Intellectual capital, bank stability and risk-taking: evidence from Asian emerging markets

Purpose The purpose of this paper is to investigate the impact of intellectual capital (IC) efficiency on the banks’ risk-taking and stability of Asian emerging markets. Design/methodology/approach This study uses a sample of 204 listed banks from 12 Asian emerging countries for the period 2010 to 2019. Data were analyzed using Ordinary Least Squares regression and checked for robustness using system generalized methods moment (GMM) estimation. The dependent variable of bank stability is measured using Z-score-based return on assets (ROA) and return on equity (ROE). The second dependent variable of bank risk is proxied by the standard deviation of ROA, ROE, non-performing loans and loan loss provision. Findings The results suggest the IC efficiency has no association with bank risk-taking and stability. The findings lend no support to the resource-based theory. The robustness of this result is confirmed by the system GMM estimation. However, support is found for the competition fragility view as high market power is associated with low risk-taking. The IC subcomponents, human capital efficiency (HCE) report a negative coefficient for bank risk-taking thereby having no support for the hypothesized relationships. Diversified banks with a higher deposit to total asset ratio resort to high risk-taking. Research limitations/implications IC efficiency does not have an impact on the bank’s risk-taking behavior and stability for Asian banks. Managers can use these findings to improve their IC and boost investor confidence. Regulatory authorities should increase its monitoring function of banks when the GDP decreases as risk-taking behavior are galvanized during this period. Originality/value This research is one of the first to provide empirical evidence of IC efficiency’s relationship with bank stability and bank risk-taking. The implications are useful for policymakers, managers and governing bodies to enhance the banks’ IC efficiency.

Impact of FDI inflows on bank loans in Gulf Cooperation Council economies: an empirical insight

PurposeThe purpose of this paper is to investigate and compare the impact of FDI inflows on bank loans in aggregate as well as at the level of conventional and Islamic banks in GCC countries. The paper also tests hypotheses of direct and indirect impacts of FDI inflow and FDI stock on bank loans.Design/methodology/approachThe sample comprises a total of 70 banks (45 conventional and 25 Islamic banks). The period under consideration is 1995–2017. Static panel and dynamic panel GMM estimation techniques are applied.FindingsEmpirical results indicate that inflowing FDI and FDI stock have a significant negative direct impact on loans of GCC banks. The results lend support to the direct channel hypothesis for the effect of FDI on bank loans and find no evidence in support of the indirect channel hypothesis. FDI inflows affect bank loans directly via increased FDI-related liquidity, business activity or excessive competition in the banking market; they are not channeled through macro variables. Loans from conventional banks appear to be more affected than those from Islamic banks.Practical implicationsGiven the attractiveness of the GCC economies to foreign investment, the potential volatility of investment-induced instability to the financial system in these economies should be on the radar of the central banks. Attracting more FDI is expected to increase overall national productivity through competition. However, government would be wise to enact a policy to maximize benefits and minimize potential harm to local industry. In addition, to achieve the goal of the new economic model, in turning the GCC economies into high-income and knowledge-driven economies by 2030, enhancement of efficiency and the quality of the workforce will contribute to creating productivity-driven economies.Originality/valueIt is widely recognized that FDI inflows are of great importance to the financial performance development of emerging and developing countries. However, their impact on bank loans has so far not been subject to accurate empirical assessment. This paper aims to fill this gap by providing an in-depth quantitative analysis of the impact of FDI inflow and FDI stock, separately, on bank loans for both conventional and Islamic banks in GCC countries. It distinguishes between direct and indirect channels through which FDI inflows may affect bank loans. The study uses both static and dynamic panel GMM estimation techniques to analyze the data.

Peer Effects on Investment Decisions: Do Industry Leaders and Young Firms Behave Differently?

This study examines the influence of peer firms on a firm’s investment policy in Pakistan during the period 2001–2017. It also investigates the heterogeneity in peer effects by taking into account a firm’s age and its leadership role in the industry. The system-GMM estimation results suggest that peer firms significantly influence a firm’s investments on both tangible and intangible assets. Yet, peer effects are more pronounced for tangible investment. We also observe that young firms are more prone to imitate the investment decisions of their industry peers. However, the findings indicate that mimicking is not a tactical behaviour for industry leader firms. These findings have important implications for both the firm management and the owner community.

Asymmetric Impact of Working Capital Efficiency on Market Performance of Indian Firms

This study aims to explore the true nature of the impact of working capital management (WCM) efficiency, measured by cash conversion cycle (CCC), on the stock market performance (proxied by stock’s Alpha) of Indian non-financial firms. The article presents four possible models from literature and argues why the relationship should be non-linear. Generalized method of moments (GMM) estimation is used on firm-level data of 718 Indian firms from 11 industries listed in the Bombay Stock Exchange (BSE) from 2011 to 2017. A negative relationship is confirmed. However, contrary to prior findings, neither a quadratic relationship nor the deviations from industry median CCC can explain the relationship for Indian firms. Therefore, firms are divided into CCC decile-based equally weighted portfolios and estimation of a threshold level of CCC is carried out iteratively. Threshold thus obtained is validated at the firm level, using dynamic panel through GMM estimation. The novelty of this study is that it is the first one to propose the possibility of a universal threshold level of working capital (WC) efficiency and its impact on the market performance of firms in India. The article argues that in India, due to uncertainties in supply chains, firms, as well as the investors, prefer a threshold level of investment in WC. If CCC is above the threshold level, firms’ excess stock returns fall significantly, while there is no impact below the threshold level. The study is relevant for managers so that they can maintain WC below a threshold level, as well as for investors who can use the threshold WC criteria for valuation and selection of stocks.