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Article
Publication date: 21 June 2023

Syed Zulfiqar Ali Shah and Fangyi Wan

This study examines whether country-level financial integration affects firms' accounting choices and the quality of financial information.

Abstract

Purpose

This study examines whether country-level financial integration affects firms' accounting choices and the quality of financial information.

Design/methodology/approach

This study employs Propensity Score Matching (PSM), and panel regressions of a large sample of data from 20 emerging markets over the period 1987–2018.

Findings

This study finds evidence that increased level of financial integration is significantly positively associated with firms' accruals earnings management (AEM) and real earnings management (REM).

Research limitations/implications

Findings in the study have implications for standard-setting bodies that aim to enhance the usefulness of financial reporting quality. The study also has implications for various initiatives by governments in emerging markets aimed at raising investor confidence and fostering stock market development through greater financial integration.

Practical implications

Findings in the study have implications for standard-setting bodies that aim to enhance the usefulness and quality of financial reporting. The findings can be of interest to analysts, auditors and other monitoring institutions who play a crucial role in detecting earnings management and reducing information asymmetry. Finally, the study has implications for various initiatives by governments in emerging markets aimed at raising investor confidence and fostering stock market development through greater financial integration.

Originality/value

Findings in the study reveal how country-level financial integration affects accruals and real earnings management in a sample of firms from 20 emerging markets. Further, the study adds to the growing body of literature on emerging markets where capital markets mechanisms, regulatory environment and firm's corporate governance are distinct to developed markets.

Details

Journal of Applied Accounting Research, vol. 25 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 5 May 2015

Nuruzzaman Arsyad

This paper aims to seek to find answers to three questions. First, is there any possibility of long-term cointegration between East and Southeast Asian equity markets? If so, how…

Abstract

Purpose

This paper aims to seek to find answers to three questions. First, is there any possibility of long-term cointegration between East and Southeast Asian equity markets? If so, how many cointegrating equations are there? Second, what are the short-term causal relationships between equity markets in East and Southeast Asia? Third, what is the East Asia’s most influential equity market toward their Southeast counterparts, and vice versa?

Design/methodology/approach

This study uses Johansen's (1988) cointegration method to test long-run relationships among East and Southeast Asian equity markets. With regards to short-run causal relationships, this study uses Granger-causality test as well as the forecast variance decomposition method.

Findings

Johansen test proves that there is cointegration between East and Southeast Asian equity markets, but the integration process is not complete. Cointegrating vector also provides evidence that member countries of ASEAN+3 respond differently to external shocks. With regards to short-run causal direction, this study finds that Japan Granger-causes all equity markets in Southeast Asia, while Singapore and Vietnam Granger-cause all equity markets in East Asia. These results imply that Japan is the market with most linkages in Southeast Asia, while Singapore and Vietnam are the markets with most linkages to East Asia. Furthermore, forecast variance decomposition reveals that Japan is the East Asia’s most influential equity markets, while Singapore is the most influential equity market in Southeast Asia. This study suggests that policymakers in East and Southeast Asian countries to synchronize the capital market standards and regulations as well as to reduce the barriers for capital mobility to spur the regional equity market integration.

Research limitations/implications

Increasing integration of East and Southeast Asian capital markets forces policymakers in ASEAN+3 countries to synchronize monetary policies, as it has been found that regionally integrated capital markets reduce the degree of independent monetary policy (Logue et al., 1976). It is therefore important for policymakers in East and Southeast Asian countries to assess the possibility of stock market integration within this region to anticipate the future risks associated with economic integration as well as to build collective regional institutions (Wang, 2004). Click and Plummer (2005) also argued that integrated stock markets is more efficient than nationally segmented equity markets, and the efficiency of Asian capital markets has been questioned in particular after the 1997 Asian financial crises. Yet, the empirical evidence on the extent of financial integration among ASEAN+3 member countries has been limited and inconclusive. This study is therefore an attempt to investigate the recent development of ASEAN+3 equity markets integration.

Practical implications

This study focuses its attention on the existence and the extent of financial integration in East and Southeast Asia region, and it provides evidence that equity market integration in ASEAN+3 is far from complete, and for that reason, there is a need for policymakers in ASEAN+3 member countries to synchronize their standards and regulations. Furthermore, the policymakers in East and Southeast Asia can gain benefit from this study, as it provides the evidence that ASEAN+3 member countries respond differently to policy shocks, which may hinder the development of regional financial integration as well as the policy effectiveness of region-wide authority in ASEAN+3.

Originality/value

This research is different from previous studies, as it puts the regional financial integration within the context of ASEAN+3 frameworks. Unlike previous research that considers East and Southeast Asian countries as an individual entity, this research considers East and Southeast Asia into two different blocks, following Tourk (2004) who documented that negotiation process for ASEAN+3 financial integration is conducted in sub-regional level (ASEAN vs East Asia), rather than national level (country per country basis). Second, this study covers the period after the 1997 Asian financial crisis. As suggested in Wang (2014), that the degree of stock market integration tends to change around the periods marked by financial crises, the updated study on Asian financial integration in the aftermath of 1997 financial crises is important to document the development of regional financial integration.

Details

Journal of Financial Economic Policy, vol. 7 no. 2
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 11 July 2019

Nicholas Addai Boamah

The purpose of this paper is to explore the co-movements among emerging markets. The authors, additionally, investigate the driven force of the within emerging markets…

Abstract

Purpose

The purpose of this paper is to explore the co-movements among emerging markets. The authors, additionally, investigate the driven force of the within emerging markets integration. The authors provide evidence of volatility clustering, leverage effect and time-varying integration of emerging markets.

Design/methodology/approach

The study used dynamic conditional correlation techniques to estimate the time-varying conditional correlations among emerging markets. The cross-sectional and time series variations in the within emerging markets correlations are then described by various market and economic factors.

Findings

The authors show that investment, domestic credit to the private sector and import of financial services have a positive relation within emerging markets co-movements. However, claim on central government, current account balance and financial services exports have a negative relation with the integration among emerging markets. Evidence is also provided that liquidity and market depth explain the correlation between emerging markets.

Originality/value

The findings show that emerging markets ability to convert domestic assets into investments appears to be the single most important factor influencing with in emerging markets integration. The findings indicate that across-emerging markets diversification potential exists.

Details

Journal of Financial Economic Policy, vol. 12 no. 1
Type: Research Article
ISSN: 1757-6385

Keywords

Open Access
Article
Publication date: 29 April 2020

Richard Makoto

Many developing countries are pursuing policies that foster international financial integration after decades of financial repression. Greater access to foreign financial markets…

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Abstract

Purpose

Many developing countries are pursuing policies that foster international financial integration after decades of financial repression. Greater access to foreign financial markets may have both positive and negative impact on the performance of the economy. One of the concerns of international financial integration is macroeconomic volatility which may affect both monetary and real sectors. Zimbabwe has chosen to pursue a financial liberalization strategy in the form of imperfect financial integration following periods of excessive domestic shocks. An upsurge of capital flows since the epic of economic crisis in the 2000s has been observed with varying macroeconomic impacts. This study empirically examines the impact of partial international financial integration on the volatility of macroeconomic variables.

Design/methodology/approach

The study utilized an ARDL Model suggested by Pesaran et al., (2003) which is appropriate for short time periods.

Findings

The results show that financial integration has a negative effect on output volatility while insignificant on consumption volatility.

Practical implications

The study recommends that the country should gradually liberalize the capital account and properly sequence financial development reforms in order to minimize losses from global financial integration.

Originality/value

The study used time series for Zimbabwe during a period of external imbalance, repeated economic cycles, sudden stops in capital flows and limited scope of imperfect financial integration. Findings in such an economy will be a referral for policymakers in other economies that would want to pursue international financial integration.

Details

Journal of Economics and Development, vol. 22 no. 2
Type: Research Article
ISSN: 1859-0020

Keywords

Article
Publication date: 9 April 2020

Kannyiri Banyen and Nicholas Biekpe

This paper examines the effect of both de jure and de facto measures of financial integration on bank profitability in five regional economic communities of Africa.

Abstract

Purpose

This paper examines the effect of both de jure and de facto measures of financial integration on bank profitability in five regional economic communities of Africa.

Design/methodology/approach

Using panel data from 405 banks operating in 47 African countries across five regional economic communities over 2007–2014, the study constructs a composite measure of bank profitability. The study then employs the dynamic two-step system GMM estimation technique to test the effect of both de jure and de facto measures of financial integration on bank profitability in Africa and across five sub-regional markets.

Findings

Overall, the results support a positive relationship between financial integration and overall bank profitability in Africa, except for the Arab Maghreb Union and Southern Africa Development Community.

Practical implications

The findings of this study suggest that increased financial integration in Africa directly improves bank’s overall profitability and the variations among the sub-regional markets inform tailored policy initiatives.

Originality/value

To the best of the authors' knowledge, this is the first study on Africa to employ a composite measure of bank profitability to assess its determinants. It is also the first to include both de facto and de jure financial integration measures in a single study. This is also the first largest comparative study on bank profitability in Africa.

Details

International Journal of Emerging Markets, vol. 16 no. 3
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 3 July 2009

Arun Kumar Misra and Jitendra Mahakud

Financial sector reform measures, which were initiated in 1991, have provided some degree of maturity and integration of different segments of India's financial markets. The…

2483

Abstract

Purpose

Financial sector reform measures, which were initiated in 1991, have provided some degree of maturity and integration of different segments of India's financial markets. The purpose of this paper is to articulate the impact of financial sector reform measures on integration of various segments of financial markets in India.

Design/methodology/approach

The paper surveys various methodologies for measurement of financial integration and uses the recently developed technique of co‐integration in a VAR framework to assess the extent of integration of various segments of India's financial markets.

Findings

The paper concludes that the financial market integration is inconclusive in India. Only a few segments of money market, Gilt market and foreign exchange market are integrated. Interest rate parity does not hold in India's case, which indicates poor evidence in support of international integration of domestic financial markets. Similarly, the analysis of the relationship between domestic saving and domestic investment does not support international integration. The study of co‐integration of Nasdaq and Bombay sensitive index (BSE), also revealed absence of international integration.

Research limitations/implications

Owing to non‐availability of time series data, the paper could not consider the mutual fund market, pension market and various derivatives markets in the overall process of assessment of financial integration. However, the impact on the findings is minimal, as these markets are not so far developed in India.

Practical implications

The findings have significant practical implications particularly in the formulation of policies on management and interventions in the money market, foreign exchange and equity markets and in the overall formulation of monetary policy for the economy.

Originality/value

This paper presents a quite comprehensive research study on financial integration in India and is original, particularly in the area of application of the co‐integration technique for assessment of financial integration.

Details

International Journal of Emerging Markets, vol. 4 no. 3
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 9 May 2016

Tung Dao Nguyen and Pana Elisabeta

The strategic partnership between China and ASEAN has resulted in significant financial reforms at the country and regional level. The scale and pace of these changes call for…

Abstract

Purpose

The strategic partnership between China and ASEAN has resulted in significant financial reforms at the country and regional level. The scale and pace of these changes call for systematic assessments of their bearing on the development and integration of financial markets in this region. The purpose of this paper is to investigate the level of financial integration of the equity markets in China and ASEAN4 countries (Indonesia, Malaysia, Philippines, and Thailand) for the period 2004-2014.

Design/methodology/approach

The authors use the β and σ convergence, dynamic conditional correlation, and wavelet correlation to assess the degree, trend, and change across different time scales of the integration of China-ASEAN4 equity markets. Using two measures of change in return per unit risk and variance, we assess the difference in diversification benefits between an equity portfolio China-ASEAN4 and China-EU.

Findings

The authors find that financial integration across China-ASEAN4 equity markets fluctuated between a moderate level before and after the recent crisis and a higher level during the crisis. The results indicate that investors achieve higher diversification benefits from a cross-industry than a cross-country investment strategy within this region.

Research limitations/implications

Future research should investigate whether local factors and existing cultural and political differences explain the weak to moderate level of integration of China and emerging ASEAN equity markets.

Practical implications

A good understanding of the degree and evolution of the regional financial integration may be used by investors to allocate capital efficiently when adding ASEAN4 equities to a portfolio of Chinese equities.

Social implications

Systematic assessments of the regional financial integration contribute to the effort to mitigate the ensuing cross-border financial contagion during crises.

Originality/value

The authors argue that that the increase in correlations of CHINA-ASEAN4 equity markets during the recent crisis does not reflect a permanent shift in the dynamic of the dominant markets in the region. While investors achieve higher diversification benefits from a cross-industry than a cross-country investment strategy within this region, the diversification benefits are lower for long-term than short-term investors.

Details

Managerial Finance, vol. 42 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 April 2003

Georgios I. Zekos

Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination of some…

86938

Abstract

Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination of some legal aspects concerning MNEs, cyberspace and e‐commerce as the means of expression of the digital economy. The whole effort of the author is focused on the examination of various aspects of MNEs and their impact upon globalisation and vice versa and how and if we are moving towards a global digital economy.

Details

Managerial Law, vol. 45 no. 1/2
Type: Research Article
ISSN: 0309-0558

Keywords

Article
Publication date: 17 August 2012

Anil Perera and J. Wickramanayake

The purpose of this paper is to examine financial market integration in major South Asian financial markets: Bangladesh, India, Pakistan and Sri Lanka. Also to identify the…

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Abstract

Purpose

The purpose of this paper is to examine financial market integration in major South Asian financial markets: Bangladesh, India, Pakistan and Sri Lanka. Also to identify the required policy interactions and structural changes vital for broader economic integration.

Design/methodology/approach

This research opted for an empirical study employing co‐integration and causality techniques using a sample of stock and bond market data for major South Asian countries.

Findings

Empirical results show that both stock and bond returns are co‐integrated, indicating common stochastic trends. Stock market integration appears to be much stronger compared to the less developed and data deficient bond markets.

Research limitations/implications

The study relies on widely cited empirical methodology. However, adopting alternative specifications and also allowing for time variant factors while examining inter‐linkages between stock and bond markets seem to be appropriate for robustness of results.

Practical implications

Increased integration would help in reducing arbitrage opportunities in these financial markets, having implications for market participants and promoting economic growth through financial deepening, in general. Since the degree of integration is dependent on policy and institutional infrastructure, ongoing efforts to develop financial sectors and reforms would need to be accelerated to further strengthen the degree of convergence between securities markets.

Originality/value

The paper fulfills an identified need to examine financial market integration in the SAARC region, using data for both stock and bond markets. This is the first study to use bond market data for SAARC countries and it also adds to the limited literature of bond market integration.

Details

South Asian Journal of Global Business Research, vol. 1 no. 2
Type: Research Article
ISSN: 2045-4457

Keywords

Article
Publication date: 15 June 2018

Macarena Sacristán-Díaz, Pedro Garrido-Vega and José Moyano-Fuentes

The purpose of this paper is to analyse the relationships between the different dimensions of supply chain integration (SCI). First, the sequence in which these dimensions should…

Abstract

Purpose

The purpose of this paper is to analyse the relationships between the different dimensions of supply chain integration (SCI). First, the sequence in which these dimensions should be implemented and some possible mediating effects are investigated. Then, relationships are examined more closely to observe whether they present more complex non-linear forms than those usually analysed.

Design/methodology/approach

Required information was gathered from a sample of 477 Spanish industrial companies (23.4 per cent response rate). PLS structural equation modelling was applied to capture non-linear relationships between SCI dimensions.

Findings

The results indicate that internal integration leads to external integration and that within external integration, information flow integration provides the basis for financial flow integration and physical flow integration. Thus, the results suggest the existence of a logical sequence to achieve SCI. In addition, clearly different non-linear relationships are observed between the analysed variables.

Practical implications

It seems that a sufficient minimum value has to be reached for internal integration to have a positive effect on external information and financial integration. In addition, a higher degree of information integration appears to facilitate financial and physical integration, although a medium degree of information integration results in a lower degree of financial integration. Therefore, managers should not expect that efforts made to increase one integration dimension will always produce the same effect on the other dimensions.

Originality/value

An empirical contribution is made to knowledge of the logical SCI sequence. This contribution is not only important for academia, but also for managers seeking to improve supply chain performance through integration.

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