Forthcoming articles


Afro-Asian Journal of Finance and Accounting


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Afro-Asian J. of Finance and Accounting (19 papers in press)


Regular Issues


  • Causal relationship between stock prices and gold rate-empirical evidence from India   Order a copy of this article
    by Dheyvendhren Bhuvaneshwari, Krishnaraj Ramya 
    Abstract: The paper investigates the cointegrating and causal relationship between stock prices and gold rates in India. The monthly time series data of stock prices of S&P CNX Nifty and gold rates for the period 2011:01 - 2015:12 are used as the sample data for this study. In this research paper, Augmented Dickey-Fuller and Phillips-Perron unit root tests are applied to test the stationarity of data. Johansens cointegration test and Granger causality test are adopted to examine the cointegrating and causal relationship, respectively, between stock prices and gold rate. From the analysis, non-existence of long-run equilibrium and absence of causal relationship are found between both the variables. Further, it is inferred that stock prices do not influence gold rate and therefore past values of stock prices cannot be used to improve the forecast of future gold rate in India.
    Keywords: Indian stock prices; gold rate; unit root tests; Johansen cointegration test; Granger causality test.

  • The interaction effect of corporate governance and the CAMEL framework on bank performance in Malaysia   Order a copy of this article
    by Siti Nurain Muhmad, Hafiza Aishah Hashim 
    Abstract: This study conducts an analysis of the interaction effect between corporate governance and the CAMEL framework (Capital adequacy, Asset quality, Management competency, Earning quality, Liquidity) towards bank performance in Malaysia. The study highlights the corporate governance as a moderator to the CAMEL framework in enhancing the bank performance. Additionally, to closely examine the interaction effect, the simple slope test is employed in this study to investigate the impact of high and low corporate governance on the CAMEL framework and bank performance. The results indicate that capital adequacy, management competency, earning quality and liquidity have a significant relationship with bank performance when interacting with corporate governance. However, the result of the simple slope test shows that management competency and liquidity has a better interaction with high corporate governance. The outcome of the study should be provide vision to the corporate governance bodies in Malaysia, depositors, investors, stakeholders and also researchers to adopt and increase some knowledge, especially on how corporate governance and the CAMEL framework could improve the bank performance.
    Keywords: interaction; corporate governance; CAMEL framework; bank performance.

  • Determinants of forward-looking disclosure: evidence from the Bahraini capital market   Order a copy of this article
    by Gehan Mousa, Elsayed Elamir 
    Abstract: This study investigates the factors that may affect the extent of corporate forward-looking disclosure in the Bahraini capital market. The study creates a forward- looking disclosure index of 56 items, and applies QDA Miner as a qualitative data analysis software package to measure the amount of forward-looking information disclosed by a sample of Bahraini listed companies in the period 2010-2013. The study employs backward regression analysis, as a unique technique that excludes insignificant variable(s) from the study and suggests the best model with significant variables, to examine the relationship between corporate forward-looking disclosure and five firm characteristics (firm size, financial leverage, sector type, profitability, and liquidity). The backward regression analyses show that financial leverage and firm size are found to be significant; however, sector type, profitability, and liquidity are found to have insignificant association with the level of corporate forward-looking disclosure.
    Keywords: corporate disclosure; annual reports; forward-looking information; Bahrain Bourse.

  • The impacts of institutional characteristics on capital structure: evidence from listed commercial banks in China   Order a copy of this article
    by Phassawan Suntraruk, Liu Xiaoxing 
    Abstract: In China, bank capital structure is subject to the minimum capital requirements regulated by the Basel Accords. Nonetheless, with the rapid development of the Chinese banking sector, institutional characteristics have an impact on how banks finance their operations and growth. Therefore, the purpose of this study is to explore the institutional factors that influence the capital structure of listed commercial banks in China. Using unbalanced panel data of 25 listed Chinese commercial banks during the period from 2003 to 2015, the results indicate that Chinese listed commercial banks with more profitability or those having a low percentage of shares owned by the largest shareholders are less likely to employ debt financing. Moreover, this study shows that the size of Chinese listed commercial banks increases with debts. The results of this study will assist managers of listed commercial banks to create adequate capital structure decision-making to further maximise bank value. In addition, both investors and depositors will be able to judge how safe the bank capital is, after understanding the determinants of capital structure, which will help in reducing their risk exposure.
    Keywords: capital Structure; Chinese banks; commercial bank; financing; panel data.

  • Combinatorial portfolio selection with the ELECTRE III method: a case study of the Stock Exchange of Thailand   Order a copy of this article
    by Veera Boonjing, Laor Boongasame 
    Abstract: Various techniques of portfolio selection are applied to interpret the status of the market and predict the market's future trend, but they are not beneficial to small investors because these techniques should be administered by an expert. In addition, these techniques cannot help investors to compare businesses on ambiguity multi-criteria and require the accumulation of data about the market. Therefore, portfolio selection with two significant financial ratios using the ELECTRE III method is proposed for small investors to make trading decisions. In order to demonstrate the effectiveness of this research, it is compared with the situation where a fix-percentage allocation existed and data was collected from the Stock Exchange of Thailand. Empirical results show that portfolio selection with the ELECTRE III method offers significantly better ranking performance than the fix-percentage allocation method.
    Keywords: portfolio selection; ELECTRE III method; Stock Exchange of Thailand; net profit margin; dividend yield; stocks.

  • The nexus between stock price and foreign exchange rate: validating the portfolio-balance model in Nigeria   Order a copy of this article
    by Olufemi Adeyeye, Olufemi Aluko, Oseko Migiro 
    Abstract: The relationship between stock price and foreign exchange (forex) rate has been a controversial issue over the years. This study examines the nexus between stock prices and forex rates in Nigeria from January 1985 to December 2014. It applies the Johansen cointegration, Toda-Yamamoto Granger non-causality and correlation tests. The empirical results reveal that there is presence of co-integration between stock prices and forex rates and unidirectional causality from forex rates to stock prices with positive correlation. This study did not validate the proposition of the portfolio-balance model in Nigeria but it provides substantiated evidence in favour of the traditional-flow model.
    Keywords: stock price; foreign exchange rate; portfolio-balance model; Toda-Yamamoto Granger non-causality test.

  • Testing dynamic tradeoff theory of capital structure: an empirical study for the textiles industry in India and China   Order a copy of this article
    by Dinesh Jaisinghani, Barnali Chaklader 
    Abstract: The prime objective of the current study is to compare the dynamic behaviour of capital structure across firms operating in the textile industry in India and China. The study has been conducted by analysing 92 publicly listed textiles firms in India and 33 publicly listed textiles firms in China. The time period from 2005 to 2016 for Indian firms and from 2004 to 2015 for the Chinese firms has been considered. The Arellano and Bond (1991) and Blundell and Bond (1998) based dynamic panel estimation techniques have been deployed to generate the results. The empirical results confirm the applicability of the dynamic trade-off theory for the textile industry in India and China. Further, the results show that the speed of adjustment towards the targeted debt level is very low for the Indian textile companies compared with that of the Chinese textile companies. The results strongly convey that Indian firms bear significant costs while moving from their observed leverage to their target leverage. The overall results support partial applicability of dynamic trade-off theory for the Indian firms and strong applicability of the theory for the Chinese firms.
    Keywords: capital structure; dynamic trade-off theory; textiles industry; emerging economies; dynamic panel regression; India; China.

  • An analysis of diversification benefits of commodity futures using Markov regime-switching approach   Order a copy of this article
    by Ritika Jaiswal, Rashmi Uchil 
    Abstract: This study investigates the hedge and safe haven properties of individual commodity futures against stock market movements using a nonlinear regime-switching framework. Based on the results of Brock, Dechert and Scheinkman (BDS) test and information selection criterion, the Markov-Switching Vector Autoregression (MS-VAR) model is applied with three regimes for gold and silver futures and with two regimes for crude oil, copper and zinc futures. The results demonstrate strong hedge and weak safe haven property of gold and silver futures, and show a weak hedge and weak safe haven potential of copper and zinc futures. Conversely, crude oil futures cannot be used as a safe haven against extreme stock market movements. In addition, portfolio analysis confirms that these findings provide significant information to investors for the construction of better risk-adjusted return portfolio.
    Keywords: commodity futures; diversification; hedge; Markov switching; nonlinear; MS-VAR; regime switching; safe haven.

  • Investor sentiment and asset returns: the case of the Indian stock market   Order a copy of this article
    by Sachin Mathur, Anupam Rastogi 
    Abstract: According to behavioural finance theory, investor sentiment can lead to extreme mispricing of stocks. In this paper, we describe the construction of an investor sentiment index for India, an emerging market, to examine the association between sentiment and stock returns. We test whether the sentiment index predicts long term returns of the stock market, as well as of stock portfolios formed on the basis of size and value characteristics, over the sample period of 2004 to 2016. The sentiment index fails to predict broad market returns, but is inversely associated with the subsequent years returns of small low-priced stocks, consistent with constrained arbitrage argument of behavioural finance theory and information uncertainty associated with such stocks.
    Keywords: investor sentiment; sentiment index; behavioural finance; stock returns; information uncertainty; emerging market; India.

  • Changes in the value relevance of accounting information before and after the adoption of K-IFRS: evidence from Korea   Order a copy of this article
    by Gee Jung Kwon 
    Abstract: This paper primarily aims to investigate the value relevance change before and after the mandatory adoption of Koreas international financial reporting standards (K-IFRS), which converges with traditional International Financial Reporting Standards (IFRS) in the listed Korean financial markets. This study extends previous literature by examining the different value relevance of the book value of equity, accounting earnings, operating income, cash flows, and operating cash flows after the adoption of new K-IFRS, which is based on IFRS. This paper tests the value relevance value relevance change by dividing sample data into the periods before (20082010) and after (20112013) K-IFRS adoption. This study categorises sample data into several subgroups by firm size (large versus small and medium) and applicable financial market (KOSPI versus the KOSDAQ) for revealing further evidence of the value relevance change in Korean companies. Empirical results indicate that the value relevance of the book value of equity significantly increased after K-IFRS adoption (20112013), whereas other variables such as accounting earnings, operating income, cash flows, and operating cash flows are negatively associated with firm value. Moreover, some of these variables do not significantly relate to enterprise value among the total sample data. The empirical results in this paper suggest that the value relevance of book value, accounting earnings, operating income, cash flows, and operating cash flows significantly changed before and after K-IFRS adoption. This papers evidence suggests the possibility of a new debate regarding the primary value relevant factor before and after K-IFRS adoption among the companies listed on the Korea Stock Exchange.
    Keywords: book value; cash flows; K-IFRS; net income; operating cash flows; operating income; value relevance.

  • Random walk model and asymmetric effect in Korean composite stock price index   Order a copy of this article
    by Divya Aggarwal 
    Abstract: This paper empirically examines the market efficiency and the volatility persistence of weekly stock returns of the Korean composite stock price index (KOSPI) from July 1997 to September 2016. It studies the market efficiency in the presence of both linear and nonlinear dependence in the stock price series, along with testing for structural breaks in the data. By employing various econometric tests, evidence was found of weekly series not following a random walk model along with asymmetric volatility effects. The results have significant implications for investors and traders as market inefficiency can impact both domestic and foreign flows in an economy. This study is unique as it employs multiple tests for market efficiency along with examining volatility persistence over a wide time frame of almost two decades. Because the results on market efficiency are mixed for Korean stock market, this study aims to offer a more comprehensive picture.
    Keywords: KOSPI; random walk model; auto regressive conditional heteroscedasticity; volatility; asymmetric.

  • Impact of corporate social responsibility on firms performance; evidence from non-financial sector of Pakistan   Order a copy of this article
    by Burhan Rasheed, Noman Arshed, Zohair Farooq Malik, Mohyuddin Tahir Mahmood 
    Abstract: The objective of this study is to examine the impact of Corporate Social Responsibility (CSR) on Firms Performance (FP). It is based on conceptual aspects of CSR and considers how CSR can be measured in order to investigate the FP. The paper is exploratory in its kind because CSR is measured as investment and disclosure in the Pakistani non-financial sector. The empirical results of this study provide evidence of a positive impact of CSR on FP. It is further concluded that firms investing in CSR have good financial performance. This study is a pioneer in Pakistan regarding CSR as investment and disclosure simultaneously, and therefore an addition to existing literature on CSR. This paper provides different new ways to examine CSR, by encouraging a discussion about the importance of corporate social responsibility.
    Keywords: corporate social responsibility; firm’s performance; non-financial sector; simultaneous equation model.

  • Does voluntary greenhouse gas emissions disclosure reduce information asymmetry? Australian evidence   Order a copy of this article
    by Zahra Borghei, Philomena Leung, James Guthrie 
    Abstract: Based on agency theory, this study investigates the consequences of carbon disclosure by non-greenhouse gas registered Australian companies on information asymmetry measures over a period after the introduction of the National Greenhouse and Energy Reporting Act 2007 and before the introduction of the Australian carbon tax. The level of carbon disclosure is scored through the content analysis of the annual reports. The findings support that carbon disclosure is negatively related to information asymmetry measures: the bid-ask spread and stock return volatility, in the year following disclosure. Overall, the research results are consistent with predictions of the agency theory and indicate that companies bear the extra voluntary reporting costs to achieve the perceived benefits of disclosure. The findings should be useful for corporates and stakeholders who are concerned about the value relevance of carbon disclosure in financial markets. For accounting standard setters, it highlights the urgency of carbon reporting guidelines.
    Keywords: carbon emission; voluntary disclosure; information asymmetry measures; NGER Act 2007; content analysis; climate change.

  • Return and volatility spillovers among stock markets: BRICS countries experience   Order a copy of this article
    by Pradiptarathi Panda, M. Thiripalraju 
    Abstract: This study attempts to measure the inter-linkages among stock markets for Brazil, Russia, India, China and South Africa (BRICS). We take daily data of five stock indices for BRICS countries from 26 June 2002 to 31 July 2014 with 2866 observations. We consider IBOVESPA index to represent Brazil stock market, MICEX index to represent Russia stock market, SENSEX to represent India stock market, Shanghai composite index to represent China stock market and FTSE/JSE all shares index as a representative of South Africa stock market. The present study differs from the existing literature in terms of studies for a group of countries and examines the magnitude of spillover in terms of return and volatility across markets for BRICS countries. We first test the stationarity of the data series, then we employ VAR Granger causality test among stock indices to capture price spillover effect and to proceed we employ Exponential Generalised Auto Regressive Conditional Heteroscadasticity (EGARCH) model to capture the volatility spillover effect as well as asymmetric spillover effect. We find that the presence of bidirectional and unidirectional return spillover indicates a close relationship among BRICS countries' stock markets. We depict negative news impacts more on volatility of these countries stock markets. Further, we find diversification does not give any economic value from India, Russia and Brazil stock markets to China stock market. The knowledge of transformation of information from one market to another market helps to develop hedging strategy, finds diversification opportunities and captures the efficiency of the market.
    Keywords: spillover; BRICS; EGARCH; Granger causality.

  • Regulatory institutional quality and long-run primary capital market development: the Nigerian case   Order a copy of this article
    by Patrick Eke, Kehinde Adetiloye, Joseph Taiwo 
    Abstract: The role of the financial regulator is significant in the development of its sector. This paper examines the impact of the Securities and Exchange Commission (SEC) on the development of the Nigerian primary capital market, using Granger-Vector autoregression (VAR) framework for data from 1980 to 2013. The variables considered are market capitalisation, liquidity, financial literacy and regulatory quality. The short-run findings indicate that regulatory quality Granger causes market capitalisation, Transaction cost also predicts market capitalisation and liquidity. Financial literacy predicts capitalisation and liquidity. Market capitalisation responds negatively to regulatory quality long-run impulses, implying that an indifferent regulation could be catastrophic for future primary market development. However, capital issuing responds positively to regulatory quality innovations throughout the period. A priori significant finding is that market capitalisation and liquidity do not drive capital issuing. For policies, the paper recommends regulators to increase campaigns to deepen the understanding of issuers and increase financial literacy, promote the registration of more rating agencies, and reduce transaction costs. Regulators should apply soft listing requirements to encourage more firms to seek funds from primary capital market.
    Keywords: Securities and Exchange Commission; primary capital market; impulse response function; financial literacy; Nigeria.

  • Corporate governance index and firm performance: empirical evidence from Indian banking   Order a copy of this article
    by Manmeet Kaur, Madhu Vij 
    Abstract: The increase in famous global corporate scandals has steadily increased the attention towards the failure of corporate governance practices around the world. Owing to globalisation the quality of Corporate Governance (CG) systems becomes an important factor for a firms survival. The problem is more critical when banks are taken into consideration because of their important role in the economy. The present study examines the various practices of CG for banks in India, using a sample of 39 listed banks in the BSE market as on 31 March 2014. In the study the Corporate Governance Index (CGI) has been constructed for each bank to measure the level of good governance practices implementation and to verify whether the banks performed better with regard to that. The overall CGI is subdivided into seven subindices. The variables of the subindices are based on statutory and non-mandatory requirements given by SEBI (Securities Exchange Board of India) under clause 49 of the listing agreement, Basel Norms, RBI recommendations and Companies Act, 2013. The scores of overall CG index and subindex are analysed using non-parametric Mann Whitney U test. The level of compliance is analysed among public and private banks. OLS regression method has been used to evaluate the relationship between the overall CGI, its subindices and bank performance. The results show that CGI is significantly and positively associated with financial performance of banks measured by return on assets, Tobins Q and economic value added. We conclude that the CG mechanism has an influence on banks' performance and value. There is a need to frame and enforce the Code of Banking Sector Governance by the Indian Banks Association in consultation with Reserve Bank of India. Banks indeed would have a good incentive to voluntarily improve their governance standards as will benefit them in terms of performance.
    Keywords: corporate governance index; bank performance; ownership structure; corporate governance.

  • 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.