American J. of Finance and Accounting (4 papers in press)

Regular Issues

• The disposition effect in securities trading during the economic crisis; empirical evidence from the frontier market in Sri Lanka  
  by Dilini Gunasekara, Neelangie Nanayakkara 
  Abstract: This paper examines whether the disposition effect can be observed in the Sri Lankan Frontier Market before the economic crisis (2015-2018) and during the crisis (2019-2022). The study employs the disposition coefficient. The method considered the All Share Price Index (ASPI) closing index prices and respective share volumes, which were gathered daily from 1 January, 2015, to 31 December, 2022. Based on the disposition coefficient model, the results show that the disposition effect could not be observed before and during the economic crisis period. Furthermore, the researcher employs the Grinblatt and Han model. It uses a sample of 166 companies out of 290 listed on the Frontier Market in Sri Lanka. The findings of the Grinblatt and Han model reveal that stocks with a large negative capital gains overhang (CGO) exhibit a significant unrealised capital loss, meaning that the stock's market value is below the cost basis of its current shareholders (reference price). This indicates that investors are holding losing stocks and have not realised the losses and may be reluctant to sell them due to the disposition effect. Therefore, the disposition effect can be observed in the frontier market of Sri Lanka, both before and during economic crises. This study enables investors to make informed decisions, allowing them to allocate capital more efficiently, which in turn promotes economic expansion, enhances economic productivity, and fosters the potential for wealth generation. Therefore, the study may be helpful for different stakeholders.
  Keywords: disposition effect; frontier market; Sri Lanka; economic crisis.
  DOI: 10.1504/AJFA.2025.10074150
   
  
• Share repurchasing practices of firms approaching bankruptcy  
  by Elena Precourt, Elzotbek Rustambekov 
  Abstract: We examine whether financially distressed firms approaching bankruptcy employ performance-enhancing practices such as share buybacks. We analyse repurchasing firms' operating performance as they approach bankruptcy and determine whether these performance results differ from those of non-repurchasing pre-bankrupt firms. We further examine the magnitude of stock buybacks and how their relative size impacts firms' operating performance. We find that repurchasing firms have stronger operating performance than non-repurchasing ones, irrespective of the relative size of the transactions. Stock buybacks have no impact on operating performance of earnings managing firms. We find no evidence of a higher likelihood of earnings managing firms to engage in share repurchases. Earnings managing firms that do repurchase their shares perhaps do not do it to manage earnings, since in general, earnings managing firms, irrespective of their share repurchasing habits, are operationally weaker during the five-year period preceding the filings than their non-managing counterparts.
  Keywords: share buybacks; earnings management; corporate bankruptcy; financial distress; share repurchases; operating performance; earnings manipulation.
  DOI: 10.1504/AJFA.2025.10074144
   
  
• Detecting tax motivated transfer pricing  
  by Janie Whiteaker-Poe 
  Abstract: This paper provides a method for analysing publicly available financial statement information in order to detect tax-motivated transfer pricing. The key components to the analysis are permanently reinvested earnings, discretionary uncertain tax benefits, and the difference between domestic and foreign tax rates. Extant research indicates that both permanently reinvested earnings and uncertain tax benefits are influenced by transfer pricing. This study demonstrates that the relationship between permanently reinvested earnings and discretionary uncertain tax benefits is moderated by the tax rate differential. The tax rate differential provides companies with the incentive and opportunity to engage in tax-motivated transfer pricing. Finding that the tax rate differential moderates the impact of discretionary uncertain tax benefits on permanently reinvested earnings suggests that companies are engaging in tax-motivated transfer pricing.
  Keywords: transfer pricing; tax policy; international taxation; permanently reinvested earnings; uncertain tax benefits; ASC 740; Tax Cuts and Jobs Act.
  DOI: 10.1504/AJFA.2025.10074142
   
  
• Customer and supplier pressure on financial distress: evidence from USA  
  by Post Raj Pokharel 
  Abstract: This study examines the customer and supplier pressure through the effect of trade credit on financial distress using 30 years of USA corporate data (1992-2023) from the Compustat database. The findings reveal a nuanced relationship: an increase in trade payables elevates the likelihood of financial distress, while trade receivables mitigate distress up to a threshold. The study further documents a U-shaped relationship between trade payables and financial distress, and an inverted U-shaped relationship between trade receivables and economic health. This study contributes to the literature by uncovering non-linear dynamics between trade credit and financial distress, enriching managerial and policy insights.
  Keywords: financial distress; trade credit; liquidity; creditors; debtors; bankruptcy; Altman_Z.
  DOI: 10.1504/AJFA.2025.10074143