Forthcoming articles


Afro-Asian Journal of Finance and Accounting


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Afro-Asian J. of Finance and Accounting (13 papers in press)


Regular Issues


  • Excessive CEO compensation and performance in family French firms   Order a copy of this article
    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   Order a copy of this article
    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   Order a copy of this article
    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   Order a copy of this article
    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   Order a copy of this article
    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   Order a copy of this article
    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
  • Price and volume effects associated with scheduled changes in constituents of index: study of NIFTY index in India   Order a copy of this article
    by Mayank Joshipura, Sundaram Janakiramanan 
    Abstract: This paper examines price and liquidity effects associated with scheduled index reorganisation during days surrounding its announcement and effective days by using event study methodology using changes in NIFTY constituents right from its inception. The results show that there are no significant abnormal positive returns observed associated with index inclusion on or around announcement day. While significant positive abnormal returns are present on effective day on inclusion to NIFTY, such positive price effect does not sustain further. Significant negative price effect was observed just after the announcement day and remained till the end of the announcement window when stocks are excluded. This leads to an interpretation that exclusion from NIFTY is considered as a negative signal. There is a negative price effect observed for stocks near to and on the effective day of exclusion from the index, but it does not sustain after that. No significant and sustainable change in trading volume is associated with index reorganisation. Increase in volume associated with inclusion of securities and exclusion of securities is found on the effective day, which can be attributed to index funds and ETF portfolio rebalancing exercise. Results of this study lend support to the price pressure hypothesis and provide evidence against the liquidity hypothesis. They also support the information content hypothesis but the evidence of information content is only available on exclusion announcement.
    Keywords: market efficiency, event studies, index reorganisation, price effect, volume effect, NIFTY
  • Do rated firms outperform non-Rated peers in the Gulf Co-operation Council region?   Order a copy of this article
    by Etumudon Asien 
    Abstract: This paper examines the financial performance of rated and non-rated listed firms in the Gulf Co-operation Council (GCC) region. It also examines the relationship between financial performance and leverage of rated and non-rated firms. We expect a difference in the financial performance of rated and non-rated firms. The sample consists of 105 rated and an equally-matched sample of non-rated firms in the GCC region. Our parametric t-tests indicate that there are statistically significant differences in leverage and equity multiplier of rated and non-rated firms; but there are no differences in capital intensity, profit margin, earnings per share, and fixed assets intensity of the two groups. Results from multiple cross-sectional panel regression tests indicate that there is a statistically significant relationship between leverage and all the financial performance measures, except for profit margin.
    Keywords: credit rating; credit rating agencies; GCC region; leverage; capital intensity; profit margin; earnings per share; fixed assets intensity; equity multiplier; financial performance.
  • Assessing the efficiency of Malaysian banks: a data envelopment analysis approach   Order a copy of this article
    by Abdelghani Echchabi, Oladokun Nafiu Olaniyi, Abdullah Mohammed Ayedh 
    Abstract: The purposes of this study are of two folded: firstly, to evaluate the efficiency of the Malaysian banks and secondly to examine the factors that influence the efficiency levels of those banks. Accordingly, 23 Malaysian banks covering the period between 2006 and 2010 are considered in this study. The findings of the DEA approach indicate that in general the Malaysian banks are efficient over the studied period. Furthermore, exchange rate, GDP, and inflation rate are found to be significant determinants of Malaysian banks efficiency. As such, the present study contributes to the existing literature on banks' efficiency. The finding might be useful to the regulators as well as the practitioners.
    Keywords: efficiency, Bank, DEA, Malaysia
  • Does accounting conservatism measure what it is required to measure? An empirical study of construct validity perspective   Order a copy of this article
    by Saif Khan, Azlan Ali, Misbah Sadiq 
    Abstract: The accounting conservatism principle plays an important role in producing fair view of financial statements and has appeared as one of the most prominent research topics over the last 15 years. This mechanism relies significantly on conservatism proxies, but there remain considerable differences of opinion regarding their ability to accurately measure the degree of conservatism. To address this issue, the current study uses a sample of Malaysian listed firms for the period 2002 to 2011. Findings indicate that three of the seven conservatism proxies exhibit higher degrees of construct validity. This in itself is an important conclusion that three alternative proxies can be considered substitutes among themselves.
    Keywords: accounting conservatism; conservatism proxies; construct validity; Malaysian corporate sector.
  • Volatility forecasting and risk management in some MENA stock markets: a nonlinear framework   Order a copy of this article
    by Chaker Aloui 
    Abstract: In this paper, we estimate the value-at-risk (VaR) for some Middle East and North African emerging stock markets (Egypt, Israel, Turkey and Morocco) for the short and long trading positions. We check whether considering for LM, asymmetries, and fat-tails in the stock returns behaviour offers more accurate VaR forecasts. We compute the VaR for two ARCH/GARCH-type models including FIGARCH, and FIAPARCH under two density functions: Student and skewed Student. The obtained results point out that that accounting for long dependence in return and volatility, fat-tails and asymmetry provides better one-day-ahead VaR forecasts. Furthermore, the FIAPARCH model out-performs the other models in the VaR forecasts. Finally, the FIAPARCH model provides for all the stock market indexes the lowest number of violations under the Basel II rules, given a risk exposure at the 99% confidence level. Our results offer potential implications for MENA stock markets risk quantifications, policy regulations and hedging strategies.
    Keywords: value-at-risk; expected shortfall, dual long memory, GARCH-type models; MENA stock markets
  • The day of the week effect: evidence from India   Order a copy of this article
    by Tariq Aziz, Valeed Ansari 
    Abstract: The day of the week effect is a well-documented calendar anomaly. This study investigates the presence of this effect in the Indian stock market during 1990-2013, using the GARCH framework with three distribution assumptions. The results indicate that the traditional Monday effect is non-existent in the two leading market indices. In contrast, a positive Monday effect in Sensex and a positive Wednesday effect in Nifty are present in the entire sample period. The results remain robust to the distribution assumptions and sub-periods.
    Keywords: day of the week effect, Monday effect, calendar anomalies
  • Liquidity and Bank Profitability in WAEMU Zone: A Panel Data Analysis
    by T. Guy Crescent MEBOUNOU T., Mehmet Baha KARAN, Hodonou DANNON 
    Abstract: This paper examines the impact of liquid assets on bank profitability by using panel data regression through eleven years period (2001-2011) for 38 banks in WAEMU. Bank profitability was assessed by both ROE and ROA while liquidity was rated by the share of liquid assets in total assets. Our findings revealed a concave parabolic functional form regarding the relationship between profitability and liquidity by confirming the nonlinear relationship and the assumption that both excess and lack of liquidity may be harmful to banks’ profitability. The robustness was tested by resorting to control variables such as Size, Age and Gearing. This led to the revelation of the adverse effects leverage can have on profitability as opposed to how favourable size could impact it. However, age does not influence bank profitability in WAEMU area. The estimated results also showed that the recent financial crisis has not fundamentally impacted the relationship between profitability and liquidity in the WAEMU.
    Keywords: Liquidity, Profitability, Return on Assets, Return on Equity.