Testing the Effectiveness of Pandemic-Induced Restrictions on Financial Institutions
Through SSHRC-supported project, Dr. Yi Liu and School of Business student researchers assess real-life scenario of big data, programming and financial analytics
Like most sectors in society, global banking systems have been impacted by COVID-19. In response, a high-calibre research team lead by Dr. Yi Liu, assistant professor of Accounting within the School of Business at Trent University Durham GTA, is taking specific stock of the situation. In turn, policy makers and financial institutions will be eager to go through this data-driven research line-by-line.
The Effect of COVID-19 on Share Repurchases and Bank Lending Behaviour project examines how the pandemic changed the practice of banks repurchasing their own shares in the open market, a method used to distribute profits to shareholders.
The project refers to instances in 2020 when the central bank in the U.S. required large banks to suspend share buybacks to ensure that financial institutions remain strong enough to support struggling businesses across the country.
“The objective is to test the real economic effects of these restrictions on big U.S. banks and examine whether other banks will follow suit,” explains Professor Liu, the principal investigator on the project. “We want to find out how the restrictions enhance banks’ lending ability to help struggling households and business. We will also investigate whether Canadian banks exhibit similar patterns.”
Lending expertise to financial analysis
“This project is the first to examine the central bank’s policy and lending behaviours,” says Prof. Liu who is joined on the project by co-investigator, Dr. Jie Zhang, assistant professor of Finance at Trent. “It helps to evaluate if this is an effective policy to tackle the catastrophic consequences that the COVID-19 pandemic poses to the economy.”
According to Prof. Liu, share buybacks can reduce the ability for banks to absorb losses; decrease investment opportunities; and increase valuation of remaining stocks and performance ratios including earnings per share and return on equity.
With predictions already in mind, the team believes the research will be of interest to academics, bank regulators, policy makers and bank practitioners who may use the results as benchmarks to adjust their capital and lending strategies.
Boost reach and learning experience
Buoyed by a Social Sciences and Humanities Research Council (SSHRC) Explore Grant through Trent’s Office of Research and Innovation, the team will present research results at leading academic conferences, submit their paper to top-tier banking journals and disseminate results in the media.
With papers previously published in peer-reviewed journals including European Accounting Review, The International Review of Financial Analysis, Journal of Accounting and Public Policy, and The Journal of Behavioral and Experimental Finance, Prof. Liu’s work is familiar to many in the financial industry.
The funding will also enable a master’s student to come on board as a research assistant.
“It provides a great opportunity to learn about bank financial reports and enhance skills in big data programming and financial analytics,” reflects Prof. Liu.
The business of research at Trent Durham
Prof. Liu also feels that the project reflects the innovative and ground-breaking research being conducted by Trent Durham faculty.
“Students have a unique opportunity to work alongside faculty and conduct dynamic research at Trent and in the community.”