The determinants of fair value measurements of banks: International evidence

The purpose of this study is to investigate the accounting choice decisions of banks to employ Level 3 inputs in estimating the value of their financial assets and liabilities. Using a sample of 146 bank-year observations from 18 countries over 2009-2012, this study finds banks’ incentives to use Level 3 valuation inputs are associated with both firm-level and country-level determinants. At the firm-level, leverage, profitability (in term of net income), Tier 1 capital ratio, size and audit committee independence are associated with the percentage of Level 3 valuation inputs. At the country-level, economy development, legal region, legal enforcement and investor rights are also associated with the Level 3 classification choice. Lastly, ‘secrecy’, the proxy for culture dimensions and values, is found to be positively associated with the use of Level 3 valuation inputs. Altogether, these findings suggest that banks use the discretion available under Level 3 inputs opportunistically to avoid violating debt covenants limits, to increase earnings and manage their capital ratios. Results of this study also highlight that corporate governance quality at the firm-level (e.g. audit committee independence) and institutional features can constrain banks’ opportunistic behaviors in using the discretion available under Level 3 inputs. The results of this study have important implications for standard setters and contribute to the debate on the use of fair value accounting in an international context.

The determinants of fair value measurements of banks: International evidence

The purpose of this study is to investigate the accounting choice decisions of banks to employ Level 3 inputs in estimating the value of their financial assets and liabilities. Using a sample of 146 bank-year observations from 18 countries over 2009-2012, this study finds banks’ incentives to use Level 3 valuation inputs are associated with both firm-level and country-level determinants. At the firm-level, leverage, profitability (in term of net income), Tier 1 capital ratio, size and audit committee independence are associated with the percentage of Level 3 valuation inputs. At the country-level, economy development, legal region, legal enforcement and investor rights are also associated with the Level 3 classification choice. Lastly, ‘secrecy’, the proxy for culture dimensions and values, is found to be positively associated with the use of Level 3 valuation inputs. Altogether, these findings suggest that banks use the discretion available under Level 3 inputs opportunistically to avoid violating debt covenants limits, to increase earnings and manage their capital ratios. Results of this study also highlight that corporate governance quality at the firm-level (e.g. audit committee independence) and institutional features can constrain banks’ opportunistic behaviors in using the discretion available under Level 3 inputs. The results of this study have important implications for standard setters and contribute to the debate on the use of fair value accounting in an international context.

The usefulness of fair values in improving the predictive ability of earnings: Evidence from international banks

One of the objectives of general-purpose financial reporting is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. The current focus on potentially increased relevance of fair value accounting weighed against issues of reliability has failed to consider the potential impact on the predictive ability of accounting. Based on a sample of international (non-U.S.) banks from 24 countries during 2009-2012, we test the usefulness of fair values in improving the predictive ability of earnings. First, we find that the increasing use of fair values on balance-sheet financial instruments enhances the ability of current earnings to predict future earnings and cash flows. Second, we provide evidence that the fair value hierarchy classification choices affect the ability of earnings to predict future cash flows and future earnings. More precisely, we find that the non-discretionary fair value component (Level 1 assets) improves the predictability of current earnings whereas the discretionary fair value components (Level 2 and Level 3 assets) weaken the predictive power of earnings. Third, we find a consistent and strong association between factors reflecting country-wide institutional structures and predictive power of fair values based on discretionary measurement inputs (Level 2 and Level 3 assets and liabilities). Our study is timely and relevant. The findings have important implications for standard setters and contribute to the debate on the use of fair value accounting.

Corporate Governance in European Banks: Essays on Bank Ownership

Banks are important as they have a central role in the financial system, where funds are channelled either through financial intermediaries, such as banks, or through financial markets, hence promoting growth in any economy. Recently, we have been reminded of the drawbacks of the central role of banks. The current financial crisis, which started out as a sub-prime mortgage crisis in the US, has become a global financial crisis with substantial impact on the real economy in many countries. Some of the roots to the current financial crisis can be sought in the changing role of banks and in bank corporate governance. Moreover, the substantial revitalising measures taken have been justified by the central role of banks. Not only are banks important, they are also very special. The fact that banks are regulated in conjunction with greater opacity, make bank corporate governance different from corporate governance in non-bank companies. Surprisingly little is, however, known about bank corporate governance, in particularly, in a European setting. Hence, the objective of this doctoral thesis is to provide new insights in this research area by examining banks from 37 different European countries. Each of the three essays included in the doctoral thesis examines a particular aspect of bank corporate governance. In the first essay the interaction between the regulatory environment a bank operates in and its ownership structure is explored. Indicators of the severity of the moral hazard problem induced by the deposit insurance system and implicit too-big-to-fail government guarantee, particular features of deposit insurance systems as well as legal protection of shareholders, legal origin of a country and level of integration to the European community are used in the analysis. The empirical findings confirm previous findings on the link between legal protection of shareholders and ownership structure. Moreover, they show that differences in deposit insurance system features can explain some of the differences in ownership structure across European banks. In the second essay the impact of management and board ownership on the profitability of banks with different strategy is examined. The empirical findings suggest that the efficiency of these two particular corporate governance mechanisms varies with the characteristics of the agency problem faced by the bank. More specifically, management ownership is important in opaque non-traditional banks, whereas board ownership is important in traditional banks, where deposit insurance reduces the monitoring incentives of outsiders. The higher profitability does, however, go together with higher risk. In the third essay the profitability and risk of commercial, savings and cooperative banks are compared. The empirical findings suggest that distinct operational and ownership characteristics rather than only the mere fact that a bank is a commercial, savings or cooperative bank explain the profitability and risk differences. The main insight from the three essays is that a number of different aspects should be addressed simultaneously in order to give the complexity of bank corporate governance justice.

Language independent automated segmentation of speech using Bach scale filter-banks

This correspondence describes a method for automated segmentation of speech. The method proposed in this paper uses a specially designed filter-bank called Bach filter-bank which makes use of 'music' related perception criteria. The speech signal is treated as continuously time varying signal as against a short time stationary model. A comparative study has been made of the performances using Mel, Bark and Bach scale filter banks. The preliminary results show up to 80 % matches within 20 ms of the manually segmented data, without any information of the content of the text and without any language dependence. The Bach filters are seen to marginally outperform the other filters.

A Hybrid Multilevel Inverter Topology for an Open-End Winding Induction-Motor Drive Using Two-Level Inverters in Series With a Capacitor-Fed H-Bridge Cell

In this paper, a new five-level inverter topology for open-end winding induction-motor (IM) drive is proposed. The open-end winding IM is fed from one end with a two-level inverter in series with a capacitor-fed H-bridge cell, while the other end is connected to a conventional two-level inverter. The combined inverter system produces voltage space-vector locations identical to that of a conventional five-level inverter. A total of 2744 space-vector combinations are distributed over 61 space-vector locations in the proposed scheme. With such a high number of switching state redundancies, it is possible to balance the H-bridge capacitor voltages under all operating conditions including overmodulation region. In addition to that, the proposed topology eliminates 18 clamping diodes having different voltage ratings compared with the neutral point clamped inverter. On the other hand, it requires only one capacitor bank per phase, whereas the flying-capacitor scheme for a five-level topology requires more than one capacitor bank per phase. The proposed inverter topology can be operated as a three-level inverter for full modulation range, in case of any switch failure in the capacitor-fed H-bridge cell. This will increase the reliability of the system. The proposed scheme is experimentally verified on a four-pole 5-hp IM drive.

A Seven-Level Inverter Topology for Induction Motor Drive Using Two-Level Inverters and Floating Capacitor Fed H-Bridges

A multilevel inverter topology for seven-level space vector generation is proposed in this paper. In this topology, the seven-level structure is realized using two conventional two-level inverters and six capacitor-fed H-bridge cells. It needs only two isolated dc-voltage sources of voltage rating V(dc)/2 where V(dc) is the dc voltage magnitude required by the conventional neutral point clamped (NPC) seven-level topology. The proposed topology is capable of maintaining the H-bridge capacitor voltages at the required level of V(dc)/6 under all operating conditions, covering the entire linear modulation and overmodulation regions, by making use of the switching state redundancies. In the event of any switch failure in H-bridges, this inverter can operate in three-level mode, a feature that enhances the reliability of the drive system. The two-level inverters, which operate at a higher voltage level of V(dc)/2, switch less compared to the H-bridges, which operate at a lower voltage level of V(dc)/6, resulting in switching loss reduction. The experimental verification of the proposed topology is carried out for the entire modulation range, under steady state as well as transient conditions.

A Multilevel inverter structure with cascaded two level and three level inverters for IM drive with CMV elimination and DC link capacitor voltage balancing

Common mode voltage (CMV) variations in PWM inverter-fed drives generate unwanted shaft and bearing current resulting in early motor failure. Multilevel inverters reduce this problem to some extent, with higher number of levels. But the complexity of the power circuit increases with an increase in the number of inverter voltage levels. In this paper a five-level inverter structure is proposed for open-end winding induction motor (IM) drives, by cascading only two conventional two-level and three-level inverters, with the elimination of the common mode voltage over the entire modulation range. The DC link power supply requirement is also optimized by means of DC link capacitor voltage balancing, with PWM control, using only inverter switching state redundancies. The proposed power circuit gives a simple power bus structure.

A Five-Level Inverter Topology with Single-DC Supply by Cascading a Flying Capacitor Inverter and an H-Bridge

In this paper, a new three-phase, five-level inverter topology with a single-dc source is presented. The proposed topology is obtained by cascading a three-level flying capacitor inverter with a flying H-bridge power cell in each phase. This topology has redundant switching states for generating different pole voltages. By selecting appropriate switching states, the capacitor voltages can be balanced instantaneously (as compared to the fundamental) in any direction of the current, irrespective of the load power factor. Another important feature of this topology is that if any H-bridge fails, it can be bypassed and the configuration can still operate as a three-level inverter at its full power rating. This feature improves the reliability of the circuit. A 3-kW induction motor is run with the proposed topology for the full modulation range. The effectiveness of the capacitor balancing algorithm is tested for the full range of speed and during the sudden acceleration of the motor.

Multilevel Dodecagonal Voltage Space Vector Generation using Flying Capacitor topology for Induction motor drives

In this paper, a multilevel flying capacitor inverter topology suitable for generating multilevel dodecagonal space vectors for an induction motor drive, is proposed. Because of the dodecagonal space vectors, it has increased modulation range with the absence of all 6n +/- 1, (n=odd) harmonics in the phase voltage and currents. The topology, realized by flying capacitor three level inverters feeding an open-end winding induction motor, does not suffer the neutral point voltage imbalance issues seen in NPC inverters and the capacitors have inherent charge-balancing capability with PWM control using switching state redundancies. Furthermore, the proposed technique uses lesser number of power supplies compared to cascaded H-bridge or NPC based dodecagonal schemes and has better ride-through capability. Finally, the voltage control is obtained through a simple carrier-based space vector PWM scheme implemented on a DSP.

A Multilevel Inverter Scheme With Dodecagonal Voltage Space Vectors Based on Flying Capacitor Topology for Induction Motor Drives

This paper presents a multilevel inverter topology suitable for the generation of dodecagonal space vectors instead of hexagonal space vectors as in the case of conventional schemes. This feature eliminates all the 6n +/- 1 (n = odd) harmonics from the phase voltages and currents in the entire modulation range with an increase in the linear modulation range. The topology is realized by flying capacitor-based three-level inverters feeding from two ends of an open-end winding induction motor with asymmetric dc links. The flying capacitor voltages are tightly controlled throughout the modulation range using redundant switching states for any load power factor. A simple and fast carrier-based space-vector pulsewidth modulation (PWM) scheme is also proposed for the topology which utilizes only the sampled amplitudes of the reference wave for the PWM timing computation.

Analytical Expression for RMS DC Link Capacitor Current in a Three-Level Inverter

An analytical expression is derived for calculating the rms current through the DC link capacitor in a three level inverter. The output current of the inverter is assumed to sinusoidal. Variations in the capacitor rms current with modulation index as well as line side power factor are studied. The worst case current stress on the capacitor is determined. This is required for sizing the capacitor and is useful for predicting the capacitor losses and life. The analytical expression derived is validated through simulations and experimental results at a number of operating points.