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1 – 5 of 5Masood Fooladi and Maryam Farhadi
Prior studies suggest that most expropriation of firm’s resources is conducted through related party transactions (RPTs). Based on the conflict of interest view, related parties…
Abstract
Purpose
Prior studies suggest that most expropriation of firm’s resources is conducted through related party transactions (RPTs). Based on the conflict of interest view, related parties opportunistically use their authorities to expropriate firms’ resources for their own benefits via RPTs subsequently increasing agency costs and reduce firm value. One important monitoring system suggested by agency theory to reduce the agency problem is corporate governance (CG). CG monitors firm’s performance to align the interests of those who control and those who own the residual claims in a firm. The purpose of this paper is to investigate the moderating effect of CG characteristics on the relationship between RPTs and firm value.
Design/methodology/approach
In order to clarify the distinct effect of RPTs, this study categorises RPTs into two groups including beneficial and detrimental RPTs (DRPTs). Applying “proportionate stratified random sampling”, this study covers a panel of 271 firms listed on Bursa Malaysia over the period of 2009–2011, using a moderated multiple regression model.
Findings
This study documents that firm value is positively associated with beneficial RPTs (BRPTs) and negatively related to detrimental RPTs (DRPTs). In addition, results show that divergence can intensify the negative relationship between DRPTs and firm value. Findings support the necessity for more scrutiny by regulators, policy makers and standard setters to monitor the conflict of interests in RPTs and restrain the power of related parties to protect the firm’s wealth by introducing stricter regulations for RPTs and improve CG practices especially to monitor RPTs in order to limit the opportunistic behaviour of related parties.
Research limitations/implications
Research implications have been presented in Section 10. It has also been summarised in practical implications and social implications sections.
Practical implications
The findings of this study indicate that investors, creditors and policy makers should not consider all RPTs as harmful transactions and it seems necessary to categorise RPTs into different groups including transactions which are detrimental and transactions which are beneficial to the firm.
Social implications
The findings of this study support the necessity for more scrutiny by regulators, policy makers and standard setters to monitor the conflict of interests in RPTs. They should restrain the power of related parties to protect the firm’s wealth by introducing stricter regulations for RPTs and improving CG practices especially to monitor RPTs in order to limit the opportunistic behaviour of related parties.
Originality/value
This study contributes to the RPTs literature by showing that the effect of RPTs on firm value depends on the types of RPTs, and market participants allocate different values to different types of RPTs. Therefore, to fill the gap and clarify the distinct effect of RPTs, this study categorizes RPTs into two groups including beneficial and detrimental RPTs.
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Mohammad Reza Tavakoli Baghdadabad and Masood Fooladi
The purpose of this paper is to provide the modified measures of risk-adjusted performance evaluation of Malaysian mutual funds using the downside risk concepts, and promote the…
Abstract
Purpose
The purpose of this paper is to provide the modified measures of risk-adjusted performance evaluation of Malaysian mutual funds using the downside risk concepts, and promote the ability of managers and investors in making logical decisions under the market asymmetry condition.
Design/methodology/approach
This study focusses on the performance evaluation of Malaysian mutual funds using eight modified measures of Sharpe, Treynor, M2, Jensen’s α, information ratio (IR), MSR, SPI, and leverage factor. These modified measures use the downside systematic risk and semi-standard deviation instead of systematic risk and conventional standard deviation, respectively, to evaluate the performance of Malaysian mutual funds over the period 2000-2011.
Findings
The results indicate that the conventional measures of performance evaluation do not have a crucial influence on the relative evaluation of mutual funds. Three modified measures of Sharpe, Treynor, and M2 have a high correlation with the conventional Sharpe measure and can be used instead of the conventional Sharpe measure. Since, two modified measures of Treynor and M2 display a high rank correlation coefficient with the conventional Treynor measure, they can be replaced with this traditional measure. In addition, two modified IR and MSR measures along with the modified SPI and conventional SPI show very high rank correlation coefficients in relation to each other. The results also document a modified leverage factor less than one for all funds. It can be concluded that the strategy of un-levering the investor’s holding must be followed.
Practical implications
The empirical evidence of this study can be utilized as inputs in the process of decision-making by different types of investors who are interested in participating especially in Malaysian stock market and generally in global stock market under the market asymmetry condition.
Originality/value
The contribution of this study is to modify five measures of M2, IR, MSR, FPI, and leverage factor in the downside risk framework which is a work on a rather under-researched area.
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Sirus Sharifi, Arunima Haldar and S.V.D. Nageswara Rao
The purpose of this paper is to examine the impact of credit risk components on the performance of credit risk management and the growth in non-performing assets (NPAs) of…
Abstract
Purpose
The purpose of this paper is to examine the impact of credit risk components on the performance of credit risk management and the growth in non-performing assets (NPAs) of commercial banks in India.
Design/methodology/approach
The data are obtained from primary and secondary sources. The primary data are collected by administering questionnaire among risk managers of Indian banks. The secondary data on NPAs of Indian banks are from annual reports and Prowess database compiled by the Centre for Monitoring Indian Economy. Multiple linear regression is used to estimate the models for the study.
Findings
The results suggest that the identification of credit risk significantly affects the credit risk performance. The results are robust as credit risk identification is negatively related to annual growth in NPAs or loans. There is evidence in support of a priori expectation of better credit risk performance of private banks compared to that of government banks.
Practical implications
The study has implications for Indian banks suffering from a high level of losses due to bad loans. In addition, it will have implications for the implementation of new Basel Accord norms (Basel III) by the Reserve Bank of India.
Social implications
The high and rising level of NPAs will have adverse consequences for credit flow in the economy in the absence of appropriate intervention by government and central bank in the form of changes in institutional and regulatory infrastructure. The problems in banking and financial services sector will lead to lower industrial and aggregate economic growth, and lower (or negative) growth in employment.
Originality/value
There is little evidence on credit risk management practices of Indian banks, and its relationship with credit risk performance and NPA growth. The need for an effective risk management system to manage credit risk assumes importance and urgency in the context of high and rising NPAs of Indian banks, and the consequences for the Indian economy.
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Michelle Ayog-Nying Apanga, Kingsley Opoku Appiah and Joseph Arthur
The study aims to assess credit risk management practices within financial institutions in Ghana. Specifically, the study compares credit risk management practices of listed banks…
Abstract
Purpose
The study aims to assess credit risk management practices within financial institutions in Ghana. Specifically, the study compares credit risk management practices of listed banks in Ghana with Basel II (1999).
Design/methodology/approach
The analysis is based on data gathered from varied sources, namely, use of questionnaires, analysis of internal credit policies and procedure manuals and semi-structured interviews and discussions with credit risk managers of the selected banks in May 2007 and October 2014.
Findings
Overall, the credit risk management practices within listed banks in Ghana are in line with sound practices. The only dissimilarity, however, is the role of the board of directors in defining acceptable types of loans and maximum maturities for the various types of loans. The listed banks in Ghana are also exposed to credit risks associated with granting both corporate and small business commercial loans and the use of collaterals to mitigate their credit risk exposures.
Practical implications
Banks in Ghana should consider developing the skills of all their personnel and appropriately motivating those involved in the credit risk management processes to ensure that they carry out this process efficiently.
Originality/value
Research into credit risk management in the banking industry from the Ghanaian perspective remains scant. This study is, therefore, timely, and its findings are invaluable for the efficient management of credit risk in the banking industry. This study provides policy recommendations which will enhance shareholder value and, in this way, contribute to greater stability in the banking sector in developing countries, in particular.
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Syed Alamdar Ali Shah, Raditya Sukmana and Bayu Arie Fianto
The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks.
Abstract
Purpose
The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks.
Design/methodology/approach
The research evaluates all existing duration models from Sharīʿah’s perspective and develops a four-stage framework for testing Sharīʿah-compliant duration models. The econometric methodology consists of multiple regression, Johansen co-integration, error correction model, vector error correction model (VECM) and threshold vector error models (TVECM).
Findings
Regressions analysis suggests that returns on earning assets and interbank offered rates are significant factors for calculating the duration of earning assets, whereas returns paid on return bearing liabilities and average interbank rates of deposits are significant factors for duration of return bearing liabilities. VECM suggests that short run duration converges into long run duration and TVECM suggests that management of assets and liabilities also plays a significant role that can bring about a change of about 15% in respective durations.
Practical implications
Sharīʿah-compliant duration models will improve risk and Sharīʿah efficiency, which will ultimately improve market capitalization and returns stability of Islamic banks in the long run.
Originality/value
Sharīʿah-compliant duration models testing provides insight into how various factors, namely, rates of return, benchmark rates and managerial skills of Islamic bank risk managers impact durations of assets and liabilities. It also explains the future course of action for Sharīʿah-compliant duration model testing.
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