Strengthening the Governance of the International Monetary Fund: How a Dual Board Structure Could Raise the Effectiveness and Legitimacy of a Key Global Institution

After having been at the helm of the international monetary system for decades, the International Monetary Fund was sidelined in policy debates in the past few years. One reason for the IMF not having taken a more central role in addressing key global policy issues in recent years relates to its internal governance. This paper focuses specifically on the structure and functioning of the Executive Board. The paper argues that Executive Board, although uniquely placed to provide authoritative guidance to IMF member countries, exert peer pressure and give economic policy advice, is overwhelmed by its tasks and responsibilities and too large to be an effective forum for true international economic dialogue. The paper makes the point that the highly diverse tasks of the IMF require different governance structures in order to be implemented effectively. We believe that the optimal number of governing bodies for the ongoing IMF work is not one, but that it is two, duly distinguishing between multilateral matters from country-related matters. Specifically, we propose to split the tasks that are predominantly systemic in nature from those that are predominantly country-focused and technical and believe that this can be done. Two different Boards would be dealing with these issues: a Systemic Issues Board and a Country Issues Board. The paper also discusses how such a dual board structure could be implemented in practice.IMF; Governance

The Impact of Banking Deregulation on Canadian Banks Returns

This paper revisits the impact of OBS activities on Canadian banks risk-return trade-off. Recent studies (Stiroh and Rumble 2006, Calmès and Liu 2007) suggest that increasing OBS activities do not necessarily yield straightforward diversification benefits. However, adding a risk premium to earlier accounting returns models by resorting to an ARCH-M procedure, an updated sample reveals that the Canadian banks risk-return trade-off displays a structural break, around 1997. In the second subperiod (1997-2007) of our sample, we find that the share of noninterest income no longer negatively impacts banks returns. Relatedly, we find that a risk premium emerges while, in the first period (1988-1996), the volatility variable is not significant in any returns equations. Our results are thus consistent with a maturation process story.Regulatory changes; Noninterest income; Diversification; Structural break; Risk premium.

Banking Deregulation and Financial Stability : is it Time to re-regulate in Canada ?

We provide new evidence of a worsening of the risk-return trade-off in Canadian banking. Surging OBS activities have led to increasingly volatile net operating revenues, and might have reduced well-known measures of bank profitability, like return on assets and return on equity. In this context, a natural question arises: should we re-regulate? On this matter, we confirm Calmès(2003) prediction: a maturation process took place after 1997. Using a new approach based on ARCH-M estimation, we find that an additional risk premium has emerged. In this sense, there is no need to re-regulate.ARCH-M Models, risk premium, financial stability

Off-Balance-Sheet Activities and the Shadow Banking System: An Application of the Hausman Test with Higher Moments Instruments

The noninterest income banks generate from their off-balance-sheet activities contributes greatly to the volatility of their operating revenues. Using Canadian data, we apply a modified Hausman procedure based on higher moments instruments and revisit this phenomenon to establish that the share of noninterest income (snonin) is actually endogenous to banks returns. In 1997, after the adoption of the Value at Risk (VaR) as a measure of banks risk, the snonin sign turns positive in the returns equations, indicating the emergence of diversification gains from banks non-traditional activities. ARCH-M estimations corroborate the idea that banks have gradually adapted to their new business lines, with an adjustment process begun even before 1997. However, the banks risk premium associated to OBS activities has continuously increased since that date.Bank Risk Measures; Diversification; Noninterest income; Hausman test; Endogeneity; ARCH-M.

The Impact of Off-Balance-Sheet Activities on Banks Returns: An Application of the ARCH-M to Canadian Data

This paper revisits the impact of off-balance-sheet (OBS) activities on banks risk-return trade-off. Recent studies (e.g., Stiroh and Rumble 2006) suggest that increasing OBS activities do not necessarily yield straightforward diversification benefits for banks. However, introducing a risk premium in the standard banks returns models, and resorting to an ARCH-M procedure, Canadian data suggest that banks risk-return trade-off displays a structural break around 1997. In the second subperiod of our sample (1997-2007), we find that the noninterest income generated by OBS activities no longer impacts banks returns negatively. While during the first period (1988-1996) the volatility variable is not significant in any returns equations, a risk premium eventually emerged, pricing the risk associated to OBS activities risks.Regulatory changes; Noninterest income; Diversification; Structural break; Risk premium.

A Pilot Program to Assist CAFOs in Using Weather Data to Minimize Manure Management Risk

This paper summarizes a pilot project to disseminate site specific weather information that has been processed to estimate field runoff potential of land applied manure. Preliminary feedback indicate the program has value but that additional information is needed to understand how farmers use weather information to make decisions within the regulatory constraints they face.Environmental Economics and Policy,

The Characteristics of African American Parental Influence on Academic Success in a Rural School District: A Collective Case Study

The purpose of this case study was to discover the characteristics of African American parental behavior regarding the importance of school, and its influence on their high school children’s academic success in a rural school district, for recent African American graduates in Mountain County, North Carolina. The research study utilized a collective case study approach and included five African American parents and, their children that had graduated from Mountain County High School and gained college acceptance. Guided by Ecological Theory (Bronfenbrenner, 1979), and Risk and Resilience Theory (Catalano, Hawkins, 1996), data collection methods included interviews, document analysis and, focus groups. Methods of analysis included thick description, categorical aggregation, pattern checking, and coding. After data collection and coding, the following themes were developed: “woke”, parental expectations, parental friendship, pursuing future dreams, and parental encouragement. The study concluded that the behavioral characteristics of African America parents provided protective and promotive environment for their children. Recommendations for further research included case studies that examine different geographic regions that were part of the focus of this study or phenomenological studies that can exam African American parental behavior as a behavioral response to environmental conditions, utilizing risk and resilience theory as part of the theoretical frame work

Accruals, Cash-Flows and Tobin’s q : An Investment Perspective on Firm Accruals

Following Zhang (Accounting Review, 2007) we cast firm accruals in terms of short-term investment. Since many studies consider accruals as a smoothed measure of cash flows, we first adopt Zhang specification and augment the standard Jones model with a cash-flow variable. Second, if accruals are indeed a form of short-term investment they should also be influenced by firm’s performance as measured by Tobin’s q. Consequently we propose a new version of the accrual model including a proxy for Tobin’s q. Given that accounting data and Tobin’s q are generally measured with errors, we also introduce a new estimation method based on a modified version of the Hausman artificial regression, featuring an optimal weighting matrix composed of higher moments instrumental variable estimators. Our results suggest that all the key parameters of the accrual models are indeed systematically biased with measurement errors. More importantly, our findings largely qualify Zhang’s conjecture on accruals, as both cash-flows and Tobin’s q are found strongly significant regressors of firm accruals. Relatedly we find that the Tobin’s q augmented model better isolate discretionary accruals so that the residuals of the equation are particularly well-suited to forecast stock returns.Discretionary accruals; Earnings management; Investment; Measurement errors; Higher moments; Instrumental variable estimators.

Accruals, Investment and Errors-in-Variables

We formulate well-known discretionary accruals models in an investment setting. Given that accruals basically consist of short-term investment, we introduce, (i) cash-flows, as a proxy for financial constraints and other financial markets imperfections, and (ii) Tobin’s q as a measure of capital return. Accounting data and Tobin’s q being measured with errors, we propose an econometric method based on a modified version of the Hausman artificial regression which features an optimal weighting matrix of higher moments instrumental variable estimators. The empirical results suggest that all the key parameters of the discretionary accruals models studied are biased systematically with measurement errors.Discretionary accruals; Earnings management; Investment; Measurement errors; Higher moments; Instrumental variable estimators.