Showing papers in "Investment management & financial innovations in 2017"

The influence of profitability on firm value with capital structure as the mediator and firm size and industry as moderators

Abstract: The influences of profitability and leverage on firm value have long been critical with regard to financial decision making. The greater the profitability of a firm, the more assignable profit there is, and the higher is the value of the company. Profitability thus has a significantly positive influence on firm value. The pecking order theory holds that highly profitable corporations are not over-dependent on external funds, and thus profitability has a significantly negative influence on leverage. However, when the leverage increases, both agency and bankruptcy costs increase rapidly as a result. Since leverage generally has a markedly negative influence on firm value, leverage becomes the mediator variable in the influence of profitability on firm value. In addition, two moderator variables exist in the research industry type and firm size. It is noted that when industry type the acts as a moderator variable, it interferes with the relationship between profitability and leverage. When firm size is the moderator variable, it also interfere the relationship between profitability and leverage. The moderating effect happens in the first stage.

The effect of credit risk management on financial performance of the Jordanian commercial banks

Abstract: This research aims at examining the effect of credit risk management on financial performance of the Jordanian commercial banks during the period (2005-2013), thirteen commercial banks have been chosen to express on the whole Jordanian commercial banks. Two mathematical models have been designed to measure this relationship, the research revealed that the credit risk management effects on financial performance of the Jordanian commercial banks as measured by ROA and ROE. The research further concludes that the credit risk management indicators considered in this research have a significant effect on financial performance of the Jordanian commercial banks. Based on findings, the researcher recommends banks to improve their credit risk management to achieve more profits, in that banks should take into consideration, the indicators of Non-performing loans/Gross loans, Provision for facilities loss/Net facilities and the leverage ratio that were found significant in determining credit risk management. Also, banks should establish adequate credit risk management policies by imposing strict credit estimation before granting loans to customers, and banks in designing an effective credit risk management system, need to establish a suitable credit risk environment; operating under a sound credit granting process, maintaining an appropriate credit administration that involves monitoring, processing as well as enough controls over credit risk, and banks need to put and devise strategies that will not only limit the banks exposition to credit risk but will develop performance and competitiveness of the banks.

The Firm-Specific Determinants of Corporate Capital Structure: Evidence from Turkish Panel Data

Abstract: The purpose of this study is to carry out an empirical testing, using dynamic panel data methodology, to analyze the impact of firm specific characteristics on the corporate capital structure decisions of Turkish firms The sample covers 123 Turkish manufacturing firms listed on the Istanbul Stock Exchange (ISE) and the analysis is based on the year-end observations of ten consecutive years running from 1993-2002 In this study, the panel data methodology is used and six variables – size, profitability and growth opportunities in plant, property and equipment, growth opportunities in total assets, non-debt tax shields and tangibility – are analyzed as the firm specific determinants of the corporate capital structure This work contributes to the existing body of literature in the way that all of the independent variables of the study are significant determinants for the capital structure decisions of Turkish firms Our analysis shows that variables of size and growth opportunity in total assets reveal a positive association with the leverage ratio, however, profitability, growth opportunities in plant, property and equipment, non-debt tax shields and tangibility reveal inverse relation with debt level

Dividend policy and share price volatility

Abstract: The objective of this study is to examine the relationship between dividend policy and share price volatility in the Malaysian market. A sample of 319 companies from Kuala Lumpur stock exchange were studied to find the relationship between stock price volatility and dividend policy instruments. Dividend yield and dividend payout were found to be negatively related to share price volatility and were statistically significant. Firm size and share price were negatively related. Positive and statistically significant relationships between earning volatility and long term debt to price volatility were identified as hypothesized. However, there was no significant relationship found between growth in assets and price volatility in the Malaysian market.

Employees, firm size and profitability in U.S. manufacturing industries

Abstract: We examine the relation between firm size and profitability w i hin 109 SIC four-digit manuf acturing industries. Depending on our measure of profitability, we find that profitability increases at decreasing rate and eventually declines in up to 47 of our industries. No r elation between profitability and size is found in up to 52 of our industries. These two categories account for 97 of our 109 industr ie . Profitability continues to increase as firms become larger in up to 11 industries. Hence, the relation between size and profitability is industry specific. But, regardless of the shape of the size profitability function, we find that profitab ility is negatively correlated with the number of employees for firms of a given size measured in terms of total assets and sales. These results are puzzling in the context of work by others who report that common stock returns are negatively correlated with size when size is meas ured by the market value of a company or w ith the work of those who argue that size is a proxy for risk. Interpreted against these works, our findings may mean that large firms earn excess returns, that small firms fail to earn their cost of capital, or that accounti ng returns simply behave diffe rently than market returns with respect to firm size.

Relationships Between Stock Markets and Macroeconomic Variables: an Empirical Analysis of the Istanbul Stock Exchange

Abstract: The purpose of this study is to investigate the relationships between returns in Istanbul Stock Exchange (ISE) and macroeconomic variables of Turkish economy. Employing cointegration tests and vector error correction model (VECM) on a quarterly data set, we find long-term stable relationships between ISE and four macroeconomic variables, GDP, exchange rate, interest rate, and current account balance. As a result of causality tests, we found unidirectional relationships between macro indicators and ISE index. That is, consistent with the existing literature, changes in GDP, foreign exchange rate and current account balance have an effect on ISE index. However, on the contrary to expectations, changes in the stock market index do affect interest rates.

Stable modeling of different European power markets

Abstract: In this paper, we address the issue of modeling spot prices of different European power markets. With the German, Nordic and Polish power markets, we consider three markets at a very different stage of liberalization. After summarizing the stylized facts about spot electricity prices, we provide a comparison of the considered markets in terms of price behavior. We find that there are striking differences: while for the Nordic and German power exchange prices show heavy tails, spikes, high volatility and heteroscedasticity, returns of spot prices in the Polish market can be modeled adequately by the Gaussian distribution. We introduce the stable Paretian distribution to capture heavy tails, high kurtosis and asymmetries in electricity spot prices. We further provide ARMA/GARCH time series models with Gaussian and stable innovations for modeling the behavior of the different markets.

The impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks: an empirical evidence

Abstract: This study investigates the impact of political instability, macroeconomic and bankspecific factors on the profitability of Islamic banks in the context of Yemen. The study used two common measures of profitability, namely, Return on Assets (ROA) and Return on Equity (ROE) as dependent variables. Seven key independent (internal and external) variables are also used. There are five fully-fledged Islamic banks (IBs) working in Yemen. The study selected only three out of five IBs due to the availability of data for the period ranging from 2010 to 2014. The descriptive and multiple regression analyses were done. The results of the study indicate that operating efficiency and financial risk have negative and significant relationships with ROA and ROE. The findings also show that capital adequacy has a negative and insignificant relationship with ROA and ROE. Furthermore, the study reveals that assets size (LogA), assets management, liquidity and deposits have a significant and positive impact on banks’ profitability. GDP, Inflation rate (IR) and Political instability have positive and significant impact on Yemeni banks’ profitability. Based on the best knowledge of the authors, this study is considered one of the first and pioneering studies that determine the factors affecting the profitability of Islamic banks of Yemen. Therefore, the study gives good insights for the policy makers, regulators and interested parties for enhancing the profitability of Islamic banks in Yemen. Ali T. Yahya (India), Asif Akhtar (India), Mosab I. Tabash (United Arab Emirates) BUSINESS PERSPECTIVES LLC “СPС “Business Perspectives” Hryhorii Skovoroda lane, 10, Sumy, 40022, Ukraine www.businessperspectives.org The impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks: an empirical evidence Received on: 3rd of September, 2017 Accepted on: 16th of November, 2017

The influence of central bank monetary policy announcements on cryptocurrency return volatility

Abstract: The emergence of Bitcoin in 2009 has received considerable attention surrounding the validity of cryptocurrencies as a viable, and in some jurisdictions, a legal currency alternative. Despite widespread concern that these cryptocurrencies are fostering the environment within which a substantial bubble can occur, it is important to analyze whether these new assets are behaving similarly to major international currencies. This paper investigates the effects of international monetary policy changes on bitcoin returns using a GARCH (1.1) estimation model. The results indicate that monetary policy decisions based on interest rates taken by the Federal Open Market Committee in the United States significantly impact upon bitcoin returns. After controlling for international effects, we find significant evidence of volatility effects driven by United States, European Union, United Kingdom and Japanese quantitative easing announcements. These results show that, despite its nature and ideals, bitcoin seems to be subject to the same economic factors as traditional fiat currencies, and is not entirely unaffected by government policies. This result has implications for investors using bitcoin as a hedging or diversification tool. In addition, we contribute to the existing debate regarding the classification of bitcoin as an asset class, by illustrating that bitcoin volatility exhibits various reactions that bear resemblance to both currency pairs and storeof-value assets. Shaen Corbet (Ireland), Grace McHugh (Ireland), Andrew Meegan (Ireland) BUSINESS PERSPECTIVES LLC “СPС “Business Perspectives” Hryhorii Skovoroda lane, 10, Sumy, 40022, Ukraine www.businessperspectives.org The influence of central bank monetary policy announcements on cryptocurrency return volatility Received on: 24th of August, 2017 Accepted on: 27th of November, 2017

Analysis of Syariah quantitative screening norms among Malaysia Syariah-compliant stocks

Abstract: The purpose of this study is to investigate whether Malaysian Syariah-compliant quantitative screening adopts criteria, which can be considered more liberal than those used by the DJIM, S&P and FTSE Syariah index providers, and also to assess the financial health of the sample companies. To do these, a sample of 477 Syariah-compliant firms were tested using the financial ratios, namely, liquidity ratio, interest ratio, debt ratio and non-permissible income ratio used by these world leading index providers. The results showed that fewer companies (12.16%) are qualified under the DJIM criteria and even more companies (63.10%) are qualified under the FTSE criteria. The reasons for this difference are: (1) the use of different formulae to calculate the ratio; (2) the use of different thresholds; and (3) the different emphases applied by the world index providers. The results of the financial health screen show that the majority of the Syariah-compliant companies are financially healthy.

Factors Influencing Activity Based Costing (ABC) Adoption in Manufacturing Industry

Abstract: In the 1980’s much criticisms were raised regarding the ability of traditional cost accounting to provide relevant, timely, and accurate information to the management. During that period, ABC has emerged as one of the management accounting tools that recognizes such concern. Since then ABC has gained its popularity and has received substantial attention from various parties including the academicians, practitioners, and industries. ABC has also been studied from various perspectives for quite some time in many countries. Literatures are enriched with studies that have argued that the adoption of ABC benefits organizations. Unfortunately, studies have also found that the level of ABC adoption is still considered low. Many organizations still use the traditional cost accounting methods in dealing with overhead costs. This study investigates the status of ABC adoption among manufacturing organizations in Malaysia, and the factors influencing its adoption. Mail survey questionnaires were distributed to manufacturing organizations throughout the country using purposive judgment sampling. The questionnaires were directed to the accountants or heads of accounts of selected manufacturing organizations. The study found that ABC adoption in Malaysia is at infancy stage, with 36% adoption rate. The factors that influence ABC adoption are decision usefulness of accounting information, organization support, and internal measures of performance.

The Application of Japanese Candlestick Trading Strategies in Taiwan

Abstract: The Japanese candlestick is one of the most popular technical methods used to predict future price trends based on the relationships among opening, high, low, and closing prices. By using the daily data of 25 component stocks in the Taiwan Top 50 Tracker Fund and Taiwan Mid-Cap 100 Tracker Fund from 1997 to 2006, this study tries to explore which candlesticks can be used by investors and how many holding days will be profitable for each of them. The t-tests are applied to test the profitability of the candlesticks, and ANOVA and Duncan’s multiple range test are then used to examine and compare the profitability of candlesticks and holding days. Furthermore, this study also tries to implement a stop loss strategy to improve the performance of candlesticks. The research findings provide strong evidence that some of the candlestick trading strategies do have value for investors and different candlestick needs different holding days. Meanwhile, the performance of the most candlesticks has been improved with stop loss strategy.

Disclosure of Forward Looking Information: Evidence from Listed Companies on Istanbul Stock Exchange [ISE]

Abstract: This study examines the disclosure of forward-looking information in annual reports of companies listed on Istanbul Stock Exchange (ISE). It aims to determine the factors influencing the decision of ISE listed companies to disclose forward-looking information. The factors proposed for the investigation consist of size, industry, institutional investors, internalization and intangibles. Since the annual reports represent the main source of voluntary disclosures of the forward-looking information, our investigation uses a disclosure index based on an analysis of the statements made by management in annual reports of the companies listed on ISE. In our study, the level of forward looking information disclosed in the annual reports of the firms is examined in two broad categories. We find that the total disclosure of forward looking information is positively related with the size and foreign offers, and negatively related with the variables of ownership structure, profitability, the level of foreign investment and the proportion of institutional investors. Additionally, the firms operating in service and finance sector disclose more forward looking information as compared with the manufacturing firms. Ownership structure and financial performance are determinant factors affecting the disclosure of financial forward looking information.

Beyond Budgeting: Boon or Boondoggle?

Abstract: Top managers and controllers increasingly voice dissatisfaction with budgeting as a planning and controlling instrument. Since the end of the 1990s, practitioners and researchers therefore have developed increasingly more systematic, alternative concepts to traditional budgeting. This article examines three of them: Better Budgeting; Advanced Budgeting; and Beyond Budgeting. Member firms belonging to the Beyond Budgeting Round Table have been reporting on their experiences with these reform concepts for several years. How likely is it that any one of them can solve all the problems associated with traditional budgeting? After examining the evidence, this article offers critical evaluations of the three new concepts, suggests additional measures for creating leaner and more flexible budget processes, presents the perspective of some IT-suppliers on supporting Beyond Budgeting, and answers the question of who should be onboard to implement any changes. Following a discussion of the pragmatism evident in the way two companies have modernized their planning and controlling systems, the article draws summary conclusions.

The effect of working capital management on profitability: a case of listed manufacturing firms in South Africa

Abstract: Working capital management plays a pivotal role in enhancing the operational efficiency of firms and their ultimate profitability. Therefore, the purpose of this study was to examine the trends in working capital management and its impact on the financial performance of listed manufacturing firms on the Johannesburg Securities Exchange (JSE). A panel data methodology was used with different regression estimators to analyze this relationship based on an unbalanced panel of 69 manufacturing firms listed during the period 2007–2016. The findings revealed that the average collection period and the average payment period are negative and statistically significant for profitability, implying that firms which efficiently manage their accounts receivable and those that pay their creditors on time perform better than those that do not. Additionally, a positive statistically significant relationship between the number of days in inventory and profitability was supported suggesting that firms which stock-up and maintain their inventory levels suffer less from stock-outs and avoid challenges of securing financing when needed. This increases their operational efficiency and ensures profitability in the long run. It could not be ascertained whether a shorter or longer cash conversion cycle enhances firm profitability, since findings to support this premise were weak. However, it was observed that manufacturing firms are on average, carrying lot of debt in their capital structures. The present study contributes to existing literature by presenting one of the very recent findings on this topic while simultaneously testing the validity of recent local and international methodologies, in order to inform policy change. Jason Kasozi (South Africa) BUSINESS PERSPECTIVES LLC “СPС “Business Perspectives” Hryhorii Skovoroda lane, 10, Sumy, 40022, Ukraine www.businessperspectives.org THE EFFECT OF WORKING

The impact of inflation and GDP per capita on foreign direct investment: the case of United Arab Emirates

Abstract: This study attempts to examine the impact of inflation rate and GDP per capita on inward foreign direct investment (FDI) inflows into United Arab Emirates (UAE). Data on the variables of inflation rate, GDP per capita, and FDI inflows are obtained from the World Bank and UNCTAD and covered a span of 33-year time series from the period of 1980 to 2013. For the sake of examining the long-run relationship between the independent and dependent variables the auto regressive distributed lag (ARDL) model is applied in this study. The findings of the study reveal that inflation has no significant effect on FDI inflows whereas GDP per capita proxy used for market size has a significantly positive impact on FDI inflows. The study concludes with some recommendations for economists and policy makers in UAE together with others for future research.

Market efficiency of traditional stock market indices and social responsible indices: the role of sustainability reporting

Abstract: Corporate social responsibility, disclosed in sustainability reporting, influences the financial performance of companies. As a result, traditional stock market indices (TI) are expanded with the social responsible stock market indices (SRI). The aim of this study was to establish whether there are any differences in the behavior of the TI and SRI. To do this, the authors analyzed their efficiency. They used R/S analysis to calculate the Hurst exponent as a measure of persistence (long-term memory property). The presence of persistence was evidence in favor of less efficiency. According to empirical results, SRI has lower efficiency, in particular the Dow Jones Sustainability Index. Lower efficiency was also observed in the emerging markets with a responsible investment segment, compared to the traditional stock market indices. Further standardization and a common methodological approach to corporate sustainability reporting disclosure are proposed.

Islamic bonds and the wealth effects: evidence from Malaysia

Abstract: The fast growing numbers of Islamic bonds issuance in Malaysia and worldwide, coupled with the lack of corporate finance literature that integrates the development of Islamic capital market motivate the study on the wealth effects of Islamic debt offerings and their determinants.It is found that the market reaction is significantly positive during event windows -3, 0 and -3, 3 surrounding the announcements of Islamic debt issuance.Five variables suggested by the capital structure literature, namely firms size (SIZE), issue size (AMT), leverage (LEV), free cash flows (FCF) and investment opportunity (TQ) together with two new variables, the syariah compliant status (SYAR) and the Security Commission’s (SC) approval (APPROVAL) were modeled as potential explanatory variables of the wealth effects.The study concludes that the wealth effect of Islamic bond issuance announcements is positively influenced by the issuer’s investment opportunity and negatively influenced by the issue size, firm size and whether the announcement is accompanied by the SC approval.The finding implies that the positive reaction is not due to investors’ preference for Islamic compliant activities but it is due to similar factors found in studies on conventional bonds.The negative influence of SC approval on the wealth effect indicates that many listed companies issuing Islamic debt are not complying with the information disclosure requirement.

Effects of economic growth, export and foreign direct investment inflows on unemployment in Turkey

Abstract: There have been significant increases in trade volume and foreign direct investment flows in the world in parallel with globalization since 1980s. This study examines the relationship between unemployment, economic growth, export and foreign direct investment inflows in Turkey during the period of 2000:Q1-2013:Q3 by using bound testing approach based on autoregressive distributed lag. We found that there was long run relationship among unemployment, economic growth, export and foreign direct investment inflows. Moreover empirical findings demonstrated that there was a negative relationship between unemployment and economic growth, export, while there was a positive relationship between unemployment and foreign direct investment inflows.

How growth opportunities are related to corporate leverage decisions

Abstract: Growth opportunity has been considered as a significant determinant of capital structure. The literature generally favors the negative relationship between the growth opportunities and leverage of firms. However, another school of thought finding such a relationship to be positive also exists. The purpose of this study is to find out how growth opportunities in Pakistan are related to leverage decisions for the listed manufacturing corporate concerns. We use financial data from a sample of 110 manufacturing companies listed on Karachi Stock Exchange for 15 years (1982-1997) from 9 different sectors along with estimation of fixed-effects regression analysis to assess the subject relationship. We find a positive relationship between the growth opportunities and debt levels of the corporate firms. This positive relationship is highly significant for the segments of firms with ‘low’ and ‘medium’ growth opportunities. The reason for this finding may be that the owners of these firms view the available growth opportunities as unsustainable and more risky and intend to pass on that higher risk to the creditors. The socio-economic and political networks of such owners may help provide them easy access to credit market resulting in high debt level. Consequently, they might delay issuance of new common stocks to be issued at the future higher prices if the risky investment succeeds. We also observe a general tendency of the credit market, having limited options for profitable credit, to finance companies with little better future prospects. Moreover, unsustainable growth opportunities in economy, less developed capital markets, a high number of firms with low growth in Pakistan (in real terms) and their limited goodwill among the investors and general public (restricting them to issue shares of common stock) may also be the underlying reasons behind the corporate behavior causing such an overall positive relationship. Another important finding of this study is that industry type is also a relevant variable which affects the relationship between growth opportunities and leverage.

Portfolio optimization in a mean-semivariance framework

Abstract: This paper demonstrates a mean-semivariance approach to measure the downside risk in optimal portfolio selections. The authors measure the return dispersions below the expected value of investment return. Using semivariance for measuring the downside risk is consistent with the intuitive perception of risk of investors. The mean-semivariance framework offers investors a practical guidance in asset allocations and portfolio management that aim to minimize the downside risk in investment. The authors use a sample of seven exchange-traded index funds (ETF) that mimic various categories of securities such as government bonds, municipal bonds, investment grade bonds, high-yield bonds, real estate bonds, mortgage backed securities (MBS), and large capitalization stocks to compare and test the differences between the optimal portfolios and asset allocations constructed out of the mean-semivariance approach and the traditional mean-variance approach. The test results show that the mean-semivariance approach provides certain desirable benefits unavailable to a traditional mean-variance approach. Specifically, optimization under the conditions of the semivariance model produces different portfolio strategies that at least maintain and at best improve the expected return of the portfolio using traditional mean-variance model while minimizing its downside risk exposure. Our findings of the semivariance model have practical implications for both individual investors and institutional investors for asset allocations and optimal portfolio selections, as well as managing their downside risk exposure.

Time series and neural network forecasts of daily stock prices

Abstract: Time series analysis is somewhat parallel to technical analysis, but it differs from the latter by using different statistical methods and models to analyze historical stock prices and predict the future prices. With the rapid increases in algorithmic or high frequency trading in which trader make trading decisions by analyzing data patterns rather than fundamental factors affecting stock prices, both technical analyses and time series analyses become more relevant. In this study the authors apply the traditional time series decomposition (TSD), Holt/Winters (H/W) models, Box-Jenkins (B/J) methodology, and neural network (NN) to 50 randomly selected stocks from September 1, 1998 to December 31, 2010 with a total of 3105 observations for each company’s close stock price. This sample period covers high tech boom and bust, the historical 9/11 event, housing boom and bust, and the recent serious recession and current slow recovery. During this exceptionally uncertain period of global economic and financial crises, it is expected that stock prices are extremely difficult to predict. All three time series approaches fit the data extremely well with R being around 0.995. For the hold-out period or out-of-sample forecasts over 60 trading days, the forecasting errors measured in terms of mean absolute percentage errors (MAPE) are lower for B/J, H/W, and normalized NN model, but forecasting errors are quite large for time series decomposition and non-normalized NN models.

Valorization and financialization in cognitive biocapitalism

Abstract: The structural changes that occurred in the last 30 years have substantially modified the capitalistic organization of society, both at national and international level. A new regime of accumulation, devoid of a stable mode of regulation and centred on financial valorisation of new socio-economic growth perspectives, has been consolidating. Conditions imposed by financial markets in order to create the shareholder’s value consisted of promoting downsizing, reengineering, outsourcing and M&A processes. The flexibilization of labor force and precarization of existence has been the result of the established valorization norm. But why should the corporate restructuring sustain the enterprise value by creating income stock? The definition of a new regime of accumulation involves a research on the criteria of valorization and the prevailing technological paradigm. The main changes of new capitalism concern mainly two spheres: the role played by knowledge in the new technological paradigm, valorization process and the importance of finance. The dominant technological paradigm and the role, played by knowledge within it, lead to a redefinition of the nexus between living and dead labor, between abstract and concrete labor, between space, network and cooperative relationships Then, after describing the main features of the dated paper accumulation paradigm that many scholars have not hesitated to name as cognitive capitalism, a specific attention is paid to the role of finance as biopower.

Impact of different distributional assumptions in forecasting Italian mortality rates

Abstract: In this paper we value the impact of different distributional assumptions relative to Lee-Carter innovations in forecasting age-specific mortality in Italy. We fit the matrix with Italy death rates from 1960 to 2004, and we observe that the innovation series presents significant kurtosis. We implement the model approximating the innovations with a symmetric Normal Inverse Gaussian (NIG) distribution for different groups of ages. We value the impact of Gaussian and NIG approximations on the distributional hypotheses considering an ex post analysis of the distributional approximation. We observe that for some age groups the NIG distributional assumption on the residuals of the LeeCarter model produces dominant results compared to the Gaussian one.

Are firm failure processes different? Evidence from seven countries

Abstract: The main purpose of the paper is to study whether firm failure processes are different for similar firms in various countries. The study focuses on firm failure processes in SMEs from six European countries with different development level. This study is the first one to extract and compare failure processes in a number of different countries. The data are based on random samples of 93 failed firms from six European countries (Belgium, Croatia, the Czech Republic, Estonia, Russia, and the United Kingdom) resulting in a total sample of 558 firms. The results are also validated on a sample of 80 USA firms meeting the given size and turnover criteria. Empirical results are found using the factor analysis to extract the main dimensions of financial variables from different periods before failure and the cluster analysis to classify the processes into similar groups. Four different failure processes are established sharing characteristics with those described in the literature (Argenti, 1976; D’Aveni, 1989; Laitinen, 1991). The frequencies of the processes are different with respect to all European countries and the USA, therefore reflecting internationally different distributions for these processes.

Merger Announcements and Insider Trading Activity in India: An Empirical Investigation

Abstract: Insider trading activity is investigated prior to merger announcement in Indian capital market. An attempt is made to check it out whether trading takes place on the basis of asymmetric and private information. For examining the behaviour of stock prices a modified market model is used to estimate the parameters for the estimation window. These estimates are used to compute average return and cumulative average returns for the event window, which are measures of abnormal returns. Besides price run-ups, it is also common to see unusually high levels of share trading volume before public announcement of merger. Daily trading volume pattern of the target companies is also investigated. The analysis carried out in this study is based on a sample of 42 companies for which merger announcement date was announced during the period of 1996-1999. Based on the analysis for each company individually, we recommend investigation in six companies for existence of possible insider trading.