Afro-Asian J. of Finance and Accounting (6 papers in press)
- Excessive CEO compensation and performance in family French firms
by Rim Ben Hassen
Abstract: The purpose of this paper is to examine the effects of CEO compensation on firm performance of French family firms. To investigate the link between executive pay and firm performance, we used multiple regression method over a period of four years (2007 to 2010). Our results show that French family companies provide excessive compensation compared with their non-family counterparts, suggesting that families are likely to extract private benefits at the expense of minority shareholders. The findings also show that excess remuneration paid to executives has a negative impact on financial performance. This result confirms the preceding one and suggests that CEO compensation is used by families as a tunnelling mechanism that exacerbates agency costs.
Keywords: excessive compensation, corporate governance, performance, family French firms.
- Profitable trading strategies based on price multiple information: evidence from India
by Sanjay Sehgal, Asheesh Pandey
Abstract: This paper examines whether price multiples information can be used to develop profitable trading strategies. Data is employed for BSE 500 companies in India from July 2001 to April 2013. We find that, in general, low P/E, P/B and P/S stocks outperform high P/E, P/B and P/S stocks. Based on standalone price multiples, a low P/B stock portfolio provides the highest return of 2.4% per month on a risk-adjusted basis. It is observed that a combination of price multiples and their key value drivers does not provide trading strategies that outperform those based on standalone price multiples. Standard risk models such as the Capital Asset Pricing Model (CAPM) and the FamaFrench model are not able to explain the cross-section of returns for price multiple sorted portfolios. These findings are pertinent for market regulators, investment analysts and academia. The study contributes to the equity valuation and asset pricing literature for emerging markets.
Keywords: relative valuation, price earning multiple, price to book value ratio, net profit margin, return on equity
- Performance measurement link between the balanced scorecard dimensions: an empirical study of the manufacturing sector in Malaysia
by Anbalagan Krishnan, Ramaswamy Ravindran, Prem Lal Joshi
Abstract: In todays competitive business environment, firms are emphasising the use of an integrated performance system consisting of both financial and non-financial measures. This integrated performance measurement system strategically evaluates the performance of the firm in many aspects. The integrated performance measures are necessary to improve the organisational outcomes, whereby it enhances the decision making process by ensuring that relevant information is available. The literature discussion provides sufficient evidence that the improvement of the firms financial position depends on non-financial measures. The causal link between non-financial outcome to the financial outcome adds value in all aspects of organisation performance. There are few studies in the Western context that highlight the causal relationship between the financial and non-financial performance; also, empirical research seems to be still be lacking in the Malaysian business environment. Therefore, this study explores the causal association between the financial and non-financial measures in the context of the Malaysian business environment. This study uses Structural Equation Modelling (SEM), which is a superior research tool to measure the causal relationship between the financial and non-financial performance measures in comparison with other multivariate techniques. The selection of Malaysian business sectors is mainly motivated by different natures of business. The culture of the Malaysian business operations is different from the Western business context, where the emphasis of non financial dimension is greater. In the context of the Malaysian business environment the financial motive is still prominent, as compared to the non-financial aspects. But due to globalization, the financial motive perception is gradually replaced by the emphasis of both financial and non-financial aspects. This study has proved that the manufacturing firms in Malaysia emphasise both dimensions as, statistically evidenced through the link between the BSC dimensions.
Keywords: causal relationship, financial and non-financial performance measures; traditional measurement system.
- The financial crisis of 2008 and stock market volatility: analysis and impact on emerging economies pre- and post-crisis
by Shailesh Rastogi
Abstract: Stock market volatility plays a very important role in making or marring the fortunes of the investors. The study of volatility becomes more important during extreme conditions, such as financial crisis. This paper, through GARCH, TGARCH and EGARCH models, analyses and compares the volatility before and after the financial crisis of 2008. The study has been conducted on the emerging economies and comes out with quite interesting results. It concludes that the impact of the crisis on the volatility and leverage effect has been significant on the stock markets of different nations, but the direction of the impact has been mixed.
Keywords: volatility; GARCH, asymmetry; risk; financial crisis
- The predictive ability of consumer sentiment volatility to the Malaysian stock markets volatility
by Nathrah Yacob, Nurul Shahnaz Mahdzan
Abstract: In this paper, we examine the predictive ability of consumer sentiment volatility on the volatility of stock returns in Malaysia. We also investigate the relationship between volatility of consumer sentiment and volatility of stock market returns, with a focus on the 2008 global financial crisis. The consumer sentiment index is derived from a national survey of 1200 Malaysian households, including a measurement of the level of consumers optimism or pessimism in regards to the economy. Although the surveys measure the general outlook of households with regard to the economy, the present paper provides distinct evidence that the consumer sentiment index is relevant to the Malaysian stock market behaviour. Results show that volatility of consumer sentiment index holds significant predictive power in explaining the behaviour of stock market volatility measured by GARCH (1,1). Findings also provide evidence of significant predictive power of the consumer sentiment volatility to stock market volatility during the 2008 global financial crisis.
Keywords: Asian, behavioural finance, emerging markets, investor sentiment, stock returns, volatility
- Equity capital and bank profitability: evidence from the United Arab Emirates
by Reza Chowdhury
Abstract: The objective of this paper is to understand the effect of increasing equity capital in domestic banks of the United Arab Emirates (UAE). The paper also examines whether the relationship differs by bank size, particularly at the time of financial crisis. We apply three different approaches including (i) ordinary least squares, (ii) fixed-effect regression, and (iii) system generalised method of moments to examine the research questions. The results show that increasing equity capital improves bank profitability in the UAE, and thus high equity capital, is a critical value-driver for UAE banks. The evidence also shows that the Dubai debt crisis had an insignificant effect on bank performance. We, however, do not find significant evidence that high equity capital of domestic banks is used as a buffer to absorb financial shock. This finding holds regardless of individual bank sizes.
Keywords: equity capital, bank profitability, financial crisis, domestic banks, United Arab Emirates