Journal of Risk and Financial Management

This study investigates governance mechanisms and their relation to firm value, i.e., executive compensation restrictions during the regulatory period and their effects on the performance of firms that received Troubled Asset Relief Program (TARP) funds. We employ an event study to investigate the market reactions for TARP recipients, followed by OLS regression to examine the stock return effects of 10 announcements. For comparison, we also employ a multivariate regression model (MVRM) based on a system of equations with seemingly unrelated regressions (SURs). Our evidence shows that changes in firm value have a negative and significant relationship with changes in total compensation for TARP companies that have paid back their debts to the government. However, the relationship is weaker than that for TARP companies that have not paid back the bailout money. Full article

Following the 2008 financial crisis, Hyman Minsky’s Financial Instability Hypothesis (FIH) emerged as a prominent financial theory to explain the occurrence of business cycles in the U.S. economy. There have been many theoretical, but few empirical studies dedicated to FIH. The current literature also lacks the statistical support to confirm the necessary conditions leading to financial instability and whether FIH concepts remains applicable in the post 1980s periods. This article presents a statistical methodology to analyze the financial debt ratios related to FIH for the 1945–2023 periods through the use of nonparametric statistical analyses of ordered alternatives and a binomial test for meta-analysis. The results indicated that the conditions leading to financial instability such as debt ratios did increase prior to the onset of a recession as prescribed by FIH during the 1945–1980s era. Furthermore, such conditions also repeated prior to some recessions occurred in the 2001–2023 periods. This study provides statistical support for Minsky’s FIH theory. Full article

This research investigates whether banks that adopted new regulatory requirements earlier, such as Basel III, are more profitable, as well as more efficient, than banks that adopted these requirements later. In addition, all 138 banks are based in the G7 member countries, which are the most developed countries in the world. Also, banks are categorized into early and late adopters based on Basel III Leverage Ratio performance by using Fitch Connect. Moreover, profitability ratios, such as the Return on Equity, Return on Assets and efficiency ratio Operating Efficiency, were collected from Fitch Connect to analyze if early adopters were more profitable and efficient than the late adopters. Also, STATA is used to analyze descriptive statistics and a univariate analysis of both groups. Furthermore, the finding is that early adopters of the Basel III Leverage Ratio are not the more profitable or efficient firms compared to late adopters as anticipated. In addition, the results of early and late adopters do not differ that much in the analysis regarding profitability and efficiency ratios. This implies that it is not necessarily correct to assume that stricter regulation, such as Basel III, will negatively affect the profitability or efficiency of banks. In addition, these results are useful to regulators and policymakers of the G7 member countries for two reasons. Also, regulators can clearly see how banks are adopting new stricter regulation. Full article

The consistently missing demand for catastrophe insurance and for coverage of other low-probability–high-consequence risks is often referred to as the catastrophe insurance puzzle. People show reluctance to insure low-probability–high-consequence events, even with some disastrous consequences, yet insure against small high-probability–low-consequence events. There has been no convincing explanation of this puzzle to this date. This article points out that the underlying rationale may be that individuals interpret insurance contracts with low payout probability as an investment with negative expected net present value. While premium payments start with the conclusion of the contract, usually there is only one loss payment in the near or far future. Using a simple annuity model with fixed annual premiums and expected indemnity payouts, it is found that even an individual characterized by the degree of risk aversion found in the literature is unlikely to purchase insurance with these characteristics. To alleviate this unfavorable insurance purchase syndrome, combining a low-probability with a high-probability loss insurance contract may be a way to incentivize individuals to purchase catastrophe risk coverage. Full article

The Russia–Ukrainian war, which began in 2014 and exploded with the invasion of the Russian army on 24 February 2022, has profoundly destabilized the political, economic and financial balance of Europe and beyond. To the humanitarian emergency associated with every war has been added the deep crisis generated by the strong energy and food dependence that many European countries, and not only European, have developed over decades on Ukraine (especially for wheat) and Russia (especially for natural gas). The aim of this article is to verify the existence of a link between the performance of the Eurostoxx index and the price of wheat futures and TTF natural gas, from 25 February 2019 to 28 September 2023. Through a quantile VAR analysis, a link is sought between the Eurostoxx 50 index, and wheat and TTF gas futures prices. Furthermore, the analysis intends to understand whether the presence of such relationship only manifested itself following the war events, or whether it was already present in the market. The analysis carried out also shows that the relationship between the stock market and raw material prices was present even before the conflict. Full article

The preferential regime of the Arctic Zone of the Russian Federation is the latest regulatory mechanism designed to overcome negative socio-economic trends in the macroregion. The accumulated factual data over the three-year period of this work have made it possible to make the first reasonable estimates of its effects on the regional economy. The purpose of this study is to investigate the presence of transformational changes in the relationship between employment and investment due to the introduction of the preferential regime for key sectors in the regions that are fully or partially included in the Russian Arctic. The relationship between investment and employment in regional industries was studied using least squares regression analysis using Advanced Grapher 2.2 software. The results show, firstly, significant differences in trends in the implementation of preferential treatment: increased economic specialization of some regions and diversification of the economies of other regions. Secondly, there is a slowdown in the emergence of new projects. Thirdly, the markedly different employment effects across industries and regions of the Russian Arctic, as well as the changing nature of the relationship between investment and employment, require a significant revision of regulatory measures and economic policies to maximize regime effects and achieve sustainable long-term regional development. Full article

This research article focuses on investigating the impact of technology readiness (TR) on the adoption of artificial intelligence (AD) by accountants and auditors, utilizing intermediary factors, such as perceived usefulness (PU) and perceived ease-of-use (PEOU), within companies in Vietnam. Based on 143 survey responses, the results demonstrate a positive relationship between TR and AI adoption among professionals in the accounting and auditing industry. Additionally, the analysis reveals that the intermediary factors PU and PEOU positively influence AI adoption. TR consistently relates with PU and PEOU in applying artificial intelligence in accounting and auditing. The result of the experiment study is that technology readiness positively impacts the AI adoption of accountants and auditors from companies in Vietnam. Hence, perceived usefulness and ease of use mediate the relationship between technology readiness and the adoption of AI technologies by workers in the accounting and auditing industry. This study contributes not only academically by enriching scientific knowledge on AI adoption but also holds practical significance by suggesting training and development policies from a business perspective in the future. Full article

Despite being a crucial source of funding for the government, tax revenue collection in Indonesia has yet to reach its ideal and satisfying level for the economy. Therefore, this study explores the impact of executive incentives, foreign ownership, and transfer pricing on tax avoidance. The conventional banks of Indonesia that were listed on the Indonesia Stock Exchange (IDX) between 2015 and 2019 are the subject of this study. This study employed a purposive selection technique, with a final sample of 17 banks chosen after screening to ensure they met the requirements of having foreign ownership and not having suffered losses during the study year. The results of this study show that while CEO incentives harm tax avoidance, foreign ownership has a beneficial effect. Furthermore, tax avoidance is not significantly impacted by transfer pricing. The findings of this investigation open the door for accountable authorities in the economy. Full article

This study investigates the dividend optimization problem in the entropy regularization framework in the continuous-time reinforcement learning setting. The exploratory HJB is established, and the optimal exploratory dividend policy is a truncated exponential distribution. We show that, for suitable choices of the maximal dividend-paying rate and the temperature parameter, the value function of the exploratory dividend optimization problem can be significantly different from the value function in the classical dividend optimization problem. In particular, the value function of the exploratory dividend optimization problem can be classified into three cases based on its monotonicity. Additionally, numerical examples are presented to show the effect of the temperature parameter on the solution. Our results suggest that insurance companies can adopt new exploratory dividend payout strategies in unknown market environments. Full article

This paper examines the relationship between CSR activities and innovation performance with the moderating effect of CEO gender in the U.S. market. This paper provides evidence about the relationship between CSR and innovation performance from the resources-based views by replacing the common measurements of innovation and R&D expenditures with the number of patents and citations to better measure the innovation quality rather than quantity. The current paper verifies the relationship between CSR and innovation in S&P 500 U.S. listed companies and fills the gaps in the current research on the moderating effect of CEO gender on this relationship. The paper analyzed the panel data for 1204 observations from various databases (Compustat, KLD, U.S. patents by words and Excompustat) from 2014 to 2018. Specifically, the number of patents and citations is set as the measurement of the explanatory variable; innovation performance and CSR scores from KLD are treated as the dependent variable and the proportion of female directors in the top management as the method of moderating indicator. The result in this paper shows a positive correlation between CSR and innovation performance in the U.S. At the same time, the moderating effect of CEO gender has an insignificant impact on this relationship. The findings suggest that the female CEOs do not have a positive relationship with corporate innovation. These results will help companies realize the importance of CSR activities and how to balance gender diversity in their strategies. Full article

This paper sets out to consider how a simple and easy-to-estimate power-law exponent can be used by policymakers to assess changes in economic inequalities, where the data can have a long tail—common in analyses of economic disparities—yet does not necessarily deviate from log-normality. The paper finds that the time paths of the coefficient of variation and the exponents from Lavalette’s function convey similar inferences about inequalities when analysing the value of house purchases over the period 2001–2022 for England and Wales. The house price distribution ‘steepens’ in the central period, mostly covering the post-financial-crisis era. The distribution of districts’ expenditure on house purchases ‘steepens’ more quickly. This, in part, is related to the loose monetary policy associated with QE driving a wedge between London and the rest of the nation. As prices can rise whilst transactions decline, it may be better for policymakers to focus on the value of house purchases rather than house prices when seeking markers of changes in housing market activity. Full article

The disruption brought about by the COVID-19 pandemic has been unprecedented in its global reach and unique impacts. While the literature has addressed the disruption effect on FDI at the country level, we provide a unique dive into the presence and development of FDI at a subnational location. We use detailed data on spatial and industrial distributions of FDI in the U.S. state of New Hampshire and find support for all our hypotheses related to post-disruption recovery and resilience. Given the varied impact of the pandemic on FDI across locations, and the heterogeneity in local conditions, we contend that the subnational recovery depends on the impact of the disruption and happens at varying levels and timelines. While the literature documented that foreign businesses choose to embed in their local host environments, few studies have considered empirically how the level of local integration affects FDI recovery after disruption. We propose that subnational locations with a high level of integration maintain relative strength in FDI post-disruption. The COVID-19 pandemic disruption presents an opportunity to evaluate FDI resilience. We postulate that existing FDI and spatial agglomerations of FDI-related activities impact the post-disruption resilience of FDI at a subnational location. The analysis concludes on actionable insights for researchers and practitioners regarding how to navigate the FDI inflows and activities at their specific location. Full article

Gender diversity is increasingly recognized as a critical element in corporate management. However, existing research on its impact on firm performance demonstrates inconsistency in a global context. This study employs 1990 publicly listed Japanese companies from 2006 to 2023 and examines the effect of board gender diversity on firm performance in Japan. Findings from the fixed-effects regression model revealed a significant negative impact of board gender diversity on firm performance. This adverse correlation is more pronounced in smaller firms, those with greater leverage and reduced institutional ownership, and regulated and consumer-focused industries, particularly pre-COVID-19. The detrimental impact of board gender diversity on firm performance is transmitted via corporate social responsibility and firm innovation instead of board independence or CEO duality. Notably, the two-stage least squares estimation addresses potential endogeneity, employing an equal opportunity policy as an instrumental variable. Moreover, the robustness of our results is affirmed via the substitution of return on equity for return on assets as an indicator of firm performance. Lastly, our analysis does not reveal a U-shaped nonlinear relationship between board gender diversity and corporate performance. As Japan progressively promotes women’s participation in corporate governance, this research bears significant implications for corporate leaders, investors, and policymakers in Japan. Full article

The Ethereum blockchain network enables transaction processing and smart-contract execution through levies of transaction fees, commonly known as gas fees. This framework mediates economic participation via a market-based mechanism for gas fees, permitting users to offer higher gas fees to expedite processing. Historically, the ensuing gas fee volatility led to critical disequilibria between supply and demand for block space, presenting stakeholder challenges. This study examines the dynamic causal interplay between transaction fees and economic subsystems leveraging the network. By utilizing data related to unique active wallets and transaction volume of each subsystem and applying time-varying Granger causality analysis, we reveal temporal heterogeneity in causal relationships between economic activity and transaction fees across all subsystems. This includes (a) a bidirectional causal feedback loop between cross-blockchain bridge user activity and transaction fees, which diminishes over time, potentially signaling user migration; (b) a bidirectional relationship between centralized cryptocurrency exchange deposit and withdrawal transaction volume and fees, indicative of increased competition for block space; (c) decentralized exchange volumes causally influence fees, while fees causally influence user activity, although this relationship is weakening, potentially due to the diminished significance of decentralized finance; (d) intermittent causal relationships with maximal extractable value bots; (e) fees causally influence non-fungible token transaction volumes; and (f) a highly significant and growing causal influence of transaction fees on stablecoin activity and transaction volumes highlight its prominence. These results inform strategic considerations for stakeholders to more effectively plan, utilize, and advocate for economic activities on Ethereum, enhancing the understanding and optimization of within the rapidly evolving economy. Full article

In recent years, crowdfunding has emerged as a new fundraising technique for start-up ventures; however, Moroccan small and medium-sized businesses are still wary of this novel source of funding. This is confirmed by the low adoption rate of this financial innovation as well as the limited number of crowdfunding platforms in Morocco. This study aims to identify the impact of performance expectancy (PE), effort expectancy (EE), social influence (SI), facilitating conditions (FC), and perceived risk (PR) on SMEs’s intention to use crowdfunding platforms using a research model based on the Unified Theory of Acceptance and Use of Technology (UTAUT). Empirical data were collected from 241 respondents through a survey, and structural equation modelling was used to analyze the findings. The results show that performance expectancy (PE), effort expectancy (EE), and facilitating conditions (FE) affect SMEs’s intentions to use crowdfunding. However, social influences (SI) and perceived risk (PR) were not found to be significant determinants. Regarding the moderating effect of age, our study has highlighted that this variable has moderated the relationship between the three independents variables: performance expectancy, facilitating conditions and perceived risk. Finally, this paper offers recommendations for how to increase SMEs’s intention to use crowdfunding platforms. Full article

Based on stakeholder theory, disclosing sustainable development information is fundamental to achieving a competitive advantage and improving a company’s financial performance. There has been a notable absence of studies examining the degree of adherence to sustainability based on the latest indicators from the Global Reporting Initiative (GRI-G4) Guidelines and its impact on financial performance, specifically within the banking sector in emerging Arab economies. Consequently, this study explores the correlation between the degree of adherence to sustainability and its dimensions (economic, social, and environmental) as defined by GRI-G4 and financial performance within a sample of banks in Arab nations (the United Arab Emirates “UAE” and Iraq) from 2019 to 2021. The research hypotheses were examined using a multiple linear regression model. The empirical findings reveal that, on average, UAE banks exhibit a sustainability adherence level of 57% according to GRI-G4, while their Iraqi counterparts demonstrate a significantly lower adherence of 17%. Notably, the degree of sustainability adherence substantially impacts the financial performance of banks in both countries. Furthermore, the results also indicated that the economic dimension of sustainability has a positive impact, while the environmental dimension has a negative impact, and in contrast, the social dimension does not significantly affect the financial performance of banks in both countries. This study provides insights for banks and policymakers to enhance their sustainability practices and elevate the level of disclosure, especially within Arab nations. This, in turn, can lead to greater compliance with sustainability standards, improved transparency, and reduced information asymmetry. Full article

The purpose of this study is to examine the liquidity management of a corporation. It aims to examine how managing cash conversion cycle components affects corporate performance. A dataset of 88 firms listed on the Saudi Stock Exchange between 2018 and 2022 was analyzed using both pooled OLS and fixed effects regression models. A sample of 84 firms listed on the Saudi Stock Exchange for the period from 2018 to 2022 was used. Both the pooled OLS and the fixed effects regression models were used. This study’s key findings are: (1) there is a strong negative correlation between the time it takes to convert inventory into sales (inventory conversion period) and firm performance. If inventory does not sell quickly, profit tends to be lower. (2) Firm performance demonstrates a strong inverse relationship with the duration it takes for companies to collect cash from customers, commonly known as the accounts receivable collection period. A short accounts receivable collection period may become collectible and increase a business’s profitability and performance. (3) There is a highly significant negative link between the time taken to pay creditors (days payable outstanding) and firm performance. A short average payment period, indicated by a low payment period, suggests that the firm is promptly settling its bills and obligations without any delays. Full article

With the emergence of the metaverse, countries’ digital efforts to create tourism opportunities have given rise to the possibility of capitalising on digital content which, along with physical tourism experiences, can generate further income and enhance a country’s reputation. Non-fungible tokens (NFTs), a unique application of blockchain technology, offer an enabling technology in several sectors, including tourism. Therefore, this study aims to explore the official tourism websites of Croatia and Slovenia and analyse current NFT applications in tourism economics. The methodology focuses explicitly on sentiment analysis, blockchain and machine learning. The paper introduces various applications currently in place, including Slovenia’s “I Feel Nft” project. The research shows that the main benefits of using NFT and sentiment analysis in the tourism economy are the promotion and presentation of major tourist destinations, exhibitions, works of art, and companies’ products in tokens, digital content and souvenirs. The adoption of sentiment analysis and NFTs in the tourism economy is still open to proposals for implementing public quantitative data metrics. Therefore, the scientific contribution of this research is essential in terms of operational recommendations and defining metrics for measuring the effectiveness of those methodologies and their applications in the tourism economy. On top of that, the practical contribution lies in monitoring the influx of tourists, and highlighting their increase over time and the significance of new technology in time series tourism research. Full article