Journal of Economics, Finance and Administrative Science

Editorial: 61st issue of the Journal of Economics, Finance and Administrative Science

Luis Chavez-Bedoya Mercado — Fri, 01 May 2026 00:00:00 +0000

Welcome to the 61st issue of the Journal of Economics, Finance and Administrative Science (JEFAS). This issue continues our tradition of presenting rigorous, double-blind peer-reviewed research that joins academic excellence with practical application. The following papers address critical gaps in our understanding of financial decision-making, from the psychological biases of entrepreneurs and the capital adjustment dynamics of credit unions to the transmission mechanisms of monetary policy while also exploring option valuation under risk preferences and the strategic role of environmental management in emerging markets. Together, these contributions provide valuable insights for researchers, practitioners, and policymakers alike.

DOI 10.1108/JEFAS-05-2026-391

Behavioral discount rates for entrepreneurs: the effect of overconfidence

Samuel Arturo Mongrut, Nidia Juárez, Vivian Cruz — Thu, 21 May 2026 00:00:00 +0000

Purpose: In this study, we aim to show the effect of entrepreneurs’ overconfidence on their required rates of return. Accordingly, we show the implication of two levels of overconfidence: moderate and excessive.

Design/methodology/approach: We use a hyperbolic absolute risk aversion utility function with a payoff function affected by an ego component to derive different expressions of required rates of return for non-diversified entrepreneurs.

Findings: Using simulations of these expressions, we show that a confident entrepreneur will require an annual average required return of 76.49%, an entrepreneur with moderate overconfidence will require an average return of 20.80% and an entrepreneur with excessive overconfidence will require an average return of 1.77%.

Research limitations/implications: Our expressions for the required rate of return depend on the assumption of the hyperbolic utility function. Other expressions will arise from other functions.

Practical implications: While moderate overconfidence can help overcome the fear of failure, entrepreneurs suffering from excessive overconfidence will underestimate the total risk of a startup.

Social implications: Excessive overconfidence could lead to bankruptcy.

Originality/value: This is the first research that addresses overconfidence in relation to required rates of return.

DOI: https://doi.org/10.1108/JEFAS-08-2024-0267

How do credit unions adjust their capital ratios? Evidence from Brazil

Flávia Zancan, Marcelo Botelho da Costa Moraes — Thu, 21 May 2026 00:00:00 +0000

Purpose: The purpose of this paper is to analyze the speed at which credit unions adjust their capital ratios.

Design/methodology/approach: The systemic Generalized Method of Moments (GMM-Sys) was applied to 704 Brazilian individual credit unions from 2014 to 2022, with a total of 5,864 observations.

Findings: The results indicate that the median Basel Ratio was higher than the Leverage Ratio, without breaching the regulatory minimum. Credit unions show differences in the speed of adjustment, with faster adjustment for the Basel Ratio compared to the Leverage Ratio. Size influences the speed of adjustment, with larger credit unions being more flexible in adjusting their Leverage Ratio more quickly, while smaller credit unions adjust more slowly to the Basel Ratio. During economic crises, the speed of adjustment of the Basel Ratio was higher, probably due to more thorough analysis by supervisors and stakeholder expectations.

Originality/value: The originality of this study lies in the analysis of the speed of adjustment of capital ratios in credit unions, focusing on the differences between the Basel and Leverage Ratios. This study fills a significant gap in the literature, offering insights into how these institutions adjust their capital ratios in the context of Basel III. The research also explores the impact of credit union size and economic crises on these adjustments, contributing to a deeper understanding of the financial behavior of these institutions and its implications for regulators and supervisors.

DOI: https://doi.org/10.1108/JEFAS-11-2024-0359

Lending rate sensitivity to monetary policy: a bank level empirical analysis

Luis Bendezu, Gabriel Rodriguez — Thu, 21 May 2026 00:00:00 +0000

Purpose: This paper evaluates how the monetary policy rate influences bank lending rates in Peru, focusing on various loan types from September 2010 to August 2022.

Design/methodology/approach: We utilize the Bai and Perron (1998, 2003) methodology to account for structural changes in the pass-through effect of monetary policy on lending rates.

Findings: Findings indicate a heterogeneous impact of monetary policy on lending rates, with larger effects during significant rate changes and heightened sensitivity post-2019 due to COVID-19.

Originality/value: This study is the first to investigate the effects of monetary policy on interest rates using segment and bank level data in Peru.

DOI: https://doi.org/10.1108/JEFAS-12-2024-0383

Depreciation and services trade: the evidence from Japan

B.R. Neeraj, Ivan D. Trofimov — Thu, 21 May 2026 00:00:00 +0000

Purpose: This study aims to examine the effects of currency depreciation and volatility on services trade balance and trade partner concentration and dynamics in Japan at a disaggregated level over the 2006M01 to 2023M09 period.

Design/methodology/approach: It applies linear and non-linear autoregressive distributed lag models and correlation analysis (including cross- and rank correlations) to identify strength, asymmetry and lags in the effects.

Findings: Except for a few cases, the evidence of both J- and S-curves was found weak and generally not asymmetric, as was the effect of currency volatility on trade balance. Trade partner concentration remained stable, and the dynamics of trade partner ranks were slow. The results are explained in terms of the specific response of services (as opposed to goods) trade to depreciation, the nature of competitive processes and corporate reorganisations in Japan and the macroeconomic policy of the recent 2 decades.

Originality/value: The study is one of a kind that examines J- and S-curve effects in services, incorporates volatility and considers trade partner composition effects.

DOI: https://doi.org/10.1108/JEFAS-08-2024-0250

The role of green finance and innovation in advancing environmental sustainability in South America

Md. Sazib Miyan, Calvin W. H. Cheong, Arshian Sharif, Sahar Afshan — Thu, 21 May 2026 00:00:00 +0000

Purpose: This study examines the impact of green finance (GFIN) and green innovation (GTI) on environmental sustainability in seven South American countries from 2000 to 2020.

Design/methodology/approach: The study employs panel data econometric techniques using the Method of Moments Quantile Regression approach to explore the relationships between carbon dioxide (CO₂) emissions, GFIN, GTI, economic growth (GDP), renewable energy (REN) and non-renewable energy (NRE) globalization (GLO) and population (POP). The robustness of the results is confirmed through additional analyses using bootstrap quantile regression, feasible generalized least squares and panel corrected standard errors.

Findings: The findings reveal that GFIN significantly reduces CO₂ emissions across all quantiles, with stronger effects at higher quantiles. However, GTI shows a positive association with emissions in higher quantiles, suggesting rebound effects. Renewable energy decreases emissions, while NRE, GLO, population and GDP growth contribute to environmental degradation, indicating no evidence of the environmental Kuznets curve hypothesis. Additionally, the Dumitrescu-Hurlin causality test reveals bidirectional causality between carbon dioxide (CO₂), GDP, NRE and POP, and unidirectional causality from CO₂ to GFIN, GTI and REN, highlighting dynamic interactions.

Practical implications: The results suggest that policymakers should promote accessible GFIN, enhance the efficiency of green innovation and invest in REN sources to support environmental sustainability.

Originality/value: This study offers novel insights by applying a quantile-specific approach to examine the impacts of GFIN and innovation on environmental sustainability in South America, addressing a significant gap in the literature where such distributional effects in emerging economies have been largely overlooked.

DOI: https://doi.org/10.1108/JEFAS-04-2025-0159

Numerical methods to value an option including risk aversion with a constant relative risk aversion function

Julian A. Pareja-Vasseur, Freddy H. Marin-Sanchez, Diego Manzur — Thu, 21 May 2026 00:00:00 +0000

Purpose: This study develops a comprehensive discrete numerical model for option valuation that explicitly incorporates risk preferences, which may deviate from risk neutrality. Unlike the traditional binomial tree models – strictly under the risk-neutral paradigm – our framework embeds a constant relative risk aversion (CRRA) utility specification, capturing heterogeneous attitudes toward risk while preserving the arbitrage-free pricing rule.

Design/methodology/approach: The model extends the multiplicative binomial recombination tree (MBRT) by adjusting key parameters – transition probabilities, growth factors, discount rates and drift/diffusion terms – to reflect the investor’s degree of risk aversion. The classical Cox-Ross-Rubinstein binomial tree (CRR) emerges as a special case when risk aversion is set to zero. The methodology remains consistent with geometric Brownian motion (GBM) dynamics and is benchmarked against a modified Monte Carlo simulation to ensure robustness.

Findings: Results show that option values can be consistently derived under both traditional risk-neutral settings and preference-driven settings. Sensitivity analysis highlights the impact of time to maturity, volatility, strike price and the risk-free rate under varying levels of risk aversion.

Research limitations/implications: While this research offers significant theoretical and practical contributions, certain limitations warrant further study. Computational complexity: the CRRA-based valuation method introduces additional numerical challenges, requiring precise calibration and advanced optimization techniques. Dependence on risk aversion estimates: the model assumes that investor risk preferences can be accurately measured and remain stable, which may not always reflect dynamic market conditions. Absence of a closed-form solution: our proposed approach lacks an analytical closed-form solution. Therefore, it is crucial to dedicate efforts to its development.

Practical implications: The integration of CRRA utility functions into derivative valuation represents a key innovation, as it explicitly accounts for investor risk preferences beyond the traditional risk-neutral paradigm. This framework advances the literature on utility-based and nonlinear risk-adjusted pricing by demonstrating how variations in the relative risk aversion (RRA) coefficient shape option values. From a practical perspective, the model offers a flexible tool for portfolio managers, traders and policymakers by aligning valuations with observed market behavior while preserving consistency with classical models under specific conditions. Accurate calibration of risk preferences thus becomes essential for reliable pricing and policy design.

Originality/value: The novelty of this research lies in bridging utility-based preferences with recombining lattice valuation: while prior studies focused exclusively on risk-neutral or arbitrage-based approaches, our model incorporates explicit risk aversion into the numerical structure. By deriving general algebraic expressions and validating the framework through numerical experiments, this study offers a tractable and versatile tool for analyzing option prices under heterogeneous risk attitudes, without losing the analytical clarity of traditional methods.

DOI: https://doi.org/10.1108/JEFAS-01-2025-0047

Innovation, green management and SME performance: evidence from Latin American manufacturing firms

Evelyn Núñez, Juan Carlos Leiva, Ronald Mora-Esquivel — Thu, 21 May 2026 00:00:00 +0000

Purpose: This study explores the mediating role of innovation output in the relationship between green management and the performance of small and medium-sized enterprises (SMEs).

Design/methodology/approach: This research is based on a dataset collected by the Ibero-American SME Observatory, comprising 3,966 manufacturing SMEs in Latin America. Data were gathered between February and May 2022 and analyzed using partial least squares structural equation modeling.

Findings: Innovation output, as a strategic resource or capability, mediates the relationship between green management and SME performance, which implies that the impact of green management on SME performance is bolstered by innovation output.

Originality/value: Grounded in the resource-based view, this study contributes to the field of innovation by identifying innovation output as a mechanism that strengthens the relationship between green management and SME performance. The findings are therefore relevant for manufacturing SMEs seeking to address environmental challenges and ensure market survival through innovation, as well as for policymakers.

DOI: https://doi.org/10.1108/JEFAS-02-2025-0057

The role of agency costs and shareholder protection in family firms’ cash-holding decisions

Serhat Yaman, M. Belén Lozano — Thu, 21 May 2026 00:00:00 +0000

Purpose – This study analyzes the effects of country-level shareholder protection and agency costs on the cash-holding policies of family firms.

Design/methodology/approach – Data were collected for 2,159 European firms for the period 2010–2019. The authors estimate the model using the generalized method of moments.

Findings – Agency costs are found to have a stronger effect than low country-level shareholder protection on decision-making related to cash-holding policies. In line with previous literature, the results show that the absence of agency costs between ownership and control results in holding more cash for the firms. In addition, family firms with a dominant shareholder and young firms hold more cash than family firms without a dominant shareholder and old firms, respectively. The study also finds that firms in countries with a low level of shareholder protection hold more cash than firms in countries with a high level of shareholder protection, in turn. However, the effect of agency costs outweighs the effects of low country-level shareholder protection.

Originality/value – This study advances the literature on family firms by examining the interplay between ownership, governance and agency costs in shaping cash-holding decisions, particularly in the context of European firms with varying levels of shareholder protection. Additionally, it provides a valuable perspective by analyzing how different types of agency costs influence cash holdings in family firms, demonstrating that these costs have a stronger impact than country-level shareholder protection in determining corporate liquidity policies.

Return reversal of Latin American industries

Luis Berggrun, Emilio Cardona, Edmundo Lizarzaburu — Thu, 21 May 2026 00:00:00 +0000

Purpose: This study analyzes inter-industry reversal, or whether loser or underperforming industries yield higher returns than winner or outperforming industries in Latin America. The phenomenon is likewise examined in market segments that are more prone to inefficiencies and short-selling barriers. It also investigates intra-industry reversal by assessing whether loser stocks outperform winner stocks within the same industry. The analysis is then extended to market segments defined by stock characteristics.

Design/methodology/approach: Long-term reversal for industry portfolios is evaluated following the portfolio simulation approach proposed by Jegadeesh and Titman (1993). When testing multiple hypotheses simultaneously, the probability of reporting false positives increases substantially. To account for multiple hypothesis testing, p-values are adjusted using several well-established approaches.

Findings: No evidence of inter-industry reversal for the whole market or for specific market segments was found. Moreover, in both the entire market and certain segments, a contrarian intra-industry reversal strategy does not yield profits. Overall, investors in Latin American industries would have been unable to profit from exploiting return reversion across and within industries in the region.

Research limitations/implications: The study focuses on formation periods of up to five years and holding periods of up to a year, as constrained by data availability. This limitation restricts the range of reversal strategies that can be analyzed (e.g. formation periods of a decade are not considered). As additional data become available, this limitation will be less severe.

Practical implications: This paper builds on our previous paper that explored industry return continuation or momentum. Overall, neither momentum nor reversal at the industry level appears to be significant in Latin America’s most important equity markets. Violations of weak-form market efficiency at the industry level in Latin America are not supported by our findings.

Originality/value: This paper contributes by providing new evidence on both inter- and within-industry reversal in a region that is frequently overlooked in international studies. It also adds to the literature by analyzing reversal in market segments related to industry and stock characteristics such as size or market cap. In addition, the study addresses the issue of multiple hypotheses testing, which is often neglected in existing literature.

DOI: https://doi.org/10.1108/JEFAS-05-2025-0165

Sustainable goals, unsustainable debt? An empirical analysis of the sustainable development goals and government financial sustainability

Thu, 21 May 2026 00:00:00 +0000

Purpose: This paper aims to examine the relationship between the implementation of the sustainable development goals (SDGs) and governments’ financial sustainability. It analyzes whether progress toward the 2030 Agenda is associated with increasing public debt, thereby highlighting the potential fiscal implications of sustainability-oriented policies.

Design/methodology/approach: The study uses a balanced panel of 145 countries covering the period 2016–2023. A dynamic model is estimated using the two-step system generalized method of moments. The dependent variable is general government gross debt (% of gross domestic product (GDP)), while the key independent variable is the SDG Index. Additional control variables include GDP per capita, unemployment, population metrics, revenue, political ideology, gender representation and voter turnout. Several robustness checks have also been conducted, including alternative estimation methods, variable substitutions and subsample analyses.

Findings: The results show a significant and positive relationship between SDG performance and public debt levels. Countries with higher SDG scores tend to exhibit greater indebtedness, suggesting that SDG progress is frequently financed through borrowing.

Originality/value: This is among the first empirical studies to examine how SDG implementation affects national debt. It offers new insights into the financial trade-offs of sustainable development, highlighting the importance of aligning sustainability strategies with sound fiscal planning. The findings contribute to debates on financing the 2030 Agenda and inform public finance and policy decisions.

DOI: https://doi.org/10.1108/JEFAS-07-2025-0257