Journal of Finance Issues

Are Outside Board Chairs Better Than Inside Board Chairs? Evidence From Taiwanese Family Firms

Pei-Ying Chen, Chia-Wei Chen, Bingsheng Yi, Jose N. Martinez — Sat, 31 Dec 2022 00:00:00 -0800

This paper compares the effect of inside and outside board chairs on firm performance using listed family firms in Taiwan from 2000 to 2018. We use Tobin’s Q and Return on Assets to measure firm valuation and operating performance. Family firms with an inside board chair exhibit undervaluation but better operating performance compared to family firms with an outside board chair. However, these results are nuanced and complex, with board independence counteracting on inside board chair. The results are robust using different samples and performance measures.

A Tale of Two Markets Before and After Pandemic: Economy Driven vs Dollar Driven

Joseph Cheng, Seena Houman — Sat, 31 Dec 2022 00:00:00 -0800

The correlation between the U.S. equity market and the U.S dollar is intriguing yet complex. In this paper, we dissect the correlation into two opposing driving forces: purchasing power versus economic strength. A weak dollar inevitably will have a lower purchasing power, causing prices of all dollar denominated assets to rise creating an inverse relationship between the value of the dollar and the U.S. equity market. On the other hand, increasing strength in the U.S. economy will boost the confidence in the U.S. equity market and in the U.S. dollar, thus creating a positive correlation between the value of the dollar and the U.S. equity market. These two factors pull the correlation between the dollar and the equity market in opposite directions; whether the actual correlation is positive or negative depends on which factor is dominant in driving the equity market in a particular period of time: the economy or the value of the dollar. Using regression analysis, we discover that the correlation between the dollar and the equity market was negative and significant during the pre-covid period and becomes positive and significant during and after the pandemic period, suggesting that the market was economy-driven before the pandemic and became dollar-driven during the pandemic period.

The Relationship Between Growth and Profitability: An Empirical Analysis of U.S. Property and Liability Insurers

B. Paul Choi, Jin-Gil Jeong — Sat, 31 Dec 2022 00:00:00 -0800

Using a data set of insurers operated in the U.S. property and liability (P-L) insurance market during the sample period, this study examines the interactions between firm growth and profitability. Dynamic panel regressions are conducted to investigate its relationship and other factors in the growth and profit equations. Regression models include firm specific variables and industry cycle variables to control and deliver a better estimation. The results of this study show that past profits have a major impact on future profits, thereby supporting that profits continue to be generated in the P-L insurance sector. The findings are consistent with two additional profit measures. Additionally, this research finds that lagged growth is benefitting present profit, specifically assessed by ROE. The growth model shows a positive association between lagged profit and current growth. This study further demonstrates how quickly smaller-sized businesses expand in this market. Other firm characteristics are identified in the profit and growth models as well.

Forecasting Bank Capital Ratios Using the Prophet Model by Facebook

James Kolari, Ivan Pastor Sanz — Sat, 31 Dec 2022 00:00:00 -0800

This study investigates the efficacy of the Prophet model by Facebook with respect to forecasting bank capital ratios. Bank financial ratios and macroeconomic information are combined to forecast total risk-adjusted capital ratios for 19 large U.S. banks. Using a sample period from March 2005 to December 2020, in-sample results show that the model accurately estimates bank capital ratios over time. As validation, out-of-sample tests indicate that forecasting errors are smaller for Prophet models compared to benchmark ARIMAX models. Based on these and other results, we conclude that the Prophet model does a good job of forecasting bank capital ratios. By implication, it provides a practical forecasting tool for bank regulatory supervisors, management, and investors.

Distribution Systems and Efficiency of Life Insurers in Korea

Jin Park — Sat, 31 Dec 2022 00:00:00 -0800

This study investigates the technical efficiencies of all life insurance companies in Korea using data environment analysis (DEA) for the sample of 2006 – 2017. During the sample period studied, new life policy sales by cyber marketing and traditional face-to-face sales have significantly increased and sales by other distribution methods have parred or decreased. The estimates of average technical efficiency measures of Korean life insurers are about 18 percent higher than those of foreign life insurers. Among competing regression models, a random effects model is found to be an appropriate model and shows that cyber marketing and tele-marketing have a statistically significant positive impact on insurers’ efficiency, while there is a statistically significant negative relationship between the capital input and the efficiency. The findings of this suggest that insurers should strive to increase their operational efficiency by reevaluating and restructuring their distribution channels.