Search results
1 – 10 of over 54000Ankur Shukla, Sivasankaran Narayanasamy and Ramachandran Krishnakumar
The purpose of the paper is to explore the impact of board size on the accounting returns and asset quality of Indian banks.
Abstract
Purpose
The purpose of the paper is to explore the impact of board size on the accounting returns and asset quality of Indian banks.
Design/methodology/approach
This paper uses ordinary least squares regression, robust regression and panel data methods for estimation, based on data collected for a sample of 29 Indian banks that are listed on the National Stock Exchange (NSE) and form part of the NSE-500 index over a period of eight financial years 2009-2016. The data pertaining to the board size of the sample banks is collected from the annual reports of banks, whereas the data relating to return on assets (ROA) and ratio of the gross non-performing assets to total assets and control variables (bank age and bank size) is extracted from ACE Equity database.
Findings
This paper concludes that the size of the governing board has a positive impact on the accounting returns (measured through ROA) of the Indian banks. Further, board size is observed to be insignificant in determining the asset quality of Indian banks.
Originality/value
This paper contributes to the literature and practitioners in a number of ways. First, to the best of the authors’ knowledge, this is the first study on the impact of board size on the accounting returns and asset quality of Indian banks. The findings of the study contribute new theoretical insights to the body of knowledge on the influence of the size of the board, which may be useful for future researchers. Second, banks may enhance their financial performance by taking cognizance of the findings of this study. Finally, equity investors may make use of the findings of this article in deciding on whether to invest in a bank’s stock/lend to the bank based on board size of the bank.
Details
Keywords
Chan Du, Liang Song and Jia Wu
This paper aims to examine how banks’ accounting disclosure policies affect information content in stock prices and stock crash risk.
Abstract
Purpose
This paper aims to examine how banks’ accounting disclosure policies affect information content in stock prices and stock crash risk.
Design/methodology/approach
This paper uses 1996-2013 as the sample period. The final sample includes 10,045 observations in 37 countries. This paper uses stock return synchronicity to measure information content in stock prices. This study uses the frequency difference between extremely negative and positive stock returns to measure stock crash risk. To measure the level of bank accounting disclosure, this research follows Nier and Baumann (2006) to construct an aggregate disclosure index based on inclusions and omissions of a series of items in a bank’s annual accounting reports.
Findings
This paper finds that banks’ stocks have lower stock return synchronicity and fewer extremely negative returns if banks have higher levels of financial statement disclosure. These results suggest that banks’ stocks have higher information content and lower crash risk if banks’ information environment is more transparent.
Originality/value
Overall, this paper provides new insight about how to increase banks’ transparency and the safety of the banking industry, which is beneficial to economic growth. To increase banks’ transparency and reduce the possibility of extremely negative stock returns, one way to regulate banks is to increase their accounting disclosure. In addition, the extant literature (Chen et al., 2006, Durnev et al., 2003, 2004; Wurgler, 2000) demonstrates that firms with lower stock return synchronicity have more transparent information environments and higher investment efficiency. Thus, this paper finds that higher levels of bank accounting disclosure are associated with lower stock return synchronicity, which further reduces banks’ opacity and increases banks’ investment efficiency. Finally, compared to business firms, stock crash risk has much direr consequences because one bank’s stock crash will affect overall financial stability. Thus, it is important for authorities to know the effects of accounting disclosure on bank stock crash risk.
Details
Keywords
King Carl Tornam Duho, Joseph Mensah Onumah, Raymond Agbesi Owodo, Emmanuel Tetteh Asare and Regina Mensah Onumah
The study examines the impact of risk on the profit efficiency and profitability of banks in Ghana.
Abstract
Purpose
The study examines the impact of risk on the profit efficiency and profitability of banks in Ghana.
Design/methodology/approach
Data envelopment analysis was used to estimate profit efficiency scores and accounting ratios were used to measure profitability. The panel corrected standard error regression was used to assess the nexus using a dataset of 32 banks from 2000 to 2015.
Findings
The paper found that the Ghanaian banking industry exhibits a variable return to scale property, suggesting that average costs change with output size. Profit efficiency score for banks closer to the efficiency frontier is 61%. Credit risk is significant in enhancing profit efficiency and return on equity. Market risk is relevant in improving profit efficiency, return on asset and asset turnover. To drive profitability, bank managers have to be committed to effective liquidity risk, insolvency risk and capital risk management. Operational risk reduces shareholders' returns. The impact of size, age, stock exchange listing, cost efficiency and competition have are all been discussed extensively.
Practical implications
The findings contribute to the knowledge on the risk-performance nexus and provide information that is valuable to academics, bankers and regulators for policy formulation. The findings are relevant to the newly established Financial Stability Council.
Originality/value
This paper appears to be among the premier attempts to examine the effect of various risk types identified in the Basel III framework on bank performance in Africa.
Details
Keywords
The purpose of this paper is to examine the classification of profit-sharing investment accounts (PSIAs) under various accounting standards, and determine whether Islamic banks…
Abstract
Purpose
The purpose of this paper is to examine the classification of profit-sharing investment accounts (PSIAs) under various accounting standards, and determine whether Islamic banks maintain uniform practices when the same accounting standards are applied. It also aims to determine whether Islamic banks consider investment account holders (IAHs) important financial statement users by disclosing necessary information pertaining to PSIAs.
Design/methodology/approach
A sample composed of financial statements from 63 Islamic banks from 15 countries is compared with respect to the information related to PSIAs.
Findings
The results show heterogeneity of classification for PSIAs. Applying the same standards does not lead to the uniform classification of PSIAs when banks apply International Financial Reporting Standards, while financial statements applying Financial Accounting Standards by the Accounting and Auditing Organization for Islamic Financial Institutions are more similar. The perplexity in classifying PSIAs brings obscurity on the treatment for PSIA-related accounts, particularly returns attributable to IAHs. The fact of fewer disclosures pertaining to PSIAs in Islamic banks – which apply accounting standards not specifically tailored to Islamic finance – suggests that IAHs receive less attention under those accounting standards.
Research limitations/implications
The main limitation relates to the lack of financial statements available online and the possibility of sample selection bias toward larger Islamic banks.
Originality/value
This research contributes to the limited literature on accounting for PSIAs, and reveals the diversity of reporting methods for unique transactions in Islamic banks and the insufficiency of current accounting standards to guide them, which create possible challenges of comparability.
Details
Keywords
Carl Pacini, William Hillison and Bradley K. Hobbs
Recent research has examined the effect of the Financial Services Modernization Act of 1999, more commonly known as the Gramm–Leach–Bliley Act (GLB), on the market value of U.S…
Abstract
Recent research has examined the effect of the Financial Services Modernization Act of 1999, more commonly known as the Gramm–Leach–Bliley Act (GLB), on the market value of U.S. commercial banks, life insurers, property-liability insurers, thrifts, finance companies, and securities firms. This study fills a gap in our understanding of the Act by measuring the price and trading volume effects of the GLB on U.S.-listed foreign banks. A primary contribution of this study is to examine the role, if any, of two corporate governance perspectives, the stakeholder (code law), and shareholder (common law) models, in a cross-sectional analysis of foreign bank market reaction to the GLB.
Using a generalized least squares (GLS) portfolio approach, Corrado's rank statistic, and confirmed by the traditional market model approach, we find significant negative share price reactions to certain legislative announcements surrounding the passage of the GLB. Trading volume reactions corroborate the significant share price responses. In general, our results indicate that investors in foreign banks reacted negatively to key legislative action. In a cross-sectional analysis, younger, higher-risk foreign banks with less concentrated ownership and more subordinated debt from countries with higher quality accounting standards appear to have more positive (or less negative) share price reactions.
Panayotis Manganaris, Charalambos Spathis and Apostolos Dasilas
The purpose of this paper is to explore the value relevance of accounting information before and after mandatory International Financial Reporting Standards (IFRS) adoption as…
Abstract
Purpose
The purpose of this paper is to explore the value relevance of accounting information before and after mandatory International Financial Reporting Standards (IFRS) adoption as well as the ensuing relationship between conditional conservatism and value relevance. The authors probe the above relationship by considering a number of institutional parameters, such as the accounting origin of each European country, the degree of differentiation between domestic standards and IFRS, and the level of each country’s enforcement.
Design/methodology/approach
The authors run panel data regressions for banks listed in 15 European countries using both the price and the return model. The authors partition the total sample in conservative and non-conservative banks – based on Khan and Watts (2009) – and in other institutional clusters based on prior highly acclaimed studies. Value relevance is then gauged by the corresponding adjusted R2.
Findings
The results provide evidence that IFRS have reinforced the value relevance for both conservative and non-conservative banks. However, this result alters when controlling for institutional dimensions. Specifically, the value relevance of conservative banks is strengthened when operating in high enforcement, low differences or English-origin environments, while non-conservative banks display better goodness-of-fit in French-origin countries.
Research limitations/implications
A survivorship bias might exist because the authors require three years of data before and three years after IFRS adoption for including a bank in the sample. More importantly, the post-IFRS period coincides with the burst of global financial crisis, which may have severely affected this bias. Furthermore, the C_Score methodology has been developed in a US-oriented context. Therefore, the validity of this measure might be different in countries with other institutional settings, such as week legal enforcement of high level of IFRS divergence.
Practical implications
The authors stress the qualitative significance of conditional conservatism and suggest that accounting standards regulators redefine the qualitative substance of conditional conservatism vis-à-vis other accounting quality properties, such as value relevance. Also, both conditional conservatism and value relevance are directly linked to contracting, thus the findings are of value to the entities that are legally involved with banks. These findings are particularly important, especially when the authors take institutional parameters into consideration.
Originality/value
Studies that investigate the relationship between value relevance and conditional conservatism in the banking sector are scarce. In the wake of IFRS adoption, the authors signify the role of institutional features as potential determinants in accounting quality changes, as well as in the relationship between value relevance and conditional conservatism.
Details
Keywords
This paper attempts to summarize the information contained in bank financial statements on the risk management capabilities of banks and then ascertains the sensitivity of bank…
Abstract
Purpose
This paper attempts to summarize the information contained in bank financial statements on the risk management capabilities of banks and then ascertains the sensitivity of bank stocks to risk management.
Design/methodology/approach
The theoretical framework is derived from a bank's accounting identities. The paper interprets the selected accounting ratios as risk management variables and attempts to gauge the overall risk management capability of banks by summarizing these accounting ratios as scores through the application of multivariate statistical techniques. Finally, the paper analyzes the impact of these risk management scores on stock returns through regression analysis.
Findings
The results based on data for Indian banks reveal that banks' risk management capabilities have been improving over time except for in the last two years. Returns on the banks' stocks appear to be sensitive to risk management capability of banks.
Practical implications
The results suggest that banks that want to enhance shareholder wealth have to focus on successfully managing various underlying risks. The findings have implications for investors who may benefit by going long on shares of banks that are better risk managers. The findings are useful for the regulator in developing quantitative indicators of soundness of the banking system.
Originality/value
First, this study suggests a novel way of looking at bank financial statements, i.e. from the risk management perspective. Second, the study develops summary scores of risk management capabilities of banks. Third, risk management is shown to be an important determinant of stock returns of banks.
Details
Keywords
This research aimed to evaluate the predictability of moving-average strategies and examined the validity of the weak form of the efficient market hypothesis (EMH) for securities…
Abstract
Purpose
This research aimed to evaluate the predictability of moving-average strategies and examined the validity of the weak form of the efficient market hypothesis (EMH) for securities of banks listed in the Gulf Cooperation Council (GCC) stock markets of Bahrain, Kuwait, Qatar and Saudi Arabia.
Design/methodology/approach
Several statistical analyses and eight moving-average rules were employed where buy and sell signals were produced by comparing a security price’s short- and long-term moving averages. The study covered the daily closing share prices of 40 GCC-listed banks over the 18-year period ending 31 December 2017.
Findings
The results suggest that securities of banks in the GCC were not weak-form efficient because share prices were predictable. Investors who traded using moving-average strategies could generate higher profits. Analysis of variance found that securities of Kuwaiti banks were the most efficiently priced.
Practical implications
The findings supported the idea that profitability depended on the moving-average rules and country chosen. Transaction costs did not affect the returns obtained using different trading rules.
Originality/value
This work facilitates future evaluation of accounting disclosure environments as well as the market efficiency and the performance of securities in the GCC countries. The performance of moving average rules among representative countries that share similar characteristics was analyzed. Different market participants, including investors, analysts and regulators, can benefit from this study for decision-making. These results suggest that new regulations might be drafted that would improve the timeliness of accounting information and the banks’ level of efficiency.
Details
Keywords
The purpose of this research was to examine the effectiveness of filter rules and investigate the weak form of the efficient market hypothesis (EMH) on sample shares of…
Abstract
Purpose
The purpose of this research was to examine the effectiveness of filter rules and investigate the weak form of the efficient market hypothesis (EMH) on sample shares of shariah-compliant vs. conventional banks listed on the Gulf Cooperation Council (GCC) stock market.
Design/methodology/approach
Nine trading filter strategies with different statistical analyses were used as defined in the literature (Fifield et al., 2005; Almujamed et al., 2018). Daily closing equity prices of a sample of twenty shariah-compliant banks and twenty conventional banks were recorded over the 18-year period ending 31 December 2017.
Findings
Shares of shariah-compliant banks in the GCC were not weak-form efficient since trading based on past information was predictable, profitable and outperformed the corresponding naïve buy-and-hold trading strategy. Shares of conventional GCC banks underperformed
Research limitations/implications
This paper’s findings should be useful for central banks and capital market authorities in GCC countries for evaluation when considering new regulations or process changes. Limitations include small sample numbers and need for more recent evaluations of accounting disclosure levels. A wider range of data, statistical analyses and other trading strategies is needed. Potential investors (Muslim and non-Muslim), shariah supervisory boards, and preparers of financial statements can benefit from this study.
Practical implications
The results suggest that selection of trading strategy affects the success of the rule and that mid-sized filters are the best.
Originality/value
This is an innovative study comparing performance of shariah-compliant and conventional banks under different filter rules.
Details
Keywords
Jasim Al-Ajmi, Shahrokh Saudagaran, Gagan Kukreja and Sayed Fadel
The purpose of this study is twofold. The first is to examine the impact of environmental disclosure on banks’ performance, while the second is to investigate the moderating role…
Abstract
Purpose
The purpose of this study is twofold. The first is to examine the impact of environmental disclosure on banks’ performance, while the second is to investigate the moderating role of a country’s economic activities and institutional quality on the relationship between environmental activities disclosure and banks’ operational, financial and market performance.
Design/methodology/approach
The sample includes 246 banks from emerging markets from 2008 to 2020, comprising 1,899 bank-year observations. The independent regressors are environmental disclosure, two moderators and two sets of control (bank and country) variables. The dependent variables are return on assets, return on equity and Tobin’s Q. This study adopts ordinary least squares, panel fixed effect and instrumental variables generalized method of moments to estimate the parameters of the models.
Findings
This study reveals a negative relationship between environmental disclosure and bank performance, lending credence to the agency and neoclassical theories. The moderator regressors show positive influence on banks performance. The results indicate that it is difficult to make a business case for environmental commitment.
Practical implications
There is a need for effective monitoring by shareholders to ensure that funds allocated for environmental activities are spent wisely.
Originality/value
This study provides new evidence on the ways in which economic and institutional quality influence the environmental practices of banks in emerging and frontier markets.
Details