Testing for financial crashes using the Log Periodic Power Law model

Many papers claim that a Log Periodic Power Law (LPPL) model fitted to financial market bubbles that precede large market falls or 'crashes', contains parameters that are confined within certain ranges. Further, it is claimed that the underlying model is based on influence percolation and a martingale condition. This paper examines these claims and their validity for capturing large price falls in the Hang Seng stock market index over the period 1970 to 2008. The fitted LPPLs have parameter values within the ranges specified post hoc by Johansen and Sornette (2001) for only seven of these 11 crashes. Interestingly, the LPPL fit could have predicted the substantial fall in the Hang Seng index during the recent global downturn. Overall, the mechanism posited as underlying the LPPL model does not do so, and the data used to support the fit of the LPPL model to bubbles does so only partially. © 2013.

Reputation and performance in large law firms

Reputation is a signalling device that serves as a proxy for the quality of a firm’s products, strategies and employees relative to its competitors, when communicating with clients and other stakeholders. It is especially important for professional service firms because of the complex and intangible nature of their service and because of the advantages it confers in the market for high-quality professional staff. This paper extends and refines existing research on reputation which shows positive returns to reputation for professional service firms. We use different rankings of the top 50 law firms in the UK to measure reputation and examine their relationship with financial performance as expressed in firm revenue and profits. We find positive but diminishing returns to reputation even within this group and we find a stronger relationship between reputation and profits than fee income. We conclude that reputation may be an important source of competitive advantage for leading firms but it seems to offer little leverage for others. If these results are generalizable across other professional sectors this raises the question of how the majority of firms can differentiate themselves.

Executive remuneration, financial performance and corporate governance in UK and Spanish listed firms

This study examines the relationship between executive directors’ remuneration and the financial performance and corporate governance arrangements of the UK and Spanish listed firms. These countries’ corporate governance framework has been shaped by differences in legal origin, culture and backgrounds. For example, the UK legal arrangements can be defined as to be constituted in common-law, whereas for Spanish firms, the legal arrangement is based on civil law. We estimate both static and dynamic regression models to test our hypotheses and we estimate our regression using Ordinary Least Squares (OLS) and the Generalised Method of Moments (GMM). Estimated results for both countries show that directors’ remuneration levels are positively related with measures of firm value and financial performance. This means that remuneration levels do not lead to a point whereby firm value is reduced due to excessive remuneration. These results hold for our long-run estimates. That is, estimates based on panel cointegration and panel error correction. Measures of corporate governance also impacts on the level of executive pay. Our results have important implications for existing corporate governance arrangements and how the interests of stakeholders are protected. For example, long-run results suggest that directors’ remuneration adjusts in a way to capture variation in financial performance

Religious compliance in Islamic financial institutions

The central goal of this research is to explore the approach of the Islamic banking industry in defining and implementing religious compliance at regulatory, institutional, and individual level within the Islamic Banking and Finance (IBF) industry. It also examines the discrepancies, ambiguities and paradoxes that are exhibited in the individual and institutional behaviour in relation to the infusion and enactment of religious exigencies into compliance processes in IBF. Through the combined lenses of institutional work and a sensemaking perspective, this research portrays the practice of infusion of Islamic law in Islamic banks as being ambiguous and drifting down to the institutional and actor levels. In instances of both well-codified and non-codified regulatory frameworks for Shariah compliance, institutional rules ambiguity, rules interpretation and enactment ambiguities were found to be prevalent. The individual IBF professionals performed retrospective and prospective actions to adjust the role and rules boundaries both in the case of a Muslim and a non-Muslim country. The sensitizing concept of religious compliance is the primary theoretical contribution of this research and provides a tool to understand the nature of what constitutes Shariah compliance and the dynamics of its implementation. It helps to explain the empirical consequences of the lack of a clear definition of Shariah compliance in the regulatory frameworks and standards available for the industry. It also addresses the calls to have a clear reference on what constitute Shariah compliance in IBF as proposed in previous studies (Hayat, Butter, & Kock, 2013; Maurer, 2003, 2012; Pitluck, 2012). The methodological and theoretical perspective of this research are unique in the use of multi-level analysis and approaches that blend micro and macro perspectives of the research field, to illuminate and provide a more complete picture of religious compliance infusion and enactment in IBF.

Interactive data in financial reporting:the construction of the non-professional investor

The Securities and Exchange Commission (SEC) in the United States and in particular its immediately past chairman, Christopher Cox, has been actively promoting an upgrade of the EDGAR system of disseminating filings. The new generation of information provision has been dubbed by Chairman Cox, "Interactive Data" (SEC, 2006). In October this year the Office of Interactive Disclosure was created(http://www.sec.gov/news/press/2007/2007-213.htm). The focus of this paper is to examine the way in which the non-professional investor has been constructed by various actors. We examine the manner in which Interactive Data has been sold as the panacea for financial market 'irregularities' by the SEC and others. The academic literature shows almost no evidence of researching non-professional investors in any real sense (Young, 2006). Both this literature and the behaviour of representatives of institutions such as the SEC and FSA appears to find it convenient to construct this class of investor in a particular form and to speak for them. We theorise the activities of the SEC and its chairman in particular over a period of about three years, both following and prior to the 'credit crunch'. Our approach is to examine a selection of the policy documents released by the SEC and other interested parties and the statements made by some of the policy makers and regulators central to the programme to advance the socio-technical project that is constituted by Interactive Data. We adopt insights from ANT and more particularly the sociology of translation (Callon, 1986; Latour, 1987, 2005; Law, 1996, 2002; Law & Singleton, 2005) to show how individuals and regulators have acted as spokespersons for this malleable class of investor. We theorise the processes of accountability to investors and others and in so doing reveal the regulatory bodies taking the regulated for granted. The possible implications of technological developments in digital reporting have been identified also by the CEO's of the six biggest audit firms in a discussion document on the role of accounting information and audit in the future of global capital markets (DiPiazza et al., 2006). The potential for digital reporting enabled through XBRL to "revolutionize the entire company reporting model" (p.16) is discussed and they conclude that the new model "should be driven by the wants of investors and other users of company information,..." (p.17; emphasis in the original). Here rather than examine the somewhat illusive and vexing question of whether adding interactive functionality to 'traditional' reports can achieve the benefits claimed for nonprofessional investors we wish to consider the rhetorical and discursive moves in which the SEC and others have engaged to present such developments as providing clearer reporting and accountability standards and serving the interests of this constructed and largely unknown group - the non-professional investor.

Communication in family court:financial remedy proceedings from the perspective of litigants in person

The article presents a rationale for communicative, conceptual, cognitive and procedural challenges experienced by litigants in person in financial remedy proceedings. The article also explores oscillation between written and spoken legal genres and narrative development strategies which litigants in person have to use throughout different stages (from the early stages of starting proceedings, filling in court forms and providing documentation, through the negotiation process to interaction in court). While legal professionals express themselves in paradigmatic legal mode influenced by legal acts and legislation, litigants in person tend to express themselves in narrative mode similar to everyday storytelling. The objective is to investigate obstacles litigants in person experience during the process originally designed by legal professionals for legal professionals. The article evaluates different options for empowering lay people involved in legal proceedings and argues for the need to provide more specific support for different stages of family proceedings.