Journal of Financial Risk Management 

About: Journal of Financial Risk Management is an academic journal published by Scientific Research Publishing. The journal publishes majorly in the area(s): Credit risk & Stock exchange. It has an ISSN identifier of 2167-9533. It is also open access. Over the lifetime, 237 publications have been published receiving 774 citations. The journal is also known as: JFRM.

Hunting the living dead: a 'Peso problem' in corporate liabilities data

Abstract: Recent literature has pointed out that information asymmetries may be the reason for the poor performance of structural credit risk models to …t corporate bond data. It is well known in fact that these models lead to a strong undestatement of the credit spread terms structure, particularly on the short maturity end. Possible explanations stem from strategic debt service behavior and, as discovered more recently, the problem of accounting transparency. This raises the possibility that some of these ‡aws could be reconducted to a sort of “peso problem”, i.e. that the market may ask for a premium in order to allow for a small probability that accounting data may actually be biased (Baglioni and Cherubini, 2005). In this paper we propose a modi…ed version of the Duan (1994,2000) MLE approach to structural models estimation in order to allow for this “peso problem” e¤ect. The model is estimated for the Parmalat case, one of the most famous cases of accounting opacity, using both equity and CDS data.

Accounting for Derivative Instruments and Hedging Activities

Abstract: The goal of this research was to investigate the reasons behind the plethora of amendments of the FASB Accounting Pronouncements for Financial Instruments from 2002 to 2008. Entities have communicated their apprehensions that the existent disclosure requirements in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, do not furnish sufficient input about how derivative and hedging activities influence an entity’s financial position, financial performance, and cash flows. Correspondently, in 2008 the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133”. The purpose of the study was to investigate the extent to which the thirty companies that comprise the Dow Jones Industrial Average complied with the new qualitative and quantitative disclosure requirements for derivative financial instruments of SFAS No. 161. Following the theoretical framework of corporate risk management, the quarterly financial statements (10Qs) of the thirty companies that comprise the Dow Jones Industrial Average were examined to determine whether companies complied with the qualitative requirements of SFAS No.161 to disclose their objectives for holding or issuing derivative financial instruments and their risk management policy as well as a description of the items being hedged. A surprising finding was that most companies failed with the requirements of SFAS No. 161 to disclose the required information about cash flow hedges, net investments in foreign operations and, fair value hedges. These findings suggest that although the FASB issued SFAS No. 161 to enhance derivative disclosures to enable users of financial statements to evaluate the success and significance of derivative instruments and hedging transactions on an entity’s financial statements, companies might need additional time to implement the standard.

Determinants of IPOs Initial Return: Extreme Analysis of Indian Market

Abstract: This paper attempts to design and test empirical models, which integrate theoretical, institutional, and other factors, which interact to explain ownership structure. Ex-ante information at the level of under-pricing succeeds the Indian stock market crunch. The study is based on IPO that listed at Bombay stock exchange given that April 2000 to December 2011. Multiple linear regressions are used to distinguish the relationship between various independent variables with the dependent variable, i.e. level of underpricing. The outcomes of multiple regressions reveal that, firm’s age, IPO years, book building pricing mechanism, ownership structure, issue size, & market capitalization explained 44% of the variation in issuer under-pricing, Durbin Watson’s value subsisted 1.58, which indicates that, there is a positive sequential rela-tionship between variables. Number of share offered, issue size, market capitalization, subscription offer timing, book building mechanism and IPO years 2006, 2009 & 2011 are constructed to have important effect on the level of underpricing after the Indian market crisis. Nevertheless, firm’s age, IPOs year 2008, private issuing firms, non institutional promoters, Indian promoters and non institutional non promoters contain no significant difference in the level of underpricing after-market crisis.

Corporate Governance, Risk Management, and Bank Performance: Does Type of Ownership Matter?

Abstract: This research explains the correlation between corporate governance, risk management, bank performance, and ownership structure. The research has used a set of independent variables related to revelation and precision. The data from 39 banks working in Pakistan have been used for the time period of 2010 to 2015. Two variables are used for risk management including VAR (Value At Risk) and CAR (Capital Adequacy Ratio). Family ownership, managerial ownership, and ownership concentration are used as instrumental variables for ownership structure. Board independence, the board size, CEO, and audit committee are used as proxy variables for corporate governance, whereas, dummy variables are used for bank performance. The results indicate that three types of bank ownerships are the same; therefore, they cannot affect VAR type of bank ownership and compare as a whole with risk management. The regression consequences display that family ownership has an unconstructive outcome on VAR and CAR that show a negative association between the variables. While managerial ownership and concentration ownership show a positive association between VAR and CAR. The results indicate that board size and audit committee has a negative effect on VAR and CAR that means there is a negative relationship between the variables, whereas board size and CEO have a positive relationship with VAR and CAR. Firm size, firm profitability, and growth opportunities represent a variety of bank performance. The results reveal that firm size, firm profitability and growth opportunities have a positive effect on CAR and VAR. The results also indicate that corporate governance has a positive effect on bank performance that means if a bank can adopt good corporate governance rules, the performance will be excellent. The result emphasizes that risk management has a positive correlation with bank performance that means if a bank manages risk, the performance of that bank will be increased. But in Pakistan, the rules and regulations are the same for all types of banks including private, public, and foreign, therefore, the ownership structures of all banks are the same.

Credit Risk Management Framework for Rural Commercial Banks in China

Abstract: Credit risk management (CRM) is to identify, measure, monitor, and control risk arising from the possibility of default in payments. Existing CRM tools available for large financial institutions do not meet the requirements of rural commercial banks (RCBs) because their main customers are SMEs and farming households whose financial data and credit rating records are not available. RCBs in China also expose specific risks connected to rural commercial banking business and in particular farming-related loans and services. Adopting a qualitative analysis approach to identify key factors contributing to failures of RCBs’ customers, we endeavour to develop a CRM framework for RCBs in China. The framework, which is based on the identification of business failures of RCBs’ customers and factors contributing to failures of SMEs and farming households, incorporates financial and non-financial variables. Using nonfinancial variables along with financial variables as predictors of company failure significantly improves credit analysis quality and accuracy. Also, this study recognises guanxi1 as risk potentials and includes guanxi risks in the framework. This study has made contributions to the extant literature on CRM of banks in general and RCBs in particular.