Chung-Hua Shen

• National Taiwan Unviersity

This study investigates whether the capital adequacy framework with two capital ratios affects the liquidity creation (LC) of a bank by using 18,247 commercial banks from 1996 to 2016. Different from studies that use a single capital ratio to proxy capital adequacy, we follow the spirit of Basel III by using a novel combination of two capital ratio...

This study first examines whether Chinese banks exhibit the inter-temporal herding behavior in industrial lending. We decompose the inter-temporal correlation in lending into own lending following and other lending following (loan herding). Our results find that the correlations in lending for banks primarily result from loan herding. Next, we clar...

This paper examines the relation between ownership concentration and stock price informativeness around the world. Using a sample of banks from 59 countries between 2002 and 2019, we find robust evidence from a linear model supporting the entrenchment effect. However, the nonlinear model shows that the effect of control rights on the informativenes...

This research compares the performance of three liquidity indicators, namely liquidity ratio (LiqR), liquidity creation (LiqC) and net stable funding difference (NSFD), for sending early warning signals for distressed banks. Recent evidence has shown that LiqR appears incapable of measuring the liquidity condition of banks. However, LiqC and NSFD h...

Did rating agencies tighten their rating standard after the overwhelming critique on their generous ratings before 2008? This study aims to examine whether 2008 is the cutoff year to investigate whether the bank rating standard was loosened prior to the 2008 crisis and became stringent after the crisis. We discuss the rating standard for three obje...

This study investigates the effect of non‐financial firms' activities in shadow banking on firm risk and performance. Using manually collected data of entrusted loans from Chinese listed firms, we find that lending firms' bankruptcy risk and performance increases from their engagement of entrusted loan businesses in the year the loans are issued an...

This research investigates the effects of shadow banking on the relation between capital and liquidity creation in China's banking industry. We consider three trust beneficiary rights as the proxies for shadow bank activities, which transform risky corporate loans into interbank loans inside the banking system. Findings present that these activitie...

Considering binary dependent variable, this study extends the panel threshold model into “panel threshold logit model (PTLM).” Our PTLM is applied on investigating the effect of early warning indicators on banking crises in 10 Asian economies. The ratio of short‐term debt to foreign reserves serves as the threshold variable. Results confirm the exi...

In this study, we investigate why the Big Three rating agencies, namely, Standard and Poor’s, Moody’s, and Fitch, may simultaneously assign (in)accurate ratings. We propose safety and revenue concerns as motivations to their herding behavior and empirically test them thereafter. Safety concern motivates agencies to follow the ratings of other agenc...

In this study, we examine whether firms with overconfident chief executive officers (CEOs) engage in more entrusted loans than firms with less overconfident CEOs. The overconfidence of CEOs can affect the loan issuing when the lenders and borrowers of entrusted loans have considerable information asymmetry. Using a sample that covers the period fro...

We investigate whether the gains are greater for banks that conduct mergers and acquisitions (M&As) during banking crises than during non-crisis periods. We contribute to the literature by examining 1984 M&As using global banking sample from 106 countries (areas) during 1994 ~ 2009. We find the synergistic gains of acquiring banks during banking cr...

This study examines how excessive growth in credit, housing and international capital flows, referred to as credit, housing and capital booms, can serve as an early warning signal (EWS) for an impending banking crisis. We examine 56 sample countries that comprise 32 advanced countries and 24 emerging countries. We have two novel results. The first...

Shadow banking commonly occurs outside the banking system to avoid regulation. However, in China, shadow banking could occur inside the banking system through interbank activities. This unique Chinese style of shadow banking provides a natural environment to examine how this form of banking, proxied by interbank activities, affects credit ratings....

This study examines the effects of connections and economic performance on the promotion of Chinese city mayors. Our study differs from the published literature in four respects. First, this study covers a comprehensive data set, including 1,422 mayors from 284 prefecture‐level cities. The use of a large data set helps resolve mixed results of past...

This study uses a dynamic herding model that considers intertemporal and cross‐sectional correlation to confirm that loan herding occurs among joint‐stock commercial banks (JSCBs) and city commercial banks (CCBs). We clarify the motivations for bank loan herding. We find that loan herding by both JSCBs and CCBs results more from following the behav...

This study investigates whether significant changes exist in providing loan losses and loan charge-offs during turnovers of chief executive officers (CEOs). Providing loan losses is referred to as a ‘big bath in earnings’, and providing loan charge-offs is referred to as a ‘big bath in asset quality’. We classify CEO turnovers into three types, nam...

This study analyzes the safety and soundness of the Chinese banking system based on capital adequacy, asset quality, management, earnings, liquidity, and growth (CAMELG). In particular, we investigate how the Chinese style of shadow banking system (referred here as “bank shadow”) affects bank rankings. The Chinese style of shadow bank refers to ban...

This paper investigates whether an investor-paid rating agency plays the role of a competitor or an information provider in China. We find that the incumbent issuer-paid rating agencies regard the investor-paid rating agency, the China Bond Rating Company, Ltd. (CBRC), as a competitor. They are more likely to downgrade or less likely to upgrade rat...

This study investigates how two forms of external support, namely, government and foreign ownership, affect bank default and operating risks. The results show, first, that government ownership reduces default risk and increases operating risk, while foreign ownership reduces both default and operating risks. Second, government ownership decreases d...

This study examines the lead‐and‐lag relationship between financial cycles (FCs) and business cycles (BCs) by using Chinese provincial data. We construct FCs of the financial sector on the basis of three financial variables: credit‐to‐GDP ratios, house prices, and equity prices. We use the panel dynamic logit model to investigate the lead‐and‐lag e...

This study examines the effect of outliers on causal relationship between financial development and economic growth using 48 countries from 1988 to 2014. The dynamic panel model of Levine, Loayza, and Beck (2000) is used to examine this issue. We propose a novel approach by combining the least square dummy variable correction method (LSDVC) to remo...

This study employs an alternative measure of liquidity risk to investigate its determinants by using an unbalanced panel dataset of commercial banks in 12 advanced economies over the period 1994–2006. Dependence on liquid assets for external funding, supervisory and regulatory factors, and macroeconomic factors are all determinants of liquidity ris...

This study creates a Chinese financial cycle index to examine the lead and lag relations between business and financial cycles. We examine the macroeconomic performance when these cycles are in boom, bust, and other combinations. We have four interesting results. First, financial cycles occur less frequently than business cycles. Second, the upturn...

This study applies a new matching method to examine the old yet debatable idea that high corporate social responsibility (CSR) is associated with improved bank financial performance (FP). The conventional matching method focuses on one treatment effect. Thus, the old method is considered inappropriate when banks exhibit various degrees of CSR. To a...

This study investigates whether or not political factors such as government policy and political connections affected stock returns during the 2008 Taiwanese presidential election. We find that firms that benefitted from (were threatened by) the proposed Three-Links policy of the winning party experienced positive (negative) stock returns during th...

This paper uses monthly data in a Markov-switching cross-sectional absolute deviation (CSAD) model to reveal the existence of dynamic herding behavior by US equity fund managers in the stock market. We observe positive herding effects in different types of funds during recessionary periods, whereas we find evidence of negative herding behavior in m...

This study compares credit ratings between FHC affiliated banks and independent banks using Taiwan bank and FHC data. The results show banks that join Insurance- or Security-FHCs obtain better ratings than those that join Bank-FHCs. Second, banks that join FHCs with higher activity diversification can obtain better credit ratings. Third, joining go...

This study applies a new matching method to examine the old yet debatable idea that high corporate social responsibility (CSR) is associated with improved bank financial performance (FP). The conventional matching method focuses on one treatment effect. Thus, the old method is considered inappropriate when banks exhibit various degrees of CSR. To a...

Whether or not banks should engage in corporate social responsibility (CSR) activities is controversial because of the concomitant high cost even if banks could enjoy the benefits of a higher income as a result of their good reputation. Faced with this dilemma, bank managers are hesitant to engage in CSR. This study pursues this issue by examining...

In this study, we examine the causal relation between credit (proxied by credit-to-GDP ratio) and house markets (proxied by house price index) using data of using thirty-six countries for the period 1996–2012. We find a bidirectional causal relation between the two markets using the whole sample. Then, we find that during the non–twin boom period,...

This paper investigates the monetary policy reaction function in China. We propose two hypotheses, namely, the “hawk regime” and the “dove regime” hypotheses. The former suggests that the central bank is more concerned about the inflation rate than the output, whereas the latter suggests otherwise. We examine these hypotheses using the endogenous s...

This study investigates whether political connection (PC), government policy (GP), or both affect stock returns before and after the Taiwanese 2008 presidential election. We also examine whether the two effects influence the five types of investor trading during the election. Past studies have separately focused on either the PC or the GP effect, w...

This study examines the lead-lag relations between the observed correlations of credit and housing price growths during three different sample periods, namely, whole, twin boom, and non-twin boom. We used data from 27 provinces and four municipalities in China. We adopted the panel error correction model to estimate the lead-and-lag relation becaus...

Feldstein and Horioka (1980) propose assessing the degree of capital mobility by measuring the correlation between saving and investment. The high correlation between saving and investment is known as the Feldstein–Horioka puzzle (FHP). This study tests for the presence of the Feldstein–Horioka puzzle in nine European countries by employing the Mar...

This study investigates whether a firm with strong corporate governance (CG) requires political connections (PCs), that is, we examine whether CG and PC substitute for or complement each other. Using 71,069 individual bank loan contracts from Taiwan, we examine how loan contracts are affected by CG, PC, or both. Our results show that firms with str...

This study examines the "EM (earnings management) and excess investment hypothesis," which posits that upward EM increases investment spending. Two types of EM proxies and two types of investment proxies are calculated to ensure the robustness of results. The two types of EM proxies are case studies (firms with three fraudulent activities) and econ...

The paper investigates how cross-country variations in institutional variables affect the speed with which firms converge on their target capital ratios and focus on credit rating changes. The results show firms' capital structure is affected by credit ratings and the effect is asymmetric. The leverage ratio is reduced when the ratings are downgrad...

This study investigates whether firms politically connected to the ruling party can mitigate financial constraints and increase their investments. Data on Taiwan-listed companies from 1991 to 2010 are used to answer the preceding issue. Results indicate that firms connected to the ruling party that transitioned into power can mitigate financial con...

Since 2004, Chinese government requests the local banks to invite foreign financial institutions to be one or more of the large shareholders in the local banks. These foreign financial institutions are commonly referred to as the foreign strategic investors (FSIs), whose aim is to improve the performance and governance of the local banks. This stud...

This study discusses whether political connection (PC) affects investor trading decisions. We approach the issue by examining the equity share trading of foreign investors, insiders, and individual investors, and the stock returns of politically connected firms in the 2008 Taiwanese presidential election. We classified investors into two categories...

Contagion is when a bad credit event in one country spills over and infects other countries that would not otherwise have experienced credit problems. Contagion has attracted considerable research interest without any consensus on how to measure it or whether it exists at all. This article adds to the discussion by studying the impact of a rating a...

This paper investigates the potential benefits provided by the directorship of CEOs in trade associations. Specifically, we argue that directorship in trade associations enhances the personal connections (social networks) of CEOs, translating into bank loan favors. Empirically, we find that firms with CEOs holding trade association directorships en...

The “follow-the-customer” hypothesis is used in this paper to examine banks’ overseas expansion. Unlike previous studies that focus on corporate customers, this study proposes that banks may follow both the corporate and non-corporate customers. Data about non-corporate customers coverslabors from 33 home countries to 20 host countries. This type o...

This paper investigates whether political connections improve the access of firms to financing. We propose three hypotheses to prove that political benefits exist. First, do politically connected firms obtain preferential treatment for bank loans? Second, if these firms do obtain preferential treatment, do they benefit from government-owned banks (...

In this study, we reinvestigate the question of whether government banks are inferior to private banks. We use cross country data from 1993 to 2007 to trace the different types of government banks. These types comprise banks that acquire distressed banks, normal banks, or no banks at all. Contrary to common belief, the evidence shows that unless go...

We investigate the effect of sovereign credit ratings on bank credit ratings, known as the sovereign effect. Our study differs from the literature in three respects. First, we examine whether bank ratings below, at, or above the sovereign ceiling impact the sovereign effect. We find that the sovereign effect holds in all cases. Next, we consider th...

This study uses a panel data analysis to examine the dividend policy at Chinese firms, which appears to be strongly motivated by agency costs and political connections. We find that firms that pay less in cash dividends are associated with more related-party transactions, which represents wealth expropriation from general stockholders. Also, politi...

By using a uniquely compiled dataset, this study first examines whether Chinese banks exhibit the inter-temporal loan herding in industrial lending during 2006-2011. We decompose the inter-temporal correlation in lending into the own following and other following. Our results find that the correlation in lending for joint-equity banks and city bank...

This study examines whether Taiwanese banks engage in loan herding. Our loan herding denotes industrial lending by a sufficient number of banks during each half-year period of 2002-2011. We calculate inter-temporal correlation between lending over two consecutive periods and decompose the correlation into the own following and other following. The...

This study compares the performance of an old liquidity ratio (LiqR) and two new liquidity indicators, namely, liquidity creation (LiqC) and net stable funding difference (NSFD), in sending early warning signals for distressed banks. Recent evidence shows that the old indicator appears incapable of measuring the liquidity condition of banks. Howeve...

The current study investigates the association between corporate social responsibility (CSR) and financial performance (FP), and discusses the driving motives of banks to engage in CSR. Three motives, namely, strategic choices, altruism, and greenwashing, suggest that the relationship between CSR and FP is positive, non-negative, and non-existent,...

To the best of our knowledge, this is the first study to explore fund investors’ patterns with respect to hot vis-à-vis non-hot purchase periods and hot vis-à-vis non-hot redemption periods. To achieve this, we use quantile regression least square dummy variable estimator, and find that the patterns of hot and non-hot behavior are significantly dif...

This study investigates how earnings management influences credit ratings, and thus the cost of debt, using bank data from 85 countries. Using cross‐country data also facilitates the investigation of how information asymmetry affects the influence of earnings management on ratings. The results indicate that raters downgrade ratings when they percei...

The study extends Sias’s (2004) method of analysing institutional investors’ inter-temporal herding in securities to examine whether the herding effect among banks in industrial lending exists in Taiwan, determine the reasons for herding among these banks, and examine whether their herding behaviour differs across bullish and bearish periods and ba...

The study extends Sias’s (2004) method of analysing institutional investors’ inter-temporal herding in securities to examine whether the herding effect among banks in industrial lending exists in Taiwan, determine the reasons for herding among these banks, and examine whether their herding behavior differs across bullish and bearish periods and ban...

We apply computational linguistic text mining (TM) analysis to extract and quantify relevant Chinese financial news in an attempt to further develop the classical early warning models of financial distress. Extending the work of Demers and Vega (2011), we propose a measure of the degree of credit default, referred to in this study as the ‘distress...

In this study, we reinvestigate the question of whether government banks are inferior to private banks. We use cross country data from 1993 to 2007 to trace the different types of government banks. These types comprise banks that acquire distressed banks, normal banks, or no banks at all. Contrary to common belief, the evidence shows that unless go...

This study explores the impact of key events from the recent financial crisis on credit default swaps (CDS). We show that shocks from the CDS spread significantly coincide with major credit events, and the magnitudes of shocks are greater for negative events than for positive events. The CDS spreads of the financial industry jump prior to the occur...

Chinese authorities hoped that participation of foreign strategic investors (FSIs) could improve the profitability of Chinese banks both quantitatively and qualitatively. While past studies have typically focused on the effect of FSIs on banks’ quantitative performance, this paper investigates the quality of profits through earnings management. We...

Using Taiwanese bank-level loan data, this paper examines the changes during the three recent recessions in the granting of loans to small and medium-size enterprises (SMEs) by privately owned banks (POBs), government-owned banks (GOBs), and foreignowned banks (FOBs). The effects of bank size on SME lending are also examined. The behavior of cuttin...

This paper simultaneously investigates the responses of stock prices of the related banks and the client firms when one of them is in distress. Two effects are examined. The distressed bank effect, which claims that the stock price of client firms are coupled to that of their related distress banks, and the distressed firm effect, which claims that...

This study proposes a political interference hypothesis to explain how political considerations depress the performance of government banks. We define political interference as a situation in which government bank executives are replaced within 12months after the country’s major elections (presidential or parliamentary elections). We classify polit...

This study investigates the role of corporate governance in the relationship between investment opportunities and dividend payouts. The study sample is divided into strong and weak governance regimes to investigate outcome and substitute effects, where the former stresses the negative relationship between investment opportunity and dividend payouts...

Using a city‐level dataset over the period 2004–2006, the present study investigates the relationship between bank lending and the economic growth of Chinese cities. Unlike past studies, we divide bank lending into loans from three types of banks: foreign banks, city banks and other banks. Our findings are threefold. First, the lending of foreign b...

In this paper the stochastic behavior of the returns on real estate investment trusts (REITs) is examined by using the unobserved component Markov switching (UC-MS) model. This approach endogenously permits the volatility to switch as the date and regime change and allows us to decompose the permanent and transitory components in REIT returns at mo...

This study proposes an information asymmetry hypothesis to examine why bank credit ratings vary among countries even when bank financial ratios remain constant. Countries are divided among those with low and high information asymmetry. The former include high-income countries, those in North America and West Europe regions, and those with strong in...

This study compares the performance of banks that are part of a financial holding company (FHC banks) with that of banks that are not (independent banks) using Taiwan data from 2002:Q1 to 2006:Q2. The comparisons are based on 14 performance ratios resulting from the concept of CAMEL (which is an acronym for Capital adequacy, Asset quality, Manageme...

No abstract available.

No abstract available.

Is investment cash-flow sensitivity affected by a country’s capital market imperfection? We take 42 countries as our sample and collect six imperfect capital market measures (ICAM), ie., the stock market capitalization ratio, number of publicly-listed firm, stock turnover ratio, bank loan ratio, long-term debt ratio and the interest spread. Using a...

Numerous researchers provide evidence that many banks intend to increase their Loan Loss Provisioning (LLP) when the economy is in a downward trend. However, the answer whether banks provide sufficient provisions when the economy is in an upturn trend remains unsolved. Furthermore, provisioning must be influenced not only by business cycles and ban...

This study investigates the determinants of bank profit while paying particular attention to the influence of market share on profit, referred as the market share effect. The research seeks to answer the question whether the market share effect is conditional upon four country institutional factors including concentration ratio, bank regulations, t...

This paper studies the motivation that drives financial institutions to engage in cross-border M&A activity in eight Asian countries before and after the 1997 financial crisis. Five hypotheses are examined, namely, the gravity hypothesis, the following the client hypothesis, the market opportunity hypothesis, the information cost hypothesis and the...

The transition economies are known to have quite different market structures from the market economies. State-owned banks accounts for a major part of the financial sector in East European countries before the transition period. Since the input prices of the sector are frequently under the control of those governments, the misallocated resources ma...

The majority of past studies on the foreign market mode of entry have focused on manufacturing industries. Although some studies have explored the entry mode decisions of the banking industry, most of them have adopted the case study method, and systematic studies have been relatively few. This study intends to fill this gap through an investigatio...

In this paper, we investigate whether the mutual satisfaction of Chinese banks and foreign strategic investors (FSI) in terms of their cooperation with each other affects the performance of Chinese banks. Since 2004, China's banking authority has conducted an annual survey on Chinese banks and their FSI, assessing levels of mutual satisfaction in t...

This paper re-examines the relationship between international capital flows and economic growth within the context of various ‘conditional factors’ that possibly have the potential to influence such relationships. It achieves this by employing panel data for 80 countries that cover 1976–2007. International capital inflow is broken down into foreign...

Foreign investment (FI) has been identified with a recent spate of speculative attacks on certain foreign currencies, giving rise to several financial crises. The issue of whether or not FI has destabilization or demonstration effects on the stock and foreign exchange markets has therefore received widespread attention in developing countries. The...

This study investigates whether corporate governance affects the impact of the relationship between fundamental signals and stock returns using Taiwanese data. The study employs the endogenous switching model (ESM) of Hu and Schiantarelli (1998), which combines the response equation and governance index equation simultaneously. We divide the sample...

Abstract This paper explores which of the two hypotheses, market segmentation or investor sentiment, determines the behavior of closed-end country funds (CECFs) by including risk factors. The risk factors is proxied by volatilty estimiated froma,bivariate Markov- Switching ARCH (BSWARCH) model,simultaneously,to include the foreign and U.S. markets....

This study presents the nonlinear relationship that exists between financial development and economic growth. This study applies the flexible nonlinear regression model of Hamilton (Econometrica 69(3):537–573, 2001) because it imposes no specification restrictions. Two empirical results are obtained. First, an inverted U-shaped relation between ban...

This article explores which of two hypotheses, market segmentation or investor sentiment, determines the behaviour of Closed-End Country Funds (CECFs) with the inclusion of risk factors. The risk factors are proxied volatility, as estimated with a Bivariate Markov-switching Autoregressive Conditional Heteroskedasticity (BSWARCH) model, which simult...

This paper suggests a Robust Logit method, which extends the conventional logit model by taking outliers into account, to implement forecast of defaulted firms. We employ five validation tests to assess the in-sample and out-of-sample forecast performances, respectively. With respect to in-sample forecasts, our Robust Logit method is substantially...

This study first investigates why government-owned banks under-perform private-owned banks, the phenomenon which is referred to as the GOB effect. Next, we examine why the GOB effect is commonly observed in developing countries but not developed countries. We propose a policy role hypothesis, which classifies government banks as the strong and weak...

This study explores the phenomena associated with conflicts of interest, particularly as they pertain to the brokerage and proprietary trading divisions of investment banks. This distinguishes it from past studies, which have researched conflicts of interest between underwriting and brokerage divisions. We examine whether or not an investment bank...

We predict the U.S. bear stock markets to solve the question "Were U.S. stock prices too high" when looked at in 1999? We take the financial fundamentals, i.e., the PE and PD ratios and interest rate differentials as well as economic fundamentals, namely the three leading indicators of the U.S. business cycle, to predict stock returns. We are then...

This chapter investigates location choice of foreign banks within China based on a panel data of 40 cities. Our empirical This chapter investigates location choice of foreign banks within China based on a panel data of 40 cities. Our empirical results show that the market opportunity is the most crucial factor to affect foreign bank decision to ent...

This study investigates how foreign bank/investor penetrations influence local bank performance in China. At the country level, foreign bank penetration is proxied by MacroFP, measured by the percentage of banks with foreign strategic investors (FSI) among total banks. At the bank level, foreign bank penetration is proxied by MicroFP, measured by t...

This paper empirically investigates whether the nonlinear present value theory of stock price and dividend is able to explain the failure of its linear counterpart. Using two new econometric models, we extend Kanas' (2005) model. We replace ACE cointegration with rank cointegration to examine the contemporaneous relation between stock price and div...

This paper investigates the presence of asymmetric swings, i.e., long swings in appreciation and short swings in depreciation, using the exchange rates of Asian countries. These long and short swings reflect the asymmetric preference of the authority, i.e., a slow- down policy in a depreciation and/or a let-it-go policy in an appreciation. Four pre...