International Research Journal of Finance and Economics
 Issue 109
 May, 2013
Financial Markets and the Financing Choice of Firms: Empirical Analysis of Emerging Market Countries JKM
Najeb Masoud
This study attempts to extend knowledge of the role of financial market development in the financing choice of firms in developing countries using cross-sectional regression estimator with a dynamic-panel approach for 219 firms listed on the three emerging countries during the period 1990-2012. Capital structure studies have generally been aimed at studying the determinants of optimal leverage. Empirically, the focus is, however, on studying the association between observed leverage and a set of explanatory variables. Various theories, namely, the trade-off, pecking order and agency theories, are deployed to explain and predict the signs and significance of each factor identified by Ragan and Zingales (1995) and Booth et al. (2001). The pioneering work of Modigliani and Millar, and many scholars revealed that the financial leverage is one of the most influencing factors in determining the firm growth.
Keywords: Financial markets, Financing choice of firms, MM theory, Trade-off theory, Pecking order theory, Agency theory, Cross-sectional regression and GMM estimation, Emerging markets
Is the Policy Regime of Turkish Economy Fiscal or Monetary Dominant?
Gulcin Tapsin and Aycan Hepsag
Intertemporal public budget constraint is the starting point to determine the dominant regimes of the monetary and fiscal policy. According to this constraint, while the regimes having an obligation to change the primary surpluses in order to limit the debt accumulation at the data price level of fiscal authority are called Monetary Dominant regimes, the regimes in which the primary surplus is determined independently from real public liabilities or real interest payments are defined as Fiscal Dominant regimes. The purpose of this study is to reveal monetary and fiscal dominant policies of Turkish economy, analyzing the relationship between primary deficit and public liabilities; primary deficit and current interest rate. Within this study, Turkish economyís data belonging to the period between 1989:1 and 2011:4 are analyzed empirically with the causality analysis of Toda-Yamamoto. The empirical findings support that the policy regime is fiscal dominant in Turkish economy.
Keywords: Fiscal Dominant, Monetary Dominant, Policy Regime, Causality, Toda-Yamamoto
JEL Classification Codes: C32, E42
The Dependence Structure between the Foreign Exchange Rates during the 2008 Financial Crisis: A Time-Varying Copula Approach
Chin-Wen Wu, Chou-Wen Wang and Ming-Hsiu Liao
Using time-varying copulaĖGARCH models with skewed generalized t (SGT) and generalized hyperbolic (GH) innovations, this paper investigates co-movement among foreign exchange (FX) rates during the 2008 financial turmoil. Daily data of FX rates for Euro/USD, British Pound/USD, and Japanese Yen/USD support using the symmetric time-varying Student-t copula as the best model to capture the co-movement of FXs during the post-crisis period. Different from the results of Chakrabarti and Roll (2002), we reveal that the time-varying correlations in pre-crisis period are virtually higher when compared to those in post-crisis period, indicating that the linkage among FX rates weakened after the 2008 financial turmoil.
Keywords: Co-movement, Time-Varying Copulas, GARCH Model, Non-Gaussian Distribution, 2008 Financial Turmoil
Competitiveness in the Caribbean and Central America
Delisle Worrell, Kevin Greenidge and Shane Lowe
This study investigates the impact of price competitiveness and other factors such as global aggregate demand, investment and technology, on the growth of tradable output in the Caribbean and Central America. We use a measure of price competitiveness which reflects the structure of the tradables sector of each country, and the fact that these small economies are price takers on the global market. We find that global aggregate demand is the only significant driver of tradable growth, taking into account both the magnitude of the estimated effects and their statistical significance. The impact of price competitiveness is insignificant.
Keywords: Competitiveness, Exchange Rate, Small Open Economy, Relative Price
Jel Classification Codes: F41, open economy macroeconomics, F42, economic growth of open economies, F47, forecasting and simulation: models and applications
Statistical Analysis of the EU Countries and Turkeyís Competitiveness Dynamics and Some Assessments
Hatice Erkekoglu and KivanÁ Halil AriÁ
Porterís Diamond Model is used widely in terms of the dynamics of competitiveness. In this study, the competitiveness of EU (European Union) countries and Turkey have been analyzed. The variables were used in cluster analyses which of them represent the Diamond Modelís factors. According to the results of the study, seven member countries of the EU as one cluster and four member countries of the EU as the other cluster displayed sameness in respect to dynamics of competitiveness in their own clusters. Analysesí result showed that there have been parallel conditions between Linderís similarity preferences and competitiveness dynamics of countries. Thus, we could say that the national per capita income in countries and consumerís tastes and preferences shapes the competitive dynamics of countries as the Porterís Diamond Model stated. It was a remarkable result that the England take place in the same clusters with the new countries joined the EU. Turkey was clustered with the old and new members of the EU in terms of the dynamics of the competitiveness.
Keywords: Diamond Model, Similarity in Preferences, European Union, Turkey, Cluster Analyze
JEL Classification Codes:F00, F02, F15
Foreign Aid Effectiveness and Governance Ė A Public Opinion Approach
Mohammad In'airat
The empirical literature on aid effectiveness produces mixed and inconclusive results. This may be because it lacks a clear theoretical framework. Inspired by the inconclusive results of aid effectiveness literature, this paper departs from the main stream and seeks to establish a new path of exploring the issue of aid effectiveness. The experiences, perceptions, and beliefs of public opinion leaders in the recipient country regarding aid effectiveness and the actors involved, are the main input for the analysis. The Palestinian economy is taken as a case for this purpose. The main argument of this study is that foreign aid effectiveness as seen by the citizens is determined by three factors: the quality of governance, aid conditionality and donorsí policies, and the Israeli policies. For the purpose of exploring this argument, data from a survey of 275 public opinion leaders were used to test the relationship. A stepwise multiple regression analysis was performed. The findings revealed that the quality of governance is the most important factor influencing the respondentsí perception of aid effectiveness. The most shocking finding was the tendency of respondents to prefer projects implemented by donors rather than the PA.
Keywords: Reign Aid, Aid Effectiveness, Governance, Donorsí policies, Public opinion.
JEL Classification Numbers:O19, F35
The Impact of Selected Financial Ratios on Share Price of Companies in Pakistan: 1999-2006
Said Shah, S.M. Amir Shah and Shehla Amjad
The paper attempts to analyze the impact of financial performance on the share price of companies in Pakistan. The data for eight years (1999-2006) regarding 50 public limited companies listed on Karachi Stock Exchange, was obtained and analyzed. There is one dependent variable i.e. share price of a company and five independent variables; earning per share, dividend payout ratio, return on equity, return on assets and return on capital employed. Descriptive statistics, correlation and regression are used to analyze the data. It has been concluded on the basis of analysis that three variables; earning per share, return on assets and return on capital employed are significant while other two variables; dividend payout ratio and return on equity have no statistically significant effect on the share price. The impact can be further enhanced if other ratios like liquidity ratios, efficiency ratios and coverage ratios are included in the model.
Keywords: Financial performance, Share price, Financial ratios, Karachi Stock Exchange, Pakistan
Portfolio Risk Management with Value at Risk: A Monte-Carlo Simulation on ISE-100
Hafize Meder Cakir and Umut Uyar
Value at Risk (VaR) is a common statistical method that has been used recently to measure market risk. In other word, it is a risk measure which can predict the maximum loss over the portfolio at a certain level of confidence. Value at risk, in general, is used by the banks during the calculation process to determine the minimum capital amount against market risks. Furthermore, it can also be exploited to calculate the maximum loss at investment portfolios designated for stock markets. The purpose of this study is to compare the VaR and Markowitz efficient frontier approach in terms of portfolio risks. Along with this angle, we have calculated the optimal portfolio by Portfolio Optimization method based on average variance calculated from the daily closing prices of the ninety-one stocks traded under the Ulusal-100 index of the Istanbul Stock Exchange in 2011. Then, for each of designated portfolios, Monte-Carlo Simulation Method was run for thousand times to calculate the VaR. Finally, we concluded that there is a parallel relationship between the calculated optimum portfolio risks and VaR values of the portfolios.
Keywords: Value at risk, Monte-Carlo Simulation, Portfolio Optimization
JEL Classification Codes: G11, G32, C15.
Expected Dividend Thresholds: Do Companies Manage Earnings?
Norashikin Ismail, Adznida Md Daud and Noor Hasniza Haron
This paper investigates whether dividend payers manipulate earnings using accruals when there is a shortfall in pre-managed earnings with respect to the expected dividend payments (DEFICIT). Based on the samples of 980 firm-year observations for the period from 2005 to 2008, the findings indicate that companies manipulate their earnings upwards significantly at one percent level when pre-managed earnings cannot cover expected dividend (positive DEFICIT). The findings also indicate that there is a significant relationship between discretionary accruals and DEFICIT in all industry sectors. Taken together, the results suggest that the greater the shortfall of pre-managed earnings with respect to dividend payment, the greater the accruals earnings management irrespective of industry sectors.
Keywords: Expected dividend, deficit, earnings management, dividend policy, discretionary accruals
Does Net Interest Margin Affect Economic Growth?: A Panel Data Approach
Mehmet Zeki AK, Nurullah Altintas and Ahmet GŲkÁe Akpolat
This study examines the relationship between financial development and economic growth for 14 developing countries during the period 1990-2009 within a panel data analysis. This study uses five different measures of financial development. The result shows that the banking systems in the developing countries need to be regulated since the unproductive credits issued by banks. Moreover, savings in the developing countries must be integrated into the financial system through capital market channel rather than banking channel. Finally, net interest margin is detected to be a determinant factor of economic growth. The competition among the financial institutions provides a decrease in the net interest margin, which contributes to economic growth.
Keywords: Financial development; Economic growth; Net interest margin; Panel data analysis
Determinants of Bank Rapid Credit Growth in Jordan
Mahmoud F. AL-Refai, Said J. Aqel and Mohammad K. Afaneh
This paper empirically examines the determinants of bank rapid credit growth in Jordan. The study uses multivariate panel regressions model, in which the Generalized Least Square (GLS), the Fixed Effect Model (FEM), and the Random Effect Model (REM) on a panel data of 11 banks over the period of 2000Ė 2011.The empirical findings of the study show that the capital, deposits, loan to deposit ratio and net interest income have positive effect on credit growth, while the concentration ratio has negative significant influence on the rapid credit growth supplied by Jordanian banks. The results also show that the loan-loss provisions, size, and number of foreign banks operating in Jordan have no effect on bank rapid credit growth. Moreover, the results show that the sustainability of the credit growth in Jordan may be questionable as there are signs of rising probability of banking sector crisis in Jordan.
Keywords: Credit growth, Banking Crisis, Jordan, Internal Bank Factors.
Economic News and Colombian Sovereign Bonds
Julio Sarmiento-Sabogal, Edgardo Cayůn-Fallon, Daniel Villegas, Alejandro Hoyos and Juan D. Altamar-Barrios
This paper analyses the effect of surprises in local and international economic news on the Colombian local-currency government bond market. In this study, we categorize the different government bond issues into three constant-duration portfolios to correct for mismatching maturities among different Colombian bond issues. We use quantile regression to model the effect of the surprise component on portfolio returns, since this method is robust to asymmetry, and to the presence of heavy tails in the distribution of the data. Under the assumption of inflation expectations, our results found that in the short term, international news has a greater effect than similar domestic news items, but this is not the case for longer maturities; the only exception to the surprise component of US unemployment.
Keywords: Economic news, Bond Market, US news, Colombia
JEL Classification Codes: G14, G15
Financial Sector Problems in Developing Countries
Jong Eun Lee and Giseok Nam
In this study we describe some financial sector problems in developing countries. Even in some developed economy with relatively sophisticated financial institutions, the disclosure of information on firms and banks is severely limited and the problem is further compounded with financial structure distorted by a long past history of interventionist government polices. In such a case, asymmetric information and moral hazard problems magnify the risk of financial instability. The task of designing and implementing effective regulation and prudential supervision of the financial sector to mitigate such problems should be of utmost urgency and high priority.
Keywords: Financial Problem, Information Asymmetry, Adverse Selection, Moral Hazard.
JEL Classification Codes: G21, G28.
Impact of Board Characteristics on Firm Performance of Indian Companies
Sudershan Kuntluru and Faresa Fatima
The present study examined the relationship between board characteristics and firm performance in India. Unlike the existing studies, in this paper, the board characteristic scores were computed based on board of directorís component as prescribed under Clause 49 of Listing agreements of SEBI. The data was collected for a period of 4 years from 2005 to 2008 for the sample of Nifty 50 index companies. It was hypothesized that board characteristics had positive impact on firm performance. Board characteristics were measured in terms of board of directors, composition of board, non-executive directorís disclosures, sub-committees and role of board of directors and code of conduct related to board members. Each of the hypotheses was examined based on pooled cross sectional time series analysis. Empirical results found that overall the board characteristics had positive impact on firm performance. It was found that sub-committees and role of board of directors and code of conduct of board members had significant positive impact on firm performance. The findings of this study provide rich source of information and far reaching implications to top management of the companies, regulators and financial analysts about the relationship between board characteristics and firm performance.
Keywords: Corporate Governance, Board Characteristics, Board of Directors, SEBI, Firm Performance, India.
JEL Classification Code: G34.
Hedging Effects and Investment Strategies of Precious Metals
Yu-Min Wang, Chia-Fei Lin, Hung-Hui Wu and Yu-Sung Chang
The main purpose of this paper was to examine the role of precious metals (gold, silver, platinum, and palladium) in global financial markets by assessing whether hedging and safe haven effects can be achieved with precious metals and the U.S., European, and Asian stock indices. The results of this study indicate that investors seek out safe havens during periods of poor market performance or high market uncertainty to protect asset value. This study also found that precious metals have safe haven effects and can effectively disperse investment portfolio risks. During the studyís sampling period, gold exhibited the optimum safe haven effects. Observing short-term and long-term hedging effects during the subprime mortgage crisis, this study found that the safe haven effects of precious metals were maintained for approximately 20 business days following the start of a crisis. In addition, the inclusion of precious metals in investment portfolios effectively increases investment efficiency; the results indicate that gold engenders the highest efficiency. These findings can provide investors in global financial markets with mechanisms for reducing loss risks and, thus, serve as a stabilizing force when markets experience poor investment conditions.
Keywords: Precious metals, investment portfolios, hedging, safe havens
JEL Classifications Codes: G10, G11, G14, G15