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Vol. 9, Number 4, 2012

Financial Transaction and Fiduciary Obligation: Ethics, Economics or Commingled Commitment?
Romila Palliam, Lee Caldwell and Dilip K. Ghosh
Gulf University of Science and Technology, Kuwait
Abstract Ɩ Full Text
Financial transactions and fiduciary obligations are simply intertwined. Fiduciaries are subject to the principle of fidelity. It appears, at times at least, public trust in fiduciary commitments is declining as a result of fiduciaries’ selective reporting of financial events and the existence of conflicts when fiduciaries have selfish motives: motives being not always to maximize the trusting party’s value. It is the agency problem. This work attempts to enunciate that commitments and fiduciary obligations emanating from initial financial transactions are not to be violated or ignored as a matter of policy or practice. The questions that arise are: Should a fiduciary be obliged to guarantee a certain outcome for the counter-party, and should a fiduciary be held accountable to a certain type of outcome? We examine what the guidelines are or should be put in place. Initially, under the garb of some socio-religions edicts-cum-dicta, and then under the well-known economic analytics, we make our points and move the view to the forefront.
Keywords: Financial contracts, fiduciary obligation, agency problem, stewardship, fidelity
JEL Classification: K22, M14, Z12

An Analysis of Bank Efficiency in the Middle East and North Africa
Saeid Eisazadeh and Zeinab Shaeri
Bu Ali Sina University, Iran
Abstract Ɩ Full Text
This paper reports institutional factor effects on bank efficiency in Middle Eastern and North African countries during a recent 14 years. The methods used are: Stochastic Frontier Analyses and second-stage Tobit regression to investigate the impact of institutional-cum-financial as well as bank-specific variables on efficiency. Overall, the analysis shows that banks could save 20 percent of their total costs if they were operating efficiently. Factors that affect production efficiency are: macroeconomic stability, financial development, the degree of market competition, legal rights and contract laws, better governance and political stability. Differences in technology seem to be crucial in explaining efficiency differences. Our findings point to the importance of policies that aim to build stronger institutions, promote more competition, and improve governance. Policies should be aimed at giving banks incentives to improve their capitalization and liquidity. Improvements in the legal system and in the regulatory and supervisory bodies would also help to reduce inefficiency, areas of immediate concerns for this vast region. Finally, increased investments and upgrading of the stock markets in the region would help banks improve their performance through market-based investor actions.
Keywords: Bank efficiency, stochastic frontier analysis, competition
JEL Classification: G12, O16

Portfolio Preferences Across Markets: Evidence from Mutual Fund Ownership
Wen-Hsiu Chou
Florida International University, United States of America
Abstract Ɩ Full Text
This paper is about evaluating and comparing the portfolio preferences of domestic and foreign mutual funds in developed and emerging markets over the period 1998-2007. We find that foreign and domestic mutual funds have some different preferences toward firm characteristics and firm’s information enviroments, and economic development affects the preferences for both types of funds. A country’s characteristics and institutions also influence mutual fund investment decisions when fund managers from their portfolio holdings. Results further show that foreign and domestic mutual funds play a monitoring role in their portfolio firms, but foreign mutual funds cannot monitor firms effectively in emerging markets.
Keywords: Portfolio preference, financial institutions, mutual funds, international asset allocation, developed vs merging markets
JEL Classification: G11, G15, G23

Financial Instability, Uncertainty and Bank Lending Behavior
Vigneshwara Swamy
Indian School Of Business, India
Abstract Ɩ Full Text
“Why do banks squeeze their lending activity” is an oft-repeated question during the times of financial crisis. This study examines an emerging economy’s banking system, and contributes to the evolving body of literature on the topic by providing answers to what causes the sluggish bank credit during times of recession. By employing cointegration technique, the study shows that bank credit has a significant positive relationship with the borrowing activities of debt users of the banks, hence, as the contrary an inverse relationship with investment activity is evident during financial crisis. Accordingly, we suggest that banks could increase their lending by increasing the borrowings rapidly either from the Central Banks or from Government supported long term lending institutions during recessionary periods.
Keywords: Time series models, financial markets, interest rates, bank lending, financial crisis, credit declines
JEL Classification: C22, D53, E43, E51, G21

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