Jean-Laurent Viviani

Financial performance of socially responsible investing (SRI): what have we learned? A meta‐analysis

With a meta-analysis of 85 studies and 190 experiments, the authors test the relationship between socially responsible investing (SRI) and financial performance to determine whether including corporate social responsibility and ethical concerns in portfolio management is more profitable than conventional investment policies. The study also analyses the influence of researcher methodologies with respect to several dimensions of SRI (markets, financial performance measures, investment horizons, SRI thematic approaches, family investments and journal impact) on the effects identified. The results indicate that the consideration of corporate social responsibility in stock market portfolios is neither a weakness nor a strength compared with conventional investments; the heterogeneous results in prior studies largely reflect the SRI dimensions under study (e.g. thematic approach, investment horizon and data comparison method).

A Comparison of Leverage and Profitability of Islamic and Conventional Banks

The aim of this research is to determine empirically differences between Islamic and conventional banks with particular focus on their financial characteristics such as leverage and profitability. Our sample is made of Islamic and conventional banks, resulting in a panel of 545 observations with 250 of these observations being for Islamic banks, from 18 countries over the period 2004-2008. We run t-test of equality of means, a binary logistic regression and a discriminant analysis using leverage and profitability ratios and their determinants. Results provide broad evidence on differences in leverage and profitability across conventional and conventional banks.

Alternative Financial Decision Principles: Theoretical Foundations of Islamic Banks' Capital Structure

The aim of this chapter is to analyse consequences of the consideration of ethical principles in the financial decisions process of banks. More specifically, we study how the consideration of shariah principles could affect the capital structure of Islamic banks (IBs). First, we apply the classical concepts and theories of capital structure (trade-off theory, pecking order theory, agency theory) in the specific context of IBs. Then, through a literature review, we propose some expected determinants of the capital structure of IBs. Our theoretical analysis reveals that the trade-off theory is more suitable for IBs. Moreover, in Islamic institutions, information asymmetry and agency conflicts should be less important than in their conventional counterparts. However, our analysis does not allow us to conclude on the optimal combination of equity and non-equity financing.

Protection Against Wine Price Risks: A Real Option Approach

Since the beginning of 2006, the federation of wine producers ( Inter-Rhone ) offers its members (wine producers of the Rhone Valley) protection against wine price risks giving them the option to sell a portion of their production at €80 per hl, regardless of the prevailing market price. This risk management tool has the general features of an American put option with a strike price of 80 €/hl. Two mechanisms are used to reduce the hedging cost: the introduction of a barrier “up and out”, and the option to force producers to implement a non-optimal exercise strategy. We present two pricing models of this option (with and without barrier) followed by an application using the Inter-Rhone wine price data base. The cost of the first protection mechanism (without barrier) is about €10 per hi (i.e., 13.3 % of the current price) but only about €8 for the second (with barrier) representing 10.7 % of the current price. Beyond its traditional role of protection against price fluctuation, the option may also have a positive impact on price levels by stopping panic movements and strengthening the negotiating power of producers. (JEL Classification: Q14, G32)

A new multi-factor risk model to evaluate funding liquidity risk of banks

The present paper investigates funding liquidity risk of banks. We present a new statistical multi-factor risk model leading to three new funding liquidity risk metrics, thanks to liquidity gaps probability distribution analysis. We test our model on a large sample composed of 593 US banking companies, this allows us to identify some stylized facts regarding the evolution of liquidity risk and its relationship with the size of banking companies. Our main motivation is to develop ‘the contractual maturity mismatch’ monitoring tool proposed within the Basel III reform.

A Value at Risk Based Model for the Measurement of Displaced Commercial Risk in Islamic Banks

Islamic banks differ significantly in that they typically mobilise funds in the form of Profit Sharing Investments Accounts that are remunerated on the basis of sharing the actual returns on assets financed by the investment funds, with the Investment Account Holders. In theory, the profits are shared in pre-agreed ratio and all losses on assets financed by the investment funds are to be borne by Investment Account Holders, except in the case of misconduct, negligence or breach of contracted terms by the Islamic bank. In practice, the concept of sharing the actual profits with Investment Account Holders is not the common practice of Islamic banks. In fact, under commercial pressure or regulatory pressure, the majority of Islamic banks are obliged to absorb a proportion of losses normally borne by Investment Account Holders in order to mitigate potential massive withdrawal of funds. This practice exposes Islamic banks to a specific risk, called displaced commercial risk which requires allocating adequate capital to smooth returns on Unrestricted Profit Sharing Investment Accounts and/or to cover losses. The paper identifies the Displaced Commercial Risk and proposes a methodology to measure this risk based on Value at Risk model. The measurement of the actual risks sharing depends on returns smoothing policies of the Islamic bank. It illustrates this approach with a case study of an Islamic Bank.

Retail network organizational design and financial performance

Building on the exploration–exploitation–ambidexterity perspective as a broad theoretical framework, the overall objective of this chapter is to contribute to a better understanding of the impact that different mixes of organizational forms have on performance in a retail setting. Four organizational forms are considered: (1) the plural form; (2) the dual form associating company-owned stores and shop-in-shops; (3) the dual form associating franchised stores and shop-in-shops; and, finally, (4) the combined form associating company-owned stores, franchised stores and shop-in-shops. These organizational design–performance relationships are tested on a sample of 170 French fashion retail networks. The results show that (1) none of the pure or dual forms tended to generate better financial performance than any other; (2) combining company-owned units, franchised units and shop-in-shops tends to generate better financial performance compared to dual and pure forms, up to a certain point.

Analysis of the determinants of export modes used by French wine businesses

This paper examines the factors that determine the selection of the export mode used by French wine businesses and their degree of control. A national survey of 120 French wine businesses highlights the positive impact of size and the negative impact of international experience, as well as differences according to export markets and wine regions. A qualitative study of 50 wine businesses clarifies the context and points out the role played by distribution channels and relational control in SMEs.

Effects of bank loan constraints on trade credit use: evidence from micro data of Vietnamese firms

This paper examines the effects of bank loan constraints on the use of trade credit by Vietnamese firms across size with a comparison between large firms and small and medium-sized enterprises (SMEs). We distinguish three types of bank-constrained firms, i.e. credit denied firms, discouraged firms and those with pending applications; and four types of discouraged firms, i.e. those that did not apply for a bank loan because of burdensome loan procedures, strict collateral requirements, high interest rates and expected denial. Using a sample of 1,000 Vietnamese firms from the World Bank Enterprise Survey in 2005, we find that denied large firms use more trade credit by 5.2% whereas denied SMEs use less of it by 6.7%, implying a substitution and complementary effect respectively. Furthermore, our results suggest that discouraged SMEs because of high interest rates use more trade credit whereas discouraged firms because of expected denial use less of it.

Dynamic lot-sizing-based Working Capital Requirement minimization model with infinite capacity

Tactical planning consists of developing production plans to fulfill client demands with a minimal logistic cost. However, plans generated by classical models for tactical planning do not consider a minimum financial need in terms of Working Capital Requirements (WCR) to maintain the activities related to the operating cycle. In this paper, we introduce a first link between tactical planning and the financial aspects of WCR. The concept of WCR is widely used in practice to assess the financial situation at any time. We propose a new generic WCR model which allows us to evaluate the companys financial situation during the planning horizon. In addition, we develop a dynamic lot-sizing-based model with WCR modeling for singlesite, single-level, single-product and infinite capacity cases. An exact algorithm is also presented with numerical tests in order to compare our approach with the traditional dynamic lot-sizing model.