Forthcoming articles


Afro-Asian Journal of Finance and Accounting


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Afro-Asian J. of Finance and Accounting (18 papers in press)


Regular Issues


  • The influence of corporate governance on corporate performance: evidence from an emerging economy   Order a copy of this article
    by Yousef M. Hassan, Kamal Naser, Rafiq H. Hijazi 
    Abstract: The objective of this study is to explore the relationship between corporate performance and corporate governance by companies listed on the Palestinian Stock Exchange. Accounting and market performance measures were used to proxy corporate performance. Corporate governance represented by the size of the board of directors, the frequency of the annual meetings of the board, the existence or otherwise of an audit committee, institutional investors' ownership and foreign ownership. To achieve the objective of the study, all non-financial companies listed on the exchange that published their annual reports during the period between 2010 and 2012 were used. The result of the analysis revealed that corporate performance is negatively associated with corporate governance. This implies that that the result is inconsistent with agency theory. This might be because corporate governance in Palestine is still at its infancy stage.
    Keywords: corporate governance, performance, emerging economy, Palestine.

  • Asset growth and the cross-section of stock returns: evidence from Vietnam   Order a copy of this article
    by Xuan Vinh Vo, Bui Dr 
    Abstract: This article sheds light on the question of whether asset growth is a strong candidate for firm stock returns prediction in the emerging market of Vietnam. We test for the asset investment effects in stock returns at the firm level by examining the relationship between the rate of asset growth and subsequent stock returns. We use a large and unique dataset of market and accounting variables of firms listed on the Ho Chi Minh City stock exchange for the period from 2008 to 2012. Employing a method similar to Gray and Johnson (2011), our results indicate that asset growth has no significant effect on stock returns in Vietnam stock market. Our results tend to support the findings of Fama and French (2008) while contradict the results of Cooper et al. (2008) and Gray and Johnson (2011) in the context of developed markets.
    Keywords: asset growth, stock returns, Vietnam stock market.

  • Return predictability in emerging markets during a unique market condition   Order a copy of this article
    by Sami Al Kharusi, Robert O. Weagley 
    Abstract: Very few studies have investigated the effect of the recent global financial crisis on the weak-form market efficiency. This paper seeks to investigate the weak-form market efficiency of the Saudi Stock Exchange (Tadawul), the Kuwait Stock Exchange (KSE), Qatar Stock Exchange (QE), Bahrain Stock Exchange (BSE), Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX) before and after the recent global financial crisis. The sample includes daily price indices for the period starting from January 2007 to June 2008 for the pre-crisis and from June 2008 to December 2010 for the post-crisis. The results of parametric test (autocorrelation test using Ljung and Box, 1978 Q-Statistics test) show that the markets are inefficient during the post-crisis and efficient during the pre-crisis, except for the Saudi Stock Exchange where the opposite has been found for most lags. The non-parametric test (runs test) provides mixed evidence about the efficiency of these markets. This issue is important to security exchange regulators, investors and analysts attempting to understand investor behaviour in times of crisis.
    Keywords: GCC stock exchange, global financial crisis, market efficiency

  • Cash holdings and corporate governance: an empirical study on Malaysian publicly listed companies   Order a copy of this article
    by Kiarash Ehtiat Karrahemi, Siti Zaleha Abdul Rasid, Rohaida Basiruddin 
    Abstract: The purpose of this paper is to shed light on the relationship between corporate governance characteristics and cash holdings. Cash holding has drawn researchers attention recently as many companies all around the world more than doubled their cash reserves. However, increasing cash holdings can bring about agency issues and that is why it is critical to have a strong corporate governance in order to compensate for the agency costs. This will provide managers with more cash reserves, which leads to more flexibility to take advantage of the investment opportunities. The sample of this study was taken from Malaysian publicly listed companies for a 10 year period from 2003 to 2012. The outcome suggests that corporate governance can significantly affect cash holdings and eventually corporate value. Therefore, companies with stronger corporate governance tend to keep higher cash holdings ratio.
    Keywords: cash holdings, corporate governance, board of directors, audit committee, independence, expertise, meeting.

  • The relationship between corporate governance, foreign investors shareholdings, and corporate performance: the case of South Korea   Order a copy of this article
    by Sun-Wung Hwang 
    Abstract: This study investigates the effects of improved corporate governance on firm value as well as firm performance. By using corporate governance index data for the period of 2006 through 2010 published by the Korea Corporate Governance Service, we got the following results. First, firms with relatively good corporate governance yield better firm performance, which in turn results in greater firm values. Specifically, we found through regression analyses that the corporate governance index has a significant positive relation with EBIT/SALES, Tobin's Q, and the market-to-book value ratio (MB). Second, the corporate governance index has a significantly positive impact on the ownership of foreign investors. Third, foreign investor share holdings positively affect the firm performance measured by MB, Tobin's Q, and abnormal returns.
    Keywords: corporate governance structure; firm performance; firm value; foreign investors’ share holdings

  • Share price behaviour around dividend announcements in Pakistan   Order a copy of this article
    by Naimat Khan, Bruce Burton, David Power 
    Abstract: This paper investigates the information content (signalling) of dividend announcements by firms listed on the Karachi Stock Exchange (KSE) over the period 2005 to 2009. This sample period was selected in order to avoid contamination of the dividend signal with a capital gains tax effect (Litzenberger and Ramaswamy, 1979; Lasfer, 1995; Bell and Jenkinson, 2002) since a capital gains tax was introduced in Pakistan from 2010 onward; there is some evidence about the impact of capital gains taxation on dividend policy in Pakistan (Hamid et al., 2011; Arif and Akbar, 2013). The paper contributes significantly to the literature about the Pakistani market, which has a unique institutional background: first, during the sample period, there was no taxation on capital gains but there was 10% taxation on dividends; second, the Pakistani stock market is dominated by family-owned firms; and third, dividends and earnings are announced at the same time following a board of directors meeting. The findings show that no significant unexpected returns can be earned on the announcement date by trading on dividend news across all 639 announcements for the 202 firms over the period 2005-09; it supports the semi-strong form of the efficient market hypothesis. The results also show that earnings are the dominant signal rather than the dividend announced. Moreover, there is some evidence of information leakage as significant unexpected returns were uncovered two days before the dividend announcements.
    Keywords: signalling, dividend announcements, event study, semi-strong efficiency, information leakage, Pakistan.

  • A quantile regression approach and nonlinear analysis with Archimedean copulas to explain the movements of residential real estate prices   Order a copy of this article
    by Nader Naifar, Khaled Meshal 
    Abstract: The primary objective of this paper is to explain the determinants of residential real estate prices in the largest real estate market in the oil-rich Gulf Cooperation Council (GCC) countries. We employ linear quantile regression analysis to investigate the impact of financial market conditions (stock market returns and volatility), key monetary policy, and macroeconomic variables (including short term interest rates, inflation rates, and crude oil prices) on the residential real estate price dynamics. The secondary objective of this paper is to investigate the nonlinear relationships among variables through the use of two different Archimedean copulas with upper and lower tail dependence. The empirical results consistently demonstrate that only the residential real estate index-inflation rate relationship is statistically significant for all quantiles. We also find a nonlinear relationship among stock market returns, crude oil prices, and the residential real estate index, where the dependence structure is asymmetric and orients toward the upper side of the distribution. This study has significant implications for the analysis of real estate markets, investors, portfolio managers and policy makers.
    Keywords: real estate market; Quantile regression; Copulas models, nonlinear analysis; Stock market; Monetary policy, Macroeconomic variables.

  • The four factor model and stock returns: evidence from Sri Lanka   Order a copy of this article
    by Amal Peter Abeysekera, Pulukkuttige Don Nimal 
    Abstract: There have been numerous studies that have attempted to explain the cross-sectional variation in average returns in developed and emerging markets. However, there is a dearth in the published evidence of research that have looked at frontier markets regarding this aspect. Sri Lanka is considered to be a frontier market and hence the objective of this study is to test the ability of the Carhart four-factor model to explain the variation in the cross-section of average stock returns in the Colombo Stock Exchange (CSE) and to evaluate it in comparison to the capital asset pricing model (CAPM) and the Fama and French three-factor model. The study finds that the four-factor model; incorporating the market factor, size factor, value factor and momentum factor provides a satisfactory explanation of the variation in the cross-section of average stock returns in the CSE. Further, it is found that the four-factor model performs better than the CAPM and the three-factor model.
    Keywords: Carhart four-factor model; GRS F-test; Colombo Stock Exchange; CSE; frontier markets; momentum; Sri Lanka.

  • Modelling persistence in conditional volatility of asset returns   Order a copy of this article
    by Rajan Pandey, Arya Kumar 
    Abstract: Studies on volatility forecasting models indicate superior performance of Generalized Autoregressive Conditional Heteroscedasticity (GARCH) type models in the modelling conditional variance of asset returns. The utility of GARCH parameters lies in their ability in explaining the persistence of the conditional variance. The estimate of persistence provides a quantitative measure of the impact of a sudden significant change in the asset return on its future volatility. This study attempts to analyse the magnitude and time-evolving pattern in the persistence of conditional volatility using data on S&P CNX NIFTY 50 (henceforth, Nifty) benchmark index. The GARCH (1, 1) model is fitted on daily returns and a simple iterative scheme is used to re-estimate GARCH parameters on samples of different sizes and different time periods. The GARCH estimates obtained through repeated estimations furnish empirical evidence on the nature and consistency of the persistence parameter. Findings of the study confirm high persistence in the volatility process and indicate a positive relationship between the conditional volatility and volatility persistence.
    Keywords: volatility persistence; long memory; conditional volatility; volatility clustering; structural changes; volatility asymmetry

  • Impact of foreign ownership on capital structure and firm value in emerging markets: the case of Amman Stock Exchange listed firms   Order a copy of this article
    by Ahmad Y. Khasawneh, Kareem S. Statyieh 
    Abstract: This research examines the impact of foreign ownership on capital structure and the impact of foreign ownership on firms value in the non-financial listed companies in Amman Stock Exchange, taking into consideration the effects of the sector to which the firm belongs. Panel datasets are formed and panel data techniques are used. We develop two models using interaction terms to incorporate the sectors effect. We use the Driscoll-Kraay approach to resolve the heteroskedasticity problem of the fixed effect method. The empirical results suggest a significant negative relationship between foreign ownership and all three measurements of capital structure; although foreign ownership has the largest effect on the short-term market leverage relative to both long-term and total market leverage. The sector of the firms matters, and especially when it comes to the impact of the services sector, it is found that the foreign ownership impact is always statistically significant, although it has a lower impact for the industrial firms. A strong significant positive relationship between foreign ownership and firms value is also found, and the sector of the firms is found to be an important variable in the firm's value determination.
    Keywords: foreign ownership, capital structure, leverage, firm value, Tobin's Q, Amman Stock Exchange, Driscoll–Kraay, heteroskedasticity modified standard error.

  • Dynamic relation between Islamic and conventional lending rates in Malaysia   Order a copy of this article
    by Siew Peng Lee, Noor Azryani Auzairy, Isa Mansor, Chee-Keong Choong 
    Abstract: Conceptually, the Islamic and conventional banking rates are supposedly determined based on different premises, and empirical evidence appears to suggest that they are closely related. However, the findings are not unanimous. This paper offers Malaysian evidence of the extent of relatedness between Islamic and conventional lending rates in a dual-banking system. Our data consists of two pairs of Islamic and conventional lending rates: the base lending rates and the average lending rates. To test the relation, we use the standard methodologies of the Johansen cointegration, variance decomposition, impulse response function and Granger causality. Our results indicate that there is no long-term relation between the Islamic and conventional lending rates for base lending rates; however, the average lending rates do indicate a cointegration between them. In the short run, the averages are independent. In general, it may be concluded that Islamic borrowing may be considered a viable alternative to conventional bank borrowing.
    Keywords: Islamic banking, Islamic financing rate, conventional lending rate, dual banking system

  • Working capital management in Chinese firms: an empirical investigation of determinants and adjustment towards a target level using a dynamic panel data model   Order a copy of this article
    by Ajid ur Rehman, Man Wang 
    Abstract: Satisfactory and timely working capital investment policy is a prerequisite for better performance of any firm. Hence, this study analysed not only determinants of working capital investment policy but also the time taken by firms to adjust their working capital management policies, with special reference to Chinese state-owned and non-state-owned enterprises. For this purpose, an extensive dataset of 760 firms, over a period of twelve years (2001-2012), is taken for analysis. For robustness, four models are used to estimate the parameters. The study finds that bigger sized, highly levered and tangible firms invest less in their working capital. Firms with immediate sales growth and asymmetric information invest more in working capital. Board size and board independence are found to have a monitoring role in curtailing working capital investment. Finally, the study highlights an active working capital management policy by Chinese non-state-owned enterprises by reporting a lower adjustment coefficient for non-state Chinese enterprises compared with state-owned enterprises.
    Keywords: working capital management, pecking order theory, Chinese firms, firm size, leverage, asymmetric information, two steps GMM

  • Long-run impact of financial restructuring on capital structure   Order a copy of this article
    by Anupam Rastogi, Smita Mazumdar 
    Abstract: This paper empirically investigates the impact of financial restructuring on capital structure of a firm in India. Pre- and post-admission data of firms subjected to financial restructuring are compared using paired sample t-test. Fixed effect panel regression model is used to analyse 15 year (2000-2014) data of 91 firms subjected to financial restructuring to find the relation between leverage and its determinants profitability, firm size, tangibility and growth opportunity. Empirical results suggest that financial restructuring by itself is not a reason enough for leverage to increase over a period of 15 years. Other factors such as profitability, tangibility, growth opportunity and firm size play important roles as well. The model corroborates the explanation provided by the asymmetric information theory and the signalling hypothesis to explain the capital structure of a firm.
    Keywords: India, corporate debt restructuring, capital structure, asymmetric information theory, leverage, signalling hypothesis

Special Issue on: Recent Financial Developments in Vietnam

  • Key determinants of inflation and monetary policy in the emerging markets: evidence from Vietnam   Order a copy of this article
    by Mohammed Elgammal, Mohamed Eissa 
    Abstract: The study explores the key determinants of inflation in Vietnam for a period of ten year (2000-2011) using the explanatory variables: past inflation, real income, money supply, exchange rate, interest rate and world oil price. This study uses the vector error correction model to investigate the relationship among inflation and the above variables. We found a significant relationship among inflation and three variables, past inflation, real income and exchange rate. Moreover, the past inflation variable plays the most important role in explaining the current inflation in Vietnam. The exchange rate passthrough is found to have a remarkable influence on inflation in the short run; in particular, a reduction in exchange rate will lead to higher prices. Real income has a negative and small impact relationship with inflation, while the other explanatory variables have insignificant impact on inflation.
    Keywords: inflation; Vietnam; emerging markets; vector error correction model; monetary policy

  • Testing the existence of transfer pricing in Vietnam   Order a copy of this article
    by Nguyen Khac Quoc Bao, Nguyen Huu Huy Nhut, Tri Nguyen Dinh 
    Abstract: Transfer pricing or the manipulation of transfer prices is to set the price of intra-firm transactions different from market prices in order to shift incomes from high-tax locations to low-tax ones. Hence, a multinational corporation can decrease its global tax burden. This study applies the model of transfer pricing incentive of Swenson (2001) by employing the Generalized Method of Moments (GMM) to consider the effect of income tax rate and tariff rates on the setting of transfer prices in ten commodity groups of multinationals operating in Vietnam from 2008 to 2013. The study concludes a positive correlation between changes of transfer pricing incentives and changes of reported transfer prices. Furthermore, the findings also show that when the Vietnamese income tax rate increases, the income tax rate in the headquarters country of parent firms decreases, or when the Vietnamese tariff rate decreases, the level of reported transfer prices of imports from the parent firm to its affiliates in Vietnam increases, for the majority of investigated commodity groups (except motor vehicles).
    Keywords: transfer pricing, tariff rate, income tax rate, GMM

Special Issue on: Recent financial developments in Vietnam

  • Accessibility to credit of small and medium size enterprises in Vietnam   Order a copy of this article
    by Thieu Dao Ha Thi, Mai Nguyen Thi, Kim Nguyen Thien 
    Abstract: The growing prospect of a SME highly depends on its potential to invest in restructuring and innovating, which in turn, needs capital. Accessibility to financial resources, therefore, becomes a significant factor in the growth of a SME as well as economic growth in developing countries. This paper examines determinants of credit accessibility of SMEs in Vietnam. Both quantitative and qualitative approaches are applied, in which a logit model is employed to investigate the possibility of credit accessibility of 756 SMEs in Vietnam. Also, a semi-structured questionnaire is used to investigate the causes of the lack of connections between SMEs and banks in Ben Tre province. The results indicate that the factors that will increase the probability of credit accessibility of SMEs include education of the enterprises managers, collaterals and asset values of enterprises, loans of enterprises taken from the Vietnam Bank for Social Policies (VBSP), State Banks or even private banks, and the differences between enterprises and credit institutions. A number of recommendations are introduced to promote the credit accessibility of SMEs, such as providing unsecured loans and cooperating loans, improving the roles of State Banks of Vietnam, and decreasing the regional differences.
    Keywords: accessibility to credit, small and medium enterprises, lack of financing.

  • Foreign direct investment into real estate and macroeconomic instability in Vietnam   Order a copy of this article
    by Quoc Hoi Le 
    Abstract: In recent years, foreign direct investment (FDI) into real estate in Vietnam has been constantly increasing and is becoming the most attractive business area for foreign investors. Beside positive impacts such as augmenting capital resources and improving socio-economic infrastructure, this paper shows that FDI into real estate in Vietnam contributes to the derivation of macroeconomic instabilities, such as raising inflation, and causing instability in the exchange rate, payment balance, and the banking system. That reality requires the government to implement solutions relating to strengthening the control of FDI inflows into real estate, monitoring real estate credit risks, and directing FDI inflow into relevant business areas, both to use the capital effectively and to avoid causing macroeconomic instability.
    Keywords: foreign direct investment, real estate, macroeconomic instability.

  • Finance in Vietnam: an overview   Order a copy of this article
    by Xuan Vinh Vo 
    Abstract: Vietnam financial market development is an interesting topic that draws attention from many economists worldwide. In this article, we review and highlight some key financial developments in Vietnam. Particularly, we focus on reviewing recent banking system and stock market developments in Vietnam. We observe that there has been a significant improvement in the Vietnam financial system in the last few decades. Obviously, the Vietnam financial market has been gradually becoming more integrated into the global market. Similar to other emerging economies, the integration process poses various challenges for the current institutional and legal framework in the financial system.
    Keywords: financial developments, Vietnam