Forthcoming articles


Afro-Asian Journal of Finance and Accounting


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Afro-Asian J. of Finance and Accounting (16 papers in press)


Regular Issues


  • 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

  • Robust value-at-risk forecasting of Karachi Stock Exchange   Order a copy of this article
    by Farhat Iqbal 
    Abstract: A class of robust M-estimators for generalised autoregressive conditional heteroscedastic (GARCH) type models are used for the prediction of Value-at-Risk (VaR) of the Karachi Stock Exchange (KSE). To better understand the impact of the global financial crisis on KSE, the daily stock return data is divided into three sub-periods: the pre-crisis period (03 January 2005 31 December 2007), the crisis period (02 January 2008 30 June 2009), and the post-crisis period (01 July 2009 31 December 2013). Symmetric and asymmetric GARCH models that capture the most common stylised facts about index returns, such as volatility clustering and leverage effect, are fitted to these time periods and in-sample and out-of-sample estimates of VaR are obtained. Our results show that M-estimators provide accurate and reliable estimates of VaR in low and high volatile time. Our findings also show that the asymmetric model provides a better fit than the symmetric model for the KSE.
    Keywords: GARCH; M-estimator; volatility; value-at-risk.

  • Why the risk-adjusted discount rate method is a better method than the certainty equivalent method: a teaching perspective   Order a copy of this article
    by Srinivas Nippani 
    Abstract: One of the more popular methods of risk analysis in capital budgeting is the certainty equivalent method. In this paper, we discuss the major drawbacks of using this method, and strongly argue in favour of the risk-adjusted discount rate method. The calculation of certainty equivalent factors, the use of risk-free rate as the discount rate, the reinvestment rate assumption and the practical problems for multinational corporations for using the certainty equivalent method are discussed. We also discuss the concept of cost of capital and its role in relation to the use of the two methods of risk analysis.
    Keywords: capital budgeting; risk analysis; certainty equivalent method; risk-adjusted discount rate method.

  • Tax planning and payment timing   Order a copy of this article
    by Soufiene Assidi, Mohamed Ali Brahim Omri 
    Abstract: The purpose of this paper is to find out about the arbitration between the payment of tax due and the reinvestment of this amount and to look for the timing in which the reinvestment of tax due is more profitable than tax payment. This research is made in connection between accounting and taxation context and tax system feature. To answer our question we use the Vector Auto Regression (VAR) method, which will enable us to analyse the response functions that determine the time at which the profitability of the investment duties to pay will become higher than the penalties. We use a sample of 37 firms listed over 11 years (2000 to 2010). The result shows that managers are not interested to make tax payments within two years because the return of reinvestments will be negative because of the impact of penalties incurred by the legal system and the importance of tax revenues in the economy and the short-term exploitation. This study can also be the object of replications in other contexts. The findings of this paper contribute to the sparse literature on tax management and could be improved by tax optimisation considerations.
    Keywords: tax planning; tax timing; penalty; reinvestment tax.

  • Money demand and black market exchange rate : a cointegration approach with structural break   Order a copy of this article
    by Mouyad Alsamara, Charfeddine Lanouar, Zouhair Mrabet 
    Abstract: This paper examines different specifications of the money demand function by including both black market exchange rate and oil prices as additional variables in Syria for the period 1990Q1 -2009Q4. In order to test the stability of the proposed money demand function specifications, we apply the cointegration approach with structural breaks. The empirical results provide strong evidence for the existence of a stable long run relationship with shift in the cointegration vector. In particular, we found that 28% of the money demand adjustment, following a short-run shock, occurs in the following period. Moreover, the results show that the two additional variables, black market exchange rate and the oil price, play a vital role in determining the money demand in Syria.
    Keywords: money demand; cointegration test; structural break; black market exchange rate.