International Research Journal of Finance and Economics
 Issue 170
 November, 2018
Risk Determinants of Islamic Banking in the Mena Countries During the Global Financial Crisis and the Arab Spring Period: A Search for Empirical Evidences

The aim of the study is to identify both macroeconomic and bank specific determinants of risks in Islamic banks. We also try to identify evidence on the impact of financial crisis and political instability during the Arab spring period. The study covers a sample of 34 Islamic banks across 13 countries during the period 2000-2013.
We use different proxies of risk as dependent variable: insolvency risk (measured by Z score) and credit risk (measured by loans to deposits) and estimate four regressions using the dynamic Generalized Method of Moments (GMM ).
Our results reveal that bank size, capital adequacy, liquidity, diversification and specialization ratios are the major factors affecting the stability of Islamic banks. For macroeconomic factors, GDP and inflation affect credit risk and insolvency of Islamic banks respectively. Finally, we find that financial crisis does not affect Islamic bank risk, while Arab spring has significant influence on credit risk.
In general, the findings are important for the identification of the factors influencing Islamic bank risk then for providing information that the bank management and regulators should pay attention to, in order to improve risk management in Islamic banking.
Keywords: Specific bank and Macroeconomic determinants; Credit risk; Z-score; Islamic banking; GMM method, Regulation, Financial crisis, Arab spring, Mena region
JEL Classification: G21; G32
Do Liquidity and Firm Size Affect Profitability and Does Capital Structure Play a Moderator Role: Study Based on Jordanian Data
Lina H. Warrad and Saleh K. Oqdeh

The purpose of the current study is to investigate the role of the moderator variable in directing or changing the relations between independent and dependent variables. This study tries to explore the role of the capital structure as a moderator variable to draw the shape of the relation between liquidity, firm size and profitability. So in order to achieve the previous objective, the researchers reviewed the literature studies to display the relation between liquidity, firm size and profitability without the existence of the interventional role of capital structure, and then enter a moderator variable among the analysis to monitor the effect.
The current study applied on all listed manufacturing companies in Amman Stock Exchange (ASE), and financial reports for 30 industrial companies were selected based on a stratified sample and include 90 observations using StataMP 13 software, for the period from 2014 to 2016. The results showed the following results: liquidity is a significant independent variable to influence the listed Jordanian manufacturing firms’ profitability; firm size is a significant independent variable to influence the listed Jordanian manufacturing firms’ profitability; liquidity and firm size are jointly significant independent variables to influence the listed Jordanian manufacturing firms’ profitability. On the other hand, liquidity is a significant independent variable to influence the listed Jordanian manufacturing firms’ profitability through the role played by the capital structure in the relationship between liquidity and capital structure; firm size is a significant independent variable to influence the listed Jordanian manufacturing firms’ profitability through the role played by the capital structure in the relationship between firm size and capital structure, this is what made a difference and value added. Finally, liquidity and firm size jointly are significant independent variables to influence the listed Jordanian manufacturing firms’ profitability through the role played by the capital structure in the relationship between liquidity, firm size and capital structure; this is what made a difference and value added.
Keywords: Liquidity, Firm size, Capital structure, Profitability, ASE.
JEL Classification:
Impact of Social Customer Relationship Management on Customer Satisfaction through Customer Empowerment: a study of Islamic banks in Kuwait
Faraj Mazyed Faraj Aldaihani and Noor Azman Bin Ali

The aim of this study is to explore the impact of social customer relationship management (CRM) on customer satisfaction through customer empowerment using a sample of customers of Islamic banks in Kuwait. On the basis of the descriptive method, the required data were gathered using a questionnaire developed for the purpose of the present study based on previous relevant studies. A total of 700 questionnaires were distributed to the respondents. Out of these questionnaires, 613 questionnaires were returned complete. Particularly, 557 questionnaires were valid for statistical analysis. Basically, the results showed a statistically significant and positive impact of SCRM on customer satisfaction through customer empowerment. It was asserted that both traditional CRM and social media have significant effects on customer empowerment and satisfaction simultaneously. In view of the results of the study, it was recommended that banks should be interested in the social aspect of CRM and customer empowerment because in order to enhance customer satisfaction. The contribution of the present study is that it emphasized the importance of social relations management in customer satisfaction, especially in light of the role of mediating role of customer empowerment in Arabic financial settings.
Keywords: Social Customer Relationship Management, Customer Relationship Management, Social media, Customer empowerment, Customer satisfaction, Islamic banks, Kuwait.
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Effect of Human Resources Practice and Organizational Commitment on Accountability of Rural Entity
Anisa Kusumawardani

The optimal performance of the rural government in public administration must be supported by the presence of adequate human resources in both quantity and quality, as well as the availability of facilities and infrastructure and adequate service facilities. Weaknesses of performance in aspects of service quality can be indicated by the inability of the rural government to carry out services that satisfy the community regarding service procedures, technical and administrative requirements for services, the responsibility of the service apparatus, and the time to complete services. Organizational effectiveness is multidimensional (Campbell et al., 1996; Steers, 1977b), and there is also reason to believe that the determinants of organizational effectiveness vary (Steers, 1977; Stevens, Beyer, and Trice, 1978). This study by research objectives included in the descriptive study associative, seeking influence and explain the causality relationship between human resource practice and organization commitment on the accountability of rural government entity around eastern Kalimantan province. The data collection of this research was conducted in early December 2017 until the end of the month of January 2018, technical analysis by structural equation model (SEM). Samples technical research recommended to ten times the number of variables of the study. The large sample size in this study were 170 respondents spread over twenty rural governance entity. The result in are human resource practice insignificantly against the accountability of rural government entity because of less control from upper controller and less motivation of economic concern. Organization commitment insignificantly against the accountability of rural government entity because of less salary comparing than other job which they get offered.
Keywords: Fair Value, IFRS, Non-Financial Assets, Leverage, Control Variable.
JEL Classification:
Effect of Inflation Rate on Insurance Penetration of Nigerian Insurance Industry
Chizoba P. Ehiogu, Eze, Onyekachi R. and Nwite Sunday C.

This study investigated the effect of inflation rate on insurance penetration of Nigerian insurance industry. The study used regression analysis for data analysis while data was collected through secondary sources. The study revealed that inflation rate had a positive but insignificant effect on insurance penetration of the Nigerian insurance industry. The implication is that the macroeconomic variable (inflation) increase the level of insurance penetration in Nigerian insurance industry but it increase was not significant. The study recommended among other things that effort should be put in place to reduce the level of inflation in Nigeria so that it can have significant effect on insurance penetration in Nigerian insurance industry.
Keywords: Insurance, Penetration, Inflation, Capital, Business Sector.
JEL Classification:
The Effect of Financial Liberalization and Inflation on Poverty

The overall objective of this paper is to examine the existence of a relationship between financial liberalization, inflation and poverty. The link between financial liberalization and poverty is of two types, a direct link and an indirect one. The first is the McKinnon effect, and the second is through economic growth that reduces poverty.
We use an empirical investigation containing three econometric studies of three samples from developing countries, namely 19 low-income countries, 47 middle-income countries, and the total sample grouping the first two samples. The study uses annual from 1985 to 2013.
The findings show that poverty is a persistent phenomenon, with the current level of poverty influenced by its preceding level. As for financial development, an increase in its level is found to reduce reduction poverty. This result confirms the conclusions reached by Mc Kinnon's work. However, financial development goes hand-in-hand with financial instability, which undermines the level of well-being and increases poverty, like inflation.
Keywords: Inflation, financial liberalization, poverty, dynamic panel, simultaneous equations.
JEL Classification: C33, O47, N40
Qualified Institutional Placement Vs Preferential Allotment: Choice of Seasoned Offering for Private Equity Placement in India
Nikhil Rastogi, and V. Chakrapani Chaturvedula

Qualified Institutional Placement (QIP) and preferential allotment are two ways in which firms privately place equity in India. The paper looks at the private placements made between 2010 to2017 and finds that information asymmetry plays a role in one method of placement being chosen over the other. The variables of Size of the firm, institutional and promoter shareholding are a key determinant of one method being chosen over the other. Issue size in QIP is likely to be higher than that of preferential allotment. Further levered firms are more likely to choose preferential allotment over QIP.
Keywords: Qualified Institutional Placement, Preferential allotment.
JEL Classification:
Understandability in Italian Financial Reporting and Jail: A Link Lived Dangerously
Maria Silvia Avi

IFRS Conceptual Framework establishes that understandability identifies a fundamental principle of the financial report even if the document underlines how this postulates represents an important element but with a level of relevance slightly lower than that of the Fundamental qualitative characteristics (Beest F., Braam G., Boelens S., 2009; Jonas G.J., Blanchet J., 2000) identified in relevance, materiality, faithful representation in measurement of the economic facts objects of accounting. Alongside these standards, the IFRS Conceptual Framework (Ankarath N., KJ Mehta K.J., Ghosh T.P., Alkafaji Y.A., 2010; Alexander D., Britton A , Jorissen A., 2007; Cristea, S. M. and Saccon, C. ,2008; Delvaille, P., Ebbers, G. and Saccon, C. 2005; Haller A., B. Eierle, 2004; Nobes, C. W., M. Gee and A. Haller, 2010; Alexander, D., Nobes C., 2013; Nobes C.W., Stadler C., 2015; Nobes C., 2016; Hopwood, A. G., Chapman C. S., Shields M. D. (2007a); Hopwood ,A. G., Chapman C. S., Shields M. D., 2007b) identifies individual Enhancing Qualitative Characteristics in comparability, verifiability, timeliness and understandability. It should be noted that these latter characteristics are not irrelevant but are indicated as indispensable principles for the improvement of corporate communication (Hopwood, A. G. and Peter Miller,1994; Yuthas K., Rogers R., Dillard J.F., 2002).
In Italy, the situation is profoundly different (Nobes, C.W.,2013) . The understandability is considered of equal importance to the faithful representation in measurement of the economic facts object of accounting. Recently, the jurisprudence of the last instance has also highlighted how a lack of understandability, even in the presence of a faithful representation in measurement of the economic facts object of accounting entails penal sanctions and causes penal falsehood in financial reporting. In this case, it is about " false penal quality". It should be noted that Italian law provides for a prison term of between one and five years for penal false corporate communications unless the facts that are not relevant, taking into account the nature and size of the company and the methods or effects of the conduct (in this case imprisonment from 6 months to three years is provided).
Keywords: understandability, IFRS Fundamental qualitative characteristics; IFRS Enhancing Qualitative Characteristics, faithful representation in measurement of the economic facts object of accounting, penal “ qualitative” false; financial reporting, understandability and jail.
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Evolving Co-Movements of Africa’s Stock Markets: Evidence from DCC-GARCH Analysis
Godfred Aawaar, Daniel Domeher and Charles Nsiah

We used dynamic conditional correlation of the generalised autoregressive conditional heteroscedasticity (DCC GARCH) analytical technique to examine the evolving co-movements of Africa’s stock markets and the world stock market. We analysed the time-varying nature of the correlations of 11 of Africa’s leading stock markets with the world stock market using weekly stock price data covering the period 4 January 2002 – 26 December 2014. The results largely point to lower intra-regional and inter-regional co-movements amongst African stock markets, although the relative strengths differ across markets and regions. The findings further suggest evidence of greater co-movements at varying degrees between the only African emerging markets of South Africa, Egypt, and Morocco as well as most stock markets in Southern Africa and the world stock market. We conclude that co-movements between stock markets in African and the world stock market are time-varying. An important implication of the findings in this study is that potential international and regional diversification advantages still exist in Africa’s emerging and frontier markets, but vary considerable over time.
Keywords: Stock market co-movements, DCC GARCH, African stock markets.
JEL Classification: F30, G10, G14, G15
Industry Level and Country Level Determinants of Capital Structure: Evidence from Egypt
Ahmed Sakr and Amina Bedeir

The purpose of this paper is to find out both the industry level and country level determinants of capital structure of Egyptian publicly traded non-financial firms. The study investigates the industry level and country level determinants of capital structure of Egyptian companies utilising data from the financial statements of 58 listed companies over the time period from 2003 to 2016. The study investigates whether the capital structure decisions in Egypt are closer to the assumptions of Trade-Off Theory, Pecking Order Theory or the Agency Cost Theory. The empirical evidence obtained allows us to conclude that Trade-Off and Pecking Order Theories are the most theories to describe the financial behaviour of the Egyptian companies' choice of capital structure whereas there was little evidence to support the agency cost theory.
Keywords: Egypt, Capital Structure, Trade-off theory, Pecking Order Theory, country level, Industry Level, Emerging Markets.
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