The Global Financial Crisis – A Behavioral View

Grosse, Robert

doi:10.2139/ssrn.1537744

Cited by 8 publications

(5 citation statements)

References 30 publications

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“…In December 2007, Centro Properties revealed that it would not be able to roll over loans due for re‐financing in February 2008. Grosse (2010) suggests the US subprime crisis started to develop into a GFC with the spill‐over effect from the failure of Countrywide Financial in January 2008. From September 2008, the Reserve Bank of Australia progressively cut interest rates.…”

Section: Methodsmentioning

confidence: 99%

Responses by Australian auditors to the global financial crisis

Xu¹,

Carson²,

Fargher³

et al. 2011

Accounting & Finance

138

131

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We examine the impact of the global financial crisis (GFC) on auditor behaviour in Australia. Using a sample of listed companies, we examine whether the GFC impacted the propensity of auditors to issue going concern modifications and increased audit effort as reflected in audit fees and audit reporting lag. Controlling for client characteristics, we find an increase in the propensity to issue going concern opinions during the period 2008-2009 compared with the period 2005-2007 and that Big N auditors responded to the GFC earlier than non-Big N auditors. In relation to audit effort, we find evidence of increased audit fees during the period 2008-2009 compared with the period 2005-2007. There is, however, no evidence of increased audit reporting lags during the GFC.

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Section: Methodsmentioning

confidence: 99%

Responses by Australian auditors to the global financial crisis

Xu¹,

Carson²,

Fargher³

et al. 2011

Accounting & Finance

138

131

View full text Add to dashboard Cite

show abstract

“…The Australian financial market reflected little impact of the US sub‐prime mortgage crisis during 2007 (Xu et al , 2010). Grosse (2010) suggests that the US financial crisis began to develop into a GFC from 2008, and the first major event indicating the spill over effect was the failure of country‐wide financial systems in January 2008. In this study, the GFC and the PCP are defined in the Australian context based on the existing literature (Xu et al , 2011; Sidhu and Tan, 2011; Spear and Taylor, 2010) and the movement in the Australian Securities Exchange (ASX) All Ordinaries Index.…”

Section: Empirical Methodsmentioning

confidence: 99%

“…(Xu et al, 2010). Grosse (2010) suggests that the US financial crisis began to develop into a GFC from 2008, and the first major event indicating the spill over effect was the failure of country-wide financial systems in January 2008. In this study, the GFC and the PCP are defined in the Australian context based on the existing literature Sidhu and Tan, 2011;Spear and Taylor, 2010)…”

Section: Prior Literature and Research Questionsmentioning

confidence: 99%

Value relevance of earnings and cash flows during the global financial crisis

Bepari

Rahman

Mollik

2013

Review of Accounting Finance

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Purpose -The purpose of this paper is to investigate the incremental value relevance of cash flow from operations (CFO) given book value and earnings. It also examines the relative value relevance of earnings and CFO and changes therein between the 2008-2009 global financial crisis (GFC) and the pre-crisis period (PCP). Design/methodology/approach -Least square regressions are estimated using modified Ohlson model to examine the research questions. Relative and incremental value relevance is examined by adjusted R 2 and Vuong Z statistics. Findings -The findings suggest that CFO has value relevance incremental to book value and earnings. The findings also suggest that earnings has greater relative and incremental information content than CFO in the Australian market. The value relevance of earnings has increased and that of CFO has decreased during the GFC compared to the PCP. Research limitations/implications -This study focuses on a single country. Future studies can conduct cross-country examination of the impact of the GFC on the value relevance of earnings and CFO. Practical implications -This study contributes to the debate on the value relevance of CFO incremental to book value and earnings. It also extends the literature, showing that earnings has information content (value relevance) superior to CFO in the Australian market even during an economy-wide exogenous shock like the one of the 2008-2009 GFC. Originality/value -This is the first known study examining the value relevance of fundamental accounting information such as earnings and CFO in the context of the 2008-2009 GFC. It extends prior research in East Asian countries in the context of 1997 Asian financial crisis and provides evidence on the impact of a world-wide exogenous shock on the value relevance of earnings and CFO from a relatively mature and developed country with different legal, institutional and enforcement backgrounds.

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“…In samples of people asked about their skills, they consistently overestimate their capabilities (Weinstein, 1980). Over 90 per cent of people believe that they are above average (Buehler et al, 1994;Grosse, 2009). Investors become overconfident based on recent successes (Gervais and Odean, 2001).…”

Section: Irrational Exuberance By Borrowers and Lendersmentioning

confidence: 99%

Bank regulation, governance and the crisis: a behavioral finance view

Grosse

2012

Journal of Financial Regulation and Compliance

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Purpose -The purpose of this paper is to analyze the 2008-2009 financial crisis using a behavioral view, and suggest changes in government policy and company governance to deal with the key behavioral problems. Design/methodology/approach -Behavioral elements of the crisis are identified and explained, intermediaries involved in the crisis are reviewed, and both financial institution strategies and public policies are presented to deal with each element. Findings -The behavioral view of the financial market points out that over-optimism, anchoring, hubris and herd behavior are human attributes, and that future crises involving excessive credit extension will occur because of such non-rational behavior. Responses to these elements of the crisis focus on four points: overconfidence related to rising home prices; inability of the market to channel participant behavior in sustainable directions; inadequate financial institution management due to hubris and herd behavior; and inadequate regulation due to regulatory capture and information gaps. Practical implications -Policymakers must see that no policy can eliminate future crises, so they should focus on designing responses to the behaviors of market participants. Raising levels of capital adequacy will help convince the market that the environment is safer, but ultimately new crises will occur anyway. Policy should aim to pre-establish responses to those future asset price bubbles and market-failure conditions. Practitioners must recognize the realities of overconfidence and herd behavior, to design better management that will constrain overextension of credit and excessive risk-taking. Originality/value -A behavioral view has not previously been applied systematically to explain the crisis and to develop responses to it.

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The Global Financial Crisis – A Behavioral View

Cited by 8 publications

References 30 publications

Responses by Australian auditors to the global financial crisis

Responses by Australian auditors to the global financial crisis

Value relevance of earnings and cash flows during the global financial crisis

Bank regulation, governance and the crisis: a behavioral finance view

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