Journal of Financial Regulation and Compliance

Publisher:: Emerald Group Publishing Limited
Publication date:: 2011-12-21

ISBN:: 1358-1988

Issue Number

No. 33-1, December - December - December - November - September - September - August 2024

Latest documents

FinTech and CO2 emission: evidence from (top 7) mobile money economies in Africa
Purpose: The impact of FinTech in sub-Saharan Africa has primarily been limited to financial inclusion. Contrarily, this study aims to deviate from this norm to estimate how FinTech affects carbon emissions in the subregion. This provides policy recommendations for FinTech regulators, service providers and practitioners to consider optimal products and services that reduce carbon emissions. Design/methodology/approach: A balanced panel data set from 2009 to 2020 is used and estimated with the fully modified ordinary least squares estimator after checking for cross-sectional dependence, unit root, stationarity and cointegration. Findings: Results from the estimation suggest a negatively significant relationship between financial technology and carbon emissions in these countries. However, domestic credit to the private sector revealed a statistically insignificant relationship with carbon emissions for the same period. Further, foreign direct investment reduces carbon emissions but gross domestic product and trade openness increase carbon emissions in these countries. Originality/value: The impact of FinTech in sub-Saharan Africa has primarily been limited to financial inclusion. Contrarily, this study deviates from this norm and estimates how FinTech affects carbon emissions in the subregion.
The role of activity restrictions on financial intermediation costs in ASEAN countries
Purpose: The purpose of this study is to examine the role of activity restrictions on the financial intermediation costs in ASEAN countries. Design/methodology/approach: This study used the two-step system generalized method of moments approach to tackle the endogeneity problems. The sample consists of 130 banks from ASEAN countries covering the over 2009–2022 period. Findings: This study provides valuable insights into various dimensions of activity restrictions within the banking across ASEAN countries. The findings highlight that imposing restrictions on activities such as securities, insurance and real estate can significantly elevate intermediation costs, affecting the overall efficiency of the banking sector. Furthermore, restrictions on ownership lead to higher intermediation costs by limiting operational flexibility, thereby constraining banks’ ability to optimize their financial services. Research limitations/implications: The sample of this study is limited to banks in ASEAN countries and focuses only on the regulations restricting banking activities. Practical implications: The findings suggest that policymakers should conduct a comprehensive review and potential adjustment of the existing regulatory framework related to restrictions on banking activities to strike an optimal balance between risk mitigation and fostering an environment that enhances banks’ efficiency. In addition, regulators could consider introducing regulatory reforms to ownership-related restrictions to promote greater flexibility and adaptability in the banking sector. Originality/value: This research contributes to the field of banking by offering valuable insights for policymakers and regulators in ASEAN countries. It provides empirical evidence on the impact of activity restrictions on financial intermediation costs, highlighting key factors for developing more effective regulatory strategies.
Capital buffer and bank risk-taking in Vietnam: the moderating role of capital regulation and shadow banking
Purpose: This paper aims to investigate the impact of capital buffer on risk-taking in the Vietnam banking sector as well as examine the moderating role of capital regulation based on Basel II standards and shadow banking on this correlation. Design/methodology/approach: The capital buffer is measured by the bank’s capital adequacy ratio minus the regulatory capital adequacy ratio, whereas risk-taking is the inverse value of the Zscore indicator. To test the hypotheses, the two-step system generalized method of moments estimation and a data set for the period 2010–2022 were used. Findings: This study reveals the U-shaped nonlinear impact of capital buffer on bank risk-taking, which means that maintaining high capital buffer forces Vietnamese banks to reduce risky activities, but when the capital buffer is thick enough to resist unexpected shocks, an additional level of capital buffer may lead to excessive risky behaviors. The regression outcomes also explore the moderating role of capital regulation based on Basel II standards and shadow banking. To be specific, applying capital regulation following Basel II has caused banks to behave more cautiously and enhance the negative impact of capital buffer on bank risk-taking, whereas engaging in shadow banking activities has caused them to increase risk tolerance and diminish the negative impact of capital buffer on risk-taking. Originality/value: This study bridges the gap in the literature regarding the impact of capital buffer on bank risk-taking in a typical emerging market. Especially, the article explores evidence that capital regulation and shadow banking play as moderators between two main interest variables.
Religious diversity, formal institutional environments and regulatory capital decisions
Purpose: This study aims to investigate the conditioning effect of formal institutional environments on the relationship between religious diversity and bank capital decisions. Design/methodology/approach: The study used random effects, generalised least squares regression and the method of moments quantile regression to analyse cross-country variations in bank capital decisions using data from 151 countries between 2000 and 2021. Findings: The findings show managers take more risks and perceive low regulatory capital as an avenue to success and innovation in more religiously diverse countries. Additionally, institutional quality reverts the negative consequence of religious differences on bank regulatory capital in developing and emerging countries but worsens in developed countries. Research limitations/implications: The role of deregulation and economic policy uncertainty can be considered for future research on religious diversity and bank capital decision dynamics. Practical implications: Bank managers may adapt capital ratios to informal institutional factors in individual countries without overlooking the influence of formal institutional indicators. Originality/value: By advancing studies from an institutional perspective, the authors contribute theoretically to the literature by examining the joint effect of the informal and formal institutional environments on regulatory capital decisions. This will help regulators, supervisors and policymakers better understand the drivers of bank regulatory capital decisions to safeguard the banking systems with the right strategy and policy.
Unveiling the drivers of green loan disclosures: a study of financial and governance determinants
Purpose: This study aims to investigate the factors influencing Indian banks’ choice of green loan disclosure practices. The study analyzes the effect of financial and governance variables to understand the sustainable reporting (through green lending) behavior of Indian banks. Design/methodology/approach: The data on green loan disclosure has been hand-collected from the annual reports using a content analysis approach. Using the data of 26 banks for 12 years (2012–2023), the study uses the panel regression method to control for cross-sectional heterogeneity and generalized methods of the moment to address potential endogeneity issues. Findings: The empirical results depict that larger banks with sufficient risk capital and a strong corporate governance framework demonstrate greater disclosure of green loans. However, growth opportunities and higher market value impedes the reporting of green lending. Research limitations/implications: The findings of the study will enhance the extant literature on sustainability disclosure by integrating the financial sector companies in the context of an emerging economy. However, future research may include nonbanking finance companies as well. Social implications: Banks use societal deposits to invest in productive avenues, and therefore, it is paramount to understand their social and environmental consciousness while evaluating a financing proposal. This research provides a thorough understanding of the sustainable reporting of banks through the lens of green lending. Originality/value: This research provides unique evidence on the bank-specific determinants of green loan disclosure in an emerging economy context as against the extant literature which primarily focused on sustainable reporting of nonfinancial companies.
The impact of bank liquidity, monetary policy and global crises on bank risk-taking: evidence from Vietnam
Purpose: This paper aims to examine the impact of bank liquidity, monetary policy and global crises on bank risk-taking behavior of Vietnamese banks. It provides evidence for a risk-taking channel of monetary policy through bank liquidity and global crises. Design/methodology/approach: The study uses the data set of 572 observations from 35 banks operating in Vietnam between 2005 and 2022, using the GMM regression technique. Findings: The findings indicate that banks with higher liquidity tend to take more risks in the long run. Additionally, expansionary monetary policies encourage banks to take on more risk. Bank liquidity and global crises, such as the global financial crisis and the COVID-19 pandemic, not only directly affect bank risk-taking but also indirectly through monetary policy. Originality/value: This paper expands the existing literature by examining the effect of bank liquidity, monetary policy and global crises on bank risk-taking by using the GMM and two models of which the authors regress the impact with and without bank liquidity and global crises. New factors affecting risk-taking, including operating cost, financial crisis and the COVID-19 pandemic are added into the model.
Exploring aggressive tax planning dynamics: the impact of investment opportunity sets and free cash-flow surplus
Purpose: This study aims to investigate how investment opportunity sets (IOs) and free cash-flow (FCF) surpluses affect aggressive tax planning (ATP). This research focuses on examining the correlation between these factors and delves into how ATP, perceived as a tool for exploiting legal loopholes, plays a central role. Design/methodology/approach: This study uses panel data analysis techniques on a sample of 1,248 firm-observations gathered from nonfinancial enterprises in Jordan that are listed in the Amman Stock Exchange (ASE) between the years 2008 and 2019. The Driscoll–Kraay regression model (fixed effect) is enlisted to avoid the inconsistency of the slope across individual units and time period. Findings: The findings indicate that the IOs does not affect ATP. However, there is a significant negative effect of FCF surplus on ATP. Furthermore, consistent with positive accounting theory the data reveal that all of these control variables exert a substantial positive influence on ATP. Research limitations/implications: This study concentrates on nonfinancial firms listed in the ASE, thereby constraining the applicability of the results to alternative contexts. Nevertheless, the findings of this study enhance comprehension regarding the extent of ATP and bear policy implications for policymakers regarding the structuring of future tax systems aimed at reducing the prevalence of tax avoidance behaviors. Thus, future research should conduct longitudinal studies to capture temporal dynamics. Originality/value: This study contributes to the existing literature on ATP by focusing on using the Wilson tax-shelter model as a precise proxy. It fills gaps in prior research by exploring connections between IOs, FCF and ATP. The findings offer novel insights into the dynamics of tax planning strategies and contribute to the broader understanding of tax management practices.
CBDCs, regulated stablecoins and tokenized traditional assets under the Basel Committee rules on cryptoassets
Purpose: This paper examines the impact of Central Bank Digital Currencies (CBDCs), regulated stablecoins and tokenized traditional assets on the cryptocurrency market, following the guidelines set by the Basel Committee. This study aims to analyze the implications for secure storage, cross-border transfers and necessary investments. Design/methodology/approach: The paper uses a policy analysis approach to assess the potential effects of the Basel Committee’s regulations on CBDCs, regulated stablecoins and tokenized traditional assets. It explores their impact on the cryptoasset market, strategies of central and commercial banks, payment systems and risk management. Findings: The adoption of CBDCs, regulated stablecoins and tokenized traditional assets is expected to grow rapidly in the coming years. It raises concerns about secure storage, cross-border transfers and required investments. Central banks are likely to introduce CBDCs and authorize stablecoin issuance, aiming for efficient monetary policies and risk management. Basel III regulations may lead to asset tokenization by banks, reducing asset size and increasing fee-based income. Originality/value: This paper provides insights into the potential impact of the Basel Committee's regulations on CBDCs, regulated stablecoins and tokenized traditional assets. It contributes to the understanding of the evolving cryptoasset market and the strategies of central and commercial banks in adopting these technologies. The findings offer valuable information for policymakers, regulators and market participants in navigating the changing landscape of digital assets.
All are interesting to invest, I fear of missing out (FOMO): a comparative study among self-employed and salaried investors
Purpose: This paper aims to examine how fear of missing out (FOMO) and investment intention mediate the relationship between behavioral biases and investment decisions of retail investors in the Indian stock market. Design/methodology/approach: The present research comprises two cross-sectional quantitative studies, where Study A involves data from 405 self-employed and Study B involves 393 salaried investors. Data was attained through questionnaires – the partial least squares structural equation modeling was used for data analysis. Findings: The outcomes show that herding, overconfidence and loss aversion bias significantly impact investment intention and FOMO on both studies. Furthermore, the outcomes also indicate that herding and loss aversion bias significantly influence investment decisions in studies (A and B); however, overconfidence bias insignificantly affects the investment decisions in Study A. Besides, the results also reveal a substantial relationship between FOMO, investment intention and investment decision. Practical implications: The findings of this paper assist practitioners (financial analysts and retail investors) in considering the various ways of analyzing investment decision outcomes by considering the joint effect of several biases. Originality/value: This paper is an initial attempt to propose a new theoretical framework and empirically examine the impact of behavioral biases on investment decisions by considering the FOMO and investment intention among self-employed and salaried investors. This study also contributes to the behavioral finance literature; other researchers may find it valuable to attain their goals.
A law and economic analysis of trading through dark pools
Purpose: The purpose of this paper is to assess the latest directives of the European Parliament and the Council – MiFID II and MiFIR – on markets in financial instruments in response to the growth of dark pools in European equity markets. Design/methodology/approach: This paper examines the impact of the new regulatory packages on European equity markets by identifying areas where the legislation is effective and comparing these changes in EU legislation with US legislation on dark pools. Findings: This paper find that the MiFID II and MiFIR directives, implemented by the European Securities and Markets Authority to address these concerns, have reduced information asymmetry between market participants, thereby increasing competition between regulated markets and alternative trading facilities. Research limitations/implications: Increased competition can improve market quality, which has practical implications for financial market regulation and policy formulation. Originality/value: These findings are novel in the existing literature on high frequency trading through dark pools. They improve the understanding of dark trading and its impact on competition and market efficiency. In addition, this research can assist policymakers in designing effective financial market regulation. The economic analysis of legislation also helps regulators assess the impact of new legal provisions on the functioning of capital markets.