Sami Vähämaa

Female executives and earnings management

Purpose - The purpose of this paper is to examine the association between earnings management and the gender of the firms executives. Design/methodology/approach - Panel regressions of discretionary accruals on a set of female executive dummies and firm-specific controls. Findings - The results provide considerable evidence to suggest that firms with female chief financial officers (CFOs) are associated with income-decreasing discretionary accruals, thereby implying that female CFOs are following more conservative earnings management strategies. Research limitations/implications - In general, the findings indicate that gender-based differences in conservatism, risk-aversion, and managerial opportunism may have important implications for financial reporting and corporate governance. Originality/value - This paper extends prior research by addressing the potential effects of female executives on earnings management. The findings reported in this paper provide novel insights to the empirical financial accounting literature.

Why does the correlation between stock and bond returns vary over time

This article examines the impact of inflation and economic growth expectations and perceived stock market uncertainty on the time-varying correlation between stock and bond returns. The results indicate that stock and bond prices move in the same direction during periods of high inflation expectations, while epochs of negative stock–bond return correlation seem to coincide with subdued inflation expectations. Furthermore, consistent with the ‘flight-to-quality’ phenomenon, the results suggest that periods of elevated stock market uncertainty lead to a decoupling between stock and bond prices. Finally, it is found that the stock–bond return correlation is virtually unaffected by economic growth expectations.

Did Good Corporate Governance Improve Bank Performance During the Financial Crisis

This paper focuses on the effects of corporate governance on bank performance during the financial crisis of 2008. Using data on large publicly traded U.S. banks, we examine whether banks with stronger corporate governance mechanisms were associated with higher profitability and better stock market performance amidst the crisis. Our empirical findings on the effects of corporate governance on bank performance are mixed. Although the results suggest that banks with stronger corporate governance mechanisms were associated with higher profitability in 2008, our findings also indicate that strong governance may have had negative effects on stock market valuations of banks amidst the crisis. Nevertheless, we document that banks with strong corporate governance practices had substantially higher stock returns in the aftermath of the market meltdown, indicating that good governance may have mitigated the adverse influence of the crisis on bank credibility.

Are Female CEOs and Chairwomen More Conservative and Risk Averse? Evidence from the Banking Industry During the Financial Crisis

This paper exploits a large panel of U.S. commercial banks to examine the association between Chief Executive Officer (CEO) and Chairperson gender and bank risk-taking during the recent financial crisis. Given the documented gender-based differences in conservatism and risk tolerance, we postulate that female executives may constrain excessive risk-taking in commercial banks, and may thereby reduce default risk during periods of market stress. The results indicate that banks with female CEOs are more conservative and hold higher levels of equity capital. The positive relationship between female CEOs and capital ratios is strongest in smaller banks, and weak or non-existent in larger banks. Furthermore, while neither CEO nor Chair gender is related to bank failure in general, we find strong evidence that small banks with female CEOs and Chairwomen were less likely to fail during the financial crisis. These findings are consistent with the view that gender differences in risk tolerance and conservatism may have important implications for corporate decision-making and governance mechanisms. JEL classification: G01, G21, G30, G32

The Fed’s Policy Decisions and Implied Volatility

This paper examines how the Fed’s monetary policy decisions affect the implied volatility of the S&P 500 index. The results show that stock market uncertainty is significantly affected by the Fed’s policy decisions. In particular, we find that implied volatility generally decreases after FOMC meetings, while the relationship between target rate surprises and market uncertainty appears positive. However, our results also suggest that the apparent positive relationship between policy surprises and implied volatility is mostly driven by the volatility-reducing effects of negative surprises. We further document that implied volatility is affected by both scheduled and unscheduled policy actions, with the scheduled path surprises having the strongest impact on volatility. Finally, our findings indicate that the impact of monetary policy decisions on implied volatility is more pronounced during periods of expansive policy.

Terrorism and Stock Market Sentiment

This paper examines the effects of terrorism on stock market sentiment by focusing on the behavior of expected probability density functions of the FTSE 100 index around terrorist attacks. We find that terrorism has a strong adverse impact on stock market sentiment. In particular, terrorist attacks are found to cause a pronounced downward shift in the expected value of the FTSE 100 index and a significant increase in stock market uncertainty. Furthermore, our results show that the expected FTSE 100 probability densities became significantly more negatively skewed and fat-tailed in the immediate aftermath of terrorist acts.

Bank Corporate Governance and Real Estate Lending During the Financial Crisis

This paper examines the effects of bank corporate governance on real estate lending and loan losses during the recent financial crisis. The results indicate that banks with stronger corporate governance mechanisms had higher profitability during the period 2006-2009. Our findings on the effects of corporate governance on real estate lending performance are mixed and depend on the definition of the crisis period. Although banks with stronger governance practices had a lower amount of real estate loan losses during 2006-2008, our results also show that these banks experienced significantly larger losses in 2009.

The 'Dogs of the Dow' Strategy Revisited: Finnish Evidence

This paper re-examines the performance of the ‘Dogs of the Dow’ (DoD) investment strategy in a different market setting and over a different time period. In particular, we use Finnish data over the period 1988–2008 to examine whether the DoD strategy can be successfully replicated in different types of markets and in different market conditions. Our empirical findings suggest that the DoD investment strategy is profitable in the Finnish stock market. The DoD strategy outperforms the market index with an average (median) annual abnormal return of 4.5% (7.5%). The outperformance of the DoD strategy appears particularly pronounced in stock market downturns. Furthermore, our results indicate that the DoD strategy outperforms the market index even after most risk adjustments and thereby suggest that the outperformance of the strategy is not merely a compensation for higher risk. Nevertheless, we also document that the superior returns of the DoD strategy may be largely attributed to the winner–loser effect.

Corporate Governance and the Systemic Risk of Financial Institutions

This paper studies the relationship between corporate governance and the systemic risk of financial institutions. Specifically, using a sample of large U.S. financial institutions from 2005 to 2010, we examine whether the strength of corporate governance mechanisms can explain the cross-sectional variation in systemic risk around the recent financial crisis. Our empirical findings indicate that financial institutions with stronger and more shareholder-focused corporate governance structures and boards of directors are associated with higher levels of systemic risk. Thus, our results suggest that good corporate governance may encourage rather than constrain excessive risk-taking in the financial industry.

A note on the impact of scheduled macroeconomic news announcements on implied volatility

This note demonstrates that different methodological approaches may lead to somewhat different conclusions about the impact of scheduled macroeconomic news announcements on implied volatility. While there is no doubt that implied volatilities are significantly affected by macroeconomic releases, the analysis presented in this note shows that different approaches provide inconsistent results regarding the direction of the effect and also about the relative importance of different types of macroeconomic announcements.