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1 – 10 of over 137000A controversy about whether liberalization through market opening is a necessary and sufficient condition for a stable and balanced growth in the developing countries was…
Abstract
A controversy about whether liberalization through market opening is a necessary and sufficient condition for a stable and balanced growth in the developing countries was retriggered by the 2008 global financial crisis. This paper aims to analyze 1) the impact of market openness on the economic growth and financial development, 2) the dynamic correlation between the compositional change in foreign investments and the returns of domestic financial markets, 3) the effect of foreign portfolio investment on the stock market activity (liquidity and profitability). Our empirical findings infer that the income level has a positive relationship with financial openness and the foreign portfolio investments cause price fluctuations in the domestic stock market. These results imply that the precautionary and effective policies such as prudential regulations on the short-term capital transactions are strongly needed to emerging markets in order to prevent the excessive fluctuations in the financial markets over the macroeconomic fundamentals.
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The purpose of this paper is to examine the usefulness of statistical studies of financial reports and stock market data for improving corporate financial reports.
Abstract
Purpose
The purpose of this paper is to examine the usefulness of statistical studies of financial reports and stock market data for improving corporate financial reports.
Design/methodology/approach
Analytical writing.
Findings
It is often claimed that statistical studies of co-variation between financial and stock market data can help set better financial reporting policy. Such co-variation, even when it can be estimated, tells us little about which financial reports help to make better financial decisions. A case in support of such claims remains to be made.
Practical implications
The readers are advised to be extremely careful in drawing inferences from studies of co-variation between accounting and stock market data for financial reporting policy.
Social implications
Inference from accounting empirical studies to policy needs better rationale to avoid bad policy consequences.
Originality/value
This paper raises original questions about policy inferences from a large class of empirical research in accounting.
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Oli Ahad Thakur, Matemilola Bolaji Tunde, Bany-Ariffin Amin Noordin, Md. Kausar Alam and Muhammad Agung Prabowo
This study empirically investigates the relationship between goodwill assets and capital structure (i.e. debt ratio) of firms and the moderating effect of financial market…
Abstract
Purpose
This study empirically investigates the relationship between goodwill assets and capital structure (i.e. debt ratio) of firms and the moderating effect of financial market development on the relationship between goodwill assets and capital structure.
Design/methodology/approach
This research applied a quantitative method. The article collects large samples of listed firms from 23 developing and nine developed countries and applied the panel data techniques. This research used firm-level data from the DataStream database for both developed and developing countries. The study uses 4,912 firm-level data from 23 developing countries and 4,303 firm-level data from nine developed countries.
Findings
The findings reveal a significant positive relationship between goodwill assets and capital structure in developing countries, but goodwill assets have a significant negative relationship with capital structure in developed countries. Moreover, financial market development positively moderates the relationship between goodwill assets and the capital structure of firms in developing countries. The results inform firm managers that goodwill assets serve as additional collateral to secure debt financing. Moreover, policymakers should formulate a debt market policy that recognizes goodwill assets as additional collateral for the purpose of obtaining debt capital.
Research limitations/implications
The study has several implications. First, goodwill assets are identified as a factor of capital structure in this study. Fixed assets have been identified as one of the drivers of capital structure in previous research, although goodwill assets are seldom included. Second, this article shows that along with demand-side determinants, supply-side determinants also play an important role in terms of the firms' choice about the capital structure. Therefore, firms should take both the demand-side and supply-side factors into consideration when sourcing for external financing (i.e. debt capital).
Originality/value
The study considered goodwill as a component of capital structure. The study analysis includes a large sample of enterprises, including 4,912 big firms from 23 developing countries and 4,303 large firms from nine industrialized or developed countries, which adds to the current capital structure information. Furthermore, a large sample size increases the results' robustness and generalizability.
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Josephine Ofosu-Mensah Ababio, Eric B. Yiadom, Emmanuel Sarpong-Kumankoma and Isaac Boadi
This study aims to examine the relationship between financial inclusion and financial system development in emerging and frontier markets.
Abstract
Purpose
This study aims to examine the relationship between financial inclusion and financial system development in emerging and frontier markets.
Design/methodology/approach
Using data across 35 countries over 19 years (2004–2022), the improved GMM estimation technique reveals that financial inclusion significantly contributes to the development of financial systems.
Findings
The study uses a segmented approach, dividing financial development indices into subindices: financial depth, financial access and financial efficiency. Indicators of bank financial inclusion show a positive and highly significant relationship with bank depth and access but a negative relationship with bank efficiency. Similarly, indicators of the debt market and stock market financial inclusion demonstrate positive relationships with market depth and access but negative relationships with debt and stock market efficiency. The study further examines composite indexes of financial inclusion for bank, debt and stock market segments, finding strong and highly significant relationships with market development. These results underscore the importance of promoting financial inclusion across all segments of the financial sector to achieve an inclusive financial system.
Practical implications
The implications of this research highlight the need for policymakers and practitioners to implement policies and regulations that enhance financial inclusion and foster the development of robust financial systems. By extending access to mainstream financial instruments and services, financial institutions can stimulate financial intermediation and support, thereby accelerating the development of the banking, debt and stock markets.
Originality/value
The study is robust to the use of several indicators of financial inclusion and financial development, and it forms part of the early studies that examine the close relationship between the two variables.
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Wee-Yeap Lau and Tien-Ming Yip
This study aims to examine to what extent the Japanese financial markets are affected by the four periods of unconventional monetary policies (UMP) implemented by the Bank of…
Abstract
Purpose
This study aims to examine to what extent the Japanese financial markets are affected by the four periods of unconventional monetary policies (UMP) implemented by the Bank of Japan from 2013 to 2020.
Design/methodology/approach
Using the daily 10-year term spread as a proxy for monetary easing policy, this study uses four sub-sample periods from 2013 to 2020 to look into the effectiveness of UMP on the Japanese financial markets.
Findings
Our result shows that not all of the Bank of Japan's unconventional monetary policies are equally effective in influencing the Japanese financial markets. In particular, the QQE policy implemented from April 2013 to October 2014 effectively influenced the stock market, banking sector and foreign exchange market. However, the financial market impact of monetary policy is muted during the QQE expansion period. Likewise, the QQE with a negative interest rate policy influences only the banking sector. Finally, the QQE with its yield curve control policy effectively impacts the financial markets.
Research limitations/implications
This research can be expanded by studying the international spillover effect of the Bank of Japan's UMP on the financial markets in Asian countries.
Practical implications
The findings of this study enable investors to understand the causal relationship between the Bank of Japan's UMP and the financial market indicators, thereby helping them to position their portfolio investments. From the policy perspective, the finding is useful to inform the Bank of Japan on which policy is relatively effective in affecting the financial markets. In light of the empirical finding, the Bank of Japan should continue to pursue the QQE YCCP or revert to the initial QQE policy, as the two policies are relatively more effective than the QQE expansion and QQE NIRP in affecting the Japanese financial markets.
Social implications
The empirical finding highlights the importance of controlling for the impact of different QQE policies in the model. Future research may consider conducting sub-sample analysis to cater to the different QQE policy regimes. This approach provides a clearer picture and valid inferences on the financial market impact of each QQE policy.
Originality/value
This study provides a comprehensive analysis of the impact of Bank of Japan's QQE on the Japanese financial markets. For the market participants, the findings of this study suggest that investors should closely gauge the development of the unconventional monetary policies of the Bank of Japan because the monetary easing policy influences the decision-making process of commercial banks, pension funds, mutual funds, retail investors and other stakeholders in the financial markets. The policy twist will have future ramifications for their loan, investment and retirement fund portfolios.
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Brahim Gaies and Najeh Chaâbane
This study adopts a new macro-perspective to explore the complex and dynamic links between financial instability and the Euro-American green equity market. Its primary focus and…
Abstract
Purpose
This study adopts a new macro-perspective to explore the complex and dynamic links between financial instability and the Euro-American green equity market. Its primary focus and novelty is to shed light on the non-linear and asymmetric characteristics of dependence, causality, and contagion within various time and frequency domains. Specifically, the authors scrutinize how financial instability in the U.S. and EU interacts with their respective green stock markets, while also examining the cross-impact on each other's green equity markets. The analysis is carried out over short-, medium- and long-term horizons and under different market conditions, ranging from bearish and normal to bullish.
Design/methodology/approach
This study breaks new ground by employing a model-free and non-parametric approach to examine the relationship between the instability of the global financial system and the green equity market performance in the U.S. and EU. This study's methodology offers new insights into the time- and frequency-varying relationship, using wavelet coherence supplemented with quantile causality and quantile-on-quantile regression analyses. This advanced approach unveils non-linear and asymmetric causal links and characterizes their signs, effectively distinguishing between bearish, normal, and bullish market conditions, as well as short-, medium- and long-term horizons.
Findings
This study's findings reveal that financial instability has a strong negative impact on the green stock market over the medium to long term, in bullish market conditions and in times of economic and extra-economic turbulence. This implies that green stocks cannot be an effective hedge against systemic financial risk during periods of turbulence and euphoria. Moreover, the authors demonstrate that U.S. financial instability not only affects the U.S. green equity market, but also has significant spillover effects on the EU market and vice versa, indicating the existence of a Euro-American contagion mechanism. Interestingly, this study's results also reveal a positive correlation between financial instability and green equity market performance under normal market conditions, suggesting a possible feedback loop effect.
Originality/value
This study represents pioneering work in exploring the non-linear and asymmetric connections between financial instability and the Euro-American stock markets. Notably, it discerns how these interactions vary over the short, medium, and long term and under different market conditions, including bearish, normal, and bullish states. Understanding these characteristics is instrumental in shaping effective policies to achieve the Sustainable Development Goals (SDGs), including access to clean, affordable energy (SDG 7), and to preserve the stability of the international financial system.
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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.
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Fernando Angulo-Ruiz, Naveen Donthu, Diego Prior and Josep Rialp-Criado
This study aims to ask whether the funding behaviour of companies is different during a recession. Specifically, the authors study whether firms fund marketing resources and…
Abstract
Purpose
This study aims to ask whether the funding behaviour of companies is different during a recession. Specifically, the authors study whether firms fund marketing resources and capabilities with internal or external financing during a recession and under which conditions of strategic financial flexibility debt might be used to fund marketing resources and capabilities in recessions.
Design/methodology/approach
This study estimates empirical models using a newly merged data set covering 17 years, from 2000 to 2016. The authors merge firms’ marketing and financial information from Advertising Age, the American Customer Satisfaction Index, Compustat and the Centre for Research in Security Prices. The sample includes a panel of 653 firm-years of 67 top corporate advertisers.
Findings
The results indicate that firms take recessions as opportunities to be proactive and invest in short- and long-term marketing capabilities, companies with higher strategic financial flexibility relative to their industry peers tend to rely more on debt to fund short- and long-term marketing capabilities during recessions, firms use internal financing to fund their marketing budgets and short-term marketing capabilities in recessionary and non-recessionary periods and firms use internal financing and signals from past stock returns as mechanisms to fund long-term marketing capabilities.
Research limitations/implications
The findings contribute to the body of knowledge on the antecedents of marketing resources and capabilities. The results extend the pecking order theory to include recessions and provide nuances of the financing drivers of resources and capabilities.
Practical implications
Companies should be proactive during recessions and invest in short- and long-term marketing capabilities. When negotiating marketing budgets with chief financial officers, marketing practitioners could suggest the sources to finance specific marketing resources and capabilities. Based on the results of top corporate advertisers, the authors recommend companies to fund marketing capabilities with internal resources (e.g. cash flows, retained earnings), and if cash is not available, companies need to rely on their superior strategic financial flexibility to access long-term debt and fund investments in marketing capabilities. The authors also recommend companies to fund long-term marketing capabilities by re-allocating investments. As well, signals from past performance are an important source to gain access to capital and fund investments in long-term marketing capabilities.
Originality/value
This study provides a more complete picture of the financial antecedents of marketing resources and capabilities in general and during a recession. The authors provide light on the moderating role of strategic financial flexibility during recessions. This study also clarifies the potential signalling of past performance for funding marketing resources and capabilities.
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R.M. Ammar Zahid, Alina Taran, Muhammad Kaleem Khan and Can Simga-Mugan
This study investigates the influence of ownership composition on market-based and accounting-based financial performance in the European frontier markets (EFMs), a target region…
Abstract
Purpose
This study investigates the influence of ownership composition on market-based and accounting-based financial performance in the European frontier markets (EFMs), a target region for global investors.
Design/methodology/approach
Ownership composition is defined as shareholders' concentration and structure (i.e. foreign, domestic, state and free-float), whereas financial performance is measured as Tobin's Q and return on assets. The system generalised method of moments panel data estimation technique is employed on a sample of 241 companies.
Findings
Findings reveal that companies from European Union (EU) frontier markets are controlled, on average, by one to five large shareholders. Being a signal of expropriation rationale of majority shareholders regardless of the capital structure, this highly concentrated ownership and decision-making model negatively affects the market-based and accounting-based financial performance of the companies and thereby supports the agency theory in the frontier markets.
Research limitations/implications
The findings provide empirical evidence for authorities, investors, analysts and corporations regarding the effect of ownership percentage and structure in the Eastern European region, assisting also other frontier and emerging markets in corporate governance and other regulatory decisions.
Originality/value
The ownership–performance relationship varies from developed to emerging markets with conflicting results. This study provides evidence on monitoring and expropriation effects of majority shareholders in the context of different categories of shareholders. In doing so, it combines the analysis of both ownership concentration and structure in the EFMs.
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This study compares the motives of holding cash between developed (Australian) and developing (Malaysian) financial markets.
Abstract
Purpose
This study compares the motives of holding cash between developed (Australian) and developing (Malaysian) financial markets.
Design/methodology/approach
For the period 2006–2020, the t-test, fixed-effect and generalised method of moment (GMM) model have been applied to a sample of 1878 (1,165 Australian and 713 Malaysian) firms.
Findings
The empirical results reveal that firms in developed financial markets hold higher cash compared to the developing financial markets. The findings confirm that motives to hold cash differ between developed and developing financial markets. The GMM findings further show that cash holdings (CH) in Australia are higher due to higher ratios of cash flow, research and development (R&D) and return on assets (ROA), and lower due to larger dividend payments. In the Malaysian market, however, cash flows and R&D are ineffectual, ROA falls and dividend payments rise CH.
Practical implications
The study helps managers, practitioners and investors understand that firms' distinct economic, institutional, accounting and financial environments are important. To attain the desired outcomes, they must thus comprehend and consider these considerations while developing suitable liquidity strategies.
Originality/value
To the authors' best knowledge, this is the initial research demonstrating how varied cash motives and their ramifications are in developed and developing financial markets. Therefore, this study identifies the importance that CH motives varied among financial markets and that findings from a particular market cannot be generalised to other markets because of the market and financial structural variations.
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