the nature of diversified business groups a research design and two case studies diversified business groups dominate the private sectors of most of the world s economies several of these economies have undergone sudden policy changes that significantly increase domestic competitive intensity the authors demonstrate how the changes in corporate scope that accompany such competitive shocks can be used to weigh the importance of different explanations for the existence of diversified business groups the authors illustrate their reasoning by studying the restructuring of two of india s largest business groups following a comprehensive post 1991 package of policy reforms the case studies also elucidate aspects of the restructuring process that should inform larger sample empirical analyses copyright 1998 by blackwell publishing ltd

prediction of financial distress for multinational corporations panel estimations across countries this research predicts ex ante financial distress and analyses the link between financial distress performance employment and research and development r d investment in the case of multinatio

turkish bank efficiency bayesian estimation with undesirable outputs this paper analyzes the productivity and efficiency of turkish banks from 2002 to 2010 we obtained estimates of efficiency productivity growth and efficiency growth using a bayesian stochastic frontier approach and focused on accounting for non performing loans npls for use in our model specifically we introduce npls as a bad output in an input distance function and estimate a system of non linear equations subject to endogeneity we confirm that the productivity growth of turkish banks was positive over the period of this study which was mainly due to the improvement in technology while efficiency growth continued to be negative over the same period methodologically we also prove that not accounting for npls in estimating the frontier model might seriously distort the efficiency and productivity results the study also provides measures of shadow prices for npl and discusses the results in terms of several interesting trends in turkish banking finally the paper provides efficiency and productivity comparisons between domestic and foreign banks

risk neutral parameter shifts and derivatives pricing in discrete time we obtain a large class of discrete time risk neutral valuation relationships or preference free derivatives pricing models by imposing a simple restriction on the state price density process the risk neutral stock return and forward rate dynamics are obtained by changing only a location parameter which can be determined independent of the preference and true location parameters the gaussian models of rubinstein 1976 brennan 1979 and c mera 2003 and the gamma model of heston 1993 are all special cases the model provides simple relationships between expected returns and state price density parameters analogous to the diffusion case

kick starting diffusion explaining the varying frequency of preferential trade agreements environmental provisions by their initial conditions most recent preferential trade agreements ptas include environmental provisions while a number of these environmental provisions remain rare and are incorporated in just a few ptas others are widely popular and are duplicated in more than 100 ptas we still lack a convincing explanation for this varying frequency while the diffusion literature typically tries to explain how diffusion occurs we investigate why certain provisions diffuse more often than others we hypothesise that the initial conditions under which provisions first emerge determine the scope of their diffusion our results support this hypothesis and indicate that provisions originating from intercontinental agreements diffuse more often than others at the same time provisions first designed by economically powerful or environmentally credible countries are not related to more frequent occurrences of diffusion these findings are of interest for the literatures on international institutions design interaction and diffusion

a comparative study of efficiency in european banking this paper investigates whether there has been an improvement in and convergence of productive efficiency across european banking markets since the creation of the single internal market using efficiency measures derived from dea estimation the determinants of european bank efficiency are evaluated using the tobit regression model approach the established literature on modelling the determinants of bank efficiency is then extended by recognizing the problem of the inherent dependency of dea efficiency scores when used in regression analysis to overcome the dependency problem a bootstrapping technique is applied overall the results suggest that since the eu s single market programme there has been a small improvement in bank efficiency levels although there is little evidence to suggest that these have converged the results also suggest that inference on the determinants of bank efficiency drawn from non bootstrapped regression analysis may be biased and misleading

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

explaining bank distress in eastern european transition economies abstract this paper considers the joint role of macroeconomic structural and bank specific factors in explaining the occurrence of banking problems in the nineteen eastern european transition countries over the last decade with data at the individual bank level we show using a discrete time survival model that all three factors interact in their impact and have a rich dynamic profile which underlines the highly volatile cycles challenging the stability of banks in this region a fragile funding basis accompanied by high exposure to market risk in an environment of reforms and macroeconomic disturbances is the typical precursor of bank distress

non parametric frontier estimates of mutual fund performance using c and l moments some specification tests there is a burgeoning literature using non parametric frontier methods to measure mutual fund performance these articles measure the relationship between the various characteristics mainly return information and some costs of ownership of these specialized financial products to establish a ranking using some efficiency measure we argue in favor of the use of the shortage function which is compatible with general investor preferences and question some of the often maintained hypotheses in this line of research the empirical part employs a large database of us and european mutual funds to offer extensive tests of the underlying modeling assumptions using various frontier estimators

controlling for the use of extreme weights in bank efficiency assessments during the financial crisis we propose a method for bank efficiency assessment based on weight restricted dea that limits banks abilities to use extreme weights corresponding to extreme judgements of the risk adjusted prices on funding sources and assets based on a data set comprising the largest european banks during the financial crisis we illustrate the impact of the proposed weight restrictions in two different efficiency models one related to banks funding mix and one related to their asset mix the results show that using a more balanced set of weights tend to reduce the estimated efficiency scores more for those banks which were bailed out during the crisis which confirms the potential bias within standard dea that does not control for extreme weights applied by highly risky banks we discuss the use of the proposed method as a regulatory tool to constrain discretion when complying with regulatory capital benchmarks such as the basel regulatory capital ratios

valuing flexibility as a complex option this paper develops an approach for valuing flexible production systems using contingent claims pricing demand curves for our model s underlying assets output products may be downward sloping in contrast with the standard option pricing assumption also our marginal production exercise costs may be increasing in addition we allow for multiple products and a production capacity constraint these elements of the model result in complex exercise decisions for the contingent claims which comprise the production system s value we illustrate our approach by valuing a flexible system that produces two products which have profit margin functions with stochastic parameters

a note on optimal credit and pricing policy under uncertainty a contingent claims approach investment in accounts receivable differs from investment in other assets since it is a joint decision on product pricing and credit policy any changes in product price financing charges or both will affect the quantity demanded and the investment in accounts receivable in a world of certainty a profit maximizing firm would invest in accounts receivable until the marginal revenue equals the marginal cost of the product this criterion maximizes the firm s value since no default risk in accounts receivable is considered in a realistic world with uncertainty management of accounts receivable is more complicated because the quantity demanded is often stochastic and the payment by the customer may be uncertain due to default risk a greater default risk other things being equal will imply a lower value of credit sale thus a firm that considers the price elasticity of demand alone and that ignores the default risk and other factors will not be led to an optimal investment in accounts receivable product pricing decisions are not independent of the credit decisions for example increases in product price or financing charges may reduce the quantity demanded sufficiently to reduce the contractual revenue but they may increase the current market value of the accounts receivable due to an increase in the payment probability although the appropriateness of wealth maximization as opposed to profit maximization and the importance of the interdependency of the joint credit and pricing decisions have gradually been recognized in the literature to our knowledge no work has succeeded in integrating the two under the assumption that the pricing decisions are given several studies have concentrated on the creditgranting decisions and have thus assumed away the more important and interesting interactive effects between pricing and credit decisions 1 a few recent studies have attempted to integrate these decisions however the criteria used in selecting the optimal policies are ad hoc and often not within a wealthmaximization framework 2 kim and atkins 4 recognized some deficiencies in previous work and proposed a much improved model in which they attempt to

the dominance of inefficiencies over scale and product mix economies in banking abstract this study measures and analyzes inefficiencies for all u s banks in 1984 inefficiencies are measured relative to a thick frontier cost function and are found to dominate measured scale and product mix economies most inefficiencies are operational in nature involving the overuse of physical inputs rather than financial involving overpayment of interest also technical inefficiencies proportionate overuse of all inputs dominate allocative inefficiencies improper mix of inputs these results suggest that competitive pressures in banking from deregulation will be focused primarily on banks that do not control costs rather than on those of a particular size or product mix

the state preference approach to general equilibrium in corporate finance abstract this paper attempts to implement the state preference approach in a multiperiod exchange economy the procedure is relevant for a further investigation of various important issues in corporate finance such as the results of modigliani and miller and the integration of the state preference and the mean variance approach to asset pricing

technical and allocative efficiency in european banking this paper specifies an empirical framework for estimating both technical and allocative efficiency using the translog cost share system thus providing a solution to the issue known in the literature as the greene problem the model is applied to a large panel of european banks and the results are compared with those of a model that does not include an allocative inefficiency term and also with those obtained by using a consistent bayesian technique our results suggest that models which include only technical efficiency significantly overestimate it while parameter estimates from the model that includes both technical and allocative efficiency are very close to the ones obtained from the bayesian approach thus enhancing our confidence in the proposed methodology finally the fact that allocative efficiency of banks in our sample improves more than technical efficiency underlines the importance of including an allocative inefficiency component in parametric efficiency models

diseconomies of size with fixed managerial ability managerial ability has important implications for farm growth in this article we first show in a production model that increasing output with a fixed level of managerial ability can lead to a decrease in profits next we discuss the effect that managerial ability has on economies of size in the empirical part economies of size are estimated for a sample of dairy farms using a proxy for managerial ability which is calculated as a technical efficiency index the results show that increasing farm size while holding managerial ability constant can be an important source of diseconomies of size copyright 2003 oxford university press

distribution of cost and profit efficiency evidence from indian banking this paper uses the nonparametric dea methodology to estimate cost and profit efficiency of indian banks during the post reform period the results show considerable variation in average levels of profit efficiency across various ownership categories of banks in general state owned banks are found to be more efficient than their private counter parts further efficiency tends to be low among the small banks assets up to rs 50 billion indicating that at the existing scale of operations these banks are operating far below the efficient frontier we also examine the distribution of efficiency using nonparametric kernel density estimates the analysis reveals a rightward shift of the efficiency distribution over the years a major part of this shift comes from the state owned banks based on the conditional distribution the study finds strong evidence of ownership explaining the efficiency differential of banks additionally bank size and product mix are also found to be important although to a lesser extent

options on the minimum or the maximum of two risky assets analysis and applications this paper provides analytical formulas for european put and call options on the minimum or the maximum of two risky assets the properties of these formulas are discussed in detail options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists applications discussed in this paper include the valuation of foreign currency debt option bonds compensation plans risk sharing contracts secured debt and growth opportunities involving mutually exclusive investments

financial distress drivers in brazilian banks a dynamic slacks approach abstract this study applies the dynamic slacks based model dsbm developed by tone and tsutsui 2010 in order to assess the evolution of input saving output increasing potentials in major brazilian banks from 1996 to 2011 we propose that these potentials or slacks can be used as proxies for an eventual financial distress situation in the future the main research objective is to determine whether or not different characteristics of bank type related to ownership size and merger and acquisition processes are significantly related to inefficiency levels and by extension to an eventual financial distress situation since higher inefficiency levels also imply lower input saving output decreasing potentials based on a balanced panel model secondary data from economatica were collected and analyzed results indicate higher inefficiency levels and slacks in small public and national banks policy implications are also addressed

pricing multivariate contingent claims using estimated risk neutral density functions abstract many asset price series exhibit time varying volatility jumps and other features inconsistent with assumptions about the underlying price process made by standard multivariate contingent claims mvcc pricing models this article develops an interpolative technique for pricing mvccs flexible nls pricing that involves the estimation of a flexible multivariate risk neutral density function implied by existing asset prices as an application the flexible nls pricing technique is used to value several bivariate contingent claims dependent on foreign exchange rates in 1993 and 1994 the bivariate flexible risk neutral density function more accurately prices existing options than the bivariate log normal density implied by a multivariate geometric brownian motion in addition the bivariate contingent claims analyzed have substantially different prices using the two density functions suggesting flexible nls pricing may improve accuracy over standard methods

predicting bank failures the role of structure in affecting the acceleration in the number of us bank failures during recent years provides valuable data for developing bank failure prediction models a probit models which incorporates various bank structure variables as well as traditional financial ratios is used to explain bank failures during the 1982 3 period the empirical findings suggest that important information regarding a bank s likelihood of failure is contained in its balance sheet and income accounting data it is also found that banks which affiliate with holding companies or are larger in size have a significantly lower probability of failure this suggests that states which impose unit banking rules or block holding company formation may be adding to failure risks

bank productivity and performance groups a decomposition approach based upon the luenberger productivity indicator abstract the purpose of this paper is twofold first in the framework of the strategic groups literature it analyzes changes in productivity and efficiency of spanish private and savings banks over an eight year period 1998 2006 second by adapting the decomposition of the malmquist productivity indices suggested by fare et al 1994 it proposes similar components decomposing the luenberger productivity indicator initially productivity is decomposed into technological and efficiency changes thereafter this efficiency change is decomposed into pure efficiency scale and congestion changes empirical results demonstrate that productivity improvements are partially due to technological innovation furthermore it is shown how the competition between private and savings banks develops in terms of the analyzed productivity and efficiency components while private banks enjoy better efficiency change savings banks contribute more to technological progress consequently the luenberger components are used as cluster analysis inputs thus economic interpretations of the resulting performance groups are made via key differences in productivity components finally following the strategic groups literature supplementary insights are gained by linking these performance groups with banking ratios

do large banks have lower costs new estimates of returns to scale for u s banks this paper presents new fully nonparametric estimates of ray scale and expansion path scale economies for u s banks based on a model of bank costs unlike prior studies that use models with restrictive parametric assumptions or limited samples our methodology uses local polynomial estimators and data on all u s banks over the period 1984 2006 our estimates indicate that as recently as 2006 most u s banks faced increasing returns to scale suggesting that scale economies are a plausible but not necessarily only reason for the growth in average bank size and that the tendency toward increasing scale is likely to continue unless checked by government intervention

price regulation in property liability insurance a contingent claims approach a discrete time option pricing model is used to derive the fair rate of return for the property liability insurance firm the rationale for the use of this model is that the financial claims of shareholders policyholders and tax authorities can be modeled as european options written on the income generated by the insurer s asset portfolio this portfolio consists mostly of traded financial assets and is therefore relatively easy to value by setting the value of the shareholders option equal to the initial surplus an implicit solution for the fair insurance price may be derived unlike previous insurance regulatory models this approach addresses the ruin probability of the insurer as well as nonlinear tax effects

radial and non radial decompositions of profit change with an application to indian banking abstract grifell tatje and lovell grifell tatje e lovell c a k 1999 profits and productivity management science 45 1177 1193 made significant contributions to the literature on the extended radial dea framework by decomposing profit change into six mutually exclusive components their approach however poses two basic problems first the radial estimates on these components might give conflicting signals about the direction of profit change after the full radial efficiencies are achieved when slacks are present second evaluations of these components using base period prices as weights can be potentially misleading to address these concerns we first introduce non radial dea models and then provide a few strong theoretical arguments in favor of using as weights either current period prices or an average price covering both periods to value the contributions of each of these components the indian banking sector is taken as a case study to illustrate the radial and non radial decompositions of profit change so as to empirically examine the role of competition on profit change and its drivers our broad empirical results are as follows first radial and non radial models yield diametrically opposite results on the contributions of various components second the increasing efficiency change trends in all ownership groups after 2002 indicate that the government reform process instituted on the banking industry has had a favorable effect on the performance of the indian banking sector third despite the fact that nationalized banks are the oldest banks their output and resource allocation behaviors do not reflect their learning experience

uncertain inflation exchange rates and bond yields abstract the yields on international bonds are affected by exchange rate risk and country risk in addition to factors such as default and duration that are relevant in the pricing of domestic bonds this paper constructs a theory of bond yields in a single period framework with the risk of nominal bonds being endogenous to the model the behaviour of the monetary authority is modelled explicitly and is shown to be a crucial determinant of the risk of nominal bonds a distinction is made between the risk of default in the usual sense and the risk of being paid in currency which is worth less in real terms with the type of risk that is relevant in a particular case depending on the monetary policy followed the implications of results for exchange rate risk are also explored in a world where purchasing power parity holds

the valuation of multivariate contingent claims in discrete time models there are several examples in the literature of contingent claims whose payoffs depend on the outcomes of two or more stochastic variables familiar cases of such claims include options on a portfolio of options options whose exercise price is stochastic and options to exchange one asset for another this paper derives risk neutral valuation relationships rnvrs in a discrete time setting that facilitate the pricing of such complex contingent claims in two specific cases joint lognormally distributed underlying variables and constant proportional risk aversion on the part of investors and joint normally distributed underlying variables and constant absolute risk aversion preferences respectively this methodology is then applied to the valuation of several interesting complex contingent claims such as multiperiod bonds multicurrency option bonds and investment options

banks responses to deregulation profits technology and efficiency the deregulation of interest rates in the early 1980s raised bank funding costs and lowered profits in response banks raised fees for deposit services reduced branch operating costs and shifted to higher earning assets rates of return did not regain their prederegulation levels until the early 1990s our goal is to decompose the change in bank profits following deregulation into i intemal bank initiated adjustments to the new regulatory structure and ii external contemporaneous changes in banks business environment this decomposition will depend in part on the assumed competitive structure of the banking industry with perfect competition output and input prices are part of the external environment and banks responses are limited to changes in output and input quantities an alternative approach assumes imperfect competition where banks have some control over output prices deposit fees minimum balance requirements and interest rates on certain loans and output quantities and input prices comprise the external environment the altemative model is supported by the data using this model large banks but not smaller banks are found to have relied primarily on changing output prices and input use to mitigate and reverse the negative effects of deregulation on profits the adjustment to deregulation was essentially complete after four years following this additional changes in bank profitability during the late 1980s were primarily due to changes in banks business environment

do consumers pay for one stop banking evidence from an alternative revenue function abstract in providing financial services jointly banks may reduce costs due to complementarities in production cost economies of scope or raise revenues from complementarities in consumption revenue economies of scope cost economies of scope between bank deposits and loans have been found to be small revenue economies of scope are investigated here for the first time and found to be insignificant over 1978 1990 for both small and large banks and for those on or off the revenue efficient frontier the lack of complementarities between deposits and loans where benefits are most likely to occur suggests that claims of important synergies from an expansion of banking powers be taken with caution

determinants of bank efficiency the case of brazil abstract this paper analyzes the efficiency of the brazilian banking sector over the post privatization period of 2000 2007 we employ a bayesian stochastic frontier approach which provides exact efficiency estimates and confidence intervals and thus allows an accurate comparison across institutions and bank groups the results suggest that large banks are the most cost and profit efficient supporting the concentration process observed in recent years foreign banks have achieved a good performance through either the establishment of new affiliates and the acquisition of local banks the remaining public banks have had improvements in cost efficiency but are relatively profit inefficient finally we observe a positive impact of capitalization on efficiency

options taxes and ex dividend day behavior a novel way of estimating the expected as opposed to the actual share price fall off is developed using option prices this method is applied to the uk traded options market using data from 1979 to 1984 the results show that a the average expected fall off implicit in option prices is around 55 to 60 of the dividend and significantly different from it the fall off also varied inversely with the dividend yield which is consistent with the prediction of the tax clientele hypothesis b the estimates of the expected fall off were not significantly different from the actual fall off c finally the results imply that the usual assumption made in valuing options on dividend paying stocks that the fall off is equal to the dividend would lead to downward biased estimates of the option value

cost efficiency measurement with price uncertainty a dea application to bank branch assessments this paper enhances cost efficiency measurement methods to account for different scenarios relating to input price information these consist of situations where prices are known exactly at each decision making unit dmu and situations with incomplete price information the main contribution of this paper consists of the development of a method for the estimation of upper and lower bounds for the cost efficiency ce measure in situations of price uncertainty where only the maximal and minimal bounds of input prices can be estimated for each dmu the bounds of the ce measure are obtained from assessments in the light of the most favourable price scenario optimistic perspective and the least favourable price scenario pessimistic perspective the assessments under price uncertainty are based on extensions to the data envelopment analysis dea model that incorporate weight restrictions of the form of input cone assurance regions the applicability of the models developed is illustrated in the context of the analysis of bank branch performance the results obtained in the case study showed that the dea models can provide robust estimates of cost efficiency even in situations of price uncertainty

pricing contingent claims under interest rate and asset price risk this paper presents a general framework for pricing contingent claims under interest rate and asset price uncertainty the framework extends ho and lee s 1986 valuation framework by allowing not only future interest rates but also future asset prices to depend on the current term structure of interest rates the approach is shown to provide risk neutral valuation relationships that are consistent with the initial term structure of interest rates and can be applied to valuation of a broad class of assets including stock options convertible bonds and junk bonds

a generalization of the brennan rubinstein approach for the pricing of derivatives this paper derives preference free option pricing equations in a discrete time economy where asset returns have continuous distributions there is a representative agent who has risk preferences with an exponential representation aggregate wealth and the underlying asset price have transformed normal distributions which may or may not belong to the same family of distributions those pricing results are particularly valuable a to show new sufficient conditions for existing risk neutral option pricing equations e g the blackscholes model and b to obtain new analytical solutions for the price of european style contingent claims when the underlying asset has a transformed normal distribution e g a negatively skew lognormal distribution a fundamental result in the valuation theory under uncertainty is that equilibrium asset prices depend on investors marginal utility functions in this framework assuming a discrete time trading model and asset returns with continuous distributions rubinstein 1976 and brennan 1979 are able to derive risk neutral valuation relations that is preference free option pricing equations with an implicit mean return equal to the interest rate these pricing results seem surprising but they simply explore the relationship between derivatives and their underlying asset the underlying asset has an absolute price and derivatives have relative prices in terms of the underlying asset price implying that in equilibrium all these prices depend on the risk premium of the underlying asset hence the price of the underlying asset can be used to eliminate the risk premium from the option pricing equations the risk neutral valuation relations might have interesting applications not only in financial investments but also in real assets and executive compensation plans these pricing results were obtained under restrictive conditions on preferences and distributions rubinstein 1976 obtains the black scholes model with constant proportional risk aversion cpra preferences he also assumes that aggregate consumption and the underlying asset are bivariate lognormally

politicians and banks political influences on government owned banks in emerging markets abstract government ownership of banks is very common in countries other than the united states this paper provides cross country bank level empirical evidence about political influences on these banks it shows that government owned banks increase their lending in election years relative to private banks this effect is robust to controlling for country specific macroeconomic and institutional factors as well as bank specific factors the increase in lending is about 11 of a government owned bank s total loan portfolio or about 0 5 of the median country s gdp per election per government owned bank

separating the likelihood and timing of bank failure abstract we use a split population survival time model to separate the determinants of bank failure from the factors influencing the survival time of failing banks basic indicators of a bank s condition such as capital troubled assets and net income are important in explaining the timing of bank failure however many of the other variables typically included in bank failure models such as measures of bank liquidity are not associated with the time to failure the results also suggest that the closure of large banks is not delayed relative to the closure of small banks