Modeling Put-Option Margin and Default Risk When Labor Has a Voice in Bank Governance Mechanism

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Title:	Modeling Put-Option Margin and Default Risk When Labor Has a Voice in Bank Governance Mechanism
Authors:	Chang, Chuen-Ping;Lin, Jyh-Jiuan;Tsai, Jeng-Yan
Contributors:	淡江大學國際企業學系
Keywords:	Bank Interest Margin;Default Risk;Labor Voice;Put Option
Date:	2010-05
Issue Date:	2011-10-22 23:47:00 (UTC+8)
Publisher:	Zographou: World Scientific and Engineering Academy and Society
Abstract:	Although considerable research effort has been put toward modeling governance mechanisms for the purpose of valuing investment decisions written on them, little attention has been paid to the effects of governance mechanisms by labor voice on bank operations management. Like entrenched operations management, entrenched labor cannot be gotten rid of easily. This paper demonstrates how labor voice determines the optimal bank interest margin and default risk decisions. Our model is based on a regime giving corporate governance power to current labor and then labor's objective is equivalent to minimizing the equity value of the put option. We show that the governance voice pushes bank interest margin determination toward shareholder value maximization. However, an opportunity cost of bank governance from listening labor voice is increasing the bank's default risk in equity returns.
Relation:	WSEAS Transactions on Mathematics 9(5), pp.386-396
Appears in Collections:	[Graduate Institute & Department of International Business] Journal Article

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