Abstract Proceedings 17th FRAP 2019 at Hanken School of Economics, Helsinki
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Corporate Finance and BankingAre Trades of Networked Insiders More Informative? Evidence from EuropeMansoor Afzali
170841AWe examine the relation between social networks and insider trading in European listed firms. We find that networked insiders trade less and earn lower profits but their trades trigger a higher market reaction, which is in line with the information-content hypothesis. On average, the market reaction is 0.6 percent higher for purchases of networked insiders compared to less-networked insiders. This relation holds regardless of the strength of investor protection in the country or strictness in securities regulation. We build on the heterogeneity of our sample and reveal how country-level regulatory, economic, and cultural factors are associated with the level of market reaction. Overall, our results are consistent with the notion that the trades of networked insiders are more informative.
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Corporate Finance and BankingCan Private Equity Funds Act as Strategic Buyers? Evidence from Serial Acquisition StrategiesDyaran Bansraj170501AWe study a serial (buy-and-build) acquisition strategy that accounts for more than a third of all private equity transactions in Europe in the last fifteen years. We ask whether these strategies focus on long-run value creation through operating improvements or rather are ``window-dressing" for fundraising or are used to justify spending the committed capital. Using matched-sample difference-in-differences estimations in a large sample of serial private equity acquisitions in seven European markets, we find that the more longer-term strategies achieve higher sales, profitability, and labor productivity. Even larger benefits come from exploiting synergies in capital intensive industries and along the production value chain. These findings confirm that private equity has found a new way of value creation by acting similarly to strategic buyers.
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Corporate Finance and BankingLoss persistence and turnaround in private firms with family CEOsJukka Kettunen170871AWe investigate how employee retention and innovation affect loss persistence and turnaround in private firms with family CEOs. We use a survey-based randomly selected dataset from Finland, an economy with a substantial presence of private family firms, and find that the effect of innovation and employee retention on loss persistence differs by the severity of the decline and family CEO status. Specifically, with severe losses at EBITDA level, family CEOs (non-family CEOs) retaining their employees incur a higher (lower) loss persistence, yet family CEOs can decrease such persistence by developing new competitive advantages with investments in patents. With less severe losses at NIBE level, family CEOs can decrease loss persistence not only by investing in patents, but also by retaining employees. Additional analysis suggests that the effect of patent investments is larger among middle-aged firms with family CEOs. Our results are robust to tests for reverse causality and support the notions of risk aversion and importance of socio emotional wealth for family firms.
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Corporate Finance and BankingEntrenchment, equity incentives and workplace safetyDennis Sundvik170701AIn this study, we investigate the association between managerial entrenchment, capital market incentives and workplace safety. Using an establishment level dataset comprising 4,274 unique establishments from 786 firms spanning the period 2002-2011 we find a positive association between managerial capital market incentives and injury frequency, and a negative association between managerial entrenchment and injury frequency. Furthermore, we find that establishments close to the company headquarter are characterized by a significantly higher number of workplace accidents.
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Corporate Finance and BankingValue at looking back: Towards an empirical validation of the role of reflexivity in econo-historic backtesting: Economic market prediction corrections correlate with future market performanceJulia Puaschunder170061AThe paper outlines unexpected dangers and insufficiently-described shadows of past market expectation corrections on future economic market performance. Overall, the following article innovatively paints a novel picture of the mass psychological underpinnings of business cycles based on information flows in order to recommend how certain communication strategies could counterweight and alleviate information failing market performance expectations that could potentially build disastrous financial market mass movements of booms and busts. This paper will study the role of information in building socially-constructed economic correlates, which promises to explain how market outcomes are developed in the social compound and can be guided by central agents’ communication. Classical theories of price will be reflected in regards to market expectations. Through the lens of the real competition paradigm, the following paper will then specifically unravel how central bank economic forecasts produce certain types of price expectations that form market patterns leading to collectively-shared economic outcomes that may echo in the real economy. An introduction to the history of economic cycles will lead to George Soros’ Theory of Reflexivity and Anwar Shaikh’s formalization in order to draw inferences for the analysis of the role of information in creating economic booms and busts in the age of globalization. Empirically, based on a central European central bank’s GNP projections and backtesting corrections, a pattern of central bank corrections communication and economic market performance will be unraveled for the first time to outline that central bank market prediction corrections are positively correlated with near future market performances and negatively correlated with distant future market performances. The collective reality of prices and the irrationality of the crowds perturbating markets will be discussed. Business cycles are argued to obey some kind of natural complexity, as for being influenced by econo-historic communication trends.
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingDischarging Not-for-Profit Accountability: Capability Building and Social PerformanceROSHAYANI ARSHAD170601BNon-profit organisations face increasing demand to demonstrate their accountability to fund providers and other relevant stakeholders. Performance measurement and reporting provide an important mechanism for non-profit organisations to meet the accountability demand. However, due to the complexity surrounding performance measurement and reporting in not-for-profit sector, there is a need for NPOs to acquire relevant capabilities. Hence, the main objective of this study is to examine the relationship between knowledge management and utilisation of performance by NPOs in Malaysia, focusing on three types of knowledge management capabilities: technological capability, cultural capability and structural capability. The NPOs in Malaysia is chosen due to the increasing importance of the sector to the country’s economy in delivering public good to every society and the current initiatives to empower NPOs to be more independent in funding their social missions. Using survey on 50 NPOs in Malaysia, this study finds cultural capability has significant positive link with the usefulness of performance measurement, while the other capabilities have no significant link. Nevertheless, this finding corroborates the importance of KMC in enhancing performance measurement in not-for-profit sector. In addition, cultural capability can be the foundation in formulating the overall KMC strategies in NPOs. Overall, the findings in this study provides an important input that can complement the current initiatives in Malaysia to empower NPOs to be more independent in funding and executing their social missions more effectively.  
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingSocial Impact Bonds: The evolution of research and a systematic review of the literatureEleonora Broccardo170121BThis study has provided a systematic review of all the academic contributions on social impact bonds (SIBs). It responds to the need for clarification across and within the various perspectives. The goal was to define the frameworks used in extant studies and to offer directions for future studies. A bibliometric analysis was performed. Next, a framework was developed for: (1) assessing the research approaches (theoretical, empirical, argumentative) and perspectives (favourable, neutral, critical), and (2) conducting a multilevel analysis (international comparisons, comparisons of alternative funding mechanisms, theory development, lessons learned and the evolution of SIB concepts).
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingWomen, culture and environmental and social performance - an international analysisDeborah Cotton170241BThis paper examines the role of women and culture on the environmental, social and governance (ESG) performance in organisations. In particular we analyse the dual roles of women on the Boards of these organisations and the country in which they operate. We use a simple linear regression analysis creating factors which describe the environmental and social issues we analyse. Our analysis covers 2015 – 2017 ESG ratings from Thomson Reuters Asset4 (now Refinitiv) data in Australia, Canada, the UK (as a group), France and Japan. Our results indicate that in Japan and France we do not find a relationship between women on boards and environmental issues at any level of board membership by women. However social issues are statistically significantly positive at all levels of board membership for all countries analysed. Australia et. al. does have significant positive effects at all levels of board membership for environmental issues as well. The disparities we find between these countries, all of which are in the UN Human Development reports’ top twenty countries, are likely to be influenced by their cultural differences.
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingImpact investing: Effects of Bank-based funds on investee SMEs in BOP economies. Empirical evidenceRichmond Lamptey170461B
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingUNDERSTANDING THE DEMAND FOR IMPACT INVESTMENTS: INSIGHTS FROM THE ITALIAN MARKETAlessandro Rizzello170581BOver the last decade, the popularity of impact investing concept is increasing in research and practice (Lehner, 2016). Academics studies and practitioners reports focusing on impact investing to date privileged the offer side of impact investing market, by exploring impact investors motivations, strategies and criteria (see, among others, Joy et al. 2011; Lyon and Baldock, 2014; Nicholls et al. 2015). However, much remains to be learned about the demand of impact investments, in particular within the start-ups segment. To address this gap of scholarly attention, this study seeks to answer to the following research questions: What are the factors enabling impact investment readiness for startups? What is their approach to impact finance? Which is their approach towards impact in term of intentionality and measurability? To address this objective, the work performs an inductive study based on semi-structured interviews with 300 start-ups, located in Italy identified among the ItaliaCamp (Italian Impact Company, specialized in impact finance and reporting)  start-up database. Early findings put in evidence how such impact finance demand segment is not limited to impact focused start-ups, and may be extended, for example, to non consciously impact oriented start-ups, such as for profit ventures of healthcare or agri-tech industry. Furthermore, the varied motivations of start-ups, their degree of impact-investment readiness and the criteria they use to evaluate their potential impact return are identified. The study are part of a broader research project commissioned by an Italian institutional investor directed to understand the impact finance demand deriving from Italian innovative ventures.
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Accounting, Governance and Risk PerspectivesRisk Disclosure Quality and Firm Future Cash FlowsAntti Miihkinen170751CThis paper examines if the quality of corporate internal governance is associated with the persistence of firms’ earnings. I use a unique Finnish setting where the quality dimensions for risk reporting can be retrieved from a new detailed reporting standard and examined under volatile economic conditions. I measure the quality of corporate internal governance with the quality of firm risk disclosure and hypothesize that higher-quality internal governance reflects more reliable and long-sighted use of the accrual-based accounting in the organization. I demonstrate that the quality of internal governance affects the persistence of earnings because it predicts higher quality use of accrual accounting. Moreover, the quality effect is strongest after the enforcement of the new standard in the time period which also includes years of challenging economic conditions. Furthermore, I find evidence that the results are emphasized among the positive sign accruals firms. The analyses of specific risk topics reveal that managers’ focus on disclosure on operations risks and financial risks predicts higher quality accruals and more persistent earnings. Finally, I document that risk disclosure provided in the operating and financial review as suggested in the standard is the most accurate basis for the measurement of the quality of internal governance. This study contributes to the literature by providing evidence that external risk reporting against the standard can reflect the quality of firm internal governance and thereby give information for the external users of accounting information on the capability of the organization to use its ‘three lines of defense’.
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Accounting, Governance and Risk PerspectivesMonitoring the Monitor: The supervisory board composition of Austrian prime market companies under reviewCarina Binder170382AThis paper outlines gaps between the national composition of supervisory boards (in the Austrian prime market) compared to international standards and institutional investor’s expectations. However, these findings will not only be relevant for Austria, but also globally, as international guidelines like those of the OECD and the ICGN will be analysed. Furthermore, not only Austrian institutional investors are chosen, but also major international ones expressing globally important opinions are included. Thus, supervisory board diversity is not only important because of these requirements, but also because of implications which may affect a company’s performance, stock value and governance structure positively.
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Accounting, Governance and Risk PerspectivesDo foreign ownership, foreign board members, cross-listing influence CSR disclosure? Evidence from Russian context.Tatiana Garanina170482AThis paper examines whether foreign shareholders, foreign board members, and cross-listing, are related to corporate social responsibility (CSR) disclosure in Russia. Based on a sample of 223 Russian listed companies in the period 2012–2015, we define context peculiarities in the emerging Russian market. In line with legitimacy theory, our empirical results demonstrate that foreign board members and cross-listing help companies raise their accountability, transparency, and trustfulness through increased CSR disclosure. At the same time we report that foreign ownership does not lead to the presentation of more CSR information, as the majority of foreign shareholders of Russian companies are registered in Cyprus, the Virgin Islands, and other offshore domiciles. This reflects the finding that foreign ownership in Russian companies is used more for efficient tax allocation than long-term value creation for shareholders, characterized by increased CSR activities.
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Accounting, Governance and Risk PerspectivesCorporate Social Responsibility and Executive Compensation: The Negative Externality PerspectiveAhmed Marhfor170182AThis paper examines whether foreign shareholders, foreign board members, and cross-listing, are related to corporate social responsibility (CSR) disclosure in Russia. Based on a sample of 223 Russian listed companies in the period 2012–2015, we define context peculiarities in the emerging Russian market. In line with legitimacy theory, our empirical results demonstrate that foreign board members and cross-listing help companies raise their accountability, transparency, and trustfulness through increased CSR disclosure. At the same time we report that foreign ownership does not lead to the presentation of more CSR information, as the majority of foreign shareholders of Russian companies are registered in Cyprus, the Virgin Islands, and other offshore domiciles. This reflects the finding that foreign ownership in Russian companies is used more for efficient tax allocation than long-term value creation for shareholders, characterized by increased CSR activities.
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Accounting, Governance and Risk PerspectivesCORPORATE GOVERNANCE PERSPECTIVE ON ENTERPRISE RISK MANAGEMENT AND ORGANIZATIONAL SUSTAINABILITYJohn Ugoani170423AThe study was designed to explore the relationship between enterprise risk management and organizational sustainability. Enterprises can only meet the generational intention of founders when they are properly managed exemplified by sustainable performance. Business failures in recent history refocused attention towards good enterprise risk management to promote organizational sustainability. Sustainability implies meeting the needs of the present generation without compromising the needs of the future generations, and this cannot happen in an environment drenched in weak enterprise risk management. Corporate governance perspective suggests that the BODs of a company have the ultimate responsibility to establish effective risk management framework for the healthy performance and sustainability of the enterprise. Therefore, a major concern of the BODs is to diversify away the variability of individual risks and to create a stable average to enhance organizational sustainability. There is no doubt that enterprise risk management can be very problematic as it also attempts to avoid the nefarious activities of the 007s, MMMs, Ponzi schemes, or such other schemes, of this world that bring huge losses to individuals, groups, organizations, and society at large. Thus, enterprise risk management requires a high dose of corporate governance perspective, and application of good leadership and ethical standards in management decision making. Management decision making as an integral part of modern management aims at both enterprise risk minimization and the optimal achievement of organizational goals and sustainability. The exploratory research design was used for the study. Data generated from secondary and primary sources and analyzed through descriptive and regression techniques, showed a strong positive relationship between enterprise risk management and organizational sustainability. Because of certain limitations in terms of current literature, the study was not exhaustive; therefore, further study should examine the relationship between weak risk management and enterprise failure. It was recommended that complex organizations must establish good corporate governance structure to promote enterprise risk management and organizational sustainability.

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Accounting, Governance and Risk PerspectivesDonated equity, Subsidized loans, and the Governance of Social EnterprisesSamuel Nyarko170732AWe use data from leading microfinance rating agencies to scrutinize the effect of governance characteristics on the subsidization of social enterprises. First, exploratory analysis based on a sample of 213 microfinance organisations (MFOs) identifies five the major governance factors. Next, we assess whether these factors affect the level of subsidization of MFOs, by considering separately donated equity and subsidized loans. Our results confirm the theoretical expectation that the amount of subsidized loans is positively associated with good governance. Surprisingly though, donated equity is insensitive to governance factors. This paper suggests interpretations for the facts and opens avenues for further research on the still little-known philanthropic funding of social enterprises.
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Entrepreneurial FinanceThe Crowdfunding Paradox: the Underuse of Crowd in the Individual Investment Decision-Making ProcessLaurence ATTUEL-MENDES170152BCrowdfunding has entered the health biotechnology market in France since 2014 offering the opportunity to project owners to find new sources of financing. Innovative firms are characterized, whatever their sector, by uncertainty, which raises the question of the role of the collective embodied by the crowd in individual investment decision-making. An exploratory study was conducted, where the authors covered different investor profiles on generalist and specialist platforms during fundraising campaigns by biotech start-ups. In a netnographic approach, the availability of information (degree and content) that was offered by platforms could be assessed. Interviews were then conducted with investors, which confirmed the observation of a paradoxical underuse of the cognitive lever that can constitute the crowd in the individual investment decision-making factory. On a practical level, recommendations based on an original typology of tools used by the platforms thus offer them the opportunity to better mobilize the information created by this crowd. On a theoretical level, the article completes the literature on decision-making in a context of uncertainty, deepens the role of the crowd beyond its simple financial contribution in crowdfunding and extends the research on crowd typology.
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Entrepreneurial FinanceInvestors' Motivations in Different Types of CrowdfundingLaurence ATTUEL-MENDES170162BAlthough the crowdfunding sector is booming, research focusing on the motivation of contributors is mainly exploratory and does not propose an analytical model. This article aims to propose a typology of differentiated motivations according to the type of participative finance proposed. The main results, unpublished compared to the existing literature, are as follows:
- the type of motivation is not the same depending on the type of platform considered,
- the communication of the platforms must therefore be thought differently a
ccording to the segmentation resulting from the dominant motivations,
- in general, it is necessary to go beyond the simple utility for the project leader and also to communicate for the general utility, to inform the contributors throughout the life of the project, to evolve the technical tools of contribution, to proceed to a segmentation of the projects that use strong identities,
- more precisely, certain motivations do not need to be put forward for certain forms of crowdfunding such as the pleasure of contributing, living experiences, supporting creators with whom the contributor shares personal ties and see the project succeed regarding loan with interest.
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Entrepreneurial FinanceDo(n’t) Trust This! – A Longitudinal Exploration of Institutional Trust in CrowdfundingTheresia Harrer170652BWhile trust has already been recognised in the literature as an apt lens to analyse business relationships, there is still scholarly dispute over what form of trust may be the most applicable for different phenomena within these. This missing clarity becomes especially apparent in socio-economic contexts that incorporate multiple individuals as well as organisations with a complex interplay on different levels. In order to shed new light on the different forms of trust, their aptness and interplay we offer an in-depth and longitudinal case study of the crowdfunding campaign of the unicorn-startup Monzo as digital bank in the United Kingdom. We collected 132 documents, interviews and blogposts from 2015 to the end of 2018. With our coding we confirm previous literature that trust does indeed play an important role throughout the different phases of crowdfunding – but what emerges as new is the importance of institutional (societal level) trust that takes-on a crucial role especially in the early as well as the later stages of a crowdfunding campaign as catalyst for other forms of trust. With such findings we contribute to trust literature by highlighting the importance of level-spanning, dynamic institutional perspectives in socio-economic contexts and to a more successful crowdfunding practice.
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Entrepreneurial FinanceBusiness Angel ability to accurately identify investment opportunities: The role of mindfulnessAbdel Malik OLA170442BDecision making under uncertain conditions retains the attention in many research fields. Entrepreneurial finance is one of them where we are interested in how investment decision is made in the early stage of an entrepreneurial firm (EF) while we lack reliable objective evidence about its future value. Recent studies have shown that one category of investor, the business angel (BA), dominate early stage financing because they can use decision approaches such as heuristics, intuitive judgment or gut feel to sustain their fund allocation. However, little is known about what are the determinants of such dominance. This study aims to find an answer to this question by anchoring in psychological theory the process underlying angel decision expertise. We first suppose that this expertise is explained by the data collecting and processing mode by the BA (cognitive behavior). Second, we build on the literature about mindfulness, a concept that defines the ability of certain actors than others to behave reliably in a situation. The concept emphasizes how an actor’s attention can sustain his cognitive functioning and explains efficient behavior. Our development consistently relates mindfulness dimensions to angel cognitive strategy when coping with the uncertainty of EF. We build a theoretical model to demonstrate how mindfulness can explain the BA ability to identify investment opportunity (IO) when other categories of investors are absent. We make some propositions that can be tested empirically. We contribute not only to the literature in entrepreneurial finance but also in decision making under uncertain and complex environment.
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Entrepreneurial FinanceEarly Stage Investing into Sustainable Green SMEs: The case of the UKRobyn Owen170332BHow might a Green New Deal be applied to the early stage financing of Cleantechs? Amidst rising interest and adoption of Green New Deals in the US, the paper explores the need for more focused policy to address early stage long horizon financing of Cleantechs. We argue that insufficient focus has been applied to early stage investing into these types of SMEs that could lower CO2 emissions across a range of sectors through innovations (including renewable energy, and also for example recycling, advanced manufacturing, transport and bio-science). Adopting a resource complementarity lens and borrowing from transaction cost theory, we illustrate and build theory through longitudinal UK case studies how government policy can scale-up through international collaboration public-private principally venture capital co-finance in order to facilitate cleantech innovation with potentially game changing impacts on reducing CO2 emissions in order to meet the Paris 2015 Climate Change targets.
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Entrepreneurial FinanceRisk Aversion, Loss Aversion, Ambiguity Aversion ... What about equity crowdfunders?Bruno Sejourne170402BThrough the very recent literature on equity-based crowdfunding we learn a little more about who the investors are. With the exception of family and friends, they are different from the traditional donation and reward-based backers. The object of this article is to establish the theoretical bases of an exploration of the investors’ psychological characteristics, looking for specificities in comparison with a traditional saver. One specificity of this type of investment is the high level of financial risk taken. Traditionally, financial risk is indicated by volatility. An investment in equity crowdfunding could then be the sign of the low risk aversion of investors. Moreover, the risk of a partial or a total loss of the amount invested is significant. Turning to the Prospect theory, we wonder whether a participation in this market could also be the consequence of specific behaviors in terms of loss aversion. Finally, most of the projects to be funded are characterized by a lack of information or a difficulty in projecting into the future. This great uncertainty concerning the present and future values of the firms/projects is specific of innovation. We then consider whether participating in equity crowdfunding campaigns is the consequence of the low ambiguity aversion of investors.
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Digitalisation and the EconomyIdentifying Board of Director Network Influence for Firm CharacteristicsAparna Gupta170772CWe utilize network analysis to evaluate the relationship between firms’ characteristics and board of director networks. In a sample of 20 largest firms by market value from the energy and the utility industrials, 10 from each sector, we cluster the firms by their firm-level characteristics, as well as develop a multiplex network of the firms’ board members consisting of two major layers, one for board members’ direct connections and another for their indirect connections. Additionally, 4 sub-layers of each major layer of the multiplex network represent corporate, non-profit organization, education and government/military connections between the board members. Each layer of the multiplex network is weighted so that their combined effect can be depicted as a single layered directors’ network. The weights of the multiplex directors’ network are learned by relating a firm’s director network characteristics with the firm cluster characteristics. We observe that director networks display significant connectivity at all multiplex network layers and firms belonging to the same cluster display similar director network characteristics, specifically enhanced by appropriate weighting of director network layers. The optimal value of network sublayer weights are found by optimizing the cohesion of firms in a cluster by their director multiplex network measures.  
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Digitalisation and the EconomyOn Artificial Intelligence’s Razor’s Edge: On the Future of Democracy and Society in the Artificial AgeJulia Puaschunder170072CThe introduction of AI to society raises ethical questions.  What is the social impact of robots, algorithms, blockchain and AI entering the workforce and our daily lives on the economy and human society?  Should AI become eternal or is there a virtue in switching off AI at a certain point?  If so, we may have to define a ‘virtue of killing’ and a ‘right to destroy’ that may draw from legal but also philosophical sources to answer the question how to handle the abyss of killing with ethical grace and fair style.  In light of robots already having gained citizenship and being attributed as quasi-human under Common Law jurisdiction, should AI and robots be granted full citizen rights – such as voting rights?  Or should we simply reap the benefits of AI and consider to define a democracy with different classes having diversified access to public choice and voting – as practiced in the ancient Athenian city state, which became the cradle of Western civilization and democratic traditions spread around the globe.  Or should we legally justify AI slaves to economically reap their benefits, as was common in ancient Rome, which became the Roman Law legal foundation for Continental and some of Scandinavian Law traditions and which inspired very many different codifications around the world.  Finally, we may also draw from the Code Napoléon, the French Code Civil established under Napoleon in 1804, which defined male and female into two classes of human with substantial right and power differences, and – to this day – accounts for one of the few documents that have influenced the whole world in legal and societal ways.  In asking critical questions and unraveling the ethical boundary conditions of our future artificial world.

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Digitalisation and the EconomyDesigning visualizations to identify and assess correlations and trends: An experimental study based on price developmentsConny Walchshofer170672CAlongside with the increase in available data online, long histories, and the need to look at unconventional investment strategies (high risk and low risk depending by focusing on parallel or opposing stock price developments) multiple visualization options emerged to most accurately assess possible correlations and trends. This study focusses on an optimal way to present two officially listed price developments (stock prices, indices, and commodity goods). In this regard, the choice and the design can influence decision accuracy substantially, however, explicit effects on visualization and design choices are mostly lacking. To fill this gap, this study puts two highly recommended visualization types (scatterplot and parallel coordinates plot) as well as three concrete design features (regression line – yes vs. no; color – mono vs. multi; interaction – filter vs. select) to the test. Results indicate that scatterplots outperform parallel coordinates plots, however, with increasing experience amongst users, they might serve as a promising alternative in an environment with growing complexity. As soon as more than three variable are needed for evaluation, a state in which scatterplots reach their limit. With regard to design, scatterplots show the best performance when adding a regression line, while parallel coordinates plots show better performance when designed monochrome.
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Digitalisation and the EconomyThe Adoption of Robo advisory service in India: Analyzing the investor’s perspectiveFarida Rasiwala170432CDue to the digitalization revolution within the financial sector, fintech companies are challenging the traditional banking institutes with new technologies and innovations. Robo-advisors are the new way to get personalized investment services online instead of using traditional advisory.
The aim is to research the investors’ adoption of robo-advisory in the Indian financial sector, where research has been quite limited so far. Robo-advisory was first introduced in United States and a report from A.T. Kearney (2016) in the U.S presents that 20% are aware of robo-advisory services and the adoption of robo-advisory equals merely 3% in the United States. Additionally, the core emphasis throughout this research paper is on; investors personal traits, as well as behavioral factors that impact investors’ investment decision. Theories used are mostly innovation theories and behavioral theories.
The research also investigates investor’s personal traits such as gender, age, education, income, risk. The behavioral approach refers to factors that impact behavioral intention and behavior use of technology, such as consumer’s perceptions, effort expediencies and performance expediencies. Thus, the two main objectives that the research paper wishes to investigate are: Firstly to identify the attitude that investors have towards robo-advisory on the Indian financial market. Secondly, it aims to identify personal traits and behavioral factors which impact the investors’ decision to invest in securities via a robo-advisor.
In the light of this, the present research endeavors to investigate the objective through a quantitative approach and a survey 200 respondents in India through the Survey method. The study aims to target individuals in the age group of 25 to 45 years who invest in securities and potential investors of Indian financial market as they are generally considered to be quite technology savvy.
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Digitalisation and the EconomyThe Logic of EconomyElisabeth Menschl170932CEconomy functions on the basis of rules. These rules coordinate the activities of individuals who have a variety of goals and purposes, these rules work well or not, and have to be optimized. The working of economic and social rules is a central subject of modern political economy. While logical approaches to economics are usually connoted with game theory in all its facets, this paper aims to demonstrate the usefulness of Bertrand Russell´s scheme of logic, the theory of logical types, which should avoid contradictions such as Russell’s Paradox. and the theory of descriptions, this method of analysis, first introduced by Russell in his article “On Denoting” (1905), translates propositions containing definite descriptions.
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Digitalisation and the EconomyA Cognitive Load-theoretic Framework for Information VisualizationLisa Perkhofer170802CThis paper introduces cognitive load theory as a possible framework for information visualization in management accounting to enhance usability (effectiveness, efficiency, and satisfaction) by evaluating and improving design. Visualization is increasingly gaining importance, as data samples are increasing in complexity because they enable decision-makers to extract larger amounts of information in a fast and easy manner. As opposed to traditional frameworks, which are mostly focusing on technical steps to transform raw data into the final layout, also called visualization, the cognitive perspective stresses the importance of humans and their cognitive capabilities to extract information form a particular and presented visualization. More precisely, its emphasis lies on the process of encoding data by the management accountant as well as decoding views by the respective decision-maker and the individual differences that could distort or alter interpretation. Cognitive load theory can explain a significant number of phenomenon, amongst others, the mechanisms behind the frequently found problems with adoption of new visualization options amongst accounting professionals as well as the striking influence of experience, which is responsible for a lot of contradicting results on visualization choice depending on the sample population or user group. Further, the framework contributes to the ongoing discussion on suitable evaluation methods. The proposed framework enables the information visualization community, which is responsible for the development of new visualization types, to evaluate and compare alternative visualization options outside of the traditional small-scale user studies or expert feedback and shift the focus towards a more quantitative assessment based on experimental research as well as an analysis within their area of application.
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingThe quest for a sustainable business model of social finance: is peer-to-peer lending the legitimate heir to cooperative banking?Eleonora Broccardo170272DIn the aftermath of the global financial crisis, concern regarding the social purpose of finance has increased. The role played by peer-to-peer lending (P2PL) seems to resemble the role historically played by cooperative banks (CBs). In this study, we investigate whether P2PL platforms can stand as the legitimate heir of CBs as they appeared when established. A cross-comparison of P2PL and CBs business models (BMs) is conducted among multiple dimensions. The study claims the achievement of a social purpose is not necessarily linked to a specific BM. On one side, CBs are supposed to fulfil their stated social purpose through the supply of accessible and affordable financial services; however, they suffer the burden of growing regulatory pressure. On the other side, P2PL platforms do not explicitly pursue  social purposes; however, they could eventually provide such a purpose, at least for specific customer segments.
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingInfluence of ownership structure of oil and gas firms listed on the Ghana Stock Exchange on their choice of Social and Environmental Reporting (SER).Mawuena Cudjoe170472DThis study seeks to take a look at how the ownership structure of firms influences firms within the oil and gas industry in Ghana to engage in Social and Environmental Reporting (SER). The study uses a qualitative research approach where multiple interpretive case studies have been used. Two of these oil and gas firms listed on the Ghana Stock Exchange (GSE) constitute the case.  Preliminary findings suggest that the ownership structure of firms affect its engagement in SER activities and the extent of this influence is rather seen to be dependent on the level of reliance on resources from these owners for the SER activities. This finding is supported by the relevant primary data collected from the respondents. It is thus imperative for managers of the economy and its key stakeholders to keep a close eye on the ownership formation and its implication especially in their quest to ensure that the economy gets vibrant. Future research should consider sampling non- listed oil and gas firms since a lot of foreign owned oil and gas firms have not listed on the GSE yet. If the findings show what listed firms are engaged in, how much more those who have not listed?
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingSUSTAINABLE FINANCE: THE EUROPEAN AND FRENCH ROADMAP FOR A CLEAN PLANETCatherine Malecki170102DDevelopments in finance relating to CSR and, more broadly, to sustainable development (SRI funds, for example) have shown that this emerging finance is not entirely “alternative” in the original sense of the term, meaning another form of finance alongside the financial markets. A genuinely climate-friendly or resilient finance is emerging and its causes are well known: the burgeoning worldwide population and rising levels of GHG (greenhouse gases) driven by the fossil-fuels industry, transport and cities. The Paris Agreement  signed on 12 December 2015 is an important milestone. Europe is an undisputed leader with the “Juncker Plan” of November 2014 aiming to re-launch investment in Europe and unblock public and private investments. It is in line with the need for decarbonisation already set out in the European Parliament resolution of 5 February 2014 “on a 2030 framework for climate and energy policies” (2013/2135 (INI))  drawing on the Commission Green Paper entitled “A 2030 framework for climate and energy policies” (COM (2013). The European Action Plan on Sustainable Finance (March 2018) presented a significant package of measures as a follow-up to its action plan on financing sustainable growth. In France, in 2008 the Paris Marketplace launched a major initiative on sustainable finance with a Responsible Investment Charter which was supplemented in 2012 by 10 proposals for Europe on SRI and CSR. Then the TEEC label (Transition Energétique et Ecologique pour le Climat - Energy and Ecological Transition for the Climate) launched at the end of 2015 aims to guarantee the transparency and quality of the environmental features of such financial products via an independent external audit. Article 173 of the French LTECV Act on the Energy Transition for Green Growth is an example to be followed (17th August 2015).
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingThe influence of EU non-financial reporting directive on CSR disclosure: empirical evidence from FinlandHanna Silvola170812D
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingHOW SOCIAL IS ISLAMIC BANKING?Andrew Worthington170222DWhile the central tenets of Islamic banking relating to usury, profit-and-loss sharing, haram (sinful) business, gharar (uncertainty) and maisir (gambling and speculation) are well known, there is less awareness of the implied commitment to improved social outcomes. This paper outlines the argument for social outcomes as an objective for Islamic banks and investigates whether social failure currently exists in the Islamic banking industry by assessing it against this performance dimension. For this purpose, we employ data from 12 Islamic commercial banks, 7 Islamic banking units, and 7 Islamic rural banks operating in Indonesia during the period 2015–16. Using content analysis, we find that social failure is evident in all Islamic commercial banks and banking units, but in only one of the seven Islamic rural banks where most banks appear to pursue social outcomes at the accommodative level (accepting and doing all that is required). Using a social outcome-weighted asset formulation, we reveal that Islamic banking in Indonesia has to a certain extent improved in meeting its social objectives over time, but sometimes at the cost of other objectives relating to the environment and customers. The lack of progress in this area may lead some to question whether Islamic banking is delivering or indeed able to deliver on its social commitments.
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingFactor analysis to promote socially responsible behavior among Japanese and Chinese university studentsMakiko Hashinaga170252DThis study investigated how the personality and socially/individually oriented university students, who support socially responsible behavior and take relevant action, influences their acknowledgement of, willingness to use, and rate of use of social finance. We conducted a correlation analysis of the image of young people towards crowdfunding, as well as a multiple regression analysis, and demonstrated that people with a personality of “openness” are most supportive of socially responsible behavior. The college student samples had been collected from May to October 2018 both in Japan and China. As a result, there were 1,437 responses in Japan (1,121 valid responses, valid response rate: 78.0%), and 1,285 responses in China (1,120 valid responses, valid response rate: 87.2%). Looking at the correlation of the images, the more the people with “openness” both in China and Japan, the higher the positive significance of the image of crowdfunding. With regard to intentionality, Japanese respondents had a more positive image of crowdfunding as “individually oriented people” and Chinese students were more “socially oriented people.” These results are similar to the results obtained from the multiple regression analysis of crowdfunding. The personality “openness” both in China and Japan had the most positive effect on crowdfunding “acknowledgement” (β=.035 ***), “usage” (β=.035 ***), and “willingness to use” (β=.030 **).
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Accounting, Governance and Risk PerspectivesESG and CEO turnoverNiclas Meyer170693AWe use data from leading microfinance rating agencies to scrutinize the effect of governance characteristics on the subsidization of social enterprises. First, exploratory analysis based on a sample of 213 microfinance organisations (MFOs) identifies five the major governance factors. Next, we assess whether these factors affect the level of subsidization of MFOs, by considering separately donated equity and subsidized loans. Our results confirm the theoretical expectation that the amount of subsidized loans is positively associated with good governance. Surprisingly though, donated equity is insensitive to governance factors. This paper suggests interpretations for the facts and opens avenues for further research on the still little-known philanthropic funding of social enterprises.
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Accounting, Governance and Risk PerspectivesCauses and solutions for misconduct in the financial services industryShann Turnbull170543AThis paper investigates the efficacy of the Australian government’s 2018 initiatives to counter widespread misconduct identified by its Royal Commission into misconduct in financial services industry. The need for billions of dollars of compensation for customers was discovered. Both conduct and prudential regulators failed to take sufficient action. The Commission identified the problems arose from the asymmetry of power and information between customers and financial institutions in favour of the institutions. Support for the inquiry by bank boards indicates that they either did not know the extent of their offenses and/or did not know right from wrong. Compliance with international corporate governance practices enforced by the regulator revealed their irrelevance. The paper identifies the need to introduce stakeholders as co-regulators to provide continuous intimate comprehensive identification of misconduct and corrective action. They would also hold regulators to account as introduced by Ralph Nader in the US. This could reduce the role, size, cost and intrusiveness of regulators. Regulators could use their discretionary powers to encourage firms to: (a) remove current unethical conflicts inherent in corporate constitutions; (b) establish constructive management of other conflicts; (c) provide independent voice to stakeholders for improving operations, competitiveness, reporting misconduct, harms, risks or unsatisfactory service
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Accounting, Governance and Risk PerspectivesDecision Usefulness of Intangible Assets such as Digital Financial Technology and Software Solutions in Accounting and Regulatory Environment in the Banking SectorSusanne Leitner-Hanetseder170283AInvestment in digital technology is for banks indispensable to compete and to increase return. However, International Financial Reporting Standards (IFRS) and Capital Requirements Regulation (CRR) do not reflect the returns of digital technologies and software solutions. Despite the undisputed necessity of using digital technologies in the banking sector, tangible and intangible assets are treated differently in IFRS accounting. However, for the calculation of the key performance indicator (KPI) “own funds ratio” under CRR the capitalized intangible assets under IFRS are eliminated. Recently, the European supervisory authority is considering the usefulness of intangible assets such as financial technology and software for the calculation of the KPI "own funds ratio". The intention of the new CRR regulation for this KPI is to treat tangible and selected intangible assets equally in future. The aim of this paper is to examine the influence of the planned equal treatment of tangible and intangible assets shown in the financial statements of banks on KPI "own funds ratio". Furthermore, this paper provides a contribution on the ongoing discussion about the valuation of intangible assets such as financial technologies in the context of a decision-oriented approach. The empirical study shows that the effect of the planned changes in regulatory requirements on the treatment of intangible assets will have low impact on the key performance indicator "own funds ratio" of German and Austrian banks. The paper points out the unequal treatment of acquired and internally generated intangible assets in the form of financial technology leading to incomparability between companies.
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Accounting, Governance and Risk PerspectivesContemporary Performance Measurement and Management Accounting: An Empirical Evidence based AnalysisManchuna Shanmuganathan170143AThis study intends to review the pragmatism of performance measurement and management accounting (PMMA) through management reporting that are related to strategic management of an organization. Where, PMMA systems facilitate strategy implementation while enhancing organizational performance. Management reporting provides effective control and corrective action based on the current level of performance, comparing it with the targets (standards). Such that, current business environment and strategy may lead to the need for a new or revised performance measures and metrics to better understand the dynamics of environment in which the organization operates and to revise organizational strategy. Empirical evidence based on different context identifies that PMMA can be more effective when it synchronizes with elements of an organization such as performance measurement (PM), strategy and external environment. If it’s not synchronized with the organizational elements then what is being measured and communicated will become less important. Further, organization has a direct relationship with the level of business dynamics due to environmental changes. However, there is strong evidence suggests that when business environment becomes dynamic then these changes are more concern with structural rather transit in nature. Empirical evidence based methodology was used to analyse how PMMA system remain realistic to changes that occur in the environment and continued to provide appropriate guidelines to management in real time whereas transparency and accountability of those activities enhance better management decisions. Where it also demonstrates how contemporary PM literature and management accounting practices that have been developed over the years through empirical evidence based analysis.
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Accounting, Governance and Risk PerspectivesDoes CSR Disclosure an Indicator for Financial Reporting Quality? Zakaria Aribi170942AThis study investigate whether the quality Corporate Social Responsibility disclosure (QCSRD) is an indicator for financial reporting quality using both accruals-based earnings management (AEM) and real activity earnings management (REM) as a proxy for financial reporting quality. Using a large sample of US firms for the period 2007–2015, OLS regression is employed to examine the impact of quality CSR disclosure on both accruals management and real activities manipulation. To ensure that the results are robust, additional analysis on a range of suspect firm-years observations with relatively strong earnings management incentives. The paper documents evidence that quality CSR disclosure is significantly and negatively associated with accrual and real earning management. Additional analysis on a range of suspect firm-years observations with relatively strong earnings management incentives confirms the significant impact on accrual and real earning management.
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Corporate Finance and BankingThe Problem of Heterogeneity within Risk Weights: Does Basel IV contain the solution?Christina Binder170453BThe article uses a bank’s credit data to study the impact of the Basel IV regulations on risk weight density (RWD). The analysis of the simulated data shows mixed results, as the improvement of risk weight heterogeneity is restricted to optimistically valued portfolios. Conservatively valued portfolios are likely to be confronted with an RWD decrease. However, within these portfolios, risk weight heterogeneity usually does not play an important role. Out of all the analysed Basel IV rules, the output floor clearly has the biggest influence on risk weight density, while the effect of the input floors is very limited within optimistically valued portfolios and is even eliminated by the removal of the scaling factor within conservatively valued portfolios. The change in RWD will also lead to a concurrent change in risk-weighted assets and therefore also in the level of eligible capital. The findings within the retail portfolio confirm those of the EBA study, which already suggested that Basel IV and especially the output floor will lead to a significant increase of risk capital.
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Corporate Finance and BankingA Study of E-Banking in India: with Special Reference to New Private Sector BanksDES RAJ170133BThe U.S. banking system is unusual in consisting not only of some very large banks but also a large number of relatively small community banks. This bifurcated banking structure resulted largely from a legal framework that, in the past, restricted banks’ abilities to diversify geographically. This institutional structure, in turn, reflected a long-standing concern in the United States about the concentration of banking power in a few very large institutions located far away from many of the customers they serve. The bifurcated banking system in the United States has served the economy well. Over time, with regulatory change and financial innovation, large banks have become complex organizations engaged in a wide range of activities. They provide a variety of services to their customers, but often rely on hard financial information, computer models, and centralized decision-making as the basis for conducting business. In contrast, small banks have focused more on “relationship bankingbasing decisions on personal knowledge of customers’ creditworthiness and a keen understanding of business conditions in the communities they serve. In this way, the bifurcated banking system has served the needs of a diverse U.S. economy composed of businesses of all shapes and sizes and consumers with diverse needs and preferences. While community banks have a clear place in the U.S. banking system, some analysts have questioned whether they play a sufficiently important role in the economy to warrant public interest and oversight. With increased merger activity over the last 20 years, the number of community banks—while still quite large—has declined. In addition, small banks pose little systemic risk to the nation’s financial system. And, if community banks were not there, other financial services providers might readily step in to take their place. This article examines the role of community banks in the U.S. economy. The first section of the article argues that, while community banks hold only a small share of the nation’s banking assets, they provide important financial services—for which there are few, if any, substitutes—to some key sectors of the economy. The second section argues that community banks will continue to play an important role in the banking industry, even as technology and market conditions change. The paper concludes that the Federal Reserve therefore has a strong interest in understanding issues facing community banks.
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Corporate Finance and BankingEfficiency in the highly market-segmented Chinese banking sector: A meta-frontier non-radial directional distance function approachAndrew Worthington170233BWe apply a meta-frontier non-radial directional distance function approach to the efficiency analysis of 143 Chinese banks. Relative to the group frontier in their own market segment, the Big-5 Chinese banks are highly efficient. However, their low meta-technology ratios indicate that they underperform other banks. As befits their ownership structure, the joint-stock commercial banks also display high levels of efficiency, whereas the low efficiency scores and high meta-technology ratios of the city commercial banks evidence their historical role as channels for implementing local government policy in China. Foreign banks display the highest meta-technology ratios, suggesting they possess best-practice operating environments.
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Corporate Finance and Banking
Identifying Risk Culture in Banks Using Machine Learning
Aparna Gupta170853BRegulating risk culture in the financial industry requires understanding what drivers define risk culture. In this paper, we introduce unsupervised machine learning techniques to identify and define the risk culture for bank holding companies using textually extracted features from their 10-K filings. We develop a two-dimensional risk culture dictionary using risk culture frameworks and Loughran and McDonald’s sentiment dictionary. Using principal component analysis, we find that uncertain, litigious and constraining risk culture extracted features are important in identifying the risk culture of banks. Using a two-stage clustering approach we identify three distinct risk culture clusters: good, fair and poor. Validating our cluster analysis results against quantitative bank risk measures, governance and performance indicators, we find that a sound risk culture in banks is characterized by high profitability ratios, bank stability, lower default risk and good governance. We also find that bank size and the financial time period are important determinants for defining risk culture.
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Corporate Finance and Banking2016 Political Returns, Risks and Strategies: The US Presidential Election’s Effect on Fossil Fuel and Alternative EnergyTimo Korkeamäki170723BFew elections raised such contrasts in policies as the Trump versus Clinton 2016 US Presidential campaigns. Nor has there been a greater difference between expectations and outcome: on the day of the election, the odds were 5 to 1 against Trump’s eventual victory (https://www.bovada.lv).
We estimate the impact of the election’s outcome for both the coal mining and alternative energy industries. Assesing the economic impact of Trump’s victory for a particular industry or firm is complicated because straightforward wealth effects such as those typically found in event studies do not incorporate analysts’ expectations. Given the stark divergence of policy implications for these industries, the firms we analyze face considerable uncertainty regarding their futures in the run-up to the election. Therefore, we estimate the value at risk for specific firms by modeling the pre-election valuations of companies as the expected value of the wealth impact of the candidates’ policies given the pre-election odds of each candidate’s victory . Our analysis is possible because of the existence of active betting markets that capture the odds of winning for the respective candidates. We also examine these companies’ post-election political investment to check whether their purchases of political influence are proportional to their respective values at risk.
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Digitalisation and FinTechsThe US Presidential Election’s Effect on Fossil Fuel and Alternative EnergyHemantha Herath170363CNPOs often conduct joint activities that combine fundraising activities with program or management activities. Hence external users of NPO financials such as donors and resource providers want to know how much is spent on fundraising activities, program activities and management activities. Prior research indicate that opportunity for NPO executives to use joint cost allocations to manage program expense and fundraising cost ratios with a view to influence donors and resource providers still remain.  Given that it is pretty difficult for a donors to pick on bad accounting practices as a result of joint activities, this article deals with using data science based cluster analysis method to identify anomalies in NPO joint cost allocations using Form 990 data and audited financial statements.  
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Digitalisation and FinTechsDignity and utility of privacy and information sharing in the digital big data ageJulia Puaschunder170083CToday enormous data storage capacities and computational power in the e-big data era have created unforeseen opportunities for big data hoarding corporations to reap hidden benefits from individual’s information sharing, which occurs bit by bit in small tranches over time. This paper presents underlying dignity and utility considerations when individual decision makers face the privacy versus information sharing predicament. Thereby the article unravels the legal foundations of dignity in privacy but also the behavioral economics of utility in communication and information sharing. For Human Resources managers the question arises whether to uphold human dignity in privacy or derive benefit from utility of information sharing. From legal and governance perspectives, the outlined ideas may stimulate the e-privacy discourse in the age of digitalization but also serving the greater goals of democratisation of information and upheld humane dignity in the realm of e-ethics in the big data era.
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Digitalisation and FinTechsHow Blockchain Technology can Monetize New Music Ventures: An Examination of New Business ModelsRobyn Owen170343CThe paper examines how blockchain technology is disrupting business models for new venture finance. The role of blockchain technology in the evolution of new business models to monetize the creative economy is explored, by means of a case study approach. The focus is on the recorded music industry, which is in the vanguard of new forms of intermediation and financialization. There is a particular focus on emerging artists. The paper develops an evolutionary tiered theory of technology-driven business models which apply on the one hand to new forms of financial intermediaries, more correctly referred to as ‘infomediaries’, and on the other hand to new forms of direct monetization by artists.
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Digitalisation and FinTechsBlockchain Consensus Protocols, Energy Consumption, and Cryptocurrency PricesNiranjan Sapkota170783CCryptocurrencies employ different consensus protocols to verify transactions. While the Proof-of-Work consensus protocol is the most energy consuming protocol, other consensus protocols have been introduced such as Proof-of-Stake and Hybrid which consume considerably less energy. We employ portfolio analysis to explore whether energy is a fundamental economic factor affecting cryptocurrency prices. Surprisingly, our results suggest that, on average, cryptocurrencies employing the Proof-of-Work consensus protocol do not generate returns that are significantly different from those that incorporate the Proof-of-Stake protocol. Even more surprising is that our results show that cryptocurrencies that incorporate Hybrid consensus protocol generated the highest average return. A possible explanation for that phenomenon may be that investors’ demand for cryptocurrencies offering more trust is larger than for those that carry potential risks of blockchain manipulation.  
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Digitalisation and FinTechsBlockchain in the Reports and Strategies of European CompaniesElina Haapamäki170823CWe investigate the business model implications of blockchain technology. We approach the topic by analyzing European listed companies’ annual reports from 2014–2017. The objective is to find out how blockchains are currently described and discussed in the annual reports. Second, we aim at understanding the strategic thinking and implications of blockchains that companies publicly disclose. While our general focus is on blockchain solutions across all industries, particular attention is paid to innovative uses of blockchain in securities transaction solutions. By analyzing annual reports, we are able to ground the grandiose visions of the future uses of blockchain in reality. The results suggest that the financial and IT sectors were early adopters of the blockchain technology. However, by 2017 the share of financial and IT companies reporting about blockchain dropped and the rest of the companies represented in total 21 different business sectors. Our preliminary findings reveal that European companies use three types of blockchain narratives in their annual reports. First, most companies list blockchain as one of the megatrends in digitalization, briefly acknowledging its potentially disruptive effects on their business model. Second, some listed companies have taken initiative by setting up a ”Digital Innovation Hub” or ”Blockchain Lab” with distinguished university partners. The narrative continues with a description of pilot projects. Finally, a small minority of companies have genuinely integrated blockchain technology in their operations, supply chains, or transactions. This narrative is the most detailed and some of the applications can be considered rather innovative.
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingFinancing of Circular Business Models - Proposed future research agendaAnn-Charlotte Mellquist170393DIn the current era of climate change and increasing pressure on ecosystems, the circular economy promises to provide a new logic of production and consumption that could replace the current linear system by a circular system that radically reduces mankind’s resource footprint while maintaining economic prosperity and business dynamics. The shift to circular business models is an important enabler, and especially so the asset based product-as-a-service or functional sales models. These models will affect the balance sheet and the short and long term cash flow of the company. While research on circular business models is extensive, research on the specific topic of the balance sheet effects and the implication on financing remains scarce. Based on a literature review and results from a research project where both product manufacturing and selling firms and financial actors have participated, we propose a highly needed research agenda on the area of financing of circular business models. The five proposed topics are: Asset valuation; Timing of capital sources; Financial sector - processes, tools and methods; Increased sector knowledge, transparency and collaboration; The need to merge circular economy theory and finance theory and practice.
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingMateriality in Impact Measurement: Clustering Impact Measurement Tools from an Information Management PerspectiveSarah Schmid170513DImpact measurement is recognised as being one of the key challenges in the field of impact investing. Generally, measuring impact is an important consideration for both the actors on the demand side and on the supply side of capital in the impact investing industry as well as for the intermediaries in between. Consequently, various types of actors require various types of impact measurement tools and various quantitative or qualitative factors. Hence, the impact investing industry’s heterogeneity forces impact measurement tools to offer a wide range of different information. Moreover, different information is of different materiality depending on the discursive efforts of the actors in the impact investing industry. As a result, the impact measurement landscape is fragmented with a large diversity of impact measurement tools, but without a consensus around a common and material set of them. Therefore, this paper considers not only the information wants, needs and haves of the actors in the impact investing industry, but also the concept of materiality to be an appropriate way to cluster the diversity of impact measurement tools in order to overcome the challenge linked with impact measurement.
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingSocial impact investment for housing projects in Russian regionsLeonid Shafirov170353DThe paper deals with the problem of affordable housing, which is currently among the priorities established within the institutional framework for sustainable development in Russia. While affordable housing is an urgent need for low-income populations in Russian regions, there is also evidence that current projects are not being implemented due to a lack of resources and a lack of organization. The research problem of improving livelihoods for the Russian households through impact investing is addressed relying on the integrative framework using the elements of sustainable development agenda, project management theory, pragmatic institutional economics, and reasoned action approach. The research findings suggest that it is reasonable to view tailormade housing projects as one of the practical instruments for sustainable economic development in Russian regions. Due to their role as essentially favorable catalyst for local development, housing projects for the local households can be implemented as the intersection of initiatives of various groups of stakeholders. Theoretical implications are that the current research provides sound ground for treating project management theory as a fruitful approach for solving practical problems of household asset building activities viewed as household projects. Practical implications are that effective ways to facilitate coordination between the members of the local households (or their groups) and other prospective stakeholders of housing projects (including creditors, suppliers and contractors, bureaucracy agencies, development institutions) are proposed.
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Social and Sustainable Finance, Entrepreneurship and Impact InvestingMarket model and Public announcement of CSR commitment in efficient marketsLucely Vargas Preciado170323DFinancing Infrastructure projects can provide such huge of financial investments and value generation. However to find funding to financial the close of the projects is not an easy issue, investors are concern about the risk exposure and over cost generating during the Cycle Life of the project (30 years). A good sustainability project with attractive conditions, revenues and Government  guaranties can be attractive for investors, Win-Win situation.  Public-private partnerships (PPPs) are effective although not all implement projects have been successful in many countries (Sheng Chou, Pramudawardhani, 2015). This paper is aimed to understand the relationship between Financing, Sustainability PPP Projects, risk mitigation and risk allocation; specifically it will be analyzed public-private partnership (PPP) in infrastructure under the framework of  Goverment guaranties and Risk, Project finance-Key Concept, sources of finance in order to facilitate the financial investments by investors. The methodology for this research is based on the literature overhaul and an analysis for understanding PPP projects and mechanisms of financing and risk allocation, and then builds a conceptual model of Financing PPP projects in Infrastructure. The results of this research show that in order to create successful PPP sustainable projects cooperation among of players-Stakeholders including the investors is important to show that the risk allocation is well distributed and clearly allocated within a contract. In conclusion: (1) according to the analyzed case in an emergent country as Colombia, it is possible to say that PPP sustainability projects of infrastructure have a significant impact in the development of the country even though there still some problems in order to get the whole amount of money to finance the financing closing because of the mistrust and skepticism by investors; and (2) As a further research to calibrate the model it is important  to conduct an interview with international financial investors and others stakeholders.  
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Accounting, Governance and Risk PerspectivesContrasting Incentives for Earnings Management: Board Activity and Board Remuneration in Spanish FirmsLaura Muro170744AWe analyze the effect board activity and board remuneration has on earnings management (EM). Our results show that more active boards are inefficient in preventing earnings manipulation. Regarding board compensation we find a U-shaped relation indicating that excessive remuneration will lead to more earnings management. Policy recommendations are derived from the findings.
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Accounting, Governance and Risk PerspectivesMEASUREMENT THE STRUCTURE OF INTANGIBLE ASSETS‘ FINANCIAL AND NON-FINANCIAL INFORMATIONRITA BUŽINSKIENĖ170594AThis paper analyzes the measurement of intangible assets structure. The findings have three main implications. First, the determination of the intangible asset structure involves three methodological steps: 1. Selection of intangible asset elements (sub-elements) for research; 2. The accounting for the intangible assets‘ financial information elements is assessed following the general accounting principles; 3. The coding system of elements of intangible assets‘ non-financial information. Second, the differences in the accounting rules for intangible assets reported by individual countries have shown that there is no common accounting system and therefore inconsistencies between International Accounting Standards and General Accounting Principles. The structure of intangible assets is made up of intangible assets, the limited recognition of which separates intangible assets into two parts: financial and non-financial information. Third, accounting for intangible assets of financial information is limited to general accounting principles and is therefore still not fully disclosed. The structure of this intangible asset was dominated by the customer, contract, technology assets, and goodwill. In the structure of intangible assets‘ non-financial information was dominated by innovative, human and customer assets. The general structure of intangible assets has shown that there is a difference between financial and non-financial information that is not beneficial to an enterprise, as it loses the opportunity to disclose the true value of an intangible asset in an enterprise. An important aspect of this article is the establishment of a methodology for the structure of intangible assets, under which companies should reduce the lack of accounting information on intangible assets.
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Accounting, Governance and Risk PerspectivesThe Strength of Argumentation in Management Revenue Forecasts – Do Financial Analysts Care?Juhana Hursti170574AIn this paper, I examine the relation between the strength of the management revenue forecast argument and three outcomes, 1) ex post forecast accuracy, 2) incidence of analysts who revise their estimates, and 3) convergence in analysts’ beliefs. My full sample comprises 201 fullyear revenue forecasts by 131 European companies listed on the STOXX Total Market Index during crisis years 2008 and 2009. I use the esteemed Claim-Data-Warrant argumentation scheme by Stephen E. Toulmin (1958) to assess the strength of the textual forecast argument. I find that the odds that management revenue forecasts meet their target increase as the strength of the forecast argument increases. This indicates that the contemporaneous warrant of the revenue forecast argument might be considered as an alternative to ex post verification. However, on a reduced sample of 161 observations by 111 firms, I find the warrant and the incidence of analysts who update their estimates to be unrelated. Instead, I do find the warrant to be related to increased agreement in analysts’ beliefs. More specifically, when the forecast argument is either credible or highly credible, the percentage convergence in analysts’ beliefs is significantly greater than when the argument is not credible. Moreover, the impact is not sensitive to forecast imprecision. The results indicate that the warrant carries information that analysts might find value-relevant.
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Accounting, Governance and Risk PerspectivesEmerging Good Practices in Financial Accounting for Carbon Emission Trading: Expert Opinion on Carbon CreditsTharatee Mookdee170534AIn this paper, I examine the relation between the strength of the management revenue forecast argument and three outcomes, 1) ex post forecast accuracy, 2) incidence of analysts who revise their estimates, and 3) convergence in analysts’ beliefs. My full sample comprises 201 fullyear revenue forecasts by 131 European companies listed on the STOXX Total Market Index during crisis years 2008 and 2009. I use the esteemed Claim-Data-Warrant argumentation scheme by Stephen E. Toulmin (1958) to assess the strength of the textual forecast argument. I find that the odds that management revenue forecasts meet their target increase as the strength of the forecast argument increases. This indicates that the contemporaneous warrant of the revenue forecast argument might be considered as an alternative to ex post verification. However, on a reduced sample of 161 observations by 111 firms, I find the warrant and the incidence of analysts who update their estimates to be unrelated. Instead, I do find the warrant to be related to increased agreement in analysts’ beliefs. More specifically, when the forecast argument is either credible or highly credible, the percentage convergence in analysts’ beliefs is significantly greater than when the argument is not credible. Moreover, the impact is not sensitive to forecast imprecision. The results indicate that the warrant carries information that analysts might find value-relevant.
Research Objective/ Questions: Following practitioners’ accounting choices and underlying reasons in previous papers (Mookdee & Bellamy 2017 and Mookdee et al. 2019), what constitutes emerging good practices for accounting for carbon emission trading?
Methodology: Before expert interviews, this study explores real accounting policy choices and the underlying reason from case companies in Australia. Following their views and accounting literature, expert interviews were respectively conducted to find out what constitutes good practices in accounting for emission trading.
Major Findings: There are two groups of expert interviewees who support the Intangible Asset and Financial Instrument Model for asset classification of carbon credits. Applicable value of carbon credits, hence, depends on its initial recognition of assets. However, there are two groups of experts within the Financial Instrument Model that support a different applicable value based on the purpose of holding and changing the price of carbon credits.
Implications: According to the various conditions of assets arisen from carbon emission trading, a new type of asset with more flexibility and faithful representation shall be standardized and introduced to our accounting discourse community.
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Quantitative Finance and Data ScienceThe Determinants of Credit Cycle, Its Forecast and Impact on the Credit RatingsNatalya Dyachkova170834BIn our research, we study what macroeconomic factors drive and influence the credit cycle. This paper describes the changes in the dynamics of credit cycles. The obtained empirical results from multiple choice models demonstrated the strong influence between credit gap and different macroeconomic factors. Our results show the comparative analysis of credit cycles between different countries with various economic growth. The study has the following structure: first section provides an overview of literature sources. The second section shows data and methods applied. The third part discusses the possibilities of modeling the relationship between credit ratings and credit cycles and includes empirical studies and the obtained results, demonstrating their economic analysis.
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Quantitative Finance and Data ScienceFactoring transition risks into regulatory stress-testsJakob Thomä170294BA debate has recently emerged as to whether climate risks may be material for financial stability, driven by a solid body of evidence that climate risks may create value destruction for key industrial sectors that are prominently represented in financial markets. As a result, financial supervisory authorities are starting to explore how these risks can be integrated into existing stress-testing frameworks. This paper proposes a methodology that financial supervisors could follow to build “late & sudden” transition scenario that could be used as input into either traditional or climate-specific stress-tests of regulated entities. The methodology specifically focuses on equity and corporate bonds tied to climate sensitive sectors (fossil fuels, power, steel, cement, automotive and aviation).
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Quantitative Finance and Data ScienceThe Usefulness of Financial Variables in Predicting Exchange Rate MovementsJose Rossi170054BThis paper studies the predictive power of several financial variables usually used as proxies for global liquidity, volatility, and risk aversion in forecasting exchange rates for a set of countries from January 2001 to April 2013. The results indicate that changes in the long-term interest rate, in the VIX, in the high yield spread, and in the market liquidity indicators have strong in-sample and out-of-sample predictive power with respect to exchange rates. The results indicate that the relationship between the financial variables and the exchange rate is relatively stable. The paper shows that the predictability of the models is persistent over time and does not depend on the choice of the window size adopted in the forecasting exercises.
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Quantitative Finance and Data ScienceTime-variation of dual-class premiaMika Vaihekoski170264BDual class shares have been in existence in financial markets for more than one hundred years.  One class of shares provides superior voting power, while the other class provides preferential access to economic benefits. Extant literature suggests that superior voting class shares should trade at premium over the economic shares. We revisit the dual-class share phenomenon and document the time-variation characteristics of the dual-class premium. We connect the premium to voting rights, liquidity and disproportional dividend privileges. We also document relationship between the dual-class premium and legal and institutional structures.
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Quantitative Finance and Data ScienceContingent Claims Analysis in Corporate FinanceZvi Wiener170904BThe Contingent Claims Analysis (CCA) is a general approach to analyze the stakeholders of a corporation who have contingent claims on the future, uncertain cash-flows generated by the operations of the firms.  The CCA allows valuing each stakeholder’s claim and also to assess the risk incurred by the stakeholders.  The CCA highlights the potential conflicts of interest among the various claimholders. In this paper we review applications of CCA including valuation of various forms of debt, rating, credit spread, probability of default and corporate events like dividends, employee stock options and M&A. The CCA framework is shown to be useful in all these financial questions. In this paper the starting point is that the value of the firm assets is given. The future distribution of the assets’ rates of return is also known and given. The focus is on the liability side of the balance sheet, i.e., the funding sources of the activity of the firm, and more generally on the financial claims of the various claimholders of the firm.
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Investment ManagementGlobal Bonds: Choice of Issuance Currency and Emerging Market BorrowersBonnie Buchanan170714CThe global bond is an innovative bond instrument first launched by the World Bank in 1989. Over the last 30 years the global bond has gained popularity among both bond issuers and investors due to its multi-market placement and trading mechanism and global fungibility. Motivated by the recent Saudi Aramco global bond issue, we review the development of the global bond market over the last 3 decades. Specifically, we examine the participation in the global bond market by emerging market borrowers. We find that compared with their developed market counterparts, emerging market borrowers are responsive to cost-saving opportunities in their issuance currency choice. We also find that the bond rating and the market liquidity affect the emerging market borrowers' ability to achieve lower borrowing costs through currency-denomination decision.
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Investment ManagementPortfolio Construction Using Predictive Linear Model – An Adaptive Multi-Objective ApproachAmir Mobasheri170764CThe purpose of this study is to incorporate some of the influential findings in the forecasting literature in an integrated framework to examine whether a real-time optimizing investor can benefit from the stock market by allocating assets based on a predictive model that only uses industry portfolio and interest rate data as predictors. The proposed method aims to allow economic performance measures to have an impact on all steps of model building from variable selection to model combination without undermining the statistical performance measure. The predictors/models are selected from almost 300 variables by a multi-objective genetic algorithm considering both statistical and economic measures. I chose a subset of models from the Pareto-optimal frontier using a number of heuristic methods from the multi-criteria decision making  (MCDM)   literature and the concept of knee-point of a curve. The forecast of the next period is obtained by combining the forecasts of the selected subset of predictive linear regressions using a Bayesian variable selection and model averaging method called Stochastic Search Variable Selection  (SSVS). The investor’s utility function is used to obtain the weight of a risky asset based on the output of the forecasting model. All aforementioned steps only use data up to the current time and before the forecasting time. The results are compared to common benchmarks such as the buy-and-hold strategy and additional benchmarks that are based on the findings of previous literature. The findings indicate that using the proposed approach can improve the portfolio performance measures relative to all benchmarks.
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Investment ManagementCapital Markets Risk Signaling: Linking Financial Asset Risk Pricing to Water Risk ExposuresPeter Adriaenes170494CThe impact of water and weather risk exposures on companies across industry sectors is a topic of interest in the accounting and corporate finance literature, in environmental, social and governance (ESG) risk ratings, and credit risk guidance. We posit that water risk represents an idiosyncratic risk, because of the geographic and industry-specific context of its impacts. Given the short-term and high kurtosis characteristics of water and weather risk on share price volatility, water risk pricing can be estimated from tail volatility risk, relative to sector-specific behavior. It is further informed by operational efficiencies relative to fixed assets, and intangible costs. This waterBeta, a portfolio theory-driven excess volatility metric was computed for companies across industry sectors. Integration of waterBeta data in a water risk index, informed by a ten year back test, unlocked 50 bps alpha in the US50 and 90 bps in the Euro50 index. Hence, treating water risk as a volatility risk premium for asset allocation captures value for investors and informs the holdings of embedded risk.
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Investment ManagementChildren’s Toy or Grown-Ups’ Gamble? LEGO Sets as an Alternative InvestmentNikita Shimkus170614C
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Does CSR Disclosure an Indicator for Financial Reporting Quality?
Zakaria Aribi17094From the Nineties, the Moroccan banking system knew several reforms which contributed to the liberalization and the deregulation of banks. The objective is to arrive to a banking sector resilient, competitive, developed and making it possible to increase the surplus of the borrowers and the depositors. Although the relation between competition and financial stability is discussed, this paper proposes to formulate a new explanation of this relation while being based on the trilogy: competition, concentration and stability (CCS). Initially we develop the model of Panzar and Rose (1982,1987) to measure the competition of the dynamic banking system since 1993. Then, a data model of panel was estimated, highlighting the nonlinear relation between financial stability and banking competition. The checking of this relation made it possible to propose a new design concerning the relation between financial stability and competition. Indeed, the results obtained with through an optimization model affirm that this relation is cyclic, in the direction where, a stronger competition supports financial stability in situation of strong impact strength, on the other hand, in a situation of financial instability, more competition worsens the situation of the banking system.
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