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


  • Determinants of forward-looking disclosure: evidence from the Bahraini capital market   Order a copy of this article
    by Gehan Mousa, Elsayed Elamir 
    Abstract: This study investigates the factors that may affect the extent of corporate forward-looking disclosure in the Bahraini capital market. The study creates a forward- looking disclosure index of 56 items, and applies QDA Miner as a qualitative data analysis software package to measure the amount of forward-looking information disclosed by a sample of Bahraini listed companies in the period 2010-2013. The study employs backward regression analysis, as a unique technique that excludes insignificant variable(s) from the study and suggests the best model with significant variables, to examine the relationship between corporate forward-looking disclosure and five firm characteristics (firm size, financial leverage, sector type, profitability, and liquidity). The backward regression analyses show that financial leverage and firm size are found to be significant; however, sector type, profitability, and liquidity are found to have insignificant association with the level of corporate forward-looking disclosure.
    Keywords: corporate disclosure; annual reports; forward-looking information; Bahrain Bourse.

  • An analysis of diversification benefits of commodity futures using Markov regime-switching approach   Order a copy of this article
    by Ritika Jaiswal, Rashmi Uchil 
    Abstract: This study investigates the hedge and safe haven properties of individual commodity futures against stock market movements using a nonlinear regime-switching framework. Based on the results of Brock, Dechert and Scheinkman (BDS) test and information selection criterion, the Markov-Switching Vector Autoregression (MS-VAR) model is applied with three regimes for gold and silver futures and with two regimes for crude oil, copper and zinc futures. The results demonstrate strong hedge and weak safe haven property of gold and silver futures, and show a weak hedge and weak safe haven potential of copper and zinc futures. Conversely, crude oil futures cannot be used as a safe haven against extreme stock market movements. In addition, portfolio analysis confirms that these findings provide significant information to investors for the construction of better risk-adjusted return portfolio.
    Keywords: commodity futures; diversification; hedge; Markov switching; nonlinear; MS-VAR; regime switching; safe haven.

  • Investor sentiment and asset returns: the case of the Indian stock market   Order a copy of this article
    by Sachin Mathur, Anupam Rastogi 
    Abstract: According to behavioural finance theory, investor sentiment can lead to extreme mispricing of stocks. In this paper, we describe the construction of an investor sentiment index for India, an emerging market, to examine the association between sentiment and stock returns. We test whether the sentiment index predicts long term returns of the stock market, as well as of stock portfolios formed on the basis of size and value characteristics, over the sample period of 2004 to 2016. The sentiment index fails to predict broad market returns, but is inversely associated with the subsequent years returns of small low-priced stocks, consistent with constrained arbitrage argument of behavioural finance theory and information uncertainty associated with such stocks.
    Keywords: investor sentiment; sentiment index; behavioural finance; stock returns; information uncertainty; emerging market; India.

  • Changes in the value relevance of accounting information before and after the adoption of K-IFRS: evidence from Korea   Order a copy of this article
    by Gee Jung Kwon 
    Abstract: This paper primarily aims to investigate the value relevance change before and after the mandatory adoption of Koreas international financial reporting standards (K-IFRS), which converges with traditional International Financial Reporting Standards (IFRS) in the listed Korean financial markets. This study extends previous literature by examining the different value relevance of the book value of equity, accounting earnings, operating income, cash flows, and operating cash flows after the adoption of new K-IFRS, which is based on IFRS. This paper tests the value relevance value relevance change by dividing sample data into the periods before (20082010) and after (20112013) K-IFRS adoption. This study categorises sample data into several subgroups by firm size (large versus small and medium) and applicable financial market (KOSPI versus the KOSDAQ) for revealing further evidence of the value relevance change in Korean companies. Empirical results indicate that the value relevance of the book value of equity significantly increased after K-IFRS adoption (20112013), whereas other variables such as accounting earnings, operating income, cash flows, and operating cash flows are negatively associated with firm value. Moreover, some of these variables do not significantly relate to enterprise value among the total sample data. The empirical results in this paper suggest that the value relevance of book value, accounting earnings, operating income, cash flows, and operating cash flows significantly changed before and after K-IFRS adoption. This papers evidence suggests the possibility of a new debate regarding the primary value relevant factor before and after K-IFRS adoption among the companies listed on the Korea Stock Exchange.
    Keywords: book value; cash flows; K-IFRS; net income; operating cash flows; operating income; value relevance.

  • Random walk model and asymmetric effect in Korean composite stock price index   Order a copy of this article
    by Divya Aggarwal 
    Abstract: This paper empirically examines the market efficiency and the volatility persistence of weekly stock returns of the Korean composite stock price index (KOSPI) from July 1997 to September 2016. It studies the market efficiency in the presence of both linear and nonlinear dependence in the stock price series, along with testing for structural breaks in the data. By employing various econometric tests, evidence was found of weekly series not following a random walk model along with asymmetric volatility effects. The results have significant implications for investors and traders as market inefficiency can impact both domestic and foreign flows in an economy. This study is unique as it employs multiple tests for market efficiency along with examining volatility persistence over a wide time frame of almost two decades. Because the results on market efficiency are mixed for Korean stock market, this study aims to offer a more comprehensive picture.
    Keywords: KOSPI; random walk model; auto regressive conditional heteroscedasticity; volatility; asymmetric.

  • Impact of corporate social responsibility on firms performance; evidence from non-financial sector of Pakistan   Order a copy of this article
    by Burhan Rasheed, Noman Arshed, Zohair Farooq Malik, Mohyuddin Tahir Mahmood 
    Abstract: The objective of this study is to examine the impact of Corporate Social Responsibility (CSR) on Firms Performance (FP). It is based on conceptual aspects of CSR and considers how CSR can be measured in order to investigate the FP. The paper is exploratory in its kind because CSR is measured as investment and disclosure in the Pakistani non-financial sector. The empirical results of this study provide evidence of a positive impact of CSR on FP. It is further concluded that firms investing in CSR have good financial performance. This study is a pioneer in Pakistan regarding CSR as investment and disclosure simultaneously, and therefore an addition to existing literature on CSR. This paper provides different new ways to examine CSR, by encouraging a discussion about the importance of corporate social responsibility.
    Keywords: corporate social responsibility; firm’s performance; non-financial sector; simultaneous equation model.

  • Does voluntary greenhouse gas emissions disclosure reduce information asymmetry? Australian evidence   Order a copy of this article
    by Zahra Borghei, Philomena Leung, James Guthrie 
    Abstract: Based on agency theory, this study investigates the consequences of carbon disclosure by non-greenhouse gas registered Australian companies on information asymmetry measures over a period after the introduction of the National Greenhouse and Energy Reporting Act 2007 and before the introduction of the Australian carbon tax. The level of carbon disclosure is scored through the content analysis of the annual reports. The findings support that carbon disclosure is negatively related to information asymmetry measures: the bid-ask spread and stock return volatility, in the year following disclosure. Overall, the research results are consistent with predictions of the agency theory and indicate that companies bear the extra voluntary reporting costs to achieve the perceived benefits of disclosure. The findings should be useful for corporates and stakeholders who are concerned about the value relevance of carbon disclosure in financial markets. For accounting standard setters, it highlights the urgency of carbon reporting guidelines.
    Keywords: carbon emission; voluntary disclosure; information asymmetry measures; NGER Act 2007; content analysis; climate change.

  • Return and volatility spillovers among stock markets: BRICS countries experience   Order a copy of this article
    by Pradiptarathi Panda, M. Thiripalraju 
    Abstract: This study attempts to measure the inter-linkages among stock markets for Brazil, Russia, India, China and South Africa (BRICS). We take daily data of five stock indices for BRICS countries from 26 June 2002 to 31 July 2014 with 2866 observations. We consider IBOVESPA index to represent Brazil stock market, MICEX index to represent Russia stock market, SENSEX to represent India stock market, Shanghai composite index to represent China stock market and FTSE/JSE all shares index as a representative of South Africa stock market. The present study differs from the existing literature in terms of studies for a group of countries and examines the magnitude of spillover in terms of return and volatility across markets for BRICS countries. We first test the stationarity of the data series, then we employ VAR Granger causality test among stock indices to capture price spillover effect and to proceed we employ Exponential Generalised Auto Regressive Conditional Heteroscadasticity (EGARCH) model to capture the volatility spillover effect as well as asymmetric spillover effect. We find that the presence of bidirectional and unidirectional return spillover indicates a close relationship among BRICS countries' stock markets. We depict negative news impacts more on volatility of these countries stock markets. Further, we find diversification does not give any economic value from India, Russia and Brazil stock markets to China stock market. The knowledge of transformation of information from one market to another market helps to develop hedging strategy, finds diversification opportunities and captures the efficiency of the market.
    Keywords: spillover; BRICS; EGARCH; Granger causality.

  • Regulatory institutional quality and long-run primary capital market development: the Nigerian case   Order a copy of this article
    by Patrick Eke, Kehinde Adetiloye, Joseph Taiwo 
    Abstract: The role of the financial regulator is significant in the development of its sector. This paper examines the impact of the Securities and Exchange Commission (SEC) on the development of the Nigerian primary capital market, using Granger-Vector autoregression (VAR) framework for data from 1980 to 2013. The variables considered are market capitalisation, liquidity, financial literacy and regulatory quality. The short-run findings indicate that regulatory quality Granger causes market capitalisation, Transaction cost also predicts market capitalisation and liquidity. Financial literacy predicts capitalisation and liquidity. Market capitalisation responds negatively to regulatory quality long-run impulses, implying that an indifferent regulation could be catastrophic for future primary market development. However, capital issuing responds positively to regulatory quality innovations throughout the period. A priori significant finding is that market capitalisation and liquidity do not drive capital issuing. For policies, the paper recommends regulators to increase campaigns to deepen the understanding of issuers and increase financial literacy, promote the registration of more rating agencies, and reduce transaction costs. Regulators should apply soft listing requirements to encourage more firms to seek funds from primary capital market.
    Keywords: Securities and Exchange Commission; primary capital market; impulse response function; financial literacy; Nigeria.

  • Corporate governance index and firm performance: empirical evidence from Indian banking   Order a copy of this article
    by Manmeet Kaur, Madhu Vij 
    Abstract: The increase in famous global corporate scandals has steadily increased the attention towards the failure of corporate governance practices around the world. Owing to globalisation the quality of Corporate Governance (CG) systems becomes an important factor for a firms survival. The problem is more critical when banks are taken into consideration because of their important role in the economy. The present study examines the various practices of CG for banks in India, using a sample of 39 listed banks in the BSE market as on 31 March 2014. In the study the Corporate Governance Index (CGI) has been constructed for each bank to measure the level of good governance practices implementation and to verify whether the banks performed better with regard to that. The overall CGI is subdivided into seven subindices. The variables of the subindices are based on statutory and non-mandatory requirements given by SEBI (Securities Exchange Board of India) under clause 49 of the listing agreement, Basel Norms, RBI recommendations and Companies Act, 2013. The scores of overall CG index and subindex are analysed using non-parametric Mann Whitney U test. The level of compliance is analysed among public and private banks. OLS regression method has been used to evaluate the relationship between the overall CGI, its subindices and bank performance. The results show that CGI is significantly and positively associated with financial performance of banks measured by return on assets, Tobins Q and economic value added. We conclude that the CG mechanism has an influence on banks' performance and value. There is a need to frame and enforce the Code of Banking Sector Governance by the Indian Banks Association in consultation with Reserve Bank of India. Banks indeed would have a good incentive to voluntarily improve their governance standards as will benefit them in terms of performance.
    Keywords: corporate governance index; bank performance; ownership structure; corporate governance.

  • High-quality auditors vs. high-quality audit: the reality in Oman   Order a copy of this article
    by Saeed Baatwah, Zalailah Salleh, Norsiah Ahmad 
    Abstract: The objective of this study is to explore the unique setting of Oman with respect to audit quality. This study measures the quality of audit by examining whether Big-4 audit firms and industry specialist auditors have a role in improving the quality of the audit. We use data from the companies listed on the Oman capital market between 2006-2013. Using a panel data approach and two measures of audit quality for the purpose of this study, we find that the audit quality of Big-4 audit firms and industry specialist auditors is low because they do not enhance the quality of discretionary accruals and do not have a propensity to issue going-concern audit opinion. We also document that Big-4 audit firms and industry specialist auditors consider that religion and risk factors provide the means for achieving high-quality audit. This paper is different from prior studies because it is the first to comprehensively examine audit quality in a unique setting: the Gulf Cooperation Council (GCC). Furthermore, it extends our understanding of the role of religiosity in audit quality.
    Keywords: audit quality; earnings management; going-concern opinion; Big-4 audit firms; industry specialist auditors; Oman.

  • Why do firms smooth dividends? Empirical evidence from an emerging economy - India   Order a copy of this article
    by Nishant Labhane 
    Abstract: The present study examines the determinants of the dividend smoothing behaviour of 240 sample companies listed on National Stock Exchange (NSE) in India, which have continuous data during the period 1994-95 to 2012-13. The empirical results show that Indian firms have target payout ratios, and adjust to their targets relatively slowly but not as slowly as the firms in the developed markets such as USA, Germany, and France and thus, tend to smooth and stabilise their dividends and rely on long-term target payout ratios while making the dividend payment decisions. The firms having high investment opportunities, low leveraged, riskier, and smaller size tend to smooth their dividends more. As for the macroeconomic factors, the high dividend distribution taxes imposed by the government tend to make the firms smooth their dividends more. Overall, the results support the information asymmetry and agency-based explanations of dividend smoothing.
    Keywords: dividends; dividend policy; dividend smoothing; Lintner model; target payout ratio.

  • Bank capital buffer, bank credit and economic growth: evidence from India   Order a copy of this article
    by Aniruddha Durafe, Ankur Jha 
    Abstract: This paper studies the procyclical behaviour of bank capital and bank credit by investigating the causal relationships among bank capital, bank credit and economic growth in government-owned public sector banks of India. In this study, the Granger causality test, cross correlation function and Pearson correlation test are applied. Also, the augmented Dickey-Fuller test is used to find out the stationarity of time series data. Using bank level data of 322 observations from 23 banks during 2000-2013, the study found that bank capital buffer and tier-1 capital have a tendency to induce procyclicality in bank credit. Further, the study found that there are bi-directional causality and positive correlation between bank credit and economic growth. The result confirms the presence of causal relationships and provides strong evidence for the presence of procyclicality and its associated risk in the economy. The study suggests that banks should maintain adequate bank capital buffer to mitigate the risk associated with the procyclicality. It provides support to the implementation of RBI guidelines on the countercyclical buffer by all banks in India.
    Keywords: bank capital; tier-1 capital; bank credit; economic growth rate; procyclicality; causality; countercyclical buffer.

  • A comparative study of the value relevance of accounting information between financial and non-financial companies listed on the Ghana Stock Exchange   Order a copy of this article
    by Der Basil Abeifaa, Masairol Haji Masri, Mohammed Salisu Abubakari 
    Abstract: We investigate the value relevance of book value, earnings and dividends among financial and non-financial companies listed on the Ghana Stock Exchange from 2005 to 2014. For the sample of non-financial companies, book value and earnings are found to be value relevant. Dividends are value relevant only when earnings are split into dividends and retained earnings. For the sample of financial companies, only dividends and earnings are found to be value relevant. Book value is not value relevant. Largely, accounting information has greater value relevance for the sample of non-financial companies than the sample of financial companies. There is no difference in the explanatory power of the Ohlson (1995) model compared with the two alternative models under investigation. The results have implications for both policy makers and investors.
    Keywords: value relevance; accounting information; Ghana Stock Exchange.

  • An activity-based costing for a university consultancy centre for entrepreneurship   Order a copy of this article
    by Natasha Khandakar, Fethi Saidi, Bilal Elsalem 
    Abstract: The motivation for implementing activity-based costing (ABC) in a service cum academia-oriented remains identical as for other institutions, namely to assign indirect costs to products and services based on activities they require. This study presents and discusses an attempt to develop an ABC stimulation model applicable in an advisory and consultancy unit at Qatar University. To determine the advantages and limitations of costing system, the traditional and ABC methods were compared to analyse and compute the operational costs of the centre, which operates in four main activity centres namely research, training, consultation, and incubation. The study relies on a qualitative research method including data collected from both primary and secondary sources to accumulate data on the identified issues and then implementing these costing methods to the centre. Secondary data was collected by reviewing literature sources, whereas primary data was based a survey conducted with around 30 staff members of the centre, in the form of close-ended questions. The study findings thus revealed that ABC is an appropriate and practical tool that would allow the management of the centre for entrepreneurship to have better insights on their cost elements and efficiently plan the usage of their resources.
    Keywords: activity-based costing; centre for entrepreneurship; traditional costing; cost analysis; Qatar University.

  • Engagement partner attributes and earnings quality: evidence from Borsa Istanbul   Order a copy of this article
    by Murat Ocak, Gökberk Can 
    Abstract: This paper investigates the effects of engagement partners attributes on earnings quality using 725 firm*year observations between 2008 and 2013 from Borsa Istanbul manufacturing industry firms. We use two indicators of earnings quality to test the effects of gender, educational background, experience, and certification from among engagement partners attributes. Our findings emphasise that engagement partners attributes do not have any impact on real activities-based earnings management, but do have an impact on accruals-based earnings management. Female engagement partners have a negative effect on the absolute value of discretionary accruals, especially in negative discretionary accruals. On the other hand, we find that engagement partners with longer experience have negative impact on the absolute and negative discretionary accruals.
    Keywords: earnings quality; engagement partner; gender; experience; accruals; real activities; Turkey; emerging markets.

  • Influence of financial distress on exchange rate exposure: evidence from India   Order a copy of this article
    by Krishna Prasad, K.R. Suprabha, Shridev Devji 
    Abstract: This paper investigates the relationship between exchange rate exposure and level of financial distress. We argue that the exchange rate movements have a greater effect on the value of the firms with higher level of financial distress. The effect of other firm level variables, such as profitability, size of the firm, foreign sales and expenses and liquidity, on exchange rate exposure was also studied. We use Merton's (1974) structural default model to estimate firms distance to default as a proxy for their probability of financial distress. A sample of 387 firms listed in National Stock Exchange (NSE) is studied for a period of 2012-2016. We find that the level of firms exchange rate exposure is significantly positively related to distance to default, indicating that firms that have a greater probability of financial distress are more affected by exchange rate movements.
    Keywords: exchange rate exposure; financial distress; distance to default; Merton’s model.

  • Calendar return seasonality across sectors sizes and styles: evidence from the Indian equity markets   Order a copy of this article
    by Subhransu Mohanty 
    Abstract: As the literature shows, market anomalies in their various forms exist in different markets around the globe. Evidence of seasonality of returns in any form, whether based on time period, such as over specific days, weeks or months, or over size, such as large, medium or small, or over different classifications such style (growth/value/momentum), or across various sectors or triggered by material announcements such as earnings, dividend, etc., are all contradictory to any of the three forms of the Efficient Market Hypothesis (EMH). In this paper, we have made an attempt to find out calendar seasonality of returns in the Indian stock markets. We find that return seasonality exists in the Indian markets across sectors, sizes and styles during a month of the year and during a day of the week. These findings can be attributed to many behavioral aspects of investors and can be used by them in predicting the future returns, or in defining investment strategies in order to benefit from abnormal returns.
    Keywords: calendar return seasonality; market anomalies; month-of-the-year effect; day-of-the-week effect; Monday effect; holiday effect; small-firm-in-January effect; tax-loss selling effect; feedback model.