International Research Journal of Finance and Economics
 Issue 126
 October, 2014
Monetary Policy and its Impact on selected Macroeconomic Variables in the Nigerian Economy; 1970 – 2012
Imoisi, Anthony Ilegbinosa, Moses, Owede Vincent, Godstime, Ikechukwu Opara and Olatunji, Lekan Moses

This study examines the impact of monetary policy on selected macroeconomic variables such as gross domestic product, unemployment, inflation and balance of payments using the Augmented Dickey Fuller test, Co-integration test and the Error Correction Model on annual data collected for the period of 1970-2012. The study reveals that there is a long run relationship between monetary policy variables (money supply, exchange rate and real interest rate) and the selected macroeconomic variables (gross domestic product, inflation, unemployment and balance of payments). It was observed that monetary exerts moderate impact on the selected macroeconomic variables in Nigeria. The paper validates previous works done on the efficacy of monetary policy and also submits that appropriate sanitation exercise be carried out by the CBN to make the banking environment conducive. Such activity by the CBN will improve monetary policy in Nigeria and eventually lead to an overall improvement of the selected macroeconomic variables. Based on the foregoing, the paper recommends that the monetary authorities should streamline its measures especially the prevailing interest rate through the use of indirect tools in order to achieve the targeted inflation rate that is desirable, the monetary authorities should take necessary steps to reduce the spread between bank lending rate and savings deposit rate to not more than 10% by encouraging banks to do so, the monetary and fiscal policy authorities should coordinate their activities and introduce policies that will encourage banks to allocate foreign exchange in favour of the manufacturing sector and not in the favour of importers of consumer goods.
Keywords: Monetary Policy, Unemployment, Gross Domestic Product, Real Interest Rate, Balance of Payments, Money Supply, Inflation
K-Liquidity Ratio as a Solution to the Limitations of Existing Traditional Financial Liquidity Ratios
Ronny Kountur

In this article I am introducing K-Liquidity Ratio as a model to solve the limitations of existing traditional financial liquidity ratios (Current Ratio, Quick Ratio, and Liquidity Ratio) in measuring a firm’s financial liquidity performance. Current Ratio or even Quick Ratio higher than 1.0 do not necessarily indicate a financially liquid firm. It may be due to conservative management of working capital by giving lenient credit terms and paying liability as soon as possible. This conservative management of working capital leads to high bad debt, low receivable turnover, high payable turnover, and eat up the available sources of net long-term financing. The traditional financial liquidity ratios miss some of these things in their model. The K-Liquidity Ratio is able to fill this gap. One hundred and three selected companies listed in the Indonesia Stock Exchange are studied. The data supports the hypothesis that there are significant differences between different financial liquidity ratios and that there is significant correlation among the traditional liquidity ratios while no correlation to K-Liquidity Ratio. The finding leads to the conclusion that K-Liquidity Ratio is able to fill the gap that the traditional financial liquidity ratios miss since it is different and has no correlation with them. If K-Liquidity Ratio does not differ or is even different but significantly related with the traditional financial liquidity ratios then there is no use claiming that K-Liquidity Ratio is better. The K-Liquidity Ratio seems to be superior and most appropriate ratio to indicate a firm’s financial liquidity. It is best used in making operational as well as strategic financial decisions.
Keywords: Current Ratio, Quick Ratio, Liquidity Ratio, K-Liquidity Ratio, Management of Working Capital
Studying the Relationship between Stock Prices and Exchange Rates in a Sample of Arab Countries
Linda Ismaiel and Zeina Al-Ahmad

This study aims to explore the nature of the relationship between stock prices and exchange rates in a sample of Arab countries that are facing political crises, those being: Syria, Tunisia, Egypt, and Bahrain. It applies monthly time series data of the nominal and real effective exchange rates and stock prices indices for the sample countries from January 2003 to July 2013. The study utilises the Johansen cointegration test, the Vector Error Correction Model (VECM), and the Granger causality in order to test the long run and short run dynamics between the two variables of interest. The results reveal that there is no short run or long run relationship between stock prices and exchange rates in Tunisia, this holds regardless of whether the nominal or the real effective exchange rate is used; however, for the rest of the countries, the results differ according to the period of study and the measure of exchange rate that has been used. Overall, the post crisis period produced different results than the pre crisis one, and the real effective exchange rate produced different results than the nominal one. Most of the results, except those related to Tunisia, have important implications for investors and policy makers.
Keywords:Stock Prices, Exchange Rates, Cointegration Test, Vector Error Correction Model (VECM), Granger Causality, Political Crises.
JEL Classification: G15, C32
Thermodynamics Description in the Colombian Stock Market
Dr S Prabakaran

A thermodynamic analogy in economics is older than the idea of von Neumann to look for market entropy in liquidity, advice that was not taken in any thermodynamic analogy presented so far in the literature. Many researchers have attempted to viaduct their fields with others to gain insight into their own. In the past decade or so, physicists have begun to do academic research in economics. Perhaps people are now actively involved in an emerging field often called Econophysics. In this paper we attempt to introduce a thermodynamics approach to Colombian stock market price index model. The main ambition of this study is fourfold: 1) First we begin our approach through the relation between stock price and thermodynamics by using of simple volatility model. 2) Next we introduce the similarities between the Brownian motion and the stock price process. 3) Then we extent this thermodynamic approach in the stock market index. 4) Finally we construct the thermodynamics and economical model by using of actual Colombian stock index by using of Brownian motion and stock price process. And this paper end with conclusion.
Keywords: Econophysics, Thermodynamic, Colombian stock market, random walk, Brownian motion and Normality test.
Does Governance Quality Matter for Foreign Direct Investment? Empirical Evidence from Panel Data
Kofi Boateng
The present article investigates impact of governance quality and policy volatility on FDI in a panel of 113 countries from 1996 to 2010 using the generalised least squares (GLS) estimator. The results suggest that FDI is determined by degree of openness to trade, infrastructure quality and the return on investment. The results also suggest that FDI is negatively affected by policy volatility.
Keywords: FDI, uncertainty, panel data
JEL Classification Codes: F15, B28
Credit Risk Management in Microfinance Institutions
Washington Chiwanza, Walter Gachira, Dingilizwe Jacob Nkomo and Runesu Chikore
This research project provides a credit risk management analysis and evaluation of HiFund Investments for the period 2010 to 2013. The aim of the study is to strengthen credit risk management at HiFund Investments so as to minimise credit risk, get insights on how to improve credit risk management in that industry. HiFund Investments is one of the Zimbabwean firms that offer financial service to the low income part of the market. Morgan Stanley’s methodology for assessing Microfinance Institutions (MFIs) credit risks was applied. Binary logistic regression was applied to compliment Morgan Stanley’s approach to analyse client characteristics as risk indicators. The data for the research was sourced from HiFund Investments’ reports as well as from questionnaires that were distributed to the staff members. Results show a low level of performance by HiFund Investments in quantitative variables and a relatively good performance in qualitative variables. This is generally the case throughout this industry. Conclusions were that the current business management practice was not comprehensively managing credit risk. The adoption and application of additional risk management tools would improve performance for HIFund and the microfinance industry. The company is doing the best in can under a difficult business environment.
Keywords: Credit risk, Management, Microfinance, Qualitative risk factors, Quantitative risk factors, Risk indicators, Client characteristics
CEO Turnover, Corporate Governance and Earnings Management—Evidence from Chinese Listed Companies
Chen, Kejing, Li, Yanxi, Wang, Yiyu and Song, Chunyu

This paper examines the influence of CEO turnover on earnings management in China. We explore the mechanism of different corporate governance and predict how it affects the relationship between CEO turnover and earnings management. This article uses data from A-Share listed companies in China, 2010-2012, as the study sample. Our empirical tests confirm our theoretical predictions. We find that earnings management level is significantly improved before CEO leaves. The difference of corporate governance significantly affects earnings management degree before CEO turnover, namely in companies which have low ownership concentration or large board size, CEO’s earnings management level is high. This study is not only a complement to the existing research, but also brings in the effect of corporate governance. It has realistic meaning on supervising management, perfecting governance structure and so on.
Keywords: CEO turnover, earnings management, ownership concentration, board size
The Effect of Ownership structure on Provision Methods of Financial Companies Accepted in the Securities Exchange of Tehran
Marzieh Bahrami and Amir Mohsen Delbarsaf

The major objective of this research is to analyze the effect of ownership structure on methods of financial companies accepted in commercial paper exchanges from 2007 to 2012. In this research, ownership includes organizational ownership, governmental ownership and private ownership as independent variables to analyze their effects on dependent variables (financial provision through common stock and bank loan). Statistical outcomes gained from analyzing data of 145 companies in 95% of certainty proves the direct influence of organizational and private ownership and the reverse influence of governmental ownership on the amount of financial provision through publication of common stock. The results show that private ownership has reverse influence and organizational ownership has direct influence on the amount of financial provision through bank loan. On the other hand, it seems that governmental ownership does not have any significant influence on the amount of financial provision through bank loan.
Keywords: ownership structure, organizational ownership, governmental ownership, private ownership as variables of financial provision through publication of common stock, bank loan
Online Group-Buying Continuance Intention: An Extended user Experience Perspective on Expectation-Confirmation Theory
Hua Peng, Yu-Ling Liu, Chia-Lin Wu and Po-Yin Chang

Although online group-buying has been proposed by various studies in recent years, the intention to continuous usage such topics remains insufficient, and the acceptance-discontinuance anomaly phenomenon, namely, users discontinue the use of online group-buying services after initially accepting them is frequecntly occurs. This study investigated the determinants of the online group-buying continuance intention of users with different levels of online group-buying experience, and examined the moderating effects of online group-buying experience on the relationships among the determinants. This study synthesized the expectation–confirmation model and technology acceptance model to establish a theoretical model for explaining and predicting the intentions of users to continue using online group-buying. The results reveal that user satisfaction and attitude are the primary determinants of the intention of users to continue using online group-buying, regardless of their level of online group-buying experience. In addition, the findings show that the experience of users in using online group-buying services plays an crucial moderating role. The implications of the findings for research and managerial practice were analyzed and are discussed in this paper.
Keywords: Online group-buying, User experience, Expectation-confirmation theory, Technology acceptance model
A Study of Impacts of Privatisation in Developing Countries
Kuo-Tai Cheng, Chun-Fa Cheng, Kirk Chang and Yao-Chang Kuo

This paper looks critically at the ascendant concepts of employment impact of privatising government-owned enterprises as developed in recent years in Western countries. Privatisation and its impact are viewed as a product of the particular circumstances and ideologies influencing Western economies in the 1980s and 1990s. This raises the question of whether such concepts are applicable in different contexts and in particular how valuable these concepts are for government-owned enterprises in developing countries. Many advisers and aid agencies appear to proceed on the assumption that such privatisation philosophies and associated impact practices are applicable to DCs. This view is challenged by a general analysis of the relevant features of the institutional environment for many DC enterprises which do not seem to lend themselves easily to the adoption of privatisation concepts and human resource practices.
Keywords: Employment Impact; Privatisation