Hierarchical Inconsistency: A Monitoring Mechanism to Reduce Securities Fraud in Emerging Markets

Research has indicated limited effects of formal governance measures on securities fraud prevention in emerging markets due to the weak rule of law. We propose that hierarchical inconsistency, misaligned rank ordering in formal organizational and informal social hierarchies of the corporate elite, can provide a novel monitoring mechanism to reduce securities fraud. Leaders at the top of the two inconsistent hierarchies can feel distressed and motivated to engage in contestation and challenge each other’s authority, thus providing checks and balances and preventing groupthink. This monitoring effect is likely to be stronger when either of the two heads has dominant and unequivocal superiority in their respective hierarchy, making them particularly distressed by the hierarchical inconsistency and prone to contest. We test our argument in the context of publicly listed family-controlled firms in China, where business and family hierarchies may confer superiority to different individuals. Our study contributes to the corporate securities fraud literature by understanding how formal organizational structures and informal social relationships interact and jointly influence governance effectiveness in emerging markets.

Editorial: Special Edition on Corporate and Financial Markets Law: Embracing Technology in Corporate, Securities and Financial Markets Law and the Combating of Financial Crimes in the 4th Industrial Revolution

This special edition consists of a selection of contemporary and well thought out academic contributions that were developed into full journal articles by presenters who delivered their key findings at the 2nd Annual Colloquium on Corporate and Financial Markets Law at the Faculty of Law, North-West University, on 29-30 October 2020. These contributions were developed into articles, subjected to a rigorous double-blind peer review process to determine their quality, and subsequently accepted for publication in the Potchefstroom Electronic Law Journal.

Indian Debt Market: Need for More Reforms

The Indian debt market while made out of securities, both Government and Corporate, is really overwhelmed by G-Sec with more than 90 per cent of Indian debt market, leaving little space for corporate securities. The focal government securities are the dominating and most fluid segments of the security market. Nonetheless, regardless of the expanded volumes, the quantity of members is restricted to around two dozen dynamic players. The focal government securities are the dominating and most fluid segments of the security market. Nonetheless, regardless of the expanded volumes, the quantity of members is restricted to around two dozen dynamic players. Since a lion's share of members is AAA – evaluated and 80 per cent of exchange is immediate, there exist settlement hazards. The market would further develop once uniform guidelines on accounting, valuation and so on are in place. Therefore, this paper highlights the need for more reform in Indian debt market.

To the question on the effectiveness of individual investment accounts in the Russian Federation

  The subject of this research is the effectiveness of individual investment accounts in the Russian Federation. The author analyzes the quarterly statistical data that reflect the dynamics funds of the citizens on individual investment accounts for the period from 2015 to 2019. The data on investments of the citizens in equities and corporate bonds is outlined. The advances the three hypotheses: that it is possible to establish the cost of attracting citizens' investments in equities through individual investment accounts from the perspective of the state; that B-type accounts are unpopular/ineffective; that it is necessary to reform the system of individual investment accounts. It is noted that unlike foreign countries, especially the United States, there is no research on the effectiveness of individual investment accounts in the Russian Federation. The author formulates the possible microeconomic and macroeconomic effects from implementation of individual investment accounts, including the increase in citizens ' savings and tax revenues, reduction of national debt, etc. The options for assessing the effectiveness of individual investment accounts are described. Calculation was conducted on the cost for attracting citizens’ savings within the framework of individual investment accounts from the perspective of the state based on the results of 2015-2018. Ineffectiveness of the B-type accounts and its causes are underlined. The flaws of individual investment accounts in the Russian Federation are identified. It is suggested to use individual investment accounts namely for stimulating citizens to invest in corporate securities, excluding the state and municipal securities from investment mechanisms in the context of individual investment accounts. The directions for future research are formulated.  

A Quantitative Analysis of Risk Premia in the Corporate Bond Market

Measures of corporate credit risk incorporate compensation for unpredictable future changes in the credit environment and compensation for expected default losses. Since the launch of purchases of government securities and corporate securities by the European Central Bank, it has been discussed whether the observed reduction in corporate credit risk was due to the decrease in risk aversion favored by the monetary easing or by expectations of lower losses due to corporate defaults. This work introduces a new methodology to break down the factors that drive corporate credit risk, namely the premium linked to cyclical and monetary conditions and that linked to the restructuring of the companies. Untangling these two components makes it possible to quantify the drivers of excess returns in the corporate bond market.