Silvio Tarca and Marek Rutkowski
This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the…
Abstract
Purpose
This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the implementation of Basel II and comparing them with signals from macroeconomic indicators, financial statistics and external credit ratings. The IRB approach to capital adequacy for credit risk, which implements an asymptotic single risk factor (ASRF) model, plays an important role in protecting the Australian banking sector against insolvency.
Design/methodology/approach
Realisations of the single systematic risk factor, interpreted as describing the prevailing state of the Australian economy, are recovered from the ASRF model and compared with macroeconomic indicators. Similarly, estimates of distance-to-default, reflecting the capacity of the Australian banking sector to absorb credit losses, are recovered from the ASRF model and compared with financial statistics and external credit ratings. With the implementation of Basel II preceding the time when the effect of the financial crisis of 2007-2009 was most acutely felt, the authors measure the impact of the crisis on the Australian banking sector.
Findings
Measurements from the ASRF model find general agreement with signals from macroeconomic indicators, financial statistics and external credit ratings. This leads to a favourable assessment of the ASRF model for the purposes of capital allocation, performance attribution and risk monitoring. The empirical analysis used in this paper reveals that the recent crisis imparted a mild stress on the Australian banking sector.
Research limitations/implications
Given the range of economic conditions, from mild contraction to moderate expansion, experienced in Australia since the implementation of Basel II, the authors cannot attest to the validity of the model specification of the IRB approach for its intended purpose of solvency assessment.
Originality/value
Access to internal bank data collected by the prudential regulator distinguishes this paper from other empirical studies on the IRB approach and financial crisis of 2007-2009. The authors are not the first to attempt to measure the effects of the recent crisis, but they believe that they are the first to do so using regulatory data.
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Antonio Corvino, Francesco Caputo, Marco Pironti, Federica Doni and Silvio Bianchi Martini
The purpose of this paper is to contribute to the ongoing debate regarding the relationship between relational capital (RC) and firm performance, by investigating the moderation…
Abstract
Purpose
The purpose of this paper is to contribute to the ongoing debate regarding the relationship between relational capital (RC) and firm performance, by investigating the moderation effect of firm size and its key role in defining conditions for competitive advantage.
Design/methodology/approach
The paper uses the interpretative lens of the resource dependence theory, and refreshes consolidated studies rooted in RC. It identifies a set of variables to measure the influence of RC on firm performance, including the cost of goods sold, interest expenses and earnings per share. Content analysis was used to capture specific features of corporate disclosure tools using 51 items pertinent to RC. The authors used a specific disclosure index drawing on data collected from 73 listed firms in France, Germany, Italy and the UK. Data covering the period from 2011 to 2013 were analyzed using six regression models.
Findings
Firm size has a moderating effect on the relationship between RC and some variables linked to firm performance.
Originality/value
The study combines an internal and external perspective to investigate the interplay between firms and market environments, and therefore, enriches the ongoing debate concerning the relationship between RC and firm performance. It outlines possible ways through which RC can become an effective source of competitive advantage.
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Silvio Bianchi Martini, Antonio Corvino, Federica Doni and Alessandra Rigolini
The purpose of this paper is to analyse the content of relational capital disclosure (RCD) information communicated by a sample of European listed companies. It also investigates…
Abstract
Purpose
The purpose of this paper is to analyse the content of relational capital disclosure (RCD) information communicated by a sample of European listed companies. It also investigates the links between RCD and certain corporate financial performance indicators.
Design/methodology/approach
This research did a cross-country analysis on a sample of 80 companies and a content analysis based on 51 items inherent to the relational capital (RC) framework of mandatory and voluntary reports. An RCD index has been used in certain bivariate and multivariate statistical analyses to investigate whether RCD is positively correlated to particular indicators adopted as proxies for measuring company performance.
Findings
The results show that RCD supports statistically significant relationships with revenues, net operating cash flow and capital expenditures. In contrast, there is no statistically significant association with enterprise value.
Research limitations/implications
This study evaluates the information disclosed in annual reports or other standalone reports, although companies might communicate such information using other information channels. The main caveat of this study is sample size; therefore, it could be insightful to extend this cross-country study.
Practical implications
The research could encourage preparers to improve the disclosure of specific items of RC and could offer useful suggestions to policymakers, for instance, to the European Commission, as it has recently announced new requirements for non-financial information reporting (Directive 2014/95/UE).
Originality/value
Given the crucial role of RC in company success and RCD’s importance for the decision-making process, this study provides interesting insights into the debate on RC reporting’s impacts on company performance.