The Journal of American Business Review, Cambridge

Vol. 6* Number 2 * Summer 2018

The Library of Congress, Washington, DC   *   ISSN 2167-0803

Online Computer Library Center, OH   *   OCLC: 940146916

National Library of Australia   *   NLA: 49026139

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Are Instruction Expenditures Cost-Effective in Improving High School Completion in Hawai‘i’s Maui District?

Dr. Larson Ng, University of Hawai‘i at Mānoa, Honolulu, Hawai‘i

 

ABSTRACT

 

The following study attempted to analyze the cost-effectiveness of instruction expenditures on public high school completers in Hawai‘i’s Maui District comprised of the islands of Maui, Molokai, and Lanai. Using the high schools that comprise the Maui District, a correlation and bivariate regression procedure were employed to determine the nature and econometric relationship between instruction expenditures and high school completion from 2000 to 2007. Although instruction expenditures had predominately increased for all high schools, increases in completion were not observed for all schools. Hence, with the exception of Lahainalua High School, there was no conclusive econometric evidence to confirm the cost-effectiveness of instruction expenditures lending itself to higher numbers of high school completion in the Maui District during 2000 to 2007.  Instruction is a critically important factor that contributes to high school completion. Although there are many techniques to measure the productivity of instruction, assessing its effectiveness through a financial perspective remains one practical way to accomplish this task (Beard, 2009). Consequently, this study will attempt to test whether increases in instruction expenditures result in higher numbers of high school completion by analyzing the Hawaii’s Department of Education’s (DOE) high school instruction expenditures (i.e., teacher salaries and benefits, substitutes, instructional paraprofessionals, pupil-use technology, software and instructional materials, trips, and supplies) and its econometric relationship with high school completers from the Maui District (Hawaii Department of Education, n.d.). With this research, it is hoped that the results will attempt to confirm whether increased instruction funding is cost-effective in increasing public high school completion. The following section will go over the high school instruction expenditures, size of its graduation classes, and high school completers for the DOE’s district of Maui as well as all of its individual high schools from 2000 to 2007. Based on Table A1, instruction expenditures have been consistently increasing on an average of 9.99% with a standard deviation of $6,334,574.93 per year, respectively. Graduating classes has seen an inconsistent pattern of growth during this period and had an average growth rate of 0.24% with a standard deviation of 70 students per year, respectively. Completers also experienced a similar increase in growth during this time frame with an average growth rate of 0.8% and a standard deviation of 81 students per year, respectively. Based on Table A2, instruction expenditures have been consistently increasing on an average of 10.11% with a standard deviation of $1,387,393.51 per year, respectively. Graduating classes has seen oscillating rates of growth and decline during this period and had an average growth rate of -1.62% with a standard deviation of 36 students per year, respectively. Completers also experienced a similar trend during this time frame with an average growth rate of -1.71% and a standard deviation of 30 students per year, respectively.  Based on Table A3, instruction expenditures have been mostly increasing on an average of 12.66% with a standard deviation of $626,112.05 per year, respectively. Graduating classes has seen much fluctuating rates of growth and decline during this period and had an average growth rate of -0.19% with a standard deviation of 4 students per year, respectively. Completers also experienced similar growth during this time frame with an average growth rate of 2.19% and a standard deviation of 4 students per year, respectively. Based on Table A4, instruction expenditures have been consistently increasing on an average of 12.15% with a standard deviation of $1,327,181.27 per year, respectively. Graduating classes has seen an inconsistent pattern of growth during this period and had an average growth rate of 4.29% with a standard deviation of 34 students per year, respectively. Completers conversely experienced similar marginal growth during this time frame with an average growth rate of 4.32% and a standard deviation of 29 students per year, respectively. Based on Table A5, instruction expenditures have been consistently increasing on an average of 11.79% with a standard deviation of $923,854.44 per year, respectively. Graduating classes has seen a growing pattern of growth during this period and had an average growth rate of 1.18% with a standard deviation of 21 students per year, respectively. Completers also experienced a similar trend in growth during this time frame with an average growth rate of 1.93% and a standard deviation of 23 students per year, respectively. Based on Table A6, instruction expenditures have been consistently increasing on an average of 8.26% with a standard deviation of $524,045.21 per year, respectively. Graduating classes has seen an inconsistent pattern of growth during this period and had an average growth rate of 1.77% with a standard deviation of 4 students per year, respectively. Completers also experienced a similar trend in growth during this time frame with an average growth rate of 2.17% and a standard deviation of 4 students per year, respectively. Based on Table A7, instruction expenditures have been consistently increasing on an average of 10.31% with a standard deviation of $1,503,672.96 per year, respectively. Graduating classes has seen an inconsistent pattern of growth during this period and had an average growth rate of 1.25% with a standard deviation of 24 students per year, respectively. Completers also experienced a similar trend in growth during this time frame with an average growth rate of 3.92% and a standard deviation of 46 students per year, respectively.  Based on Table A8, instruction expenditures have been consistently increasing on an average of 3.46% with a standard deviation of $448,367.14 per year, respectively. Graduating classes has seen an inconsistent pattern of growth during this period and had an average growth rate of -3.12% with a standard deviation of 12 students per year, respectively. Completers also experienced a similar trend in growth during this time frame with an average growth rate of -3.05% and a standard deviation of 12 students per year, respectively.  In order to investigate the econometric relationship of high school instruction expenditures towards high school completion among the high schools in the DOE’s Maui District, this research employed the following methodology. The study initially acquired the DOE’s high school instruction expenditures and completer data from 2000 to 2007. Upon separating the data by high school, adjusting instruction expenditures for inflation (i.e., Base Year = 2000), and transforming the values for each variable into natural logarithms, econometric techniques consisting of both correlation and linear regression were utilized and key statistics recorded. The study then analyzed the statistical relationship between high school instruction expenditures and completers. Data used for these analyses were acquired from Hawaii’s DOE websites and the study’s econometric results were generated with the use of IBM SPSS Statistics, Version 24. The following will present the econometric results of both the correlation and linear regression analyses that were utilized to ascertain the statistical relationship of the DOE’s high school instruction expenditures towards completers among the high schools in Hawai‘i’s Maui District. Based on Table A9, the Pearson correlation coefficient was -0.15 and found statistically insignificant. This figure suggests that there was a weak negative correlation between instruction expenditures and completers from 2000 to 2007. In looking at the results of the linear regression, an R˛ of 0.02, ANOVA significance value of 0.72, and an unstandardized coefficient of -0.05 were reported (See Table A9). Hence, although the results of the linear regression revealed the existence of a negative relationship between instruction expenditures and completers, it has not been a statistically relevant or significant relationship during 2000 to 2007. Consequently, increases in Districtwide high school instruction expenditures and its revealed economically negative effect towards completers during this period remain statistically unclear.

 

The Correlation Between Florida’s Blood Alcohol Concentration Testing Laws in Motor Vehicle Traffic Accidents Resulting in Fatalities and Florida’s Total Number of Confirmed Alcohol-Related Traffic Fatalities Reported From 2000 – 2015

Dr. Ashley Werdann, Public Policy Institute, Jacksonville University, FL

Dr. Richard Murphy, Davis College of Business and Public Policy Institute, Jacksonville University, FL

 

ABSTRACT

 

The purpose of this study was to determine if Florida’s blood alcohol concentration (BAC) testing laws in motor vehicle traffic accidents resulting in fatalities had a direct correlation with Florida’s total number of confirmed alcohol-related traffic fatalities reported from 2000 through to 2015.  Florida statutes, case law, and policies governing BAC testing and reporting in motor vehicle traffic accidents were examined prior to reviewing annual reports written by the Florida Department of Highway Safety and Motor Vehicles (FLHSMV). The FLHSMV annual reports extracted information from Florida law enforcement agency reports of motor vehicle traffic accidents from all counties in Florida based upon the same criteria, which demonstrates how the reporting of motor vehicle traffic accidents of all types dramatically differs from county to county, as well as from investigating officer to investigating officer.  The results indicate that Florida’s discretionary BAC testing and reporting affects both the total number of fatalities resulting from motor vehicle traffic accidents and the total number of confirmed alcohol-related traffic fatalities.  This study concludes that mandatory BAC testing in alcohol-related motor vehicle traffic accidents resulting in fatalities in conjunction with accurate and complete reporting of BAC testing results is required to decrease the number of confirmed alcohol-related traffic fatalities in Florida.  State legislation requiring BAC testing after alcohol-related motor vehicle traffic accidents resulting in fatalities varies from state to state (NHTSA, 1982).  The chemical tests to determine BAC are the fundamental tools for enforcing state laws relating to driving under the influence (DUI) / driving while intoxicated (DWI) (NHTSA, 1982).  According to the National Highway Traffic Safety Administration (NHTSA), all state laws indicate reliance on a model law that incorporates eight (8) general components (NHTSA, 1982). Any individual who operates a motor vehicle on a public highway has given his or her consent to chemical tests of his or her blood, breath, or urine for the purpose of determining his or her BAC (NHTSA, 1982).  The aforementioned only applies if the said individual is arrested for conduct resulting out of alleged acts committed while driving or in physical control of a motor vehicle while under the influence of alcohol (NHTSA, 1982).  The chemical tests shall be administered by a law enforcement officer, who has reasonable belief and / or probable cause that the said individual is under the influence of alcohol while driving or in physical control of a motor vehicle (NHTSA, 1982).  In the event said individual refuses to submit to the chemical tests when requested, the law enforcement officer shall discontinue any further attempt (NHTSA, 1982).  Upon the individual’s refusal, the law enforcement officer is requested to submit a sworn report to the motor vehicle department indicating that he or she had reasonable belief and / or probable cause to conduct the chemical tests, but that the individual declined (NHTSA, 1982).  Upon receipt of the said report, the motor vehicle department shall revoke the individual’s driver’s license (NHTSA, 1982).  Upon license revocation, the motor vehicle department notifies the individual, and affords the said individual an opportunity for a hearing to contest the matter (NHTSA, 1982).  In the event the individual’s driver’s license revocation is sustained at the conclusion of the said hearing, he or she has the right to file an appeal in a court of law (NHTSA, 1982).  Currently, twenty-five (25) states require, by law, mandatory testing of drivers involved in alcohol-related motor vehicle traffic accidents resulting in fatalities, while the other twenty-five (25) states rely on the discretion of a law enforcement officer for which the standard probable-cause requirement applies (NHTSA, 2012).  Specifically in Florida, the “Implied Consent” law, which is defined in §316.1932 Fla. Stat. controls.  Pursuant to the law, any individual who accepts the privilege of driving within the State of Florida is regarded, by operating a motor vehicle, to have given his or her consent to submit to lawful requests from law enforcement officers for both breath and urine testing for the purpose of determining said individual’s BAC if lawfully arrested for DUI / DWI (Fla. Stat. §316.1932).  The main purpose of implied consent laws is to facilitate the prosecution of cases involving DUI / DWI by providing reliable evidence (NHTSA, 1982).  BAC and other chemical tests are a scientific determination of an individual’s intoxication, while standardized field sobriety tests (SFST) or the discretion of law enforcement officers is less reliable (NHTSA, 1982).  Implied consent laws are not considered criminal in nature, and therefore may be construed broadly.  State implied consent laws might specify that an individual’s arrest must precede the administration of a BAC test, yet some courts have interpreted the aforementioned to mean that the said individual is merely under arrest (NHTSA, 1982).  In addition to the courts’ broad construction, implied consent laws also differ from criminal statutes in that said laws are excluded from the strictures of Miranda warnings and do not fall under the protection of the Sixth Amendment, which provides one’s right to counsel (NHTSA, 1982).  The majority of courts have held that a driver cannot insist on the presence of a court-appointed counsel before deciding on whether or not to proceed with participating in a BAC test (NHTSA, 1982).  The Court in Davis v. State, 59 Ind. App. 244, 367 N.E. 2d 1163 (Ind. App. 1997), held that the right to refuse to take [a] BAC test is only to protect [an individual] from being physically forced to submit to the BAC (Davis, 1997).  Said Court indicated that since there is no right that can be knowingly waived which would require the assistance of counsel, denial of counsel regarding BAC tests does not violate the Sixth Amendment (Davis, 1997).  State implied consent laws do not offer an individual many constitutional protections, and therefore law enforcement officers are typically required to comply with every procedural detail specified in the said law (NHTSA, 1982).  Courts have rarely interpreted implied consent laws as permitting use of BAC test results in court as evidence when the aforementioned use is not expressly authorized by statute. People v. Kokesh, 175 Colo. 206, 489 P. 2d 429 (1971); see also People v. Sanchez, 173 Colo. 188, 476 P. 2d 980 (1970).  The majority of state implied consent laws stipulate that a driver may refuse to take a BAC test (NHTSA, 1982).  However, the said driver that refuses to take the BAC test may suffer the consequences of license suspension or revocation (NHTSA, 1982).  Typically, implied consent laws apply only when a driver is suspected of or arrested for the misdemeanor offense of DUI / DWI (NHTSA, 1982).  A driver charged with the felony offense of causing injury while DUI / DWI is likely to be subject to other state laws that preclude the said driver from claiming any statutory right to refusing to take a breathalyzer test (Kokesh, 1971).  Frequently, the issue of implied consent amongst individuals that are dead, unconscious, or incompetent arises.  Most states specify that implied consent to a BAC test is not revoked by a driver who is incapable, unconscious, or dead (NHTSA, 1982).  Most states provide for more than one type of chemical test (NHTSA, 1982).  The three (3) most common types of specimens taken include urine, breath, and blood (NHTSA, 1982).   However, because of the complex procedural requirements needed to obtain a blood sample, many courts have held that the withdraw of a blood sample from an individual falls within the activities restricted by the Fourth Amendment, which prohibits law enforcement officers from conducting unreasonable searches and seizures (NHTSA, 1982).  Although the Fourth Amendment is not construed as an outright ban against the compulsory seizure of an individual’s blood without a warrant, the said withdraw certainly requires careful adherence to procedural limitations. Schmerber v. California, 384 U.S. 757 (1966).  The Court in People v. Superior Court of Kern County, 100 Cal. Rptr. 281, 493 P. 2d 1145 (1972), held that the withdraw of a blood sample from [an individual] must be conducted in a "medically approved manner" subsequent to a lawful arrest and based upon a law enforcement officer's reasonable belief that the said [individual] is intoxicated.  State legislation requiring BAC tests after alcohol-related motor vehicle traffic accidents resulting in fatalities vary from state to state.  Most states gather test reports from coroners or other certified medical personnel performing the said tests that are required to withdraw the individual’s sample and submit periodic accident reports (NHTSA, 1982).  Because breath tests are impossible to obtain when a driver is dead or unconscious, coroners or other certified medical personnel usually withdraw urine and blood samples from the aforementioned individuals (NHTSA, 1982).  Although state legislation has evolved, many states still fail to address which tests should be used for the purpose of measuring BAC following alcohol-related motor vehicle traffic accidents resulting in fatalities (NHTSA, 1982).  Instead, most states allow for law enforcement officers to determine whether or not a BAC is necessary (NHTSA, 1982).  A law enforcement officer may request that any individual driving or operating a motor vehicle take a BAC test if he or she has any reasonable doubt that the said individual is DUI / DWI (NHTSA, 1982).  State legislation stipulating the actual scope of police authority in withdrawing BAC test samples after alcohol-related motor vehicle traffic accidents resulting in fatalities also varies from state to state.  Specifically with the withdraw of blood samples, law enforcement officers are generally only authorized to direct medically qualified and / or duly certified personnel to withdraw said blood sample from an individual in conformity with prescribed procedures (NHTSA, 1982).  The extent of a law enforcement officer's authority to actually perform a BAC depends very much on the type of specimen collected (NHTSA, 1982).  Generally, a law enforcement officer's authority is broadest in accidents where breath specimens are collected and narrowest in accidents where blood specimens are collected (NHTSA, 1982).  Because a number of states have adopted language similar to the aforementioned, the scope of sampling and testing authority is frequently ambiguous (NHTSA, 1982).  Consequently, the answer in most cases must come from case law (NHTSA, 1982).  Generally, courts address only the case at hand, approving or disapproving law enforcement officer authority under a given set of circumstances (NHTSA, 1982). 

 

Regulation and Bank Performance

Dr. Zgarni Amina, University of Tunis El Manar, Tunisia

Dr. Hassouna Fedhila, Professor, University of Manouba, Tunisia

 

ABSTRACT

 

Banks are the cornerstone of all the economies of the world and the basis of all financial mechanisms. However, the context of deregulation and liberalization in which they operate risks affecting their financial stability, and calls for prudential regulation that is supposed to focus on their performance. The objective of this research is to assess the effect of prudential regulation issued by international regulators on bank performance in a Tunisian context. Empirical validation from a sample of all listed Tunisian commercial banks, observed over a period stretching from 2001 to 2016, shows that the prudential rules applied in the context of the Tunisian banking sector and measured by the solvency ratio and liquidity ratio improve the accounting performance of banks as measured by the return on assets (ROA). We have also shown from a robustness test that prudential regulation measured by the solvency ratio favors accounting performance measured by return on equity (ROE). It cannot be denied that banks enjoy a dominant position in all economies and that they are the main driver of economic growth (King and Levine 1993 and Levine 1997). This only serves to reinforce the challenges that supervisors may face, especially in the context of disintermediation, intense competition, excessive risk-taking, deregulation and diversification in which banks operate. Today, this new banking context is also characterized by internationalization fueled by technological progress and recent financial innovations that have been behind better risk management. Added to this is a new banking reality marked by the decommissioning of credits, the liberalization of foreign exchange, the open markets and the increasingly volatile rates that have led to an unprecedented vulnerability of market activities. In addition, the erosion of margins combined with economic deterioration have only increased the risks for these banks. The latter face the enormous challenge of realizing profits from their traditional activities, maintaining their solidity and achieving a satisfactory level of profitability, which explains their increasing risk taking both for intermediation and market activities.  In addition, it is commonly accepted that the bankruptcy of a bank causes adverse effects on other financially sound banks. All these considerations explain the use of supervisory authorities to a heavy and precise regulation of the banking industry which is clearly essential, and which is in line with the deregulation process, aimed at maintaining the integrity of the financial market system, and to foster and strong the banking sector stability. As such, Barth, Caprio and Levine (2001) argue that all governments tend to regulate and control them to ensure the stability of their economies. The purpose of these regulations is to serve the public interest, in particular the interest of consumers of banking services since these regulations are put in place by the public authority which does not have contractual relations with the director of the bank or the bank organization, for this, agents always have confidence in this sector. Thus the public interest is considered as the primary objective in the regulator's releases (Visentini, 1997).This regulation results in the implementation of prudential rules, aimed at better control and control of banking risks and better coverage of equity. Prudential control is therefore a necessity for all banking sectors worldwide. For example, the Basel Committee (Basel I and Basel II) introduced solvency ratio and liquidity ratio requirements to protect banks, promote competition, stability and resilience. Nevertheless, the succession of crises, in particular the 2007 crisis, has led researchers and practitioners to question the possible adaptability of this prudential regulation, and especially the reasons for its inability to predict and avoid crises. All these reasons led to the introduction of new standards called Basel III, ensuring the redefinition and strengthening of the quality and quantity of capital and the examination of certain ratios, in particular the liquidity ratio, the Leverage ratio and cushion against cyclic. However, in the context of this prudential regulation, shareholders are penalized in terms of short-term performance in favor of their solvency and a minimum long-term capital cost. The degree of performance ensured through this regulation in relation to the management of the risks that result from it, is therefore a problematic and unresolved issue. It is about this issue that our work is focused. More specifically, we seek to study the effect of prudential regulation on bank performance. To do this, we used a sample containing all Tunisian listed commercial banks observed over a period stretching from 2001 to 2016. The purpose of this paper is therefore to assess the effect of prudential regulation on bank performance in the context of Tunisian commercial banks. For this, we have articulated our work as follows: a second section is devoted to the literature review of the impact of prudential regulation on banking performance and the development of research hypotheses. A third section is reserved for the research methodology. A fourth section is devoted to presenting the results of the estimates of our proposed models. The last section is preserved at the conclusion. a) In fact, it was from the crisis of the financial market in 1929, due to the deflation of debts, that regulation of the banking sector became indispensable (Vittas, 1992, Haussmann et al., 1996, Rojas et al., 1997). From this date, banks tend towards nationalization to guard against possible crises. Rightly, it is important to note that the majority of banks in emerging countries became public in the late 1980s and early 1990s. In Russia, the banking sector also remains highly nationalized with 68% of banking assets in hands of the State in 2000. By focusing their interest on this issue, Ciancanelli and Gonzalez, (2002) observe in many Asian countries (South Korea, Indonesia, Thailand), that some of the troubled banks have been temporarily nationalized following the Asian crisis. In addition, economists who have studied the banks consider them to be different and distinct from other firms and possessing specific characteristics that require the intervention of the public power through the imposition of certain rules (Ogus 1994, Goodhart et al., 1998). As such, Barth, Caprio and Levine (2001) argue that all governments tend to regulate and control banks to ensure the stability of their economies. The purpose of these regulations is to serve the public interest, in particular the interest of consumers in the banking service, which is the overriding objective of the regulator (Visentini, 1997). In fact this is mainly due to the implementation of regulations that do not have a contractual relationship with the director of the bank or the organization, which already explains the fact that the agents always have confidence in this sector. In the same vein, Adams and Mehran (2002) argue that the specificities and peculiarities of the banking sector reinforce the need for bank regulation. In fact, through the main deposit guarantee mechanisms and the lender's last strategies, regulation acts as a depositor protection and risk avoidance mechanism. It also allows the resolution of the problems of agency, the discipline of the behaviors of the leader so that it acts in the interests of the shareholders. In this same perspective, Barth et al. (2004) perceive that three major dysfunctions push the state to intervene in order to successfully increase the yield of the banking market. This is the case of asymmetric information, the existence of externalities at the macro and micro levels. As a result, to monitor market activities that could harm the public interest, banking regulation is required. According to Heremans (1999), banking regulation aims to protect consumers against market failures. In order to ensure the public interest and to ensure the proper functioning of these banks, the Basel Committee has not ceased since its founding in 1975 to introduce rules of good governance and banking supervision with the aim of ensuring the stability and reliability of the banking and financial system.  This committee sets guidelines for financial sector supervision in an international context. For example, the leaders of the 20 (G20) group countries have put in place guidelines on the supervision of the financial sector in an international context (initially Basel I, with the ratio Cooke, then Basel II with the ratio Mc Donough, and recently the Basel III agreement). The latter measures introduced under Basel III are aimed at protecting banks against shocks that may result from financial and economic stress. International regulators, for example, have introduced reforms, in particular, concerning the quality and quantity of capital components, the leverage ratio, standard liquidity and the improvement of information in banks (enhanced disclosures). In fact, in 1988, for the first time, the Basel Committee published a set of rules requiring, inter alia, banking institutions to manage the risks associated with the financing granted, and setting the minimum capital threshold for cover these financings, while taking into account the valuation of securities and guarantees. However, these rules have been strongly criticized, since they apply to all financing granted independently of the actual solvency level of the various debtors. This prompted the Basel Committee to revise its first agreement. Since July 1998, a new reform has been initiated with the objective, according to WJMc Donough, of "aligning regulatory requirements with respect to the level of capital with the underlying risks and, to provide banks and their regulators with several alternatives for the assessment of capital adequacy ". This reform is seen as an attempt to ensure a better match between regulatory capital and economic capital that can consolidate the strength of banks through a more simplified management. This new agreement, known as the Basel II Accord, has defined a better standard for calculating equity by benefiting from best practices in the banking system and this is the pillar 1 of the reform. The review of this agreement allowed us to remember that it added two pillars that will be a novelty in the regulation: a more elaborate prudential supervisory process that is to say the rules of internal control and external audit ( pillar 2) and increased market discipline, i.e. financial disclosure requirements for each bank (pillar 3). Nevertheless, the succession of crises that have occurred, despite this strict prudential regulation, has pushed the leaders of the 20 (G20) group countries to implement a new Basel III international solvency standard. In fact, the Basel III agreement, issued on December 16, 2010, aimed to consolidate the banks following the 2007 financial crisis that caused the bankruptcy of several banks. This agreement is intended to complement the Basel II agreement. Indeed, it involves taking certain measures to strengthen internal control and restore the rules of good governance, while increasing the transparency of information, and improving risk management in banks.  These measures protect banks against the shocks that result from financial and economic stress. In addition, this agreement focuses on the quality and quantity of capital components, the leverage ratio, standard liquidity and improved disclosures. On the other hand, the Basel III agreement redefines the responsibilities of the audit committee responsible for oversight of the external audit function in banks. He also insists on the dialogue to be established between the prudential supervisors and the external auditors.

 

The Effect of Information Security Management Systems Implementation on Organizational Culture

Dr. Wen-Lung Tsai, Oriental Institute of Technology, New Taipei City, Taiwan

Xin-Yu Bai, Oriental Institute of Technology, New Taipei City, Taiwan

 

ABSTRACT

 

In this paper, we theorized on the effect of organizational culture on the implementation of information security management systems. Using the findings of a case study, we identified general criticisms of security standards. Furthermore, we developed a cultural construction that illustrated the aspects of culture that best assist an enterprise in the implementation of information security management systems. Finally, we proposed that institutional management play a crucial role in the further growth of the adoption of security standards.  Many organizations are increasingly dependent on information systems (IS) and spend much money on information security management systems (ISMS). However, Wright (2005) reports that half the organizations that had implemented ISMS were experiencing challenges, while the other 50% had failed (cancelled prior to completion or delivered and never used). Problems regarding the cost, timeliness, and effects of implementation still exist. To reduce costs, improve timeliness, and provide better effects, many standards and models related to the development process have been defined, such as ISO/IEC 27001:2013 (ISO, 2013). The adoption of ISO/IEC 27001 by organizations brought good results with regard to delivery time and the reduction of defects and costs. ISO/IEC 27001 spells out the minimum requirements of information systems and ISMS in different processes and in each PDCA (Plan, Do, Check, Action) phase. The model is used for two purposes. The first is to improve measures of control, and the second is to benchmark companies. After widespread adoption, ISO/IEC 27001 has become a standard for ISMS. However, results are disappointing and the failure rate high, despite the enormous amount of resources spent on ISMS. This may highlight the lack of applicability of ISO/IEC 27001 in organizations and between countries (Sharp et al., 2000). Other reasons relate to ISMS in general. Researchers have focused on a various problems and obstacles confronting organizations engaging in ISMS (Mathiassen et al., 2005). There is general agreement that ISMS is related with considerable organizational changes both in terms of control measures and complexity. The success of ISMS largely depends on how change is perceived and managed.  Thus, an organizational culture perspective could be helpful in managing complicated management processes, such as that adopted in studies by Iivari et al. (2007) and Cabrera et al. (2001). Organizational culture applies to numerous aspects of an organization, such as basic beliefs and assumptions, models of behavior, values, rituals, symbols, practices, heroes, deliverables, and technology (Schein, 1985; Gagliardi et al., 1986). However, our concern, which was limited to the effect of implementing ISO/IEC 27001, viewed organizational culture in relation to ISMS. This was based on existing research such as that by Aaen (2003), which indicated culture as an important factor in organizations. No research within the ISMS literature explicitly explores the effect of organizational culture on the implementation of ISO/IEC 27001. Therefore, the purpose of this paper is to understand the effects of organizational culture on the implementation of ISO/IEC 27001. Specifically, this paper has two objectives. First, it uses an organizational culture framework to explore the effects on the organization and implementation of ISO/IEC 27001. Second, this paper uses as a case study an information service organization that implemented ISO/IEC 27001. The rest of the paper is organized as follows. The next section provides a review of the literature, describing information security management systems and organizations. Then, the third and fourth sections of the paper describe the methodology and results. Following this, the results of the case study and effects on ISMS implementation are discussed. The last section highlights the contributions of the study and directions for future research. Management is the construction of organizational processes and connectivity, which directs and controls the organization to achieve goals by providing added value through the utilization of information technology. The aim is to balance and compare risks and the outcomes of information technology and its processes. Application of information technology management must be suitable for business needs to improve risk management, communication, and connectivity between the business and IT systems. As such, information technology management is important in organizations or companies, giving direction and control to ensure that these systems provide added value. Thus, information technology resources become the reference for responsibility and the mitigation of risk (Pecina et al., 2011). ISO/IEC 27001 is part of organization’s management system to build, implement, operate, observe, maintain, and improve information security. Application of ISO/IEC 27001 increases the organization or company’s competitive advantage, providing it with information on information technology security. ISO/IEC 27001, or ISMS, is the standard that identifies technical security, but in reality, is a management system, not a technical standard of information security. Many organizations or companies assume that ISMS need only be implemented by those running data security, causing a lack of awareness of data security in all sectors. Protecting information does not only entail adding a device or application, but also the processes in using the application and device. Therefore, the implementation of ISMS must be applied in organizations or companies. ISO/IEC 27001 is a standard for information security management systems used worldwide by organizations (commercial and enterprises) to manage policies and implement information security measures. ISO/IEC 27001 is designed to be flexible for internal and external stakeholders, so the framework can be more focus.  The structure of ISO 27001 uses the management principle of the “Deming Cycle,” better known as PDCA, as shown in Figure 1. An organization must identify and manage a number of its activities to effectively operate its ISMS. ISO/IEC 27001 recommends that an organization adopt a process approach to establish, implement, operate, monitor, review, maintain, and improve the ISMS (Livshitz et al., 2017). In the process approach, processes are any activities managed using management resources to transform inputs into outputs. A process approach means identifying processes within an organization, grasping their interaction, and applying and managing a series of these processes as a system (Nurbojatmiko et al., 2016). Adopting the process approach provides organizations with the benefit of being able to effectively operate their ISMS by managing combinations of and interactions among processes.  By applying the PDCA model to the processes (see Table 1) associated with information security, the effect (information security managed as expected) of information security as satisfying the “information security requirements and expectations of interested parties” can be produced through processes as the outputs of the inputs of requirements and expectations. The main aim of ISO/IEC 27001 is the continual improvement of the processes that produce effects by applying the PDCA model.

 

The Role of Volatility in Market Efficiency of Investment Banks During Financial Crisis

Dr. Han-Ching Huang, Chung Yuan Christian University, Taiwan R.O.C.

Su-Shin King, National Taiwan University, Taiwan R.O.C.

 

ABSTRACT

 

This study examines the investment bank spillover efficiency in financial crisis. Specifically, we aim to investigate the role of volatility in market efficiency of investment banks, especially in the situation of market turbulence before and after Lehman Brothers Holdings, Inc filed for Chapter 11 bankruptcy protection. We find that cross-effect, representing market maker hedging between two investment banks, existed among market makers in maneuvering inventories. Contrary to cross-effect, the autocorrelation-effects in investment bank show a better performance for market makers to mitigate price volatility. A nested causality approach, which examines dynamic return-order imbalance relationship during the price formation process, confirms the results.  Market efficiency has been discussed for decades since Fama (1969). However, during market turbulences, investors are more skeptical toward market efficiency, such as the financial crisis in 2008. Brooks (2007) finds higher inefficiency during 1997 Asian financial crisis. Moreover, investors overreacted not only to local news, but also to news originating from other markets, especially when the news events were adverse. Bowe and Domuta (2004) examine Jakarta Stock Exchange (JSX) data and find evidences of herding and positive feedback behaviors by both foreign and domestic investors before, during, and after the 1997 Asian financial crisis. Choe et al. (1999) documents that investors who engage in herding and positive feedback trading push prices away from fundamentals and create return-generating noise with excess volatility.  The financial crisis in 2008, after Lehman Brothers file bankruptcy protection, makes international capital markets in turbulence (Melvin and Taylor, 2009; Lins et al., 2017). In this study, we examine the market efficiency process in spotlight investment bank industry. Tracing back to Glass-Steagall Act (GSA) in 1933, investment banks were separated from commercial banking activities. However, Congress established the Gramm-Leach-Bliley Act to eliminate the GSA restrictions against affiliations between commercial and investment banks in 1999. This could be the root cause for the crisis. Chordia et al. (2002) find that trading volume affects stock returns efficiently. They use order imbalance as the indicator of trading volume to reveal private information held by market participants. Chordia and Subrahmanyam (2004) also find contemporaneous imbalances are strongly related to contemporaneous returns, but the positive relation between lagged imbalance and returns disappears after controlling for the contemporaneous imbalances. Cross-effect represents a stock return affected by another stock order imbalance, especially in highly related investment industry.(1) Andrade et al. (2008) find a positive cross effect, implying a positive relation between trading imbalance in one stock and another stock return. They argue that a demand shock for one stock affects prices of other stocks due to the hedging desires of liquidity providers. Nevertheless, they focus on non-information trading imbalance instead of private information.  Volatility-order imbalance relationship is an important issue, especially in financial crisis. We explore whether the markets overreact to large order imbalances in turbulence. In this study, we employ a time varying GARCH model to investigate order imbalances on stock return volatility. Moreover, we use GARCH model to investigate whether the volatility play a role in return-order imbalance relation. Finally, we develop an imbalance based trading strategy to test convergence to market efficiency in different time intervals. The empirical findings are as follows. In order to mitigate market volatility in financial crisis, market makers overreact to imbalances accumulated in 5-, and 10-min. They rush to raise bid-ask spread to stabilize the market, implying that volatility plays an extremely important role in market maker behaviors during financial crisis. Further, we examine volatility-order imbalance relation. Surprisingly, a significantly negative volatility-order imbalance relation has been found in our study. (2) It indicates that market makers do have the capabilities to mitigate market volatility in crisis and during the convergence process to market efficiency. From our imbalance based trading strategy, we are not able to earn excess return. Again, it confirms market efficiency during financial crisis. Moreover, a nested causality test, examining return-order imbalance dynamics, confirms the result of market efficiency. In this study, we examine five leading investment banks in the financial crisis period.  They are Citigroup, Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. Merrill Lynch & Co., and Morgan Stanley. We collect intraday trading data from Trades and Automated Quotations (TAQ), including trading price, volume, and bid ask quotes. We follow the algorithm in Lee and Ready (1991) (3) to determine buyer-initiated and seller-initiated orders. Then, we calculate 5-minute, 10- minute, and 15- minute order imbalances. The average open-to-close return of our sample firm is 2.239%, with a median of 0.509%. The standard deviation of return is 0.09232, with a maximum value is 21.987% and the minimum is -17.568%. Return distribution is skew to the right.  Finally, in order to explain the story behind an imbalance-based trading strategy, we employ a nested causality to explore the dynamic causal relationship between returns and order imbalances. According to Chen and Wu (1999) and Man and Chen (2009), we define four relationships between two random variables, x1 and x2, in terms of constraints on the conditional variances of x1(T+1) and x2(T+1) based on various available information sets, where xi=( xi1 , xi2 , ..., x iT) , i=1, 2, are vectors of observations up to time period T. To explore the dynamic relationship within a bi-variate system, we form the five statistical hypotheses in Table 1 where the necessary and sufficient conditions corresponding to each hypothesis are given in terms of constraints on the parameter values of the VAR model. To determine whether there exists a specific causal relationship, we use a systematic multiple hypotheses testing method. Unlike the traditional pair-wise hypothesis testing approach, this testing method avoids the potential bias induced by restricting the causal relationship to a single alternative hypothesis. To implement this method, we employ the results of several pair-wise hypothesis tests. For instance, in order to conclude that x1=x2 , we need to establish that x1≠x2 and to reject that x1x2. To conclude that x1<->x2 , we need to establish that x1≠x2 as well as x1x2 and also to reject x1x2 . In other words, it is necessary to examine all five hypotheses in a systematic way before we draw the conclusion that a dynamic relationship exists. The following presents an inference procedure that starts from a pair of the most general alternative hypotheses.

 

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