Int. J. Financial Stud., Volume 11, Issue 2 (June 2023) – 21 articles

In this study, we explore the dynamics of the stock market using an agent-based simulation platform. Our approach involves creating a multi-strategy market where each agent considers both fundamental and technical factors when determining their strategy. The agents vary in their approach to these factors and the time interval they use for technical analysis. Our findings indicate that investing heavily in reducing the value–price gap was a successful strategy, even in markets where there were no trading forces to reduce this gap. Furthermore, our results remain consistent across various modifications to the simulation’s structure. Full article

Lines of credit constitute an integral part of a firm’s liquidity policy; however, there is limited research on lines of credit in emerging markets. This study fills this gap by examining firm incentives to access and draw from lines of credit using the context of Jordan, a bank-based emerging market, focusing on the impact of family firms. To account for the endogeneity of family control, this study estimates the probability of accessing a line of credit using seemingly unrelated bivariate probit regression and its usage using treatment effect regression. The article documents that family firms are less likely to obtain a line of credit and their drawdowns are smaller compared to non-family firms. These findings support the agency’s view on having and using lines of credit. Other findings are consistent with a substitution effect between internal and external liquidity sources which implies a cost wedge between the two sources of liquidity. Full article

This study aims to systematically analyze and synthesize the literature produced thus far on cryptocurrency investment. We use a systematic review process supported by VOSviewer bibliographic coupling to review 482 papers published in the ABS 2021 journal list, considering all different areas of knowledge. This paper contributes an in-depth systematic analysis on the unconsolidated topic of cryptocurrency investment through the use of a cluster-based approach grounded in a bibliographic coupling analysis, revealing complex network associations within each cluster. Four literature clusters emerge from the cryptocurrency investment literature, namely, investigating investor behavior, portfolio diversification, cryptocurrency market microstructure, and risk management in cryptocurrency investment. Additionally, the study delivers a qualitative analysis that reveals the main conclusions and future research venues by cluster. The findings provide researchers with cluster-based information and structured networking for research outlets and literature strands. Full article

The Moroccan banking system suffered a significant impact due to the extreme market conditions caused by the COVID-19 outbreak, which led to an increase in non-performance loans. This, in turn, reduced the value of banks’ assets and their ability to meet their obligations, implicitly raising systemic risk. In such circumstances, the collapse of one financial institution could cause a series of bankruptcies and endanger the overall state of the economy. Given the limited attention devoted to the analysis of systemic risk in the Moroccan banking system, this paper aimed to fill this gap by analyzing the Moroccan banks’ systemic risk exposure and assessing their stability during the COVID-19 crisis, using Quantile Regression Neural Network (QRNN) optimized by Adam algorithm to calibrate the Conditional Value at Risk (CoVaR). This study revealed a significant increase in systemic risk during the pandemic crisis and highlights the suitability of more complex QRNN in assessing systemic risk. The findings emphasize the need for regulators to pay close attention to banks’ risk exposures when implementing measures to mitigate systemic risk, such as increasing banks’ capital requirements or increasing the amount of high-quality liquid assets. Full article

The article deals with the issue of how negative interest rate policies, introduced in the second decade of the 21st century in some countries, affect certain macroeconomic indicators and bank performance. We concentrate specifically on Switzerland and Sweden. We use correlation analysis to reveal the relationship between interest rates and GDP, the level of foreign direct investment (FDI) and some indicators of banks’ performance. We found that negative interest rates (NIRs) are strongly correlated with the level of GDP in both Switzerland and Sweden but that they do not affect their FDI. The share of banks´ deposits in GDP is also strongly correlated with NIR. Other indicators of bank performance do not show a strong correlation for both countries. Our evidence is consistent with NIR not being associated with undesirable effects concerning economic growth and bank performance in Switzerland and Sweden. The value of FDI depends on many factors—mainly on the attractiveness of a country for foreign investors in terms of its political and economic stability and by general conditions for business operation. Full article

As a result of the COVID-19 pandemic, governments and central banks worldwide implemented a wide range of policies to support households and businesses, among them a series of measures to support the availability of credit. This paper quantitatively assesses how monetary and regulatory policy measures helped lessen the effect of the economic downturn on bank credit to the private sector, and on non-performing loans, and focuses on small EMEs, which have been the subject of little analysis in this regard. Specifically, it looks at a number of countries in the Central American region. The resulting estimates show that the policies implemented substantially reduced the negative impact of the crisis on bank credit and nonperforming loans, and that the measures largely responsible for this mitigation were regulatory rather than monetary. Full article

Using a qualitative research design, this study examined the inventory valuation conflict between financial managers and auditors and its implications for the International Accounting Standard 2 (IAS 2). This study found that the conflict arose due to the lack of precise instructions in the IAS 2 regarding cost–unit calculations. It was recommended that the IAS 2 should provide more examples or use the chamber of commerce as a source of information to clarify what should be considered as the product cost of storage expenses. This study supported previous findings that job order costing was used for customized manufacturing, while process costing was used for standardizing manufacturing. It also highlighted the importance of process costing in evaluating equivalent units and normal and abnormal losses in production, which affect inventory value. This study concluded that cost techniques should be viewed as managerial tools for calculating the cost of a unit. Cost managers should use their expertise to develop the cost formula for their specific industry while maintaining confidentiality. This study contributed to the literature by highlighting the importance of process costing in evaluating inventory valuation and resolving conflicts between financial managers and auditors. It also provided practical implications for improving the treatment of inventory in the IAS 2. This included directing the implementation of stable policies and attaching some indices when computing equivalent units, abnormal losses, and product costs. This study’s limitations included the use of a small sample size, and future studies should consider larger sample sizes from different industries and countries. Full article

This paper empirically examines the impact of female directors on corporate ESG disclosure scores based on upper echelons theory and women’s ethics of care theory by conducting a multiple regression analysis on 8193 observations of Chinese listed companies from 2010 to 2020. Our results demonstrate the importance of female directors’ participation in promoting corporate ESG practices. We conclude that the higher the proportion of female directors on the board, the higher the corporate ESG practice score. Further analysis also revealed that a favorable institutional environment and non-state enterprises positively moderate the relationship between female directors and corporate ESG practices. These results highlight the significant contribution of female directors to corporate ESG practices. Our paper sheds additional light on issues related to female directors and corporate ESG practices in Chinese listed companies, expands the theoretical knowledge of ethical decision-making and institutional environments in listed companies, enriches research in the area of female directors’ decision-making, and has important implications for corporate governance related policy-making in China. Full article

The purpose of this research is to investigate whether internal control (IC) managers’ experience in accounting influences audit quality, employing a regression analysis by utilizing a novel dataset of Korean firms from 2018 to 2020. According to the findings, IC managers who have a deeper understanding of accounting or more expertise in the field have a positive impact on audit quality. Nuancing this link between the accounting-specific experiences of IC managers and audit quality, the study examines how ESG investment impacts the relationship between IC managers’ accounting-related experiences and audit quality. The result confirms that the negative effect of low ESG investment on a firm’s sustainability is reduced when IC managers are with strong accounting competency. In other words, in a circumstance in which a company’s audit risk is high due to insufficient ESG investments, IC managers’s high degree of accounting proficiency cope with audit risk to increase audit quality. Additionally, by analyzing a dataset recently obtained from Korea that assesses the level of accounting expertise possessed by IC managers, it has become evident that this experience plays a key role in the process of improving audit quality. These findings imply that policymakers’ and standard setters’ efforts to promote high-quality audits should be coordinated with IC managers’ accounting experiences. Full article

This paper analyzes the linear and non-linear relationship between non-performing loans and bank profitability measured by the Net Interest Margin for a sample of 74 Middle Eastern and North African banks over the period of 2005–2020. We used the System Generalized Method of Moments (SGMM) as a linear approach and the Panel Smooth Transition Regression (PSTR) model as a non-linear approach. The empirical results of the SGMM approach indicated that the ratio of NPLs negatively affects bank profitability. The findings of the non-linear relationship based on the PSTR model confirmed the existence of a threshold effect. We found that below the threshold of 4.42%, the effect of NPLs is negative but not significant, while after surpassing this threshold, the effect becomes negative and significant. As for bank specifics, we revealed that bank size is positively and significantly associated with bank profitability. For industry factors, we found that more bank concentration decreases bank profitability. Regarding the financial environment, we concluded that the global financial crisis exerted a negative impact on bank profitability. Moreover, we revealed a positive and significant impact of GDP on bank profitability as well as a negative impact of inflation on bank profitability. This study has some limitations regarding the social, economic, and financial differences of the whole sample, which includes banks from the Middle East and others from North Africa. Hence, decomposing the whole sample into two sub-samples could improve the results of this paper. Full article

The main purpose of this study is to understand how Portuguese restaurants’ solvency was affected by the COVID-19 pandemic, considering the factors that influence it. Financial information was collected for the years 2019 and 2020 in the SABI database to elaborate a quantitative methodology; a descriptive analysis was used and Pearson’s correlation coefficient, a Paired t-test, a one-way ANOVA test, and a multiple linear regression were used to test the formulated hypotheses. The findings confirm that solvency is affected by several determinants, such as financial autonomy, indebtedness, financial leverage, asset turnover, return on equity, and long-term bank debt. Solvency is influenced positively by financial autonomy and financial leverage. In contrast, solvency is negatively influenced by indebtedness, asset turnover, and long-term bank debt. Additionally, this paper represents the first study, in the restaurant sector in Portugal, which analyses the importance of solvency and its determinants, by facing a normal year with a crisis year. The paper is innovative in terms of knowledge about restaurant solvency behavior in periods of financial crisis and also because the COVID-19 pandemic has added an additional variable to restaurant solvency: short-term bank debt. In terms of theoretical implications, this study provides further insights about the factors influencing solvency in restaurant businesses during periods of a financial crisis. The main practical contributions are linked to improving the leadership skills of restaurant owners and managers to deal with periods of crisis in general, thus improving the solvency of their businesses and decreasing the risks associated with bankruptcy. Full article

This paper explores the implications of consumption heterogeneity between domestic and foreign investors on the cross-section of stock returns in a host country. We argue that foreign investors in a small open economy integrated into global financial markets may face consumption risk, which could result in risk premia being reflected in stock returns. To account for the potential influence of foreign investors on asset prices in a host country, we develop a two-country durable consumption model under market incompleteness, which extends the one-country durable consumption model. The proposed model includes both domestic and foreign pricing factors. We investigate the empirical performance of our model with Fama–French portfolios for Korea, taking U.S. investors as representative foreign investors. The empirical results advocate the two-country durable consumption model, confirming the significant role of foreign factors in the cross-section of domestic stock returns. Additionally, $R^2$ tests conducted with different sets of test assets show that the explanatory power of our model is comparable to that of the Fama–French three-factor model. Full article

This paper presents the results of research conducted to identify the factors that influence the decisions of company management to outsource accounting services. A transaction cost economics (TCE) model was used to analyse factors that influence high levels of outsourcing of accounting tasks in the case of Montenegro, where, based on our sample, 75.4% of companies enter outsourcing arrangements with bookkeeping agencies or with external accountants. With an adaptation of International Accounting Standards (IAS) and legal requirements for submission of standardised year-end reports, there is evident growth of bookkeeping and financial service providers on the market and an evident trend of companies entering accounting service outsourcing with those agencies. A survey was developed to investigate 12 variables that, according to the TCE model, influence outsourcing decisions. The selection of variables was based on previous research in the field using the TCE or Resource-Based View model (the most common models used for this analysis). In contrast, new variables were introduced that measure the effects of the introduction of IAS through legal reporting obligations in Montenegro. By developing the model this way, it became possible to predict 47% of the variance of the dependent variable and to identify the main factors (other than price) that influence the decision of managers to outsource accounting services. Full article

Despite the spread and progress in the literature related to the disclosure of corporate social responsibility (CSR) performance around the world as one of the most essential tools for achieving sustainable development in society, its value relevance is still uncertain. Using a survey approach involving investors dealing in stocks of 60 enterprises listed on the Egyptian Stock Exchange (EGX) and included in the environmental, social, and governance index (S&P/EGX ESG index) and the equal-weight index (EGX100 EWI index), we empirically examine the importance of CSR financial performance disclosure by examining the extent to which it can influence investors’ choices. In addition, we assess whether company reputation acquired through online social media (OSM) influences the extent to which CSR performance disclosure influences such judgments. To examine these matters, we conduct two tests: the first examines the influence of disclosure of company environmental activities on investors’ decisions and the other examines the influence of disclosure of company social activities on investor decisions. Turning to our key results, we find that investment decision makers in both experiments tend to invest only in companies that have higher CSR performance scores. In the context of OSM, we provide and discuss empirical evidence that investment decision makers are more responsive to investing in companies included in the S&P/EGX ESG index, which have a positive e-reputation for CSR performance, than companies included in the EGX100 EWI index, which do not have such a reputation, which confirms that e-reputation, as one of the most important outputs of OSM, has a marginal impact on investment decisions and moderates the relation between disclosure of high CSR scores and investors’ decisions. Therefore, this paper presents a modern starting point for CSR experts and academics, particularly in the emerging markets. In general, our paper expands the CSR-related investment literature. In line with the affect-as-information theory, our paper also expands the OSM literature by indicating that the effects of OSM depend on the information context, where failure to provide information to investors or other stakeholders in a timely manner may render the information useless. Full article

The COVID-19 outbreak slowed down global economic activities substantially, resulting in unrest in the financial markets, especially in the beginning of the pandemic outbreak. This study aims to investigate if COVID-19 caused abnormal returns in the US and the Chinese stock markets in the beginning of the pandemic outbreak. Event study methodology is adopted for this purpose. This study finds that a significant negative impact appeared immediately after the Wuhan lockdown in the Chinese markets, while the US markets were slow to pick up. The former was more severely hurt after lockdown, while the latter was more brutally affected after COVID-19 was labeled a global threat. COVID-19 also played a significant role in connecting these two stock markets. The US and China should collaborate further in combating this novel and notorious global pandemic. Full article

The purpose of the study is to investigate the overreaction hypothesis in relation to the Ho Chi Minh Stock Exchange (HOSE). The data used in this study consist of a monthly price series of 392 stocks traded on the HOSE, covering the period starting on 5 January 2004 through to 30 June 2021. The findings derived from the tests examining the differences in excess returns across the winner and loser portfolios confirm that the overreaction phenomenon exists in the HOSE. More specifically, following the creations of the portfolios, the loser portfolio outperformed the winner portfolio by 1.80% and 2.17% in the second and third month, respectively. In addition, the differences in cumulative abnormal returns between the loser and winner portfolios were significantly positive for almost all tracking periods. These findings support the hypothesis that the Vietnam stock market is inefficient in its weak form. Based on these results, we suggest that investors can earn abnormal returns by using contrarian trading strategies in the Vietnam stock market. Full article

In recent years, a great deal of attention has been devoted to the use of neural networks in portfolio management, particularly in the prediction of stock prices. Building a more profitable portfolio with less risk has always been a challenging task. In this study, we propose a model to build a portfolio according to an equity-market-neutral (EMN) investment strategy. In this portfolio, the selection of stocks comprises two steps: a prediction of the individual returns of stocks using LSTM neural network, followed by a ranking of these stocks according to their predicted returns. The stocks with the best predicted returns and those with the worst predicted returns constitute, respectively, the long side and the short side of the portfolio to be built. The proposed model has two key benefits. First, data from historical quotes and technical and fundamental indicators are used in the LSTM network to provide good predictions. Second, the EMN strategy allows for the funding of long-position stocks by short-sell-position stocks, thus hedging the market risk. The results show that the built portfolios performed better compared to the benchmarks. Nonetheless, performance slowed down during the COVID-19 pandemic. Full article

In this paper, we analyse the relationship between the distribution of ownership and firm value in the presence of multiple blockholders. In recent years, the topic has attracted the attention of many scholars. Yet, the empirical evidence on the relationship between the distribution of ownership among large shareholders and firm value has been non-conclusive and contradictory. We focus on the interaction between a controlling block of shareholders and a non-controlling block that can monitor the largest controlling block. We develop and simulate a simple model combining the two effects related to the presence of additional blockholders that can monitor the largest controlling block of shareholders. The first concerns the incentives of the controlling blockholders to expropriate other shareholders (the alignment effect); the second concerns the incentives for non-controlling blockholders to exercise monitoring activities (the monitoring effect). We examine the influence of the distribution of ownership between controlling and non-controlling shareholders on the total amount of company resources diverted to provide private benefits to controlling shareholders. Since net firm value is decreasing in the amount of company resources diverted, our analysis sheds light on the relationship between the ownership structure and firm value. We show that, in the presence of multiple blockholders, the relationship between ownership concentration and firm value may change depending on the relative size of the shareholders and the relative size of private benefits of control. Our results help in understanding the variety of shapes that have been empirically detected, and shed some light on the conditions that make optimal diversions, as a function of the level of ownership concentration, monotone (increasing and decreasing) or non-monotone. Full article

In this paper we study the pricing of exchange options between two underlying assets whose dynamic show a stochastic correlation with random jumps. In particular, we consider a Ornstein-Uhlenbeck covariance model, with Levy Background Noise Processes driven by Inverse Gaussian subordinators. We use expansions in terms of Taylor polynomials and cubic splines to approximately compute the price of the derivative contract. Our findings show that the later approach provides an efficient way to compute the price when compared with a Monte Carlo method, while maintaining an equivalent degree of accuracy. Full article

This study investigates the relationship between closing–opening prices of stocks in the US, UK, and European markets and the prices of stocks in the five Association of Southeast Asian Nations (ASEAN-5) markets, a group consisting of five founding members, namely, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. In particular, this study examines the impact of US, UK, and European stock market movements on ASEAN-5 stock markets before and during the COVID-19 pandemic. An autoregressive distributed lag (ARDL) bounds testing approach was employed on two independent data sets, representing prices of stocks before and during the COVID-19 pandemic. The results reveal that among the ASEAN-5 markets, only the Philippines had a cointegration relationship with the US, UK, and European markets before the crisis. However, almost all ASEAN-5 markets moved in tandem with the US, UK, and European markets during COVID-19, except for Thailand. These empirical findings also indicate that the stock markets in the two regions tended to co-move during the COVID-19 pandemic, implying a contagion effect. Further, the causality results also provide substantial evidence of contagion between markets during the pandemic. These results imply that the stock markets in ASEAN-5 are susceptible at the opening bell to the behaviour of US, UK, and European stocks. Therefore, investors or traders in ASEAN-5 should participate in foreign markets (other than the US, UK, and Europe) that do not exhibit cointegration relationships to better mitigate and manage risk at the opening bell, especially during a global crisis. Full article

Portfolio optimization is a pertinent topic of significant importance in the financial literature. During the portfolio construction, an investor confronts two important steps: portfolio selection and portfolio allocation. This article seeks to investigate portfolio optimization based on the Minimum Spanning Tree (MST) method applied on the Moroccan All Shares Index (MASI) historical stock log returns covering the period from 2 January 2013 to 27 October 2022 allowing us to build two portfolios: MST-Portfolio and MST-Portfolio 2. Portfolio selection was carried out for MST-Portfolio and MST-Portfolio 2, respectively, based on 63 stocks or using the Degree Centrality (DC) measure and portfolio allocation for both portfolios was carried through the use of the Inverse Degree Centrality Portfolio (IDCP). The obtained portfolios were compared with the Minimum Variance Portfolio (MV Portfolio) and Equal Weighting Portfolio (EW Portfolio) using centrality measures, diversification, and backtesting. According to the used indicators analysis, MST-Portfolio and MST-Portfolio 2 are the most well-performed and robust portfolios showing a good performance during the studied period, even during the COVID-19 crisis, and ensuring a good level of diversification. The findings demonstrate that both suggested methods can enhance portfolio performance, evidence that can help investors or active managers when optimizing their portfolios. Full article