Afro-Asian J. of Finance and Accounting (89 papers in press)
Financial restructuring of firms under weak bankruptcy laws: an Indian experience
by Smita Mazumdar, Anupam Rastogi
Abstract: This paper empirically investigates the behaviour of firms with respect to capital usage under a weak insolvency and bankruptcy law, using Indian corporate data over a period of 2000-2014. It suggests that firms tended to borrow more post restructuring of debt under the corporate debt restructuring mechanism - an informal arrangement supported by the central bank of India. We find that firms manage to obtain more debt from lenders thereby signalling to the market of possible path of recovery. But these firms do not show improvement in profitability post financial restructuring, indicating that lenders under a weak bankruptcy regime postpone the day of reckoning. The empirical evidence corroborates the theory of agency cost of debt and the signalling hypothesis in the change in capital structure of firms.
Keywords: financial restructuring; CDR; corporate debt restructuring; leverage; capital structure; Insolvency and Bankruptcy Code; India.
The influence of foreign currency earnings and foreign capital on earnings management
by Modekurti Kameshwar Rao, K. Lubza Nihar
Abstract: Earnings management has been researched extensively. Yet it offers scope for further study owing to the complexity of influencing factors and the variety of accentuating contexts. This paper examines the phenomenon in the context of firms with foreign currency earnings and in the presence of foreign capital. Firms engaged in international business may face either of the contexts or both. Considering the NSE 200 companies of India, for the period of 2010-2016, this paper examines two primary research questions namely, 'does the presence of foreign currency earnings influence earnings management?', and does the presence of foreign capital influence earnings management?'. Empirical evidence in this paper reports positive influence of foreign currency earnings, and negative influence of foreign capital, on earnings management. The results do not change even when different measures of managed earnings (dependent variable), foreign earnings, and foreign capital (independent variables) are adopted, and remain robust when controlled for firm level factors such as size, level of operations, and industry affiliation. This paper contributes to the meagre international literature on the theme 'international orientation and earnings management', and is the first empirical evidence on this theme from a significant emerging economy, India.
Keywords: earnings management; foreign currency debt; foreign earnings; earnings volatility; debt covenants; ADR; meet and beat expectations; FIIs; discretionary accruals; Jones model.
Managerial entrenchment hypothesis and dividend payout policy
by Raheel Gohar, Ayesha Rashid
Abstract: The influence of managerial entrenchment on dividend payout policies is studied for the period 2006 to 2014. The results of the study indicate that the ratio of the sum of shares owned by the CEO, the Chairman and the directors (i.e. insider ownership) is negatively related to both the likelihood and the payment of dividends. Even when controlling for firm size and leverage, it is found that the ratio of shares owned by the block holder shows negative and significant results (for both the logit and the tobit regression). This study proves that either the block holders are part of the management or they have strong board representation, so they do not consider dividend payouts as a disciplining and monitoring mechanism. Investment opportunities and leverage have a negative and significant relationship with both the likelihood and the level of payouts.
Keywords: managerial entrenchment; dividend payout policy; logit and tobit regression; Pakistan.
How debt maturity reacts to the interactions of internal corporate governance mechanisms
by Hanan Alhussayen, Ridha Shabou, Imed Medhioub
Abstract: The two primary internal corporate governance mechanisms, boards of directors and ownership structures, are important for disciplining managers through short-term and long-term debt and, thus, debt maturity. The interactions between these mechanisms tend to define which type of debt is the more effective discipline mechanism. Thus, this study aims to define the impacts of interactions between intensive board monitoring and ownership structures on debt maturity for all non-financial firms listed on the Saudi market from 2008 to 2013. The results reveal that board monitoring intensity encourages Saudi listed firms to apply more long-term debt. Both direct ownership by large shareholders and family-held firms as controlling shareholders strengthen the monitoring functions of the board and encourage Saudi listed firms to apply more long-term debt. In contrast, ultimate owners, who hold indirect ownership of firms, tend to distract the board from applying its monitoring functions effectively.
Keywords: intensive board monitoring; direct ownership; indirect ownership; family ownership; debt maturity; long-term debt; short-term debt.
International Financial Reporting Standards adoption and accounting quality: evidence from Ghanaian listed firms
by Benjamin Yeboah, Cláudio Pais
Abstract: The adoption of International Financial Reporting Standards (IFRS) by Ghanaian listed firms forms the basis of higher accounting quality and reliability of accounting information from IFRS application. Existing literature suggests that the adoption affects the level of accounting quality. The aim of this paper is to examine whether the shift to IFRS minimises weaknesses in Ghana National Accounting Standards (GNAS) in measuring accounting quality. The paper employs research design metrics of discretional accruals, accrual quality, earnings smoothness, small loss avoidance and price-earnings to compute accounting quality of Ghana Stock Exchange (GSE) firms. The results suggest that accounting quality has improved after the shift to IFRS. This research fills the gap in Ghana level, given that there was no such study. Also, this study gives evidence of improvement in the information environment of GSE capital market after the shift in terms of information quality and accounting comparability.
Keywords: IFRS adoption; accounting quality; earnings management; Ghana.
Are banks profitable and efficient? A case study of Pakistan
by Muhammad Ali, Chin-Hong Puah
Abstract: The aim of this study is to investigate the impact of bank-specific factors and macroeconomic environment on bank profitability and management efficiency in Pakistan. The sample data comprised 24 banks over a sample period of 2007-2015. The panel least squares regression with fixed effect model suggests that bank profitability is significantly affected by bank size, credit risk, and bank stability. On the other side, bank efficiency is significantly predicted by liquidity risk, credit risk, and funding risk. The robustness of results was confirmed in the presence of the macroeconomic environment. Overall, this research provides a new insight into bank profitability and efficiency. Additionally, prior studies have neglected the management efficiency as a dependent variable. Therefore, we consider this article as superior, which has laid a foundation for future studies.
Keywords: banking sector; finance; profitability; management efficiency; macroeconomics; Pakistan.
Trade credit in an emerging market: evidence from Kuwaiti firms
by Yomna Abdulla
Abstract: We investigate the trade credit policy in Kuwaiti firms during the period 2011-2016. Specifically, we examine the impact of the decline in oil prices on the level of trade credit and on the relationship between trade credit and firms profitability. The findings show that the decline in oil prices had no significant impact on the level of trade credit or the relationship between trade credit and profitability. We find that cashflow, cash holdings, current assets, short-term debt and size are the main determinants of trade credit. The results also show that the level of trade credit has a negative impact on a firms profitability and is more pronounced in financially unconstrained firms.
Keywords: trade credit; emerging markets; profitability; accounts payable; working capital management; oil prices.
The effect of corporate reputation on firm financial performance: evidence from Indonesia
by Iman Harymawan, Mohammad Nasih, Salsabiilaa F. P. Herlambang
Abstract: This research study examines the effect of corporate reputation on the firms financial performance in Indonesia. This study used a sample of 930 firm-year observations from the firms listed on the Indonesian Stock Exchange from 2013 to 2016 in order to examine how company reputation affects financial performance. The results show that corporate reputation affects financial performance positively. Moreover, the small firm size in Indonesia has a greater corporate reputation effect on financial performance. The implication of this study is important for management as regards the important role that reputation can play on the firms financial performance. Therefore, maintaining a company's reputation is crucial to ensure the growth of the firm's performance. In addition, this study reveals that the effect of corporate reputation effect on financial performance for a smaller firm is greater than for a larger firm.
Keywords: corporate reputation; financial performance; firm size; emerging country.
Bank capital and liquidity creation: evidence from Islamic and conventional MENA banks
by Ahmad Sahyouni, Man Wang
Abstract: This paper estimates the amount of liquidity created by MENA banks over the period 2011-2016, and further investigates the impact of bank capital on liquidity creation, controlling for a set of bank-level and macro variables. The findings conduct that banks created 18.596 trillion US dollars of liquidity, which equals 28.4% of their total assets, and conventional banks create more liquidity than Islamic banks, as do large banks compared with medium and small banks. But, the Islamic banks are the best in terms of liquidity creation per asset. The regression results also show a negative relationship between equity capital and liquidity, which supports the financial fragility crowding-out hypothesis, but only for conventional banks and for large and small size banks. Finally, the study contains some implications for decision makers and regulators in the region.
Keywords: liquidity creation; bank capital; Islamic banks; conventional banks; MENA.
Causal relation and dynamic volatility spillover between commodity market and stock market: empirical evidence from India
by Ruchika Kaura, Nawal Kishor, Namita Rajput
Abstract: The aim of this study is to investigate the causal relationship and dynamic volatility spillover effect across commodity market and stock market in India. The study is based on the Nifty index of the National Stock Exchange of India Ltd (NSE) as the representative of Indian stock market and four commodity market indices of the Multi Commodity Exchange of India Ltd (MCX), namely MCXComdex, MCXAgri, MCXEnergy and MCXMetal, as representative of the Indian commodity market. The study employs the Vector Autoregressive (VAR) model to examine the causal relationship between commodity market indices and the stock market index, Nifty. It employs the Dynamic Conditional Correlation (DCC) GARCH model proposed by Engle (2002) to measure the volatility spillover effect and to test the time-varying conditional correlation across commodity market and stock market indices. The findings highlight the existence of strong linkages between commodity market indices and Nifty. In particular, the causal relationship of all commodity market indices towards Nifty is reported. The results of the DCC-GARCH model show that correlation between the commodity market and the stock market is time-varying and highly volatile. Dynamic volatility spillover between the conditional variances of all selected commodity market indices and Nifty is found to be significant, implying that any disturbance in one market leads to the other market becoming more volatile. The findings of this study can be of immense use for portfolio managers to devise appropriate substitution and risk management strategies for the purpose of portfolio optimisation to garner more profits. The knowledge of the cross-market relationship may also be helpful for policy makers and regulators to understand the macroeconomic implications of commodity market shocks on the stock prices and vice-versa.
Keywords: VAR; DCC-GARCH; causality; dynamic volatility spillover; commodity market; Nifty.
The value relevance of research and development expenditures: a comparative analysis of Korean, Japanese, Chinese, and US manufacturers
by Gee Jung Kwon
Abstract: Research and development (R&D) expenditures are generally thought to increase a firms market value. This study examines the nonlinear value relevance of R&D expenditures from 2006 to 2015 for manufacturers listed on capital markets in Korea, USA, Japan, and China. In this regard, the study uses a nonlinear validation method based on an analytical model that adds R&D investment variables to a corporate valuation model. The results indicate that Korean and Japanese firms experience an increase in corporate value when they make R&D expenditures, but if the firms exceed their R&D expenditure limits, corporate value falls. In US and Chinese firms, R&D expenditures prompt a dramatic rise in corporate value when such expenditures are initially set to exceed certain limits, although R&D activities reduce corporate value in their early stages. Such findings have practical relevance for international investment decisions.
Keywords: research and development; accounting information; corporate value; value relevance; nonlinear value relevance; manufacturer.
The long-term performance of post-merger and acquisition: evidence from Indonesias stock market
by Josua Tarigan, Jacqueline Evania, Devie Devie, Saarce Elsye Hatane
Abstract: This study evaluates the long-term share performance of firms over three years after they underwent merger and acquisition (M&A) in the period of 2010-2013. This is happening since researchers failed to find answers in the short-term analysis and began looking for answers through long-term analysis. Most previous studies have been done either in big capital markets (US and UK) or smaller capital markets such as Greece and Malaysia but not Indonesia. Moreover, this study also added the size of the acquirer, the method of payment and the ownership concentration together towards the long-term share performance, which is different from previous studies. The share performance was measured through Cumulative Market Adjusted Abnormal Return (CMAR) and Buy and Hold Abnormal Return (BHAR). The result of this study provides evidence of the presence of negative abnormal returns of the merged and acquiring firms. The result also shows that large size acquirers earned lower loss of abnormal returns than the small size acquirers. Moreover, the results show that cash payments are preferable to the share settlement. The results also reveal that the firms that are owned by families tend to outperform the firms that are not owned by families
Keywords: merger and acquisition; share performance; Indonesia; cumulative market adjusted abnormal return; buy and hold abnormal return.
Infrastructure-FDI nexus in Nigeria: insights from nonlinear threshold regression model
by Md Mahmudul Haque, Mohammad Ashraful Ferdous Chowdhury, Mohammad Hassan Shakil, Abul Mansur Mohammed Masih
Abstract: Infrastructural development of the host country is one of the major determinants of attracting FDI. However, the nonlinear threshold relationship between the infrastructural development and FDI inflow is yet to be explored. The objective of this research is to find the threshold effect of infrastructure on FDI in Nigeria. Using Hansen's (2000) threshold regression over the period 1972-2015, the study found that the relationship between infrastructure development and FDI is nonlinear. Furthermore, the relationship between infrastructure and FDI is positive in both regimes; however, the marginal positive impact of infrastructural development in attracting FDI is more evident after the threshold level. The findings provide support to the regulators and policy makers to improve infrastructural development for attracting more FDI in the economy, which fosters economic growth.
Keywords: infrastructural development; FDI; threshold regression.
Owner risk and firm valuation: evidence from Korean business groups
by Haksoon Kim
Abstract: Since Berle and Means (1932) and Jensen and Meckling (1976), numerous empirical studies have been done on corporate governance regarding ownership structure, board characteristics, and monitoring mechanism. However, there is little empirical evidence of the relationship between owner risk and firm valuation. We investigate this relationship using the unique owner risk index score data of Korean business groups. A high score means low owner risk. We find that there is a positive relationship between owner risk index score and firm valuation for Korean business groups. Specifically, the positive relationship is statistically significant in the professionalism and quality or ethical management without group dummy. The positive relationship is statistically significant in the transparency and accountability or ethical management with group dummy. The results suggest that owner risk is an important governance factor affecting firm valuation.
Keywords: owner risk; firm valuation; corporate governance; business group.
Ownership concentration and firm valuation in a typical frontier market
by Nam Tran, Chi Le
Abstract: This study investigates the valuation effect of concentrated ownership in a typical frontier market. Using an extensive sample of Vietnamese publicly listed firms, we find that the valuation effect is inconclusive before combined equity holdings reach a certain threshold, beyond which market valuation increases exponentially with ownership. The latter log-linear effect can be interpreted as a more profound dominance of the monitoring incentives of large shareholders over the potential expropriation of minority shareholders at higher levels of concentration. Our finding reconciles the seemingly conflicting results of previous studies and contributes to understanding corporate governance practices in frontier markets.
Keywords: ownership concentration; market valuation; piecewise linear regression; frontier markets; Vietnam.
Martingale effect of conventional versus Islamic stock indices: evidence from the UAE
by Hazem Marashdeh, Sania Ashraf
Abstract: This study aims to identify the martingale effect of conventional and Shariah equity markets in the United Arab Emirates. The study employs the runs test for randomness, and the Breusch Godfrey LM test and the variance ratio test using daily returns for the period January 1, 2008 to August 31, 2017. The empirical results indicate that the UAEs conventional equity market operated efficiently, while the Shariah equity market lacked randomness during the study period. The existence of stock-market efficiency in the conventional stock price index is considered an essential factor for attracting foreign portfolio investment. Nevertheless, the inefficiency of the Shariah market offers opportunities for well-informed investors to achieve abnormal levels of returns. However, having an inefficient Islamic market index points to the need for Shariah boards to make the market more transparent and ensure information flows are instantaneous. The findings of the study have useful implications not only for investors but also for regulators and policy makers in terms of the need to reduce economic distortions through more effective resource allocation.
Keywords: martingale; heteroscedasticity; informational efficiency; Breusch Godfrey LM test; variance ratio test.
Investigation of stock return volatility using Shannon entropy: evidence from ASEAN stock markets
by Xuan Vinh Vo, Thi Tuan Anh Tran
Abstract: This study assesses stock market volatility in ASEAN countries. We use Shannon entropy as an alternative measure to traditional measure of stock return volatility. We use daily stock price data of national stock market indices of ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) for the period from August 2001 to December 2016. The results show that the returns series of Vietnam VNINDEX is the most volatile stock index, followed by Indonesia, Singapore, Malaysia, Thailand and the Philippines. The study also suggests that entropy is an important alternative to the traditional measure of stock return volatility. The study offers important implications for risk management and portfolio theory.
Keywords: volatility of stock returns; standard deviation; entropy; Shannon entropy; probability density function.
Corporate governance, transparency and performance: empirical evidence from UAE
by Mostafa Kamal Hassan, Cristina Florio, Bassam Abu Abbas
Abstract: This paper uses both the agency theory and the legitimacy theory to provide a complementary framework that links different patterns of disclosures (i.e. transparency) to corporate performance for a sample of 116 United Arab Emirates (UAE) listed firms between years 2008-2016. It investigates the relationship between corporate disclosures (i.e. transparency), organisational commitment to law, a set of governance mechanisms (namely, board size, CEO decision-making power, and foreign ownership) and corporate performance, while controlling for corporate specific characteristics such as size, type, age and leverage. The empirical results show that transparency indices have a puzzling pattern across different performance measures namely return on assets, asset turnover and organisational growth. For the non-financial sector, the results shows a positive significant association with return on assets and asset use, and a significant negative association with organisational growth. For the financial sector, the results show no association between transparency and performance measured by return on assets and asset use, and a negative association with organisational growth. The findings are important to regulators, investors, and researchers aiming at developing new policies that establish better regulatory infrastructure that increases investors confidence. The paper is one of very few studies that examine the association between corporate transparency and corporate performance in an emerging market economy, such as the UAE.
Keywords: transparency; governance; performance; disclosure indexes; emerging economies.
Different levels of family ownership and dividend payout in the presence of growth opportunities
by Irene Wei Kiong Ting, Qian Long Kweh, Norazlin Ahmad, Neshaleni S. Paramanantham
Abstract: This study examines the family ownership, growth opportunities, and dividend payout of a sample consisting of 200 of the largest publicly listed companies in Malaysia from 20112016. Three main results emerge after controlling for firm and board characteristics as well as industry and year effects in various robustness checks. First, despite their positive impacts on dividend payout, family firms exhibit a lower dividend payout relative to net income. Second, growth opportunities increase the positive impacts of family ownership on dividend payout. A positive association between growth opportunities and dividend payout is also found. Third, the moderating effect of growth opportunities on the relationship between family ownership and dividend payout is present only in firms with family shareholdings, particularly those with high and medium ownership. These findings indicate varying dividend payout in the presence of growth opportunities for the different levels of family ownership.
Keywords: dividend payout; family ownership; growth opportunities; moderating effect.
Stock market efficiency: the Pakistan Stock Exchange merger
by Asad Ali, Saqib Sharif
Abstract: This study examines the valuation, liquidity, volatility, and efficiency before and after the integration of Islamabad Stock Exchange (ISE) and Lahore Stock Exchange (LSE) with Karachi Stock Exchange (KSE) to form the Pakistan Stock Exchange (PSX). The firm-level daily data is analysed to determine the effects of regulatory change. Based on regression analyses, results indicate mixed evidence for different market measures following the integration of domestic bourses. However, the post-integration period in Pakistan is fraught with political turmoil and weak economic indicators. Thus any improvement that is hypothesised following the merger is offset by poor economic and political factors.
Keywords: stock exchange merger; valuation; liquidity; volatility; market efficiency; financial regulation; Pakistan Stock Exchange; demutualisation.
Herding behaviour and trading volume: evidence from Amman Stock Exchange
by Buthiena Kharabsheh, Mohammad AL-Gharaibeh, Suleiman Almasri
Abstract: The purpose of this paper is to examine the presence of herding behaviour in Amman Stock Exchange (ASE). Specifically, it aims to provide empirical evidence on the relationship between herding behaviour, trading volume and market liquidity levels. Using a free float share index consisting of 100 companies, the present study employs the approach developed by Chang et al. (2000). It presents an analysis of herding in relation to trading volume and liquidity relationships performed by OLS, VAR estimation and Granger causality tests. Results of daily data analysis for the period 2006 to 2017 indicate strong evidence of herding behaviour in ASE, particularly during the crisis period. The results also proved that there is a strong correlation between herding and trading volume in both directions, and intensification of herding in periods of medium or high market liquidity, but no evidence of herding at low liquidity levels.
Keywords: herding; behavioural finance; trading volume; liquidity; Jordan; financial crisis; granger causality tests; Amman Stock Exchange; free float index.
Bank growth, competition and small business financing in Nigeria
by Cosmas Asogwa
Abstract: The level of bank growth, asset concentration, and competition in Nigerias banking sector have significantly increased following a series of banking reforms, thus raising concern about these reforms effects on the efficiency of banks credit distribution. In this study, we use ex post-facto and difference-in-difference designs to examine how competition among high-growth banks has affected the banks provision of assets to small business borrowers in Nigeria. The study used a bi-sample structure through a judgmental technique that examined 126 and 96 firm-years. Thus, we focused on the period between 2001 and 2017, which enabled us to test both pre- and post-bank growth-competition Boone model effects. When we controlled for firm, market, and macroeconomic influences, we found evidence that in both the pre- and post-bank-growth eras, competition significantly increased small business loans. This finding is consistent with the competition-stability hypothesis, which considers competition as a non-credit constraining factor. A unit increase in the Boone competition indicator resulted in over a 3% credit supply to micro-credit users. However, when we used concentration ratio (CR6) as a structural measure, we found that pre-mega structure competition yields negative effects but that the post-growth effect on credit supply remains positive. Macroeconomic factors such as gross domestic product, money supply, inflation, and capital market indices yield a very significant effect on credit supply as huge banks compete with each other. Thus, policymakers should not ignore the variables in competition-monetary transmission policies in Nigeria.
Keywords: bank competition; small business; competition: lending: growth: MegaBank: Boone competition indicator.
The equity market returns and volatility spillover from the US and Japanese markets to Asian frontier markets
by T.H.I. Ngan Nguyen, T.H.I. Kieu H.O.A. Phan, Nirav Parikh
Abstract: This paper examines the magnitude of return and volatility spillovers from the US and Japan to Asian frontier equity markets (Sri Lanka and Vietnam). The US and Japan shocks are exogenous variables in the ARMA-GARCH-M model. The study indicates that the day effect occurs in Sri Lankan at pre- and post-crisis (2008). Secondly, the return contagion from Japan impacts Vietnam before, during and after the 2008 crisis. This contagion from the US influences Vietnam during and after the crisis with higher magnitudes than Japan. Thirdly, the return spillover from the US impacts Sri Lanka before and during the crisis, while this spillover from Japan to Sri Lanka occurs after the crisis. Finally, the volatility spillover from the US and Japan does not impact the Vietnamese market during the three periods. The volatility contagion from Japan influences Sri Lanka in the crisis, with no volatility spillover from the US to Sri Lanka through three periods.
Keywords: return spillover; volatility spillovers; frontier markets; contagion effects; ARMA-GARCH-M.
Home bias and return chasing by foreign portfolio investors: evidence from selected Sub-Saharan Africa markets
by Rihanat Idowu Abdulkadir
Abstract: This paper examines home bias and return chasing by foreign investors in selected Sub-Saharan African markets. Using a pooled mean group estimation on data drawn from five countries, the study did not find conclusive evidence to suggest that foreign investors exhibit home bias in the long run when they adjust their investment in line with past flows. Return chasing is not seen as the first order of business and is prioritised only in the long run, after foreign investors have gained knowledge of the market. Results show that foreign investors value countries with stable economies and invest more in the sampled markets with higher returns from industrialised markets. Policy makers should intensify efforts to make these markets more attractive for foreign investors, maintain good economic conditions and then monitor developments in industrialised markets. This approach will assist them in reacting to variations or reversals in portfolio flows resulting from occurrences in such markets.
Keywords: home bias; return chasing; foreign portfolio investment; pooled mean group; stock market.
Asymmetric nonlinear analyses of banking sector behaviour, markets and interest rate risks in Africa's frontier economy
by Augustine Arize, Ebere Ume Kalu, John Malindretos
Abstract: With the possibility of a change in the narrative from the long-held linearity assumption to a nonlinearity and asymmetric discovery in the bank, market and interest rate risk relationship, this paper explores the banks, stock market development and interest rate risk connection in the context of the Nigerian financial system. Empirical evidence arising from the study indicates that bank development exhibits interest rate sensitivity and changes in inverse direction with the interest rate. Moreover, the results strongly support asymmetry and nonlinearity in the relationship between bank development and stock market development. It is therefore recommended that policy efforts directed towards the development of the financial system should strike a balance between the linear/symmetric assumption and the nonlinear/asymmetric assumption.
Keywords: bank development; stock market development; asymmetries; linearity and nonlinearity; NARDL.
Does accounting quality predict corporate cash holdings?
by Rajesh Pathak, Ranajee Ranajee, Ranjan Das Gupta
Abstract: This study empirically examines the role of better accounting quality as a substitute for corporate cash holdings. The paper builds on the premise that if information asymmetry and agency concerns are the justifications for increased corporate cash holdings, better accounting quality, by alleviating these concerns, can enable companies to accumulate less cash, circumventing liquidity concerns. The study uses data for Indian firms during the years 200616 and employs a host of panel models to test the relationship amid the set of idiosyncratic controls and robustness tests. It reports that firms with high discretionary accruals hold high levels of cash, implying poor earnings quality leading to cash accumulation by average Indian firms. Results are highly consistent for alternate measures of accounting quality and cash holdings and are robust to controls of the antecedents of cash holdings and endogeneity issues. Furthermore, analysis of group-affiliated firms compared with their counterparts, for accounting quality and cash holding connect, reveals that while group affiliates suffer from poor earnings quality compared to non-affiliates, it does not have bearings on their cash holdings, a fact that can be attributed to the easy access of group affiliates to internal capital markets. The results imply that managers of Indian firms, on average, should focus on maintaining better accounting quality to alleviate the need to accumulate cash as a means of avoiding fundraising constraints when needed.
Keywords: accounting quality; cash holdings; accruals; business groups.
Certification role of transparency and anchor investors in Indian IPOs
by Sweta Agarwal
Abstract: The study examines the effect of bidding information of anchor and other institutional investors, on retail investors subscription and short-term IPO performance in the Indian market. The study also tries to find out specific characteristics of anchor investors that influence investor decisions. The results show that anchor investors play a certification role for institutional investors only. Both institutional and retail investors follow bids of each other during the book-building period. High institutional and retail subscriptions have a positive effect on initial returns. In anchor-backed IPOs, unique business group participation and anchor over-subscription have a high positive impact on both subscription and IPO initial returns.
Keywords: IPOs; book building process; anchor investors; institutional investors; retail investors; subscription; underpricing.
Determinants of corporate governance disclosures of Islamic banks in Sudan: implications for Shariah governance
by Saed Sulub, Zalailah Salleh, Hafiza Aishah Hashim
Abstract: The paper examines the association between the effectiveness of governance bodies in Islamic banks and Corporate Governance Disclosure (CGD) in a sample of Sudanese banks. We analysed the content of annual reports and employed Ordinary Least Squares (OLS) regression model with pooled effects. Consistent with previous studies in Islamic banks, the findings of this paper revealed low levels of CGD in Islamic banks of Sudan, which is only 39%, on average. The findings showed that Islamic banks with SSB members who hold advanced qualifications provided more information on CGD than their counterparts. However, we found that banks with SSB members who sit on more than one board tend to have lower CGD. In addition, we found that Islamic banks that have an established Audit Committee (AC), Internal Audit Function (IAF) and low levels of governmental ownership have higher CGD levels.These results are robust to alternative empirical models. Our study adds to the ongoing debate of Shariah governance in Islamic banks. In particular, while we support that IAF may play a significant role in Shariah governance as recommended by the regulators of the Islamic banking industry, our evidence shows that SSB multiple directorships, ceteris paribus, are not advantageous for Islamic banks.
Keywords: corporate governance; disclosure; Islamic banks; Shariah governance; Sudan.
Does earnings management impact firm performance? Empirical evidence from India
by Sunil Kumar, NIKHIL Kaushik, Ashutosh Verma
Abstract: The present study examines the association between firm performance and earnings management (EM) of Indian companies. The study used discretionary accruals (DA) as a proxy for EM and measured DA using balance-sheet approach and cash flow approach. DA was estimated using four models, namely Healy model, DeAngelo model, Jones model and Modified Jones model. The sample consists of companies included in the S&P BSE 500 index after excluding banks and financial institutions. The sample period is from 2007 to 2017 and the data is analysed using panel regression. The findings indicate that the relationship is significant and positive in the current year under the balance sheet approach. However, the relationship is significant and negative for the next years performance under the cash flow approach. It indicates that earnings through accruals positively influence the firm performance in the current year. However, when the accruals reverse in the next year and cash flows reduce, there is negative influence on the firm performance.
Keywords: discretionary accruals; balance sheet approach; cash flow approach; firm performance; panel data regression.
Performance of conventional banks versus Islamic banks: evidence from Indonesia
by Nevi Danila, Yousef Shahwan
Abstract: A sound banking system is crucial for the stability of the economy. This paper investigates the determinants of bank performance from the bank-specific and macroeconomic perspective. A fixed-effects model is used to analyse panel data on conventional and Islamic banks from 2010 to 2016. The data reveals that of the top ten private and non-government owned banks, the Islamic bank ranks as the number one performing bank. Macroeconomic variables are the only variables to have an impact on bank performance for both conventional and Islamic banks. While bank-specific variables do not influence performance, operating efficiency was shown to have an impact on Islamic banks.
Keywords: Islamic banks; CAMEL; financial performance index.
Dividend policy and stock price: evidence from Vietnam
by Dinh Bao Ngoc, Nguyen Chi Cuong
Abstract: We investigate the impact of dividend policy on the stock price in Vietnam. Firstly, in order to quantify the immediate effects of dividend policy, 1738 observations of dividend-related events from 403 listed companies during the period 2008 to 2015 are chosen and the event study methodology is used to estimate abnormal returns around the announcement date and the ex-dividend date. Secondly, in order to quantify the long-run impact of dividend policy, panel data derived from 108 listed companies (809 observations) is analysed by using Fixed Effect Model (FEM) and Random Effect Model (REM). Our results show that the effect of dividend announcement on the stock price is positive around the announcement date. For the long-term impact, the results indicate a significantly negative relationship between payout ratio (PAYOUT), dividend per share (DPS) and stock price volatility, and a positive relationship between dividend yield (DY) and stock price volatility of the companies.
Keywords: dividend policy; announcement date; ex-dividend date; stock price; event study.
IAS-24 related party disclosure compliance and corporate governance: evidence from an emerging market
by Ben Agyei-Mensah
Abstract: This paper aims to measure the extent of related party transactions disclosure and investigates their determinants in 110 selected firms in Ghana. An index was manually constructed for related party transactions disclosure in accordance with International Financial Reporting Standards (IFRS) (IAS 24) using company financial statements. Empirical results show high mean compliance level of 63% of related party transactions disclosure in Ghana. Furthermore, the multiple regression analysis (OLS) shows that related party transactions disclosure has significant relationships with block-holders ownership and presence of independent audit committee. This one of the few studies conducted in Sub-Saharan Africa
Keywords: corporate governance; mandatory disclosure; IAS 24; related party transactions; Ghana.
The effect of financial leverage on banks' performance: empirical evidence from a frontier market - the Amman Stock Exchange
by Ahmad Abu-Alkheil, Mohammad Alomari, Balkis Set-Abouha
Abstract: This paper examines the effect of Financial Leverage (FL) on banks' performance by adopting the dynamic Generalized Method of Moments (GMM) estimator over the period 2004-2016. Also, it examines the impact of the recent financial crisis of 2008 on the Jordanian banking industry. The study sample is based on a comprehensive list of listed banks in Amman Stock Exchange (ASE). Findings show that banks' leverage is a significant determinant of banks' performance. FL has negative effects on banks' performance. Mainstream and pure Islamic banks were not immune to the crisis. Yet, Islamic banks seem to show positive signs of recovery from the crisis. Converted Islamic banks did not have better immunity to the global shocks than mainstream banks. Large banks had better financial performance than small banks, and new banks are better able to recover from the adverse effects of the crisis than old ones.
Keywords: GMM; banks' performance; financial leverage; financial crisis; frontier market.
Audit committee and financial reporting quality: the mediating effect of audit price in Nigeria
by Hussaini Bala
Abstract: This study examines the mediating effect of audit price on the link between the audit committee and financial reporting quality. The model was developed based on a complementary hypothesis and employs a panel dataset comprising 440 firm-year observations. Consistent with resource dependence theory, we found that a larger audit committee comprising directors and shareholders is more likely to reduce earnings manipulation in the form of artificial smoothing and managers discretion on earnings. The study also establishes that larger audit committee size is linked to an increase in audit price. Interestingly, we found that an increase in the price of auditing services minimises the likelihood of earnings manipulation. Also, the audit price partially and significantly mediates the link between the audit committee and financial reporting quality. Consistent with institutional theory, our findings provide a causal effect of a complementary hypothesis of audit quality, which proposes that an audit committee should demand better assurance from the external auditors to guarantee effective monitoring of financial reports and to protect capital reputation. The findings of our study will permit stakeholders to comprehend better the importance of audit price in improving the credibility of financial reports, which boosts stakeholders confidence. This study also informs regulators and policy makers of the importance of audit price in limiting earnings manipulation and boosting audit quality, which, in turn, enhances financial reporting quality.
Keywords: audit committee; audit price; income smoothing; financial reporting quality.
The effect of cash flow information asymmetry criteria on conservatism in Iran
by Mahdi Salehi, Horta Azimidarmian
Abstract: The current study aims to investigate the effect of cash flow information asymmetry on conditional and unconditional accounting conservatism of the listed companies on Tehran Stock Exchange. Furthermore, we attempt to explore the determinant factors on these associations. The financial information of 143 firms listed on the Tehran Stock Exchange for the period of 2012 to 2016 is used. In order to assess conditional conservatism, Basus (1997) model has been used, and to evaluate the relationship between conditional asymmetry and cash flow information asymmetry control variables of lifecycle have been added to Basu's model. The results indicate that there is no relationship between conditional conservatism and cash flow information asymmetry as well as firm lifecycle variables, which are used to assess unconditional conservatism, and cash flow information asymmetry. Furthermore, we find no allocative factor on the relationship between accounting conservatism and cash flow information asymmetry.
Keywords: conditional conservatism; unconditional conservatism; firm lifecycle; information asymmetry; cash flow resulting from operating activities.
Directors' interests, family control and firm performance: evidence from Hong Kong listed firms
by Ben K.F. Wong, Raymond Wong, Annie H.C. Ko, Raymond Kwong
Abstract: Whether adoption of revised CG (corporate governance) rules and best practices in 2005 has had significant impact on firm performance in Hong Kong is examined through multiple regression models. A conceptual framework is developed and performance is measured on the basis of a comprehensive CGI (corporate governance index) in the post-2005 period. The main findings suggest that CGI has a significantly positive relationship with firm performance and family factors have a relationship with firm performance in some situations. Moreover, there is a changing point at which family ownership (<=23%) or directors interests (<=18.4%) have a significantly positive relationship with firm performance. This study also examines the effect of three family control measures on firm value under five different corporate governance conditions. When the percentage of the number of outside directors on the board is comparatively high, the family control and the family ownership are significantly related to firm value. For board size, the family control and family head are significantly related to firm value when the board has 11 members or less. For firm age, the family control is significantly related to firm value for younger firms. For top five salaries, all family control measures are significantly related to firm value when the five highest salaries are comparatively low. Companies need to increase spending to enhance governance performance (i.e. CGI). It is necessary to boost confidence of the public in information disclosed by companies. Besides, international investors and regulators can refer to results of sample firms which have ADRs listed in the United States. Most Hong Kong listed companies are family controlled but their willingness to reform corporate governance is expected to increase when they see the benefits discussed in this study.
Keywords: corporate governance; corporate governance index; family control; directors’ interests; firm performance.
Impact of audit committee attributes on financial
reporting quality and timeliness: an empirical study
by Ben Agyei-Mensah
Abstract: This paper investigates the impact of audit committee attributes on financial reporting quality and timeliness of listed firms in Ghana. The study uses 90 firm-year observations for the period 2013-2015 for firms listed on the Ghana Stock Exchange. A descriptive analysis was performed to provide the background statistics of the variables examined. This was followed by a regression analysis, which forms the main data analysis. The descriptive statistics indicate that over the four years, the mean value of financial reporting quality is 42% and timeliness of financial reporting is 86 days. The regression analysis results indicate that; financial reporting quality has a statistically positive relationship with audit committee financial expertise and size; audit report lag has a statistically negative relationship with audit committee financial expertise and audit committee independence. This study is one of the few to measure the influence of audit committee characteristics on financial reporting quality and timeliness in Sub-Saharan Africa.
Keywords: corporate governance; audit committee; Ghana; financial reporting quality; timeliness of reporting.
The nexus between reducing audit report lags and divining integrated financial report governance disclosures: should ASE directives be more conspicuous?
by Suzan Abed, Madher Hamadallah, Anan Srouji
Abstract: The purpose of the study is to explore any nexus between Amman Stock Exchange (ASE) Governance required disclosures based on auditors determinants on the audit reporting lag (ARL) in order to construct an Integrated Financial Report (IFR). Audit determinants were revealed by terms of audit meetings, number of audit members, audit opinion, type of audit company, then total assets and bank performance were tested to indicate any non-audit determinants that may affect the disclosure of IFR. Based on Jordanian banks annual financial reports for the years 2014, 2015 and 2016, data is retrieved and analysed. The hypothesised paradigm is tested through multivariate regression to pursue nexuses between the endogenous and exogenous variables. Multivariate analysis revealed a positive nexus between the exogenous variables in the model as a whole and ARL. However, a negative influence of the audit committee number of meetings and type of audit opinion performed on audit reporting lag, where the hypotheses are accepted. Meanwhile, audit committee meetings and type of audit company had a positive effect on the audit reporting lag, all with significant nexus, whereas after testing the control variables in the model, results did not change. Ascertaining innovative determinants that may help decrease ARL by offering explanations to divine the IFR of Jordanian banks, where study results may assist ASE governance committee to focus on the areas unruly disclosed; or needed innovative disclosure. Under corporate and securities laws in Jordan, companies are required to disclose a number of reports based on ASE rules and regulations. As the main objective of disclosing IFR is providing relevant and faithful information to stakeholders, in order to help users to make decisions based on IFR, before it loses its timeliness. So if there is a wide ARL then information will lose its most important significant characteristics, and will be inadequate for crucial decisions to be made by its users. The originality of the paper lies in the structured paradigm, through considering the impact of audit determinants on ARL to support Jordanian bank IFRing. This study contributes to the literature on the nexus between ARL and audit determinants in order to release IFR, by displaying that banks' disclosures based on governance directives are associated with the time lag due by auditors. Understanding such anthologies and explaining them may hopefully help increase the level of sufficiency and assessment of this kind of research.
Keywords: integrated financial reports; audit determinants; audit reporting lag.
On the robustness of the Fama-French three-factor model and the Carhart four-factor model on the Amman Stock Exchange
by Mohammad Q.M. Momani
Abstract: This study aims to explore the robustness of the applicability of the Fama-French and the Carhart asset pricing models on the Amman Stock Exchange (ASE) equity market. It uses data on all companies listed and traded in the ASE, over the period of 2002 to 2018. The study uses the time-series regression approach of Black et al. (1972). To estimate the models, the study applies the ordinary least squares (OLS) method. The study found that the models fail to capture the cross-section of average returns to portfolios sorted on size/book-to-market as well as size/momentum. The ability of the Carhart model in describing the returns to size/book-to-market portfolios is similar to that of the Fama-French model; however, the model better describes the returns to size/momentum portfolios. Unlike Almwalla's (2012) conclusion, this study suggests using the Carhart model in practical applications that require the estimation of the ASE equity market returns.
Keywords: Asset pricing; Fama-French three-factor; Carhart four-factor; ASE; Jordan.
Risk governance and firm value: exploring the hierarchical regression method
by Olayinka Erin, Foluso Aribaba
Abstract: This study examines the impact of risk governance on firm value of 50 listed firms in the Nigerian financial institutions for the period of five years (2013-2017). The study provides empirical evidence which shows that risk governance variables (Enterprise Risk Management_index, Chief Risk Officer_presence, Board Risk Committee_size, Board Risk Committee_activism, and Board Risk Committee_independence) have a positive and significant impact on firm value. Similarly, firm attribute variables (firm size and firm age) have a significant impact on firm value positively while on the contrary corporate governance variables (Board Size and Board of Directors_independence) show a negative but a significant impact on firm value. The empirical evidence observed in this study reveals that the institutionalization of risk culture, strong risk oversight functions and increase in risk accountability by the board have greater tendency to enhance the value of a firm. This study contributes to growing literature in the area of corporate reporting, risk governance and risk management research in Africa.
Keywords: board risk committee; Chief Risk Officer; firm value; Nigerian financial institutions; risk governance; Tobin’s Q.
Active trading strategies based on momentum and term structure signals in commodity futures market: evidence from India.
by Ritika Jaiswal
Abstract: This research designs an active double-sort strategy that integrates momentum and term structure signals present in the commodity futures market. By using a sample of highly traded commodity future contracts of the Indian commodity market from 2006 to 2016, this study confirms the exceptionally high abnormal profitability of the double-sort strategy. The abnormal returns of the double-sort portfolios are robust to transaction costs incurred for designing these active strategies. The application of a conditional multi-factor model and sub-sample analysis suggests that the return profile of these strategies is basically time-varying. Moreover, the low and insignificant correlation of double-sort portfolios with stocks and bonds confirms that relative strength portfolios of commodity futures can be effectively used to create a well-diversified portfolio.
Keywords: commodity futures; momentum strategy; term structure strategies; transaction costs.
Factors influencing the application of fair value of Vietnamese enterprises: an extension study of the theory of planned behaviour
by Lan Nguyen Ngoc, Anh Vu Thi Kim, Phuong Nguyen Thi Thanh
Abstract: This study is based on the theory of planned behavior to understand how the factors of awareness of businesses influence support applying Fair Value (FV) in Vietnamese businesses. Based on the data collected from 558 managements and accountants, we performed the data analysis process. The methods of descriptive statistics, Cronbachs alpha, Exploratory Factor Analysis (EFA) to find the convergence of observed forming new factors, and correlation analysis with binary logistic regression model were used in this study. The results show that: the factor of 'Awareness of challenges in business environment and legal environment' has the greatest influence and negative effects on support applying FV in accounting in Vietnamese businesses whereas the factor of 'Awareness of the benefits of improving financial statement quality' has the second most influence and positive effects on this issue. On the basis of our results, we propose some recommendations for promoting the application of FV in Vietnam
Keywords: behaviour awareness; fair value; support; Vietnam.
On the impact of sentiment on stock returns: the case of Dhaka Stock Exchange
by Shah Saeed Chowdhury, Rashida Sharmin, Arifur Rahman
Abstract: Because frontier markets are dominated by less-informed individual investors, stock price movements of these markets could be related to the sentiment of general investors. This paper investigates the effect of sentiment on the returns of the Dhaka Stock Exchange (DSE), the main stock exchange in Bangladesh. This study uses indirect measures of stock market sentiment. Results show that sentiment impacts contemporaneous returns followed by some corrections in the next month. Contrary to general belief, large firms are more vulnerable to market sentiment. There is a unidirectional (Granger) causality from market turnover to portfolio returns and a strong bi-directional causal relationship between moving average changes and stock returns. When conditional volatility is considered, significant impact of sentiment is mainly observed for small size portfolios. In the presence of other market-wide risk factors, sentiment factors reasonably explain individual stock returns. Overall, in the context of the DSE, the study concludes that sentiment should be considered as a source of systematic risk.
Keywords: market sentiment; behavioral finance; emerging stock markets; Dhaka Stock Exchange; frontier stock markets; return predictability.
What explains the investment decision-making behaviour? The role of financial literacy and financial risk tolerance.
by Zaheer Ahmed, Umara Noreen, Suresh A/L Ramakrishnan, Dewi Fariha Binti Abdullah
Abstract: The financial wellbeing of individual investors is driven by sound investment decision-making behaviour. This study investigates the impact of financial literacy on investment decision-making behaviour by examining the mediating role of financial risk tolerance. Using a quantitative research design and multi-stage random, and convenience sampling, a survey questionnaire collected data from 382 registered individual investors of the Pakistan Stock Exchange (PSX). The structural model tested the relationships between the constructs and revealed a positive and significant impact of financial literacy on investment decision-making behaviour and financial risk tolerance among individual equity investors. Similarly, financial risk tolerance mediated the relationship between financial literacy and investment decision-making behaviour. The study suggests measures to policy makers for improving financial literacy among individual investors. It also proposes significant functional insights for stockbrokers, investment advisors, and financial managers through examining the investment decision-making behaviour of individual equity investors. This study serves as a guideline for academia to further develop/improve the financial literacy of future investors.
Keywords: financial literacy; financial risk tolerance; investment decision-making behaviour; stockbrokers.
Corporate board monitoring, political connection and real earnings management practice in Nigeria
by Armayau Sani, Rohaida Abdul Latif, Redhwan Al-Dhamari
Abstract: This study examines the influence of corporate board monitoring on real earnings management practice in Nigeria. It also explores whether the presence of politically connected directors weakens or strengthens the monitoring power of the board, using 385 firm-year observations of listed companies on the floor of Nigerian Stock Exchange for the period between 2012 and 2016. The study uses Driscoll-Kraay Standard Error Regression to estimate the model parameters. The results show that politically connected directors have significant positive influence on real earnings manipulations. We also establish that the interaction of politically connected directors with the board weakened the board's monitoring power, and thus led to breach of corporate governance and poor earnings quality. Our findings show that when a board is politically connected, only a high proportion of independent directors reduces the possibility of earnings manipulations. The results also indicate that foreign CEOs and CEOs with financial expertise decrease the propensity of real earnings manipulations in Nigeria. Hence, we draw the attention of regulators to improve the independence of the board in order to control politically connected directors from weakening the board's monitoring power
Keywords: real earnings management; board of directors; political connection; chief executive officer.
Impact of crude oil price shocks on industrial output, inflation and exchange rate: evidence from five emerging Asian economies
by Shekhar Mishra, Naliniprava Tripathy, Sathyaswaroop Debasish
Abstract: The present study estimates the long-run relationship and impact of oil price shock on industrial production, inflation, and exchange rate of the selected fast-emerging Asian economies, namely China, India, South Korea, Singapore and Japan, by using autoregressive distributed lag model, structural vector autoregression model, variance decomposition and impulse response function. The study found that macroeconomic variables of Asian economies are cointegrated and share a common trend in the long run. The impulse response function specifies that variability in oil price has insignificant influence on the variables and much of its impact is absorbed within six to eight months. The variance decomposition analysis indicates that the shocks in oil price do not clarify a substantial deviation in any of the variables under study. The study suggests that the Asian economies should implement policies to attract more FDI and promote the foreign sector. The government should be more watchful while regulating the price level that may arise with a surge in oil price.
Keywords: crude oil price; ARDL; SVAR; impulse response function; variance decomposition.
Tax incentives and industrial productivity: evidence from Nigeria
by Folarin Alayande
Abstract: This study investigates the relationship between tax incentives and industrial productivity. Based on the empirical literature, the nexus between tax and direct investment as well as growth, has been tested. However, the nexus between tax and productivity is an area of ongoing research, and may vary significantly across countries and across industries. Using an autoregressive distributed lag model, the study examines the relative importance of tax amongst other industrial incentives in driving productivity. The findings show that tax incentive is not a significant driver of productivity growth. Conversely, other non-tax incentives such as financing subsidies appear to have more significant impact on industrial productivity. These findings provide new insight into the nexus between industrial incentives and productivity, and suggest that tax incentives may not be sufficient to drive the countrys industrial agenda.
Keywords: trade policy; trade incentives; productivity; market structure.
Enhancing internal auditors' risk assessment through governance and cognition: an Egyptian perspective
by Sara Sabry, Ismail Gomaa
Abstract: The current study investigates the impact of internal auditors behavioural skills (cognitive style) and technical skills (involvement in Information Technology Governance (ITG)) in assessing risk, namely fraud risk and control risk. A 2
Keywords: cognition; information technology governance; internal auditor.
Do demand curves for stocks slope down? New evidence from a unique event in India
by Srikanth Parthasarathy
Abstract: The objective of this study is to examine the price and non-price effects of the constituent stocks following the change of the computation methodology of S&P CNX Nifty index from full market capitalisation weighted methodology to the free float market capitalisation weighted methodology in June 2009 in order to resolve whether the demand curves for stocks slope down. This study has followed methodology similar to that of Kaul et al. (2000). The event methodology is used along with cross-sectional regressions associating abnormal returns and demand shift. Overall, the empirical evidence in this study supports the downward sloping demand curves for the stocks. The results have implications for one of the basic assumptions in the finance theory, regulators, investors, index providers and managers. To the best of the authors knowledge, this is the first study to examine the slope of demand curves, in such a unique setting without information content.
Keywords: India; financial markets; index redefinition; demand curves.
Corporate governance and economic growth in sub-Saharan Africa
by Alexander Maune
Abstract: For decades, the issue of corporate governance and its role in economic growth has attracted a lot of attention from both policy-makers and the academia. Globally, corporate governance has experienced a continuous evolution due to corporate scandals. This study took a deductive approach to examine the impact of corporate governance on economic growth in sub-Saharan Africa from 1996 to 2017. Panel data from 13 selected sub-Saharan African countries was used to help analyse the relationship. An econometric model was developed with gross domestic product per capita being the dependent variable. The six dimensions of corporate governance given by the World Bank`s Worldwide Governance Indicators were used as proxies for corporate governance while foreign direct investment and trade were used as control variables. Data was collected from the World Bank`s 2018 databases. Accordingly, the results of the regression model showed control of corruption, government effectiveness, regulatory quality and voice and accountability as positive and significant except government effectiveness and regulatory quality that were insignificant. Political stability and absence of violence/terrorism and rule of law were negative with rule of law significant at 5% level of significance. The regression model also denoted a significantly good fit for the data with a p-value of <0.05, an R2 of 0.5038 and an adjusted R2 of 0.4870 at 5% level of significance. This article is, however, of great value to researchers, policy-makers, community and investors. The article will contribute towards the knowledge gap in corporate governance in sub-Saharan Africa.
Keywords: corporate governance; sub-Saharan Africa; economic growth; economic development; developing economies; investor protection.
Determinants of intellectual capital performance in banks: empirical insights from an emerging market
by King Carl Tornam Duho, Joseph Mensah Onumah
Abstract: This study examines the determinants of intellectual capital performance (ICP) of banks in an emerging market. The Value Added Intellectual Coefficient (VAIC) model is used to measure ICP and Data Envelopment Analysis (DEA) has been used to measure technical efficiency. We employ an unbalanced panel data of 32 banks over the period 2000-2017. The study found that income diversification, asset tangibility, human capital investment, cost efficiency, operational risk, leverage and bank stability are the main determinants of ICP. Diversification strategy interacts with other variables in informing ICP. Generally, to improve ICP, a focused strategy is favoured over a diversified strategy. However, to enhance value creation, some contextual peculiarities can be explored as guides to make strategic choices. The results and the implications are relevant for bank practitioners, financial analysts and management accountants in emerging economies. It is also relevant for the newly formed Financial Stability Council of Ghana, sector regulators, policymakers, educators and the research community.
Keywords: intellectual capital; data envelopment analysis; banking; efficiency; risk; Basel Accord; integrated reporting; VAIC™; Ghana; Africa.
Impact of corporate governance on dividend policy in India
by Pankaj Chaudhary, Narain Chandra
Abstract: The basic objective of this study is to analyse the impact of the corporate governance system on the dividend payment for Indian firms. We have taken the data for non-financial group A companies of BSE for the time period pertaining to 2010-2017. The corporate finance data suffers from the endogeneity problem and in order to deal with this issue, we have applied dynamic panel data system to study the relationship between governance system and dividend payments in India. We find that the firms with strong corporate governance pay higher dividends as compared to the weak governance system firms. The board size is positively related to the payment of dividends and promoters' shareholding is negatively related to the dividend payments.
Keywords: corporate governance; agency problems; dividends; GMM; dynamic panel data.
An analysis of pricing efficiency of exchange traded funds in India using ARDL bounds test approach
by Buvanesh Chandrasekaran, Rajesh H. Acharya
Abstract: This paper analyses the pricing efficiency of Exchange Traded funds (ETFs) in India. In order to achieve the objective,the study employs the Autoregressive Distributed Lag (ARDL) model bounds test approach. The study includes 14 equity ETFs for the time period from the inception date of each ETF to December 2016. An attempt has been made to establish a long-run relationship between the closing price of ETFs and closing index values using the ARDL model. The study also analyses the research question in the presence of single and multiple structural breaks. Empirical results of the study show that the absolute pricing deviation is relatively small in the case of ETFs. Most of the ETFs have a long-run relationship with the underlying index. The study confirms a structural break in the ETF closing price time series. With the introduction of structural breaks, an increase in the size of the statistically significant long-run coefficients indicates an improvement in the speed of correction to the equilibrium level.
Keywords: pricing efficiency; exchange traded funds; ARDL; structural breakpoint.
Does fund managers timing ability depend on market conditions? Evidence from Turkish variable funds
by Hale Yalcin, Sema Dube
Abstract: We examine market timing by Turkish variable-fund managers during 2011-2016 within a panel data framework, using interaction variables to control for market conditions. We find strong evidence for market-timing ability, which increases with country openness, global emerging-market portfolio returns, economic growth and, to a smaller extent, derivative market size; and decreases with technological advancement. We also find no evidence for security selection ability. Our results suggest that market timing ability depends on market conditions and it may be important to control for such conditions in studies that seek to determine managerial performance.
Keywords: market timing; emerging markets; technology; openness; panel data.
Loan loss provisions, earnings management, capital management, and signalling: the case of Vietnamese banks
by Tu Le, Liem Nguyen, Son Tran
Abstract: This study examines loan loss provision (LLP) behaviours of Vietnamese banks between 2006 and 2015. Overall, the findings show that earnings management is positively related to LLP regardless of the restructuring period, suggesting that LLPs can be used by Vietnamese banks as a mechanism for aggressive earnings management. In addition, there appears no capital management before the restructuring period. However, the findings indicate that Vietnamese banks used capital management with LLP during the restructuring period. Furthermore, the positive relation between LLP and future earnings during the restructuring period suggests that investors may view an abnormal increase in LLP as a signal of loan quality, which may precede an improvement in banks performance. The findings also emphasise that GDP is positively related to LLP, thus supporting the countercyclical view that Vietnamese banks may have the forward-looking assessment of credit risk by maintaining a higher level of provisions as a buffer against credit losses in anticipation of the economic downturn. Lastly, the findings demonstrate that LLP is positively associated with bank inefficiency, credit growth, bank size, and lending specialisation. State-owned commercial banks are found to reserve a greater level of provisions compared with privately owned commercial banks. Based on the research findings, we offer several implications for bank supervisors, policy-makers, and bank managers.
Keywords: loan loss provisions; earnings management; capital management; signalling; Vietnam.
Fiscal budget deficit and the emerging capital markets in
West African countries
by Samson Edo
Abstract: This study investigates development of capital markets in West African countries, within the period 2000-2017, with the main purpose of determining the role of fiscal budget deficit. Investigation is done by building a panel model, showing the relationship between capital market and fiscal budget deficit. The model is estimated, using methodology that includes panel unit root test, panel co-integration test, and the generalised method of moments (GMM). The results reveal that the capital markets are dynamic, and significantly influenced by fiscal budget deficit. The deficit exerts a significant positive impact on market capitalisation, and stocks traded, with the impact on stocks traded superseding that of market capitalisation. The impact of deficit is complemented, at different levels, by returns on investment, exchange rate, financial openness, and money supply. The major implication of these findings is high vulnerability of the markets to a switch in fiscal policy, from deficit budgeting to surplus budgeting, which may lead to decline in level of capitalisation and trading. In view of this, attention needs to be focused on enhancing the positive role of financial openness, and returns on investment, which are considered, in theory, to be strong drivers of capital market development. Appreciable level of financial openness, and appropriate returns on investment, are important in attracting investors to the market. This may be achieved through deeper economic reforms, and tax reduction, that would allow market forces to operate, and attract investors.
Keywords: fiscal budget deficit; capital markets; developing countries.
Sensitivity of Indian government bonds to macroeconomic and non-macroeconomic factors: a quantile regression approach
by Muhammadriyaj Faniband
Abstract: This paper introduces a new dataset of Clearing Corporation of India Limiteds Broad Total Return Index (BTRI) and Liquid Total Return Index (LTRI). The paper examines the impact of macroeconomic and non-macroeconomic factors on BTRI and LTRI during monthly period from January 2010 to December 2018 by using quantile regression methodology. The results show that the GDP has positive and significant impact on BTRI and LTRI for the upper quantiles. CPI shows positive impact on both BTRI and LTRI. Both BTRI and LTRI are influenced by IR and there is inverse relationship between them. ER also significantly affects both BTRI and LTRI. The EPUI has negative and significant impact on BTRI and LTRI for the intermediate and upper quantiles. No clear relationship is found between BTRI and Nifty, whereas Nifty has significant impact on LTRI. BTRI is not affected by VIX but LTRI is affected for the intermediate quantiles.
Keywords: government bonds; macroeconomic factors; non-macroeconomic factors; broad total return index; liquid total return index; quantile regression.
Modelling the recovery of Indian banks under prompt corrective action framework: TOPSIS methodology
by K.C. Arora, L. Ramani
Abstract: The current study empirically investigates the comparative financial health of each of the 12 Indian banks under the Prompt Corrective Action (PCA) framework considering multiple triggers of PCA framework collectively. A model for predicting the recovery of these banks from PCA has been proposed based on three different multi-criteria decision making methods (MCDM), one being the TOPSIS (Technique for Order of Preference by Similarity to the Ideal Solution) proposed by Hwang and Yoon (1981) to rank the set of alternatives. It has been hypothesised that higher the rank, the faster could be the recovery of a bank out of PCA framework based on multiple trigger values of these banks for three to four years from the date of the revised PCA framework. The results have got amply validated with the action of the Indian banking regulator (RBI) to declare some of the banks out of PCA framework immediately after the declaration of financial results of the banks for Quarter 3 of the Financial Year 2019. The approach and methods employed are novel and have important managerial implications for the banks and the regulator to gauge the quantum of risk of a bank under PCA framework and compare it with that of other similar banks.
Keywords: prompt corrective action; Reserve Bank of India; CRAR; CET1; NNPA; leverage ratio; weighted average deviation index; TOPSIS methodology.
How does price informativeness affect the sensitivity of investment-to-stock price in Vietnamese listed firms?
by Quynh Trang Phan, Poomthan Rangkakulnuwat
Abstract: This study investigates the relationship between the stock market and firm investment from a price informativeness perspective. Using an unbalanced panel dataset of Vietnamese listed firms from 2007 to 2017, the results show that stock market valuation is positively related to firm investment in both static and dynamic models. Moreover, the investment of firms with a higher level of price informativeness is likely less sensitive to their stock prices than that of firms with a lower level of price informativeness. In addition, the development of financial markets plays an important role in determining investment and investment-to-stock-price sensitivity. The regression results also show that the role of price informativeness in the investment-to-stock price relationship is not much different among groups of firms with high- and low-quality auditors, as well as those with small and large firms.
Keywords: firm investment; stock market valuation; price informativeness; emerging markets.
Market anomalies and investor behaviour
by Aditya Sharma, Arya Kumar, Arun Vaish
Abstract: Market anomalies can be seen as a probable hint of market inefficiency and a reflection of behavioral influence in stock markets. However, the research on market anomalies is continuously striving to establish investor behaviour as the root cause. The paper contributes to this ongoing research by investigating the existence of market anomalies and further exploring these anomalies to find their sources in an emerging market such as India. The paper uses the methodology developed by Jegadeesh and Titman (1993) for calculating anomaly related excess returns and DW decomposition technique to break these excess returns into fundamental and behavioral components. These excess returns are also tested for risk as a probable source by adjusting them for CAPM and Fama French risk factors. The results rejected the notion that risk is the only source of such anomalies and on decomposition it was evident that these anomalies have multiple sources falling under both behavioral and fundamental classifications. The paper leaves scope for using higher frequency data to test these anomalies. The paper is among a select few that examines the presence as well as sources of these market anomalies in an emerging market such as India. The paper further contributes to the existing literature by showcasing the evidence of market inefficiency and at the same time pointing towards a certain influence of investor behaviour in Indian equity markets.
Keywords: stock price movement; momentum effect; investor behaviour; under- and over-reaction.
The effect of financial repression policy on bank liquidity risk: evidence from the Central Bank of Iran
by Seyed Ehsan Hosseinidoust, Armin Saatian
Abstract: This study investigates the long-run effect of financial repression policy on the liquidity risk in the Iranian banking sector during 2006 and 2018. In this research, financial repression, in the other words, the central bank's interventionist monetary policies, have been assessed based on the endogenous money view using four indicators: the real interest rate, the legal reserve ratio, the unofficial exchange rate, as well as the bank credit to GDP ratio, which can show the financial depth of an economy. The results show that imposing more restrictions on the legal reserve ratio has reduced the liquidity risk. Also, the Iranian banking system has reduced the liquidity risk through two mechanisms. Firstly, through the allocation of financial resources and bank credits to profit-making companies which are conducted under the banks' control, which these investments generally include non-productive sectors of the economy, and secondly, through inflationary taxes that appear as an increase in the exchange rate and devaluing the domestic currency. Also, the findings for the interest rate ceiling policy show that the more the real interest rate increases, the more the liquidity risk decreases. Although the financial repression policies in the Iranian banking system have generally reduced the liquidity risk, the bank losses have been passed on through hidden taxes to depositors and domestic money holders, which illustrates the need for structural reforms in the Iranian banking system.
Keywords: financial repression; liquidity risk; endogenous money; real interest rate; credit to GDP ratio; exchange rate; legal reserve ratio.
Earnings deviation of interim and annual accounts: pre- and post-MASB 26
by Saidatunur Fauzi Saidin, Mazrah Malek, Phua Liang Kee
Abstract: This study is to examine whether the use of the discrete method may enhance the quality of interim financial accounts. It examines whether the magnitude and occurrence of earnings deviation post-MASB 26 is significantly lower than pre-MASB 26. Data is based on listed companies on Bursa Malaysia for two years before and after the introduction of MASB 26 in 2002. The t-test shows that the magnitude of earnings deviation pre-MASB 26 is significantly higher as compared with post-MASB 26. Sub-sample analyses also showed that the magnitude of both overstated and understated companies is significantly higher pre-MASB 26. However, Pearson chi-square shows that the occurrence of earnings deviation has increased post-MASB 26, which was contributed by the increase in occurrence of understated quarterly earnings. This study provides evidence that the use of the discrete method might enhance the quality of interim reporting. Although alternative methods of accounting provide different benefits and drawbacks, this study highlights the need for regulators to consider the objective of financial reporting in formulating the accounting standards.
Keywords: discrete method; earnings quality; integral method; interim reporting; quarterly accounts.
Adjusting the consumption-based capital asset pricing model by the estimate bid-ask spreads based on daily highest and lowest prices in Iran
by Sedighe Alizadeh, Mohammad Nabi Shahiki Tash, Reza Roshan
Abstract: This study aims to investigate a capital asset pricing model (CAPM) based on consumption within the capital market in Iran, which is adjusted using transaction costs and liquidity risk. The study is carried out on twenty portfolios, formed on the basis of liquidity criteria using seasonal data from 2009 to 2018. In other words, this approach is applied to analyze the target pricing model through transaction costs proxy and evaluation of the portfolios. Exploiting the proposed bid-ask spread estimator as the transaction costs proxy shows that liquidity-adjusted CCAPM explains a bigger portion of cross-sectional return changes compared to the traditional CCAPM model. In addition, the results show that disregarding transaction costs and liquidity risk may lead to an inaccurate estimate of the expected return.
Keywords: traditional CCAPM; liquidity-adjusted CCAPM; liquidity risk; bid-ask spread.
Asset pricing models: evidence from the Indian equity market
by Kapil Choudhary, Parveen Kumar, Sakshi Mehta
Abstract: The asset pricing model has been a core area of research in finance owing to its applicability in corporate finance and security analysis. The present study attempted to evaluate the three popular asset pricing models, viz. the capital asset pricing model (CAPM), the Fama-French three-factor model, and the Fama-French five-factor model, in the Indian equity market for the period from January 2009 to November 2018. The study also examined the role of the size, profitability, value, investment, and market factors in explaining the average equity returns in the Indian equity market. The empirical results reveal the inferior performance of a single market factor in describing the variations in average stock returns in comparison with the Fama-French three-factor model and the Fama-French five-factor model. Further, the size and value factors added to CAPM yield a vital melioration in explaining the variation in average returns of sample stocks.
Keywords: capital asset pricing model; Fama-French three-factor model; Fama-French five-factor model; size effect; value effect.
Audit review and audit outcome of tax auditors in Thailand: moderating effects of professional skepticism and audit experience
by Kornchai Phornlaphatrachakorn
Abstract: This study aims at examining the relationships between audit review and audit outcome of tax auditors in Thailand through moderating effects of professional skepticism and audit experience. In this study, 195 tax auditors in Thailand are the samples of the study. Both structural equation model and multiple regression analysis are applied to test the research relationships. The results indicate that audit review positively affects audit efficiency and audit effectiveness, but it has no effect on audit quality and audit outcome. Both audit efficiency and audit effectiveness have a positive influence on audit quality and audit outcome, but audit quality does not relate to audit outcome. Also, professional skepticism is a moderator of the relationship between audit review and audit efficiency, and audit experience has a moderating effect on the relationships between audit efficiency and audit outcome and between audit effectiveness and audit outcome. Thus, audit review plays an important role in directly determining both audit efficiency and audit effectiveness and indirectly explaining audit outcome. Accordingly, auditors should pay attention to studying, understanding and learning characteristics, qualifications and applications of audit review and use them as an excellent audit practice to increase audit efficiency, audit effectiveness, and audit outcome.
Keywords: audit review; audit efficiency; audit effectiveness; audit quality; audit outcome; professional skepticism; audit experience; tax auditor.
Macro determinants of stock market volatility: evidence from Middle East region
by Mahmoud Touny, Mostafa Radwan, Mahmoud Alayis
Abstract: Stock market volatility (SMV) and investor decisions are influenced greatly by macroeconomic and political variables at the global, regional and local levels. By using unbalanced panel data from some Middle East countries over the period from 1996 to 2016, this study aims to provide empirical evidence about the macro determinants of SMV. The results of the Feasible Generalized Least Squares (FGLS) model indicate that, on the one hand, inflation, corruption and the stock market capitalisation and turnover ratios have a positive and significant impact on SMV. On the other hand, economic growth, financial freedom and stock market returns seem to have a negative and significant effect on SMV. The outcomes of this study provide some policy implications for Middle East countries policy-makers in managing and relieving volatility in their countries stock market prices.
Keywords: stock market volatility; corruption; inflation; financial freedom; stock market return.
Impact of cross-border mergers and acquisitions on short-term gain to shareholders of target firms in India-effect of the mode of payment and industry relatedness.
by Manoj Panda, Mayank Joshipura
Abstract: We examine the effect of announcements of cross-border mergers and acquisitions on short-term gain to shareholders of target firms in India. Using event study, we analyse 137 listed target firms taken from Bloomberg in post-financial crisis era from 2009 to 2019. Our analysis does shows short-term gains on acquisition of Indian firms, with the gains being high in and around the event day. Moreover, the return is positive both for pre- and post-event day windows, though the pre-event day window return is higher compared with post-event day window. Notably, the return for the shareholders on an acquisition announcement is higher for cash payment, compared with other payment modes. Further, the wealth effect for acquisitions in the related industry is higher compared with the acquisitions in unrelated industries. We have done multivariate analysis with the cumulative average abnormal return as the dependent variable, and mode of payment and industry relatedness as independent variables. The analysis shows a higher return for acquisitions in the related industry with cash payment. The findings of this research by and large concur with earlier studies, and are useful for foreign investors to appreciate the market behavior in acquisitions of Indian firms post 2009.
Keywords: cross-border; mergers and acquisitions; event study; market efficiency.
The effect of tax and economic freedom on capital investment and foreign direct investment: empirical evidence from a panel of countries around the world.
by Rana Albahsh
Abstract: Investment in the home country or abroad has become an important strategy for companies to survive and grow. It exposes these companies to several financial and economic hazards. This paper employs cross-country tax rates and economic freedom regressions for a sample of 82 countries to examine the determinants of investment and foreign direct investment (FDI) between 2010 and 2016. Besides, it analyses the role of economic freedom factors (legal system, sound money system, regulations, and trade freedom) and economic factors (gross domestic product (GDP) growth, trade level, inflation, and GDP per capita). While the results of the study agree these factors are important to investments, FDI reflects a higher sensitivity to these factors. The sound money system and trade freedom have a high influence on FDI. The results also show that companies are eager to expand their investments wherever they find welcoming markets, financially and economically. This can benefit policymakers as home or host countries aim to increase investments and FDI.
Keywords: capital investment; FDI; corporate tax; indirect tax; economic freedom; trade-off theory; investment theory; inflation; regulations; money system; legal system.
The role of assets components in firm valuation
by Gee Jung Kwon
Abstract: This study investigates the impact of the asset components on firm value in listed Korean stock markets during the period of 2000-2015. This paper extends conventional studies on firm valuation by including asset components such as current assets, non-current assets, quick current assets, inventory assets, tangible assets, intangible assets, investment assets, and other non-current assets in Ohlson's (1995) model.
Analytical results show that all these asset components have a significantly positive impact on firm value. However, performance variables such as net income, operating income, and operating cash flows are negatively associated with business value at the 1% significance level. The results of this study show that the asset component on the balance sheet has a more positive effect on the increase in corporate value than the profitability and performance variables on the income statement and the cash flow statement. The empirical evidence of this study suggests that asset components should be regarded as major corporate value related variables in the Korean stock market. This study also suggests that intangible assets are the most important factors among accounting information that should be considered in evaluating firm value. The findings of this study suggest the possibility of a new discussion about the value relevant factors in the asset components of Korean stock markets.
Keywords: firm valuation; assets components; current assets; noncurrent assets; quick current assets; inventory assets; tangible assets; intangible assets; investment assets; other noncurrent assets.
Social performance reporting in the Indian banking sector: exploring linkage with financial performance
by Parul Munjal, P. Malarvizhi, Deergha Sharma
Abstract: The research aims to analyse the social performance of the Indian banking sector and examine its relationship with the financial performance. Secondary data has been collected for a five year period (2013-14 to 2017-18) on a sample of 54 banks operating in India. Content analysis was applied to extract information about social performance disclosed by sample banks to help to construct disclosure score index. Hierarchical multiple regression was applied to analyse the relationship between social and financial performance while controlling for the effects of size, financial leverage, and capital intensity. Our results indicate that there exists a significant positive relationship between social and financial performance of banks operating in India. These results lend support to the stakeholder theory, the good management theory, and the motivational theory. Our findings provide insights into the role of bank managers, policy makers and regulators to integrate social performance into core banking operations, and to frame more concrete social policies leading to enhanced financial performance.
Keywords: social performance; financial performance; banking; content analysis; hierarchical multiple regression.
The effect of corporate governance, dividend policy and informativeness of risk disclosure on the firm value: Egyptian evidence
by Tariq Ismail, Mohamed El-Deeb
Abstract: The purpose of this paper is to investigate the effect of corporate governance, dividend policy and the risk disclosure level on firm value and in turn, explore the main drivers of implementing corporate governance mechanisms, declaring dividend and risk disclosure within the annual reports of the Egyptian listed companies. A risk disclosure index was constructed to measure the level of the risk disclosure. Structure equation modelling has been employed to test the hypotheses using a sample of the most active 30 companies that are listed on the Egyptian Stock Exchange Market (EGX30). The findings suggest that (i) the board independence and board size have insignificant effect on the firm value, while CEO duality shows a significant positive impact on the firm value, and (ii) risk disclosure level allows investors to better predict future earnings growth. Furthermore, dividend policy and risk disclosure informativeness affect significantly the firms ability to raise money and its value in a positive direction. Hence, this contributes to the literature of emerging markets by providing evidence in Egypt that may highlight the magnitude of corporate governance mechanisms, risk disclosure informativeness and dividend policy and their impact on the firm value.
Keywords: corporate governance; dividend policy; risk disclosure level; firm value; EGX30; Egypt.
The effect of audit committee on audit opinion through earnings management as mediation variable
by Fany Lim, Devie Devie, Juniarti Yunie
Abstract: This study aims to examine the mediating effect of earnings management in the influence of the audit committee on audit opinion. The research samples are listed companies in the IDX in the sectors of infrastructure, utilities, and transportation for the period 2011-2017. These industrial sectors were selected because they obtained many qualified audit opinions in the study period compared with other sectors. This study adds control variables, namely firm size and leverage. We measure audit committee using two approaches, the first is the total score of each component of audit committees including size, independence, expertise, and meeting, and the second is the partial score of each attribute of the audit committee. The results show that the audit committee influences the audit opinion and there is a negative significant influence of earnings management and audit opinion. However, this study fails to prove the mediating effect of earnings management in the relationship of the audit committee and audit opinion.
Keywords: audit committee; earnings management; audit opinion.
Rational speculative bubbles in the stock market: the case of Amman Stock Exchange
by Usama Fendi, Bassam Mohammad Maali, Muhannad Ahmad Atmeh
Abstract: This paper aims at inspecting the existence of a rational speculative bubble in Amman Stock Exchange Market (ASE) along two sample periods. The first period was from 2004 to 2009, and the second one was from 2010 to 2018. The paper compares the two periods using different statistical tools in order to diagnose any probable bubbles based on the historical performance of the ASE index. The paper uses three different quantitative approaches to analyse the returns for ASE index over the selected sample periods. The first approach is descriptive statistics, the second one is the explosiveness test approach, and the third one is the duration dependence test approach. The paper found evidence for the existence of a rational speculative bubble in ASE returns for the first sample period inspected and based on the three different approaches. This paper represents a contribution toward establishing an effective early warning system for predicting and mitigating financial crises started from stock markets. This paper is the first paper, up to the authors' knowledge, that implements such advanced statistical and econometrical approaches to examine the existence of a speculative bubble in ASE. It represents a good extension to the existing contribution for monitoring the investment environment in Jordan, and it enhances the healthy business environment in general.
Keywords: rational speculative bubble; explosiveness test; duration dependence test; Amman Stock Exchange.
The mitigation of the agency problem by using corporate governance in emerging markets: evidence from Vietnam
by Duy Thanh Nguyen, Thanh Hai Huyen Truong
Abstract: This paper examines the impact of ownership structure and board characteristics on firm performance in Vietnam. Obtaining a sample of 300 non-financial companies listed on Ho Chi Minh Stock Exchange (HOSE) and Ha Noi Stock Exchange (HNX) from 2014 to 2018, the paper reveals the positive impact of foreign and CEO ownership on firm performance, whereas state ownership, board independence, board gender diversity, and CEO duality yield negative impact owing to various institutional factors. This paper also addresses some limitations in terms of statistical models in the previous papers, providing more valid and reliable findings. Consequently, several implications are proposed for company management and regulatory authorities.
Keywords: board composition; ownership structure; firm performance; agency problem; emerging markets.
Performance, persistence and explanation of value premium: evidence from the Indian stock market
by Vanita Tripathi, Priti Aggarwal
Abstract: This paper comprehensively examines the performance and persistence of value effect in the Indian stock market over the 18 years from March 1999 to March 2017. Using six valuation measures for five holding periods and three sub-periods, we found that value strategy is present in the Indian stock market and is persistent during different sub-periods. Further, the paper attempts to uncover the factors that explain value-based returns. In this paper, we inspected alternative sources of value effect recommended by the literature. The empirical results suggest that the majority of the value premium is explained by the firms size, value, liquidity, information asymmetry and institutional ownership factors. The study, therefore, confirms that rational sources explain the value effect in the Indian stock market. The study has important implications for market efficiency, regulators, retail investors and portfolio managers.
Keywords: value effect; value investing strategy; CAPM; Fama-French three factor model.
Default prediction for audited and unaudited private firms under economic and financial stress: evidence from Zimbabwe
by Frank Ranganai Matenda, Mabutho Sibanda, Eriyoti Chikodza, Victor Gumbo
Abstract: This study seeks to separately predict default probability for audited and unaudited Zimbabwean privately-owned firms under distressed economic and financial conditions using stepwise logit models based on different amalgamations of firm and loan characteristics, financial ratios and macroeconomic variables. The research paper's main intention is to identify and interpret the predictors of default probability for audited and unaudited Zimbabwean private firms. For pertinence and effectiveness reasons, the study applies two unique real-world data sets of defaulted and non-defaulted loan accounts for audited and unaudited private firms gathered from a major anonymous Zimbabwean commercial bank over the observation period from 2010 to 2018. The findings of this study indicate that under economic and financial stress, accounting information is imperative in differentiating defaulted and non-defaulted Zimbabwean private firms, and the predictive capacity of the private firm default models is augmented by including macroeconomic factors. Moreover, the study reveals that the drivers of default risk for audited and unaudited Zimbabwean private firms are dissimilar. As a recommendation, accounting information and macroeconomic variables must be incorporated when predicting default probability for private firms under downturn conditions. Furthermore, from a risk management perspective, it is crucial to separately design models for and examine drivers of default probability for audited and unaudited private firms.
Keywords: default probability; audited and unaudited private firms; economic and financial stress; developing economy; predictor variables; stepwise logit models.
Extreme value volatility estimators and realised volatility of stock prices in Amman Stock Exchange
by Dima Alrabadi
Abstract: The aim of this study is to compare between extreme value volatility estimators and other realised volatility estimators in the Amman Stock exchange (ASE) over the period from 2012 to 2016. The dataset consists of daily opening, highest, lowest and closing stock prices for a sample of 100 companies listed in ASE, including 1236 trading days. The methodology of the study is based on relative efficiency proxies between extreme value volatility estimators. The results of the study show that extreme value volatility estimators are more efficient than other realised volatility estimators. In addition, the Garman-Klass estimator is a more efficient volatility estimator than the Parkinson and Rogers-Satchell volatility estimators.
Keywords: extreme value volatility estimators; realised volatility; high-frequency data; Parkinson volatility estimator; Garman-Klass volatility estimator; Rogers-Satchell volatility estimator; Amman Stock Exchange.
A longitudinal investigation of IFRS-8 implementation: evidence from Qatar
by Ghassan H. Mardini, Amneh Al-Kurdi, Ahmed Hassan Ahmed
Abstract: The main objective of the current study is to investigate the Segmental Information Reporting (SIR) of Qatari listed firms covering the period from 2009 to 2018. The sample comprises all companies listed on the Qatar Stock Exchange (QSE) at the end of 2009. A disclosure index was developed to determine the extent of SIR amongst the sample companies. The study used a longitudinal empirical analysis approach; a year-by-year analysis. The findings revealed a gradual upsurge and awareness of the requirements of IFRS-8 from year to year. Moreover, the reported results suggest that the post-implementation review of IFRS-8 has had a large and positive impact on SIR disclosures since 2014. This research should provide substantive insights for regulators and standard-setters in identifying best practices and spreading awareness of SIR, which in turn should allow SIR practices to become more standardised, making them easier to monitor and govern. Our study provides a longitudinal examination of segmental reporting practices in a developing country, such as Qatar, which permits direct examination of the progress made regarding the implementation and extent of SIR.
Keywords: IFRS-8; segmental reporting; post-implementation review; IASB; emerging markets.
The mediating effect of financial reporting quality on corporate governance effectiveness and cost of debt
by Muneer Amrah, HafizaAishah Hashim
Abstract: The purpose of this study is to examine the mediating effect of financial reporting quality on corporate governance effectiveness and cost of debt by considering the business environment in the Sultanate of Oman. This study uses a panel dataset that consists of multiple observations of the same economic units. Each element has two subscripts: the group identifier, i (68 companies listed on the Muscat Securities Market), and the within-group index, t, which denotes the time (years 2012 to 2018). The regression is based on the random effects model, which, according to the Hausman and the Breusch-Pagan LM tests, is an appropriate model for this study. The empirical results that were obtained by applying a four-step approach show that companies with more effective corporate governance and higher quality of financial reporting obtain the optimum cost of debt. The study also reveals that financial reporting quality partially mediates the relationship between corporate governance effectiveness and cost of debt. This study provides a comprehensive analysis of the association between corporate governance effectiveness, financial reporting quality and cost of debt in the setting of Oman. It is among a limited number of studies that provide evidence for the mediating effect of financial reporting quality on the role of corporate governance effectiveness and cost of debt. The study findings have potential implications for all users of financial reports because they indicate that financial reporting quality has a central role in evaluating firm performance and in eliminating information asymmetry, and therefore can reduce the cost of financing.
Keywords: cost of debt; corporate governance; financial reporting quality; mediation effect; Oman.
Market reaction to the annual cash dividend changes in Pakistan
by Sana Tauseef
Abstract: This study examines the investors response to the announcement of cash dividend changes made by firms listed on Pakistan Stock Exchange. It also investigates the factors contributing to the investors behaviour surrounding the annual dividend announcements over the years 2011 to 2017. Results of event study analysis show that investors respond negatively to the announcement of dividend decrease; however, there is no evidence of positive investor response following dividend increase. The regression results show that the stocks abnormal returns earned on and after the announcement of dividends are positively impacted by dividend change and dividend yield. Our findings contribute to the literature on market inefficiency through providing a partial support for the signalling hypothesis and have significant implications for investors and firm managers.
Keywords: dividend change; abnormal return; panel data; event study; Pakistan.
Macroprudential policy and financing behaviour in emerging markets: bank-level evidence from Indonesian dual banking
by Muhamed Zulkhibri, Muhammad Rizky Prima Sakti
Abstract: The loan-to-funding ratio-based reserve-requirement (RR-LFR) is a macroprudential instrument used by Bank Indonesia (central bank) to maintain the stability of Indonesian financial system by considering the bank liquidity conditions. This paper examines the impact of RR-LFR on financing behaviour in a dual banking system (Islamic and conventional banks) using generalised method of moment estimation (GMM) technique to address the endogeneity of explanatory variables and reduce the possible biases from residual correlation. Using bank-level data for both Islamic and conventional banks covering the period 2001-2015, we analyse the reaction of bank financing behaviour toward RR-LFR policy. The findings indicate that RR-LFR is effective in curtailing financing behaviour of banking institutions. Further, we show that RR-LFR exerts more impacts on managing credit expansion of conventional banks than of Islamic banks. The study suggests that a specific macroprudential framework should be put in place to address systemic concerns for each type of banks. Hence, the supervisory authorities will be able to identify the channel of macroprudential transmission and to devise an optimum policy mix for their banking system.
Keywords: macroprudential; financing behaviour; Indonesia; GMM method.
Day of the week effect anomaly in Dhaka Stock Exchange post crisis period: evidence from Bangladesh capital market
by Md Arafat Hossain, Vahid Biglari
Abstract: This study examines day of the week effect anomaly in Dhaka Stock Exchange (DSE), during post crisis period. The Bangladesh stock market crashed on 19 December 2010, and the stock market remained sluggish for long time. This study used the daily closing prices of two important indexes (DGEN and DSI) during post crisis period, from 19 December 2010 to 31 December 2013. Regression statistics modelled with dummy variables, one-sample T-test statistics, paired-sample T-test statistics and ANOVA (one-way) for parametric test and Kruskal-Wallis and Wilcoxon signed rank test for non-parametric test, have been used to observe the day of the week effect anomaly in DSE. The results revealed irregularities in daily mean returns with different returns volatility in week. The study provides implications for policy makers to develop appropriate post-crisis policy tools and incentives to re-stabilise the market.
Keywords: Dhaka Stock Exchange; DSE; day of the week effect anomaly; stock market crash; regression with dummy variables; Kruskal-Wallis test; Wilcoxon signed rank test; weekday effect; post crisis period; Bangladesh capital market; Asia.
Analysing the stability of bankruptcy prediction models
by Rohani Md-Rus, Kamarun Nisham Taufil Mohd, Rohaida Abdul Latif
Abstract: The aim of this study is to assess the predictive power of logit model and hazard model in predicting bankruptcy and to analyse the stability of the models. Using Malaysian listed companies and a sample span from 1998 to 2014, this study found that, for the hazard model, all variables were significant while for the logit model only five variables were significant. The results also show that the logistic and hazard models both had predictive accuracies of more than 90%. However, the hazard model had a predictive accuracy of 99.4% while logit model had a predictive accuracy of 91.8%. The hazard model was more stable than logit model as the predictive accuracy of the hazard only changed a little when a smaller sample was chosen. Lastly, the study showed that, even though both models were good in predicting distress, the hazard model is better than logit model.
Keywords: logit model; hazard model; bankruptcy prediction; stability; profitability; leverage; growth; cash flow; size; Malaysia.
The effect of dividend payouts on future earnings
by Gizelle D. Willows, Lawrence W.K. Ho, Darron West
Abstract: The conventional expectation of the relationship between the level of dividend payout and future earnings growth, based on established finance theories, is that it is negative. This expectation stems from the perceived attractiveness of having enough available retained earnings to fund any potential future growth opportunities. However, research performed in various markets at the turn of the century has challenged this belief. This paper seeks to update this theory by investigating the relationship in a more current dataset, from 1988 to 2014. Furthermore, given the investment opportunities within emerging markets, the dataset pertains to South African listed companies. Assessing two different earning measures, over multiple years, a multivariate regression analysis revealed a statistically significant positive relationship between dividend payout and future earnings. Dividend payout decisions are seen by investors as a predictor for future value growth and, as such, management should be aware of their associated dividend distribution decisions.
Keywords: dividends; earnings; emerging market; value growth; payouts; future earnings; retained earnings; dividend distributions; leverage; earnings yield.
Operating performance and earnings management in Egypt
by Wael Mostafa
Abstract: This research contributes to the literature addressing the phenomenon of earnings management in global markets. The research setting is Egypt, and due to data limitations in this setting, this research examines earnings management based on firm operating performance. In particular, the question of whether ineffectively performing firms engage more in earnings management strategies compared to their effectively performing counterparts is investigated. Sign change ratio analysis, correlation analysis, and regression analysis were employed to determine the extent to which the strength of the relationship between earnings and cash flows differs between ineffectively and effectively performing firms. The results show that considered against effectively performing firms, ineffectively performing firms in the emerging market of Egypt are associated with a greater level of earnings management. Overall, this finding suggests that for listed Egyptian firms, company operating performance is a significant incentive of earnings management. Furthermore, this finding encourages the argument in favour of Egyptian corporate governance reform.
Keywords: earnings management; operating performance; earnings; cash flows from operations; Egypt.
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
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; Indonesia.
Relationship between debt maturity and IPO: the case of Indonesian firms
by Sarah Aulia Andriana, Yunieta Anny Nainggolan
Abstract: Initial public offering (IPO) is a big step in company life cycle as the time when company evolves from private to public firm by adding another source of financing. Studying the impact of IPO to debt maturity structure choices in Indonesia is important because debt maturity has an important role in emerging markets' macroeconomic condition. Based on literature review, it is expected for companies to take debt with longer maturity post-IPO for the benefits and accessibility. Company sample is taken from Indonesia Stock Exchange, using data of companies that have undergone IPO from 2008-2011. After analysis, it is found that one and two years after IPO, newly listed firms increase the use of long-term debt. Other statistically significant variables are firm's asset maturity, leverage, and growth opportunity. Result of this research would be an addition to Indonesia's financial literature and give insight of IPO's implication to Indonesian firms.
Keywords: Asian capital market; capital structure; debt maturity; financing; funding; going public; Indonesia market; initial public offering; IPO; leverage; liquidity risk.
Investigation on leveraging effect of women directors on board to R&D investment and firms' financial performance in the context of developing countries: evidence from Indonesia
by Sita Deliyana Firmialy, Akbar Adhiutama
Abstract: This study examines the leveraging effect of gender diversity, specifically women directors on board (WDB), to the relationship between research and development (R&D) investment to the financial performance. Additionally, the study aims to deepen our understanding of the main behavioural driver of corporate financial performances in Indonesia, one of the fast developing countries within South East Asia. Data from 227 public companies listed in Indonesian stock exchange (IDX) are extracted from their 2015 annual reports and corporate websites. Tobin's Q is employed as the dependent variable, along with R&D investment and WDB as main testing variables. Using regression, the study finds that firms' with higher number of women directors on board and more focus on their R&D investment activities, will be able to generate higher financial performance than those firms with lower gender diversity and R&D investments. This paper contributes to literature on R&D investment in Indonesia, which is still limited, to the best of the authors' knowledge. The reported findings also uncover the main important finding of leveraging effect of number of WDB to the relationship between R&D investment and firms' financial performance in Indonesia.
Keywords: R&D investment; financial performance; women directors on board; WDB; moderating effect; developing countries; Indonesia.
Should Indonesia adopt a basket currency regime?
by Ahmad Danu Prasetyo, Camelia Magdalena, Brian Charvia, Mandra Lazuardi Kitri
Abstract: Exchange rate regime is a system in which a country manages its currency about other currencies and the foreign exchange market. Currently, there are two major types of exchange rate regimes, i.e., free-float system and pegged system. Many countries, including Indonesia, adopted the free-float system since it is believed as the best regime for absorbing external economic shocks. However, some economists argued that a moderate exchange rate regime, such as currency basket system, is a better approach for achieving the government's goals. The research aims to provide an arrangement for optimal basket weights of Indonesian currency basket to minimise GDP volatility as well as exchange rate volatility. We develop an optimisation model in the extension of Yoshino et al. (2017) by adding five currencies in the basket. We found that the weight currencies in the free-float regime would reflect the trade intensities of the respective countries. Further, the government should monitor the change of exchange rates of currencies in the foreign reserves and change the weight accordingly. In addition, we also found that, whether the government implementing basket currency regime or free-float regime, it will make no significant differential effect on GDP gap volatility.
Keywords: exchange rate regime; basket currency; foreign reserve; GDP gap; exchange rate gap; Indonesia.