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Article
Publication date: 1 May 1997

Rajiv D. Banker and Alex Thevaranjan

The impact of accounting earnings based compensation contracts an effort allocation is analyzed using an agency‐theoretic model. In this model, the CEO of a publicly traded firm…

Abstract

The impact of accounting earnings based compensation contracts an effort allocation is analyzed using an agency‐theoretic model. In this model, the CEO of a publicly traded firm expends effort on operational short‐run activities and strategic longrun activities. The shareholders desire the CEO to expend more effort in the strategic longrun activities because the return to shareholders depends more on longrun than short‐run activities. More specifically, they desire the effort to be allocated between these two activities on the proportion of the sensitivity of stock returns to these two activities. Compensating the CEO based on the stock returns performance measure is shown to induce the CEO to exert the desired proportion of effort in the longrun activities. Unlike stock returns, accounting earnings are believed to focus more on the short‐run performance of the firm and not reflect the full impact of a CEO's longrun effort. Compensating the CEO based on accounting earnings, in addition to stock returns, is shown to induce the CEO to expend less than the desired proportion of effort in longrun activities. As the emphasis placed on accounting earnings relative to stock returns increases, the CEO decreases the proportion of effort expended in longrun activities. On the positive side, including accounting earnings in the contract increases the total effort that the CEO exerts in short‐run and longrun activities. The benefit accruing from the increase in total effort more than offsets the dysfunctionality caused by the short‐run focus. More specifically, adding accounting earnings to the incentive contract is shown to increase the expected return to the shareholders. In summary, while accounting earnings cause the CEO to be short‐run focused, their use in the incentive contract improves the firm's performance by motivating the CEO to work harder overall.

Details

Managerial Finance, vol. 23 no. 5
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 4 March 2019

Masudul Alam Choudhury, Mohammad Shahadat Hossain and Mohammad Taqiuddin Mohammad

The purpose of this study of this methodological abstraction is erected the nature of the well-being function as evaluative criterion. The well-being function (maslaha) evaluates…

Abstract

Purpose

The purpose of this study of this methodological abstraction is erected the nature of the well-being function as evaluative criterion. The well-being function (maslaha) evaluates the interrelationships between long-run investment (real sector), the corresponding financial instruments (financial sector) and the embedded socioeconomic variables and ethical values conveyed by extensive complementarities and participation in a systemic approach of unity of knowledge. Among the financing variables to be selected will be the transformation of debt-instruments into equity instruments. All financial instruments are to be transformed into a holistic participatory pooled portfolio.

Design/methodology/approach

The paper establishes the point that, the idea of long-run is appropriately that of a juncture of Islamic change during which the objective of well-being (maslaha) is evaluated (estimation leading to simulation) with long-run investment and Islamic financing instruments on the basis of the Islamic methodological worldview. This methodological worldview is premised on the ontological foundation of the episteme of organic unity of knowledge and the resulting world-system. The Qur’an refers to this foundation of knowledge as Tawhid. Tawhid is used in this paper to mean the Primal Ontological Law of Unity of Knowledge.

Findings

The most critical long-run investment program focused on is poverty alleviation and its equity-based financing instruments that reduce debt progressively to attain sustainable grassroots development with the ability to own, and the social capability to distribute resources and enable the grassroots. The corresponding interaction, integration and evolutionary dynamics of learning that emanate from the interrelationship of poverty alleviation as the focus of long-run investments and their attenuating financing instruments, along with the implications of inter-causal socioeconomic variables and the embedded episteme of unity of knowledge in the well-being function (maslaha). This paper is thus an abstracto-empirical contribution to the literature of Islamic finance, long-run investment and socioeconomic development with global significance.

Research limitations/implications

The choice of long-run investment for poverty alleviation and the corresponding Islamic financing instruments are summarized by the following Tawhidi epistemic schema (an extractive picture). Upon this epistemic methodological worldview, the entire structure of well-being and sustainability of socioeconomic development lies.

Practical implications

The paper brings out many of the properties that ought to be the truly moral/ethical and thereby the conformable analytical nature of the model of financing and investment in a combination of short-, medium- and long-term mobilization of resources to attain levels of social well-being as the objective criterion. Empirical work is done to bring the objective criterion to an applied level and to critically examine the work in the same field being carried out by many other ones, including authors and institutions. The empirical work done here can be widely extended to the case of estimating of the maslaha function (well-being).

Social implications

This paper carries an essentially moral and social perspective in its methodological orientation that is derived from the Islamic epistemological foundations of unity of knowledge (Tawhid) and applied to Islamic finance and investment theory with the well-being objective criterion.

Originality/value

This is an original paper that combines methodological abstraction with applied financing and investment perspectives. Such an abstracto-empirical approach has not been done in Islamic research writings.

Details

Journal of Islamic Accounting and Business Research, vol. 10 no. 2
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 30 May 2023

Marcellin Makpotche, Kais Bouslah and Bouchra M'Zali

This paper aims to investigate the long-run financial and environmental performance of corporate green bond issuers, worldwide.

Abstract

Purpose

This paper aims to investigate the long-run financial and environmental performance of corporate green bond issuers, worldwide.

Design/methodology/approach

The data includes 259 corporate green bond issuers from 2013 to 2020. The authors adopt the matching approach, using the nearest neighbor method to select the control firms. The event-time approach is used to examine corporate green bond issuers’ long-run stock market performance, and robustness tests are conducted using the calendar-time method. The authors examine green bond issuers’ long-run environmental performance and carbon dioxide (CO2) emissions using difference-in-differences estimations.

Findings

In contrast with the earlier long-run event studies, our results reveal that multiple-time issuers, and issuers operating in industries where the natural environment is financially material, perform financially in the long term relative to the control firms. The authors also document that corporate green bond issuers reduce their CO2 emissions, and improve their resource use efficiency and environmental performance, in the long run.

Originality/value

To the authors’ knowledge, this is the first study that looks at the long-run effect of corporate green bond issuance on firms’ stock market performance. It has the particularity to document that corporate green bond issuance is beneficial for investors and positively affects the environment. Our findings help us understand that firms do not issue green bonds for greenwashing.

Details

Managerial Finance, vol. 50 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 6 December 2022

Jake David Hoskins and Abbie Griffin

This research paper aims to investigate detailed relationships between market selection and product positioning decisions and their associated short- and long-term product…

Abstract

Purpose

This research paper aims to investigate detailed relationships between market selection and product positioning decisions and their associated short- and long-term product performance outcomes in the context of the music category: a cultural goods industry with high amounts of product introductions. Market selection decisions are defined by the size, competitiveness and age of market subcategories within an overall product category. Positioning decisions include where a product’s attributes are located spatially in the category (periphery versus the market center), whether a product resides within a single subcategory or spans multiple ones and what brand strategy (single versus co-branding) is used.

Design/methodology/approach

Data are from multiple sources for the US music industry (aka product category) from 1958 to 2019 to empirically test the hypotheses: genres (rock, blues, etc.) correspond to subcategories; artists to brands; and songs to products. Regression analyses are used.

Findings

A complex set of nuanced results are generated and reported, finding that key marketing decisions drive short-term new product success differently and frequently in opposing ways than long-term success. Launching into very new, well-established or very competitive markets leads to the strongest long-term success, despite less attractive short-run prospects. Positioning a product away from the market center and spanning subcategories similarly poses short-run challenges, but long-run returns. Brand collaborations have reverse effects. Short-run product success is found, overall, to be difficult to predict even with strong data inputs, which has substantial implications for how firms should manage portfolios of products in cultural goods industries. Long-run product success is considerably more predictable after short-run success is observed and accounted for.

Originality/value

While managers and firms in cultural goods industries have long relied on intuition to manage market selection and product positioning decisions, this research tests the hypothesis that objective data inputs and empirical modeling can better predict short- and long-run success of launched products. Specific insights on which song characteristics may be associated with success are found – as are more generalizable, industry-level results. In addition, by distinguishing between short- and long-run success, a more complete picture on how key decisions holistically affect product performance emerges. Many market selection and product positioning decisions have differential impacts across these two frames of reference.

Details

Journal of Product & Brand Management, vol. 32 no. 4
Type: Research Article
ISSN: 1061-0421

Keywords

Article
Publication date: 15 May 2007

Wolfgang Bessler and Stefan Thies

The objective of this study is to investigate the longrun performance of initial public offerings (IPOs) in Germany for the period from 1977 to 1995. The paper studies why some…

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Abstract

Purpose

The objective of this study is to investigate the longrun performance of initial public offerings (IPOs) in Germany for the period from 1977 to 1995. The paper studies why some IPO firms have substantial positive and others have substantial negative longrun buy‐and‐hold abnormal returns.

Design/methodology/approach

The paper approaches this problem by differentiating the abnormal return patterns by the following criteria: benchmark, year of going public, security design, money raised, market value and magnitude of underpricing.

Findings

The empirical findings suggest that the subsequent financing activity in the equity market is the most important factor for determining the future performance of an IPO. This variable separates the out‐performers from the under‐performers. Thus, only successful firms have the opportunity to raise additional funds in the equity market through a seasoned equity offering.

Research limitations/implications

Future research should concentrate on investigating whether the introduction of new stock market segments in Germany has changed the longrun performance of IPOs.

Practical implications

The results suggest that firms with a superior performance have the opportunity to raise additional equity whereas the poor performers do not get a second chance to sell equity to the public. This means that firms have to earn at least their cost of capital in order to receive additional funding.

Originality/value

Compared to other research, this study explains the significant difference in longrun performance between two groups of IPOs based on the future financing decision. This finding offers new insights to both academics and practitioners alike.

Details

Managerial Finance, vol. 33 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 29 November 2018

Jesse Alves da Cunha and Yudhvir Seetharam

Opinions have been divided on whether there is a rational explanation to the reason behind seasoned equity offerings (SEOs) or whether the explanation lies within the behavioural…

Abstract

Purpose

Opinions have been divided on whether there is a rational explanation to the reason behind seasoned equity offerings (SEOs) or whether the explanation lies within the behavioural intricacies attributed to stock market participants. The paper aims to discuss these issues.

Design/methodology/approach

This study investigates the long-run performance of firms conducting SEOs on the Johannesburg Stock Exchange (JSE) over the period of 1998–2015, by examining the return performance and operating performance of firms, along with the impact of investor sentiment on these variables.

Findings

The results of this study are inconsistent with the existing literature, which argues that the long-run performance of issuing firms signalled an initial underreaction to SEOs buoyed by over-optimistic investors.

Research limitations/implications

Instead, the long-run performance of issuing firms is adequately explained by the rational models centred on the risk-return framework, implying that investors are reacting swiftly to SEOs in an unbiased fashion.

Originality/value

Investor sentiment does not materially influence the long-run share performance or operating performance of issuing firms, casting doubt on the ability of the market timing theory to explain the long-run performance of SEOs. The authors thus find that SEO performance cannot be explained by behavioural-based reasoning, in contrast to some asset pricing studies on the JSE which indicate the role of sentiment in explaining returns.

Details

International Journal of Emerging Markets, vol. 13 no. 5
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 4 November 2014

Simplice A. Asongu

The purpose of this paper is to examine the effects of monetary policy on economic activity using a plethora of hitherto unemployed financial dynamics in inflation-chaotic African…

Abstract

Purpose

The purpose of this paper is to examine the effects of monetary policy on economic activity using a plethora of hitherto unemployed financial dynamics in inflation-chaotic African countries for the period of 1987-2010.Although in developed economies, changes in monetary policy affect real economic activity in the short-run, but only prices in the long-run, the question of whether these tendencies apply to developing countries remains open to debate.

Design/methodology/approach

Vector autoregresion (VARs) within the frameworks of Vector Error Correction Models and simple Granger causality models are used to estimate the long- and short-run effects, respectively. A battery of robustness checks are also used to ensure consistency in the specifications and results.

Findings

The tested hypotheses are valid under monetary policy independence and dependence, except few exceptions. H1: Monetary policy variables affect prices in the long-run but not in the short-run. For the first-half (long-run dimension) of the hypothesis, permanent changes in monetary policy variables (depth, efficiency, activity and size) affect permanent variations in prices in the long-term. But in cases of disequilibriums, only financial dynamic fundamentals of depth and size significantly adjust inflation to the cointegration relations. With respect to the second-half (short-run view) of the hypothesis, monetary policy does not overwhelmingly affect prices in the short-term. Hence, but for a thin exception, H1 is valid. H2: Monetary policy variables influence output in the short-term but not in the long-term. With regard to the short-term dimension of the hypothesis, only financial dynamics of depth and size affect real gross domestic product output in the short-run. As concerns the long-run dimension, the neutrality of monetary policy has been confirmed. Hence, the hypothesis is also broadly valid.

Practical implications

A wide range of policy implications are discussed. Inter alia: the long-run neutrality of money and business cycles, credit expansions and inflationary tendencies, inflation targeting and monetary policy independence implications. Country-/regional-specific implications, the manner in which the findings reconcile the ongoing debate, measures for fighting surplus liquidity and caveats and future research directions are also discussed.

Originality/value

By using a plethora of hitherto unemployed financial dynamics (that broadly reflect monetary policy), we provide significant contributions to the empirics of money. The conclusion of the analysis is a valuable contribution to the scholarly and policy debate on how money matters as an instrument of economic activity in developing countries.

Details

Indian Growth and Development Review, vol. 7 no. 2
Type: Research Article
ISSN: 1753-8254

Keywords

Book part
Publication date: 23 June 2016

Alexander Chudik, Kamiar Mohaddes, M. Hashem Pesaran and Mehdi Raissi

This paper develops a cross-sectionally augmented distributed lag (CS-DL) approach to the estimation of long-run effects in large dynamic heterogeneous panel data models with…

Abstract

This paper develops a cross-sectionally augmented distributed lag (CS-DL) approach to the estimation of long-run effects in large dynamic heterogeneous panel data models with cross-sectionally dependent errors. The asymptotic distribution of the CS-DL estimator is derived under coefficient heterogeneity in the case where the time dimension (T ) and the cross-section dimension (N ) are both large. The CS-DL approach is compared with more standard panel data estimators that are based on autoregressive distributed lag (ARDL) specifications. It is shown that unlike the ARDL-type estimator, the CS-DL estimator is robust to misspecification of dynamics and error serial correlation. The theoretical results are illustrated with small sample evidence obtained by means of Monte Carlo simulations, which suggest that the performance of the CS-DL approach is often superior to the alternative panel ARDL estimates, particularly when T is not too large and lies in the range of 30–50.

Article
Publication date: 13 January 2021

Monsurat Ayojimi Salami

This study aims to critically examine the pricing of Islamic financial assets (Sharīʿah-compliant assets, Sharīʿah-compliant securities, Sharīʿah-compliant financing and Sukuk) in…

Abstract

Purpose

This study aims to critically examine the pricing of Islamic financial assets (Sharīʿah-compliant assets, Sharīʿah-compliant securities, Sharīʿah-compliant financing and Sukuk) in the three South-East Asia countries such as Malaysia, Indonesia and Brunei to provide necessary information to the policymakers and Islamic finance investors for making a sound decision.

Design/methodology/approach

This study used secondary data and used the nonlinear autoregressive distributed lags (NARDL) model to estimate the reaction of Islamic financial assets in South-East Asia towards price changes. Wald-test was used to diagnose the final model.

Findings

The result of this study shows that the majority of Islamic financial assets in the three South-East Asia countries exhibit positive and negative long-run effects. The findings reveal a long-run asymmetric relationship that supports rockets and feathers effects. The indication is that Islamic financial assets pricing deviates from weak form EMH. Pricing of Islamic financial assets reveals unfair pricing.

Practical implications

Price adjustment of Islamic financial assets requires urgent attention of policymakers to prevent Sharīʿah non-compliant risk. Therefore, the Shariah advisory board in those countries, Accounting and Auditing Organization for Islamic Financial Institutions and Islamic Financial Services Board are hereby advised to act on the factors that might enable rockets and feathers effects on the pricing of Islamic financial assets, as the long-run asymmetric relationship is established.

Originality/value

This study is novel as it critically and simultaneously examines the pricing behaviour of Islamic financial assets in the three South-East Asian countries. The findings from the study provide vital information on the pricing behaviour of Islamic financial assets to the policymakers and investors.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 3
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 12 February 2019

Arfaoui Mongi

The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global…

Abstract

Purpose

The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global financial crisis under structural breaks in the conditional volatility of oil futures prices.

Design/methodology/approach

It aims at exploring the long-run and the short-run elasticity and causal relationships using an ARDL bound testing approach and a vector error correction model.

Findings

The main findings confirm the presence of long-run relationship for DJIM emerging markets index compared to other global and sub-regional developed indexes. Speed of adjustment to the long-run equilibrium is moderate and the effect of structural breaks, produced from nonlinear volatility model with long memory (LM), is overall not pronounced for that relationship. Short-run causality is bi-directional but long-run Granger causality does not run from refined oil to the DJIMI and crude oil.

Research limitations/implications

The paper demonstrates the implicit extent of international financial integration of Islamic stock markets in light of the global influence of oil prices.

Practical implications

The findings offer some highlights to researchers, portfolio managers and policymakers.

Originality/value

The paper gives an answer to an identified need to test the position of Islamic equity markets as booming Islamic investment and socially responsible investment areas to the global influence of the new soaring path of oil markets. It uses as well bounds testing approach and tests weak and strong causalities under structural breaks. It considers as well LM behavior in oil prices along with the asymmetry property in oil prices.

Details

International Journal of Emerging Markets, vol. 14 no. 4
Type: Research Article
ISSN: 1746-8809

Keywords

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