Showing papers in "Journal of financial transformation in 2006"

Private equity: spice for European economies

Abstract: Private equity has become a substantial force in the European financial system. This paper describes some of the recent developments and looks at the structural relationship between private equity investments and economic growth. The econometric analysis of a set of panel data from 20 European countries for the period between 1994 and 2004 fails to reject the hypothesis that private equity investments are associated with economic growth. According to this analysis, an ncrease in private equity investments of 0.1% of GDP is associated with an increase in real economic growth of between 0.2 pp (buyouts)and 0.8 pp (early-stage investments) — other things being equal.

The application of agile manufacturing for customer value

Abstract: This paper presents a strategic framework to enable agile manufacturing. Agile strategies provide superior customer value in a changing environment. The literature suggests that value strategies come about by a responsive (market-based) or a resource-led process. We introduce six case studies to illustrate that a negotiated process is also required if firms are to continuously deliver customer value.

Threshold relationships among inflation, financial development, and growth

Abstract: This paper tests for and estimates relationships among inflation, financial market development (FMD), and growth. This trivariate relationship changes across a statistically robust inflation threshold of about 14%. Below 14%, the relationship between growth and FMD is positive; above 14%, the relationship between growth and inflation is negative. The interaction between FMD and inflation has a significant impact, however: below 14% there is a positive correlation between growth and inflation, but marginal increases in inflation impair the relationship between growth and FMD; above 14% marginal increases in inflation have little or no impact on this relationship. This suggests that the role of financial markets as a channel of economic growth is important and changes with the level of inflation.

Using asset management companies to resolve non-performing loans in China

Abstract: To address the banking system’s non-performing loan (NPL) problem, the Chinese government set up four asset management corporations (AMCs). They were to buy bad debts from mainly the big four state-owned commercial banks and dispose of them over 10 years, taking a large step towards NPL resolution. So far, these AMCs have made a limited contribution to the resolution of the NPL problem. They have taken over well over half of the NPLs of the big four banks and probably resolved more than half of those acquired. However,under plausible recovery scenarios, the AMC losses would surpass the current financial contributions to the AMCs from both the Ministry of Finance (MoF) and the People’s Bank of China (PBC). This raises the question of who will pay for the AMC losses. Since their cash recoveries have lagged their interest obligations, they also face cash flow pressures. In response, the Chinese government has offered investment banking business licenses as incentives for the AMCs to meet the deadlines and recovery targets of their NPL resolution.

Achieving competitive advantage through Lean thinking

Abstract: This opinion piece describes the basic components of a Lean Banking System and how it can help drive performance improvement. Also, the article discusses the importance of metrics and the importance of considering Lean Principles when outsourcing specific processes.

Improving liquidity through efficient stock market structure and operational design

Abstract: This study is an analysis of the secondary market liquidity on equity markets around the world. The role of operational design of stock exchanges in enhancing liquidity is assessed. The market structure within which exchanges operate is also shown to affect the optimal operational design and liquidity. Narrower tick sizes, designated market makers, centralized limit order books, computerized trading, and strong shareholder rights index all improve liquidity directly and indirectly. Interaction effects among these features result in hybrid auction-dealer systems outperforming pure limit order books or quote-based dealer systems in the race for better liquidity.

Developing Sustainable Competitive Advantage in Asset Management

Abstract: This paper considers how asset management firms seek to develop sustainable advantage in a fragmented industry that has few obvious economies of scale and scope It shows that the generic competitive strategies of cost leadership and differentiation are both applicable but lead to very different types of asset management firms The key differentiators for firms are in their investment philosophies and attitude to trading How firms address these two dimensions leads to various ‘types’ of asset management firms which rely to a greater or lesser extent on cost or information-processing advantages Firms which pursue information advantage and seek to exploit this via portfolio rebalancing can be categorised as active and seek to differentiate themselves through above-average performance Firms which successfully pursue this strategy are able to differentiate themselves and command significant fees for their services On the other hand, asset management firms that are purely cost driven seek to exploit those economies of scale and scope that exist in the industry and also seek to spread establishment costs across large sums of assets under management Such firms tend to offer easily scalable products such as indexing and compete almost exclusively on price While the active – passive split represents the two generic strategies, there are also hybrid strategies which are more complex to execute but which if successful can also create sustainable competitive advantage

Does capital mobility promote economic growth? The link to education

Abstract: We provide a brief account of the ongoing debate on the relationship between international capital flows and economic growth. In particular, we argue that the current debate may be enriched by looking more closely at the relationship between these key variables and educational choice and public education policy.

War and business enterprises

Abstract: This article was first published in the "Journal of Financial Transformation" and is reproduced here with the newspaper's kind permission.

Transformation using Lean Six Sigma measures for service processes

Abstract: Measuring the performance of your processes is the first step in transforming your business. If you do not know something about your business, then you cannot improve it. I believe you should have measures in place for understanding your business performance all the time. They should be continuously measured, and whenever possible put on some type of control or metric chart which allows you to monitor trends that are occurring. When you have these measures, you can then make improvements whenever it is determined that you have a gap between where the processes are performing and where you need to be performing to compete. In this article, I have discussed establishing those measures, and given some examples of measures within the financial industry. I have also shared some tools, such as the SIPOC, measures matrix, and how to clarify your customer’s needs.

Corporate hedging and capital structure decistion - towards an integrated framework for value creation

Abstract: We suggest a joint optimization model for a firm’s hedging and leverage decisions that helps to establish an integrated framework for value creation. Rather than artificially separating the two interrelated parts of the firm’s financial policy, we treat both corporate decision variables as endogenous. We argue that exogenous differences between financial distress costs across firms, and particularly across industries, simultaneously influence corporate risk management and capital structure decisions. Using anecdotal evidence, our focus is not on socalled direct bankruptcy costs, but rather on the cross-sectional variation in indirect bankruptcy costs, which may result from a deterioration of relationships with customers, suppliers, or other stakeholders prior to the legal act of bankruptcy.

Pricing effects of private seasoned equity issues in New Zealand's laissez-faire regulatory environment

Abstract: Since the late 1980s New Zealand (NZ) has often been heralded for its free-market approach and laissez-faire attitude towards regulations in the financial market. We find that private placements issued at a premium to current market price exhibit a permanent positive impact on firm value. In contrast, those placed at a discount experience negative announcement returns and a significant run-down in returns following the announcement. There is a strong positive relationship between abnormal announcement returns and the price at which shares are placed which suggests placement price conveys important information regarding firm quality and value. We also find evidence of significant higher volumes which support market rumors that placement purchasers are immediately dumping shares purchased at a discount onto the market for an instant profit.

Why and when financial instruments are created: a learning story

Abstract: The relationship between financial development and growth has been the subject of intense scrutiny. Economists debate whether finance causes growth [Hicks (1969), Schumpeter (1934)], or whether it is growth that triggers the development of financial markets [Robinson (1952)]. This paper proposes the view that financial development arises as a response to the contractual needs of emerging technologies. Exogenous technological progress generates a derived demand for new financial instruments that facilitate the adoption of the new technologies; those instruments may help investors share risk or overcome private information issues, for example.

Structural econometric approach to bidding in the main refinancing operations of the eurosystem

Abstract: This paper contributes to the existing literature on central bank repo auctions. It is based on a structural econometric approach, whereby the primitives of bidding behavior (individual bid schedules and bid-shading components) are directly estimated. With the estimated parameters we calibrate a theoretical model in order to illustrate some comparative static results. This exercise sheds light on the debate about the reversed winner’s curse found in the empirical literature on ECB auctions by showing that it may be related to an identification problem. Overall the results suggest that strategic and optimal behavior is prevalent in ECB tenders. We find evidence of a statistically significant bid-shading component, even though the number of bidders is very large. Bid-shading increases with liquidity uncertainty and decreases with the number of participants and with price uncertainty. We argue that a sufficient condition for the latter effect to appear in the data is that the residual supply facing an individual bidder does not change much ex-post when very short-term market rates increase.