International Journal of Banking, Accounting and Finance (9 papers in press)
Revising the Turn of the Month (TOM) effect study: why does it fade and reappear? Practical policy implications and thoughts for further research.
by Evangelos Vasileiou
Abstract: The purpose of this paper is to examine in detail the Turn of the Month (TOM) effect and to offer a detailed explanation for the controversial empirical findings that have been documented in the literature. Using data from the USA stock market, the results suggest that returns during the TOM period outperform the returns during the rest of the month period (non-turn of the month days - NTOM). However, the statistical significance of the TOM and the NTOM returns is significantly influenced by: (i) the definitely-selected TOM time span, (ii) the capitalization, (iii) the econometric modeling, (iv) the applied mean equation (v) the examined time period, and (vi) the financial trend. Therefore, the existence or fade of the TOM effect should be examined by taking all the aforementioned factors into consideration. Moreover, the empirical findings suggest that when the TOM returns are positive and statistically significant, there is a positively growing financial trend, while when the NTOM is negative and statistically significant, the NTOM days coincide with a financial crisis (or negative financial trend). The latter results could pave the way for further TOM studies which would examine whether the TOM period could be an indicator of the upcoming financial conditions. Finally, the paper indicates how these findings could be practically useful for investors, traders and financial advisors.
Keywords: Calendar Anomalies; Turn of the Month effect; Efficient Market Hypothesis; US stock market; Size Effect.
Accounting Quality Deferred Tax and Risk in the Banking Industry
by Anestis C. Ladas, Christos I. Negakis, Angeliki D. Samara
Abstract: This study attempts to provide evidence of the relation between capital structure, stock crash-risk and deferred taxation. Using a sample of banks domiciled in Eurozone countries and stock crash risk measures that capture both medium and extreme risk, the study shows that the recording of deferred tax components leads, in some instances, related to capital structure, to future stock crash risk. Further investigation reveals that this result is incrementally driven by banks domiciled in southern Europe. Moreover, controlling for the existence of profitability based on the prescriptions of International Accounting Standard (IAS) 12 for the recording of deferred tax assets, the study shows that banks with high deferred tax assets domiciled in crisis-affected countries have lower future stock crash risk. In this respect, these results likely imply that recording deferred tax in a manner better reflecting the provisions of accounting standards may not increase the likelihood of a future stock crash. However, for banks with capital-structure problems domiciled in crisis-affected countries, high deferred tax assets lead to higher likelihood of future crash risk.
Keywords: Deferred Taxation; Stock Crash Risk; Capital Structure.
Relationship Banking and SME Financing: The Case of Wales
by Kent Matthews, Hans Degryse, Tianshu Zhao
Abstract: Regional disparities in credit availability across the UK have been highlighted in a series of studies as a factor affecting both new firm starts and small firm growth prospects. This paper suggests that relationship banking might be an important means of attenuating differences in credit availability. The paper focuses on the value of relationship banking to SMEs in Wales in the period following the global banking crisis. The results show that SMEs that had developed a customer-loan relationship with their banks had a lower probability of experiencing a worsened credit outcome than those that did not. The implications of the findings for regional development and financial provision are discussed.
Keywords: Regional finance; Relationship banking; SME financing; Wales.
Attributes of Audit Quality and Weak Fiscal Sustainability Countries
by Panayiotis Tahinakis, Michalis Samarinas
Abstract: This paper seeks to examine the effect that audit quality has on audit opinion expression in the context of the recessive Eurozone environment. Based on a sample consisting of all the European Monetary Union countries for a period of nine years (2005-2013) our findings suggest that the size of the auditing firm and auditor's expertise in an industry continues to be a proxy for audit quality and impacts audit opinion during the recession. The same does not apply for audit tenure, however. These findings provide evidence with respect to audit quality differentiation in a monetary union, with a common currency and accounting standards in the presence of an economic recession. It attempts to provide useful insights for auditors, accountants and regulators concerning the regulatory framework and the efficiency of various audit policy changes especially in periods of fiscal distress.
Keywords: Audit Quality; Audit Opinion; Recession; Eurozone.
Contribution of Islamic Banks to Systemic Risk
by Chakroun Mohamed Amin, Gallali Mohamed Imen
Abstract: This study compares Islamic to conventional banking systems in order to see their contribution to systemic risk. It examines listed banks from six Middle Eastern countries using the Marginal Expected Shortfall (MES) method to measure dynamic individual systemic risk. We then try to determine the factors affecting these systemic risk levels for each type of bank. Finally, we refer to the VAR Panel model estimated by GMM to determine the impact of each shock in the banking system and ultimately its impact on global stability. The main results show that conventional banks present more systemic importance than Islamic banks. This result does not prove that Islamic banks do not present a danger to the overall systems stability. On the contrary, despite the embryonic phase of this banking industry, it significantly contributes to systemic risk mainly during unstable periods. Islamic banking these days shows more and more systemic importance. We conclude that market risk, bank size and the leverage effect are the main factors that positively influence systemic risk.
Keywords: Islamic Finance; systemic risk; MES; DCC-GJR-GARCH; Panel VAR.
Social networks in banking: A note on coauthorship in banking research
by Andreas Andrikopoulos, Aristeidis Samitas, Anastasia Lolou
Abstract: We explore social networks of scientific collaboration in banking research. Collaboration is measured with coauthorship partnerships between individual scientists, institutions and countries. We employ a sample of published research in banking journals over the last 25 years and discuss the social structure of collaborations in banking papers. We find the most central authors, institutions and countries in banking research. We also discover that the network of banking research has small-world properties; the collaboration between authors,rninstitutions and countries is highly clustered and most nodes in the network are closely connected.
Keywords: social networks; banking research; small world.
Herding Behavior in a peripheral European stock market: The impact of the Subprime and the European Sovereign Debt crises
by Sérgio Lagoa, Luís G. G. Dos Santos
Abstract: The characteristics of the Portuguese stock market suggest that it is susceptible to herding behavior. We investigate the existence of this behavior in Portugal during periods of market stress, with emphasis on the Subprime and European Sovereign Debt Crises. We analyze the overall stock market, key industries, and portfolios divided by market capitalization. The study is performed using both linear and nonlinear models, and the impact of conditional variance is taken into account. This paper shows evidence of herding behavior when the nonlinear model is used and during periods of crisis. Investors imitate more assets of similar size than assets of the same industry. Finally, the evidence of herding behavior is reduced when GARCH effects are taken into account.
Keywords: Herding behavior; market stress; Portugal; stock market; crisis; Subprime Crisis; European sovereign debt crisis.
Does Money Supply Growth Contain Predictive Power for Stock Returns? Evidence and Explanation
by David G. McMillan
Abstract: We examine the nature of predictive power of money supply growth for stock returns. An understanding of which would be useful for market practitioners and policy makers given the current lack of consensus. In addition, knowledge of this relationship can aid our understanding of the risk and cash flow channels of stock price movement. Using monthly data and considering a range of alternative predictor variables, predictive and forecast time horizons, empirical methodologies and measures of stock returns, we find that money supply growth has a negative predictive relation with stock returns. Rolling window forecasts provide confirmatory out-of-sample evidence for the significance of money supply growth as a predictor variable. The use of both returns and dividend growth predictive regressions, as well as a VAR analysis and predictive regressions for size and book-to-market portfolios suggest that relationship operates through a risk channel. Higher money supply leads to improving economic conditions and lower (required) returns.
Keywords: Stock Returns; Money Supply; Predictability; Asset Price Movement; Forecasting.
Geographical disclosure quality under IFRS 8: A European Union analysis
by SAMEH KOBBI
Abstract: In November 2006, the International Financial Reporting Standard 8 (IFRS 8), Operating segments, was issued by the International Accounting Standards Board (IASB) as a substitute for the International Accounting Standard 14 Revised (IAS 14R), Segment reporting, and became effective in 2009. In this context, this paper aims to describe and evaluate the quality of geographical disclosure following the adoption of IFRS 8. Accordingly, this paper seeks to answer the following research questions: What geographical items are disclosed under IAS14R and IFRS8? Is there a gain or a loss of the geographical information disclosed following the implementation of IFRS 8? Has the implementation of IFRS 8 changed the number of geographical segments previously reported under IAS 14R? What types of geographical segments are actually reported? Has the implementation of IFRS 8 resulted in more disaggregated segment definitions? What quantitative materiality thresholds are used to determine the materiality of revenues in individual countries? Is the IFRS 8 information set with regard to revenues by geographical segment finer than the information set provided under IAS 14R? Is the firms geographical disclosure quality related to firm size, profitability, degree of internationalization, industry type and country of domicile?
Our methodology is twofold. First, a content analysis of the annual reports of 171 publicly listed European Union (EU) companies during the period from 2006 to 2012 shows substantial variation in geographical disclosure practices. Second, a multiple regression analysis shows the negative impact of IFRS 8 on the quality of geographical disclosure measured by two proxies, namely extent and fineness. Our findings suggest that geographical disclosure quality is associated with firm size and that more internationally oriented firms provide finer geographical segments compared to their counterparts.
Keywords: IFRS 8 - IAS 14R - Geographical disclosure quality - Aggregation level - Materiality threshold - Extent of disclosure - Fineness - Firm’s characteristics.