The Risk Implications of Insurance Securitization: The Case of Catastrophe Bonds

Catastrophe (Cat) bonds are insurance securitization vehicles which are supposed to transfer catastrophe-related underwriting risk from issuers to capital markets. This paper addresses key, unanswered questions concerning Cat bonds and offers the following results. First, our findings show firms that issue Cat bonds exhibit less risky underwriting portfolios with less exposure to catastrophe risks and overall less need to hedge catastrophe risk. These results show that the access to the market for insurance securitization is easiest for firms with less risky portfolios. Second, firms that issue Cat bonds are found to experience a reduction in their default risk relative to non-issuing firms and our results, therefore, demonstrate that Cat bonds provide effective catastrophe hedging for issuing firms. Third, firms with less catastrophe exposure, increase their catastrophe exposure following an issue. Therefore, our paper cautions that the ability to hedge catastrophe risk causes some firms to seek additional catastrophe risk

Boards with many female directors take as many risks as more male-dominated ones

Fairness, not economics, justifies gender diversity, argue Vathunyoo Sila, Angelica Gonzalez and Jens Hagendorf

Competition issues in European banking

Purpose - The purpose of this paper is to assess the outcome of European Union (EU) deregulation and competition policies on the competitive conditions of the main EU banking markets. Design/methodology/approach - After a review of deregulation and competitition policies in the EU banking industry, the degree of competition in the largest five EU banking markets using is tessted both structural (concentration ratios and Herfindahl-Hirshman indices) and non-structural (H-statistics and Lerner index) approaches. Findings - Results indicate that EU banking markets are becoming progressively more concentrated and that there is no evidence of an increase in competitive pressure. Country differences are also apparent thereby indicating that despite the sustained regulatory interventions, significant barriers to the integration of EU retail banking markets remain. In line with recent literature, the analysis also seems to provide further evidence that concentration is not necessarily a good proxy for competition. Originality/value - Increased market concentration and its effects on competition are of relevance in a period of renewed EU regulatory efforts to remove the remaining barriers to the integration of financial markets. The evaluation of competitive conditions and market power in EU banking are therefore of interest to policy-makers and regulators. © Emerald Group Publishing Limited

The Effects of Regulatory Office Closures on Bank Behavior

We investigate if the decentralized structure of regulatory office networks influences supervisory outcomes and bank behavior. Following the closure of an office, banks previously supervised by that office increase their lending and risk-taking. As a result, affected banks have larger loan losses and higher failure rates during the 2008–09 financial crisis. Analysis of the channels suggests that proximate supervisors enforce timelier provisioning practices, restrict large cash payouts, and provide advice that increases a bank's risk-adjusted returns. Overall, our findings imply that geographical proximity reduces informational frictions in supervisory monitoring and leads to more stable banks

What do premiums paid for bank M&As reflect? the case of the European Union

We analyze the takeover premiums paid for a sample of European bank mergers between 1997 and 2007. We find that acquiring banks value profitable, high-growth, and low-risk targets. We also find that the strength of bank regulation and supervision and of deposit insurance regimes in Europe has measurable effects on takeover pricing. Stricter bank regulatory regimes and stronger deposit insurance schemes lower the takeover premiums paid by acquiring banks. This result, presumably in anticipation of higher compliance costs, is mainly driven by domestic deals. Also, we find no conclusive evidence that bidders seek to extract benefits from regulators either by paying a premium for deals in less regulated regimes or becoming too big to fail.

Do Announcements about Corporate Social Responsibility Create or Destroy Shareholder Wealth? Evidence from the UK

This paper investigates the stock market reaction to the announcement that a firm has been included in the UK FTSE4Good index of socially responsible firms. We use the announcement of firm inclusion in the index to estimate the stock market reaction to a firm being classified as socially responsible. This is an important test of whether investors view the undertaking of socially responsible activities by firms as a value increasing or value decreasing initiative by management. We do not find strong evidence in favour of a positive market reaction. However, there is a large cross-sectional variation in the market reaction to this announcement. Investors appear to be reacting to this event and there are a number of firm characteristics that are well-established proxies for CSR that can explain the market reaction

Little Emperor CEOs:Firm risk and performance when CEOs grow up without siblings

Using hand-collected data on the CEOs of Chinese companies, we find that managers who grow up without siblings are associated with riskier firms and worse performance. Our analysis exploits regional and time variation in China’s compulsory one-child policy as a shock to fertility rates. Consistent with explanations that only children have not experienced competition among siblings, we show that firms led by only child CEOs underperform when industry competition is stronger. As the number of only-children is growing rapidly, our study reveals an increasingly important determinant of firm risk and performance

Little Emperor CEOs: Firm Risk and Performance When CEOs Grow Up without Siblings

Using hand-collected data on the CEOs of Chinese companies, we find that managers who grow up without siblings are associated with riskier firms and worse performance. Our analysis exploits regional and time variation in China’s compulsory one-child policy as a shock to fertility rates. Consistent with explanations that only-children have not experienced competition among siblings, we show that firms led by only-child CEOs underperform when industry competition is stronger. Our findings suggest that fertility policies affect the supply of managerial capital and, consequently, corporate policies and performance

The impact of M&As on bank risk in Spain (1986-2007)

Artículo de revistaOur article presents the short term changes in bank risk profiles before and after domestic banks M&As that took place before the present crisis (1986-2007) based on different exante and ex-post measures of risk. Our results control for potential selection bias and show that, for acquiring banks, size and capitalization are important drivers of risk changes before and after M&As. For target banks, we find that target banks that received financial support from the government in the context of M&As showed a statistically significant increase in risk-taking immediately before but not after a deal compared to all other banks. Overall, our results indicate that bank size, leverage and government support have not caused banks to engage in additional risk-taking via M&As. However, changes to banks’ funding and income mix are linked to higher risk-taking. Our results therefore emphasize the need for increased supervisory scrutiny of the sources of bank funding and income of merging banks