Benton E. Gup

International stock market efficiency and integration: A study of eighteen nations

This study examines the relationships among stock prices in eighteen national stock markets by using unit root and cointegration tests for the period 1961--92. All the markets were analyzed individually and collectively in regions to test for market efficiency. The results from unit root tests suggest that the world equity markets are weak-form efficient. The cointegration test results show that there are only a small number of significant cointegrating vectors over the last three decades. However, the number of significant cointegrating vectors increases after the October 1987 stock market crash, a result that is consistent with the contagion effect. Copyright Blackwell Publishers Ltd 1997.

Financial Determinants of Bank Takeovers: A Note

In recent years more takeovers have occurred in banking than in any other industry (Mergers & Acquisitions 1987). This activity resulted partly from liberalized laws affecting branch and interstate banking and partly from the number of failed banks. t As more states liberalize their laws regarding banking structure and regional pacts, takeovers of bank and nonbank financial institutions are expected to increase.2 Thus, understanding the determinants of the prices paid in bank takeovers is important to the large portion of the banking industry that is either a potential target or potential bidder, or both. Greater knowledge of the determinants of purchase prices can also help shed light on commercial bank operations.3 Several recent studies examine the determinants of bank merger pricing. These studies tend to focus on the characteristics of the target, and to downplay the characteristics of the acquiror. These studies also tend to use a single proxy for each theoretical effect, for example, one measure of the targets earnings. The individual studies are reviewed below, but in general they find a positive relationship between purchase price and some measure of the targets potential growth and a negative relationship between purchase price and some measure of the ratio of the targets total assets to the acquirors total assets. Other variables, including those for the targets profitability, are sometimes but not always statistically significant. One difference between this study and prior studies is that this study places greater emphasis on acquiror-related characteristics. Acquirors tend to pay a premium for a controlling interest in banks. This premium suggests that the firm

Investment policy, financing policy, and performance characteristics of de novo savings and loan associations☆

Abstract This paper develops a simultaneous equation model to investigate the investment policies, financing policies, and risk/return characteristics of de novo thrift institutions. A model to explain state entry rates for de novo institutions is also presented. Entry dates are significantly influenced by investment powers as the numbers of de novo charters are found to be significantly higher in states with the most liberal set of permissible activities. Economic growth and the demand for financial services also contributed to higher entry rates. Utilization of the liberal powers did not, however, contribute positively to returns. Firms with riskier asset portfolios were found to have lower realized returns. Efficiency in operations and strong capitalization were found to be positively associated with higher returns.

Market Valuation Effects of Bank Acquisitions

As intrastate and interstate bank merger laws have relaxed, the number of bank mergers and acquisitions has risen sharply.1 The shareholders of acquired firms benefit from mergers because they are able to sell their stock at a higher price than would otherwise be the case. Whether the shareholders of the acquiring firm benefit from the transaction is less clear. Acquirers may have superior management or be able to obtain economies of scale or find other methods to increase expected profits and reduce risk to offset the premium paid to shareholders of the acquired organization. However, a recent study by Shome, Smith, and Heggestad (1986) suggests that bank managers are less concerned about maximizing shareholder wealth than managers of nonfinancial firms because the regulatory process for merger approval tends to protect managers from hostile takeovers. They suggest that banking organizations are maintaining suboptimal amounts of capital in order to achieve higher growth rates. If their analysis of bank capital decisions and managerial motives is correct, then it may also be true that some bank acquisitions are undertaken for reasons other than shareholder value.

The cash flow statement: The tip of an iceberg

Abstract The newly required Statement of Cash Flows provides helpful information, as long as the reader takes care to look below the water line.

Teaching the Statement of Cash Flows

Abstract In this paper, we offer ways of improving both student comprehension of and appreciation for the importance of the Statement of Cash Flows (SCF). Specifically, the paper presents four modules aimed at improving student understanding of the concepts underlying the Statement of Cash Flows. As part of these modules, examples of cash flow patterns taken from actual financial statements are provided. In addition, the paper presents the calculation of net cash flow from operating activities under the indirect method as a reconciliation process which focuses on understanding the timing differences between accrual and cash basis accounting.

Insights from a Global Survey on Bank Capital

The 1988 Basel Capital Accord (Basel I) was a major step forward on the road toward the harmonization of bank capital regulations. Basel II, however, appears to be a bump in the road toward harmonization. This article presents the results of a global survey to 1) determine the extent to which countries comply with the 1988 Basel I, and 2) if they are going to comply with Basel II when it is implemented at year-end 2006. The survey did not include members of the Basel Committee on Banking Supervision or members of the European Union that are required to comply with Basel II. A total 66 of the countries from around the world responded to the survey. All meet or exceed the 8% capital requirement of Basel I. Half of the respondents will apply Basel II and most of the remainder are contemplating it.

New Insights about the Relationship between Corporate Cash Holdings and Interest Rates

Corporate cash holdings have gained much attention in the recent decade, but the relationship between cash holdings and interest rates has been overlooked. As interest rates have declined since the early 1980s, cash holdings have increased. This leads one to wonder if cash holdings are increasing because the opportunity cost of holding cash is decreasing with the interest rates. This paper examines the relationship between the rates on Treasury securities and corporate cash holdings. Due to the opportunity cost, one would hypothesis that a negative relationship exists between cash holdings and interest rates. But is that the whole story? We find that the negative relationship does not exist when looking at particular decades and further test why.

Limited liability companies (LLCs) and financial crimes

Purpose – The purpose of this paper is to provide an analysis of the concept of Limited Liability Companies (LLCs) and the extent to which these present money laundering and financing of terrorism (ML/FT) risks.Design/methodology/approach – The paper examines the historical origins of LLCs and compares the benefits derived from using LLCs as an instruments or vehicle for doing business as opposed to the risks and vulnerabilities attached to them. In particular, the paper examines how LLCs present risks and vulnerabilities for ML/FT risks, before assessing existing methodologies for assessing such risks and vulnerabilities and their strengths and weaknesses.Findings – It was found that existing frameworks used to assess risks attached to the use of LLCs could be strengthened. Reference is made to the manner in which the USA has strengthened its legislation in order to prevent the misuse of LLCs for criminal purposes.Originality/value – The papers conclusions may be relevant for defining methodologies in a...

Corporate Governance in Banking

Recent corporate scandals, together with the effects of globalization, have led to an increasing interest in corporate governance issues. Little attention has been paid, however, to international laws and recommendations dealing with corporate governance in banking from a global perspective. This impressive international set of expert contributors – academics, practitioners and regulators – remedies the lack of attention by examining the various issues and concerns of this important topic.