Evidence from the global financial crisis (2007–2008) and the Asian financial crisis (1997) have taught policymakers valuable lessons. The contagious effects of these crises have proven unavoidable and have led to negative economic development. However, South Korea, unlike other countries, has recovered remarkably from both episodes of financial turmoil and proved their ability to maintain positive growth throughout the two periods. This study investigates the correlation between the evolution of South Korean banking and corporate sector before, during and after these crises. A VAR model was employed to test the effectiveness of the South Korean government's policies, in response to the financial crisis from 1997 to 2017, using macroeconomic variables as proxies for newly introduced policies, and non-performing loans for controlled risks. The empirical results indicate impulse response functions which suggest that changes in macroeconomic variables as a representation for the policies resulted in a reduction of non-performing loans. This implies successful risk reduction and an overall economic recovery.
Authors:Agnieszka Słomka-Gołębiowska and Piotr Urbanek
In our paper we use an institutional perspective to define the concept of the quality of remuneration policy. Traditional perspective focuses on pay-per-performance relationship between top executives' remuneration and companies' performance. This study is based on the assumption that the acquisition of normatively defined compensation practices and structures is more important for the successful organization than the practices which enhance efficiency defined on the basis of input (compensation) – output (company's performance) relationship. We examine the relationship between the quality of executive remuneration policy and corporate governance standards in banks with a controlling blockholder. Based on the sample of a hand-collected data on corporate governance characteristics, executive remuneration, and financial results of all public banks in Poland from 2005 to 2015, we find that the effective implementation of sound corporate governance practices should be rooted in the form of obligatory normative acts. Consistent with other studies we find a positive and statistically significant relationship between the corporate governance measures and the quality of remuneration policy. In particular, our study shows the significant role of two institutional factors positively determining the efficiency of incentive contracts: remuneration committees and institutional ownership. We also find that the banks controlled by foreign corporations, especially the US–UK–Ireland financial institutions, have a significantly more effective compensation policy than the banks controlled by domestic investors.
This paper reviews the expected effects of the current financial crisis and subsequent recession on the rural landscape, in particular the agri-food sector in Europe and Central Asia (ECA) on the basis of the structure of the rural economy and of different organisations and institutions. Empirical evidence suggests that the crisis has hit the ECA region the hardest. Agriculture contributes about 9% to gross domestic product (GDP) for the ECA region as a whole with 16% of the population being employed in the agricultural sector. As far as the impact of the financial crisis on the agri-food sector is concerned, there are a few interconnected issues: (1) reduction in income elastic food demand and commodity price decline, (2) loss of employment and earnings of rural people working in urban centres, implying also costly labour reallocation, (3) rising rural poverty originating mainly from lack of opportunities in the non-farm sector and a sizable decline of international remittances, (4) tightening of agricultural credit markets, and the (5) collapse of sectoral government support programs and social safety-net measures in many countries. The paper reveals how the crisis hit farming and broader agri-business differently in general and in the ECA sub-regions.
The crisis that started in 2008 began with the malfunctioning of the financial mechanisms, i.e. as a financial crisis; it quickly became an economic crisis and is now threatening to become an energetic crisis and, lately, a crisis of agricultural products, announcing at the same time the crisis of a development model and an ontological crisis. It engages the questioning of certain conceptualizations and orientations. If one wonders about the new concepts employed by the foreseen “ontological crisis”, then one may answer, with powerful arguments, that there are concepts such as: “cultural turn”, “transdifference”, “complexity”, “risk” and “vulnerability”. These concepts are assumed in order to understand the world we are living in. If we ask ourselves about the changes in orientation brought by the crisis, then the answer is that this crisis forces us to review the diagnoses given to the current society and to accept that we have entered the “uncertain society”. The paper is based on the speech delivered by the author at the receipt of the Doctor Honoris Causa title of Corvinus University Budapest on the 28th of January 2010.
Private pension funds were thought to be an important pillar of old-age provision when they were introduced throughout (Emerging) Europe. As different as these funds are in different countries with regards to their regulation, their ownership structure and operation, none were immune to the sub-prime led financial crisis. The Hungarian private pension funds are unique amongst the defined contribution (DC) funds. With their decade old recent history, they are maturing to the payout period in a few years’ time; however, their demise appears ever more realistic by means of political decision. This makes uncovering their investment policy during the crises very timely. Examining such a period is of importance in shedding light on the behaviour of traditional financial concepts in periods of stress. In this paper, we assess the optimality of diversification, hedging and short sales decision possibilities of the Hungarian pension funds in the equity investments environment. Was the net asset value (NAV) erosion suffered by the Hungarian private pension funds a result of their investment decision? We examine this question of diversification through a hypothetical simulation of model investment portfolios. Our results show that international diversification yields better risk-adjusted returns only in case of perfect hindsight of future market movements. The high correlation of the stock indices globally in times of crises limits the benefits of diversification.
In this paper, I examine the Hungarian government bond market’s liquidity developments in recent years. First, I explain the importance of market liquidity for central bankers. I identify the most significant economic shocks and their impacts on the market by using various market indicators. The changes in the Hungarian pension system strongly affected the ownership structure of the government bond market, and raised the amount held by non-residents. A simple yield decomposition shows that while during the crisis of 2008–2009, the Hungarian sovereign bond yields were enhanced principally by the increase of the credit and liquidity risk premia, the crisis of 2011–2012 might increase credit risk premium, but increase liquidity risk premium less significantly.
The main purpose of this paper is twofold. First, it aims to estimate the effect of the tightening of regulatory capital requirements on the real economy in periods of credit upswing. Second, it intends to show whether applying a counter-cyclical capital buffer measure as set down in the Basel III rules could have helped to reduce the pace of FX lending growth in Hungary, mitigating the buildup of vulnerabilities in the run-up to the global financial crisis. In order to answer these questions, we use a Vector Autoregression-based approach with the aim of understanding the impact of shocks to capital adequacy in the pre-crisis period. Our results suggest that although regulatory authorities could have slowed down the increase in lending temporarily, they would not have been able to avoid the upswing of FX lending by requiring counter-cyclical capital buffers even if such a tool had been available and even if they had reacted quickly to accelerating credit growth. Our results also suggest that a more pronounced tightening might have reduced FX lending substantially, but at the expense of real GDP growth. The reason is that unsustainable fiscal policy led to a trade-off between economic growth and the build-up of new vulnerabilities in the form of FX lending.
This study seeks to show the impact of stock recommendation reports on the efficiency of investments in the Polish stock market. The study is carried out in two stages: the first takes place at the micro-level and is based on a behavioural experiment, while the second focuses on the verification of our results obtained on a real market. The main assertion is that stock recommendations create heuristic effects among investors near the publication date of the recommendation. The ambiguity of the recommendations hinders investors’ reliable and unequivocal evaluation in investment decisions. There are studies in this field for different stock markets and periods of time, but our research added significant new knowledge about the functioning of the Polish stock exchange. Our study fits into the mainstream analysis of outlining the behaviour of investors in the capital market. The research findings underpin our pessimism about the impact of stock recommendations on investors’ behaviour.
Authors:József Varga, Gyöngyi Bánkuti, and Rita Kovács-Szamosi
Rating the reliability of banks has always been an important practical problem for businesses and the economic policy makers. The best way to do this is the CAMEL analysis. The aim of this paper was to create a bank-rating indicator from the five fields of the CAMEL analysis using two-two indicators for each field for the Turkish Islamic banking system. According to the results of the analysis, we could rank the Turkish Islamic banks. Beside the widespread use of the CAMEL analysis, we applied the Similarity Analysis as a new method. We compared the results from the two methods and came to the conclusion that the CAMEL analysis does not adequately provide a fairly shaded picture about the banks. The Component-based Object Comparison for Objectivity (COCO) method gave us the yearly results in time series form. The comparison of the time series data leads to the problem of deciding about what is more important for us – average, standard deviation or the slope. For handling this problem, we used Analytic Hierarchy Process, which gave weights to these indicators.
The global crisis of 2007–2009 can be viewed as three interdependent and mutually reinforcing crises: a financial crisis, a liquidity crisis, and a crisis in the real economy. The ten East European countries that are now EU members were hit first by the global liquidity crisis, then by dramatic declines in capital inflows and plunging demand for their exports. Different impacts among the ten are explained by such factors as their exchange rate regimes, the extent to which households found it advantageous to rely on foreign-currency loans and the appropriateness of fiscal and monetary policies prior to the crisis. Since Western Europe’s recovery and growth are likely to be slow, in the future East European countries will have to rely relatively more on internally-generated sources of productivity growth and enhanced global competitiveness.