International Research Journal of Finance and Economics
 Issue 142
 November, 2015
A Study on the Nonlinear Relationship between Capital Adequacy Ratio and Financial Performance for Banks: Applying the Nonparametric and Semiparametric Methods
Chung-I Lin

In this study, we aim at investigating whether the relationship between the regulatory minimum capital requirements in Basel Capital Accord I& II and financial performance of banks is adequately specified in traditional manner. Using the unbalanced panel data of 34 Taiwanese domestic banks over the period 1996-2005, we adopt the nonparametric and semiparametric methods, which are known as more flexible and able to avoid possible misspecification. The empirical results from the aforementioned approaches are summarized as follows: (1) There is a nonlinear relationship between the capital adequacy ratio (CAR) and financial performance for banks. (2) CAR has a weak positive effect on bank performance. (3) When the value of CAR increases above 17%, the bank performance decreases. (4) Overall, compared to traditional simple linear regression model, nonparametric approach model is recommended to precisely measure the impacts between CAR and bank financial performance.
Keywords: Capital adequacy ratio; Minimum capital requirements; Nonparametric and Semiparametric regression; Risk management; Bank performance.
JEL Classification: C14, C33, G21, L25
Day of the Week Effect on Beta, Bid Ask Spread, Trading Volume, Trading Frequency and Stock Return
Ika Pratiwi Simbolon, Yuyus Suryana, Erie Febrian and Aldrin Herwany

The purpose of this paper is to investigate the effect of beta, bid ask spread, trading volume, trading frequency to stock return in up and down market. This paper also investigates the day of the week effect on that relation from each market. This paper is using Ordinary Least Square and Weighted Least Square to estimate the research model. The conditional method in up and down market developed by Pettengill, Sundaram and Mathur (1995). There is no day of the week effect in the simultaneous and partial effect of beta, bid ask spread, trading volume and trading frequency to stock return in up market. There is also no day of the week effect in the simultaneous effect of beta, bid ask spread, trading volume and trading frequency to stock return in down market. But there is day of the week effect in the partial effect of beta, bid ask spread, trading volume and trading frequency to stock return in down market. Beta is consistently has partial significant effect in both market. Beta is not the only risk factor that effect the stock return. This research shows that beta and liquidity have significant effect to stock return. This paper appears to be the first empirical tests for finding the day of the week effect on the relation between beta, bid ask spread, trading volume, trading frequency to stock return in up market and down market.
Keywords: Beta, Bid Ask Spread, Trading Volume, Trading Frequency, Stock Return, Day of the Week Effect, Up Market, Down Market
JEL Specification: E44, G02, G10, G11, G12, G14
Real Exchange Rate and Purchasing Power Parity Hypothesis: Evidence from ADF Unit Root Test
Anwar Al-Gasaymeh, John Kasem, and Alshurideh, M

The purpose of this paper is to investigate the role of country characteristics on Purchasing Power Parity. This paper examined the stationarity of real exchange rate by using ADF unit root test for a group of countries classified into three groups; the first group is based on trade agreements, the second group is the top 25 inflation countries in the world and the last group is the same geographically located countries. We employed quarterly data from 2004Q1-2014:Q4. This paper concludes that PPP depends on the country’s characteristics. With this perspective, it is appropriate to investigate PPP among countries with similar characteristics but it is not appropriate for studying PPP among a more diverse group of countries.
Keywords: Purchasing Power Parity; Unit Root Test
Gunjan Kohli and Sanjay Sehgal

In this paper, we examine the level of Home Bias in global bond markets. Using the annual data from 2006 to 2012 for 35 countries, we find that the investment in HB is stronger for emerging economies compared to developed economies. The EU economies specially exhibit strong regional bias owing to higher inter-market investment within the region. The HB in global debt markets is greater than those for equity markets irrespective of economic settings. Examining the determinants of HB using panel data estimation, one finds that macroeconomic variables such as governance, real interest rate, trade, capital control and exchange rate volatility play an important role in determining levels of HB. While interest rate and exchange rate volatility coefficients impact HB positively for developing countries, they have negative implications for emerging economies. One probable explanation could be international investors, especially from the mature economies are constrained from investing in emerging economies, despite the promise of higher interest rates because these markets have weaker institutional, and regulatory architecture, poor market micro structure and the fact that they lose more due to exchange rate volatility given the large currency fluctuations for such economies. Our findings are pertinent for policy makers, global portfolio managers and academic community. The study contributes to the international finance area dealing with international debt investment flows.
Keywords: Home Bias, Regional Bias, Panel Data Estimation, International Debt Investment Decision
JEL classification: G11, G15
Analysis of Gender of Identity and Empowerment
Najaf Tahmasebipoor, Abdolmohammad Taheri and Mohammed Shabani

In the research that has been done as documentary research, at the beginning, it has discussed identity and social identity and identity crisis in both its fundamental part of the belonging and commitment, from the perspective of different theories, including process control system the identity of the, the symbolic interaction, structural theory, educational theory and the theory of categories and styles of identity, the identity of commitment from the perspective of Ericsson, Marcia and Berzonsky then, arise the concept of sex and gender and its difference and Classify and describe the various approaches to gender identity aligned in three different theories, theories of inequality and the oppression theory and arise the results of various research in this field in our society; In the next step, explain the concept of empowerment and empowerment of women from economic, psychological and social aspects Finally, according to the perspective of gender identity of Berzonsky and the results of research in the field of empowerment in the society has analyzed our individual and social barriers of empowerment of women And effort to change the style of women's identity of normative to informative identity arise as a means of Empowerment of women in Iranian society.
Keywords: gender identity, empowerment
Credit constraints of Micro and Small Enterprises (MSEs) in Egypt
Mona Esam Fayed and Manal Emira

This paper assesses the micro and small enterprises' credit constraints during the period (2003-2011), before and after the latest Egyptian financial and institutional reforms. We adopt a new measure of the credit constrained status (CCS) to evaluate MSEs' credit constraints, controlling for firms' characteristics, such as firm size, age, degree of formality, entrepreneur level of education and age, credit collateral and interest rate. Using the Egyptian MSE surveys of 2003 and 2011, we run an ordered logistic regression to study the evolution of the CCS of MSEs over time. Results show that firm size has a significant negative effect on the MSEs' CCS. This negative relationship has attenuated over time signaling possible success of the Egyptian reforms. Moreover, findings indicate that age and degree of formality of the firm, as well as entrepreneur education level, have significant effects on their CCS over time. However, results indicate that access to credit became more difficult over time, as revealed in credit collateral and interest rate coefficients. This can be regarded as an indication of some deficiencies in implementing Egyptian reforms. Accordingly, it could be concluded that Egyptian financial and institutional systems are in need of further revisions and adjustments.
Keywords: Micro and Small Enterprises, Credit constraints, Firm characteristics, Egyptian financial and institutional reforms, Ordered logistic regression.
JEL Codes: E22; G21; G28; G30; G32; L11; O16
How IFRS affects the return on asset? & is more value relevant constructed based on IFRS than based on local GAAP?
Alexandros Garefalakis, Elisavet Lappa, George Mantalis, George Xanthos and Kostantinos Spinthiropoulos

The IFRS, by the global establishment of the accounting standards, principles and practices, meet the requirements of the users of the financial statements and the comparability of the data of the stock exchange quoted companies. Consequently, investors have more choices in a lowest possible cost and an improvement exists in the impression of the stock markets, as it is possible to attract investors. This study investigates how the adoption affects ROA and if the earnings are more value relevant based on IFRS than based on local GAAP.
The results show a) that IFRS did not contribute in a great amount to the efficient and the cost-effective functioning on capital markets by the EU Mediterranean banks. Through these results, the conclusion is that the ROA of the banks of the European Union Mediterranean Countries was not affected by the adoption of IFRS b) It was not possible to clarify if the earnings are more value relevant based on IFRS than based on local GAAP.
JEL classifications:
Analysis of the Implication of Human Capital Development on Economic Growth in Nigeria
DR. Nwanne, T. F. I.

This research aimed at examining the effect of human capital development on the growth of Nigeria economy. Using co-integration techniques to investigate the effect of human capital development and economic growth in Nigeria, we observed that there is significant long-run relationship between human capital development and economic growth in Nigeria. This is confirmed by the Johansen co-integration. The vector error correction model (VECM) indicates that 1% increase in the government expenditure on education (TEDU), on the average, led to 23.8% increase in GDP while 1% increase in the government expenditure on health (THEA) caused 37.6% decrease in GDP. The two variables, as human capital development factor, were found to have significant effect on economic growth. However, government expenditure on education has positive relationship with GDP. This implies that increase in expenditure on education contributes positively to the growth of the economy. The policy implications are in three directions: To retain the continuous long run relationship with GDP and human capital development, effort should be made to harmonize the activities in the health and education sector with much attention on funding; Government expenditure on education was found to have positive effect on the economy. In the light of this, government should try as well to meet up with world standard benchmark on education expenditure in the annual budget. In so doing, this will improve on the economy and Government expenditure on health was found to have negative effect on the economy. Therefore, effort should be made by government to address the agitations by the health workers which always make them to resort to frequent strike actions. If these worrying issues are looked into, perhaps the instability experienced in the health sector would be addressed. Efforts should be made to equip our health sector so that capital flight in the name of foreign medical treatment is reduced.
Keywords: Human Capital development, Government Expenditure on Education, Government Expenditure on Health, Nigeria.
Effects of Excess Cash Holdings on Shareholder Value: Evidence from Korea
Soo-Eun Kim

This paper analyzes the effects of excess cash holdings (ECHs) on the value of the stock by considering firms listed on the Korea Exchange between January 1, 2000, and December 31, 2011. First, consistent with previous research, Korean firms’ cash holdings can be well explained through trade-off theory. Their ECHs are positively related to cash flows based on profits, revenues, and investment/financial activities but negatively related to capital expenditure, net working capital, financial losses, the leverage ratio, and firm size. Second, in terms of the holding period for excess cash, firms with persistent ECHs are more likely to show a decrease in excess stock returns than those with transient ones. In addition, an increase in the holding period reduces excess stock returns, particularly in the third year of the holding period. Third, firms with ECHs are more likely to show a decrease in the marginal value of cash than those without ECHs. The higher cash holdings ratio or the leverage ratio, the larger the decrease in the marginal value of cash is. Fourth, firms with persistent ECHs are more likely to show a decrease in the marginal value of cash than those with transient ones. That is, the longer the holding period, the lower the marginal value of cash is. Fifth, additional analyses measuring benchmark and excess stock returns according to the market, industry, firm size, and the market-to-book (MTB) ratio indicate that firms with persistent ECHs are more likely to show a decrease in the marginal value of cash than those with transient ones.
Keywords: Excess Cash Holdings, Shareholder Value, Excess Returns during the Holding Period, Agency Cost, Marginal Value of Cash
JEL: G30
Merging Activity in Greek Banking Sector: Measuring Employees’ Performance and Implementing Transformative Learning
Spyridon Repousis

Purpose - The purpose of this paper is to examine the impact of mergers and acquisitions on employee performance in Greek banking sector over the period 1996-2004.
Design/methodology/approach – By measuring four financial ratios, find controversial results about the performance of employees following merging activity in Greek banking industry.
Findings - Results are expected, since mergers and acquisitions represent a disorienting dilemma for employees which can have both positive and negative impact on their performance.
Practical implications - Disorienting dilemmas lead to stress and anxiety because employees are confronted with an experience such as a merger and an acquisition that leads them to review their views, thereby altering their perspectives. Such a dilemma may serve as an impetus for transformative learning. Transformative learning assists employees in merged banks to acquire productive thinking styles and practices.
Originality - The paper presents an explanation why merging activity in the Greek banking system has ambiguous effects on employee performance and suggests the implementation of Transformative Learning.
Keywords: Banks, M&As, Operating Performance, Adult Education, Transformative Learning
JEL Classification: G21, G34, I20, I29