Forthcoming articles


Afro-Asian Journal of Finance and Accounting


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Afro-Asian J. of Finance and Accounting (38 papers in press)


Regular Issues


  • 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.
    DOI: 10.1504/AAJFA.2017.10009980
  • 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.

  • Effect of exchange rate volatility on economic growth in Nigeria from 1986 to 2014   Order a copy of this article
    by Oladapo Fapetu, John Adebayo Oloyede 
    Abstract: This study evaluates the effect of exchange rate volatility on economic growth in Nigeria from 1986 to 2014. It determines the extent and manner to which economic growth responds to exchange rate volatility in Nigeria. The empirical analysis of this study is to determine the degree of volatility of real effective exchange rate using the Generalised Autoregressive Heteroskedasticity (GARCH) model. The study finds that there is high volatility of the real effective exchange rate. It also reveals that the real effective exchange rate is negatively and not significantly related to economic growth. The findings of the study suggest that exchange rate volatility does not have a significant effect on the economic growth in Nigeria. This study recommends that the monetary authority should constantly seek to maintain a stable exchange rate and implement sustainable reforms to increase the depth of the financial sector.
    Keywords: exchange rate; volatility; economic growth; GARCH.

  • Do audit quality, political connection, and institutional ownership increase real earnings management? Evidence from Indonesia   Order a copy of this article
    by Yeterina Nugrahanti, Andriana Puspitasari 
    Abstract: The objectives of this study are to evaluate the influence of audit quality (auditor size and auditor tenure), political connections, and institutional ownership toward real earnings management. In this research, real earnings management was determined by abnormal cash flow from operations. Purposive sampling was conducted and 83 manufacturing companies registered in the Indonesian Stock Exchange during 2010-2014 (415 firm-years) were acquired as the samples. For testing the hypotheses, panel data regression with random effect model was used. The findings showed that auditor size and institutional ownership had a positive influence toward real earnings management, while auditor tenure and political connections did not influence real earnings management. The control variables testing showed that firms leverage and firms loss had negative influence toward real earnings management. On the other hand, cash ratio had a positive effect toward real earnings management.
    Keywords: real earnings management; audit quality; auditor size; auditor tenure; political connections; institutional ownership.

  • Implied volatility in the individual stocks call options market: evidence from Malaysia   Order a copy of this article
    by Muhammad Rizky Prima Sakti, Azhar Mohamad 
    Abstract: Among options traders, implied volatility is regarded as one of the most important variables for determining profitability in options trading. Implied volatility implies the future underlying stock volatility, and whilst it cannot predict market direction, it can forecast the stocks potential for large fluctuations in the future. Once the implied volatility has been calculated, the traders can estimate how high or low the stock might swing by the options expiration, and this estimation helps traders to make informed trading decisions. In this paper, we examine the information content of the implied volatility of individual stocks call options in the Malaysian stock market. We use a daily dataset for 100 trading days for a period between November 2013 and February 2014. Our findings suggest that, for the Malaysian market, although implied volatility does contain some relevant information about future volatility, it is a less accurate predictor than historical volatility.
    Keywords: implied volatility; historical volatility; individual stocks call options; Malaysia.

  • Board characteristics and firm performance: a study of S&P BSE Sensex in India   Order a copy of this article
    by M. Sriram 
    Abstract: The aim of the study is to empirically examine the influence of board characteristics variables on firms financial performance of S&P BSE Sensex companies during the period 2004-2014. S&P BSE Sensex comprises 30 companies drawn from various sectors, such as software services, banking, auto industry, and pharmaceuticals. These companies are financially sound and well established in the industry they represent. Based on a few criteria, a total of 22 companies were finally selected for the present study. For measuring firms performance, two variables, namely Return on Assets (RoA), which is an accounting-based measure, and Tobins Q, which is a market-based measure, were considered as separate independent variables. Based on the review of earlier studies, four independent variables viz., Board Composition (BC), Board Ownership (BO), Board Size (BS) and CEO duality (CEOD) were selected for the study. Using the accounting-based measure; the study finds that there is significant negative association between BS and BO with regard to the firms performance. The other variables such as CEOD, BS did not have any influence on the financial performance. The study also finds no evidence of association between the independent variables and the market-based measure, Tobins Q. The study concludes that a smaller board size and a smaller ownership of executive and non-executive directors in the equity of firms will lead to improved financial performance.
    Keywords: return on assets; Tobin’s Q; board size; board composition; board ownership; CEO duality; S&P BSE Sensex.

  • Effect of mergers and acquisitions on short-term gain to equity shareholders of acquiring firms in India   Order a copy of this article
    by Mayank Joshipura, Manoj Panda 
    Abstract: This paper examines the effect of mergers and acquisitions announcements on short term gain for the acquiring firms shareholders using an event study method. The study analyses 332 acquiring firms in the post-financial crisis era (2009-2015). We report positive wealth effect leading to and on announcement. The effect reverses subsequently. Positive abnormal return leading to announcement indicates leakage of information before the formal announcement. Results of this study are consistent with similar other studies in developed as well as emerging markets.
    Keywords: mergers and acquisitions; event study; market efficiency.

  • Bank loan loss provisions, risk-taking and bank intangibles   Order a copy of this article
    by Peterson Ozili 
    Abstract: This paper examines the relationship between discretionary loan loss provisions and bank intangibles among African banks. Prior studies focus on how intangible assets affect firms profitability and valuation. Beyond these studies, we investigate whether bank managers increase (decrease) bank provisions in response to risk associated with investment in intangible assets. We find that discretionary loan loss provision is inversely associated with bank intangible assets and change in intangible assets, but the inverse association is weakened in environments with strong investor protection. Also, banks appear to use discretionary provisions to smooth earnings when they have low intangible assets, but this behaviour is less pronounced in environments with strong minority shareholders' rights protection. Finally, banks do not appear to use discretionary provisions to smooth earnings when they have substantial or high intangible assets.
    Keywords: banks; income smoothing; financial reporting; intangible assets; loan loss provisions; signalling; bank valuation; bank risk-taking; Africa.

  • Examining bank-specific determinants of the dividend payout ratio of sub-Sharan Africa banks: the panel GMM approach   Order a copy of this article
    by Odunayo Olarewaju, Stephen Migiro, Mabutho Sibanda 
    Abstract: The dividend payout policy of banks has been the commonest dividend policy in commercial banks world-wide owing to the assumption that it will minimise agency costs in the banks. Hence, this study adopts the dynamic panel two-step system and differenced GMM in analysing the data of 250 commercial banks from 30 countries in sub-Saharan Africa (SSA) for the period 2006 to 2015 to examine the determinants of the dividend payout ratio of these banks. The empirical results reveal that the past year's dividend is the most significant determinant of the current year's dividend. Taxation and capital adequacy ratio, which are the legal and regulatory factors considered, are found to be insignificant. Our findings reveal earnings-after-tax and leverage as being significant determinants of payout ratio in SSA banks. Hence, Lintners model holds in SSA banks as a region, and it is, therefore, recommended that it must be strictly followed in setting the dividend process of commercial banks in SSA.
    Keywords: system GMM; differenced GMM; Lintner model; payout policy; agency cost; capital adequacy.

  • The influence of tax manipulation on financial performance: evidence from Bangladesh   Order a copy of this article
    by Nabila Nisha, Afrin Rifat 
    Abstract: Many firms in developing countries are known to report higher book income to shareholders and lower taxable income to taxation authorities in the same reporting period. Generally, this gap between financial and taxable income suggests that firms are taking advantage of book-tax differences for avoiding tax payments. However, such tax manipulations can often affect firms financial performances. This study therefore aims to analyse the empirical relationships between book-tax differences and tax manipulations, and their overall impact upon firms financial performances. A sample of 111 companies listed on Dhaka Stock Exchange (DSE) is analysed to conduct this study using linear panel regressions. Findings indicate that firms disclose different tax information to taxation authorities compared to stakeholders in order to manage earnings and avoid taxes in Bangladesh. Moreover, firms use tax shelters to escape from tax payments and report a good financial picture, thereby confirming that tax manipulations influence firms financial performances.
    Keywords: book-tax differences; tax manipulation; earnings management; tax shelter; financial performance; Bangladesh.

  • The impact of large ownership on capital structure of Vietnamese listed firms   Order a copy of this article
    by An Thai, Tri M. Hoang 
    Abstract: This paper is designed to explore the determinants of the capital structure of Vietnamese listed companies, with an emphasis on large ownership, based on an updated data sample of 261 firms listed on Ho Chi Minh stock exchange during the period from 2007 to 2014. Using several estimators, including pooled ordinary least squares, random effects, fixed effects and fixed effects regression with clusters, our empirical results demonstrate that the proportion of block investment is negatively associated with short-term, total book and market leverage. There is no evidence about the non-linear relationship between large ownership and the capital structure of the observed firms.
    Keywords: large ownership; blockholders; capital structure; Vietnam.

  • Institutional ownership and corporate governance: evidence from Bahrain   Order a copy of this article
    by Abdalmuttaleb M.A. Musleh Al-Sartawi, Zakeya Sanad 
    Abstract: This study aims to investigate the relationship between institutional ownership and the level of corporate governance in the Kingdom of Bahrain. A multi-regression analysis model was used in to investigate the relationship between corporate governance and institutional ownership. Additionally, certain firm characteristics were controlled to study the influence of institutional investment on governance. The results indicated that there is a significant negative relationship between institutional ownership and the level of corporate governance. The researchers assumed that governance of firms may take a number of forms that would decrease the need to improve other corporate governance mechanisms as a result. This study offers recommendations to various stakeholders, whereby companies should hire external auditors that are from the Big4, because they would encourage and contribute in increasing the level corporate governance. Furthermore, workshops and training courses should be conducted in order to increase the awareness of the corporate governance code in Bahrain.
    Keywords: institutional ownership; corporate governance; Kingdom of Bahrain.

  • Nonlinear association between controlling shareholders and leverage: evidence from Jordan   Order a copy of this article
    by Buthiena Kharabsheh, Mishiel Suwaidan, Ramadan Elfaitouri 
    Abstract: This paper investigates the relationship between controlling shareholders ownership, identity and financial leverage. A sample of 60 industrial firms listed on Amman Stock Exchange over the period of 2010 to 2015 is empirically tested. Using a dynamic estimator to control for all endogeneity types, our results support an inverted U-shape relationship between controlling shareholders and financial leverage. Controlling shareholders rely more on debt at low levels of ownership to maintain control. However, they rely less on debt, which is found in this study to be 53%, to avoid financial distress. These results provide support for the trade-off theory. Our findings also reveal that family firms have higher leverage ratios than non-family firms. Further, institutional shareholders negatively affect financial leverage, thus assuming a substitution role.
    Keywords: controlling shareholders; financial leverage; corporate governance; family firms; capital structure; ownership structure; Jordan.

  • The interrelation between the Baltic Dry Index, a practical economic indicator and emerging stock market indices   Order a copy of this article
    by M. Manoharan, S. Visalakshmi 
    Abstract: The Baltic Dry Index (BDI) is a leading indicator that generates a vibrant panorama on the global demand for commodities and raw materials as it provides a glimpse into the future. This study uses the analytical content of the BDI to explore the relationship between maritime markets and stock markets with respect to emerging stock market indices of India and China (i.e., Nifty and Shanghai Composite Index) using VAR SURE modelling, impulse response and VAR Granger causality test for the period 1 January 2011 to 31 December 2015. The overall results exhibit that BDI influences Nifty marginally and also produces a slight impact on SSE Composite Index owing to the influence of the international economic environment, particularly by the international trades. The resulting model will aid investors and decision makers to make their financial conclusions more precisely.
    Keywords: Baltic Dry Index; Nifty; Shanghai Composite Index; maritime market; stock market; VAR SURE modelling.

  • The impact of bank capital on profitability and risk in GCC countries: Islamic vs. conventional banks   Order a copy of this article
    by Ibrahim Fatnassi, Habib Hasnaoui 
    Abstract: This study analyses how capital influences profitability and risk in the context of Islamic and conventional banking in Gulf Cooperation Council (GCC) countries. It achieves this through structure-conduct-performance, moral hazard, and regulatory hypotheses. We apply the generalised method of moments (GMM) technique for dynamic panels using bank-level data from 85 banks for the 20032011 period. We first found that highly capitalised Islamic banks generate low returns, while in contrast, highly capitalised conventional banks generate high returns. Secondly, we found highly capitalised GCC banks (both Islamic and conventional) to be characterised by greater risk. Additionally, all profitability and risk variables demonstrate persistence. We then ultimately arrive at the same conclusions about capital, profitability, and risk relationship with the introduction of regulatory variables.
    Keywords: bank capital; profitability; risk; Islamic finance; dynamic panel; financial regulation.

  • Pricing efficiency of exchange traded funds tracking the Gulf Cooperation Countries   Order a copy of this article
    by Fahad Almudhaf 
    Abstract: This paper analyses the pricing efficiency of Exchange Traded Funds (ETFs) as measured by the level and persistence of the deviation between market prices and net asset value (NAV). Studying ETFs tracking in the unexplored Gulf Cooperation Countries (GCC), we find that Saudi Arabia exhibits the largest dollar premium, of $0.41, on average. On the other hand, the UAE trades at an average discount of $0.06. In addition, deviations (premiums or discounts) persist for as long as four days in Kuwait, while they disappear after one day in Saudi Arabia and Qatar. These empirical findings show that ETFs do not fully replicate the performance of their respective underlying benchmarks. Pricing inefficiencies exist in ETFs with significant tracking errors. Moreover, there is a positive and significant relationship between returns and contemporaneous premiums, while returns and lagged premiums are negatively related. This casts doubt on the efficient market hypothesis. Using Vector Error Correction Model (VECM), we find evidence of significant price discovery in ETFs. Our results contribute to better understanding of ETFs tracking the performance of GCC markets.
    Keywords: pricing efficiency; tracking error; exchange traded funds; Qatar stock; UAE stock; Saudi Arabia stock; iShares.

  • The determinants of capital structure: the Levant versus Gulf Cooperation Council firms   Order a copy of this article
    by Fadi Alasfour, Firas Dahmash 
    Abstract: This paper investigates how firms operating in the Levant economies (Jordan) and the Gulf Cooperation Council economies (Bahrain) determine their capital structure. Using unbalanced panel data and multiple regressions, the paper finds that the leverage ratio is positively affected by the size of the firm, but declines with an increase in firms profitability, the tangibility of assets, and firms liquidity in both types of economy. The leverage ratio is also affected by the market conditions in which the firm operates. The degree and effectiveness of these determinants are dependent on the country's legal and financial traditions. Overall, the capital structure of a firm is heavily influenced by the economic environment and its institutions, corporate governance practices, tax systems, the borrower-lender relation, exposure to capital markets, and the level of investor protection in the country in which the firm operates.
    Keywords: capital structure; Levant economies; Gulf Cooperation Council economies; emerging markets; Middle East countries.

  • Corporate governance, disclosure and firm performance: empirical findings from Malaysia   Order a copy of this article
    by Nik Mohamad Zaki, Lee-Lee Chong, Prem Lal Joshi, Shaista Wasiuzamman 
    Abstract: This study examines the effect of corporate governance, disclosure and firm characteristics on firm performance by taking data from the 2013 financial year annual reports of top listed companies in Malaysia. Using multiple regression analysis, this study finds that the effect on firm performance, namely ROA, ROE and Tobins Q, is different. Board size, the percentage of independent directors on the board and percentage of ownership concentration in firms have a significantly negative relationship with ROA. ROE shows a significant negative association with board size, AC independence and ownership concentration. Tobins Q only shows a significant negative relationship with board size. The findings in this study contribute to the literature that good corporate governance characteristics, appropriate disclosure of corporate governance information and firm characteristics have improved the performance of listed companies in Malaysia. The study also suggests directions for future research.
    Keywords: firm performance; ROI; ROE; Tobin Q; board size; ownership concentration; corporate governance; disclosure.

  • Stock market behaviour: efficient or adaptive? Evidence from the Pakistan stock exchange   Order a copy of this article
    by Muhammad Shahid, Semei Coronado, Abdul Sattar 
    Abstract: The study empirically investigates the Adaptive Market Hypothesis (AMH) in the Pakistan stock market over the period of 1992 to 2015. Daily data of returns (KSE-100) is divided into eight subsamples of equal length of three years each and into different market conditions, and are subjected to linear/nonlinear tests to elucidate how market efficiency has behaved over time and whether a relationship exists between market conditions and levels of return predictability. The tests reveal that returns have gone through periods of dependence and independence over eight subsamples, thus the Pakistan stock exchange is an adaptive market and consistent with the AMH. Furthermore, certain market conditions are more conducive to the predictability of returns as market conditions have also gone through episodes of significant dependence and independence of return predictability, which is also consistent with the AMH. Therefore, the overall results of the study suggest that AMH elucidates the behaviour of stock returns better than the conventional efficient market hypothesis.
    Keywords: adaptive market hypothesis; efficient market hypothesis; market conditions; linear dependence; nonlinear dependence.

  • Alignment or entrenchment? Evidence from cash holdings in Thailand   Order a copy of this article
    by Yordying Thanatawee 
    Abstract: This paper examines the relationship between managerial ownership and cash holdings of non-financial firms in Thailand over the period 2011 to 2015. The results indicate that higher managerial ownership is associated with lower cash holdings, suggesting that managers of Thai firms do not hoard cash for taking private benefits. The findings therefore lend support to the incentive-alignment hypothesis. In addition, the evidence indicates that board size has a negative impact on cash holdings whereas board independence does not play a significant role. Further, it is found that profitability, firm size, growth opportunities and cash flow have positive effects on cash holdings whereas leverage has a nonlinear impact on cash reserves.
    Keywords: cash holdings; managerial ownership; board size; board independence; corporate governance.

  • The quantile dependence between global crude oil price and stock markets in emerging Asia: evidence from major oil-consuming nations   Order a copy of this article
    by Shekhar Mishra, Sathya Swaroop Debasish 
    Abstract: The paper examines the dependence between global crude oil price and stock indices in economies of fast emerging Asian nations, which are also termed to be major oil consumers. The paper employs the Quantile Regression Method (QRM) to analyse the relationship by using monthly data from April 2004 to April 2017. Since the Ordinary Least Squares (OLS) estimates from data suffer from structural breaks, non-normality conditions and heterogeneous distribution may be biased and not favourable. QRM as a robust method is adopted to analyse the same. The analysis revealed the asymmetric effects of dependence between crude oil price and stock index returns. The observed positive relation between the given variables was quite contrary to the usual presumption of an inverse relationship existing for the oil-importing nations. The degree of significance for the positive dependence between the crude oil price and stock index returns also varied across the quantiles for the economies under study.
    Keywords: crude oil; Asian economies; stock returns; quantile regression; ordinary Least squares; structural breaks; non-normality conditions; heterogeneous distribution; asymmetric effects; positive dependence.

  • Impact of a regulatory change on initial performance of IPOs   Order a copy of this article
    by Mohd-Rashid Rasidah, Abdul-Rahim Ruzita, Che-Yahya Norliza, Tajuddin Ahmad Hakimi 
    Abstract: This paper examines the impact of the Malaysian IPO regulatory change involving lock-up provisions on the initial performance of Malaysian IPOs. This study examines the impact of the revision in the IPO lock-up provision that took effect in February 2008 on the initial returns of 373 IPOs listed between January 2000 and December 2012, using cross-sectional multiple regressions. The findings indicate that the dummy of the lock-up period is positive and significant, validating that the dramatic drop in initial performance of Malaysian IPOs is an attribute of the shorter lock-up period regime. However, the significant drop in investors demand could also contribute to the lack of upward pressure on prices of the IPOs in the immediate aftermarket. The results also show that post-revision IPOs are much larger, indicating high quality issues. Nonetheless, since size is positive and significant in explaining initial returns in the post-revision sub-period, the lower initial returns are not likely to be due to better quality IPOs. The new shorter lock-up period regime leaves fewer opportunities for speculation activities through IPOs. Investors may strategise to participate in firms that report a higher lock-up ratio as it is likely to increase the initial returns.
    Keywords: lock-up; signalling; IPO; initial return; Malaysia.

  • The role of the audit committee in moderating the negative effect of non-audit services on earnings management among industrial firms listed on the Amman Stock Exchange   Order a copy of this article
    by Dea'a Al-deen Al-Sraheen 
    Abstract: This paper examines the effectiveness of the audit committee in limiting the adverse effects of the provision of Non-Audit Services (NAS) on earnings management. In addition, the current study examines the effect of surplus free cash flow and NAS on earnings management. Earnings management occurs less frequently when the audit committee is effective. In this study, audit committee effectiveness refers to the overall effectiveness of the committee that was measured using a composite measurement of effectiveness based on previous studies. These included three characteristics, which were: 1) the independence of all audit committee members, 2) the total number of audit committee meetings during the year, and 3) the expertise of audit committee members. The sample comprised 336 industrial firms listed on the Amman Stock Exchange from 2014 to 2016. The results of the statistical tests documented that the positive relationship between surplus free cash flow and earnings management. This study contributes to the literature by providing evidence that investors realise that NAS harms the independence of the auditor by creating an economic bond between the auditor and client that could negatively affect audit quality and hence earnings credibility. The study also found that such an inverse influence would be reduced by establishing a more effective audit committee because an effective committee provides effectual control over earnings management practices. As does all research, this study suffers from limitations, including the fact that this study sheds the light only on the industrial sector in Jordan, Thus, the need exists for more research to be conducted using other sectors in Jordan and in other countries, as well to determine the effects of other variables on earnings management from other perspectives.
    Keywords: audit committee effectiveness; earning management; Jordan; non-audit services; surplus free cash flow.

  • Firm attributes, earnings management, and anti-corruption activities in Thai-Listed Firms   Order a copy of this article
    by Prawat Benyasrisawat 
    Abstract: The Thailand Stock Exchange Commission now requires listed firms to disclose their anti-corruption activities to the public. We explore the unique Thai approach to corruption in three steps. First we study the relationship between anti-corruption activities and firm attributes. Second, we examine the relationship between anti-corruption activities and the quality of earnings. Lastly, we investigate whether the reporting of anti-corruption activity conveys new information to the Thai stock market. The results indicate that firms with superior performance attributes and good corporate governance have higher levels of anti-corruption progress. Earnings management is greater for firms with low levels of anti-corruption progress. We also find evidence that anti-corruption announcements are associated with significant market reactions. This suggests that anti-corruption announcements contain new information that investors consider relevant for firm values.
    Keywords: anti-corruption; corruption; earnings management; market alternative investment; market reaction; Stock Exchange of Thailand; Thailand.

  • The impact of companies internal factors on stock liquidity in Pakistan   Order a copy of this article
    by Badal Khan, Muhammad Tahir, Abdul Majid Nasir, Muhammad Mushtaq 
    Abstract: This study aims to find out the impact of corporate internal factors on the stock liquidity of companies listed on the Karachi Stock Exchange (KSE) in Pakistan. The companies financial factors, namely liquidity, leverage, activity, profitability, and valuation multiples, are taken as internal factors, while stock liquidity is measured by the illiquidity ratio of Amihud. The study obtains five years daily data from July 2010 to June 2015 of listed manufacturing firms from KSE. Only those firms are considered that close their financial year in June to avoid any periodical gap between share information and financial data. The regressed relationship of cross panel data is tested using panel least squares. The empirical results conclude that total assets turnover and profit margin are the financial factors that positively influence stock liquidity, whereas debt ratio and return on assets inversely influence stock liquidity. Moreover, the size of the corporation, liquidity (current ratio), market-book multiples, and price-earnings multiples have no significant influence on the stock liquidity.
    Keywords: stock liquidity; illiquidity; leverage; profitability; price earnings multiple; price book multiple.

  • Audit committee characteristics and earnings conservatism in emerging markets: an GCC perspective   Order a copy of this article
    by Allam Hamdan 
    Abstract: This paper examines four audit committee characteristics, including the audit committee independence, size of audit committee, audit committee diligence, and financial experience of the audit committee members, to identify if any of these characteristics differentially impact the earnings conservatism. The sample included 59 banks from Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates, during the period 2012-2016. To achieve this goal, the study measures earnings conservatism using a market-to-book approach. By using panel fixed-effect regression, the analysis reveals that bigger audit committees with more independence and members with financial experience are more likely to be associated with earnings conservatism in GCC banks. The results also show that the audit committee diligence has no impact on earnings conservatism.
    Keywords: earnings/accounting conservatism; audit committee characteristics; GCC banks.

  • Measuring the effectiveness of selected corporate governance practices and their implications for audit quality: evidence from Qatar   Order a copy of this article
    by Emad Awadallah 
    Abstract: Recent global financial scandals have led to a number of investigations into the effectiveness of corporate governance. Although evidence exists from developed economies, very few studies have been conducted in emerging economies where corporate governance is just evolving. The aim of this study is to provide evidence on the effectiveness of corporate governance practices and the implications for audit quality in a fast-developing country: Qatar. The paper conducts a market-based study. Data for analysis are gathered from the non-financial companies listed on the Qatar Stock Exchange, covering the four-year period 2013-2016. Logistic regression is used in investigating the questions that are raised in the study. Findings show that board independence, CEO duality and audit committees have a significant relationship with audit quality. The results also indicate that institutional investors and managerial ownership have no significant impact on audit quality. Size of the company, complexity and business leverage all affect audit quality.
    Keywords: non-financial companies; corporate governance practices; board independence; CEO duality; audit committees; institutional investors; managerial ownership; audit quality; Qatar; Qatar Stock Exchange.

  • Financial constraints, corporate debt maturity and firm performance: the case of firms in Southeast Asian countries   Order a copy of this article
    by Liem Nguyen 
    Abstract: This study investigates the impact of debt maturity structure on firm performance, using a sample of non-financial listed firms in Southeast Asian countries over the period of 2007-2016. This paper aims to extend the literature by: (1) examining the link between debt maturity structure and firm performance for five emerging markets in Southeast Asia due to the scant empirical evidence in this region; (2) the non-linearity of the link has not yet been studied while this could be the cause of inconsistency in the extant findings of the impact of debt maturity on firm performance. The current research also examines the link between debt maturity structure and firm performance, considering different levels of financial constraints. The findings show that long debt maturity provides hedging against agency cost, but the excessive use of long-term debt could erode firm performance, thus supporting a non-linear relationship between debt maturity structure and firm performance. The results further show that financially constrained firms are more susceptible to liquidity risk when constrained firms are heavily financed by short-term debt, while when these firms employ much long-term debt agency cost of debt becomes more worrisome. Compared to unconstrained peers, financially constrained firms are more likely to benefit from the use of long-term debt at short debt maturity structure, but are more prone to be suffering from long-term debt use when the latter firms are already at long debt maturity structure. Based on the findings, the study offers relevant implications for both constrained and unconstrained firms in their choice of debt maturity to improve their performance.
    Keywords: debt maturity structure; firm performance; Southeast Asian countries; financial constraint.

  • The determinant of capital adequacy ratio: Empirical evidence from Vietnamese banks (A panel data analysis)
    by Thi Xuan Thoa Pham, Ngoc-Anh Nguyen, Khac Minh Nguyen 
    Abstract: The purpose of this study is to investigate the determinant of Vietnamese banks' capital adequacy ratio (CAR) by internal banking factors. Secondary data is collected from banks' annual reports in the period of 2009-2015. FGLS method and panel data are used to examine the determinant of CAR by bank size (SIZE), loans (LOA), loan loss reserve (LLR), liquidity (LIQ), profitability (ROE). The results show that SIZE and LIQ impact negatively on CAR with significant meanings. On the other hand, LLR and LOA also effect negatively on CAR but they are insignificant.
    Keywords: basel; CAR; capital adequacy ratio; Vietnamese banks; panel data; FGLS.

  • TThe Herding Behavior on Pakistan Stock Exchange – Using Firm-Level Data
    by Fasiha Kiran, Naimat Ullah Khan 
    Abstract: This paper analyzes herding behavior in the Pakistan Stock Exchange (PSX, formerly known as Karachi Stock Exchange, KSE) for a sample of 663 firms over a period of 13 years; from 2004 to 2017. For detecting herding behavior, two dependent variables are used as a proxy of herding behavior i.e., cross-sectional standard deviation (CSSD) of Christie and Huang (1995) and cross-sectional absolute deviation (CSAD) of Chang et al. (2000). The results show no herding behavior on the basis of both Christie and Huang (1995) and Chang et al. (2000) methods at different levels of market movement. The absence of the herding behavior may be that these firms belong to different sectors which may follow their respective industry portfolios but not overall market; for example, Shah et al., 2017 documented that firms in several industries herd for their industry portfolios for Pakistani data. Future research can be done using a primary data collection method from investors about their opinion on herding behavior.
    Keywords: Herding, Anomaly, Efficient Market Hypothesis, Behavioral Finance, Pakistan

  • Bank specific and economic factors on bank’s non-interest based activities in Asia Pacific region
    by Nazrul Hisyam Ab Razak, Koh Chin Wei 
    Abstract: This study investigates bank specific and economic factors on bank non-interest based activities in Asia Pacific region banking sector over the years 2000-2015. We employ pooled OLS and panel regression to assess the bank specific and economic factors effect on bank non-interest based activities throughout 61 representative banks across Australia, Hong Kong, Korea, Malaysia, Singapore and Thailand in Asia Pacific region. The empirical findings indicate that the bank specific and economic factors do have impact on banks’ non-interest based activities in overall countries, developing and developed countries respectively. We also find that bank non-interest based activities also affected by subprime crisis for developed and developing countries. The findings from this study are expected to contribute significantly toward decision-making for regulators, policymakers, bank managers, investors, and also to the existing knowledge on performance of the Asia Pacific banking sector.
    Keywords: Bank’s non-interest activities; bank specific and economic; Asia-Pacific banking

Special Issue on: ICMEM 2016 Managing Financial and Investment Opportunities in Emerging Markets

  • The effect of audit committee characteristics on earnings management: the case of Indonesia   Order a copy of this article
    by Doddy Setiawan, Lian Kee Phua, Hong Kok Chee, Irwan Trinugroho 
    Abstract: We investigate the effectiveness of audit committee in mitigating earnings management in the context of Indonesia. Audit committee is expected to reduce earnings management. This study examines the effect of several audit committee characteristics: independence of audit committee members, number of audit committee members, number of meetings, expertise in finance and gender on earnings management. We study 393 Indonesian listed firms during the 2006-2010 period. Results show that female member(s) of audit committee mitigate earnings management. However, financial expertise and number of meetings have positive effect on earnings management. This result shows that both variables might not be effective to constraint earnings management. On the other hand, number of audit committee members and independence of audit committee member do not have any significant influence on earnings management. Further, this study shows that audit firms and leverage have negative effect on earnings management. However, institutional investors tend to push earnings management higher and growth has no significant effect on earnings management.
    Keywords: audit committee; earnings management; financial expertise; gender; number of meetings.