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Does Competitive Discipline Influence the Value of Cash Holdings? Evidence from Western European Companies
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8-21
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Frederiek Schoubben and Cynthia Van Hulle
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Abstract:
This paper analyses the impact of product market competition, in the form of predation risk, on the relationship between cash holdings and firm value. Using a panel data set of listed firms in 14 Western European countries, we show that both investor protection and product market competition strongly influence the cash-value relationship. Cash holdings are worth most when the likelihood of predatory behavior among rivals in a particular industry is high. Furthermore, as high predation risk is able to make up for weak investor protection, we provide evidence of a substitution between institutional governance and competition in the context of cash policy. Our paper contributes to the existing literature by combining the agency dimension of cash policy with its strategic relevance by showing that the impact of managerial cash decisions on firm value strongly depends on the institutional as well as on the competitive environment.
Keywords: Cash policy; Investor protection; Product market competition; Predation risk; Western Europe.
JEL Classifications Codes: G32, G34, L11.
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Budget Deficit and Inflation: An Empirical Analysis in Vietnam
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22-29
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Nguyen Ho Minh Trang, Nguyen Huu Chau Duc and Hoang Cong Gia Khanh
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Abstract:
The relationship between budget deficit and inflation is one of the most important issues in macroeconomics. In this study, we attempt to identify the long-run relationship between budget deficit and inflation in Vietnam. The Error Correction model (ECM) suggests that all variables are integrated of order one and confirms that there is a long-run equilibrium relationship between budget deficit, money supply and inflation in Vietnam. In addition, the Granger causality results showed that a unidirectional causality from budget deficit to inflation exists in Vietnam. This result indicated that it is worthwhile for the government to implement economic policies to control inflation through reducing the budget deficit and money supply in Vietnam.
Keywords: Budget deficit; Inflation; Cointegration; ECM; Granger causality
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Trade Liberalization and Labor Demand Elasticities: Empirical Evidence for Egypt
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30-35
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Hanan Nazier |
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Abstract:
This paper examined how trade liberalization affected employment and labor demand elasticities in the manufacturing sector in Egypt over the period from1989-90 to 2009-2010. Theoretically, trade liberalization may affect labor demand through two channels: the direct effect and the indirect effect; via increasing labor demand elasticity. However, for the Egyptian case our findings did not support this theoretical hypothesis. Moreover, our results also suggested that openness did not have a direct effect on labor demand. This may contribute to explain the low employment response to trade liberalization reached by several studies on developing countries neglecting the elasticity channel.
Keywords: Labor markets, Labor demand elasticities, Trade Liberalization.
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On the Lead-Lag Relationship between Open Ended
Funds and All-Share Index
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46-55
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Marcel Rešovský, Marek Gróf, Denis Horváth and Vladimír Gazda
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Abstract:
Efficient market hypothesis (EMH) in its weak form states that markets absorb all available information and the last price of a capital asset is the best predictor for the future one. Lead-lag relationship observable mainly between financial derivatives and underlying asset prices, prices of large and small companies, etc., contradict the validity of the EMH. In our paper, we examined the lead-lag relationship between prices of open ended funds and an all-share index as a representative of the capital market. The analysis leads us to the conclusion that investors could form their expectations regarding the future open ended fund price based on the current price of the all-share index. The empirical research was performed on the South Africa capital market..
Keywords: Lead-lag relationship, open ended fund, all-share index, causality, efficient market hypothesis.
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Forecasting Stock Market Volatility: A Forecast Combination Approach
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56-68
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Rafik Nazarian, Nadiya G. Alikhani, Esmaeil Naderi and Ashkan Amiri
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Abstract:
Recently, with the development of financial markets and due to the importance of these markets and their close relationship with other macroeconomic variables, using advanced mathematical models with complicated structures for forecasting these markets has become very popular. Besides, neural network models have gained a special position compared to other advanced models due to their high accuracy in forecasting different variables. Therefore, the main purpose of this study was to forecast the volatilities of TSE index by regressive models with long memory feature, feed forward neural network and hybrid models (based on forecast combination approach) using daily data. The results were indicative of the fact that based on the criteria for assessing forecasting error, i.e., MSE and RMSE, although forecasting errors of the feed forward neural network model were less than ARFIMA-FIGARCH model, the accuracy of the hybrid model of neural network and best GARCH was higher than each one of these models.
Keywords: Stock Return, Long Memory, Neural Network, Hybrid Models.
JEL Classification Codes:C14, C22, C45, C53.
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Analyzing the Features of Microfinance in Jordan
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69-85
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Nahil Saqfalhait and Andrea Bigio |
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Abstract:
The microfinance sector has witnessed massive development during the last decades. Worldwide, the expansion of microfinance activities, especially the growth of its segment microcredit, determined the creation of different actors involved in this scope. Under the general term of “micro-lending provision”, a lot of institutions are operating with diverse approaches and methodologies.
Microfinance in Jordan presents features similar to most of the countries where the provision of micro-lending to economically active poor people became one of the main development and poor alleviation requirements. The presence of heterogeneous institutions stirs the attention toward the analysis of the different criterion adopted by each institution and its characteristics.
This paper underlines the differences between the main microfinance institutions in Jordan, concluding general considerations that allow sketching out the features of the micro-lending provision in Jordan and analyzing both quantitative and qualitative factors.
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Determinants of DRP (Dividend Reinvestment Plans)
Participation Rate under the Australian Dividend Tax Imputation System
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86-111
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Mathew Abraham |
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Abstract:
This study examines factors that explain shareholder participation rates in Australian new issue DRPs (Dividend Reinvestment Plans) under the dividend tax imputation system. A new issue DRP allows shareholders to have cash dividends on all or a portion of their shares automatically reinvested in the new shares issued by the firm. The features of the Australian dividend imputation tax system introduced in July 1987 have incentivized shareholders to participate in a DRP. In an imputation tax system, Australian tax resident investors are able to offset personal tax obligations where franking credits are attached to cash dividends. This tax based preference for franking credits has led to many Australian firms distributing a greater proportion of their earnings as franked dividends.
This study provides support for the role of taxation as a determinant of the non-underwritten shareholder participation rate. The results show that the key drivers of shareholder participation in an Australian DRP are firm growth (Tobin’s Q), Operating Cash Flow/ Total Assets and Discount. There is strong evidence to support the discount hypothesis where by firms with a higher discount for new shares issued under the DRP are likely to have a higher participation rate compared to firms with a lower discount.
Keywords: Dividend policy: dividend Reinvestment Plans; Underwriting; Imputation; Franking credits: Taxes
JEL Classification Codes: CG35, H25
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Auto-Correlation Test of Data and Econometric Residuals
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112-114
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Fernando Llano-Ferro and Esteban Borrero-Llano
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Abstract:
The binomial distribution has been used in finance and economics mainly for the pricing of derivatives. This paper describes an application of the binomial distribution for the development of a simple and robust test for the auto-correlation of data, and of econometric residuals.
Keywords: Auto-correlation, binomial distribution, data, residuals, econometrics
JEL Classification Codes: C01, C12, C22.
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On the Relationship between Exchange Rates and Stock
Prices: Evidence from Emerging Markets
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115-124
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Esin Cakan and Demissew Diro Ejara |
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Abstract:
This study examines dynamic linkages between the exchange rates and stock prices for twelve emerging market countries for the period from May 1994 to April 2010 by using linear and non-linear Granger causality tests. Our empirical results show that stock prices and exchange rates have linear and non-linear bi-directional causality in most cases. The exceptional countries are Brazil, Poland and Taiwan that there is no evidence for a non-linear Granger causality from stock prices to exchange rates. The results support both the portfolio balance and the goods market theories for eight out of twelve countries.
Keywords: Exchange rate, stock prices, emerging markets, non-linear Granger causality, linear Granger causality, dynamic linkages.
JEL Classifications Codes: F30, G15.
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Intertemporal Relation between Value at Risk and Expected Returns on the Brazilian Market
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125-137
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Cleber Fernandes Taboza, Antonio Carlos Figueiredo Pinto, Marcelo Cabus Klotzle and Claudio Henrique da Silveira Barbedo
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Abstract:
Many studies have searched for a risk variable that possesses a positive and significant empirical relation with conditional market returns. In most cases, the choice falls on new approaches involving the conditional variance of returns. In this study, we will analyze if the trade-off between risk and return using the Value at Risk (VaR) on the Brazilian market can be empirically proven. The VaR is parametrically and non-parametrically estimated based on data windows of one to six months. The results show that there is no positive and significant relation between the VaR and monthly returns. This is probably because the market’s risk premium is negative in 117 of the 217 months of the dependent variable time series. When we use returns with a daily frequency, the results show that in more recent periods there is a positive and significant relationship between the returns and the parametric VaR.
Keywords: Value at Risk, Expected Returns, Risk-Return
JEL Classification Codes: G10, G11, G32
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The Relationship between Trade and Income: The Case of Developed Countries
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138-145
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Muhammad Tahir and Dk Hajah Norulazidah Binti Pg Haji Omar Alli
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Abstract:
This paper focuses on developed OECD member economies to examine the impact of trade openness on per capita GDP. Cross-sectional data of the member economies for the year 2010 are used in the empirical analysis. The potential endogeneity problem associated with the measure of trade openness is handled through instrumentation strategy based on the gravity model of international trade. Results show that bilateral trade openness is significantly related to per capita GDP within the OECD organization. The impact of employment rate on per capita GDP is also substantial. Though both tertiary education and investment are statistically insignificant, they importantly hold positive coefficients in the analysis.
Keywords: Trade Openness, OECD, Endogeneity, GDP, Gravity Model.
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Methods of Evaluating Credit Risk used by Commercial Banks in Palestine
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146-159
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Suleiman M. Abbadi and Sharif M. Abu Karsh |
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Abstract:
This paper tries to find the methods that banks operating in Palestine use in evaluating customers’ application for credit using the 5C's, LAPP, 5P's, CAMPARI and FAPE methods, and which element in each method they concentrate on most. It also tries to find whether banks differ in their use of these methods; and whether they differentiate among customers in using these methods. A questionnaire was designed and filled by the credit manager at the head office level of all 17 banks operating in Palestine. Two kinds of tests were used: Average percentages and ANOVA tests. It was found that all banks use most of the above five methods. The average percentages were used to find out the elements the banks concentrate most in each method, and it was found that banks in Palestine concentrate more on collateral, credit records, and ability to pay including liquidity and cash flow. They concentrate less on conditions, purpose and product. It was also found through hypothesis testing that there is no difference between banks in using the LAPP and 5P's methods but they differ in using the 5C's and FAPE method. Another test was conducted found that banks operating in Palestine treat natural persons and NGO's in the same way in evaluating their credit application; but differ in treating business organizations and artificial persons. A new model was developed by the authors called PACT: representing Person, Activity, Collateral and Terms. Each variable contains several elements and a weight (score) for these elements were estimated to make them easy to use by the banks credit managers (These scores can be adjusted by the bank management based on the bank’s credit policy). Then the banks adds the score for the customer and evaluates each customer based on a scale of 100.
Keywords: Bank Credit, 5C's, LAPP, 5P's, CAMPARI, Banks' Risk, Bank Groups of Customers, PACT.
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Knowledge of the Operational Level Chefs on Food Safety
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160-175
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D.P. Sudhagar and G. Rajendran |
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Abstract:
The purpose of the study is to evaluate the food safety knowledge of the operational level chefs working in the restaurants of star categorised hotels and standalone restaurants in Chennai city, South India. A sample of four hundred chefs participated in the survey from each category. Structured questionnaire was used to collect the data on food safety knowledge of the chefs from the production related practises. A simple percentage analysis was performed to measure the food safety knowledge of the chefs working in the kitchen. The study results indicate that food safety knowledge of the operational level chefs working in the star categorised hotel restaurants is very high and it is low in the case of the standalone restaurants. The study is limited only to the star categorised hotel restaurants and standalone restaurants in Chennai city. Hence the results of the study cannot be generalised to the other cities in southern India and other categorises of the food establishments. Food production in the star hotel restaurants can ensure food safety for the customers dining in the restaurants. The restaurateurs and the hoteliers can gain insights from the study results to formulate the training programmes for the food handlers particularly the operation level chefs, to enhance the food safety quality standards expected by the customers and the government policy makers of food safety in India. The efforts would help to run the restaurants with reliable food safety confidence in the minds of the customers and to fulfil the food safety norms for conducting the food business. The food safety policy makers can formulate the standards and norms for the food safety knowledge of the food producers i.e. The operational level chefs working in the restaurants. The system would assist in conducting the spot audits in the restaurants. This is the first study in the Indian context which evaluates the food safety knowledge of the chef working in the restaurants kitchen and it will help all the concerned individuals responsible for maintaining food safety standards in the restaurants.
Keywords: Restaurants, Food safety knowledge, Operational chefs, Safe food production practises.
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Corporate Annual Reports and Accounts and Investor Decisions: Evidence from Ghana
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176-184
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Thomas Adomah Worae, Godfred M. Aawaar, George Asumadu and Ishaq Kyei-Brobbey |
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Abstract:
The purpose of this paper is to examine the relevance and usage of annual reports and accounts in individual Ghanaian investment decisions. The paper also assesses both the firm-based and external factors, beyond annual reports and accounts that influence individual investment decisions in Ghana. The paper employs a descriptive survey research methodology to randomly sample 450 active individual Ghanaian investors. The paper finds that majority individual investment decision-making is influenced by information obtained from annual reports and accounts. Individual investors also hugely rely on management advice and recommendations from families and friends in making investment decisions. Accordingly, such recommendations serve as a robustness check on the financial information from annual reports and accounts. Firm-based factors found in this paper to have relevant influence on individual Ghanaian investment decisions include management composition and frequency in corporate advertisements. Investor educational level, macroeconomic data, government budget statements and cultural factors have been found to shape individual investment decisions in Ghana.
Keywords: Corporate Annual Reports, Investor Decisions, Descriptive-Survey Research.
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Financial Openness and Capital Mobility: A Dynamic
Panel Data Analysis
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185-194
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Nuri Baltaci and Hasan Ayaydin |
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Abstract:
This study estimates saving and investment correlations for the Central and Eastern Europe (CEE) transition economies and the G-20 countries to assess the degree of capital mobility. Employing GMM, this study uses financial openness, financial freedom and foreign aid over the period 1990–2011. The study finds that saving-investment correlation for G-20 countries is lower than that for CEE transition countries. Our findings suggest that financial openness and financial freedom significantly increase capital mobility in the CEE transition countries, but does not have a significant impact on capital mobility in the G-20 countries. These findings indicate that a CEE transition country with more financial openness can have more access to external capital market for borrowings and increasing financial freedom will enhance capital mobility in CEE transition countries. Moreover, the estimation results do show that the previous findings in the FH literature, that capital is more mobile for G-20 countries than CEE transition countries.
Keywords: Feldstein-Horioka Puzzle, capital mobility, financial openness, financial freedom, savings-investment, dynamic panel data.
JEL Classifications Codes: C33; E21; F35; G10; G15
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