Showing papers in "International Journal of Finance & Economics in 2021"

Fossil energy consumption, economic development, inward FDI impact on CO2 emissions in Pakistan: Testing EKC hypothesis through ARDL model

Abstract: The rapid rise in carbon production has been broadly accepted as a serious global issue and has become the centre of focus for policy makers and researchers. The consumption of fossil energy has been a chief source of carbon dioxide emission; in the meantime, academics focus on fossil energy consumption impact on carbon dioxide in developing like Pakistan is very infrequent. The current study investigated the long‐run and short‐run elasticities between economic development, square of economic development, fossil energy consumption, inward foreign direct investment (FDI) and carbon dioxide emission by utilizing the auto‐regressive distributive lag (ARDL) bound test technique for Pakistan from 1975 to 2014. The outcomes of co‐integration have confirmed the existence of long‐run relationship between variables. The results of short‐run and long‐run dynamics have confirmed the inverted U‐shaped relationship between economic development and carbon dioxide emission. ARDL model long run and short run coefficients have indicated that the fossil energy consumption has positive impact on carbon dioxide emission. Moreover, the impact of FDI on carbon emission is also quite considerable. Overall, the outcomes propose that Pakistan should encourage sustainable growth through energy efficiency, support the use of low GHG emission and efficient technologies, increase the consumption of renewable energy sources and channel the inward FDI to environment‐friendly technologies.

The impacts of R&D investment and stock markets on clean energy uses and CO2 emissions in a panel of OECD economies

Abstract: The goal of this paper is to examine to what extent R&D investment and stock market development promote clean‐energy consumption and environmental protection across a panel of 30 OECD economies. Based on the theoretical approach, study employs robust panel econometric models, which account for cross‐sectional dependence in the analysis and uses annual data, spanning the period 1996–2013. The empirical results illustrate that R&D and stock market have a significant long‐run equilibrium relationship with clean energy and CO2 emissions. The long‐run elasticities display that R&D and stock market growth have a significant positive impact on clean‐energy consumption, while they have a negative effect on the growth of CO2 emissions. Given these findings, the paper suggests that the policy makers in the OECD economies should realize that it is worth investing in R&D activities as it is promoting the use of clean energy and ensuring low carbon economies. Therefore, the policymakers have to initiate effective policies to promote R&D activities and also encourage the firms that are listed in the stock market to adopt environmental friendly policies.

Military expenditure, financial development and environmental degradation in Turkey: A comparison of CO2 emissions and ecological footprint

Abstract: This study investigates the long run equilibrium relationship among military expenditure, financial development, energy use, economic growth and environmental degradation in Turkey for the period of 1960–2014. Ecological footprint and carbon dioxide emissions are used as separate proxies for environmental degradation. Fully modified ordinary least squares (FMOLS) estimator results suggest that military expenditure, energy use and economic growth increase the environmental degradation while financial development improves the environmental quality in Turkey. Toda Yamamoto (1995) causality test results reveal that there is a unidirectional causality running from military expenditure to CO2 emissions and ecological footprint; and a bidirectional causality between military expenditure and economic growth. The findings of the study confirm the existence of destruction theory for the case of Turkey.

Long‐run relationship between R&D investment and environmental sustainability: Evidence from the European Union member countries

Abstract: The researchers, environmental scientists and policymakers around the world are exerting substantial efforts to mitigate the growth of CO2 emissions to save the planet. A number of measures and initiatives, such as, energy efficiency, renewable energy technologies and emission‐control are proposed in order to reduce CO2 emissions. This study examines the long‐run relationship between R&D investment and environmental sustainability in a panel of 25 European Union (EU) member countries over a period of 17 years (1998–2014). We use robust and reliable econometric methods to capture the interactions between R&D investment on renewable energy consumption and CO2 emissions. The findings confirm that the growth of R&D expenditures promotes renewable energy consumption and plays a significant role in reducing CO2 emissions in the sample countries. Furthermore, the findings suggest that increasing the share of renewable energy consumption in the total energy mix also reduces CO2 emissions. Given these results, we suggest that the EU policymakers provide more financial and regulatory assistance to the R&D activities, specifically in the energy sector, to ensure promoting low carbon economies in this region.

Dynamic relationship between corporate board structure and firm performance: Evidence from Malaysia

Abstract: Corporate governance is being acknowledged by almost all kinds of business communities and firms as an ultimate driver to improve the firm financial performance. This study examined the association between corporate board structure and corporate financial performance using a dynamic panel model. Principles of corporate governance deliver an explicit board structure for the purpose to facilitate the board members, which helps in making good decisions. The board of directors consists of the CEO, the chairman, the internal directors, and the external non‐executive directors to work for the shareholders. This study undertakes different corporate governance attributes including non‐executive directors, board size, and CEO duality and examines its effect on firm performance. The dynamic panel model is used, and preestimation and postestimation tests were conducted for the validity of the model. This study found a significant effect of board size, CEO duality, and non‐executive directors on firm performance. The findings show that most of the governance variables are endogenous by nature. Results are consistent with agency theory. This study provides the theoretical and empirical evidence and applies a superior model (dynamic panel model) to better explain the association between corporate board structure and corporate firm performance in listed firms.

Stochastic hybrid decision‐making based on interval type 2 fuzzy sets for measuring the innovation capacities of financial institutions

Abstract: Domestic Visiting Scholar Program of Annual Funding Project for Cultivating Outstanding Top Talents in Universities

Financial innovation, human capital development, and economic growth of selected South Asian countries: An application of ARDL approach

Abstract: This study investigates the interaction between financial innovation, human capital development and economic growth in Bangladesh, India, Pakistan, Sri Lanka, Nepal, and Bhutan for the period of 1981Q1–2016Q4 by applying Autoregressive Distributed Lag (ARDL) and Granger‐causality under error correction model (ECM). Our principal finding confirms long‐run association among financial innovation, human capital development, and economic growth of selected South Asian countries. Also, we found both long‐run and short‐run elasticities from financial innovation and human capital development to economic growth is positive for each country. The study confirms that economic growth of sample countries would positively affect any development in financial innovation and increase in investment for human capital development in future. We also perform a Granger‐causality test to investigate directional causality, and we found bidirectional causality between financial innovation and economic growth, and human capital development and economic growth both in short‐run and long‐run, thus, supporting the feedback hypothesis. The study comes with two recommendations; first, the government should encourage financial innovation in the financial system and formulate fiscal policy in favour of adaption and diffusion of financial innovation. Second, public investment in human capital development should continue and made necessary initiative towards ensuring better implementation of undertaken measures in the economy.

Financial inclusion and human development in frontier countries

Abstract: This study empirically investigates whether the level of human development drives greater financial inclusion, and vice versa in the contexts of frontier markets. The dynamic panel generalized methods of moments (System‐GMM) methodology is employed to analyze data spanning from 2005 to 2014 for twenty (20) frontier markets by Standard and Poor's Indices. The study finds that human development is a catalyst for financial inclusion scale‐up in the banking industry, which in turn, augments the development process. It establishes fresh evidence that income level, financial literacy, and healthy lives are the decisive factors for financial inclusion scale‐up in the banking industry. It finds new evidence that the underlying cause of low financial inclusion is low human development. The study concludes that low human development causes low financial inclusion. Also, promoting financial inclusion through the banking sector is very instrumental to stimulating human development, thus the reverse applies in frontier markets. The study implies that low living standards, poor health, high illiteracy, and deprived well‐being and freedom largely account for low financial inclusion hence its spillover effect of having low human development in frontier market countries.

The impact of economic policy uncertainty on stock returns: The role of corporate environmental responsibility engagement

Abstract: This paper examines the impact of economic policy uncertainty (EPU) on market‐driven common stock returns and individual‐driven idiosyncratic stock returns as well as explores the role of corporate environmental responsibility (CER) engagement on this impact based on a sample of 175 firms listed on Shanghai and Shenzhen 300 index from 2008 to 2016. The results show that an increase in EPU significantly reduces the market‐driven common stock returns but increases individual‐driven idiosyncratic stock returns. Further, EPU has a lower negative impact on the common stock returns of high‐CER firms comparing with low‐CER firms. EPU has a higher positive impact on idiosyncratic stock returns of high‐CER firms comparing with low‐CER firms. Overall, the findings of this paper extremely relevant for the government, investors and firm's managers and can be utilised for policy and investment decision‐making.

Are bank risk disclosures informative? Evidence from debt markets

Abstract: This study examines whether financial reporting with a specific focus on risk disclosures have a predictive (informative) effect on banks’ credit ratings (BCRs) and, consequently, ascertains whether governance structures can moderate such an association. Using one of the largest banklevel datasets collected from 12 Middle East and North African (MENA) countries over the 2006-2013 period to-date, our findings are as follows. First, we find that risk disclosures have a predictive effect on BCRs. Second, we find that the relationship between risk disclosures and BCRs is contingent on the quality of governance structures. Specifically, we find that the informativeness of risk disclosures on BCRs is higher in banks with larger board size, greater independence, higher government ownership, and better Shariah supervisory board, but lower in banks with greater block ownership, higher foreign ownership and the presence of CEO duality. The central tenor of our findings remains unchanged after controlling for a number of firm- and country-level factors, alternative risk disclosure measures, firm- and national-level governance proxies, different types of banks, and potential endogeneities. The findings have important implications for investors, especially bondholders, standard-setters, regulators, and central governments

Financial innovation and economic growth: Empirical evidence from China, India and Pakistan

Abstract: This study investigates the causal relationship between financial innovation and economic growth in China, India, and Pakistan over the period of 1970–2016. Using an Autoregressive Distributed Lag (ARDL) bound testing and Granger causality‐based Error Correction Model (ECM), this study finds that financial innovation generally has a positive and statistically significant impact on economic growth in the short‐run and long‐run. These results show that in the long‐run, monetary management and credit flow to the private sector play an essential role in economic growth. The trade openness and gross capital formation contribute considerably to the economic growth in China, India, and Pakistan. For robustness, this study also applies the Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) method. The findings of this study suggest that the financial sector plays an essential role in supporting innovation activity in Asian countries.

The impact of COVID-19 pandemic on hospitality stock returns in China

Abstract: Coronavirus disease (COVID-19) has already devastated the world, and the economy becomes the most critical challenge for any country worldwide The increasing uncertainty of the COVID-19 outbreak has made stock markets in China more turbulent and less predictable Under the current exceptional circumstances, the hospitality industry suffered the most due to the travel restrictions This research thus assesses the dynamic relationship among the COVID-19 outbreak, macroeconomic fluctuations and hospitality stock returns based on a structural VAR framework from 13 January to 11 May 2020, in China Evidence reveals that macroeconomic fluctuations and hospitality stock returns are significantly affected by shocks from the COVID-19 outbreak An unanticipated positive change of the COVID-19 explosion triggers an addition in exchange rates and causes a reduction in the stock market and hospitality industry returns For the impacts of the exchange rate, findings reveal that a surprise increase in exchange rates (currency depreciation) exerts a significant negative influence on stock market returns Additionally, a positive change of stock market returns is linked to a decline in exchange rates and a rise in hospitality industry returns Therefore, knowledge of these relationships can enable policymakers to evaluate and implement effective policies to stabilize the stock markets and help investors to make appropriate investment strategies

National culture, corporate governance and corruption: A cross‐country analysis

Abstract: Drawing on institutional theory, we examine the impact of corporate governance (CG) on corruption. The interaction effects of national culture and CG on corruption are also examined. By employing a dataset of 149 countries, our baseline findings indicate that the quality of CG practices reduces the level of corruption. Findings also show that three cultural dimensions, namely, power distance, individualism and indulgence moderate the CG‐corruption nexus. Our findings indicate that CG and national culture explain the level of corruption among societies, with national culture appearing to matter more than the quality of CG. Our findings remain unchanged after controlling for endogeneities, country‐level factors, CG and corruption proxies.

Time‐dependent intrinsic correlation analysis of crude oil and the US dollar based on CEEMDAN

Abstract: In this article, we analyze the dynamic linkage between crude oil price and the US dollar at multi‐scale frequencies using time‐dependent intrinsic correlation analysis based on the complete ensemble empirical mode decomposition with adaptive noise. After applying a refined method to extract the trend, we reveal that the overall correlation and the long‐term trend correlation exhibit very similar patterns. The correlation coefficients between crude oil and the US dollar are negative at most of the time; however, the coefficients become positive in certain periods, such as 2013–2014 and 2017–2018. Furthermore, the negative correlations in high frequency intrinsic mode functions (IMFs), with a shorter time horizon, are weaker and display time‐varying characteristics, whereas the correlation in low frequency IMFs, with a longer time horizon, are stronger and more static. The findings of this article may have important implications for investors to construct optimal portfolio diversification.

Corporate Governance and Earnings Management Nexus: Evidence from the UK and Egypt Using Neural Networks

Abstract: Using conventional regressions and Generalized Regression Neural Networks (GRNN), we examine the relationship between Corporate Governance (CG) and Earnings Management (EM). We also examine whether governance quality moderates the association between EM and CG for a sample of British and Egyptian companies. Our findings show that: (a) UK firms are likely to have lower levels of EM if they: have smaller boards, are dominated by independent outside directors, and have a low percentage of female directors; (b) Egyptian firms are likely to have lower levels of EM if they: have larger boards, are dominated by independent outside directors, and have a low percentage of female directors; (c) The governance quality (control of corruption) has a significant hidden effect on EM. Since our results provide empirical evidence that the board of directors plays a vital role in mitigating EM, these findings might lead to an improvement in the credibility of financial statements for investors in both the UK and Egypt. As policy implications, our findings inform regulators and policy-makers that corruption has a very strong hidden effect on EM and that they can deter EM by controlling the corruption level in their countries.

Social funding of green financing: An application of distributed ledger technologies

Abstract: Technical developments in the sphere of distributed ledger technologies (DLTs) provide the opportunity to enhance existing tools of social funding. In a first step, we elaborate their application to the community‐based hometown investment trust (HIT) fund, which provides financing for small‐scale renewable energy projects. In a second step, we model the investment decision problem of households to illustrate through which channel the use of DLTs impacts the household's behaviour. Our model captures the return–risk trade‐off between two forms of investments for households with different risk preferences. It reveals that the use of DLTs can mitigate the associated risk of an investment in a HIT fund causing more risk‐averse households to change their investment behaviour. Although our theoretical analysis ascertains the potentials of DLTs to enhance social funding schemes, it also works out challenges for the establishment of DLT based funds.

Dynamic return and volatility spillovers among S&P 500, crude oil, and gold

Abstract: This article examines the return and volatility spillover effects among the S&P 500, crude oil, and gold by employing the spillover index of Diebold and Yilmaz (2012). Monthly realized volatility and return series covering the period from January 1986 to August 2018 are used to examine the return and volatility spillovers. Our findings indicate a bidirectional return and volatility spillover among these assets. The full sample empirical evidence is consistent with the structure in which oil plays a central role in the information transmission mechanism. The role of oil and gold as a safe haven has changed over time in financial and nonfinancial economic turbulence time‐span. Commodity market financialization has decreased the effectiveness of adding commodities to portfolios after 2002. We find that return spillover is much higher both with considerable negative and positive larger shocks than average shocks, corresponding to left and right tails of the conditional distribution, respectively, while volatility spillover is higher only with positive large shocks than average shocks, which corresponds to shock in the right tail.

Microfinance and poverty reduction: New evidence from Pakistan

Abstract: Microfinance is key to reducing poverty in Pakistan. While comprehensive finance is frequently considered as, it creates inclusive growth and poverty reduction in poor communities, and can be boosted by ease of finance. However, when the poor people are involved in the broader scale (different types of poverty level), can this microfinance work? We used an econometric model to test the symmetry approaches of the comprehensive financial organizations and the poor in poverty reduction activities to find the answers. Keeping this in view, we studied different determinants related borrowers for the poverty reduction with respect to access to Micro finance institutes (MFI) and productive loan. Despite some limitations, such as those arising from potential unobservable important determinants of access to MFIs, significant positive effect of MFI productive loans has been confirmed. The significance of “treatment effect” of coefficients has been verified by probit model. In addition, we found that loans for productive purposes were more important for poverty reduction by MFB (Microfinance banks) than MFI. However, in urban areas, simple access to MFIs has larger average poverty‐reducing effects than the access to loans from MFIs for productive purposes. This leads to exploring service delivery opportunities that provide an additional avenue to monitor the usage of loans to enhance the outreach. Therefore, the results showed by probit model that access to MFI was better in urban areas and male borrowers thus achieved more loan. Therefore, it is suggested that for the poverty reduction, there is a dire need to improve and localize the Microfinance institutions in rural areas as well as to promote group lending methodology to avoid risk of getting loans and increase the number of both male and female savers. Thus, the saving value will be increased and side by side interest rate will be significantly achieved. Hence, it is concluded that the goal of providing sustainable financial services implicitly implies that MFIs provide financial services to the poor, whenever they find it profitable to do so. The removal of subsidy and the absence of interest rate restrictions could make the market for the poor become even worse as the market occupiers may act in their own interest. The powerful push will be needed from national economic and social impacts for the increasing support for microfinance.

Cryptocurrencies value‐at‐risk and expected shortfall: Do regime‐switching volatility models improve forecasting?

Abstract: This paper evaluates the presence of regime changes in the log‐returns volatility dynamics of cryptocurrencies using Markov‐Switching GARCH (MS‐GARCH) models. The empirical study compares the prediction performance of MS‐GARCH against traditional single‐regime GARCH methods for one‐, five‐ and ten‐steps‐ahead volatility forecasting of six leading digital coins such as Bitcoin, Dashcoin, Ethereum, Litecoin, Monero and Ripple. Using a Bayesian approach, different MS‐GARCH structures are estimated considering specifications up to three regimes, three scedastic functions and six error distributions, resulting in a total of 54 models for each cryptocurrency. Forecasts are compared according to an economic criterion, that is, through the estimation of Value‐at‐Risk (VaR) and Expected Shortfall (ES) risk measures. The results support the evidence of regime changes in the volatility process of selected cryptocurrencies and show that MS‐GARCH models do provide more accurate VaR and ES forecasts than their single‐regime counterparts.

Quantile causality and dependence between crude oil and precious metal prices

Abstract: This paper examines long‐run dependence and causality between oil and precious metal (gold, silver, platinum, palladium, steel, and titanium) prices across quantiles by exploiting their time series properties with the help of novel econometric techniques. The empirical results for the period 1990–2019 indicate that oil and metal prices are nonstationary across different quantiles and that cointegration patterns differ widely across quantiles. Causality running from oil to metal prices is quantile‐dependent and differs according to the metal, whereas upward and downward movements in metal prices have no causal effect on oil prices. These results have implications for investors and policymakers in terms of portfolio and risk management decisions.

Modelling the volatility of crude oil returns: Jumps and volatility forecasts

Abstract: We contribute to the scarce literature on the oil market volatility index (OVX) by examining the presence of time‐varying jumps in OVX and by assessing the ability of OVX to predict the conditional variance of crude oil returns. Using a GARCH‐jump model, we find evidence that OVX is characterized by jump behaviour that tends to vary over time. Further analysis indicates that accounting for the jump behaviour of OVX helps improve the conditional variance forecasts of crude oil returns. Since the studied features of OVX play a crucial role in asset pricing and risk analyses, our findings have policy implications related to refining volatility prediction models and risk measures.

The spillover effects of economic policy uncertainty on the oil, gold, and stock markets: Evidence from China

Abstract: In this study, we investigate the different spillover levels of economic policy uncertainty (EPU) on the oil, gold, and stock markets in China. EPU has the highest levels of the growth and volatility spillover on the gold market, and EPU transmits the lowest levels of growth and volatility spillovers to the oil market. EPU receives the highest level of return spillover from the oil market and the lowest from the gold market. However, EPU receives a higher level of the volatility spillover from the gold and stock markets. Regarding growth spillover, EPU is the net spillover receiver from the oil market and the net spillover transmitter to the gold market. Regarding volatility spillover, EPU is a main spillover receiver from all three markets. All net spillovers from EPU to the oil, gold, and stock markets are time‐varying. The recent financial crisis exerts significant effects on the net spillovers of EPU on the three markets.

Financial development, real sector and economic growth: Evidence from emerging market economies

Abstract: There is a developing concern among developed, developing, and emerging economies in relevance to increasing real sector expenditure across the world. As a result, all countries have started to increase their real sector expenditure by increasing the share of finance. Hence, this study aims to examine the effects of both financial development and real sector on economic growth; we choose five emerging market economies to explain the economic growth process between 2000 and 2016. The results of long‐run elasticities document that real sector and financial development play a significant role in promoting economic growth. The results also suggest that money supply, exchange rate and inflation have a considerable positive effect on economic growth, respectively. Given these findings, we suggest that both governments and policy makers of the BRICS nations to initiate more effective policies to increase the real sector expenditure and develop financial sector. The increasing real sector will allow the economies to grow further by ensuring sustainable economic development across the BRICS member countries.