International Journal of Financial Studies

Research

16 pages, 294 KiB

Open AccessArticle

The Role of Liquidity Creation in Managing the COVID-19 Banking Crisis in Selected Mena Countries

by Hani El-Chaarani, Rebecca Abraham and Georges Azzi

Int. J. Financial Stud. 2023, 11(1), 39; https://doi.org/10.3390/ijfs11010039 - 24 Feb 2023

Cited by 8 | Viewed by 3018

Banks are financial intermediaries who transform deposits into loans. Banks in the MENA (Middle East and North Africa) region use large deposits from oil companies and big businesses to finance trade, and fund government and private sector infrastructure projects. The role of banks [...] Read more.

Banks are financial intermediaries who transform deposits into loans. Banks in the MENA (Middle East and North Africa) region use large deposits from oil companies and big businesses to finance trade, and fund government and private sector infrastructure projects. The role of banks in financing trade and development is significant as undeveloped capital markets are unable to perform this function. During the COVID-19 crisis, banks sustained liquidity shocks, as deposits were withdrawn to meet personal and business needs. Essentially, banks could not make loans, as the funds to make loans were depleted. The purpose of this study is to evaluate the effectiveness of liquidity creation as a main force, in conjunction with other performance predictors such as efficient asset management, asset quality, and bank size, on bank financial performance, either individually or in conjunction with liquidity creation during the COVID-19 financial crisis. We used bank financial data from a sample of 298 banks from 11 countries in the MENA region, including Egypt, Tunisia, Morocco, Qatar, Bahrain, Oman, Kuwait, Saudi Arabia, United Arab Emirates, Jordan, and Israel, from 2020 to2021. Liquidity creation, efficient asset management, asset quality, and bank size increased bank return on assets and return on equity. Bank size and asset quality acted jointly with liquidity creation to increase return on assets and increase return on equity. We conclude that as liquidity creation acts individually, and in conjunction with asset quality and bank size to increase bank profits, both its main effect and its moderated effect, can maintain bank profitability, during periods of extreme liquidity supply shocks, such as the COVID-19 crisis. Full article

(This article belongs to the Special Issue Corporate Finance)

14 pages, 300 KiB

Open AccessArticle

Factors Affecting Internal Audit Effectiveness: Empirical Evidence from Vietnam

by Thu Trang Ta and Thanh Nga Doan

Int. J. Financial Stud. 2022, 10(2), 37; https://doi.org/10.3390/ijfs10020037 - 17 May 2022

Cited by 14 | Viewed by 14434

Abstract

This study investigated four factors affecting internal audit effectiveness in Vietnam, namely, independence of internal audit, the competence of internal auditors, management support for internal audit, and quality of internal audit work. Quantitative and qualitative evaluations were conducted, including a logistics regression model [...] Read more.

This study investigated four factors affecting internal audit effectiveness in Vietnam, namely, independence of internal audit, the competence of internal auditors, management support for internal audit, and quality of internal audit work. Quantitative and qualitative evaluations were conducted, including a logistics regression model and other analyses, using SPSS software. Through semi-structured in-depth interviews and an online survey, 144 responses were obtained from internal Vietnamese auditors of nonfinancial companies listed on the Vietnamese stock market in 2021. After processing the data, the results revealed two factors (independence of internal auditor and management support for internal audit) with a positive influence on internal audit effectiveness, whereas the competence of internal auditors and quality of internal audit work did not affect internal audit effectiveness. Full article

(This article belongs to the Special Issue Corporate Finance)

17 pages, 333 KiB

Open AccessArticle

Sentiment and Style: Evidence from Republican Managers

by Serkan Karadas, Jorida Papakroni and Minh Tam Tammy Schlosky

Int. J. Financial Stud. 2022, 10(2), 34; https://doi.org/10.3390/ijfs10020034 - 12 May 2022

Viewed by 2042

Abstract

This study examines the relationship between corporate managers’ political ideology and corporate leverage policies conditional on investor sentiment. Based on a minimum of 21,884 observations over the 1992–2008 period, the authors show that Republican managers significantly reduce leverage during periods of high investor [...] Read more.

This study examines the relationship between corporate managers’ political ideology and corporate leverage policies conditional on investor sentiment. Based on a minimum of 21,884 observations over the 1992–2008 period, the authors show that Republican managers significantly reduce leverage during periods of high investor sentiment. To the best of the authors’ knowledge, this paper is the first to document that Republican managers are not swayed by the general tendency to increase leverage in high-sentiment periods. Overall, the empirical evidence from this study indicates that personal characteristics of managers have a consistent impact on corporate policies, providing support for the “behavioral consistency” theory. Further, the results of this study imply that internal and external stakeholders of a corporation should take into account manager personality in their decisions. For example, the board of a highly indebted company may consider hiring a conservative manager to reduce its financial risk. Full article

(This article belongs to the Special Issue Corporate Finance)

15 pages, 912 KiB

Open AccessArticle

Effect of Religiosity, Perceived Risk, and Attitude on Tax Compliant Intention Moderated by e-Filing

by Mekar Satria Utama, Umar Nimran, Kadarisman Hidayat and Arik Prasetya

Int. J. Financial Stud. 2022, 10(1), 8; https://doi.org/10.3390/ijfs10010008 - 6 Jan 2022

Cited by 7 | Viewed by 4542

Abstract

This research examined the effect of Religiosity, Perceived Risk, and Attitude on Tax Compliant Intention, moderated by e-Filing. This research used a quantitative approach which involved the Structural Equation Model (SEM). Large taxpayers are generally in the form of agencies and individuals, so [...] Read more.

This research examined the effect of Religiosity, Perceived Risk, and Attitude on Tax Compliant Intention, moderated by e-Filing. This research used a quantitative approach which involved the Structural Equation Model (SEM). Large taxpayers are generally in the form of agencies and individuals, so the population of this study comprised of companies that are in the Directorate General of Taxation of Large Taxpayers Jakarta, Large Tax Service Offices 1 and 2, totaling 529 companies. Religiosity (X1) and Perceived Risk (X2) significantly influence Attitude (Y1). Furthermore, Attitude (Y1) has a positive and significant effect on Tax Compliant Intention (Y2). e-Filing showed an insignificant moderating effect on the research model. The novelties are the development of the Theory of Planned Behavior by involving other variables that affect taxpayer compliance behavior, namely Religiosity and the perceived risk of taxpayers. In addition, this research involves the e-Filing variable as a moderating variable. Full article

(This article belongs to the Special Issue Corporate Finance)

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13 pages, 273 KiB

Open AccessArticle

Effect of Financial Clusters on Startup Mergers and Acquisitions

by Saurabh Ahluwalia and Sul Kassicieh

Int. J. Financial Stud. 2022, 10(1), 1; https://doi.org/10.3390/ijfs10010001 - 24 Dec 2021

Cited by 8 | Viewed by 4832

Abstract

The conventional wisdom has maintained that being in proximity to entrepreneurial ecosystems helps startups to raise financing, develop and grow. In this paper, we examine the effect of a major component of an entrepreneurial ecosystem-financial or venture capital clusters on the exit of [...] Read more.

The conventional wisdom has maintained that being in proximity to entrepreneurial ecosystems helps startups to raise financing, develop and grow. In this paper, we examine the effect of a major component of an entrepreneurial ecosystem-financial or venture capital clusters on the exit of a startup through mergers and acquisitions (M&A). We find that probability of successful exit through M&A increases if the venture capitalist invested in the startup is in a venture capital (VC) cluster. Location of the startup in a top VC cluster is not significant for success once we control for the location of the VC in a top VC cluster.Our results are robust to different specifications of the models that use different time periods, reputation of VC, industry, and the quality of the startup company. Our results provide evidence for VCs, startups and policy makers who want to better understand the components of entrepreneurial ecosystems and their relation to the M&A exits of startups. Full article

(This article belongs to the Special Issue Corporate Finance)

15 pages, 326 KiB

Open AccessArticle

The Role of Ownership Structure and Board Characteristics in Stock Market Liquidity

by Wajih Abbassi, Ahmed Imran Hunjra, Suha Mahmoud Alawi and Rashid Mehmood

Int. J. Financial Stud. 2021, 9(4), 74; https://doi.org/10.3390/ijfs9040074 - 20 Dec 2021

Cited by 14 | Viewed by 5001

Abstract

Corporate governance plays a significant role in the value of shareholders and share prices, hence stock market liquidity is affected. Previous research has mainly focused on the issue in developed markets, whereas in developing countries there is a need to analyze the influence [...] Read more.

Corporate governance plays a significant role in the value of shareholders and share prices, hence stock market liquidity is affected. Previous research has mainly focused on the issue in developed markets, whereas in developing countries there is a need to analyze the influence of corporate governance on stock market liquidity. Therefore, the present study aims to examine the impact of ownership structure and board characteristics on stock market liquidity of non-financial firms of South Asian countries such as Pakistan, Sri Lanka, Bangladesh, and India. The data in the study is collected from the DataStream for the 2011–2020 period. The study uses a fixed effect model for the analysis of the data and hypotheses testing and generalized method of moments (GMM) is used to check the robustness of the results. The findings of the study indicate that institutional ownership, board size, board independence, and CEO duality have a significant and positive impact on stock market liquidity, whereas managerial ownership has a significant and negative effect on stock market liquidity. Full article

(This article belongs to the Special Issue Corporate Finance)

20 pages, 2318 KiB

Open AccessArticle

Bibliometric Analysis for Working Capital: Identifying Gaps, Co-Authorships and Insights from a Literature Survey

by Vítor João Pereira Domingues Martinho

Int. J. Financial Stud. 2021, 9(4), 72; https://doi.org/10.3390/ijfs9040072 - 16 Dec 2021

Cited by 13 | Viewed by 4264

Abstract

From a financial perspective, working capital represents the liquidity of firms that makes them able to deal with short-term liabilities in current assets (inventories, receivables accounts, and net financial resources). However, this concept is also considered in scientific literature as, among other meanings, [...] Read more.

From a financial perspective, working capital represents the liquidity of firms that makes them able to deal with short-term liabilities in current assets (inventories, receivables accounts, and net financial resources). However, this concept is also considered in scientific literature as, among other meanings, stock of productive capital, or variables costs. Considering the importance of working capital in a firms’ dynamics, the principal objective of this study is to highlight the main gaps and insights in literature concerning working capital and to suggest future research. For this purpose, bibliometric analysis was carried out through bibliographic information from both the Web of Science Core Collection and from the Scopus for the topic of “working capital”. These data were first worked through bibliometric approaches, considering the VOSviewer and Gephi software and later surveyed through a literature review. As the main insights, it is worth highlighting that there are several gaps in related literature, where the most worrying is the weak reference to sustainability or sustainable development concepts. Finally, the majority of the networked research was focused on just a few authors, organizations, and countries. Full article

(This article belongs to the Special Issue Corporate Finance)

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22 pages, 613 KiB

Open AccessFeature PaperArticle

Validation of Corporate Probability of Default Models Considering Alternative Use Cases

by Michael Jacobs, Jr.

Int. J. Financial Stud. 2021, 9(4), 63; https://doi.org/10.3390/ijfs9040063 - 24 Nov 2021

Cited by 3 | Viewed by 4705

Abstract

In this study, we consider the construction of through-the-cycle (“TTC”) PD models designed for credit underwriting uses and point-in-time (“PIT”) PD models suitable for early warning uses, considering which validation elements should be emphasized in each case. We build PD models using a [...] Read more.

In this study, we consider the construction of through-the-cycle (“TTC”) PD models designed for credit underwriting uses and point-in-time (“PIT”) PD models suitable for early warning uses, considering which validation elements should be emphasized in each case. We build PD models using a long history of large corporate firms sourced from Moody’s, with a large number of financial, equity market and macroeconomic variables as candidate explanatory variables. We construct a Merton model-style distance-to-default (“DTD”) measure and build hybrid structural reduced-form models to compare with the financial ratio and macroeconomic variable-only models. In the hybrid models, the financial and macroeconomic explanatory variables still enter significantly and improve the predictive accuracy of the TTC models, which generally lag behind the PIT models in that performance measure. We conclude that care must be taken to judiciously choose the manner in which we validate TTC vs. PIT models, as criteria may be rather different and be apart from standards such as discriminatory power. This study contributes to the literature by providing expert guidance to credit risk modeling, model validation and supervisory practitioners in controlling the model risk associated with such modeling efforts. Full article

(This article belongs to the Special Issue Corporate Finance)

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21 pages, 561 KiB

Open AccessArticle

Do CEO Duality and Ownership Concentration Impact Dividend Policy in Emerging Markets? The Moderating Effect of Crises Period

by Anis El Ammari

Int. J. Financial Stud. 2021, 9(4), 62; https://doi.org/10.3390/ijfs9040062 - 7 Nov 2021

Cited by 6 | Viewed by 5215

Abstract

Despite developments of recent theoretical and numerous empirical studies on the policies effectively adopted by companies, the dividend distribution policy (DDP) remains largely unexplained. In this regard, the main purpose of the current study is to empirically examine the effects of both CEO [...] Read more.

Despite developments of recent theoretical and numerous empirical studies on the policies effectively adopted by companies, the dividend distribution policy (DDP) remains largely unexplained. In this regard, the main purpose of the current study is to empirically examine the effects of both CEO duality and ownership concentration on DDP during a crisis period. Furthermore, we test, using an interaction variable, the moderating effect of the crisis period on the association between both the degree of CEO duality and the ownership concentration on the DDP by analyzing panel data on selected listed firms in an emerging economy, namely, Tunisia. Based on a sample made up of 576 firm-year observations over the period 1996–2019, the findings of this research indicate that the crisis period plays an important role in mitigating the positive effect of both CEO duality and ownership concentration on DDP. The findings confirm furthermore that the crisis period on the one hand and both CEO duality and ownership concentration on the other represent two competing forces influencing DDP. Our results also support the agency theory on which DDP depends, among other things, family ownership, board and company size, and ROE. Full article

(This article belongs to the Special Issue Corporate Finance)

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20 pages, 342 KiB

Open AccessArticle

CEO Compensation in Korea: Is It Different than in the US? A Comparison between Korean Non-Life Insurance Firms and US Property-Liability Insurance Firms

by Sangyong Han and Hyejeong Mun

Int. J. Financial Stud. 2021, 9(4), 61; https://doi.org/10.3390/ijfs9040061 - 3 Nov 2021

Cited by 1 | Viewed by 3460

Abstract

This study investigates the level, structure, and pay-for-performance relationship of CEO compensation in Korean non-life insurance companies. We find that seniority plays an important role in setting CEO compensation practices and that performance-based pay, such as bonus, is more effective than base salary [...] Read more.

This study investigates the level, structure, and pay-for-performance relationship of CEO compensation in Korean non-life insurance companies. We find that seniority plays an important role in setting CEO compensation practices and that performance-based pay, such as bonus, is more effective than base salary in enhancing shareholder value for Korean non-life insurers. Unlike previous studies that show that international differences in executive pay have been diminished considerably since the 2000s, our evidence shows that there is a remarkable difference in CEO compensation between Korean non-life insurers and U.S. property-liability insurers. Furthermore, we provide evidence that the pay-performance relationship is weaker in Korean non-life insurance companies relative to US counterparts, suggesting that it is necessary for Korean non-life insurers to tie performance-based compensation more closely to shareholder value in the design of CEO compensation. Full article

(This article belongs to the Special Issue Corporate Finance)

18 pages, 342 KiB

Open AccessArticle

Uncovering Real Earnings Management: Pay Attention to Risk-Taking Behavior

by Samar Alharbi, Md Al Mamun and Nader Atawnah

Int. J. Financial Stud. 2021, 9(4), 53; https://doi.org/10.3390/ijfs9040053 - 23 Sep 2021

Cited by 11 | Viewed by 5097

Abstract

We examine the impact of corporate risk-taking on firm-level real earnings management. We find that firms with higher risk-taking engage in higher real earnings management. Our results are robust to a series of robustness tests, including simultaneous least squares approach, firm fixed effect, [...] Read more.

We examine the impact of corporate risk-taking on firm-level real earnings management. We find that firms with higher risk-taking engage in higher real earnings management. Our results are robust to a series of robustness tests, including simultaneous least squares approach, firm fixed effect, change analysis, and pseudo difference-in-difference analysis. Additional analyses reveal that the impact of risk-taking on real earnings management is more pronounced among firms that experience prior-year loss and are run by top-echelons who are risk lovers. Sarbanes-Oxley Act (SOX) regulation does not attenuate the positive effect of risk-taking on real earnings management. However, external monitoring by institutional investors and takeover susceptibility curb the relation between risk-taking and real earnings management. Our study highlights that outsider, such as investors and regulators, should pay close attention to a firm’s risk-taking behavior to unravel the extent of real earnings management in the firm. Full article

(This article belongs to the Special Issue Corporate Finance)

22 pages, 657 KiB

Open AccessArticle

CEO Turnovers: Transparency of Announcements and the Outperformance Puzzle

by Paul Farah and Hui Li

Int. J. Financial Stud. 2021, 9(3), 34; https://doi.org/10.3390/ijfs9030034 - 25 Jun 2021

Cited by 1 | Viewed by 3339

Abstract

This study investigates market reactions to announcements of CEO turnover and finds that forced turnovers are not accompanied by positive returns, which contradicts the broad view that firing a CEO sends a positive signal to the market. This contradiction is further explored by [...] Read more.

This study investigates market reactions to announcements of CEO turnover and finds that forced turnovers are not accompanied by positive returns, which contradicts the broad view that firing a CEO sends a positive signal to the market. This contradiction is further explored by focusing on the nature of not only turnover but also a firm’s past performance. This study finds that the market seems to incorporate both types of information in reacting to CEO turnover announcements. Firing an underperforming CEO is viewed as a positive signal, whereas firing an outperforming CEO is viewed as a negative signal. Rather than taking early action against CEOs for a deterioration in their performance, firms appear to be firing outperforming CEOs owing to their apparent nonperformance-related reasons. This study also explores reasons behind the decision to fire a CEO from different news databases and finds that giving no clear reasons for a CEO’s departure increases uncertainty in the market, thereby causing a negative market reaction. However, stating performance as the reason for the departure assures investors about the future trajectory of the firm and results in a positive market reaction. Full article

(This article belongs to the Special Issue Corporate Finance)

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8 pages, 285 KiB

Open AccessArticle

Revisiting Banking Stability Using a New Panel Cointegration Test

by Hassan B. Ghassan, Zakaria Boulanouar and Kabir M. Hassan

Int. J. Financial Stud. 2021, 9(2), 21; https://doi.org/10.3390/ijfs9020021 - 7 Apr 2021

Cited by 2 | Viewed by 2907

Abstract

Using a new panel cointegration test that considers serial correlation and cross-section dependence on a mixed and heterogenous sample of Saudi banks, we revisit the cointegrating equation of the z-score index of banking stability. Our results show that even when we consider the [...] Read more.

Using a new panel cointegration test that considers serial correlation and cross-section dependence on a mixed and heterogenous sample of Saudi banks, we revisit the cointegrating equation of the z-score index of banking stability. Our results show that even when we consider the cross-section dependency and serial correlation of the errors, there is a possibility of a long-run relationship, which holds in our sample of banks. Furthermore, in the medium term, we found some banks to be integrated, whereas others were non-cointegrated. We interpret this to suggest that some banks contribute to banking stability, whereas others do not. In other words, there exists at least one bank that acts as a destabilizer and the challenge for financial regulators is to identify which banks these are. However, the current version of the Hadri et al. test does not allow for the identification of the non-cointegrated banks. If the test was able to do that, the regulatory authorities would be able to develop corrective policies/measures specifically tailored to the non-cointegrated units. Full article

(This article belongs to the Special Issue Corporate Finance)

24 pages, 372 KiB

Open AccessArticle

Earnings Management of Insolvent Firms and the Prediction of Corporate Defaults via Discretionary Accruals

by Sam Bock Park, Sung-Kyoo Kim and Sangryul Lee

Int. J. Financial Stud. 2021, 9(2), 17; https://doi.org/10.3390/ijfs9020017 - 25 Mar 2021

Cited by 9 | Viewed by 3726

Abstract

Studies on the characteristics of insolvent firms’ earnings management are critical, as the ripple effects of a firm’s opportunistic accounting and insolvency on society can be widespread and significant. This study divides a dataset of unlisted firms into four groups (large firms that [...] Read more.

Studies on the characteristics of insolvent firms’ earnings management are critical, as the ripple effects of a firm’s opportunistic accounting and insolvency on society can be widespread and significant. This study divides a dataset of unlisted firms into four groups (large firms that have received external audits; small- and medium-sized enterprises (SMEs) that received external audits; SMES that did not receive external audits; private businesses that did not receive external audits) and analyzes whether there are differences in terms of the discretionary accruals between groups. This study also uses discrete time logit regression to determine if the use of discretionary accruals is predictive of whether unlisted firms would become insolvent. This study used several models (a modified Jones model, a Kothari model, and performance matching model by ROA group) to measure discretionary accruals, which was used as a proxy for earnings management. The results of our study showed that, in the one year prior to insolvency, discretionary accruals were largest among non-externally audited private firms, followed by those of non-externally audited SMEs, externally audited SMEs, and externally audited large firms. The discretionary accruals of non-insolvent firms were larger than those of insolvent firms from the period of one year to three years preceding insolvency, and this difference increased as insolvency approached. The discretionary accruals were shown to have the ability to predict whether or not firms would become insolvent in two to three years before the occurrence of insolvency, but they did not support prediction for one year before the occurrence of insolvency. The findings suggest that additional accounting information should be used together to predict insolvency for unlisted firms. Full article

(This article belongs to the Special Issue Corporate Finance)

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