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Article
Publication date: 26 December 2024

Ruba Hamed, Jan Smolarski, Wasim Al-Shattarat and Basiem Al-Shattarat

This study aims to investigates the impact of newly implemented regulations on corporate social responsibility (CSR) reporting on company performance. It also seeks to understand…

Abstract

Purpose

This study aims to investigates the impact of newly implemented regulations on corporate social responsibility (CSR) reporting on company performance. It also seeks to understand the value relevance of CSR reporting after implementing the regulation and how strategic emphasis can either mitigate or enhance these relationships.

Design/methodology/approach

The study uses a sample of UK-listed companies on the London Stock Exchange, specifically those included in the FTSE All-Share index, from 2006 to 2020. The final data set consists of 2,385 firm-year observations. This study used a quantitative approach to examine the main hypotheses.

Findings

The findings indicate that mandating CSR reporting has a beneficial influence on a company’s future performance. Furthermore, mandatory CSR reporting enhances the performance of the company when the company’s strategy emphasises value appropriation rather than value creation. In addition, mandatory CSR reporting has value relevance as it provides valuable information to evaluate the market value of companies, and this link strengthens when a company enhances its strategic emphasis.

Practical implications

The findings of this study indicate that policymakers should enhance CSR regulations to motivate firms to strategically integrate CSR, thereby boosting both financial and social value. Implementing standardised reporting metrics would enhance transparency, while companies that view CSR as a strategic asset may experience increased market value and greater stakeholder trust.

Social implications

Examining mandatory CSR promotes transparency and stakeholder engagement, potentially driving innovation and informing effective CSR policies.

Originality/value

This study fills several gaps in the literature about mandated CSR reporting in a developed market, how a company’s strategic approach to mandatory CSR reporting can influence its financial performance and stock price, and whether a company’s exposure to its customer base affects mandatory CSR reporting.

Details

Sustainability Accounting, Management and Policy Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-8021

Keywords

Article
Publication date: 10 April 2017

Andres Bello, Jan Smolarski, Gökçe Soydemir and Linda Acevedo

The purpose of this paper is to investigate to what extent hedge funds are subject to irrationality in their investment decisions. The authors advance the hypothesis that…

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Abstract

Purpose

The purpose of this paper is to investigate to what extent hedge funds are subject to irrationality in their investment decisions. The authors advance the hypothesis that irrational behavior affects hedge fund returns despite their sophistication and active management style.

Design/methodology/approach

The irrational component may follow a pattern consistent with the observed hedge fund returns yet far distant from market fundamentals. The authors include factors beyond the original version of capital asset pricing model such as Fama and French and Carhart models, as well as less stringent models, such as APT and Fung and Hsieh, to test whether these models are able to capture the irrational nature of the residuals.

Findings

After finding that institutional irrational sentiments play a role in hedge fund returns, we note that the returns are not completely shielded against irrational trading; however, hedge fund returns appear to be affected only by the irrational component derived from institutional trading rather than that emanated from individuals.

Research limitations/implications

Different sources of irrationality may have asymmetric effects on hedge fund returns. Using a different set of sophisticated investors along with different market sentiment proxies may yield different results.

Practical implications

The authors argue that investors can use irrational beta to gauge the extent of institutional irrational sentiments prevailing in markets for the purpose of re-adjusting their portfolios and therefore use the betas as an early warning sign. It can also guide investors in avoiding funds and strategies that display greater irrational behavior.

Originality/value

The study advance the idea that the unexpected, hereafter irrational, component may follow a pattern consistent with the observed hedge fund returns, yet different from market fundamentals.

Details

Review of Behavioral Finance, vol. 9 no. 1
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 18 November 2019

Jose G. Vega, Jan Smolarski and Jennifer Yin

The purpose of this paper is to examine restrictions placed by the Troubled Asset Relief Program (TARP) on executive compensation during the financial crisis. Since it remains…

Abstract

Purpose

The purpose of this paper is to examine restrictions placed by the Troubled Asset Relief Program (TARP) on executive compensation during the financial crisis. Since it remains unclear if TARP restored public confidence in financial institutions, the authors also analyze what effect such regulations had on investors’ confidence in the information provided by earning with respect to executive compensation during this critical period.

Design/methodology/approach

To test the assertions, the authors employ an Earnings Response Coefficient model, which captures the association between firms’ earnings surprise (ES) and perceived earnings informativeness. The authors implement both a long- and short-window test to obtain a better understanding of the effects of TARP on financial institutions’ earnings informativeness. The authors use the long-window approach to gather evidence about whether and how financial institutions’ ES are absorbed into security prices conditional on both their participation in TARP and their compliance with TARP’s compensation restrictions. The authors attempt to establish a stronger causal link by also using a short-window approach.

Findings

The authors find that firms paying their CEOs above the TARP threshold show higher earnings informativeness. Financial institutions that paid their CEOs above the TARP threshold achieved better performance during their participation in TARP. The authors also find that a decrease in total compensation while participating in TARP is associated with improved earnings informativeness. Lastly, separating total compensation into its cash and stock-based components, the authors find that firms improve earnings informativeness when they increase (decrease) cash (performance) compensation during TARP. However, overall earnings informativeness decreases during and after TARP relative to the pre-TARP period.

Practical implications

The research suggests that executive compensation incentives affect earnings informativeness and that tradeoffs are made between direct and indirect costs in retaining executives. The results have implications for policy makers, investors and researchers because the results allow policy makers and regulators to improve on how they design and implement accounting, market and finance regulations and reforms. Investors may potentially use the results when evaluating firm experiencing financial and, in some case, political distress. It also helps firms and offering optimal compensation contracts to create proper incentives for executives and ensure that managerial actions result in successful firm performance.

Social implications

The study shows how firms react to changing regulations that affect executive compensation and earning informativeness. The results of the study allow regulators to potentially design more effective regulations by targeting certain aspects of firms’ operation such excessive risk-taking behavior and rent extraction opportunities.

Originality/value

There are very few studies that deal with how firms react to regulation that affect executive compensation. The authors provide evidence regarding what effect TARP and its compensation restrictions had on financial institutions’ earnings informativeness. The evidence in the study will further regulators’ understanding of whether TARP improved investors’ confidence in financial institutions. The paper also contributes to the understanding in how changes in executive compensation in times of high political scrutiny affect investors’ perceptions of firm performance.

Article
Publication date: 30 October 2019

Jan M. Smolarski, Neil Wilner and Jose G. Vega

This paper aims to examine the applicability of real options methodology with respect to developing internal transfer pricing mechanisms. A pervasive theme in existing models is…

Abstract

Purpose

This paper aims to examine the applicability of real options methodology with respect to developing internal transfer pricing mechanisms. A pervasive theme in existing models is their inability to handle the dynamic and volatile nature of today’s business environment, as well as their lack of objective managerial flexibility. The authors address these and other issues and develop a transfer pricing mechanism based on Black–Scholes and the binomial options pricing methodology, which is better suited in today’s dynamic business environment.

Design/methodology/approach

The authors use a conceptual approach in developing theoretical justifications and show, practically, how a transfer price can be developed using two different real options pricing models.

Findings

The authors find that real options transfer price mechanism (real options framework [ROF]) can effectively deal with many of the issues that permeate a modern organization with complex multi-dimensional operations. The authors argue that uncertainty and behavioral issues commonly associated with setting transfer prices are better handled using a transfer pricing mechanism that preserves flexibility at the business unit level, the managerial level and the firm level. The approach allows for different managerial styles in both centralized and decentralized sub-units within the same organization. The authors argue that an open multi-dimensional framework using real options is suitable under conditions of uncertainty and managerial opportunism.

Practical implications

ROF-based transfer pricing may be significant in that firms can use it as a tool to manage an organization by setting the prices centrally and at the same time allowing managers to select the transfer price that best suits their specific situation and operating conditions. This may result in a more efficient and more profitable organization.

Originality/value

The contribution of the paper is the melding of the ROF from the finance literature with the accounting problem of setting a transfer price for items lacking a competitive market price. The authors also contribute to existing research by explicitly developing a framework that values managerial flexibility, takes into account uncertainty and considers the behavioral aspects of the transfer pricing process. The authors establish the conditions under which a generic real options model is a feasible alternative in determining a transfer price.

Details

Journal of Accounting & Organizational Change, vol. 15 no. 4
Type: Research Article
ISSN: 1832-5912

Keywords

Article
Publication date: 2 October 2007

Jan Smolarski

Private equity funds invest in high‐risk projects and firms. One aspect of investing in small‐ to medium‐sized enterprises and in participating in buy‐out transactions is managing…

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Abstract

Purpose

Private equity funds invest in high‐risk projects and firms. One aspect of investing in small‐ to medium‐sized enterprises and in participating in buy‐out transactions is managing risk at the pre‐investment stage. The purpose of this paper is to document existing pre‐investment risk management practices of European and Indian fund managers, to explore if vijayamathirz techniques differ based on legal system and in developing markets (India), and determine if fund size affects risk management practices.

Design/methodology/approach

This study analyzes risk management preferences at the pre‐investment stage among funds that operate in common and civil law countries. Data was collected using a survey instrument.

Findings

The results indicate few differences. Where differences are found, they appear related to issues concerning asymmetric information and market structures. Legal systems do not appear to be a significant explanatory factor in determining how private equity funds manage risk at the pre‐investment stage.

Originality/value

The results are useful to fund managers in improving their existing pre‐investment risk strategies. Fund sponsors may use this study to benchmark their existing and future fund managers.

Details

International Journal of Emerging Markets, vol. 2 no. 4
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 22 February 2011

Jan Smolarski, Neil Wilner and Weifang Yang

The purpose of this paper is to examine the use of financial information and valuation methods among private equity funds in Europe and India. The authors analyze differences in…

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Abstract

Purpose

The purpose of this paper is to examine the use of financial information and valuation methods among private equity funds in Europe and India. The authors analyze differences in the choice of valuation methods and how the use of financial information differs among funds in the UK, Pan Europe and India.

Design/methodology/approach

A survey approach was utilized in collecting proprietary data from European and Indian private equity funds. The data were classified according to fund type, country grouping, size, risk profile, labor cost and industry structure and analyzed using MANOVA and ANOVA.

Findings

The results show that the use of valuation models is relatively homogeneous across countries and that the use of financial information appears to be driven to a large extent by fund type and fund focus. The use of audited financial statements appears to increase as firms mature. Significant differences were found in standard financial adjustments between the two fund types and between the country groupings. Results based on labor cost are weakly significant whereas industry structure does not appear to have an impact on how fund managers evaluate investments.

Research limitations/implications

The results indicate that fund managers adapt their decision‐making behavior according to investment type and risk. The authors argue that understanding asymmetrical and structural issues may potentially improve investment decision‐making processes. The main conclusion for researchers is that buy‐out and venture capital funds should not be combined as one asset class. Since a survey approach was used, the study is subject to the belief that fund managers do not internalize decisions well, which could reduce the effectiveness of the research design.

Originality/value

There are few studies in the areas covered by this paper due to the proprietary nature of the private equity industry. The results are important because they help in understanding how fund managers use decision aids such as financial statements and valuation techniques. A better understanding of current practices will help fund managers and fund sponsors in devising improved decision aids and processes, which ultimately may lead to fewer non‐performing investments. This is especially important in private equity since investment decisions are often irreversible and binary.

Details

Review of Accounting and Finance, vol. 10 no. 1
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 5 May 2015

Jose G Vega, Jan Smolarski and Haiyan Zhou

The purpose of this paper is to examine if the enactment of Sarbanes-Oxley (SOX) resulted in lower risk premium and return volatility in the US stock markets. The paper examines…

Abstract

Purpose

The purpose of this paper is to examine if the enactment of Sarbanes-Oxley (SOX) resulted in lower risk premium and return volatility in the US stock markets. The paper examines the two components of excess return (total risk premium) separately: the amount of volatility (risk) and the unit price of risk (risk premium).

Design/methodology/approach

The authors use a Component Generalized Autoregressive Conditional Heteroskedasticity approach to estimate the permanent and transitory component of share price volatility. The authors then use the predicted volatility to measure the unit price of risk and its changes due to the enactment of the SOX Act.

Findings

The results regarding excess returns indicate that the implementation of SOX had a positive effect on the market. A positive effect means a steady decrease in required excess rates of returns due to the implementation of SOX. The years leading up to the implementation of SOX are characterized by significant sources of uncertainty. Around the implementation of SOX, the authors observe a long-term reduction in return volatility (risk), and a temporary reduction in the unit price of risk. Subsequent to the implementation, investors gained confidence in the effectiveness of internal controls over the financial reporting process, which helped in reducing the information risk and, therefore, the risk premium.

Research limitations/implications

The authors find that total risk premium decreased over extended periods. The authors conclude that the enactment of SOX helped in reducing the uncertainty in the US capital market resulting in a reduction of total risk premiums and hence the cost of capital.

Practical implications

The results have implications for policy makers, investors and researchers in general and those in the US markets in particular. The results are important because it allows policy makers and regulators to improve on how they design and implement accounting, market and finance regulations and reforms.

Social implications

The study shows how financial markets react to regulations and the authors also provide information on investors’ reaction as firms adjust to changing regulations. The results of the study allows regulators to potentially use a more refined or targeted approach when introducing new regulations. It also allows investors to make informed investment decisions as they relate to risk premium requirements, which in turn may allow investors to allocate capital more efficiently.

Originality/value

There are many studies concerning the enactment of SOX but few, if any, existing studies examine the original intent of SOX: to calm the US equity markets and restore market confidence from a return volatility perspective. The results have implications for policy makers, investors and researchers in general and those in the US markets in particular. The results are important because it allows policy makers and regulators to improve on how they design and implement accounting, market and finance regulations and reforms.

Details

Asian Review of Accounting, vol. 23 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

Content available
Article
Publication date: 1 January 2006

1613

Abstract

Details

International Journal of Emerging Markets, vol. 1 no. 1
Type: Research Article
ISSN: 1746-8809

Content available
Article
Publication date: 2 October 2007

Yusaf H. Akbar

262

Abstract

Details

International Journal of Emerging Markets, vol. 2 no. 4
Type: Research Article
ISSN: 1746-8809

Article
Publication date: 13 August 2024

Haruna Babatunde Jaiyeoba, Mohammad Aizat Jamaludin, Saheed Abdullahi Busari and Yusuff Jelili Amuda

This study aims to qualitatively examine the implications of Maqasid al-Shari’ah (objectives of Islamic law) for sustainability practices among businesses. While there is a…

Abstract

Purpose

This study aims to qualitatively examine the implications of Maqasid al-Shari’ah (objectives of Islamic law) for sustainability practices among businesses. While there is a growing recognition of the importance of adopting an integrated approach to sustainability, several businesses remain focused on profit maximisation at the expense of environmental and social sustainability. As such, there is a need for more studies that emphasise sustainability practices, essentially to expose businesses to the best ways to meet the needs of today without negatively impacting future generations.

Design/methodology/approach

This research used a qualitative research design, and data were collected from Shari’ah scholars. To facilitate data collection, semi-structured interview questions were developed and used to conduct interviews with ten Shari’ah scholars in Malaysia. Thematic analysis was used to analyse the interview data collected for this study.

Findings

The results demonstrate that there are ample justifications from a Shari’ah perspective for integrated sustainability practices. Additionally, the study reveals a need for increased awareness regarding the importance of businesses adopting a holistic approach to sustainability through the formulation and implementation of suitable sustainability strategies and ensuring compliance with social and environmental standards.

Research limitations/implications

While this study has primarily adopted a qualitative method to address the implications of Maqasid al-Shari’ah for integrated sustainability practices among businesses, the authors acknowledge that this approach may not capture the full spectrum of quantitative data that could provide a broader statistical perspective on the issue. Hence, future research could incorporate quantitative methods to complement the findings of this study.

Originality/value

This research constitutes an innovative addition to the field of corporate sustainability practices. To the best of the authors’ knowledge, no prior studies have extensively explored the intricate intersection of Maqasid al-Shari’ah and integrated corporate sustainability practices as this study has done.

Details

Qualitative Research in Financial Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1755-4179

Keywords

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