Showing papers in "Review of Accounting and Finance in 2023"

Market reaction to the Russian Ukrainian war: a global analysis of the banking industry

Abstract: Purpose The purpose of this paper is to study the market reactions of the banking industry to the Russian–Ukraine war. Design/methodology/approach This paper uses an event study methodology, regression analyses and interaction effects to study the effect of the war on banks stock prices and analyze factors that explain the cumulative abnormal return. Findings First, this study finds a significant decline of almost 1.5% in return on the war date. Similar patterns were observed for all continents, but Europe had the most severe drop of about 4%. Second, after excluding the contemporaneous influence of the whole market using the market model, global bank equities returns fell by about 1% on the war date, indicating that bank stocks were more severely impacted by the war than the average stock market. Net-of-market return approach further reveals that bank stock prices decreased 1.4% more on the event day compared to the prewar market average. Third, the impacts of the war and sanctions were persistent when the war continued. Banks stocks were most hit in Europe, Asia and North America. Originality/value This paper pioneers the study of the effect of the Russia–Ukraine war on the banking industry. This paper also analyzes the reaction pattern of bank stocks before, during and after the war to explain the behavior and expectations of investors toward the war.

A bibliometric analysis of political connections literature

Abstract: Purpose This paper aims to present a catalogue of the influential aspects resulting from a bibliometric meta-analysis of political connection literature. Design/methodology/approach This study undertakes a bibliometric meta-analysis review of political connections literature, covering 138 research papers from 2000 to 2020 using the visualization of similarities viewer program. Findings The authors identify six research groups: the value of political connections; political connections and finance; political connections in banks; political connections and debt; management and political connections; and political connections and governance. This study discusses each stream through a cartographic analysis, including co-authorship, countries and time networks. Originality/value This study makes an important and novel contribution to political connection literature. So far, to the best of the authors’ knowledge, it is the only bibliometric study on political connections. This study is the first to use network analysis and community detection to understand social clustering and to identify main research steams in political connection literature.

High-speed railway and urban construction investment bond yield spreads: a quasi-natural experiment

Abstract: Purpose This study aims to investigate how high-speed railway (HSR) development affects urban construction investment (UCI) bond yield spreads based on China’s background. Design/methodology/approach This study constructs a quasi-natural experiment and adopts regression analyses to empirically examine the relation between HSR development and UCI bond yield spreads. The empirical analysis is based on a Chinese sample of 15,109 bond offering observations from 2008 to 2019. Findings The results show that HSR development reduces UCI bond yield spreads. Mechanistic analysis shows that HSR development increases land prices and the level of urbanization, which in turn lowers the UCI bond yield spreads. In addition, the impact of HSR development on UCI bond yield spreads is more significant at higher marketization levels and lower degrees of dependence on land finance cities where UCI corporations are located. Research limitations/implications The results imply that transportation infrastructure improvement, such as HSR development, helps to enhance the credit of local governments and the solvency of UCI corporations and ultimately reduces the financing cost of UCI bonds. Originality/value This paper provides theoretical support and empirical evidence for the impact of transportation infrastructure construction on the implicit debt risks of local governments in China, which enriches the research on the “HSR economy” from a micro perspective and expands the research on the influencing factors of local governments’ debt risk.

Do depositors discipline the banking sector? Evidence from an emerging economy

Abstract: Purpose Market discipline is an important part of financial regulation, under Basel II and III. This paper aims to provide evidence on market discipline in Pakistan. Specifically, the authors have analyzed the impact of CAMEL variables on costs of funds and deposit switching. Design/methodology/approach This study has used panel data related to different banking and macroeconomic variables. The sample period is 2004–2017 so it has covered the changing regulations that became binding for banks under Basel II and III. Quarterly data has been collected from the financial disclosure of publicly listed banks. The total number of banks in the sample is 26. Among these, 24 are publicly listed. Foreign banks have not been included because their activities in Pakistan are quite limited. Findings It has been found that efficiency, liquidity, asset quality and capital adequacy are negatively related to costs of funds for banks. Capital adequacy, liquidity and profitability are negatively related to deposit switching. Research limitations/implications These results indicate the presence of market discipline and have generated valuable implications for bank managers and regulators. Originality/value In this study, the case of Pakistan is interesting. The country has experienced financial liberalization that sought to avoid government intervention and encourage a more “market-based” approach. This change in the system was made more pronounced by the privatization of nationalized banks, improvement in the market structure, reduction in barriers to entry and consolidation of smaller banks. As a result, the banking system has emerged as an important source of financing and it provides us motivation to look deeper into depositor discipline in banking sector.

The role of analyst coverage and value-relevance of energy efficiency

Abstract: Purpose The purpose of this study is to examine whether financial markets value a firm’s specific corporate environmental performance (CEP), i.e. its energy efficiency. This study also investigates the mechanism through which energy efficiency is associated with firm value. Design/methodology/approach For the empirical study, a sample of 324 US-listed non-financial firms during the period 2006–2019 was accessed from Thomson Reuters Refinitiv. Using baseline ordinary least squares regression models, this study first estimates the association between energy efficiency and firm value. It then tests the role of analyst coverage (the number of sell-side financial analysts following the firm) in ascertaining the value relevance of energy efficiency. To ensure the robustness of the results, alternative estimations including endogeneity and sample bias correctness tests were performed. Findings The study shows that energy efficiency is associated with firm value, and the role of analyst coverage as an external corporate governance mechanism is positive and significant on the value relevance of energy efficiency. Furthermore, this study documents that the relationship is shaped by sustainability-related internal and external risks, indicating that financial analysts’ role becomes more imperative when firms are subject to high scrutiny. Originality/value This study contributes to the literature by examining the intersections of energy efficiency, analyst coverage and firm value. It attempts to demonstrate how and why CEP and financial performance are linked. In the context of growing environmental concerns, the pressure of climate change and achievement of net-zero carbon emissions, this study provides valuable insights into the financial market wherein firms’ environmentally responsible behaviours are value-enhancing, and governance mechanisms are impactful. This study suggests that financial analysts can serve as an effective external corporate governance mechanism.

Changes in the DJIA: market reactions and economic cycles

Abstract: Purpose The purpose of this study is to explain the mixed results to changes in the DJIA index documented in the literature. The authors show that economic cycles, especially recessionary periods, explain the difference in findings. Design/methodology/approach The authors examine changes in the Dow Jones Industrial Average (DJIA) from 1929 to 2019 to evaluate immediate and long-term market reactions after a component change. Using multiple event-study methodologies, the authors examine the full era, the pre- and post-exchange traded fund (ETF) windows and economic cycles using both pre and post-estimation windows. Findings In aggregate, DJIA additions do not present an increase in wealth; however, wealth effects are positive during expansions and negative during recessions. Deletions have a negative wealth effect. The authors find weak evidence of an indexing effect. Additions are positive post-1998, and deletions remain negative regardless of era. In the long run, firms added to the DJIA have positive abnormal returns in the second year after inclusion. Deletions in recessionary times have negative returns three years after removal, a signal of longer-term wealth decline for these firms. Research limitations/implications The DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors. Practical implications The DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors. Originality/value Prior literature presents limited time series of data points and mixed results and implications. The authors find that the economic cycle is a driving factor that supports predicted signs and amounts of wealth change. Furthermore, the authors see limited ETF impact on DJIA changes and some impact of the choice of estimation period.

Putting the Aumann–Serrano Riskiness Index to work

Abstract: Purpose The purpose of this study is to estimate the convergence order of the Aumann–Serrano Riskiness Index. Design/methodology/approach This study uses the equivalent relation between the Aumann–Serrano Riskiness Index and the moment generating function and aggregately compares between each two statistical moments for statistical significance. Thus, this study enables to find the convergence order of the index to its stable value. Findings This study finds that the first-best estimation of the Aumann–Serrano Riskiness Index is reached in no less than its seventh statistical moment. However, this study also finds that its second-best approximation could be achieved with its second statistical moment. Research limitations/implications The implications of this research support the standard deviation as a statistically sufficient approximation of Aumann–Serrano Riskiness Index, thus strengthening the CAPM methodology for asset pricing in the financial markets. Originality/value This research sheds a new light, both in theory and in practice, on understanding of the risk’s structure, as it may improve accuracy of asset pricing.

Do environmental, social and governance practices affect portfolio returns? Evidence from the US stock market from 2002 to 2020

Abstract: Purpose This paper aims to investigate whether environmental, social and governance (ESG) practices influence stock returns in the US stock market, looking at the period from 2002 to 2020. Design/methodology/approach The authors quasi-replicate two reference articles that found that socially responsible funds used to underperform, but that this underperformance tendency has disappeared in more recent periods. Findings Using US data, the authors show that independent of the ESG database used, portfolios of neutral stocks present consistently higher systematic risk (beta) than ESG portfolios, although this difference decreases over time. This may be due to the significant increase in demand for ESG portfolios in the past decade, and their consequent price inflation and increase in volatility. However, concerning risk-adjusted returns and contrary to the authors’ reference literature, the results are highly dependent on the rating provider used, and neither support underperformance nor indicate a tendency over time. These inconsistent results suggest that the “ESG label” is not a determinant of portfolio performance. Research limitations/implications If ESG ratings are a legitim benchmark for sustainability, then the costs of going sustainable in stock portfolios might be marginal for fund managers. Originality/value Two different ESG-rating agencies, Morgan Stanley Capital International (MSCI) and Thomson Reuters, are used to identify sustainable stocks. Different from the literature, the authors selected stocks for their portfolios stochastically following a uniform probability distribution, thus avoiding fund manager bias.

Critical audit matters: litigation, quality and conservatism

Abstract: Purpose This study aims to address the following four research questions: first, whether auditors report critical audit matters (CAMs) to shield themselves against possible litigation; second, whether reporting quality affects auditors’ propensity to report CAMs; third, whether auditors’ tenure length – reflecting familiarity with clients’ financial reporting – affects their likelihood to report CAMs; and fourth, whether auditors’ conservatism increases the likelihood of CAMs reporting. Design/methodology/approach Data are manually collected from audit reports including CAMs in 10-K, then financial data are collected from the Capital IQ database, and market data are collected from the CRSP database. Using propensity score matching, the initial sample of companies with CAMs is matched with companies without reported CAMs. Performance adjusted discretionary accruals, real earnings management proxy, Khan and Watts’ (2009) C-score, propensity to issue a going concern opinion, Dechow et al.’s (2011) F-Score, Rogers and Stocken’s (2005) model and Houston et al.’s (2010) model are used to measure reporting quality, auditor conservatism, misstatement risk and litigation risk, respectively. Findings The results do not show that auditors report CAMs opportunistically to shield themselves from litigation risk. However, the results do suggest that auditors have a greater tendency to report CAMs when reporting quality is low and when they are more conservative. On the other hand, they have less tendency to report CAMs in their first year of engagement. Research limitations/implications The findings of this study have important implications for the auditor behavior literature as it shows that, when it comes to reporting CAMs, auditors actually behave objectively and do not report in a trite way. This study also provides early archival evidence on a standard that relates to the first major change to the auditor’s report in decades. To the best of the author’s knowledge, it is the first to provide evidence on the association between auditor conservatism and auditors tendency to report CAMs and the first to triangulate prior research on auditor litigation risk by providing the first archival evidence on the auditors “litigation-shielding” concern. Practical implications This study examines whether auditors attempt to meet the stated objective of reporting CAMs by signaling information about reporting quality. This study demonstrates that reporting CAMs is not a “boilerplate” communication. This study has implications for standards setters, as it shows that CAMs are reported in a way consistent with the objectives of the new standard, namely, via signaling information in the audit report on the quality of the financial statements. Originality/value In terms of originality, this paper uses a manually collected sample and, to the best of the author’s knowledge, is the first to focus on auditor’s behavior rather than on investors or clients reactions to CAMs. Also, this paper addresses a recently issued standard using US data and archival approach, rather than experimental. This paper also provides relevant evidence related to concerns raised earlier but were not empirically examined, such as reporting CAMS as “boilerplate” expectations. This paper provides new evidence on the auditors’ behavior with regard to litigation risk.

The impact of feminism on bank performance: the case of Vietnam

Abstract: Purpose This study aims to evaluate the impact of board characteristics on bank performance at the commercial bank in Vietnam. Design/methodology/approach By running the pool OLS, fixed-effect and random-effect models with a panel data set of 294 observations from 2008 to 2021, the authors have examined determinants of bank performance. Findings The research results show that bank size, governance efficiency, capital adequacy ratio and economic growth have a positive effect while credit risk has a negative relationship with the commercial bank’s performance. Originality/value In particular, the result shows the relationship between chief executive officers’ (CEOs) gender and bank performance. Commercial banks led by female CEOs have lower bank performance than that led by male CEOs. However, this impact magnitude is not significant. The research results are the basis to propose recommendations to improve the Vietnamese commercial bank’s performance.

Audit(or) type and audit quality in emerging markets: evidence from explicit vs. implicit restatements

Abstract: Purpose This paper aims to examine the link between audit(or) type and restatements in Egypt, a complex and multifaceted auditing market. The usual big 4 versus non-big 4 comparison is insufficient as Egypt has a unique mix of private audit firms, one governmental agency (Accountability State Authority) and mandatory/nonmandatory audit services, including single, joint and dual audits. Design/methodology/approach The study uses a sample of listed companies in Egypt and analyzes the impact of auditor type and audit type on explicit, implicit and total restatements. The study uses logistic regression model to examine the underlying relationship. Findings Results show no relationship between auditor type and audit quality, positive association between non-big foreign CPA firms and total/implicit restatements and mixed results for the impact of dual audits on audit quality. The study found no link between auditor type and audit quality in Egypt. Egyptian audit firms linked to non-big 4 foreign Certified Public Accounting firms were positively linked to total and implicit restatements. Joint audits did not improve audit quality and were directly related to total and explicit restatements. Dual audits showed mixed results, positively associated with implicit restatements but inversely associated with explicit restatements. Originality/value The study provides valuable insights into the complexities of the auditing market in emerging markets and offers valuable insights for stakeholders in the financial statement users, audit firms and governmental agencies.

Busy audit committee directors and corporate narrative disclosure in Oman

Abstract: Purpose This study aims to examine whether, and which type of, busy audit committee (AC) directors affect the quality and quantity of forward-looking disclosure (FLD). Design/methodology/approach The authors use content analysis to measure the quality and quantity of FLD. The authors use a sample of Omani financial institutions listed on the Muscat Securities Market for the period 2014–2018. Findings The authors find that overlapped AC chairs and total overlapped AC directors negatively (positively) affect disclosure quantity (quality). The authors also find that overlapped AC directors with financial expertise and those with multiple directorships positively affect disclosure quantity and quality. Originality/value This study offers new insights to policymakers (and managers) as it informs them about the benefits of overlapping AC directorship. It suggests that corporate governance codes should not limit overlapped AC direcotorship.

The power of minority shareholders: evidence from voting on the related party transaction proposals in China

Abstract: Purpose The purpose of this paper is to evaluate the impact of minority shareholders’ attendance at shareholders meetings on related party transaction (RPT) proposals. Design/methodology/approach This paper empirically examines the impact of minority shareholders’ attendance in shareholders’ meetings on the voting results of RPT proposals based on the hand-collected voting data of Chinese listed companies. Findings The empirical result shows a significant positive relationship between the attendance of minority shareholders and the nonagreeable vote rate of RPT proposals. Moreover, this positive relationship is strengthened when the corporate governance is poor, the negative media coverage is high, and the on-site attendance of minority shareholders is high. Conversely, good corporate governance and high positive media coverage can weaken this positive correlation. The additional analysis reveals that the number of RPTs and better market performance in the future can be significantly reduced when minority shareholders express their nonagreeable voice actively. Originality/value This paper analytically and empirically examines the impact of minority shareholders’ attendance in shareholders’ meetings on the voting results of RPT proposals based on the hand-collected voting data of Chinese listed companies. It provides direct and convincing evidence for the impact of minority shareholders’ attendance and exercise of voting rights in shareholders’ meetings on the outcome of RPT proposals. It complements the literature on the governance effects of minority shareholders’ attendance in shareholders’ meetings to exercise their voting rights in emerging capital markets. This study has practical value by guiding minority investors to participate actively in corporate governance.

Board attributes and corporate social responsibility disclosure quality based on information typology

Abstract: Purpose This paper aims to answer whether board attributes affect corporate social responsibility disclosure quality (CSRDQ) and whether these findings are sensitive to CSRDQ measurement. Design/methodology/approach The authors use the content analysis method to measure CSRDQ in annual report narratives of 41 Mauritian-listed companies for 2008–2019. System-generalized method of moments is used to test research hypotheses. Findings The analysis shows that board attributes affect CSRDQ. It also shows that the impact of CSRDQ is sensitive to CSRDQ measurement. Practical implications This study informs stakeholders on the drivers of CSRDQ. Mauritius authorities could revise the corporate governance code to enhance CSRDQ, and the Stock Exchange of Mauritius could also provide regulations/guidance to listed companies to improve their CSRDQ. Originality/value This study brings new insights by viewing CSRDQ based on verifiability, as verifiable CSR reporting improves the fairness of information disclosed by management.

The Ramadan effect on commodity and stock markets integration

Abstract: Purpose This study aims to investigate the dependence structure and volatility spillovers among two strategic commodities (crude oil and gold) and a set of Islamic and conventional regional stock market indices, while examining the Ramadan effect Design/methodology/approach The empirical strategy consists of two complementary measures of dependence and connectedness. This study first uses copulas to examine the dependency between the markets considered, then spillovers compute the magnitude of the connectedness among them. Findings The copulas analysis shows that Frank’s copula appears to better capture the relationship between most asset returns and highlights the almost absence of extreme dependence and, therefore, the existence of diversification opportunities. Moreover, the connectedness analysis suggests that gold is a net volatility receiver and provides, thereby, greater diversification benefits compared to crude oil. In addition, the high levels of time-varying connectedness support strong integration among the financial markets studied, specifically during the COVID-19 crisis period. Furthermore, the connectedness among the markets studied increases during the Ramdan subperiods, supporting shift contagion among financial markets considered during this religious holiday. Practical implications The results provide investors with a better understanding of the nature as well as the magnitude of the interdependences between commodity markets and a set of Islamic and conventional regional stock markets. Indeed, it is of paramount importance for investors to clearly understand how Islamic and conventional markets are segmented or integrated during stress and stress-free periods, as well as the effect of the month of Ramadan on the interdependence among markets, to better assess risks, diversify portfolios and implement more effective hedging strategies. Originality/value While a considerable body of literature examines financial contagion and volatility transmission between financial markets, there is still much to be said regarding connectedness among commodity and stock markets, particularly when it comes to studying the effects of religious holidays on the interaction between conventional and Islamic assets. This paper fills in this gap by focusing on the dependence structure as well as the connectedness between Islamic stock indices, conventional stock indices, gold and crude oil for six different regions, while examining the Ramadan effect.

Accounting comparability and financial distress

Abstract: Purpose The purpose of this study is to present the evidence of the association between financial statement comparability and corporate financial distress. Design/methodology/approach This is an empirical study, and this study uses multiple regression analysis to evaluate hypothesis. Findings The authors find a significant decrease in the probability of financial distress as accounting comparability increases. Findings of this study suggest that distressed firms tend to produce financial statements that compare poorly to those of peer firms; the effectiveness of predicting financial distress with accounting ratios may be conditional on comparability with peers; and financial statement comparability may be predictive of financial distress. Research limitations/implications First, this study only used publicly available financial data, which may not be representative of all countries and could differ because of differences in accounting practices. Second, although this study found a connection between accounting comparability and financial distress, it cannot prove a causal relationship, as other factors that were not controlled for may also have an impact. Third, this study used various measures of financial distress, but other measures could lead to different results. Finally, this study did not include all relevant variables, such as industry-specific factors and macroeconomic conditions, which could influence the relationship between accounting comparability and financial distress. Practical implications For investors and financial analysts, the results imply that accounting comparability can serve as a useful signal for identifying companies that are more likely to remain financially stable in the long run. Thus, they may prefer to invest in or recommend highly comparable firms over their less comparable counterparts. For auditors, this study underscores the importance of promoting and enforcing accounting standards that improve comparability, as this can help mitigate the risk of financial distress among their clients. Regulators may also consider the implications of the study’s findings when designing policies and guidelines related to financial reporting and disclosure. Originality/value To the best of the authors’ knowledge, this is the first study investigating the association between financial statement comparability and corporate financial distress of the US firms. This study uses large, comprehensive and multi-year data. Furthermore, this is the only study that presents the evidence of negative association between comparability and firm financial distress.

Bank diversification and earnings management: the moderating effect of female directors

Abstract: Purpose This paper aims to investigate the effect of banking activities diversification on earnings management practices and the effect of female directors on this relationship. Design/methodology/approach Based on a sample of 122 banks operating in Middle East and North African countries from 2006 to 2018, we use dynamic panel model estimated with generalized method of moments approach to deal with endogeneity issues surrounding the diversification decision. Findings The results show that diversification increases earnings management and that the presence of female directors on board moderates this relationship. In particular, female managers tend to reduce earnings management practices in diversified banks. Further, diversified conventional banks appear to be more impacted on the earnings management practices than on Islamic banks. Originality/value The study extends previous research by investigating the relationship between earnings management and diversification of banking activities in emerging countries where earnings management cannot be easily detected and diversification strategy is widely used. It, also, explains this relationship via the moderating effect of female directors as a banks’ internal governance mechanism.

Investor’s values and investment decision towards ESG stocks

Abstract: Purpose This study aims to investigate factors that influence the attitudes and intentions of investors towards environmental, social and governance (ESG) stocks in the presence of perceived risk as a moderator. Design/methodology/approach Data was collected through an online survey method from 341 investors with more than three years of investing experience. Smart PLS was used to analyse the data using two-stage structural equation modelling. First, a measurement model was performed for construct reliability and validity, followed by path analysis (structural model) for hypothesis testing and overall model predictability. Findings The findings show that both environmental concern (altruistic value) and economic concern (egoistic value) are crucial for the attitude and intention of investors to invest in ESG-backed stocks; however, environmental concern was found to be a more significant predictor of their behaviour, showing evidence of pro-environmental values in the decision-making of utility-seeking individuals. No significant impact of perceived risk was evident as a moderator of the relationship between attitude and intention towards ESG stocks. Practical implications The study's findings have implications for fund managers, policymakers, and the government. Values as antecedents were found to be influential in shaping investors’ attitudes and intentions towards the environmental cause. Fund managers could include more ESG-compliant companies in their portfolios, and the government can play an important role in encouraging investors by providing financial incentives. Corporates should also take strategic steps to adopt green production processes to secure long-term, sustainable capital funding. Originality/value To the best of the authors’ knowledge, there has been no research done in the field of ESG investing that takes into account the values (both altruistic and egoistic) of investors as potential antecedents of their attitudes and intentions.

On the foundations of firm climate risk exposure

Abstract: Purpose This study aims to address gaps and limitations in the literature regarding firms’ exposure to climate risks. It reviews existing research, proposes new theoretical frameworks and provides directions for future studies. Design/methodology/approach A bibliometric and systematic approach is used to review the literature on firms’ climate risk exposure. The study examines current theoretical frameworks and suggests additional ones to enhance understanding. Findings This study contributes to the climate finance literature by offering a comprehensive overview of firms’ climate risk exposure and used theories. It emphasizes the urgent need to tackle climate change and the crucial role of firms in climate risk management. The study supports the advancement of sustainability policies and highlights the importance of understanding firms' climate risk exposure. Practical implications This study informs the development of climate risk management strategies within firms and supports the implementation of effective sustainability policies. Social implications Addressing climate risks can contribute to a more sustainable and resilient future for society as a whole. Originality/value This study provides a roadmap for future research by identifying gaps and limitations in the literature. It introduces new perspectives and theoretical frameworks, adding original insights to the field of study.

Over-investment and ESG inequality

Abstract: Purpose This study aims to test whether over-investment is associated with environmental, social and governance (ESG) variation (i.e. inequality) across its dimensions, which, if so, would imply the prioritization of the interests of some stakeholders over those of others. Design/methodology/approach Drawing on a global sample of 29,428 observations across nine sectors and 41 countries between 2003 and 2019, the authors executed a country-industry-year fixed-effects regression analysis. In the robustness tests, this study also used the entropy balancing and propensity score matching approaches. Findings The authors found that while firm over-investment increases social pillar inequality, it reduces environmental pillar inequality. Further analysis revealed that the over-investment strategy decreases (increases) ESG inequality in low (high) environmental and social performers. This outcome could be of relevance to internal governance mechanisms and policymaking as ESG inequality might raise legitimacy concerns and hamper the long-term sustainability of firms. Practical implications The outcome of the study could be of relevance to internal governance mechanisms as well as policymaking. Considering financial constraints, firms should maintain a balanced strategy between firm investment and addressing stakeholder interests. Otherwise, over-investment might reduce environmental and social engagement in some dimensions, which could prompt criticisms and legitimacy concerns about firms and some stakeholders. Originality/value Past research has intensively focused on whether ESG – rather than ESG inequality – is associated with investment (in)efficiency. In addition, it has mostly formulated the causality running from ESG to firm investment, and hence, the literature lacks heterogeneity in this respect. Nevertheless, the authors believe that the potential effect of firm investment on ESG is of critical importance and has implications for determining whether over-investment causes variations across ESG engagement. Thus, the authors addressed this gap in the literature by investigating the relationship between over-investment and ESG inequality.

An econometric understanding of Fintech and operating performance

Abstract: Purpose This study aims to develop a unique methodology to construct a bank’s financial technology (Fintech) score, which captures the degree of digitalization of a bank’s operations. Using the Fintech score as the proxy, this study investigates the effect of Fintech on the operating performance of the top largest Islamic bank. Design/methodology/approach The methodology used measures the link between the degree of digitization of a bank and its operational performance. This study applies the three-degree polynomial of regression to the largest Islamic bank in which the explanatory variable is the natural logarithm of Fintech score, and the response variable is common operating performance measure. To check the sensitivity of the estimates to the sample size and assumptions’ violation, this study has applied Bootstrapping and Bayesian processes to the three-degree polynomial regressions. Findings The study estimates from 2007 to 2021 show that the relationship between the operating performance of the Islamic banks and the Fintech is nonlinear and strongly significant: operating returns increase with the increasing level of Fintech, whereas the operating returns decrease with the increasing Fintech variance. At an aggregate level, this study attributes a significant rise in internet coverage to the emergence of Fintech in the Middle East region. Originality/value This study constructs an implicit measure of Fintech that measures the adoption of Fintech by the bank and, consequently, offers the technology to their customers for higher use satisfaction. This study finds that Fintech is linked to the operating performance in a nonlinear fashion, in which Fintech and Fintech variance have the opposite effect on operating performance: Fintech increases the operating profitability, whereas Fintech variance decreases the operating profitability of a bank.

The impact of short sale prospect on income smoothing

Abstract: Purpose The purpose of this paper is to examine the impact of short sale prospect on future income smoothing. Design/methodology/approach This study examines how short sale prospect impacts future income smoothing. This study follows prior research and uses two measures of income smoothing. One is the correlation between the change in prediscretionary income and the change in discretionary accruals. The other is the variability of earnings relative to the variability of cash flows. Findings This study finds that short sale prospect has a negative impact on future income smoothing. This finding is robust to use different measures of short sale prospect and income smoothing and to subsample tests. Additional analysis reveals that short sale prospect, by curbing income smoothing, reduces future stock price crash risk. Originality/value To the best of the authors’ knowledge, this study is the first to examine the impact of short selling on firms’ subsequent smoothing of reported income. This study contributes to the earnings quality literature by demonstrating the governance role of short selling on future earnings smoothness.

The influence of corona pandemic on stock returns of companies listed on the Palestine Stock Exchange

Abstract: Purpose This study aims to explore and verify the influence of the corona pandemic on the stock returns of the Palestinian companies listed on the Palestine Exchange during the period 2020–2021. Design/methodology/approach The research makes use of secondary financial data from 52 companies in the industrial, investment, services, banking and insurance sectors. Many financial ratios are calculated to assess stock returns: current ratio, cash ratio and average collection time as liquidity measures; debt-to-equity ratio as an indication of leverage or solvency; and net profit margin as an indicator of profitability. The research examines ratios between the (2020 and 2021) precorona outbreak using the Wilcoxon signed rank test and financial ratio analysis during the corona pandemic. Findings The findings show that liquidity in the investment, banking, insurance and industrial sectors has decreased significantly, whereas liquidity in the service sector has improved. The statistics reveal a considerable growth in debt in the service sector, while it stays unchanged in the other sectors. However, there is no discernible change in profitability during and after the corona outbreak. Research limitations/implications The present research faced many limitations, such as the approach to gathering primary data, which depended heavily on disclosures, financial reports and secondary data, as well as only analyzing one context and one country. Practical implications The findings of this study can guide the Palestinian government and decision-makers to respond to the COVID-19 outbreak and must act quickly because strong short-term policies are more functional than long-term policy measures. In addition, the temporal discrepancy between their policy actions and financial regulations regarding the stage of the outbreak, integrating monetary treatment methods, strengthening their control over exchange rate fluctuations and extending the duration of financial participation measures that ensure stable exchange rates, such as attempting to restrict trade of the monetary system between countries was assessed to reduce the important monetary stimulation policy. Originality/value This study presents important facts and results for regulators and decision-makers regarding the investment, industry, banking, insurance and services sectors as sectors that are most affected by the corona pandemic as a sample for this study from the Palestinian companies listed in Palestine Stock Exchange due to the corona pandemic.