Ron McIver

Modeling Time-Varying Correlations in Volatility Between BRICS and Commodity Markets

ABSTRACT This article investigates the asymmetric and long memory volatility properties and dynamic conditional correlations (DCCs) between Brazilian, Russian, Indian, Chinese, and South African (BRICS) stock markets and commodity (gold and oil) futures markets, using the trivariate DCC-fractionally integrated asymmetric power autoregressive conditional heteroskedasticity (FIAPARCH) model. We identify significant asymmetric and long memory volatility properties and DCCs for pairs of BRICS stock and commodity markets, and variability in DCCs and Markov Switching regimes during economic and financial crises. Finally, we analyze optimal portfolio weights and time-varying hedge ratios, demonstrating the importance of overweighting optimal portfolios between BRICS stock and commodity assets.

Achieving targeted environmental flows: alternative allocation and trading models under scarce supply-lessons from the Australian reform process

The problem of water overallocation in many regions of the world involves how to include environmental flow provisions for long-term sustainability of river systems, especially under scarce supply conditions. Market mechanisms have provided pathways for returning water to rivers for environmental use. We argue that it is important to consider how both market mechanisms and initial water allocation models contribute to achieving satisfactory environmental flow outcomes. The Murray-Darling Basin (MDB) in Australia has had policy processes applied to it for almost twenty years to address these issues, and provides an excellent basis for case-study analysis. Two MDB case studies are used to consider differences in the interpretation and implementation of environmental flow requirements, and the potential for institutional inertia of the systems within which water markets operate. We identify two simplified models from these case studies—one prioritising environmental rights above consumptive extraction and the other prioritising consumptive and environmental rights equally. However, neither of these case-study models provides the full environmental flow spectrum of base in-stream flows to over-bank flush events. Our findings suggest that combining allocation and market-based rights (a third model) offers an effective means to deliver full-spectrum environmental flows. If governments provide prioritised environmental rights for base in-stream ecosystem benefits, together with targeted temporary and permanent water market acquisitions to meet environmental needs associated with over-bank floods and flushes, there will be lower potential for shortfalls relative to targeted environmental flow outcomes.

Asset Management Companies, State‐Owned Commercial Bank Debt Transfers and Contingent Claims: Issues in the Valuation of China’s Non‐Performing Loans

This article outlines contingent claims created as a result of the arrangements underlying the transfer of state‐owned commercial banks’ non‐performing loans to asset management companies. An understanding of these factors is central in analysing the potential for China’s as set management companies to realise value from their acquisition of these nonperforming state‐owned enterprise loans. After establishing the scale of the non‐performing loan problem, the article identifies and describes a number of real and financial options that may assist in the consideration of the value of assets associated with the transfer of non‐performing loans from the state‐owned commercial banks to the asset management companies. Real and financial options appear in the form of implied guarantees over asset management corporation debt, implied guarantees associated with the non‐performing assets remaining with the stateowned commercial banks, and within the equity positions held by the asset management companies as a result of equity‐for‐debt swaps initiated under the current reform process. The article concludes that any gains made to the credit standing of the state‐owned commercial banks reflect the value of implied guarantees over both the asset management corporation debt and the remaining stock of non‐performing loans held by the banks. Furthermore, institutional arrangements associated with the equity positions held by the asset management corporations significantly reduce the value of options associated with operation and control of firms in which the equity positions are held. Additionally, the structure of equity positions taken under the equity‐debt swaps suggest that the value of equity positions held in state‐owned enterprises by the asset management companies will be considerably lower than hoped for and implied in the asset management companies’ mandates.

Governance and performance in China’s real estate sector

Purpose - – The purpose of this paper is to link literature on China’s real estate sector and the impact of governance, ownership and political connectedness on firm financial performance. Whether these factors impact listed real estate firms differently to firms in other industry sectors is identified. Design/methodology/approach - – The paper uses pooled 2008-2013 data on A-share firms. Tobin’s Findings - – Industry concentration and proportion of state ownership appear to positively impact performance. Firm size, gearing and greater foreign ownership appear to negatively impact performance. However, differences are identified for real estate firms, in which state control and gearing positively impact performance. Greater state and foreign ownership as well as supervisory board size negatively impact performance. Finally, state control in the presence of local government connections negatively impacts performance, while greater state ownership in the presence of local government connections positively impacts performance. Originality/value - – A lack of empirical evidence on the impact of corporate governance, ownership structures and political connectedness on firm performance in China’s real estate sector is addressed. Importantly, relationships among these factors and the financial performance of China’s listed real estate firms differ to those of firms in other industries.

Tax Aggressiveness, China's Corporate Tax Reforms, and Market Impact

Enactment of China’s new Enterprise Income Tax Law was announced on March 16 2007 (with effect from January 1 2008). The Enterprise Income Tax Law potentially increased the tax burden on foreign-invested enterprises (FIEs) and foreign investors as a whole (removing concessions), potentially lowering the tax burden for domestic companies (a fall in the nominal tax rate from 33 per cent to 25 per cent). The announcement of such significant changes to corporate tax arrangements provides a natural ‘experimental platform’ for research on the impact of regulatory change in a transition economy and developing capital market. This study uses the event study method to investigate the relationship between corporate tax aggressiveness and stock price reactions to the announcement of the new Enterprise Income Tax Law. To account for key features of China’s stock markets and corporate behavior, we address the impact of ownership structure, particularly high levels of state and foreign ownership, and differences in the regulatory environment between China’s Shanghai and Shenzhen stock markets. We conclude that the announcement of the Enterprise Income Tax Law had significant market value effects. Additionally, we find variations in market reaction for individual stocks based on tax aggressiveness, ownership, and location of listing.

Tax Regimes, Regulatory Change and Corporate Income Tax Aggressiveness in China

This study uses the ‘natural experiment’ provided by China’s implementation of its 2007 Accounting Standards for Business Enterprises No.18 — Corporate Income Tax Accounting and 2008 Enterprise Income Tax Law to address two questions. Have China’s tax regulatory environment changes had an impact on the corporate tax avoidance of its listed companies? Does ownership structure — i.e., state-controlled, private or foreign-invested — impact on companies’ responses to regulatory change? Drawing on effective tax planning, agency, tax avoidance and legitimacy theories, this study uses a balanced panel-data sample for the 2007 to 2010 period on 1,224 companies listed on the Shanghai and Shenzhen Stock Exchanges. We find that tax avoidance by listed companies, measured by the book-tax gap, has reduced as a result of regulatory reform. Additionally we tentatively support the influence of ownership/control on corporate tax avoidance in China, with state-controlled companies evidencing lower levels of the book tax gap.

Are All Banks Treated as Equals? The Case of Fully Foreign-Funded, Locally Incorporated Banks in China

This paper provides a preliminary assessment of the equality of treatment of two classes of locally incorporated banks in China: fully foreign-funded and locally-funded. It presents a brief review of changes to legal requirements associated with foreign funded banks, and reviews differences in a range of key performance metrics. The paper concludes that there is evidence for differences in the treatment of the two forms of locally incorporated banks.

Bangladesh's banking sector: Returned from financial crisis?

This paper evaluates the financial fragility of Bangladeshs National Banking System (NBS), providing an independent assessment of the Governments success in returning the NBS from financial crisis during 1987-1996. The evaluation utilises a comprehensive set of macroeconomic and microprudential variables, as per International Monetary Fund (2000). We find that government-owned Nationalised Commercial Banks (NCBs) and Development Financial Institutions (DFIs) were technically insolvent, and that concern should exist about the NBSs financial fragility due to exposure to adverse changes in macro-economic conditions. However, implicit government guarantee of the NCBs and DFIs protects against financial fragility leading to a banking crisis.

China's national banking system: commercialisation and financial stability

This paper analyses Chinas success in establishing a commercially–oriented bank system, the systems ongoing stability, and factors supporting stability. These issues are addressed for the 1997-2003 period through consideration of: the liquidity requirements of commercial banks; and a comprehensive set of macro-economic and micro-prudential indicators suggested by the International Monetary Fund (2000) for the analysis and detection of financial system fragility. The paper concludes that Chinas major banks lacked sufficient balance sheet liquidity to operate as commercial banks. Additionally, while Chinas banking system was highly sensitive to the macro-economic environment, existence of a financial crisis is not supported.

The Need to be Discriminating when Teaching Price Discrimination

Price discrimination generally, and third-degree price discrimination in particular, are topics taught in almost every intermediate microeconomics subject. The theory, geometry, and even the algebra behind the concept are simple, and the phenomenon commonly occurs in the sale of many of the goods and services used frequently by students. Classroom discussion is usually vibrant as students can easily relate their experiences of being on the receiving end of third-degree price discrimination, usually to their advantage. However, the precision of the language used in the exposition of the theory in textbooks is generally less precise than one would hope for, leading to students confusing slope and elasticity. We ask in this note, therefore, that greater precision be provided by textbook authors in explaining why differing elasticities are associated with the prices paid by the two distinct groups of buyers under a third-degree price discrimination charging policy.