Search results

The purpose of this paper is to examine the effect of Sharia-compliance (SC) on investment sensitivity to internal funds in oil rich countries.

A fixed-effect panel technique with OLS regression is used to investigate such relationship applying data from a sample of 207 non-financial firms listed on the Gulf Cooperation Council (GCC) stock markets over the period 2009–2014.

The results show that the investment-cash flow (ICF) sensitivity is positive, and is a lot larger for more constrained firms. Compared to developed markets, the results show higher ICF sensitivity in GCC countries. The evidence also shows that SC decreases the dependence of firms on internally generated funds when undertaking new investment projects. Unexpectedly, the results reveal that the ICF sensitivity increases when liquidity becomes abundant. Additional analysis suggests that investment expenditures of firms display a greater sensitivity to cash flow in the crisis period.

The implications of this study are that SC is a nature of business that reduces the propensity of corporations to undertake inefficient investments that are derived from capital market imperfections. However, manager ability to overinvest increases when liquidity is abundant suggesting that cash-rich firms are more likely to engage in value-decreasing projects.

The proposed study presents several originalities. First, it provides evidence on ICF sensitivity in specific emerging economies, namely the GCC countries. Second, it highlights the issue of efficient investment. For this purpose, the present paper focuses on Sharia-compliant (SC) firms where financial constraints are bound to be more stringent than for non-Sharia-compliant (NSC) firms. Finally, the study findings enable us to investigate what the sudden abundance of liquidity, generated by the record levels of oil prices, as well as the financial crisis implied for the ICF relationship.

The purpose of this paper is to examine whether the basic premises according to the pecking order theory (POT) provide an explanation for the capital structure mix of firms operating under Islamic principles.

Pooled ordinary least squares, fixed and random effects regressions were performed to test the POT applying data from a sample of 66 Islamic-compliant firms listed on Saudi Stock Market over the period 2006–2016.

The results show that sale-based instruments (Murabahah, Ijara) track the financial deficit quite closely followed by equity financing and as a last alternative to finance deficit, Islamic-compliant firms issue Sukuk. In the crisis period, these firms seem more reliant on equity, then on sale-based instruments and on Sukuk as last option. The study findings also indicate that the cumulative financing deficit does not wipe out the effects of conventional variables, although it is empirically significant. This provides no support for the POT attempts by Saudi Islamic-compliant firms

This research contributes to the theory of capital structure in re-validating the findings of a previous theoretical and empirical study. It helps understand the capital structure of Islamic-compliant firms in comparison with conventional firms. It highlights some areas where further research on topics related to capital structure of Islamic-compliant firms is needed. The failure of the POT to explain Saudi firms’ financing choices strongly pushed researchers to test the market timing theory for the Saudi Stock Market. Further research studies could re-examine the trade-off theory in the absence of interest tax shield as in an Islamic economy.

From a managerial perspective, this research can serve firm executive managers in their financing decisions to add value to the companies. Furthermore, policymakers, bankers and standard-setting organizations should undertake more collective work to simplify the process of issuing Islamic financial instruments including Sukuk. Moreover, the Saudi Government has to encourage the private sector to be more innovative in developing products and services that are in line with Sharia principles. Finally, to attract investors, the Capital Market Authority has to encourage transaction, efficiency and liquidity of Islamic financial instruments.

The proposed study presents several originalities. First, it explores the implications of relevant Islamic principles on financing preferences of Saudi firms. Second, the present study enables us to investigate what the sudden abundance of liquidity, generated by the record levels of oil prices, implied for the firms’ financing behavior. Finally, it provides further evidence on the impact of financial crisis on the firms’ capital structure choice in a period of considerable slowdown in the world.

The purpose of this paper is to investigate and clarify “irrationality” problem through the maritime industry practices and leading incentives behind common investors.

This paper includes a review of broader business and economics literature; review of shipping business practices and detection of institutional pathways and misleading mechanisms behind the irrational preferences; investigation of data (for some arguments); and introduction of a theoretical approach.

There are several industry practices and norms well established and followed by decision makers, which may cause and initiate illogical and irrational (long-run) preferences. Short-termism is an erroneous habit of common shipping investors, which is embedded and forced through traditional financial math (i.e. discounted cash flow), financial system (e.g. initial public offerings with high-frequency transactions, interest rate governance and asset valuation mechanism) or flawed contracting tradition (i.e. commission bias).

Both shipping business and financial institutions need to redesign their working mechanisms, evaluation systems, risk detection and assessment procedures. As discussed in Section 4.7, commission-based (float) services must be converted to regular flat rate payments with long-term contracts to protect investors from rational choices of intermediaries in the short-run which encourages investor’s irrationality. Having a long-term service contract will also improve sustainability of intermediaries and lower their business risk (win-win).

The impact of this paper is two-fold. First, it raises critical questions about professional decay and drawbacks of some traditional instruments in the shipping business. For the first time, this paper emphasises on various challenges which deteriorate credibility of the industry and causes ill-defined investments. Some arguments have extreme priority for strengthening the foundations of the industry. Second, this paper establishes a new stream of scholarly research highlighting weaknesses of conventional economic approach and demand for outsourcing other schools of economics (e.g. institutional and behavioural) into the shipping business.

The purpose of this paper is to examine whether board characteristics moderate the relationship between capital adequacy regulation and bank risk-taking of universal banks in Sub-Saharan Africa (SSA).

The paper uses 700 bank-year observations of universal banks in SSA between 2009 and 2019. The paper further uses the two-step generalized method of moments as the baseline estimator.

The paper finds that capital adequacy regulation is positively related to overall bank and liquidity risks. Nonetheless, capital adequacy regulation increases credit risk in the sampled banks. The paper further reports that board characteristics individually and significantly moderate the relationship between capital adequacy regulation and risk-taking.

The findings have implications for regulators of universal banks that board characteristics matter for capital adequacy regulation to impact risk-taking behavior.

The paper extends the existing literature on the effect of board characteristics on the capital adequacy regulations and risk-taking behavior nexus of universal banks.

This paper aims to explore how Sharia principles could impact capital structure determinants and speed of adjustment of Islamic banks (IBs) compared to conventional banks (CBs) in the Gulf Cooperation Council countries (GCC).

This study applies the autoregressive distributed lag (ARDL) approach for a sample of 69 banks listed on GCC stock markets over the period 2009–2018.

Regression results indicate that tangibility and bank size are positively related to book leverage of both IBs and CBs, whereas profitability, liquidity and risk are negatively related. For growth opportunities, the results show opposing effect on book leverage of IBs and CBs, regarding macroeconomic variables, the authors find that gross domestic product and financial development are negatively related to book leverage of both IBs and CBs, whereas oil price change is positively related. Moreover, the authors find that IBs slowly adjust their capital structure toward the desired leverage ratio than CBs. In sum, the capital structure of IBs appears to be driven by similar factors to those previously found in the corporate finance literature.

This research contributes to the theory in re-validating capital structure theories on IBs. It helps understand the capital structure of IBs in comparison with CBs. It highlights some areas where further research on topics related to capital structure of IBs is needed.

The paper can contribute to policymakers and governance function in understanding the choice of capital structure for IBs within the bound of Sharia requirement in different economic climate through its relation with the macroeconomic variables. Practically, the directors and managers can predict the best capital structure to be achieved by IBs in ensuring their performance is at par, in their quest of additional capital.

This paper offers some insights on the determinants of capital structure by investigating IBs and CBs. It explores the implication of relevant Islamic principles on capital structure. Moreover, it analyses the determinants of capital structure using ARDL method that permits to identify the short-run and long-run relationships between capital structure and its main determinants.

A major lesson of the European Monetary Union crisis is that serious disequilibria in a monetary union result from arrangements not designed to be robust to a variety of shocks. With the specter of this crisis looming substantially and scarring existing monetary zones, the purpose of this paper is to complement existing literature by analyzing the effects of monetary policy on economic activity (output and prices) in the CEMAC and UEMOA CFA franc zones.

VARs within the frameworks of Vector Error-Correction Models and Granger causality models are used to estimate the long- and short-run effects, respectively. Impulse response functions are further used to assess the tendencies of significant Granger causality findings. A battery of robustness checks are also employed to ensure consistency in the specifications and results.

–H1. monetary policy variables affect prices in the long-run but not in the short-run in the CFA zones (broadly untrue). This invalidity is more pronounced in CEMAC (relative to all monetary policy variables) than in UEMOA (with regard to financial dynamics of activity and size). H2. monetary policy variables influence output in the short-term but not in the long-run in the CFA zones. First, the absence of cointegration among real output and the monetary policy variables in both zones confirm the neutrality of money in the long term. With the exception of overall money supply, the significant effect of money on output in the short-run is more relevant in the UEMOA zone, than in the CEMAC zone in which only financial system efficiency and financial activity are significant.

First, compared to the CEMAC region, the UEMOA zone’s monetary authority has more policy instruments for offsetting output shocks but fewer instruments for the management of short-run inflation. Second, the CEMAC region is more inclined to non-traditional policy regimes while the UEMOA zone dances more to the tune of traditional discretionary monetary policy arrangements. A wide range of policy implications are discussed. Inter alia: implications for the long-run neutrality of money and business cycles; implications for credit expansions and inflationary tendencies; implications of the findings to the ongoing debate; country-specific implications and measures of fighting surplus liquidity.

The paper’s originality is reflected by the use of monetary policy variables, notably money supply, bank and financial credits, which have not been previously used, to investigate their impact on the outputs of economic activities, namely, real GDP output and inflation, in developing country monetary unions.

No systematic models are being used in empirical research that provide assurance for the choice of proxies that are being used. The purpose of this paper is to examine the validity of the proxies being used in empirical research, and as a case study, it focuses on the area of financial derivatives.

First, the authors review results of proxies from the financial derivatives literature and follow with empirical tests to confirm the findings from the review.

The review shows that proxies provide mixed results. The findings are further supported by the results from empirical tests. It suggests that measures used in the studies related to financial derivatives theory may need to be refined and highlights that no solid bases or tests have been developed for the proxies used to measure the constructs.

As individual proxies are examined across studies, a meta-regression analysis cannot be used, and there is no other available model to capture this type of examination. The approach adopted has some limitations but provides a basis for examining the reasonableness of proxies as measures of constructs.

This is the first study that attempts to examine the strength of proxies in capturing related constructs. The methodology is unique to a review of past studies in financial derivatives. It supports the need for developing more rigorous models/bases for the measures being used, and this is an area that has been ignored in empirical research.

This study aims to investigate the influence of macroeconomic conditions on corporate cash holdings in terms of their influence on the level of cash and the speed of adjustment of cash to target levels in the Gulf Cooperation Council countries (GCC).

The study employs both static and dynamic regression analyses considering a sample of 2,878 firm-year observations drawn from stock markets in GCC countries over the 2010–2018 period.

Consistent with the precautionary motive, the results show that GCC firms tend to accumulate cash reserves in weak economic periods. Evidence also reveals that the estimated adjustment coefficients from dynamic panel models show that GCC firms adjust more slowly toward their target cash ratio in periods of unfavorable economic conditions.

This study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering financial constraints imposed by macroeconomic conditions. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of macroeconomic factors on firm's cash holding decision. Therefore, in an effort to increase the supply of external financing available to firms, policymakers may devise investment friendly environment by controlling macroeconomic factors.

This paper offers some insights on the macro determinants of cash holdings by investigating emerging economies. It explores the role of macroeconomic conditions on corporate cash holdings in terms of their influence on the costs of external funds and financial constraints.

The funding of innovation is explained by typical cost-based financial approaches. This paper breaks away from such tradition, and the purpose of this paper is to propose an alternative view where innovation funding decisions are strategic and concern interactions between actors – each with their own characteristics and strategic intentions – project features, and traits of the setting in which interactions take place.

This paper builds up an alternative framework to understand how innovation is financed by considering the interplay of innovation characteristics, the strategic reasons of project owners and funders, and the role of the matching environment and conditions. This proposal includes explanatory elements overlooked by extant theories. An illustrative case is presented to support the need for this proposal.

The framework proposed proves useful to better understand innovation funding cases where the traditional financial theory does not suffice.

Innovative companies may improve decision making about resource allocation to innovation; innovation funders may refine their decision-making criteria and implementation; and policy makers and practitioners need to devise better supporting strategies for innovative companies.

This proposal considers a continuum of funding options where supply/demand will match on the grounds of strategic decisions made during the interaction itself, under certain contextual conditions. Hence, it enriches the understanding of strategic decisions regarding firm capital structure and investment theory when it comes to funding innovation.