Afro-Asian J. of Finance and Accounting (3 papers in press)
- Audit quality and cost of equity capital
by Rohaida Basiruddin, Prawat Benyasrisawat, Siti Zaleha Abdul Rasid
Abstract: The purpose of this research is to examine the relationship between audit quality and cost of equity capital. This research argues that the higher the levels of audit quality, the lower the rate of return required by the investor. The cost of equity capital is measured by the price-earnings growth (PEG) model. Audit quality is measured by proxies, including audit fees, non-audit fees, industry specialist auditors and earnings management. Based on the 226 largest companies listed on the London Stock Exchange (FTSE 350) during 20052008, findings report a significant relationship between earnings management and the cost of equity capital. The research does not find a relationship between the other three audit quality proxies. The results suggest that, among larger firms, earnings management is a major issue. Auditors are mainly expected to deal with earnings management. It is more likely that investors perceive auditing as an important mechanism to detect earnings management in large firms, enhancing the value of financial information.
Keywords: audit quality; audit fees; non-audit fees; industry specialist auditor; earnings management; cost of equity capital
- Evolving efficiency of the Saudi Arabian stock market via Shannon Entropy approach: a study on sector-based data
by Hela Ben Hamida
Abstract: This paper analyses the time-varying degrees of weak-form efficiency of the Saudi stock market using sector-based data. The empirical approach is founded on the modified Shannon Entropy and the symbolic time series analysis for a data set covering 15sectors for the period from January 2007 to April 2012). The results reveal significant departure from efficiency but the efficiency degree evolves over time. More importantly, we point out the existence of structural breaks in the time-varying measure of efficiency, indicating that the occurrence of extreme events, such as financial crisis and economic collapse, crude oil volatility shocks, and recent gradual recovery of global markets, strongly impacts the efficiency behaviour over time. More importantly, we provide evidence that Shariah-compliant listed firms behave differently from other firms in terms of the degree of weak-form efficiency and its path over time. Overall, our results provide several implications for portfolio managers and Saudi policy makers. Indeed, portfolio managers should take these results into account when they have to seek sector diversification benefits and to make asset allocation decisions. These results pave the way for further research to determine the fundamental values of interested sectors and give more weight to undervalued sectors.
Keywords: stock markets informational efficiency, Shannon Entropy, structural breaks, Sharia-compliant firms.
- IFRS adoption and the opinion of OHADA accountants
by Saidatou Dicko, Anne Fortin
Abstract: With market globalisation and the adoption of international financial reporting standards (IFRS) by more and more countries worldwide, it seems appropriate to investigate the level of IFRS knowledge among African accountants working in countries belonging to the Organization for the Harmonization of Business Law in Africa (OHADA). It is also important to determine how they feel about the relevance of IFRSs in Africa. This study is a seminal step towards any level of IFRS adoption by African standards setters and companies. The results indicate that participants appear to have fairly good knowledge of IFRS and are in favour of applying them for listed companies, but not for all businesses. These results may be of interest to OHADA and will provide data for future decisions about the evolution of accounting standards in OHADA member countries.
Keywords: Africa; IFRS; IFRS adoption; OHADA accounting system; opinion of OHADA accountants.