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1 – 10 of over 8000Dennis Olson and Taisier A. Zoubi
This study aims to examine the determinants of the allowance for loan losses (ALL) and loan loss provisions (LLP) for banks in the Middle East and North African (MENA) region…
Abstract
Purpose
This study aims to examine the determinants of the allowance for loan losses (ALL) and loan loss provisions (LLP) for banks in the Middle East and North African (MENA) region using both a two-stage approach and simultaneous equation system to address the potential problem of estimation bias introduced by estimating the ALL and LLP separately. The paper also tests three competing hypotheses: the earnings management hypothesis, the capital management hypothesis, and the signaling hypothesis.
Design/methodology/approach
The authors adopt a simultaneous equation and three-stage approaches to test whether MENA banks jointly determine LLP and ALL and the determinants of the two accounts. The sample consists of all available electronic data for 75 banks (451 bank-year observations) in nine MENA countries over the period 2000-2008.
Findings
Evidence suggests that the two accounts are jointly determined. The results support the earnings management hypothesis – meaning that MENA banks have engaged in year-to-year income smoothing. The authors also find that LLP and ALL provide signals about future earnings.
Research limitations/implications
The authors acknowledge that the LLP account is only one of many accounts on the income statement that could be used for signaling or to manage earnings, and that the ALL is one of several accounts that could be used for signaling, earnings or capital management. Future studies could examine other accruals for their role in managing earnings, signaling and capital.
Practical implications
The results indicate that bank managers use LLP and ALL accounts to manage earnings management, policy makers may want to limit the ability of banks to manipulate earnings.
Originality/value
Prior research on the loan loss accounting practices has been based on single equation models of the determinants of LLP and ALL. An issue that has not been adequately addressed in this literature is that ALL and LLP may be interrelated and jointly determined by banks. If the two accounts are not independent of each other, failure to include one when estimating the other may lead to an omitted variable problem, while including both in the same equation induces a potential simultaneity bias. The study is the first empirical work examining whether ALL and LLP are jointly determined by banks. By jointly estimating LLP and ALL, the study permits an assessment of the magnitude of the potential error from adopting ordinary least squares estimation of a single equation model.
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This study/paper aims to present a separable identification algorithm for a multiple input single output (MISO) continuous time (CT) hybrid “Box–Jenkins”.
Abstract
Purpose
This study/paper aims to present a separable identification algorithm for a multiple input single output (MISO) continuous time (CT) hybrid “Box–Jenkins”.
Design/methodology/approach
This paper proposes an optimal method for the identification of MISO CT hybrid “Box–Jenkins” systems with unknown time delays by using the two-stage recursive least-square (TS-RLS) identification algorithm.
Findings
The effectiveness of the proposed scheme is shown with application to a simulation example.
Originality/value
A two-stage recursive least-square identification method is developed for multiple input single output continuous time hybrid “Box–Jenkins” system with multiple unknown time delays from sampled data. The proposed technique allows the division of the global CT hybrid “Box–Jenkins” system into two fictitious subsystems: the first one contains the parameters of the system model, including the multiple unknown time delays, and the second contains the parameters of the noise model. Then the TS-RLS identification algorithm can be applied easily to estimate all the parameters of the studied system.
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Multinational structure has been linked to operational flexibilities that can improve corporate adaptability and a knowledge‐based view suggests that multinational resource…
Abstract
Purpose
Multinational structure has been linked to operational flexibilities that can improve corporate adaptability and a knowledge‐based view suggests that multinational resource diversity can facilitate responsive opportunities. The enhanced maneuverability from this can reduce earnings volatility and hence the corporate performance risk. But, the internationalization process may also require irreversible investments that increase corporate exposures and leave the risk implications of multinational enterprize somewhat ambiguous. Hence, the purpose of the paper is to present an empirical study of the implied relationships between the degree of multinationality and various risk measures including downside risk, upside potential, and performance risk.
Design/methodology/approach
The paper provides a brief literature review, develops hypotheses, and tests them in two‐stage least square regressions on archival data to control for pre‐selection biases.
Findings
The analyses indicate that multinationality is associated with lower downside risk as well as higher upside potential and leads to reduced performance risk. The study finds no trace of diminishing effects from higher degrees of multinationality.
Research limitations/implications
The empirical study uses a sample of large US‐based corporations, which could affect the generalizability of results. However, this is consistent with other studies and eases comparability of findings.
Practical implications
The findings add to the ongoing debate about the risk effects of a multinational corporate structure and confirms that a diverse multinational presence is associated with positive risk outcomes.
Originality/value
The paper complements a limited number of studies with equivocal results and adopts alternative risk outcome measures. The study extends the industry scope by introducing a comprehensive sample of firms operating in different manufacturing and service businesses.
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Chiung‐Ju Liang, Tzu‐Tsang Huang and Wen‐Cheng Lin
Previous empirical studies on the nature of the relationship between ownership and corporate value have produced mixed results. Meanwhile, effective management of knowledge‐based…
Abstract
Purpose
Previous empirical studies on the nature of the relationship between ownership and corporate value have produced mixed results. Meanwhile, effective management of knowledge‐based intellectual capital has become a key factor to corporate success, both in firm performance and corporate value. Thus, this paper aims to reexamine the link among ownership, proxies for intellectual capital and corporate value in the emerging Taiwan market.
Design/methodology/approach
Using two‐stage least square estimation of panel data in a simultaneous equations framework, the authors focus on: What is the interdependent impact of ownership on corporate value through the mediating role of intellectual capital (IC)? Does ownership directly or indirectly (i.e. via IC) influence corporate value? Does it persist across industries?
Findings
The empirical results suggest that the relationship between ownership and corporate value mainly depends on industry characteristics and the nature of proxies for intellectual capital in the emerging Taiwanese market. Further, the impacts of ownership on corporate value in more traditional industries are even stronger, that is, there exists the direct impact of ownership mechanism on corporate value. Notably, for the high‐tech firms, ownership can indirectly affect corporate value through the moderating role of intellectual capital.
Research limitations/implications
The implication reminds managers and investors not merely focusing on ownership mechanisms as the main value‐creation information, but a thorough review of IC should be made in order to avoid making incorrect decisions. The limitations suggest areas for further research. For instance, it is important to extend the role of intellectual capital (i.e. to employ other variables to proxy for IC) in exploring the interdependent impact of ownership on corporate value.
Originality/value
The paper potentially adds to ongoing research by extending the importance of the concept of IC in assessing the interdependent impact of ownership on corporate value.
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Muhammad Usman, Muhammad Abubakkar Siddique, Muhammad Abdul Majid Makki, Ammar Ali Gull, Ali Dardour and Junming Yin
In this paper, the authors investigate whether an independent and gender-diverse compensation committee strengthens the relationship between top managers' pay and firm performance…
Abstract
Purpose
In this paper, the authors investigate whether an independent and gender-diverse compensation committee strengthens the relationship between top managers' pay and firm performance in Chinese companies. The authors also investigate whether the independent compensation committee composed of all male directors is effective in designing the optimal contract for executives.
Design/methodology/approach
The authors use data from A-share listed companies on the Shenzhen and Shanghai stock exchanges from 2005 to 2015. As a baseline methodology, the authors use pooled ordinary least square (OLS) regression to draw inferences. In addition, cluster OLS regression, two-stage least square regression, the two-stage Heckman test and the propensity score matching method are also used to control for endogeneity issues.
Findings
The authors find evidence that an independent or gender-diverse compensation committee strengthens the link between top managers' pay and firm performance; that the presence of a woman on the compensation committee enhances the positive influence of committee independence on this relationship; that a compensation committee's independence or gender diversity is more effective in designing top managers' compensation in legal-person-controlled firms than they are in state-controlled firms; that gender diversity on the compensation committee is negatively associated with top managers' total pay; and that an independent compensation committee pays top managers more.
Practical implications
The study results highlight the role of an independent compensation committee in designing optimal contracts for top managers. The authors provide empirical evidence that a woman on the compensation committee strengthens its objectivity in determining top managers' compensation. The study finding supports regulatory bodies' recommendations regarding independent and women directors.
Social implications
The study findings contribute to the recent debate about gender equality around the globe. Given the discrimination against women, many regulatory bodies mandate a quota for women on corporate boards. The study findings support the regulatory bodies' recommendations by highlighting the economic benefit of having women in top management positions.
Originality/value
This study contributes to literature by investigating the largely overlooked questions of whether having a gender-diverse or independent compensation committee strengthens the relationship between top managers' pay and firm performance; whether an independent compensation committee is more efficient in setting executives' pay when it is gender-diverse; and whether the effect of independent directors and female directors on top managers' compensation varies based on the firm's ownership structure. Overall, the main contribution of the study is that the authors provide robust empirical evidence in support of the managerial power axiom.
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This paper aims to analyze the relationship between public health spending and health outcome using time series data in Nigeria over the period 1980 to 2017, taking into account…
Abstract
Purpose
This paper aims to analyze the relationship between public health spending and health outcome using time series data in Nigeria over the period 1980 to 2017, taking into account the role of governance by assessing how the quality of governance directly affects health status and indirectly as a mediator for the effectiveness of public health spending.
Design/methodology/approach
Using the Hausman statistical tests to check for the existence of endogeneity, the proper method for estimating the model for this study is the two-stage least square regression model. The two-stage least squares regression model addresses the problem of endogeneity using instrumental variables. The mediating role of governance on the effectiveness of public health spending on health was considered by an interaction of governance indicators with public health spending.
Findings
The results showed that public health spending had no significant effect on health outcome except when interacted with governance quality. The interaction of government health spending with governance effectiveness as well as that for control of corruption improved health by inducing a fall in maternal deaths, whereas government health expenditure interacted with rule of law raised maternal mortality. Public health spending interacted with regulatory quality improved life expectancy while that for political stability with public health spending induced a fall in life expectancy, poor maternal and infant health. Political stability and the control of corruption had direct influence on maternal health.
Practical implications
Given the predominance of public health spending in promoting access to health care and population health status for developing economies, the effectiveness of such spending should be top priority in policy makers’ agenda. This again is important because for developing economies, government revenue is generated from a small tax base due to their highly informal nature. To improve health status from public intervention in the health sector, there is indeed need for improvement in the overall state of governance in Nigeria.
Originality/value
This paper is one of the few country case studies which uses time series data to examine the role of governance on the efficacy of public health spending with extension of findings to maternal health and covering more measures of governance quality. The results fundamentally illuminate the importance of governance in fostering development in health and consequently enhancing economic development and growth.
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Faqin Lin, Hsiao Chink Tang and Lin Wang
The purpose of this paper is to quantify how the People’s Republic of China’s (PRC) export volume affects the anti-dumping (AD) petitions filed by its major trading partners…
Abstract
Purpose
The purpose of this paper is to quantify how the People’s Republic of China’s (PRC) export volume affects the anti-dumping (AD) petitions filed by its major trading partners against the country.
Design/methodology/approach
Focusing on the AD petitions at the Harmonized System (HS) Code eight-digit level and the PRC’s exports at the HS two-digit level to its major trade partners during the financial crisis, we construct three instrument variables for export volume within HS two-digit level variation in the variables. These instruments – documents required, time taken and container charges incurred for goods traded across borders – represent trade costs obtained from World Bank’s Doing Business Project. We find rising exports from the PRC lead to rising AD petitions against the country.
Findings
Instrumental variable estimates indicate that a 1 percentage point rise in the PRC’s export volume raises the number of AD petitions against the country by about 0.25 percentage points, and the probability of receiving AD petitions by 3.5 per cent. These estimates are about 10 times larger than that found in ordinary least square regressions.
Originality/value
Their quantitative significance underlines why it is important to consider the issue of export endogeneity in the estimation, and that the failure of the current trade statistics to account for the true value-added of traded goods particularly disadvantaged the PRC given its position as the factory of the world.
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Iman Harymawan and Fiona Vista Putri
How does the internal audit function make external auditors work more efficiently at the early stage of the COVID-19 pandemic? This study examines the relationship between…
Abstract
Purpose
How does the internal audit function make external auditors work more efficiently at the early stage of the COVID-19 pandemic? This study examines the relationship between internal audit function, audit report lag and audit fee at the early stage of the COVID-19 pandemic.
Design/methodology/approach
This study uses data from all public firms listed on the Indonesia Stock Exchange from 2018 to 2019 using the difference-in-difference test technique to answer the proposed hypothesis. In addition, this study also tested the issue of endogeneity using Coarsened Exact Matching (CEM) and Two-Stage Least Square (Heckman, 1979).
Findings
This study finds that, at the early stage of the COVID-19 pandemic, a good internal audit function significantly reduced audit report lag and audit fee. These findings indicate that good corporate governance implemented through an internal audit function during the COVID-19 pandemic can give assurance to prevent and mitigate the firm's risk so that external auditors can work more efficiently. Furthermore, this study also carries out an additional analysis by subsampling the high and low technological industries. Based on the robustness test, it is revealed that the results of this study are consistent.
Originality/value
This study contributes to the novelty of literature in auditing studies that highlights the audit process at the early stage of the COVID-19 pandemic
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Rajesh Kumar Bhaskaran, K.S. Sujit and Saksham Mongia
This research study examines the impact of social and governance initiatives on financial performance of global banks. The study is significant in the context of massive changes…
Abstract
Purpose
This research study examines the impact of social and governance initiatives on financial performance of global banks. The study is significant in the context of massive changes in regulations, government policy, social attitudes and market development attributed to banking sector.
Design/methodology/approach
The source of data for this study was ESG database of Thomson Reuters. The study was based on 472 global banks. The research paper uses two-stage least square model and the study covered the five-year period 2015–2019.
Findings
Banks with high intensity of social and governance-related activities have positive market-based valuation effects. Adequately capitalized banks tend to invest more in social initiatives. Banks' governance initiatives directed toward the use of anti-takeover defensive mechanisms are skeptically perceived by markets. Riskier banks tend to have less investments in social initiatives.
Research limitations/implications
The findings are relevant in the context of expectations from policymakers, consumers and investors with respect to the role which banks ought to play in funding the development of a sustainable economy. The research finding that strong governance and social initiatives by banks are value-enhancing measures is a clear evidence of the significance of ESG initiatives as value-creating mechanisms as perceived by markets.
Originality/value
This study addresses the gap in the research, which examines the role of governance and social initiatives on value creation in the banking sector firms. The study examines the impact of different elements of governance and social initiatives on financial performance of banks.
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Muhammad Tahir, SAF Hasnu and Mario Ruiz Estrada
Trade openness plays a significant role in the growth process of countries. The purpose of this paper is to examine the impact of macroeconomic determinants on the trade openness…
Abstract
Purpose
Trade openness plays a significant role in the growth process of countries. The purpose of this paper is to examine the impact of macroeconomic determinants on the trade openness of countries.
Design/methodology/approach
The study focuses on the South Asian Association for Regional Cooperation (SAARC) member countries and the data used were from 1971 to 2011. Panel data econometrics techniques and two stages least square method (TSLS) are used to carry out empirical analysis and robustness testing.
Findings
The main finding of the paper is that macroeconomic determinants such as investment both in physical and human capital and per capita gross domestic product (GDP) positively affect trade openness. Further, the size of labour force and currency exchange rate has also impacted trade openness negatively and significantly.
Practical implications
It implies that efficient macroeconomic management matters for higher trade openness. The sampled developing countries are suggested to pay favourable attention to macroeconomic variables if they want to grow in the long run through outward-oriented policies.
Originality/value
This paper is an original contribution in the context of SAARC countries by focusing on the relationship between macroeconomic determinants and trade openness.
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