The Student Honors Papers collection represent exemplary work in Business Administration at Illinois Wesleyan University. The Ames Library is proud to archive these and other honors projects in Digital Commons @ IWU, the University's online archive of student, faculty and staff scholarship and creative activity.
The recession of 2008-2009 showcased the critical role that the corporate bond market plays in providing firms with access to capital, a role reflected by a 300% increase in corporate bonds issued from $600 billion issued in 2007 to $1.8 trillion issued in 2012. In this study, I investigate the bond specific, firm specific and macroeconomic factors that explain the change in corporate credit spreads within the Consumer Staples industry between 2005 and 2013. The results show that the firm specific variables, debt and total assets, have the largest impact on the corporate credit spreads. However, there is a weaker relationship between the variables and the corporate credit spread during recessionary times.
More than 400 banks failed during the recent financial crisis. Bank failures have a significant impact on the financial system and the economy as a whole. It is important to identify factors that may contribute to bank failures so that banks can take measures to reduce their default risk. This paper examines how bank specific characteristics and economic conditions affect bank failures during the recent financial crisis. We employ the logistic regression model to study this issue using the U. S. commercial bank data over the sample period 2007-2012. We find that the ratio of the loan and leases to total assets, real estate loan ratio, and non-performing loan ratio have a positive influence on the bank failures while capital adequacy ratios, return on assets, liquid ratio, and GDP growth rate have a negative impact on bank failures.
Lobbying in the Defense Aerospace Industry
by Austin Smiley
The purpose of this research paper is to identify the main variables that impact an aerospace defense firmâs decision to lobby. This study focuses on important accounting and financial measures specific to each company. It also takes into account government and public variables such as the level of public scrutiny the company experiences and national defense spending. This study finds that cash flow and profitability are both negatively correlated with the decision to lobby. It also finds a positive correlation between inventory turnover and the decision to lobby the following year. Additionally, there is a positive relationship between public scrutiny and the decision to lobby.
Macroeconomic Determinants of Gold Industry Stock Returns
by Michael Chau
Over the past 12 years, the gold bullion continues to become a significant investment. Financial advisors and analysts have recommended investors invest a small portion of their portfolio into this precious metal commodity asset. Gold mining stocks offer investors the ability to leverage volatile but rising gold prices. The expected relationship between gold price and gold stock returns is that for every 1% increase in gold prices, gold stocks can be expected to gain 2-3%. Building on a multifactor model by Faff and Chan (1998), we examine how macroeconomic factors such as market returns, the foreign exchange rate, and the interest rate affect the U.S. gold industry stock returns over the period 1996-2011. We contribute to the literature by exploring the significance of business cycleâs in explaining gold stock returns.
Determinants of Dow Jones Returns
by Cory Sloan
As of 2010, there was $14 trillion invested in the New York Stock Exchange (NYSE) and $55 trillion invested in stock markets worldwide. In this study, we use the Arbitrage Pricing Theory (APT) to identify the main determinants of the returns of the stocks that compose the Dow Jones for the period 1990-2011. We test several hypotheses on the relationship between firm specific variables such as Dividend Yield, Earnings Yield, Book-Market ratio, previous returns and the stock returns. We also document the relationship between several macroeconomic factors including T-bill rate, Default Spread, Term Spread, Unemployment, Real GDP and Inflation and stock returns. Our results indicate a significant relationship between Earnings Yield, Past Return, Unemployment, Inflation, Term Spread, T-bill rate, Real GDP and the stock returns.
During the recent financial crisis, 325 U.S. banks failed whereas only 24 banks failed from 2000-2006. It is important to identify how banksâ operations and changes in the economic environment might influence the total risk level faced by U.S. banking institutions in order to avoid the number of bank failures experienced during the recent recession. This study analyzes publicly traded banks in the U.S. from 1978 to 2010. Various accounting ratios and macroeconomic indicators are used as proxies for the effects of individual bank operations and changes in the economic environment. Total risk, as measured by the standard deviation of ROA and ROE, is regressed against the accounting ratios and economic indicators to identify the important sources of total risk. Bank size, the equity to asset ratio, allowance for loan loss ratio, liquidity ratio, loan to asset ratio, growth in real GDP, growth in the money supply and the interest rate spread all appear to be significantly associated with total risk.
In this study, we investigate the wealth preservation hypothesis and revisit the theory of wealth transfer from Argentina to the United States during the Argentine crisis. We show that the boom experienced by the Argentine stock market is explained by both wealth preservation through top non-ADR stocks and by wealth transfer through ADR stocks. Argentine investors without access to trading abroad preserved wealth by converting their bank deposits into the most liquid ADR and non-ADR stocks. An investment in a portfolio of less liquid ADRs resulted in a wealth loss, unless used as a vehicle to transfer funds abroad.
Surveying Efficiencies of Nigerian Banks before and after the Minimum Capital Requirement Increase
by Bukola Olaosebikan, '09
This study investigates the efficiency of the Nigerian banking system between the years of 1999 and 2005. Bank efficiency is evaluated using Data Envelopment Analysis (DEA), and the main determinants are identified by using a Tobit model. The results indicate that efficiency fluctuated during the first part of the period and improved during the recent years, a period associated with the increase in minimum capital requirement. Differences in bank efficiency are explained by problematic loans and bank size.
This paper attempts to add to existing research on corporate payout by focusing on the role that the principal-agent problem plays on dividend policies of public and private banks. The results indicate that private banks are better able to monitor mangers use of excessive free cash flow and retaining earnings and will be more willing to let retained earnings build up without returning them to owners in the form of dividends or stock repurchases.
Small Banking Conditions and their Impact on the Economic Activity of US Firms
by Stephanie Bannos '08
This study is directed towards the effects of bank lending, delinquencies, and other economic shocks on the performance of economic activity. I estimate the effect of these factors on employment, payrolls, and number of firms by firm size in the United States. Addressing conditions within the realm of small banks, one conclusion is that banks increase their total supply of bank credit after a reduction in capital levels. A number of former studies arrive at this conclusion, and this paper applies that hypothesis to more recent data. A common theme in related literature is that a "credit crunch" causes particular stress on small businesses because of their heavy reliance on external financing, which is mainly provided by small "community" banks. Small banks have historically been thought to have special ties to small businesses, but with the consolidation of banks over recent years, this study suggests that relationship between small banks and small businesses has declined. Using data for banks with assets under $300 million from 2001-2005, this study reveals ways in which real activity is affected by variations in bank credit conditions.