquidity Risk and Banking Fragility, Dynamic Depositor Discipline and Information Disclosure: An Empirical Analysis on the East Asian Banks

This thesis contains three empirical essays in banking. The empirical analyses focus on the role of information in banking. This will be done by analyzing the effectiveness of three types of signals that are sent by banks. The first signal is the CAMEL-type indicators that measure the soundness of the banks. The second signal is the price offered by banks in attracting deposits. The third signal is the amount of risk related information that banks disclose in their financial statements. This thesis aims to answer a few key questions that are relevant in banking. Firstly, it aims to find if CAMEL-type indicators are able to predict subsequent decisions by regulators to fail banks. This analysis will focus on the banks' liquidity ratio before and during crises in finding whether high liquidity holding and high reliance on external funding contribute towards the subsequent failure of the banks. Secondly, it aims to find if depositors discipline banks by focusing on depositors' reaction to the price signal from banks. Lastly, it aims to find if depositors react to the amount of risk-related information that banks disclose. The empirical issues are analyzed using the sample of financial institutions in five crisis led East Asian countries namely Indonesia, Korea, Malaysia, Philippines and Thailand. Among the striking findings in Chapter 2 are that the effect of liquidity on the probability of bank failure varies before and during a crisis. The results show the vulnerabilities of banks to failure declines as a result of higher liquidity holding. The results also show that banks' probability of failure increases as a result of high reliance on external funding. Findings in Chapter 3 confirm the endogenous relationship between the price and quantity of deposits in the depositor discipline model. Panel data analysis shows that depositors' behavior in East Asia is driven by bank fundamentals and risk aversion activities and also by price movements. Dynamic panel data analysis is carried out to account for the lagged dependency of the deposits growth variable and endogeneity of the price mechanism in the depositor discipline model. The results show that depositors in East Asia do not demand a higher price for deposits. Analysis by subdividing the sample of banks into healthy and weak banks shows that the relationship between price and quantity is not non-linear. Healthy banks are not able to attract more deposits by raising price. Depositors do not discipline weak banks by demanding a higher return. Lack of responsiveness by depositors to price signals may be attributable to large the outflow of deposits that happened during the crisis period and regulations on interest rates. Analysis in Chapter 4 confirms that depositors are influenced by the content and also quantity of risk-related information disclosure. Panel data analysis shows that higher risk-related information disclosure enables banks to attract more funds only during the post-crisis period. Once the lagged dependency of the deposits growth variable and endogeneity of the price and disclosure mechanism is taken into account, estimation using dynamic panel data analysis shows that disclosure is a more effective signal in attracting deposits than price. These findings provide support to the proposition of the third pillar of the Basel II which aims to encourage market discipline by requiring banks to disclose more risk-related information. In line with the wake-up-call hypothesis, the findings show that depositors' responsiveness to the amount of information disclosure is higher during the post-crisis period. This study also finds that the effectiveness of disclosure signal varies according to the quality of banks. Depositors in East Asia reward good banks for disclosing more information but they do not discipline weak banks by demanding greater disclosure. Greater responsiveness of depositors to the disclosure signal of healthy banks compared to weak banks implies that disclosure is a more effective signal for healthy banks than for weak ones. Other issues analyzed in the thesis pertain to the relevance of the different type of econometric analysis used in carrying out the empirical analyses.The Ministry of Higher Education of MalaysiaUniversity Sains Malaysi

A study of risk taking behavior in Malaysian stock market

Penyelidikan ini bertujuan untuk mengkaji perilaku pengambilan risiko para pelabur inrlivirlu eli pasaran saham Malaysia. Kerangka penyelirlikan telah rlirekahentuk untuk menguji perilaku pegambilan risiko para pelabur. Terdapat lima pembolehubah bagi menganalisa pengambilan risiko iaitu kecondongan mengambil risiko, inersia, basil terdahulu pengambilan kurang risiko, rangka masalah dan kebiasaan bidang masalah. Selain daripada itu, kecenderungan pengambilan risiko dan persepsi risiko juga diperkenalkan sebagai pembolehubah pencelahan. Ujian bipotesis telah dilakukan kepada 162 pelabur yang diterima daripada 8 broker saham. Keputusan telah membuktikan bahawa kecondongan megambil risiko dan inersia mempunyai kesan yang signifikan terhadap kecenderungan pengambilan risiko manakala kebiasan bidang masalah mempunyai kesan yang signifikan terhadap persepsi risiko. This research studied the risk taking behavior of individual investors in the Malaysian stock market. A theoretical framework was developed to test the risk taking behavior of individual investors. There were five independent variables in the proposed model - risk preference, inertia, less risk outcome history, problem framing and problem domain familiarity. Risk propensity and risk perception were the two mediating variables in this model. Hypotheses were tested with 162 investors from eight stockbroking companies. It was found out that risk preference and inertia had significant effect on risk propensity whereas problem domain familiarity had significant effect on risk perception

Training, Research and Development, and Spillover Effects of Foreign Direct Investment: A Study on Labour Productivity in Malaysian Manufacturing Industry

Using 2-digit levels of panel data set from 16 manufacturing industries during the period of 2000-2014, the present study adds to the literature by presenting new evidence at the industry level. We investigated the impact of training and research and development (R&D) investments jointly with the spillover effects of Foreign Direct Investment (FDI) in influencing labour productivity in Malaysian manufacturing industry. We employed the ordinary least square (OLS) estimator using regression with a robust standard error to estimate the labour productivity model. Our results clearly showed that investment in training is important in increasing labour productivity. It is interesting to highlight that when FDI spillovers from both “learning†and “technology†effects are taken into account in the labour productivity function, R&D investment showed a positive and significant impact on labour productivity. However, more important findings to be reported is that the spillover effects of FDI appear to be quickly assimilated by workers in the Malaysian manufacturing industries through the "learning effect" as opposed to “technology effect†and that the fast pace is biased towards higher labour productivity. Findings from this study can help the FDI attraction policy to be carried out not only to increase Malaysian labour productivity, but most importantly to ensure the function of FDI transfer of knowledge to labour takes place, which must be based on Key Performance Indicators (KPIs)

Monetary policy, bank ownership, and the lending channel: Evidence from ASEAN

This paper examines the effectiveness of bank lending channels in ASEAN countries. The main objective of this paper is to identify whether the effectiveness of banklending channels in ASEAN differs based on the countries’ financial structure, banks’ fundamentals and ownership type. The study makes use of unbalanced panel data of 214 commercial banks in nine ASEAN countries for the period from 2001 to 2015. Analysis using dynamic GMM estimators finds that the bank lending channel is more effective in CLMV countries which have a less-developed financial sector compared to ASEAN-5 countries which have a more developed financial sector. Particularly, we find that smaller banks with less liquidity have a broader scope to expand their financing portfolios when interest rates rise. We also find that foreign banks in ASEAN-5 countries and state-owned banks in ASEAN countries weaken the effect of monetary policy transmissions. However, local banks are vulnerable to changes in monetary policy. Further analyses confirm that the influence of ownership structure on credit growth is partly driven by the differences in the banks’ specific characteristics. Our findings suggest that the effectiveness of bank lending channel depends on financial structure, bank fundamentals and ownership structure. The regulators need to take this into account to ensure that the changes in monetary policy achieve the desired objectives

Comparing service quality in public vs private distance education institutions:Evidence based on Malaysia

Assessment of the quality of distance education institutions has become an important issue that needs to be addressed to ensure program survival. This study uses SERVPERF model to identify the differences that exists in students' perception of service quality in public and private universities in Malaysia that offer distance education. Our study confirms that this model is valid and reliable. We find that the students' overall perception of service quality is lower in all five dimensions of service quality for the private universities. The dimensions that influence overall service quality are noticeably different for public and private universities. This suggests that private universities need to improve their service provision in order to remain competitive. Managerial implications of the major findings are discussed

Competition, diversification and performance in dual banking: A panel VAR analysis

This article investigates the dynamic relationship among competition, diversification and bank performance using data for 18 countries with a dual banking system over the period 2000 to 2016.Analyses using panel vector autoregression (P.V.A.R.) model, impulse response function (I.R.F.) and variance decomposition (V.D.C.) methods confirm that market power increases the profitability and the stability of banks the dual banking system while revenue diversification reduces them. Market power increases revenue diversification of banks. Segregating the sample of banks into emerging and developing countries, we find that positive impact of market power on profitability is stronger for emerging countries. Even though we find that revenue diversification has a more damaging effect on the profitability of banks in the developing countries, it only dampens the stability of banks in emerging countries. In addition, we find that asset diversification dampens the stability of banks. However, it has a more positive impact on the profitability of banks in emerging economies

BEHAVIORAL BIASES AND CREDIT CARD REPAYMENTS AMONG MALAYSIANS

Analyses done using the survey response of 451 credit cardholders in the northern region of West Malaysia have shown that credit cardholder repayment pattern differed based on their demographic profile. Specifically, the study found that credit cardholders who were younger and earned a lower income tended to make poorer repayment decisions. In contrast, those with higher academic qualifications tended to make better repayment decisions. Further analyses also revealed that behavioral biases were better at predicting those who made full payment of the outstanding balance and those who paid more than the minimum amount, but failed to predict those who only paid the minimum amount or less. In addition, it was found that overspending emerged as the strongest predictor which discriminated among the three repayment groups, followed by risk aversion, myopia and impulsiveness

Behavioral Biases and Credit Card Repayments Among Malaysians

Analyses done using the survey response of 451 credit cardholders in the northern region of West Malaysia have shown that credit cardholder repayment pattern differed based on their demographic profile. Specifically, the study found that credit cardholders who were younger and earned a lower income tended to make poorer repayment decisions. In contrast, those with higher academic qualifications tended to make better repayment decisions. Further analyses also revealed that behavioral biases were better at predicting those who made full payment of the outstanding balance and those who paid more than the minimum amount, but failed to predict those who only paid the minimum amount or less. In addition, it was found that overspending emerged as the strongest predictor which discriminated among the three repayment groups, followed by risk aversion, myopia and impulsiveness

Determinants of microenterprise performance among microcredit clients in urban areas of Malaysia

As one of the anti-poverty instruments, the potential of microenterprise in improving livelihoods through the promotion of self-employment activities and micro-entrepreneurship appears to have been increasing over time including in Malaysia. Therefore, this study aims to assess the determinants of microenterprise performance, with particular reference to microenterprise under the TEKUN Nasional microcredit scheme in urban areas of Malaysia. A conceptual framework is proposed considering a set of hypothesis, which were tested to a sample of 171 microcredit clients using random sampling method in Penang State, Malaysia. This study employed a descriptive analysis and multiple linear regression to analyze the primary data that was obtained through self-administered questionnaire. The results led to the conclusion that access to microcredit, previous experience, entrepreneurial values, and managerial competencies are predictors of microenterprise performance. The number of workers are also equally significant for the performance. The findings of this study suggests that finance per se is not sufficient in boosting the performance of microenterprise. The entrepreneurs and the enterprise attributes are equally important for microenterprise performance. Despite considerable attention on microcredit facilities, policy makers and practitioners in Malaysia should focus their energy to ensure their clients are highly competence in terms of entrepreneurial insights, managerial skills, basic experience and the stability of enterprises prior to venturing in microentrepreneurship activities particularly in urban areas

The Relationship between Risk Propensity, Risk Perception and Risk-Taking Behaviour in an Emerging Market

This paper reports evidence to support a relationship between risk propensity, risk perception, and risk-taking behaviour of investors in an emerging market. Primary data were gathered using a validated structured questionnaire, which was self-administered by respondents: there were 162 investors from 8 stockbroking companies. A multiple regression was used to test the direct and indirect effects of the identified behavioural characteristics on investment decision. Risk propensity was found to be positively related to risk-taking behaviour whereas risk perception was negatively related to risk-taking behaviour.It was further found that risk perception partially mediates the effect of propensity to take risk. This suggests that the perceptual framing of a situational context in the investors’ thought processes reduces but it does not totally overwhelm the innate personality traits with respect to either the investor’s risk-seeking or risk-averseness. The tendency to engage in risky behaviour is more psychological in nature. The implications of the research are further explored