International Research Journal of Finance and Economics
 Issue 120
 March, 2014
A Study of the Relationship between Net Trade Cycle and Liquidity of Small Firms
Haitham Nobanee and Jaya Abraham

This paper aims to examine the relationship between the efficiency of working capital management, firm’s size and liquidity. This relation is analyzed using Generalized Method of Moment System Estimation applied to dynamic panel data for a sample of 5802 non-financial firms listed in the major US markets for the period 1990-2004. The results show negative and significant relationship between net trade cycle as a comprehensive measure of the efficiency in working capital management and liquidity for small firms.
Keywords: Working Capital Management; Small Firms; Liquidity
An Optimal Cash Conversion Cycle
Haitham Nobanee and Maryam AlHajjar

Although the operating cycle, the cash conversion cycle and the net trade cycle are more comprehensive measures of working capital management compared with traditional measures such as the current ratio and the quick ratio, these measures do not consider the optimal points of payables, inventory, and receivables. In this study we suggest more accurate measures of the efficacy of working capital management where optimal levels of inventory, receivables, and payables are identified, and total holding and opportunity costs are minimized. In this paper, we suggest an optimal operating cycle, an optimal cash conversion cycle, and an optimal net trade cycle as more accurate and comprehensive measures of working capital management.
Keywords: Working Capital Management; Optimal Cash Conversion Cycle; Optimal Net Trade Cycle; Optimal Operating Cycle; Profitability.
Incorporating ESG Risk in Bank-Lending in Bangladesh
Sarwar Uddin Ahmed and Matiur Rahman

Incorporation of environmental, social and governance (ESG) risk in bank lending process has been greatly emphasized for ensuring sustainability of banks. The central bank of Bangladesh has also voiced concerns by formulating two policy guidelines simultaneously. However, it failed to suggest ways to consider ESG risk quantitatively in lending decisions. The objective of this study is to close in this gap and suggest ways to incorporate ESG risk in bank lending process. A revised credit risk grading model has been suggested by adding environmental, social and governance risk factors. Policy recommendations have also been suggested for ensuring effective incorporation of ESG factors in lending decisions by private commercial banks in Bangladesh.
Keywords: ESG risk, credit risk management, private commercial banks, sustainability.
Stock Market Integration In Asia Pacific: An Empirical Study of 6 Countries
Dr. Husein Umar

This study examines the interactions of stock price indices in six Asia Pacific countries, Australia, Indonesia, Korea, India, Malaysia and Singapore with particular attention to the subprime mortgage crisis. Using daily time series data of the stock price indices countries, a vector error correction model (VECM) is employed to empirically examine the interaction among the variables. The results found co-integration relations only for pre-crisis and crisis period and the leading markets Australia have a strong significant influence on the other stock markets.
Keywords: : VECM, co-integration, stock market, crisis.
Exploring Dynamic Relations between Macroeconomic Variables and Household Debts in South Africa: An Application of Toda-Yamamoto Causality
Ntebogang Dinah Moroke, Janine Mukuddem-Petersen and Mark Petersen
The study investigated causal relationships between household debts and related determinants in SA using multivariable approach. Quarterly data ranging from 1990 Q1-2013 Q1 was collected from STATSSA and SARB, and SAS 9.3 was used for analysis. The study adopted the Johansen multivariate cointegration and the Toda-Yamamoto causality testing approaches. The ADF, PP and KPSS unit root test results confirmed all the variables under study were stationary. Subsequently, the cointegration results indicated that there is a long run relationship between household debts and related determinants. The ECM results affirmed that about 13.8% of disequilibrium was corrected in the short-run per quarter providing the model with all the signs concurring with economic theory and literature on household debts. Furthermore, Toda-Yamamoto causality results revealed GDP, UR and ER do not cause HHD.A bidirectional relationship was discovered between other variables confirming that they are not weakly exogenous in HHD of SA. This study recommends the formulation and implementation of policies that will effectively help in dealing with household indebtedness in SA and also to complement current policies dealing with HHD. Focus should be based more on threatening determinants such as household consumption expenditure, gross domestic product and house prices.
Keywords: : Cointegration, Error Correction Model, household debts, South Africa, Toda-Yamamoto Causality Test.
JEL Classification Codes:C22, F14, F43
The Recent U.S. Housing Boom-Bust Cycle: A Single-Index Dynamic Factor Model Approach
Dicle Ozdemir
In this paper we use the single-index dynamic factor model, developed by Stock and Watson (1991), to study the U.S. house market and the house credit market for both the pre-boom-bust and during the boom-bust period separately. The dynamic factor model identifies a composite factor index for each market segment by extracting the latent unobserved state variable from noisy data representing each market. Correlations of these markets with the real GDP are then examined for two sub-periods. This reexamination of the U.S. housing market and boom-bust cycle link shows that the house market and the house credit market have strong relationships with real GDP. However, these relationships show some different characteristics for the house credit market during the boom-bust period of U.S. economy.
Keywords: Dynamic Factor Model; Kalman filtering, Housing Market.
JEL Classifications Codes: E32, E44, G01
Effects of Sovereign Credit Rating Announcements on Stock Markets: Borsa Istanbul Case
Murat Yildirim and Yilmaz Bayar

Credit rating agencies were established in 1900s in the United States and became an important part of global financial system in mid-1970s. This study examines effects of the foreign currency long term sovereign credit rating announcements of Fitch, Moody’s and Standard&Poor’s on Borsa Istanbul 100 index by using conditional heteroscedasticity models during the period 1990-2014. We found that Borsa Istanbul did not respond significantly to the sovereign credit rating announcements and this finding verified that semi-strong form of efficient-market hypothesis was valid.
Keywords: Borsa Istanbul, Credit Rating Agencies, Conditional Heteroscedasticity Models.
Correlation and Causation between Crude Oil and Gold Prices
Charbel Bassil, Hassan Hamadi and Christel Saadeh

This paper examines empirically the relationship between gold prices, oil prices and U.S. Dollar Index. These variables have witnessed significant changes over time and hence, it is absolutely necessary to validate their relationship periodically. This study takes monthly data from December 1992 to December 2012. Using techniques of time series, the study tries to capture a stable relationship among these variables using vector autoregressive and cointegration techniques. The results show that there is a long-run relationship between crude oil prices and gold prices. This relationship is subject to two structural breaks. Moreover, Granger causality test reveals a strong causality running from crude oil prices to gold prices, and a weak causality running from gold prices to crude oil prices.
Keywords: Crude Oil, Gold, U.S. Dollar Index, Unit root test, Johansen test, Granger test.
IFRS Versus U.S. GAAP: Analyst Forecasts of Foreign Firms Listed in the U.S
Chia-Hsuan Tseng and Wei-Ren Yao

We investigate whether firms using IFRS vis-à-vis U.S. GAAP exhibit cross-sectional differences in properties of financial analysts’ earnings forecasts, as measured by analyst following, analyst forecast error, and forecast dispersion. This study exploits a unique setting in which foreign firms listed in the U.S. can choose between IFRS and U.S. GAAP for financial reporting purpose. We find that firms report in accordance with U.S. GAAP have higher analyst following and smaller forecast error than firms report with IFRS. Our results suggest that, in terms of analysts’ forecast properties, IFRS is unlikely to be superior to U.S. GAAP in the U.S. market. We also find evidence of institutional effects on the relation between accounting standard and analysts’ forecasts. Consistent with prior evidence, we suggest that accounting standard should not be mandated without considering related institutions.
Keywords: IFRS, U.S. GAAP, Analyst Forecast, Information Environment.
A Study of Consumer’s Behavioral Intention to Third-Party Payment: An Extended Model of Technology Acceptance Model
Wen - Chia Tsai

Third-Party Payment have become indispensable teaching materials and are the focus of new technology applications with great market potential. The third-party payment have delayed payment function, reduce fraud on internet trading platform also become the important mechanism of e-commerce, and make C2C (consumer to consumer) transactions more convenient. The key factor for assessment of the “Third-Party Payment” is first to understand consumer behavioral intentions. To achieve this understanding, the Technology Acceptance Model (TAM) was used as the main theoretical basis of this study. Three cognitive factors – “trust”, “perceived usefulness,” and “perceived ease of use” – were used to measure the interactions among all factors and whether these factors have positive effects on “attitude toward using,” as well as whether “attitude toward using” has a possible effect on “behavioral intention to use” . After analysis, the study produced the following results: Trust has a significantly positive effect on attitudes toward using third-party payment;Perceived usefulness has a significantly positive effect on attitudes toward using third-party payment;Perceived ease of use does not have a significantly positive effect on attitudes toward using third-party payment;Attitudes toward using third-party payment has a significantly positive effect on behavioral intention to use third-party payment.
Keywords: Technology Acceptance Model, Third-Party Payment, trust, perceived usefulness, perceived ease of use.
Website Usability in the E-Commerce Environment in India
Sharma S. C and Nandagopal R
An e-commerce website is evaluated, using a well known Indian website, as the target. 269 valid questionnaires are analyzed, using a 7-point Likert scale for measurement of participant responses to our questionnaire. The present study uses tried and tested variables including ‘perceived usability’ and ‘ease of use’ as defined by Davis’s TAM (Technology Acceptance Model). The variables used here are mostly from earlier studies ([1] and [2]), with some significant modifications. Visual PLS, a structural equation modeling (SEM) statistical package was used for our analysis. In addition, the regression component of the SPSS statistical package was used to reinforce our findings. The results validated all our hypotheses.
Keywords: Intention to Transact, Ease of Use, Perceived Usability, Perceived Risk, Trust, Design Credibility, Content, Interactivity. Navigability, Responsiveness.