Mircea Epure

Monitoring Bank Performance in the Presence of Risk

This paper proposes a managerial control tool that integrates risk in efficiency measures. Building on existing efficiency specifications, our proposal reflects the real banking technology and accurately models the relationship between desirable and undesirable outputs. Specifically, the undesirable output is defined as non-performing loans to capture credit risk, and is linked only to the relevant dimension of the output set. We empirically illustrate how our efficiency measure functions for managerial control purposes. The application considers a unique dataset of Costa Rican banks during 1998-2012. Results’ implications are mostly discussed at bank-level, and their interpretations are enhanced by using accounting ratios. We also show the usefulness of our tool for corporate governance by examining performance changes around executive turnover. Our findings confirm that appointing CEOs from outside the bank is associated with significantly higher performance ex post executive turnover, thus suggesting the potential benefits of new organisational practices.

Interstanding the industrial district: contrasting conceptual images as a road to insight

In this paper we offer an approach to learning about the unique features of industrial districts as a socio-economic phenomenon that is based on differences. Instead of searching for one generic theory that may explain the unique construction of an industrial district or one universal way of getting under the skin of its subjects we propose ‘interstanding’ as a road to insight. The title alludes to different relationships: between theoretical frameworks and empirical approaches, between writing and reflecting on the one hand, creating conversations, talking and listening on the other, between teacher and student, between the academic and business communities. In the paper this ‘interstanding’ perspective of knowledging is demonstrated in the context of an annual international doctoral course on SMEs in economic and regional development. The participating doctoral students are organized into research teams, each furnished with a specific theoretical perspective on localized economic development, and subsequently jointly brought to the industrial district of Gnosjö in Sweden in order to meet with owner-managers and further local stakeholders. The student groups report on their field experiences, thereby creating maps as diverse as the different theoretical frameworks being used. These contrasting images of the districts generic features and sustainability are used as an input to a conclusive polylogue seminar that offers an ‘interstanding’ that, on the one hand, reminds the participants that any, including scientifically investigated, reality is socially constructed, and, on the other, communicates that tensions between alternative conceptual constructs, especially if substantiated in empirical research, offer an inspiring road to knowledge.

Monitoring banks in the presence of risk

This paper proposes a managerial control tool that integrates risk in efficiency measures. Building on existing efficiency specifications, our proposal reflects the real banking technology and accurately models the relationship between desirable and undesirable outputs. Specifically, the undesirable output is defined as non-performing loans to capture credit risk, and is linked only to the relevant dimension of the output set. We empirically illustrate how our efficiency measure functions for managerial control purposes. The application considers a unique dataset of Costa Rican banks during 1998–2012. Results’ implications are mostly discussed at bank-level, and their interpretations are enhanced by using accounting ratios. We also show the usefulness of our tool for corporate governance by examining performance changes around executive turnover. Our findings confirm that appointing CEOs from outside the bank is associated with significantly higher performance ex post executive turnover, thus suggesting the potential benefits of new organisational practices.

Assessing Technology-Based Spin-Offs from University Support Units

Epure M., Prior D. and Serarols C. Assessing technology-based spin-offs from university support units, Regional Studies. This paper takes a regional studies approach to assess spin-offs from a university-based technology transfer network. It first detects the regional objectives, inputs and outputs needed to assess spin-offs from support programmes. It then provides evidence on regional mechanisms for firm creation. Spin-offs created at Catalan universities are analysed and it is found that many efficient spin-offs have formal technology transfer agreements, and emerge from technology-oriented universities. It is also found that higher innovation levels and experience from the parent university are associated with higher efficiency, which is positively related to future fundamental profitability. Finally, regional policy-making and research directions are proposed.

Corporate Governance and Corporate Social Performance: The Influence of Boards, Ownership and Institutions

We analyze how ownership concentration and type, and board independence are related to corporate social performance (CSP). Drawing from agency and team production theories, we argue that the distribution of costs and benefits to shareholders and other stakeholders is crucial to understand what drives CSP. We analyze an international panel of listed firms and reveal that CSP is negatively related to ownership concentration, but positively to board independence. Furthermore, the ownership type and the business context matter. Ownership concentration is negatively related to CSP more strongly in shareholder-oriented societies. This negative relationship is weaker in egalitarian societies.

Household Credit, Global Financial Cycle, and Macroprudential Policies: Credit Register Evidence from an Emerging Country

We analyze the effects of macroprudential policies on local bank credit cycles and interactions with international financial conditions. For identification, we exploit the comprehensive credit register containing all bank loans to individuals in Romania, a small open economy subject to external shocks, and the period 2004-2012, which covers a full boom-bust credit cycle when a wide range of macroprudential measures were deployed. Although household leverage is known to be a key driver of financial crises, to our knowledge this is the first paper that employs a household credit register to study leverage and macroprudential policies over a full economic cycle. Our results show that tighter macroprudential conditions are associated with a significant decline in household credit, with substantially stronger effects for FX loans than for local currency loans. The effects on FX loans are higher for: (i) ex-ante riskier borrowers proxied by higher debt-service-to-income ratios and (ii) banks with greater exposure to foreign funding. Moreover, tighter macroprudential policy has stronger dampening effects on FX lending when global risk appetite is high and foreign monetary policy is expansionary. Finally, quantitative effects are in general larger for borrower rather than lender macroprudential policies. Overall, the results suggest that macroprudential policies are effective in mitigating bank risk-taking in household lending over the local bank credit and global financial cycles, and therefore have important implications for policy and bank risk management.

Corporate social responsibility and the assessment by auditors of the risk of material misstatement

This paper investigates whether, and how, firms’ corporate social responsibility (CSR) performance influences the auditors assessment of the risk of material misstatement, whether due to fraud or error, at the financial statement level by analysing their pricing decision (i.e., audit fees). Using a panel data set of 12,330 firms from 28 countries over the period 2003–2012 and different measures of CSR performance, we find a U-shaped relationship between firms’ CSR performance and audit fees. This result suggests that there is an optimal level of CSR performance that minimizes the auditors assessment of the risk of material misstatement, which in turn lowers the need for greater auditor effort; that is why auditors charge firms significantly less when their CSR performance is at the optimal level. Finally, we also show that the optimal level of CSR performance varies with the degree of environmental dynamism, ownership concentration and leverage.

Information asymmetry reduction in opaque contexts: Evidence from debt and outside equity financing in early stage firms

This study analyzes the relationship between debt and outside equity investments in early stage firms. The existing evidence on this relationship is scarce and inconclusive, mostly due to the pervasive opaqueness of early stage firms. We argue that outside investors who face the severe information asymmetries that exist in entrepreneurial firms may use the level of debt as a signal. In addition, personal and business debt could signal different information to outside investors. We use the Kauffman Firm Survey and develop an empirical strategy based on a Heckman selection model and a propensity score matching analysis. Our results consistently show that debt, and particularly business debt, is positively related to outside equity investments, especially in times of economic distress. We posit that start-ups with higher levels of business debt can send more credible signals to capital markets, and identify cash holdings and the firm-bank relationship as possible information channels for outside investors.By imposing a market like governance and directing entrepreneurs towards professional management, debt, and especially business debt, can serve as a reliable signal for outside equity investors. Such signals of firm accountability can alleviate the stringent information asymmetry at the early stages of the firm, and become stronger for bank business debt, in the presence of personal debt, and in high capital industries. Using the Kauffman Firm Survey, we find evidence consistent with our hypotheses. Outside investors can rely on the governance role of debt and its underpinnings such as the bank-firm relationship. We also corroborate that young firms tend to focus on growth rather than profitability.

Attracting Early-Stage Investors: Is Debt a Deterrent or an Incentive?

This study analyzes the relationship between debt and outside equity investments in entrepreneurial firms. Although there is consensus that start-up financing plays a key role for performance and g...