Board Gender Diversity, Firm Performance and Risk-Taking: The Case of Non-Financial Firms of Pakistan

This paper examines the influence of board gender diversity on firm performance and risk taking. We employed the panel data of seventy-five non-financial firms of KSE-100 index listed in the Pakistan Stock Exchange. The data consists of 2005-2018 period. Results of panel regression reveal that board gender diversity have adverse influence on the firm performance i-e Tobin’s Q and return on assets. Moreover, it further provides that board gender diversity has decrease the firm’s risk-taking i-e insolvency risk. Overall, the inclusion of females in the boardroom reduces the financial performance and decrease the risk-taking of non-financial firms in Pakistan. This study provides the managerial and practical implications in compliance with SECP Act of 2017, to include the females in boardroom to discourage the risk-taking behavior of firms.

Contemporaneous or causal? Evaluating the triumvirate of insolvency risk, capitalization and efficiency in Indian commercial banking

PurposeThis paper empirically examines the short-term and long-term associations between risk, capital and efficiency (R-C-E) in the Indian banking sector across 2008–2019 to answer the presence of causation or contemporaneousness in the R-C-E nexus.Design/methodology/approachThe paper focuses on three objectives. First, the authors determine short-term causality in the risk–efficiency relationship by studying the simultaneous influence of a wide array of banking risks on DEA-based technical and cost efficiency in static and dynamic situations. Second, the authors introduce bank capital and contemporaneously determine the interplay between R-C-E using seemingly unrelated regression equation (SURE) and three-staged least squares (3SLS). Last, the authors assess stability in inter-temporal associations using Granger causality in an autoregressive distributed lag (ARDL) generalized method of moments (GMM) framework.FindingsThe authors contend that high capital buffers reduce insolvency risk and increase bank stability. Technically efficient banks carry lesser equity buffers, suggesting a trade-off between capital and efficiency. However, capitalization makes banks more technically efficient but not cost-efficient, implying that over-capitalization creates cost inefficiencies, which, in line with the cost skimping hypothesis, forces banks to undertake risk. Concerning causal relationships, the authors conclude that inefficiency Granger-causes insolvency and increases bank risk. Further, steady increases in capital precede technical and cost efficiency improvements. The converse also holds as more efficient banks depict temporal increases in capitalization levels.Originality/valueThe paper is perhaps the first that acknowledges the influence of the “time” perspective on the R-C-E nexus in an emerging economy and advocates that prudential regulations must focus on short-term and long-term intricacies among the triumvirate to foster a stable banking environment.

Insolvency Risk. Application of Altman Z-score to the auto parts sector in Romania

This paper intends to apply the Altman Z-score model to all the companies active in the wholesale of motor vehicle parts and accessories (NACE 4531), with extended financial statements. Using the panel data model over the time series for 2008-2016 on the companies of this sector, we conclude that 99% of the Z-score is explained by the independent variables (working capital, capital structure, turnover, earnings before interest and tax), with estimated parameters very close to the models classical values. The sample description of the paper and the corresponding results highlights the Z-score evolution by turnover clusters and principal components, with the largest companies performing the best (the only cluster with Z-score median above 3). We notice a tendency for decreasing high risk companies and increase in the medium risk companies, whereas the low risk companies are relatively stable. This improvement is mostly due to increasing capitalization rate and less external debt, despite the deteriorating working capital and operating margin. We believe that future research to evaluate Z-score sensitivity under stress test scenarios would be very useful to provide an insight of companies’ insolvency risk amid increasing interest rates and different fiscal tax on dividend.

CORPORATE BANKRUPTCY AND INSOLVENCY PREDICTION MODEL

In any competitive economy, the risk of bankruptcy is pervasive. The research aims to contribute in improving the predictive power of bankruptcy and insolvency risk among companies by introducing new methods of processing and validation. This paper investigates the extensive application of the Z score model for predicting the economic-financial stability of Romanian companies in the manufacturing and extractive industries. A list of 37 financial indicators determined on the basis of the balance sheet data of 80 companies for the period 2015–2018 was used. Stepwise Least Squares Estimation through the Forward method allowed the identification of the most relevant ones. Canonical discriminant analysis and sensitivity analyzes were introduced to test the predictive power of the model. The new model identified allows both the prediction of bankruptcy and insolvency risk. This study contributes to the literature by testing variables in relation to financial difficulties and by including other classification information. The robustness of the determined canonical discriminant function was verified by testing the model on two other samples.

Fintech & Risks. A Bibliometric Analysis

Our study highlights a literature map on Fintech and the risks associated with this technological innovation in the financial sector. Considering all the studies published from 2014 to 2021 in "Scopus", we resort to econometric techniques to create our map. Our results show the recent attention of academics and researchers, mainly belonging to the technological and IT areas, towards Fintech. In particular, the studies focus on the issue of emerging technologies applied to investment and credit processes linked to the assessment of customer insolvency risk. For this reason, the existing analyzes adopt a mainly technical approach with very limited attention to strategic, organizational and managerial aspects typical of financial intermediation. Future studies could investigate the issue of Fintech behavior and relations with incumbent banks, as well as the risks that the applications of emerging digital technologies have on the sound and prudent management of these operators. In addition, further analysis can capture the risks of Fintech for clients, taking into account financial education. These are important aspects for the growth of Fintechs themselves, for the sustainability of the incumbent banks, with which they increasingly collaborate, and obviously for the banking supervisory authorities, attentive to the stability, efficiency and competitiveness of the financial sector as a whole.

The Economics of Insurance: A Derivatives-Based Approach

This article revisits the economics of insurance using insights from derivatives pricing and hedging. Applying this perspective, I emphasize the following insights applicable to insurance. First, I provide a valid justification for the use of arbitrage-free insurance premiums. This justification applies in both complete and incomplete markets. Second, I demonstrate the importance of diversifiable idiosyncratic risk for the determination of insurance premiums. And third, analyzing the insurance industry using the functional approach, I show the importance of derivatives and the synthetic construction of derivatives for reducing an insurance company's insolvency risk. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Artificial Intelligence Approach to Secure Pension Fund

Pension fund needs to produce a high-income return to face actuarial expectations of different kinds of benefits. An asset allocation management model of a pension fund must consider a large planning horizon because of its long-term obligations. Asset allocation controls the solvency of the fund by suitable investments and contribution policies to secure the pensioner’s future liabilities. Artificial intelligence approaches given by experts and accepted by decision-makers, provide a powerful tool for describing uncertainty. A portfolio optimization model is introduced based on variance minimization at a required return level that secures the fund against insolvency risk. This method uses an artificial Bee ColonyOptimizationApproach to the mean-variance defined by Markowitz so that future returns of the stocks are predicted where the ability of AI to improve predictive and prescriptive financial forecasting processes will change the world of finance management.

Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk Management

This conceptual paper focuses on the relationship between insolvency, capital structure, and value creation. The aim is twofold: to define risk-based capital measures able to absorb the effects of financial distress and avoid corporate default; and to verify conditions and limits of use of these measures in corporate financial policies. The capital measures based on insolvency risk will be defined by recalling the concepts of Cash Flow-at-Risk and Capital-at-Risk. A first check on the usefulness of these risk-based measures and their consistency with the principle of value maximization is carried out through a simulation model. The scenario analysis allows us to examine how financial and risk policies oriented by insolvency avoidance affect the firm value. According to evidence from the simulation model, these measures appear to be useful in lowering the default risk, but they require a continuous assessment of their impact on the firm value.

Financial health of Syariah and non-Syariah banks: a comparative analysis

Purpose This paper aims to investigate whether Syariah banks are more financially stable than non-Syariah banks and check the differential impact of explanatory variables in financial health and efficiency in the context of Indonesia. Design/methodology/approach By using unbalanced panel data from Bankfocus over the period 2011–2018, regression analysis is performed with two response variables representing financial health, ZSCORE for return on average assets, liquid asset to deposit and short-term funding ratio. A number of control variables are used as tools to confirm the hypotheses. To check the robustness of the findings, a model with different specifications has been used. Findings The results indicate that while Syariah banks present higher insolvency risk (less health) for long-term activity, the opposite is true for short-term activity. Other findings show that Syariah and non-Syariah banks contribute differently to the national system of financial stability owing to varying influential factors on the bank’s health. Originality/value This paper presents a comparative analysis between the financial stability of Syariah banks and that of non-Syariah banks in Indonesia by building an empirical framework that allows the author to examine the differential effects of each underlying feature on financial stability in Syariah and non-Syariah banks.