International Research Journal of Finance and Economics
 Issue 124
 June, 2014
Empirical Investigation of Asset Price Bubbles on the Ghana Stock Market: A Parametric Approach
Frimpong Joseph Magnus and Boako Gideon

The existence of equity price bubbles on the Ghana equity market is tested in this study from January 1992 to December 2010 using parametric duration dependence test. The findings show evidence of negative duration dependence in runs of positive returns, a characteristic peculiar to bubble ridden markets.
Keywords: Parametric, Bubbles, Weibull, All-Share-Index, Stock market.
Measuring the Cost Efficiency of Banks Operating in the MENA Region
Mohammad Kassem , Chawki EL-Moussawi and Ali Awdeh

This paper tried to model the efficiency of banks operating in the MENA region between 2005 and 2011, using the stochastic frontier technique. The sample under study included banks from 11 different MENA countries. The empirical results show that – on average – those banks could save up to 19% of their consumed resources while producing the same level of outputs. We also find a wide difference in efficiency among the MENA banking sectors, with scores ranging between 55% (for Egypt) and 97% (for UAE). Finally, by detecting the impact of several internal and external factors on the efficiency scores, we find that economic growth, inflations rates, corruption, exchange rates, trade openness, size of the government, bank capital, and bank profitability, all have a significant impact on bank efficiency.
Keywords: Stochastic Frontier; Efficiency; Productivity.
JEL Classifications Codes: G21; D24.
Causal Relationship between Financial Development and International Trade: Evidence from Turkey
Gökhan Demirtas and Oguzhan Aydemir

Over the past few decades, the links between financial development and international trade has preoccupied the minds of economists. However, the direction of causality still remains unresolved in both theory and empirics. In this paper we investigate the causal relationship between financial development and international trade with Toda Yamamoto, using data from 1961 to 2012 about Turkey. According to empirical findings, there is bidirectional causality between financial development and international trade. Also, financial development leads international trade indirectly through both economic growth and exchange rate. On the other hand, there is bidirectional causal relationship between economic growth and financial development.
Keywords: Financial Development, International Trade, Monetary Policy.
JEL Classifications Codes: F43, F10, F14, G21
Pricing VIX Futures: Evidences From S&P 500 and VIX Indexes
Jung-Hsien Chang , Feng-Tse Tsai and Wen-Tau Chung

This paper uses a simple method to price the VIX futures with stochastic volatility and develops a two-step estimation procedure for VIX futures pricing model. The GMM and nonlinear least squares method are used to capture the information from S&P 500 and VIX indexes, respectively. The empirical study shows that the VIX model with the parameters estimated from the two-step estimation procedure has a good fit for most periods. When pricing VIX futures, we find that the pricing error for each contract from our produce is smaller than when using the information from the VIX index. We confirm that introducing the information of S&P 500 and VIX indexes into the VIX and VIX futures pricing model is helpful in explaining VIX futures.
Keywords: Stochastic volatility, GMM, S&P 500 index, VIX, VIX futures.
JEL Classifications Codes: C13; G13.
Analysis of the Relationship between Inflation and Economic Growth in the G7 Countries
Hasan Alp Özel
For each national economy, the variables of inflation and economic growth are an important part in the creation of economic policies. The interaction between inflation and economic growth is significantly associated with the economic structure of the country. Similar studies of countries and groups of countries yield different results. These differences are stem from different economic structures of the countries or structural changes in the analyzed period. In this study, the relationship between inflation and economic growth in the G7 countries for the 1996-2012 period have been studied using panel cointegration analysis and Holtz-Eakin causality test. According to the findings obtained from this study, in the G7 countries inflation has adverse effects on economic growth, while there is one-way causality between GDP and CPI and PPI.GDP is the source of change in CPI and PPI in the G7 countries. Also, another result achieved in this study shows bidirectional causality between CPI and PPI.
Keywords: Inflation, Economic Growth, G7 Countries.
The Synergy Valuation Models: Towards the Real Value of Mergers and Acquisitions
Raffaele Fiorentino and Stefano Garzella
The purpose of this paper is to examine the use and effectiveness of synergy valuation models in mergers and acquisitions (M&A). This paper advances the current debate on synergy and valuation models in accounting and finance studies. In particular, it answers the call for a detailed investigation of the failure rates of mergers and acquisitions, which have remained consistently high.Relevant literature is reviewed and critically assessed. An interpretive methodology is used to analyze empirical data from a questionnaire survey and interviews of M&A experts. M&A experts perceive net present value as the most frequently used and most appropriate valuation model. There is a strong consensus on the simultaneous use of multiple models as control models. The effectiveness of the synergy value depends more on the valuation path and the assessment process than on the models used. The strategic factors that are considered very relevant to generating reliable forecasts are, surprisingly, not adequately quantified. Indeed, there are several mismatches in valuation practices. This set of contributions is important for both scholars and practitioners. We highlight that the synergy assessment process and the effective use of synergy valuation models are critical points to cut the failure rate of mergers and acquisitions Our findings show the need to warn firms of the potential risks of inaccurate synergy estimations and, at the same time, suggest that an effective synergy assessment model have to be developed to increase the likelihood of M&A success. This is the first comprehensive investigation of synergy valuation models in M&A. The findings recommend that synergy valuation processes must rely on knowledge and experience from accounting as well as from other disciplines such as finance and management.
Keywords: Synergy; Valuation models; Mergers; Acquisitions; Assessment process; Due-diligence; Value creation.
The Influence of Successor-Related Factors on the Leadership Succession in Family-Owned Firms: A Case Study in Bali-Indonesia
Hanes Riady and Nyoman Marpa

The survival of family-owned firms to the second generation is relatively small, and rarely would reach to the third generation in Bali-Indonesia. Recently, most of the family businesses in Bali still in transformation process from the founder generation to the heir generation. This study attempts to examine the influence of successor-related factors on the leadership succession in family-owned firms as family-owned firms have a significant contribution to the Indonesian’s economic growth. This study was undertaken in Bali-Indonesia among 115 owner-managers and successors in 115 family businesses. Using a survey method, this study employs a structural equation modeling (SEM). These respondents were identified via a cluster random-sampling technique. The dependent variable in this study, namely, the leadership succession, is measured by six underlying dimensions: kinship, family commitment, individual characteristic, family relationship, willingness to continue the business and succession planning. The results reveal that the successor-related factors that influence the leadership succession are family commitment, individual characteristic, willingness to continue the business and succession planning. Meanwhile, kinship and family relationship have no significant influence on leadership succession. Furthermore, the family commitment is influenced by the kinship and individual characteristics. The willingness of the successor to take over the firm is influenced by individual characteristics, family commitment, and family relationship. The relationship between the owner-manager and successor is influenced by individual characteristics. The succession planning is influenced by the willingness of the successor to take over the firm, while family commitment and willingness of the successor are employed as moderating variables.
Keywords: Leadership succession, Successor-related factors, Family-owned firms, Indonesia.
Small Business Financing: Determinants and Obstacles in the Context of Indonesia
Fatimah Fatimah , Muhammad Idris , Fitriya Fauzi and Abdul Basyith

This research identifies (1) factors that may affect the decision to have a loan, and identifies the benefits and obstacles faced by small business firms in relation with their financing sources; and (2) investigates what factors drive the SMEs in choosing financing sources and what factors disrupt the SMEs’ growth in terms of profits. Using survey methods through questionnaire and interview, this study consists of 2,800 observations throughout South Sumatera-Indonesia-Indonesia.The results reveal that (1)finance is the most important factor in affecting the decision to have a loan; (2) the service provided by the financier/credit sales, the closest location of the financier to their business, the ease of method payment method of payment, the SMEs’ visit to the financier’s office, the leniency of mortgage requirements, the leniency of terms and conditions imposed by the financier, the interest rate charged and the approach from the financier are factors which considered by the SMEs in choosing source of financing; (3) the limited capital they had, the loss of product quality control, the difficulty in obtaining raw material, the distance of the market location, the lack of qualified employees they had, and the limitations of technology they use to produce their product.are barriers of the SMEs’ growth.
Keywords: SMEs’ financing, SMEs’ growth determinants, SMEs’ financing obstacles, Financing institution, Indonesia.
Evidence of Overreaction in Indian Stock Prices during Quarterly News Announcements
Sitangshu Khatua and Hemanta Kumar Pradhan

Market Overreaction is a very familiar and age-old craze amongst traders. It can be defined as a conducting rod along which an error of optimism or pessimism, once generated, propagates itself about the business world. The question of whether or not Indian stock prices market is overreacted during any stock-specific news is best answered by a comprehensive and concurrent analysis of the various tests and data available while using the event study methodology. Market Model and Ordinary Least Square method is used to calculate normal return. We find how the smaller firms and larger firm’s overreaction vary with market condition or market uncertainty or volatility to firm-specific news. Finally, we want to address the impact of size, volatility and asymmetry in the terms of investors’ overreaction to the firm-specific news not only individually but also jointly. The present study substantiates the policy recommendation for the market players as well as for the analysts in estimating earning announcement events under different market condition and different market capitalization value of the firm and also form the peer-group announcement.
Keywords: Overreaction, Event Study, Abnormal Return, Cumulative Abnormal Return, Market Model, Quarterly Announcements.
JEL Classification Codes: G12’.
Evaluation of Banking Fragility: Evidence from Banks in the MENA Region
Mohammad Kassem , Ali Awdeh and Chawki EL-Moussawi

This paper aimed to detect the impact of changes in the landscape of the banking sectors in 12 MENA countries on the fragility of banks over the period 2005-2011, using the Z-score indicator introduced by Scott (1981) and developed by Goyeau and Tarazi (1992). The empirical results show that Egypt, Jordan, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, UAE and Lebanon witnessed a decline in their fragility over the studied period. Conversely, Bahrain, Kuwait, and Turkey have experienced a worsening in their fragility. Secondly, the Z' indicator shows that Morocco, Tunisia and Lebanon recorded less risk exposure than other countries, which can be explained by a lower risk exposure and more sufficient levels of equity. Moreover, the results show that Jordan, Saudi Arabia and Lebanon have witnessed a decrease in their risk level, while other countries have experienced a deterioration of their fragility such as Bahrain, Oman, Qatar the UAE and Tunisia. Finally, the paper tested the impact of some micro- and macroeconomic factors on bank fragility, and found that the probability of default decreases with higher bank capital and with an increase in inflation rates, whereas it increases with higher bank liquidity, credit risk, and profitability.
Keywords: Probability of default; Banking risk; Z-score; MENA banks.
JEL Classification Codes: G21; D24.