Jean-Pierre Gueyie

Financial distress and corporate governance: an empirical analysis

Relationships between corporate governance characteristics and financial distress status are examined for a sample of Canadian firms. Results from logit regression analysis of 46 financially distressed and 46 healthy firms lead us to conclude that the board of director’s composition explains financial distress, beyond an exclusive reliance on financial indicators. Additionally, supplemental results indicate that outside directors’ ownership and directorship affect the likelihood of financial distress. Furthermore, splitting financially distressed firms based on chief executive officer change as a proxy of turnaround strategies provides useful insights on corporate governance characteristics in financial distress.

Risk-Adjusted Performance of Funds of Hedge Funds Using a Modified Sharpe Ratio

Many institutional investors use the traditional Sharpe ratio today to examine the risk-adjusted performance of funds of hedge funds (FOFs). However, this could pose problems due to the non-normal returns of this alternative asset class. A modified value at risk (VaR) and modified Sharpe ratio solves the problem and can provide a superior tool for correctly measuring risk-adjusted performance. In this article, the authors rank 30 funds of hedge funds according to the Sharpe and modified Sharpe ratio. Their results indicate that the modified Sharpe is lower and more accurate when examining non-normal returns.

Financial intermediation and economic growth: evidence from Western Africa

The relationship between finance and economic growth has received considerable attention in economic development literature during recent decades. However, little interest has been devoted to African countries, and specifically, to West African countries. This paper tries to fill that gap, by using causality tests to empirically examine the relationship between finance and economic growth, in the context of West African country members of the Economic Community of West African States (ECOWAS). In all but a few countries, results indicate a weak causal relationship between finance and economic development on one side, and between economic development and finance on the other side. These results imply, ceteris paribus, that leaders of West African countries should focus their economic and monetary policies on the development of financial intermediation, which in turn will favour economic growth.

Canadian chartered banks’ stock returns and exchange rate risk

The sensitivity of Canadian chartered banks to exchange rate risk is analyzed over the period 1988‐1995 through estimating the three‐factor asset pricing model (market, interest rate, and exchange rate). Results indicate that banks’ stock returns are sensitive to exchange rate risk and, mainly, to the US dollar relative to the Canadian dollar exchange rate. The sensitivity is, however, unstable over time. Moreover, there is an asymmetric response to exchange rate risk. Investors react more to a re‐evaluation of their portfolio after losses than to an appreciation after successive gains.

CEO compensation, IOS and the role of corporate governance

The empirical relationship between chief executive officer (CEO) compensation, the investment opportunity set (IOS) and corporate governance mechanisms is analyzed for a sample of 415 Canadian firms in 1997. Results indicate that firms with high IOS pay higher levels of total compensation to their CEOs. In addition, CEOs of high IOS derive a larger proportion of their compensation from performance‐contingent forms of pay such as bonuses, stock option grants and long‐term incentive plans. However, CEOs with weak boards of directors are compensated more than CEOs with powerful boards. Contrary to our expectation, we find that in high IOS firms with weak boards of directors, CEOs seek to have higher proportions of contingent forms of pay in their compensation. An implication of this result is that contingent compensation practices may be a more value‐enhancing form of remuneration for CEOs.

Microfinance and Market-Oriented Microfinance Institutions

Abstract The role of microfinance as a tool to fight against poverty by providing financial services to the poor and microenterprises has become an accepted principle worldwide. However, this key role can be accomplished only if the microfinance institutions (MFIs) assuming it are sustainable, i.e., can operate in the long run without subsidy. In this paper, we define market-based MFIs as MFIs that face competition in quality and price of their products in the market in which they operate, and operate under market discipline on the liability side of their balance sheet. Their ability to collect funds from sources under the discipline of funds providers helps them to be independent of subsidy and makes their operations sustainable. It is shown that several elements are fundamental to the success of market-based MFIs, including internalization of conflicts of interest, macroeconomic and sectorial policies, and an appropriate regulatory and supervisory environment.

Dilemmas and Directions in Microfinance Research

Associating microfinance with alleviation of poverty has become a truism. Subsequently, the microcredit movement has enjoyed wide support from governments, international development agencies, wealthy philanthropists, renowned financial institutions and even the Noble Peace Prize Committee. Indeed, in awarding the Nobel Peace Prize to Muhammad Yunus and Grameen Bank in 2006, the committee noted that ‘Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty’. Consistent with this trend, success stories abound on the internet and in countless reports of microentrepreneurs who set up successful businesses, lifting their families and neighbouring poor out of poverty.

How Do Firms Hedge Risks? Empirical Evidence from U.S. Oil and Gas Producers

Using a unique, hand-collected data set on hedging activities of 150 US oil and gas producers, we study the determinants of hedging strategy choice. We also examine the economic effects of hedging strategy on firms’ risk, value and performance. We model hedging strategy choice as a multi-state process and use several dynamic discrete choice frameworks with random effects to mitigate the unobserved individual heterogeneity problem and the state dependence phenomena. We find strong evidence that hedging strategy is influenced by investment opportunities, oil and gas market conditions, financial constraints, the correlation between internal funds and investment expenditures, and oil and gas production specificities (i.e., production uncertainty, production cost variability, production flexibility). Finally, we present novel evidence of the real implications of hedging strategy on firms’ stock return and volatility sensitivity to oil and gas price fluctuations, along with their accounting and operational performance

Computational dynamic market risk measures in discrete time setting

Different approaches to defining dynamic market risk measures are available in the literature. Most are focused or derived from probability theory, economic behavior or dynamic programming. Here, we propose an approach to define and implement dynamic market risk measures based on recursion and state economy representation. The proposed approach is to be implementable and to inherit properties from static market risk measures.

The Maturity Structure of Corporate Hedging: The Case of the U.S. Oil and Gas Industry

This paper investigates how firms design the maturity of their hedging programs, and the real effects of maturity choice on firm value and risk. Using a new dataset on hedging activities of 150 U.S. oil and gas producers, we find strong evidence that hedging maturity is influenced by investment programs, market conditions, production specificities, and hedging contract features. We also give empirical evidence of a non-monotonic relationship between hedging maturity and measures of financial distress. We further investigate the motivations of early termination of contracts. Finally, we show that longer hedging maturities could attenuate the impacts of commodity price risk on firm value and risk.