Alan Huang, Wenfeng Wu and Tong Yu
This is a literature survey paper. The purpose of this paper is to focus on the latest developments in textual analysis on China’s financial markets, highlighting its differences…
Abstract
Purpose
This is a literature survey paper. The purpose of this paper is to focus on the latest developments in textual analysis on China’s financial markets, highlighting its differences from existing works in the US markets.
Design/methodology/approach
The authors review the literature and carry out an experiment of sentiment analysis based on a small sample of Chinese news articles.
Findings
Based on the experiment of sentiment analysis, there is limited evidence on the association between sentiment and other contemporaneous or future returns.
Originality/value
The supply of financial textual information has grown exponentially in the past decades. Technological advancements in recent years make the programming-based analysis an effective tool to digest such information. The authors highlight the use of credible textual information and discuss directions of research in this important field.
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Wenfeng Wu, Jianshe Song, Kexia Jiang and Hao Li
This paper aims to study the maintenance and replacement problem for a deteriorating repairable system with multiple vacations of one repairman. It proposes a new replacement…
Abstract
Purpose
This paper aims to study the maintenance and replacement problem for a deteriorating repairable system with multiple vacations of one repairman. It proposes a new replacement policy and establishes corresponding replacement models.
Design/methodology/approach
It is assumed that the repair after the system failures is not “as good as new” and the repairman is in multiple vacations. The reaching of the effective age of the system is assumed to be mutually stochastic at working state, waiting state for repair and being repaired state. Under these assumptions, a replacement policy based on the effective age of the system is applied. The long-run expected downtime per unit time and the long-run expected profit per unit time as objective functions are chosen, respectively. By using geometric process theory and renewal process theory, the mathematic models have been established and the explicit expressions of the long-run expected downtime per unit time and the long-run expected profit per unit time are derived, respectively.
Findings
The optimal replacement policy can be calculated and determined by the computer to minimize the expected downtime or maximize the expected profit. The minimum expected downtime per unit time and maximum expected profit per unit time can also be determined.
Originality/value
This replacement policy and mathematic models can be used as reference to the failure system maintenance and replacement.
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Yong H. Kim, Bochen Li, Hyun-Han Shin and Wenfeng Wu
It is documented that companies and government agencies in the USA invest more in the fourth fiscal quarter without having higher investment opportunities. While previous studies…
Abstract
Purpose
It is documented that companies and government agencies in the USA invest more in the fourth fiscal quarter without having higher investment opportunities. While previous studies focus on the agency conflicts and information asymmetry within organizations, this study is motivated by Scharfstein and Stein's (2000) two-tiered agency model and aims to examine how firms' external business environment affects the “fourth quarter effect.”
Design/methodology/approach
The authors implement this study in a sample of 41 countries and observe similar seasonality in firm investment as documented in the US market.
Findings
More importantly, using country characteristics, this study finds that firms from countries with better investor rights and protection, and more developed financial markets show less severe over-investment in the fourth fiscal quarter.
Originality/value
This paper contributes to the literature of law and finance, and the internal capital market, by investigating the quarterly investment patterns of firms from 41 countries. The authors find that similar to the results in earlier studies on the US market, firms in the global market increase their capital expenditure in the fourth fiscal quarter, indicating that the internal agency conflicts between the headquarters and divisional managers are widespread across the world. The authors also find that firms that operate in countries with higher investor rights and protection, and more developed financial markets, tend to show less severe “fourth quarter effect”.
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What causes the downward trend of real interest rates in major developed economies since the 1980s? What are the challenges of the near-zero interest and inflation rates for…
Abstract
Purpose
What causes the downward trend of real interest rates in major developed economies since the 1980s? What are the challenges of the near-zero interest and inflation rates for monetary policy? What can the policymakers learn from the latest developments in the monetary and interest rate theory? This paper aims to answer these questions by reviewing both basic principles of interest rate determination and recent academic and policy debates.
Design/methodology/approach
The paper critically reviews the explanations for the downward trend of real interest rates in recent decades and monetary policy options in a near-zero interest rate environment.
Findings
The decline of real interest rates is likely an outcome of multiple technological, social and economic factors including diminished productivity growth, changing demographics, elevated tail-risk concerns, time-varying convenience yields of safe assets, increased global demand for safe assets, rising wealth and income inequality, falling relative price of capital, accommodative monetary policies, and changes in industry structure that alter the investment and saving behaviors of the corporate sector. The near-zero interest rate limits the space of central banks' response to economic crises. It also challenges some conventional wisdoms of monetary theory and sparks radically new ideas about monetary policy.
Originality/value
This survey differs from the existing work by taking a broader view of both economics and finance literature. It critically assesses the economic forces driving the global decline of real interest rates through the lens of basic principles and empirical evidence and discusses the merits and limitations of each proposed explanation. The study emphasizes the importance of a better understanding of economic forces driving diverging trends of corporate investment and saving behaviors. It also discusses the implications of the neo-Fisherism and the fiscal theory of price level for monetary policy in a low interest rate environment.
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Jing Jian Xiao and Chunsheng Tao
The purpose of this literature review paper is to define consumer finance, describe the scope of consumer finance and discuss its future research directions.
Abstract
Purpose
The purpose of this literature review paper is to define consumer finance, describe the scope of consumer finance and discuss its future research directions.
Design/methodology/approach
In this paper, consumer finance is used as a synonym of household finance. Consumers refer to individuals and families. After defining the term “consumer finance,” we conducted a critical review of consumer finance as an interdisciplinary research field in terms of money managing, insuring, borrowing and saving/investing. Future research directions are also discussed.
Findings
This paper discusses similarities and differences among several terms such as consumer finance, household finance, personal finance, family finance and behavioral finance. The paper also reviewed key studies on consumer financial behavior around four key financial functions, namely, money management, insurance, loan and saving/investment and several nontraditional topics such as fintech and financial capability/literacy. The paper also introduced several datasets of consumer finance commonly used in the United States and China.
Originality/value
This paper clarified several similar terms related to consumer finance and sorted out the diverse literature of consumer finance in multiple disciplines such as economics, finance and consumer science, which provide a foundation for generating more fruitful research in consumer finance in the future.
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Su Li, Tony van Zijl and Roger Willett
Prior studies have found that managers adjust operational activities to tackle climate risk. However, the effects of climate risk on accounting practices are largely ignored in…
Abstract
Purpose
Prior studies have found that managers adjust operational activities to tackle climate risk. However, the effects of climate risk on accounting practices are largely ignored in the literature. This paper investigates whether and how climate risk influences managers’ decision-making on the level of accounting conservatism and explains the results based on two competing channels: valuation demand and contracting demand.
Design/methodology/approach
Using firm level climate risk measures, we build a modified Basu (1997) model to conduct our econometric tests. In the baseline model, we use earnings before extraordinary items as the dependent variable, referred to as the earnings model. We control for different levels of fixed effect to identify the shocks of climate risk and mitigate potential concerns on endogeneity and bias in the model. A series of robustness tests provide supporting evidence for our baseline results and our explanation.
Findings
Using a sample of 35,832 firm-year observations on listed US firms over the period 2002 to 2019, we find that the perception of climate risk drives managers to choose the less conservative accounting policies. We conclude that the results are consistent with the valuation demand explanation but inconsistent with the contracting demand explanation.
Originality/value
The study provides additional evidence on how managers respond to climate risk by adjusting their corporate polices, specifically accounting policies. Our findings contradict the results of prior studies. We explain our results from a unique perspective. Overall, the study provides valuable insights for academics, investors, managers and policymakers.