International Research Journal of Finance and Economics
 Issue 121
 May, 2014
Anas A. Al Bakri

The main aim of this study is to explore the financial systems status and economics statistics in the Middle East (ME). As well as to presents the oil and non-oil resources that impacts on ME economic growth. The study also explored the .effects of 2008 Global Financial Crises (GFC) and the 2010-2012 ďArab SpringĒ on the ME economics and investment. The global financial system (GFS) refers to those FIs and systems that act on the global level, as different to those that act on a national or regional level. Financial systems are the combination of all FIs, investors, and financial markets together, which have an essential and major role in the performance of the economy. It has been widely accepted in the literature that Financial Systems Reforms (FSRs) in the Middle East region play a vital role in the transformation of organization and management, and improving resource allocation through the financial markets, thereby increasing safety of financial operations, and also strengthening the Foreign Direct Investment (FDI) and domestic stock markets. The region witnessed a sharp rise in inflation as a result of the surge in global prices for food and feed grains, together with an increased demand in several economies. As a result of the Arab Spring, forecasters have already revised their economic growth projections for 2011, 2012 and 2013. Egypt, Jordan and Syria, which are currently in a wide and far-reaching process of political transition, have seen their economic growth forecasts for 2014/2015 sharply reduced.
Keywords: Economic Systems, Uprising Middle East, Transformation, Financial Systems, Economic Growth.
Revisiting Weak Form Efficiency in Asian 14 Stock Markets: Fourier Unit Root Test
Chih-Ping Fan and Huei-Chun Lo

The stationarity of stock prices has several important economic implications. This paper applies the recently developed Fourier unit root test to re-examine the existence of weak form efficiency for Asiaís 14 major stock markets, during the period from September 2005 to August 2011. Our findings fail to support the weak form of the efficient market hypothesis, with the exception of Pakistan..
Keywords: Mean Reversion, Weak Form Efficiency, Fourier Unit Root Test .
JEL Classifications Codes: C22; G12
Population Aging, Human Capital and Economic Growth: Empirical Evidence from Japan
Huei-Chun Lo and Yuan-Ho Hsu

This article adopts the bounds testing approach to cointegration within an autoregressive distributive lag (ARDL) model, developed by Pesaran et al. (2001), to investigate the relationship between the evolution of population aging, human capital and economic growth for Japan, using annual data over the 1960 to 2011. We find that fertility, old age population ratio, human capital and economic growth exhibit a long-run relationship. Specifically, human capital had a positive effect on economic growth, whereas the ratio of old age population had a negative effect on economic growth. Additionally, both aging and human capital have greater impacts over the long- rather than short-run. Meanwhile, investment has a relatively larger positive effect on economic growth in the short-run than in the long-run. Several implications of our results are discussed.
Keywords: Population Aging; Economic Growth; Bounds Testing Approach; ARDL model.
JEL Classifications Codes: C32; J11; O53.
Financial Sector Development and the Determinants of Bank Profitability: A GCC Panel Study
Sree Rama Murthy Y and Saeed Al-Muharrami

This study looks at the determinants of profitability in the GCC banking system over the period 1999 to 2012. Variables which are bank specific, financial sector specific and macroeconomic are used as explanatory variables in the balanced panel regressions. Among the bank-specific variables, capital ratio and credit risk have significant impact on bank profitability. While higher levels of capital result in higher profitability, credit risk has the opposite impact. Inflation is found to effect bank profitability positively. Two financial sector development variables are used as explanatory variables in the panel regressions. While spread of banking activity has no impact on bank profitability, stock market capitalization as ratio of GDP has a strong positive impact on bank profitability. Bank finance acts a complement to equity financing in GCC banks. Evidence of a strong linkage between stock market capitalization and bank profits during the two financial crisis periods is also presented.
Keywords: : Bank Profit, GCC, Financial Sector, Gulf Cooperation Council, Stock Market, Macroeconomic, Commercial banks, Balanced panel.
JEL Classifications Codes: C23; E44; G20; G21; O16
The Causes of the Great Moderation in Developed and Newly Industrialized Countries
Huei-Chun Lo and Chen-Hsun Lee
The Great Moderation, the significant reduction in the volatility of economic activities among a number of industrialized economies, is an important feature of the macroeconomic aspect. We use the Markov regime-switching models (Kim & Nelson, 1999; Kim et al., 2004) to explore the beginnings of the Great Moderation in G7 countries, Australia, and the Four Asian Tigers: Hong Kong, Korea, Singapore and Taiwan. The beginnings of the Great Moderation in G7 countries, Australia, Korea and Taiwan occur at different times between the 1970s and the 1980s, however, similarities among G7 countries, Australia, Korea and Taiwan suggest that there may be common causes. The Markov-switching models show no effect of The Great Moderation in Hong Kong and Singapore. We also investigate the long term relationship between GDP and CPI, oil prices and changes in inventory. This data is efficiently utilized via the linear cointegration analysis provided by Johansen (1988) and the nonparametric rank test of cointegration proposed by Breitung (2001). The rank statistics are applied in an empirical illustration to test the relationship between good monetary policies, improved economic structure change and good luck in the Great Moderation.
Keywords: : Great Moderation; Markov Regime-Switching, Rank test, Specification Tests.
JEL Classification Codes:C13, C51
The Impact of Corporate Governance on the Financial Performance: A Study of Nifty Companies
AK Dhamija, Surendra S. Yadav and PK Jain
The corporate governance studies so far have focused on the effect of composite corporate governance index on the firm performance. The current study, using the latest data (2006-2010) of NIFTY firms, establishes the individual effect of each corporate governance variable on the firm performance. The firm performance is measured by Tobinís Q and Return on Asset (ROA). The independent variables considered for this study are duality of chairmanís role, board size, proportion of institutional investors, concen-trated ownership, audit committee chairman, percentage of non-executive and independent directors in the board. Besides these, other variables like firm size in terms of turnover and gearing are also entered into the regression in order to control their effect on dependent variables. Tobinís Q is found to be significantly correlated with Duality of chairmanís role (r = -0.22, p < 0.01) and Debt to Total Capital ratio (r = -0.33, p < 0.001). The ROA is significantly correlated with Duality of chairmanís role (r = -0.28, p < 0.05) and Debt to Total Capital ratio (r = -0.44, p < 0.05). Panel unit root tests revealed absence of unit roots in the time series. The fixed effects models of Panel data regression show that Duality of chairmanís role and Debt to Total Capital ratio are significant predictors of both Tobinís Q and ROA, Debt to capital ratio being the highly significant (p<.001) one. The predictor variables explain 36.9% of the variance of Tobinís Q and 32.1% of the variance of ROA. Granger tests do not show the causality relationship between any pair of variables. Neither institutional investors nor concentration of ownership exert any influence on firm performance. All the firms have non-executive director as chairman of the audit committee, so effect of this variable is not determined.
Keywords: Corporate Governance; ROA; Tobinís Q; Granger Test; Panel Data Regression; Financial Performance; NIFTY.
Expected Utility Theory Vs Prospect Theory Taxpayersí Fraudulent Behaviour Modelling-Moroccan Case
Farid Ameur and Mohamed Tkiouat.

In this study we investigate the attitudes of taxpayers with respect to the tax system. We try to identify the parameters of tax system that affect the behavior of taxpayers. The establishment of the relationship between taxpayer behavior and attitude of tax compliance will be of great benefit to the tax authorities to detect tax evasion, and for legislature to predict appropriate legislation. Our contribution make a comparative study between the use of the expected utility theory (EUT) or prospect theory (PT) to examine the phenomenon of tax fraud. We show that despite critics made by several authors to EUT; with some new modifications of the parameters of the model made by Allingham and Sandmo (AS) 1972, EUT give an important result. We conclude this paper by a discussion of our theoretical results that we project onto the case of the Moroccan tax system, we found that for Moroccan case, the fraud is related to the size of companies; itís more important in the big companies than small and medium enterprises.
Keywords: Expected Utility Theory, Prospect Theory, behaviour modelling, risk averse, risk management, tax audit, tax fraud, tax compliance..
JEL Classification Codes: 91A30, 91A35.
Institutional Ownership and Performance in France: A Comparative Analysis of Domestic Versus Foreign Institutional Investors
Amel Belanes and Malek Saihi

This paper uses a representative sample of French companies to investigate how institutional investors influence performance. A key focus is to determine what might affect their activism. Our modeling provides support that stakesí level and investorsí origin do matter. Empirical results show a significant cubic effect of institutional ownership on performance. The latter rises when the former is low or high, and declines when it is in the mid-range. Accordingly, institutional investors out-weight benefits and costs of monitoring to interfere or not in firm management. Our findings also reveal that, unlike domestic peers, foreign institutional investors exhibit an insignificant influence on performance although they have, on average, larger stakes than them. Perhaps, civil legal framework, as in France, reduces effectiveness of foreign institutional investors. Therefore, firms in these countries need to pay more attention to domestic institutional investors. This research provides as well useful information about the main factors that incite institutional investorsí activism.
Keywords: Institutional ownership; Corporate Governance; Performance.
JEL Classification Codes: G23; G32; G34
Currency Hedging Strategy and Analysis of Taiwan Export-Oriented Firms
Shu-Hui Lu, Szu-Lang Liao and Hui-Lung Chang

This study aims at analyzing USD forward exchange contract hedging strategies from the perspective of Taiwan export-oriented firms. The forward exchange contracts within 6 months are grouped with the naÔve hedge and optimal hedge ratio separately to evaluate their hedging performances including risk reducing, hedging return, risk-return combination and stochastic dominance rules. Our results show that taking risk as the only consideration, the Whole Period Hedge Rule (WPR) and naÔve hedge are the best strategies. While thinking out both hedging portfolio return and cost, the overall hedge strategies generate lower return of unit risk, but the Forward Hedge Rule (FHR) comparatively outperforms the others under optimal hedge ratio and 3-month horizon. Furthermore, as measuring hedging performance by stochastic dominance rules, 6-month horizon coordinated with FHR and RIR hedging strategies presents first-order stochastic dominance while none of hedge period and strategies performs significantly effective under second and third-order stochastic dominance. Finally, we divide the total sample period into two sub-periods as the steady and weak economy. Since the fluctuation and risk exposed levels of foreign exchange rates are relatively higher in the weak economy period, its performances of all strategies clearly outperform the steady economy.
Keywords: Hedging Strategy, Hedge Ratio, Hedging Performance.
Discriminating between Growth and Value Stock using UTADIS Method
Reza Tehrani, Hossein Safari and Mohammad Javad Mehregan

The main objective of this research is to present a multiple-index mathematical model based on UTADIS model capable of separating the stocks into the two groups of growth and value stocks in Tehran stock exchange. The UTADIS method (UTilites Additive DIScriminantes) method, based on the preference disaggregation approach estimates a set of additive utility functions and utility profiles using linear programming techniques in order to minimize the misclassification error between the predefined classes in sorting problems. The present research is functional with regard to aim and has been designed in the form of analytic methods and mathematical modeling based on Hagenís seven criteria In categorizing growth and value stocks, the designed linear planning model includes 60 limitations of classification of growth and value stocks, and 121 decision varialble The method used for distinguishing these two stock types is UTADIS mathematical categorization model which is used here, for growth and value stocks. Its application method will be introduced in the next section based on the data for 100 companies listed in Tehran Stock Exchange in 2010 and 2011 and the results obtained from the model will be used for the year 2009, 2008 and 2007. Results indicated that the two indices of P/E and net profit margin ratio are more important than other indices. The developed model distinguishes between growth and value stocks in 2007, 2008 and 2009 with high accuracy and is also capable of recognizing the highest-rated growth and value stocks. Therefore, this model can be used by financial researchers and investors.
Keywords: Tehran stock exchange, Utility Additive Discrimantion (UTADIS), Value stock, Growth Stock.