Showing papers in "Asian Journal of Finance and Accounting in 2015"

Closer View at the Stock Market Liquidity: A Literature Review

Abstract: Liquidity is said to be the lifeblood of stock markets. It has prominent implications for traders, regulators, stock exchanges and the listed firms. In recent years a huge amount of literature has emerged that deals with liquidity. This article classifies and organises the literature and provides a critical review of the frameworks currently available for modelling liquidity and its macroeconomic and firm specific drivers. Commonality and intraday behaviour of liquidity in various markets is discussed under the umbrella of market microstructures. Subsequently, liquidity risk as a factor in Asset pricing is analysed taking various models in to consideration. Finally, the study reviewed the impact of liquidity on corporate finance decisions viz. dividends, firm valuation, stock split, capital structure etc.

Corporate Governance and Profitability of Nigerian Banks

Abstract: The Nigerian banking environment is a vibrant and challenging financial environment and is endemic with systemic governance problems, capacity constraints and defaulting in compliance and implementation of laws which has inhibited economic growth. Therefore the current investigation focuses on association between organizational governance and profitability of deposits money banks in Nigeria. Three indicators of corporate governance mechanism (board composition, board size and directors’ interests) were incorporated in the study. Relevant information was extracted from audited financial statements of the selected banks. The results of the regression analysis revealed the existence of positive but non-statistically significant association between board composition and profitability on one hand; and board size and profitability on the other hand. However, a non beneficial and non-significant association exists between directors’ interests and profitability in the Nigerian banks. Based on the findings of the study, the study recommends that in order to prevent distress in the banking sector, there should be a regular review of the corporate governance codes so as to reflect current social, environmental, technological and economic situations.

The Relationship between Audit Committee Characteristics, Audit Firm Quality and Companies’ Profitability

Abstract: Jordan displayed keen interest in corporate governance in terms of enhancing the quality of financial statements and to restore the investors’ confidence. This study aimed to highlight the role of audit committee and external audit in enhancing companies’ profitability. Since there are contradictions in previous studies results, there is a need to test these relationships in Jordanian context to provide empirical evidence on this issue,especially after the corporate governance application became mandatory since 2009. This study has used industrial sector, which include 91 companies, only 69 companies were included in this study, the other 22 companies were excluded either newly listed or delisted during the study period (2009-2014). Multiple regression were used to analyze the data, the result showed positive relationships between audit committee meeting, audit committee size and companies profitability, while no significant relationship between audit committee composition, audit committee members literacy, audit quality and companies profitability. Such results would be beneficial to companies’ corporate governance committees to play their supervisory role.

Non-Performing Loans in Emerging Economies – Case Study of India

Abstract: Recovery of non-performing assets is considered as one of the biggest problems for the entire banking industry as the earning capacity and profitability of many banks are adversely affected by the high level of NPAs. In this paper an attempt is made to outline the problem of NPAs in Indian banking system. The objectives of the paper are to observe the trends in the incidence of NPAs in Indian banking system, to understand the problem of NPAs in India in comparison with select economies in the world and to outline the policy measures to curtail incidence of NPAs in India. It is observed that the public sector and to some extent the private banks accounts for the bulk of the NPA problem during recent years due to global financial turmoil. Thus, while the policies that have been implemented to address the NPA problem may have been largely successful, there are further steps that can be taken by the RBI as well as by the banks themselves to tackle the problem of NPAs.

Literature Review on Corporate Governance Structure and Performance in Non-Financial Bangladesh Firms

Abstract: Corporate governance is a mechanism which arises due to conflict of interest arises within different stakeholders. Different stakeholders have different views, goals, as well as incomplete knowledge of each other’s preferences. The whole world has seen the corporate scandals of big companies like Enron, Tyco, WorldCom, Satyam, etc. These collapses have questioned the effectiveness of CG mechanism that is being carried out by organizations as a part of regulating their affairs and books of accounts. This particular article discusses in detail about the meaning and definition of corporate governance, examines the corporate governance practices in Bangladesh, investigates the corporate governance guidelines-2012, and performs a critical literature review on corporate governance structure and performance inside the non-financial Bangladesh firms.

The Vital Role of Gender Diversity on Corporate Outcomes: The Need for Empirical Studies Concerning Frontier Markets

Abstract: The purpose of the study is to review empirical studies related to gender diversity on corporate outcomes and suggest the need for more empirical research on gender diversity in frontier markets. Several empirical studies have identified the need for a critical mass of female directors and executives in corporate firms. This review further justifies the clamour for more female representation on boards globally. Nigeria is a country that has very weak corporate governance compared to the United States (US) and other developed countries. Therefore, the present study suggests that more empirical studies in this area should be carried out and widely explored. It is hoped that capital market regulatory authority can consider the need for 35% women in public institutions and corporate settings. In other words, there is an urgent need for the implementation of this policy as this would have implications for women’s development and career planning.

Drivers of Firm’s Value: Panel Data Evidence from Indian Manufacturing Industry

Abstract: The purpose of this paper is to classify the value drivers into broad categories and then identify the major drivers of firm’s value for Indian manufacturing industry and also work out the sectorial sensitivity of value drivers. To achieve the objectives of the study we first derive the value driver’s model next we use panel regression with different model specifications to empirically analyse the major drivers of firm’s value. Our study reveals that sales, net margin, book value, dividend per share, beta and earnings per share are the six major financial drivers of value. All the strategic drivers when included in the model have significant relation with value without disturbing the r-square of the model. Thus, it is clear that apart from generic financial drivers, firms need to put more attention on strategic choices they make, because it is the strategic choice that will give firms an edge over others in developing economies like India. Further, we also observe sector specific priorities of the value drivers. This paper provides academicians and practitioners with an overview of the applicability of value drivers for Indian manufacturing industry. Further, the study will fill the gap in literature by adding value drivers’ evidence from one of the fastest growing economies in the world and will benefit researchers in arriving at common consensus for value drivers in emerging economies.

Empirical Testing of Capital Asset Pricing Model on Bahrain Bourse

Abstract: The study is undertaken to find out the relationship between portfolio returns and market returns and test the empirical validity of the standard CAPM model on Bahrain Bourse. The study is based on 39 companies listed in the Bahrain Bourse, Bahrain All Share Index as market proxy and yield of Government of Bahrain securities as risk free rate of return. The study covers period from January 1, 2011 to December 31, 2014. The analysis of the results of the study revealed that many of the independent variables together with beta can explain the portfolio returns. However, the intercept test reveals that the portfolio returns are equal to the risk-free rate of return. Therefore, we can conclude that the results of intercept test of standard CAPM proves the theory and the beta test results goes against the standard theory.

Determinants of Foreign Portfolio Inflows: Analysis and Implications for China

Abstract: In emerging markets, a number of factors like GDP growth, market efficiency and higher earnings expectations play a vital role in attracting stable and smooth foreign investment. This work is intended to explore the determinants of FPI in China and compare the results with determinants of FPI in India explored by Garg and Dua (2014). We have applied multiple-regression model for ten years’ data ranging from 2001 to 2010. The results indicate that external debts are the most significant determinant of FPI for China. We concur with Garg and Dua (2014) that GDP growth, FDI and exchange rate are among the significant determinants of FPI. Our findings suggest that China needs to sustain its economic growth in order to attract more FPI.

Gender Diversity of Audit Committees and Audit Fees: Evidence from Chinese Listed Companies

Abstract: This paper investigates whether women, who serve on the audit committee of the board, can have a significant impact in reducing audit fees paid by China's A-share listed companies during the period 2004 to 2007. We show that audit committees composed of both men and women pay significantly smaller audit fees. The relationship is significantly greater in non-state enterprises than that exhibited by state-owned enterprises and significantly greater in companies deemed to have weak management vis-a-vis strong management. Further analysis shows that the composition of the committee is irrelevant when management is strong, regardless of whether it provides guidance for a state-owned enterprise or a strictly public company. When management is deemed weak, however, gender diversity is associated with smaller fees.

Material Flow Cost Accounting System for Decision Making: The Case of Taiwan SME in the Metal Processing Industry

Abstract: The purpose of this paper is to examine the implementation of a Material Flow Cost Accounting system (MFCA) and to provide meaningful results for managers to make decision. A case study and the depth interview were employed for small- and medium-size enterprises in the metal processing industry to collect the information for further analysis. The result shows that the implementation of the Material Flow Cost Accounting system can mitigate the probability of dysfunctional decision making, particularly for investment decisions, assist managers in directly filtering out energy or material waste, and enhance the accuracy of product cost evaluations. This paper concludes that the Material Flow Cost Accounting system is not only a management tool, which helps managers achieve cost reductions, but also a mechanism, which realize corporate social responsibility. The results of this investigation support the proposition that implementation of environmental collaboration and monitoring practices by supply chain partners are both environmentally necessary and good business. The paper provides manufacturing managers with a structured approach to improving both environmental and organizational performance through environmental collaboration and monitoring with customers and suppliers

Exploring the Relationship between Market Value and Accounting Numbers of Firms in Pakistan

Abstract: This study examines the relationship between accounting numbers and market prices for the Pakistani cement industry. The study covers a time span of nine years from 2005-2014. We study the influence of book value of share, breakup value of share, earning per share, gearing ratio and dividend to equity ratio on market value of share. After applying different econometric techniques we found that book value of share and earnings per share have statistically significant influence on the market price of share.

Risk Anomaly: A Review of Literature

Abstract: Number of studies show that portfolio of low risk stocks outperform portfolio of high risk stocks as well as the market portfolio over the full market cycle on risk adjusted basis and in some cases, absolute basis as well in some cases. This surprising contradiction to classic finance theory led by CAPM has held its ground over long periods of time, across different markets and different methodological choices. This review paper aims at contributing to the body of knowledge in four ways. One, it highlights and links different strands of literature on low risk anomaly that has evolved over a period of time. Second, it highlights, different methodological choices that have been used. Third, it classifies explanations for persistence of risk anomaly in to economic and behavioral explanations and explanations that try to explain the anomaly away. Fourth, it reviews the state of current research and explores potential but yet underexplored areas of research on risk anomaly.

The Impact of Audit Quality Features on Enhancing Earnings Quality: The Evidence of Listed Manufacturing Firms at Amman Stock Exchange

Abstract: The study aims at investigating the impact of external audit quality features on enhancing the quality of accounting profits of the listed manufacturing firms at Amman Stock Exchange (ASE), where continuity of profit has been used as Proxy variable to express the quality of earnings. Indicators of quality of audit, audit office size, auditors' fees, period of customer's retention, type of auditor's opinion, and the specialization in client's industry, were used to measure audit quality. A sample of 45 firms had been selected, and data covering the period 2009-2013 had been collected from these firms, where 225 observations were used in the analysis. The study finds that the earnings of listed manufacturing firms at Amman Stock Exchange are with good quality, and that there is a linear relationship between external audit quality and the quality of reported earnings. Auditors' fees have most important significant effect on earnings quality, followed by auditors' opinion, where others factors has no significant effect on earnings quality. Based on these findings, the study raises several questions about the reliability of audit quality properties by stakeholders in firms, especially investors, when they check the quality of earnings, whenever they need to take a decision. The study recommends further researches regarding the issue by using other metrics to measure earnings quality, and through the addition of other properties to the quality of the audit, such as linked audit offices with auditing global offices, degree of qualification employees, and the opened lawsuits against audit office.

VAT Increase and Impact on Consumers' Consumption Habit

Abstract: The UK government has put new economic policy to increase the Value added tax (VAT) to 20%, which raise widely discussions. This case study aims to find out how increased standard VAT influence customer’s satisfaction and consumption habit in North Wales area. There has been lively debate between the government and the opposition party, the government has asserted that it is progressive, as those with higher incomes spend more and will therefore pay more VAT. Opposition claims, however, that as low earners have to spend a much bigger share of their income than high earners in order to meet their basic needs. A total of 80 respondents participated in the survey. Reliability test analysis was used to analyse the reliability of each questions in the questionnaire. Data collected were analysed by using correlation analysis and t-test to determine the relationship between variables and test the hypothesis. The findings reveal that VAT increase has significant impact on consumers’ consumption habit. This case study could fill the gap in the literature for consumers’ consumption habit on VAT increase. Also the outcomes of this study could add to existing literature and serve as a foundation for further studies.

Foreign Direct Investments and Economic Growth: The Primary Drivers

Abstract: In order to achieve the Global Millennium Development Goals (MDGs) there is need for enhanced global partnerships in areas such as trade, health, security, environmental sustainability, food security and education. Owing to these initiatives Foreign Direct Investments (FDIs), Official Foreign Development Assistance (ODAs) and other external capital flows are increasingly considered as drivers of economic growth for developing countries. By year 2000 FDIs flow to developing countries accounted for 19% of the total global FDI flow compared to 52% in 2010. Collectively FDI equates to 11% of global GDP and generates close to 80 million jobs globally. Global FDI totaled to US$ 1.2 trillion in 2010, US$ 1.4 trillion in 2011 and US$ 1.8 trillion in 2012. Similarly, the developing countries received half of the FDI and only invested a quarter of the FDI out flow. Studies show that FDIs contributes to economic growth by stimulating several macro-economic and demographic variables which are major agents of economic growth. This paper sought to explain the effect of FDI on the determinants of economic growth human capital development, financial sector development and trade openness. A sample of 30 African countries was used for the study. The data used was retrieved from UNCTAD and World Bank online databases for the period between 1980 and 2012 and analyzed through a fixed effect regression model. The results of the study show that FDI had a positive impact on measures of financial sector development and trade openness. However the effect of FDI on human capital development was negative. The study recommends the need for favorable monetary policies that elicit more FDI for enhanced economic growth. The study also suggests increased global trade liberalization and integration to boost trade. Finally the study recommends that additional FDI flows should be directed towards human capital development.

Beta Estimation in Indian Stock Markets - Some Issues

Abstract: This study examines the reliability of the OLS beta estimates in Indian stock markets by considering the residual characteristics of the market model regressions. The statistics used include the coefficient of determination (R 2 ), the F-test for significance of the regression coefficient, the Durbin-Watson test for serial autocorrelation, the residual autocorrelation function, the Kolmogorov-Smirnov and Shapiro-Wilk tests for normality of the residuals, the presence of outliers, and White’s test for heteroskedasticity. The results of the study indicate some serious issues afflicting beta estimation in Indian stock markets, including: non-normality of stock returns and of residuals, extreme standardized residual values, heteroskedasticity, residual autocorrelation, and low R 2 . Thus, the simple market model is likely to result in biased estimates for beta in Indian stock markets.

Corporate Governance and Bank Competition Empirical Study on the Jordanian Commercial Banks Listed in Amman Stock Exchange over the Period (2001-2014)

Abstract: The purpose of this paper is to identify the effect of corporate governance implementation on the commercial banks’ competition in Jordan. Bank competition is tested by using Panzar and Rosse H statistics model and the researchers applied it on the collected data into two periods of time (2001-2007 and 2008-2014), taking into consideration that corporate governance was first implemented in the Jordanian banking sector on 31/12/2007. The researchers used Mann-Whitney Test to compare the results of both time phases. The results showed insignificant effect of corporate governance on bank competition that can be linked to certain reasons including the immaturity of corporate governance’s implementation in the Jordanian banking sector, the socio political upheavals that affected Jordan, and the differentiation of bank services between banks led to a more monopolistic behavior. This paper urges other researchers and practitioners to take their role into updating and modifying corporate governance to positively enhance bank competition taking into account the political turbulences in the neighboring countries and the movement of cash across the region and passing the country.

Costs and Benefits of Foreign Direct Investment to Azerbaijan's Economy: The Case of Oil Sector

Abstract: Azerbaijan is a young republic with a developing economy. Despite the efforts of government programs and development of non-oil sectors in recent years, the oil sector is still the most important sector of the economy. Improvement in the oil sector is the main source of the developments in Azerbaijan’s economy. In this study, we present the role of the oil sector in Azerbaijan’s economy, investigate the foreign direct investment in Azerbaijan oil sector and analyze the costs and benefits of foreign direct investment in oil industry to the Azerbaijan’s economy. After a broad literature review, it is found that foreign direct investment in Azerbaijan oil sector results in some minor costs to economy such as crowding out, negative wage spillover, profit repatriation and dual economy effect. On the other hand, foreign direct investment in Azerbaijan oil sector has great benefits for the economy, especially in terms of significant developments at macroeconomic indicators such as rapid increase in GDP. Adding to economic growth, human capital contribution, competition level, technology transfer and management and governance practices are some other benefits of foreign direct investment in Azerbaijan oil sector in Azerbaijan’s economy.

CEO Succession, Investor Expectations, and Real Earnings Management

Abstract: Recently, U.S. firms are switching CEO at the fastest pace and these events often cause severe stock market volatility on the uncertainty of the firm’s future performance. This study investigates whether inverse market reaction on CEO succession will induce earnings management of new CEOs in order to protect their reputational and career prospects. From a sample of 2,418 firm-years during the post-SOX period of 2003 to 2012 by applying the regression analysis, we investigate two associations of real earnings management (REM) with CEO successions and with its market reaction respectively. Our results suggest new CEOs are more careful when manipulate earnings through REM activities. However, REM is negatively associated with market expectations on CEO successions, implying new CEOs may utilize REM to reverse the first bad impressions held by investors. We provide a new perspective with regard to market reactions to CEO successions, by examining how and why new CEOs may choose to manipulate earnings.

The Approaching Lease Accounting Regulations and Its Impact on Cost of Capital, "A Practical Case Study"

Abstract: We examine how the approaching international lease accounting regulations influence credit rating of particular airfreight company, we capitalize all of still effective operation lease agreements commencing in 2002 and expired on 2026. In particular we use actual operation lease data, not only the disclosed with off-balance sheet. Our results suggest that, on average, capitalization of over 12 months term operation leases, dramatically alter capital structure. Results either reports a positive impact on weighted average cost of capital WACC, credit rating is a financial risk assessment measurement used by credit holders, investors, and analysis, our results is consistent with the lease accounting standard sitters point of view; investors and credit holders have the right to obtain a full transparent picture about firms lease activities in benefit of all parties. We also find some evidence that the positive change in WACC is related to the increasing portion of capitalized lease liability accompanied with an escalating decreeing in conventional debt, in certain conditions, this result suggests that financial lease has the advantage over conventional debt.

Perceptions towards Codes of Behaviour: A Study of CAOs, CFOs and Other Employees in Bahrain

Abstract: The objective of this study is to investigate the factors that affect Chief Accounting Officers (CAOs), Chief Financial Officers (CFOs) and other employees’ perception of codes of behavior in their organizations in the Kingdom of Bahrain and whether an ethical work environment is influenced by factors such as the establishment of a code of behavior, corporate ethics committee, and/or policy empowerment. The paper is interpretive in nature for which data is collected using survey questionnaires. The findings validate components of an effective code of behavior similar to those identified in the literature which include: implementation of codes of behavior, checking on compliance by internal audit committees, achievement of their goals, follow-up on complaints and confidential channels for reporting ethics violations. Also, results show that the organizations under study generally comply with the values in their codes of behavior. However, the results indicate that the ethical work environment as it currently exists in the Kingdom of Bahrain lacks three aspects. First, setting of a code of behavior seems to be a mixed responsibility between legal departments and outside councils, with minimal participation from the employees. Second, the responsibility to check ethics complaints does not necessarily rest with the ethics committee. Third, lack of a robust mechanism that increases accountants’ and financiers’ awareness of the importance of COE.

The Effect of SFAS No. 131 on the Diversification Discount

Abstract: For a sample of diversified firms, I investigate the impact of the segment reporting rule change from SFAS No. 14 to SFAS No. 131 in 1997. This change in segment-reporting rules to SFAS No. 131 potentially allows more precise estimation of diversification discount. I probe the changes in the diversification discount before and after the reporting rule change in 1997. I find that there is a substantial increase in the diversification discount under SFAS No. 131. Further analysis indicates that the changes in the diversification discount are unrelated to the changes in firm value or investment efficiency. Instead, the measures of diversity appear to be more associated with the changes in excess value. This indicates that excess value is not a clean measure of diversification discount.

Retail Investors’ Responsibilities in Stock Market Imperfection in Bangladesh: An Empirical Study

Abstract: Because of frequent price instability, stock market in Bangladesh represents itself an imperfect one over times. The retail investors claim that these frequent price fluctuation in the market is due to price manipulation, presence of syndicate and improper control by regulatory bodies and so on. But this study has found that a great portion of retail investors are very micro investors and reluctant in using relevant information in stock trading and furthermore ridiculously influenced by others investors and brokerage house personnel. Most of them consider only trend of past prices and market index. Majority of our respondents never considered net asset per share although it might give an idea about market value per share. So, the whole responsibilities of this price volatility and market imperfection can’t be shifted to third parties solely; retail investor themselves are responsible to some extent due to their irrational behavior and high expectation from stock trading. Stock market perfection in Bangladesh is quite impossible without enhancing awareness among retail investors and ensuring their rational behavior in stock trading.

How do the Banking Systems of Vietnam, China and India Fare?

Abstract: Given that Vietnam, China and India are among the few remaining banking systems which have central bank dependence, state dominance, regulatory restrictions and gradual reforms towards liberalisation, this study examines cost, revenue and profit efficiency and stability of these banking systems. Using DEA Window Analysis, the study found that these banking systems achieved high efficiency levels, with generally increasing efficiency from 1995 to 2011. Cost efficiency was equally driven by technical and allocative efficiencies; revenue efficiency was driven by interest income efficiency more than by non-interest income efficiency; and profit efficiency was equally driven by cost and revenue efficiencies. Furthermore, state banks were found to be more efficient than private banks, but this efficiency gap declined over time. Compared to private banks, state banks appear to have been better at coping with the Asian financial crisis (AFC), but worse at facing the Global financial crisis (GFC). However, banking systems of Vietnam and China were slightly hit by the AFC, while China and India were slightly hit by the GFC.

Country Risk Modeling in Indonesia: An Empirical Approach

Abstract: This study is intended to analyze the influence of internal and external risk factors considered relevant influencing the country risk. We find result of long term VECM estimation indicating that the exchange rate, the interest rate of certificate of Bank Indonesia (SBI) for 6 months and the world economic growth have positive and significant influence to country risk. Inflation, Indonesia economic growth, the Fed, and MSCI ACWI IMI return have negative and significant influence to country risk. All hypotheses presented in this study are theoretically and statistically accepted, except that the hypothesis on inflation is rejected because it is in controversy with theory, although statistically it has significant influence to the country risk in Indonesia. Meanwhile the estimated output of VECM in a short term, the exchange rate, the interest rate of SBI for 6 months and the world economic growth have positive and significant influence to country risk. The Fed and MSCI ACWI IMI return have negative and significant influence to country risk. The hypotheses testing accepted from the estimated VECM in short term are the exchange rate, the SBI interest rate in 6 months, the Fed, the world economic growth and the return of MSCI ACWI IMI.