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25 February 2012, Volume 24 Issue 2 Previous Issue    Next Issue

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An Empirical Study of Financial Contagion Effect Based on the European Sovereign Debt Crisis ZHOU , ZHOU , DONG Kun, WANG Shou-Yang 2012, 24 (2):  3-11.  Abstract ( 1361 )   VAR and DCC-MGARCH models are employed to investigate the financial contagion effects during the European Sovereign debt crisis. Empirical studies performed on stock markets, such as Greece, Spanish, Irish, UK, France, Germany, USA, Japan and China, show strong evidence of financial contagion during the crisis: sharp increase in correlation, long duration and great linkages across markets. Greece is the source of contagion in this sovereign debt crisis, but the contagion effects among other European countries are not significant. A significant but lagged linkage between Chinese and European stock markets is also obtained. Besides, our empirical results indicate that the shocks of the U.S subprime crisis did not fade away until April 2009. Our analysis reveals that the European Sovereign debt crisis is due to its huge fiscal expenditure and weak economic recovery performance. Related Articles | Metrics

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Dynamic Nonlinear Correlation among Financial Assets: a New Model CHEN Rong, CHEN Miao-Qiong 2012, 24 (2):  12-23.  Abstract ( 1282 )   Based on the superiority and definition of Kendall’s  rank correlation coefficient, this paper puts forward a new Kendall’  Dynamic Conditional Correlated Copula model which is of economic significance. And we construct three kinds of Kendall’s - Dynamic Conditional Correlated Copula model to describe different correlations by applying this new model to Gaussian, Clayton and Gumbel copula. These models not only have fewer parameters and are less time-consuming in calculation, but also overcome the shortcoming of the existing Dynamic Conditional Correlation Copula models that it is not convenient to evaluate because of their different constructing methods. Moreover, this new model can carry out multi-step ahead prediction with less time-consuming in out-of-sample prediction, providing a new approach to characterize the time-varying, nonlinear, non-symmetry, tail dependence and other complicated correlation. Related Articles | Metrics

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Measures of Commercial Banks’ Security and Factors That Affects the Measures: Evidence from Cross-country Data ZHANG Jin-Qing- , WU You-Hong- , CHEN Hui 2012, 24 (2):  24-30.  Abstract ( 1181 )   Firstly, this paper modifies traditional model of Z-scores by introduction of VaR, and then measures the level of security for China's 14 major banks and the world’s top 100 banks by means of model of Z-scores based VaR. We further analyze and compare level of security and its influencing factors between domestic and foreign banks. Result suggests that security’s mean values of China's banks are lower than those of the world’s top 100 commercial banks over the period 2001-2006, but are relatively high over the period 2007-2009. Moreover, we find that factors such as assets scale growth rate, intermediation efficiency, concentration and per capita GDP have a stronger effect on the domestic banks than that on foreign banks, whereas effect of the level of non-interest income to total revenue and net interest margins on domestic banks’ security is significantly weaker. These differences are mainly due to the differences of business structure and profit model between domestic and foreign commercial banks. Related Articles | Metrics

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The Location Choice of Foreign Direct Investment PENG Yi, LI You-Yuan, KOU Gang, SHI Yu, SHI Yong 2012, 24 (2):  31-35.  Abstract ( 1059 )   This paper proposes an integrated approach which combines the entropy method and the technique for order performance based on similarity to the ideal solution (TOPSIS) for multiple objective decision making. The relationship between economic development level of Shandong Province’s 17 areas and the foreign direct investment location choice is analyzed by considering the factors related to market, cost, cities cluster and investment policies. In the proposed approach, the entropy method is introduced to determine the relative weighting of assessment criteria, and the TOPSIS approach is employed to rank 17 areas of China’s Shandong province for the overall performance. A numerical example is examined to illustrate how to apply the proposed method to rank the foreign direct investment location choice in China. Furthermore, we conduct the sensitivity analysis to identify how much each weight influences the final decision. Research results and case study show that the integrated approach is effective and feasible in the location choice of foreign direct investment. Related Articles | Metrics

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Does Accounting Conservatism Affect Analysts’ Earnings Forecast? XIAO Bin-Qing, ZHENG Li-Li, LI Xin-Dan, ZHU Wen-Jun 2012, 24 (2):  36-44.  Abstract ( 1262 )    Prior studies find that analysts often issue optimistic forecasts before the issue of companies’ earnings, and thus lead to forecast bias. With the sample from Chinese stock market and methods of ordinary least squares (OLS) and the least absolute deviation (LAD) regressions, the paper tests whether analysts’ earnings forecasts take account of the implications of accounting conservatism. After controlling those elements thought to affect analysts’ forecast, we find that forecasts’ under-reaction to bad vs. good news is negatively related to the magnitude of BSR. This evidence demonstrates that, in general, analysts’ earnings forecasts do not fully take account of the implications of accounting conservatism. Related Articles | Metrics

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A Study on the Pricing Mechanism of the Exchange Rate between RMB and New Taiwan Dollar FENG Ling, JIN Yan 2012, 24 (2):  45-52.  Abstract ( 1272 )   As the “Three Direct Links” between China mainland and Taiwan begins successfully and the cross-strait financial supervision memorandum comes into effect, the economic communication between China mainland and Taiwan becomes more and more close. Therefore, it becomes more urgent to realize two way and direct exchange between RMB and new Taiwan dollar. This paper uses two methods, the direct method and the indirect method, to price the exchange rate of RMB and new Taiwan dollar. The direct method is based on the Purchasing Power Parity (PPP) and monetary model. Through the multivariate linear regression, we find the relationship between the exchange rate and currency supply, the output, interest rates of the two regions. Whereas, the indirect method is based on the theory of Interest rate parity. Through making unit root test, co-integration test and Granger causality test of NDF exchange rate, the forward exchange rate and spot exchange rate between RMB and U.S dollar, as well as NDF exchange rate and spot exchange rate between new Taiwan dollar and U.S dollar, we find that there is a close relationship among them. Therefore, we replace NDF exchange for forward exchange in Interest rate parity. Through comparison of the two methods, we find the indirect method is more suitable for the determination of exchange rate between RMB and new Taiwan dollar. Related Articles | Metrics

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Simulation Experiment Research on Fund Size and Market Volatility WANG Li-Min- , CAO Shi-Nan, HUANG Wen-Chao 2012, 24 (2):  53-58.  Abstract ( 1335 )   This paper adopts behavioral simulation experiments with the real people to study the relationship between fund size and stock price volatility. The results of four contrasted experiments show that the volatility of market which consists of funds with different capital sizes is much larger than the market which consists of funds with same capital size, and the difference of price variance between the two markets reaches 362 times. We also simulate the circumstance in which the market has a superfund, and the results show that the superfund leads to greater volatility. Based on the conclusion, we advise that the stability of the market can be adjusted by controlling the distribution of fund size. Once the superfund exists, we should take measures to prevent it from manipulating the market. Related Articles | Metrics

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The Loan-to-value Ratio of CERs Mortgage Financing ZHANG Guo-Xing-、, LIU Peng 2012, 24 (2):  59-64.  Abstract ( 1377 )   Determining the loan-to-value ratio is one of core financing works, so controlling the ratio is the main way to manage risk for banks. In this paper, the model of the ratio is constructed, considering the risk of price fluctuations, the firm’s ability of reducing emissions, default risk and macroeconomic risk. The research shows that which is larger between the optimal ratio and the ratio of the largest risk that the bank is willing to bear doesn't depend on the completion of CERs, initial price and the degree of loan loss, but on the default probability, the interest rate, the rate of capital cost, the loan time, and how probably the bank is willing to take the largest loss. Then, we use the data of the European Climate Exchange to analyze numerical examples. Related Articles | Metrics

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Cash Flow Risk Study: a Survey LIU Jin-Xia, HAN Li-Yan, LOU Jing, WANG Zhe-Bing 2012, 24 (2):  65-70.  Abstract ( 1412 )   The paper summarizes recent researches and applications in domestic and foreign literature regarding cash flow risks. It explains the key issues, major contributions and policy implications of the branch of study, and it relates to cash flow at risk, cash flow volatility and cash flow risk management, in order to help better understand corporate cash flow risk and improve corporate governance. Related Articles | Metrics

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Price Discovery Function of the Stock Index Futures on the Basis of VECM LIU Xiang-Li, ZHANG Yu-Meng 2012, 24 (2):  71-77.  Abstract ( 1065 )   With 1-minute high-frequency data of the HuShen 300 index futures, this paper conducts an empirical research on the basis of Vector Error Correction Model (VECM). Using models of Component Share (CS) and Modified Information Share (MIS), we find the HuShen 300 index futures has a great price discovery function in its first half year. The indices of these models are much bigger than those of the foreign countries (CS=60%，MIS=90.62%). Furthermore, we compare the empirical results with those of foreign markets and of simulative HuShen 300 index futures, and conclude that the characteristic of China stock index futures in its first half year has a significant price discovery function. Meanwhile, we also point out that the characteristic may result from the differences between China and other countries in terms of market background, trade mechanism and structure of investors. Related Articles | Metrics

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An Research on Customers Default Rate of Commercial Banks in China Based on Credit Scoring Models 2012, 24 (2):  78-87.  Abstract ( 1123 )   Nowadays commercial banks are facing more and more complex risk factors. Credit risk is the most important and complex one. Basel II presents two methods on credit risk management including Standard Approach and Internal Rating-Based Approach (IRB). It also points out that banks which are suitable to do so should apply the IRB approach to estimate the probability of customers’ default by constructing models on historical data. Taking the IRB approach and the actual situation in China into consideration, this paper discusses problems of estimating the probability of customers’ default. Related Articles | Metrics

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The Research about the Impact of FDI Behavior Changes on the Chinese Balance of Payments ZHANG Xiao-Bo, FU Qiang 2012, 24 (2):  88-96.  Abstract ( 1049 )   Recent years has seen a continuous shift from export-oriented FDI to market-seeking FDI in china in order to occupy the Chinese market. This paper introduces a simple difference model to investigate the impact of FDI behavior changes on the balance of payments. The research indicates that as HFDI increases in domestic market, the level of net exports brought by FDI will be incessantly put down and cause the decreasing of the surplus of balance of payments; what’s worse, as the proportion of HDI in FDI increases, the net effect of balance of payments brought by the FDI will very likely become deficit and even lead to a balance-of-payment crisis. Related Articles | Metrics

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A Study on Ultimate Controlling Shareholder and Cash Dividend of a Private Listed Company WANG Ai-Guo, SONG Li-Sheng 2012, 24 (2):  97-107.  Abstract ( 973 )   Ultimate controlling shareholder of a listed company has an important influence on cash dividend. This paper selects private listed companies of Shanghai Stock Exchange and Shenzhen Stock Exchange from 2004 to 2006 as samples, and presents an empirical study on the relationship between ultimate controlling shareholder and cash dividend. The result shows that ultimate controlling shareholder acquiring control right through IPO has a significantly positive relation to cash dividend, control right and cash flow right has a significantly positive relation to cash dividend, and divergence between control right and cash flow right and pyramid control mode has a significantly negative relation to cash dividend. For ultimate controlling shareholders acquiring control right through IPO, control right and cash flow right have a more significant influence on cash dividend, and cash dividend is more when there is divergence between control right and cash flow right and when applying pyramid control mode if compared with other ultimate controlling shareholders. Related Articles | Metrics

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Price Duration, Information Transmission and Market Microstructure——an Empirical Analysis Based on Asymmetric ACD Model DENG Xue-Long, 欧Yang-Hong-Bing 2012, 24 (2):  108-115.  Abstract ( 934 )   This paper develops a two-state asymmetric logarithmic ACD model for price duration，and incorporates informed trading indirect measurement variables including bid-ask spread , trading volume, trading size and order flow to describe the variation of conditional expected price duration asymmetrical depending on price increase and decrease states. At the same time it explores the information transmission mechanisms of price durations and tests market microstructure related hypotheses. The empirical analysis on the choosing sample shows that the lagged bid-ask spread and trading volume have a significantly negative correlation with the conditional expectation price duration; the lagged orders behind the best bid and ask prices have a significant correlation with the conditional expectation price durations, and the sign is determined by current price state; the large trading size has a more significant impact on price duration than the medium. The results support the view that the trade durations decrease as informed trading increase, but don’t support stealth trading hypotheses. Related Articles | Metrics

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A Patent-based Analysis of Space-time Evolutionary Characteristics of Regional Innovation Convergence in China PAN Xiong-Feng, SHI Xiao-Hui 2012, 24 (2):  116-121.  Abstract ( 976 )   Based on the patent dataset at the province level in China from 1990 to 2008, the authors attempt to apply spatial Markov chains to investigate the space-time evolutionary characteristics of regional innovation convergence in China. The results indicate: (1)The process of regional innovation convergence in China has been globally characterized by “convergence clubs” since 1990, but this trend from 2000 to 2008 is sharpened and statistically different from that of the period from1978 to 1990. (2) The regions and their neighbors that both experience upward mobility are located in southeast coastal areas of China, while the regions or their neighbors that move downwardly are mostly found in central and western areas of China. (3) Regional innovation class transitions in China are highly constrained by their geographical neighbors, the regions are positively influenced by highly innovative regions and are negative influenced by less innovative regions. These empirical analyses provide a spatial explanation to "convergence clubs" of regional innovation in China. Related Articles | Metrics

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The Rules of IT and Business Alignment: the IT Application Perspective XIAO Jing-Hua, XIE Kang, ZHANG Yan-Lin 2012, 24 (2):  122-130.  Abstract ( 1100 )   The industrialization and information fusion at corporate level are reflected mainly in the integration of IT into business. Based on the field study of 185 enterprises, this paper studies, from the perspective of corporate IT application levels, the patterns in which IT is integrated into business. The results indicates that on the one hand, the corporate IT and business integration route turns from the basic level to the operating level, then to the strategic level; on the other hand, the unbalance turns gradually to balance in a convergent way. At the same time, this paper further studies the IT and business integration patterns through the analysis of the main obstacles confronted in different IT application levels and the changing trends of the application points. Finally, based on the results, the authors propose corresponding management advice on the corporate IT and business integration. Related Articles | Metrics

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Control, Absorptive Capabilities, and Knowledge Transfer: An Empirical Research Based on Offshore IT Outsourcing DENG Chun-Ping, MAO Ji-Ye- 2012, 24 (2):  131-139.  Abstract ( 975 )    Control, as a kind of goal-oriented regulation process, has a potential impact on knowledge transfer. However, there exists little empirical researches concerning the different impacts of different control modes and absorptive capabilities on explicit and tacit knowledge transfer and the contributions of these two kinds of knowledge transfer to performance. Based on a survey on offshore IT outsourcing, this paper reveals that formal control plays a more important role in knowledge transfer, especially explicit knowledge transfer, than informal control. Moreover, tackit knowledge transfer relys more heavily on absorptive capabilites, and explicit knowledge transfer contributes significantly to tacit knowledge transfer. Lastly, compared with the significant impact of formal control, the contribution of knowledge transfer to offshore IT outsourcing performance is not significant. Related Articles | Metrics

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The Research on Random Forests and the Application in Customer Churn Prediction YING Wei-Yun 2012, 24 (2):  140-145.  Abstract ( 1111 )   Facing the competition in the global market, enterprises are increasingly keener to explore how to hold the existing customers and improve their satisfaction by making use of the existing resources. The customer churn prediction has aroused more and more attention from enterprises. Given the unbalance and size of actual customer churn data, the paper puts forward an improved balanced-random forest algorithm and applies it to predict the customer churn of a commercial bank. The actual data set test result shows that the algorithm, on the strength of both sampling technique and cost-sensitive learning, has a higher accuracy in solving a large data set and unbalance data than the traditional prediction algorithms. Related Articles | Metrics

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An Overview of the Effect of Leadership on Employees’ Creativity QU Ru-Jie- , SUN Jun-Bao- , YANG Zhong- , SI Guo-Dong, Shi-Kan 2012, 24 (2):  146-153.  Abstract ( 1494 )   The topic of the effect of leadership on employees’ creativity has received increasing attention in the literature. The present article gives a general overview of three aspects relevant to leading for creativity, and these are leader facets (traits, behaviors, and new leadership theories), four spheres of leadership influence (cognition, capacity, motivation and self-concept) and leadership levels. Finally, the present article provides some suggestions for future inquiry Related Articles | Metrics

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The Concept of Corporate Executive Ability: Proposition of a Conceptual Model & A Methodology of Measurement——Empirical Research based on China's Nuclear Power Corporations 2012, 24 (2):  154-162.  Abstract ( 1230 )   This thesis presents a precise definition of executive ability: executive ability is a talent for efficient decision-making and effective decisions execution by those concerned. On the basis of literature review, the theoretical model of corporate executive ability is established, with the hypothesis that the five structural variables including strategy-oriented, institution-oriented, culture-oriented, motivation-oriented and competence-oriented generate significant influence on corporate executive ability. The investigation through questionnaires on 12 China’s nuclear power corporations has empirically verified the theoretical model. The results suggest that corporate executive ability（CEA） is greatly influenced by six variables, namely Organizational Learning, Organizational Structure, Corporate Values, Performance Management, Marketing and Human Relations. The t test and analysis of variance prove that differences in individual and organizational characteristics will produce significant differences in cognition of the independent and dependent variables, which establishes the theoretical foundation for relevant management measures to improve CEA. Related Articles | Metrics

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Two Interrelated Perspectives of Competitive Advantage: Connotation, Representative Studies and Basic Unit of Analysis ZHANG Jing-Wei, WANG Ying-Jun 2012, 24 (2):  163-170.  Abstract ( 1182 )   Competitive advantage is at the core of strategic management research. But extant literatures look at competitive advantage from different perspectives and use its meaning differently, resulting in different unit of analysis. Looking at the construct from two interrelated perspectives, this paper reviews relevant representative literature, proposes product as the basic unit of analysis and provides relevant analytic logic. In this way, we hope to promote the integration of different perspectives of competitive advantage research in a new way. Related Articles | Metrics

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Exploring the Feature of Province in Corporate Philanthropic Disaster Response: An Empirical Study of “5·12” Wenchuan Earthquake ZHAO Xiao-Qin, WAN Di-Fang 2012, 24 (2):  171-176.  Abstract ( 1039 )   Based on the amount and the number of corporate philanthropic donation after “5·12” Wenchuan Earthquake, the paper conducts an empirical research on how the features of 31 provinces of China mainland influence the corporate philanthropic behavior. The results show that each province’s policy environment, the economic development level and corporate network have significant influence on corporate philanthropic behavior. It shows the amount and number of enterprises donations are directly proportional to the province’s level of economic development. And there exists government-oriented power in corporate philanthropy in China. At last, corporate donations behavior is also affected by the degree of tightness of local corporate networks in a given region. Related Articles | Metrics