Afro-Asian J. of Finance and Accounting (8 papers in press)
- Standardisation of Islamic banking practices: a regulatory perspective
by Muhamed Zulkhibri
Abstract: The paper compares standardization of regulations and standard-setting of Shariah-compliance for Islamic banking institutions in 15 Muslim and non-Muslim countries. The findings suggest that the regulation for Islamic banking institutions in most countries is formulated in the image of conventional banking. Some countries lack proper legal framework, with some notable issues including the lack of a dedicated Islamic banking law with few laws relating to corporate governance. However, most of countries follow regulation of their domicile and International Accounting Standards (IAS) with adopting Islamic accounting standards. The paper also suggests that owing to various difficulties to harmonize Islamic banking practices, facilitating cluster or regional regulations and practices may be the first step towards greater harmonization.
Keywords: Islamic banking, regulation, supervision, Shariâ€™ah
- 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
- Behavioural factors influencing investment decisions in the Kenyan property market
by Nelson Waweru, Geoffrey Gitau, John Parkinson
Abstract: This study investigates the role of behavioural finance factors and how they influence investment decisions in the Kenyan property market. The objective is to better understand the way investors make decisions in this market using behavioural finance theories. The study uses a survey questionnaire to collect data targeting all the 155 real estate agents within Nairobi who are listed in the Kenya Postal Directory, 2010 Nairobi edition. The study establishes that anchoring and representativeness are the major behavioural factors that influence property investment decision making. The results indicate that property price changes and property market information have a very high impact on property investment decisions. Most investors search information through previous experience and through real estate agents, while the price and location of the property are the most important factors considered when making property investment decisions.
Keywords: behavioural finance, prospect theory, heuristics, property market, investment decisions
- The effects of second language on ethical judgement in accounting
by Shahriar Saadullah, Zaki Abushawish, Rami Zeitun
Abstract: The number of participants in accounting practices and academia who use English as their second language is significant and growing. Many of them are involved in making ethical judgements based on information provided in English, which is their second language. It is important to know the effect of the second language on their ethical judgement. In this study, using 211 undergraduate accounting students whose native language is Arabic from an AACSB (Association to Advance Collegiate Schools of Business) accredited business school located in the Middle East, we test the effect of second language use on ethical judgement. We find that the ethical judgement is significantly better when the ethical dilemmas are presented in the participants native language (Arabic) compared with when the same dilemmas are presented their second language (English). The results hold true in both within and between subject designs. Implications are discussed.
Keywords: accounting; accounting education; auditing; business schools; ethical judgement; global business; Middle East; second language
- Real dividendstock market price causality nexus: an application of Markov switching model
by Emmanuel Anoruo
Abstract: This paper examines the causal relationship between real dividends and stock market prices for the United States using the Markov switching vector autoregressive model (MS-VAR). The results indicate that both real dividends and stock market prices have one order of integration and are not cointegrated. The results from the MS-VAR reveal that causality runs from real stock prices to real dividends but not vice versa. The finding that real dividends are not informational in predicating future movements in stock market prices is consistent with the 'Dividend Irrelevance Theory', which theorises that dividends do not have predictive power over future earnings.
Keywords: dividends, stock market prices, MS-VAR, regime switching
- 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.
- Underpricing, long-run performance and secondary-market liquidity: an empirical examination of the Indian IPO market
by Kavita Wadhwa, Suahakara Reddy Syamala, Nagi Reddy Vanga
Abstract: This paper examines the underpricing, long-run performance of IPOs and the impact of underpricing on secondary market liquidity of IPOs that were issued in India during the period 2000-2008. The average underpricing for Indian IPOs is 37%. Uncertainty, information asymmetry and investor optimism are the factors that explain underpricing. The IPOs that take more time in getting listed on the stock exchange after the close of the issue have higher underpricing. In the case of big IPOs, mature firms have less underpricing and the IPOs that have more lead managers have more underpricing. Calendar-time factor regressions results show that IPOs underperform in the long-run. However, underperformance is more for big and more oversubscribed IPOs than that of small and less oversubscribed IPOs respectively. IPOs that are more underpriced in the primary market are more liquid in the secondary market, and the relation holds for all the measures of liquidity used in the study.
Keywords: IPO, liquidity, long-run performance, underpricing, calendar-time, event-time, oversubscription, India, emerging economy, investment bankers.
- 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.