Research Espresso | Apr 2021 Issue 08

08 Apr 2021 ISSUE

Apr 2021 ISSUE

08 Contents 02 Research Insight

02

Coronavirus recovery : protect lenders and borrowers to ease bad loan damage News

06 10 12

HKBU economist wins Best Paper Award from the Royal Economic Society

06

First HK Early Childhood

08

Survey result released

08

HKBU business survey reveals the importance of customer appreciation amid the COVID-19 pandemic

10

Outstanding PhD student receives Sir Edward Youde Memorial Fellowship

12

Research Excellence

14

Upcoming Events

16

2 / Research Espresso / Research Insight

Research Insight

Apr 2021 Issue 08 / 3

Coronavirus recovery : protect lenders and borrowers to ease bad loan damage

4 / Research Espresso / Research Insight

I

n the wake of the Covid-19 pandemic, banks have experienced a spate of credit losses. These might be unavoidable for some time as governments, financial institutions and borrowers all try to navigate through the crisis.

The European Central Bank has provided extremely cheap negative-interest loans to support banks and ensure borrowers still have access to credit. This was especially necessary as a response to stricter lockdown measures across Europe amid a new wave of rebounding Covid-19 cases.

Spurred by the pandemic, S&P Global Ratings expects aggregate global credit losses for 2020 and 2021 to hit about US$1.8 trillion. According to its 2021 forecast published last July, North American and Chinese banks will continue to lose US$240 billion and US$398 billion respectively. Across the AsiaPacific, loans have plunged as the pandemic has made banks more reluctant to lend. This is in line with their counterparts across the globe.

Another way of promoting bank lending during difficult times is to ease the impact of loan loss provisions on regulatory capital requirement. Loan loss provisions are credit losses set aside to protect against individuals and companies defaulting on loans. Taking loan loss provisions will lower banks’ capital ratio and hence restrict their capacity to lend.

Amid heightened concerns around risk and borrower creditworthiness, European banks tightened lending guidelines and approval criteria for new loans in the final quarter of last year, taking these measures to levels unseen since the 2008 global financial crisis.

Closer to home, HSBC has warned that it could take loan loss provisions of up to US$13 billion.

A study carried out by my colleagues and I, published in early 2020, provided evidence that banks take more loan loss provisions in times of higher uncertainty around fiscal, monetary or regulatory policy. This is easy to understand because banks believe they will lose more when policy uncertainty induces negative macroeconomic and microeconomic conditions.

With spiking unemployment affecting Hong Kong and many other economies, there will be an increasing number of risky borrowers. More than ever, banks must be able to strike a delicate balance between extending much-needed lines of credit to borrowers while also safeguarding themselves against bad debt.

Governments are acutely aware that shrinking credit and capital would have multiple disastrous effects on the economy as a whole. Companies would face financial constraints and cut corporate investment.

In extreme circumstances, companies could file for bankruptcy and investors would lose money.

Apr 2021 Issue 08 / 5 The ongoing pandemic creates tremendous uncertainty for the business environment and even for our daily lives. Inevitably, banks will have to set aside more loan loss provisions as a buffer for expected loan defaults.

What can banks and regulatory authorities do to mitigate the negative impact of loan loss provisions on banks’ capacity to lend? First, taking loan loss provisions in a more timely manner can help ease the negative impact when bad times arrive.

This is evident in our study. Banks that have already prepared sufficient buffers in advance will see a limited increase in loan loss provisions when facing uncertainty shocks, which reduces the impact on banks’ lending capacity. Regulators around the globe are already promoting accounting standards that can reflect credit loss in a more timely manner.

As companies and individuals grapple with the pandemic, which is drastically reshaping businesses and influencing their careers and livelihoods, loans can quickly become one of the only lifelines available for these parties to survive and ultimately invest in retooling themselves for success in the new normal.

This is especially true in places where direct state support or hardship payments to individuals and companies are far too inadequate. Ensuring credit access via bank loans is a critical part of building the foundation of the favourable financing environment necessary to support an economic recovery.

With the current challenging economic environment, banks must continue to lend while anticipating loan losses. As we look to the future, protecting lenders and borrowers while managing non-performing loans will play a critical role in any economic recovery.

We can see this in China as its economy rebounds. At the height of the pandemic last year, China shored up a huge amount of bank capital to ensure that banks across the country could continue lending to businesses. In doing so, they tolerated rising numbers of non-performing loans across a range of sectors and regions. Many can understand that this was a necessary part of the recovery process.

Original article was published on South China Morning Post on 18 February 2021.

Second, during unique circumstances such as the Covid-19 pandemic, regulators could consider temporarily changing the rule of calculating regulatory capital ratios. Specifically, they have the authority to determine to what extent taking loan loss provisions will affect regulatory capital ratios.

In the United States, the Coronavirus Aid, Relief, and Economic Security (Cares) Act provides banks with capital requirement relief during the pandemic. This significantly reduces banks’ capital pressure resulting from taking loan loss provisions.

Dr. Janus Zhang Assistant Professor Department of Accountancy and Law Ng, J., Saffar, W., & Zhang, J. J. (2020). Policy Uncertainty and Loan Loss Provisions in the Banking Industry. Review of Accounting Studies, 25(2), 726-777.

6 / Research Espresso / News

News

Apr 2021 Issue 08 / 7

HKBU economist wins Best Paper Award from the Royal Economic Society

D

r. Chen Ting, Assistant Professor of the Department of Economics, has won the Royal Economic Society (RES) Prize for the best paper published in the Economic Journal in 2020.

The research paper “Long Live Keju! The Persistent Effects of China’s Civil Examination System” examines the persistent impact of China’s civil examination system (keju) on today’s human capital outcomes.

The results show that educational infrastructure, social capital, and to a lesser extent political elites all facilitated the impact of China’s civil exam institution on the cultural trait of valuing education. They also look beyond the impact of keju on educational attainment and provide evidence suggesting that perhaps because a stronger local keju culture induces greater competition, it has the effect of mitigating educational and income inequalities across generations.

The prize was awarded based on the paper’s important contribution to the understanding of why education, rather than material wealth, is considered important as a transfer to the next generation in some cultures. It also provides a fascinating explanation for regional differences in educational attainment, and serves as an excellent example of how newly collected data can speak to big picture issues in economics in a simple, yet powerful way.

Dr. Chen’s research interests lie in the fields of political economy, economic history, and longterm economic development. She has published papers in such journals as Quarterly Journal of Economics, Journal of Econometrics and Economic Journal. Dr. Chen is best known for her ability to combine cutting-edge data analytics with innovative econometric identification strategies to tackle very interesting issues. For example, in the current paper Dr. Chen had to process a huge number of historical Chinese archived data by hand and include a wide range of variables that might have a confounding effect on the years of schooling today.

The RES is a learned society and membership organisation founded in 1890 to promote economics.

It publishes two major journals, the Economic Journal and the Econometrics Journal.

8 / Research Espresso

Apr 2021 Issue 08 / 9

First HK Early Childhood Manpower, Pay & Benefits Survey result released

T

he Centre for Human Resources Strategy and Development (CHRSD) of the HKBU School of Business partnered with HKBU’s Early Childhood and Elementary Education of the School of Continuing Education to announce the results of the first “Hong Kong Early Childhood Education Manpower, Pay and Benefits Survey” on 26 April 2021.

The survey involves a sample of 102 schools, about 10% of the 1049 kindergarten schools in Hong Kong, covering the period between 1 September 2019 and 30 August 2020. The survey report contains analyses of the pay and annual compensation of benchmark positions, starting salaries for fresh graduates, employee benefits, teacher turnover, and salary adjustment trends. The data, analysed by the participation of the education scheme, school type, school size, provide meaningful comparisons from various perspectives.

The survey result showed that for schools not participating in the 2019-2020 Kindergarten Education Scheme, the average annual salary for Principal Grade, Senior Teacher, and Class Teacher were HK$643,470, HK$496,187, and HK$339,913 respectively, slightly higher than those of schools having participated in the Scheme (HK$629,999, HK$465,010, and HK$333,708). For Non-profit-making Schools, the average annual salary for the Principal Grade, the Senior Teacher, and the Class Teacher were HK$638,418, HK$478,052, and HK$337,814 respectively, higher thanthose in Private Independent Schools (HK$591,699, HK$426,691, and HK$303,783).

Sharing his observations on talent development in the early childhood education sector, Prof. Xu Huang, Director of CHRSD and Associate Dean (Research and Postgraduate Studies) of the HKBU School of Business, suggested kindergartens “should raise teachers’ and relevant talents’ pay and benefits in order to retain and attract more talents. We hope the survey result can provide a reference for the early childhood education sector as well as policymakers.”

The average salary for 2019 and 2020 fresh graduates were HK$21,697 and HK$22,713 respectively.

The five most common benefits provided were compassionate leave (provided by 91% of the sampled schools), marriage leave (80%), examination leave (75%), outpatient medical benefits (71%), and hospitalisation (55%). The survey also showed that the overall turnover rate for full-time teachers was 10.6%, with the most important reason for leaving being workload (100% of schools selected this item), followed by family issues (80%) and health reasons (57%). Within the survey period, September 2019 to August 2020, the average salary adjustment rate 4.8%, with the projected salary adjustment for the period from September 2020 to August 2021 at 2.96%.

10 / Research Espresso

Apr 2021 Issue 08 / 11

HKBU business survey reveals the importance of customer appreciation amid the COVID-19 pandemic

O guests.

n 29th April, HKBU’s Department of Marketing partnered with the Hong Kong Association for Customer Service Excellence (HKACE) to announce the survey results of the “Appreciation Drives Service Excellence under the COVID-19 Pandemic” project, attracting media and

The survey found that customer appreciation enhanced the performance of service industry professionals during pandemic. The project aims to better understand the culture of fostering customer appreciation and its effectiveness in driving frontline employees’ service excellence against the backdrop of the COVID-19 pandemic.

Led by Prof. Henry Fock, Department Head, and Prof. Kimmy Chan, Professor of Marketing, the findings suggest that while service industry employees are facing increasing workload and work pressure during the pandemic, there is not just ‘suffering’, but also ‘empathy, support, and care’ expressed by their supervisors, colleagues, employers and customers. As suggested by Prof.

Chan, “the performance of the service sector has been improved with the support and care from different stakeholders during the pandemic. Concrete appreciative actions have even led to stronger resilience among customers with appreciation experience and those appreciated employees. We’d recommend the service sector and all stakeholders to collectively work on promoting the ‘Culture of Customer Appreciation’ in Hong Kong”.

The four key drivers to motivate customer appreciation are product quality (42%), service quality (39%), convenience of the appreciation channels (11%), and customers’ personal psychological factors (9%). During the pandemic, the top three industries receiving the most customer appreciation are clinic/medical (20%), home delivery (18%), and café/ restaurants (15%).

Other than verbal compliments, which are the main way for customers to express appreciation, the findings show a wider adoption of digital channels for showing appreciations during the pandemic, with 43% of customers with expressing appreciation using Facebook comments or “likes” to convey gratitude. “The pandemic has accelerated the adoption of e-platforms to show appreciation,” added Prof. Fock, “customers aged 51 years old or above are now also more open to e-services, the service sector and the Government should thus consider allocating more resources to strengthen the digitalisation of the service industry”.

12 / Research Espresso

Apr 2021 Issue 08 / 13

Outstanding PhD student receives Sir Edward Youde Memorial Fellowship

R

onald Hung (Doctor of Philosophy, Department of Economics) has been honoured with the Sir Edward Youde Memorial Fellowships 2020-21 for postgraduate research students. Ronald is one of only three awardees from the UGC-funded universities in Hong Kong this year, receiving a grant of HK$50,000 to support his research.

Ronald’s research interest lies in Macroeconomics, particularly in inflation expectation formation.

He plans to investigate how the market forms inflation expectations, drawing on New Keynesian Economics and machine learning methodologies. The results of his research will help to develop an alternative monetary policy. Ronald attributes his success to the rich resources and supportive faculty at the HKBU School of Business, one of the top schools in Asia-Pacific where brilliant minds gather. He was also an awardee of the Hong Kong PhD Fellowship Scheme 2019-20.

The Sir Edward Youde Memorial Fund was established in 1987, with the aim of encouraging education and research by the people of Hong Kong.

14 / Research Espresso / Research Excellence

Research Excellence

Selling to Consumers Who Cannot Detect Small Difference Journal of Economic Theory https://doi.org/10.1016/j.jet.2021.105186

Prof. Kim-Sau Chung Professor Department of Economics

Corporate In-house Tax Departments Contemporary Accounting Research https://doi.org/10.1111/1911-3846.12637

Dr. Yanju Liu Assistant Professor Department of Accountancy and Law

Apr 2021 Issue 08 / 15

How Life-Role Transitions Shape Consumer Responses to Brand Extensions Journal of Marketing Research https://doi.org/10.1177/0022243720986546

Dr. Lei Su Associate Professor Department of Marketing

Disaggregated Sales and Stock Returns Management Science https://doi.org/10.1287/mnsc.2020.3813

Dr. Shirley Zou Assistant Professor Department of Finance and Decision Sciences

16 / Research Espresso

Upcoming Events Economics 4 May 2021 / 9:00 –10:30

1 June 2021 / 9:00 –10:30

On the Relationship Between Damage and Deception

Idea Diffusion and Property Rights Prof. Boyan JOVANOVIC New York University

Prof. Joel SOBEL University of California, San Diego

5 May 2021 / 16:00 –17:30

2 June 2021 / 9:00 –10:30

Misspecified Politics and the Recurrence of Populism

Informational Autocrats Prof. Daniel TREISMAN University of California, Los Angeles

Prof. Ronny RAZIN London School of Economics

14 May 2021 / 09:00 –10:30

18 June 2021 / 16:00 –17:30

Risk Concentration and Interconnectedness in OTC Markets

Interest Rates, Market Power, and Financial Stability

Prof. Briana CHANG University of Wisconsin-Madison

Prof. Rafael REPULLO Center for Monetary and Financial Studies (CEMFI)

18 May 2021 / 16:00 –17:30

22 June 2021 / 15:00 –16:30

Endogenous Risk Attitude Prof. Jakub STEINER CERGE-EI and University of Zurich

Collective Information Acquisition Prof. Ran EILAT Ben-Gurion University of the Negev

28 May 2021 / 16:00 –17:30

30 June 2021 / 9:00 –10:30

COVID-19, Seignorage, Quantitative Easing and the Fiscal- Monetary Nexus

The Democracy Effect: a Weights-based Identification Strategy

Prof. Alexander CUKIERMAN Tel Aviv University

Prof. Pedro DAL BÓ Brown University

Apr 2021 Issue 08 / 17

Centre for Business Analytics and the Digital Economy

Finance and Decision Sciences

3 May 2021 / 16:00 –17:30

4 May 2021/ 10:30-12:00

Do Media Bow to Foreign Economic Powers?

Evidence from News Websites Crackdown

Did Fintech Lenders Facilitate PPP Fraud?

Prof. Heng CHEN University of Hong Kong

Prof. John Griffin University of Texas at Austin

20 May 2021 / 9:00 –10:30 Economics of Proof-of-Stake Payment Systems Prof. Leonid KOGAN Massachusetts Institute of Technology

27 May 2021 / 13:00 –14:30 AI, Skill, and Productivity: The Case of Taxi Drivers Prof. Yasutora WATANABE University of Tokyo

10 June 2021 / 14:00 –15:30 Cryptotokens and Cryptocurrencies: the Extensive Margin Prof. Andrea CANIDIO IMT School of Advanced Studies Lucca

Research Espresso – Impactful Research Insights for Business!

The Research Espresso, a bimonthly e-publication covering everything you need to know about the latest research developments at the HKBU School of Business, focuses on four key areas: Research Insights (the main research topic of the month), Research Excellence (recognition of faculty members’ research achievements), News (research-related updates), and Seminars (sharing research skills and knowledge).

The idea is to provide business practitioners with the most recent research findings from the School's faculty. We want to build links between research and practice and to ensure that the School's research has business and societal impact.

Enjoy reading, and your feedback and input is always welcome!

https://bus.hkbu.edu.hk/ busd-external@hkbu.edu.hk