Three main currency strategies have been established in the literature: carry, value, and momentum. We investigate momentum using data on 27 currencies (10 developed countries and 17 emerging markets). We find that momentum returns are driven by emerging market currencies, while the currencies of developed countries have no impact. An emerging market- specific dollar risk factor can partly explain these momentum returns. We carry out permutation tests and find support for our hypothesis that momentum returns are driven by emerging markets. However, we show that transaction costs reduce momentum returns considerably. We also show that the returns are time-varying and have been unattractive recently. The implications of this study for financial practitioners are to focus on emerging market currencies and optimise transaction costs when executing momentum strategies.
This study is designed to investigate the role of proactive forensic auditing techniques in preventing fraudulent activities among NGOs in the eThekwini region. The population of this study comprised 87 knowledgeable staff in the field of fraud risk management and auditing selected from 30 NGOs. Primary data was gathered using an online questionnaire and semi-structured interviews. Quantitative data were analysed with the aid of SPSS version 27, while NVivo12 assisted in thematically analysing all interview questions. Analysis of movement Structures (AMOS version 27) was also used to estimate statistical models. Empirical findings proved that a proactive approach to forensic auditing techniques could hugely assist in preventing fraudulent activities among non-government organisations in the eThekwini region, South Africa. Relying on these empirical findings, this study proposes a model for proactively preventing financial and economic crimes in NGOs. This study contributes to the current body of knowledge and further contributes to fraud risk management in NGOs. This study has also provided a very robust plan for future researchers.
Under the new regulation based on Basel solvency framework, known as Basel III and Basel IV, financial institutions must calculate the market risk capital requirements based on the Expected Shortfall (ES) measure, replacing the Value at Risk (VaR) measure. In the financial literature, there are many papers dedicated to compare VaR approaches but there are few studies focusing in comparing ES approaches. To cover this gap, we have carried out a comprenhensive comparative of VaR and ES models applied to IBEX-35 stock index. The comparison has been carried out from a twofold perspective: accurate risk measure and loss functions. The results indicate that the method based on the conditional Extreme Value Theory (EVT) is the best in estimating market risk, outperforming Parametric method and Filter Historical Simulation.
This study focuses on the implications of corporate social responsibility (CSR) on the strategic risk of the listed financial and non-financial firms in Nigeria. The population of the study consists of 154 firms, while the census sampling technique was adopted to arrive at an adjusted population of 133. The correlation research design was implored using a positivism approach. Descriptive statistics, correlation matrix, multiple regression, confirmatory analysis and T-test were used to analyze the data extracted from the annual report. Hence, the result of the study shows that corporate social responsibility has a negative impact on strategic risk. The confirmatory factor analysis found that CSR engagement influences strategic risk (SRK), but to varying degrees, contradicting findings from the Frontier Model, PCSE, and GLS that both sectors will have similar results if they engage in CSR effectively. It is therefore suggested that the management of strategic risks need to be more integrated in corporate strategy as the capacity to listen to business stakeholders' viewpoints on social and environmental issues becomes a competitive need.
The escalation of complexity and multidimensional (internal and external) factors bring companies to a position where risk management should be of main concern. Enterprise Risk Management (ERM) adoption and the extent of ERM implementation is seen as a guaranteeing element to increase the value of the companies over the long term due to adequate risk awareness and risk management strategies in all relevant business functions. This study examines the extent of ERM implementation on the initial performance of companies in the Malaysian IPO market. Testing a sample of 105 Malaysian IPOs issued from January 2012 to December 2020 using a linear regression model, ERM sophistication is positively and significantly related to the initial performance of Malaysian IPOs, offering support to the proposition in this study. Equally important is the reciprocal of offer price, subscription ratio, and market condition, which are also significant factors in companies’ post-IPO performance. This study benefits the market regulators and investors on the importance of ERM sophistication to companies’ initial performance.
This study examines the influence of derivative instruments, income diversification, and liquidity ratios on earnings management with IFRS 7 disclosure as a moderating variable. The sample used consists of 129 conventional commercial banks that are listed and 116 banks that are not listed on the Indonesia Stock Exchange (IDX). This study uses moderating regression analysis (MRA) with the Robustness Least Squares with S-Estimation method. This study also conducted a sensitivity analysis with previous earnings management measurements (Kanagaretnam et al., 2010) and an additional test by comparing listed and non-listed banks on the Indonesia Stock Exchange. The empirical results indicate that IFRS 7 disclosure weakens derivative instruments' negative effect and income diversification's positive effect on earnings management but does not provide a moderating effect on liquidity ratios. This study contributes to the bank management and Indonesian banks authority to provides another view of implementing IFRS 7 disclosure that have not been maximized in the Indonesian banking industry. In the future, the researchers expect the authorities to encourage all banks to disclose complete IFRS 7 disclosure to minimize information asymmetry. On the other hand, this study also contributes to the banking management to increase derivative instruments and to carry out more supervision on the provision of income diversification to minimize earnings management. Theoretically, this study contributes to the new earnings managemen t measurement by applying more prudential principles based on the IFRS framework, IFRS 9 and Basel III regulations.
This study attempts to reconstruct the Slippery Slope Framework (SSF) tax compliance model based on the values of Pancasila as the nation's ideology. This study is a conceptual paper through a literature review. The conceptual based on internalization of the value of Pancasila through historicity, rationality, and actuality. Historically, the SSF compliance model has not fully agreed with the values of Pancasila, which reflects the characteristics of taxpayers in Indonesia. Rationally, the SSF compliance model prioritizes the objective role of tax authorities in their primary task of collecting tax revenues. The reconstruction of the model through the actuality of the nation's ideological value occurs by balancing the role of the tax authority’s power with the taxpayers’ trust. The reconstruction propositions of the obedience model are based on humanist religious values at the conceptual level. The reconstruction of the SSF compliance model makes the humanist religious assumption the foundation of the tax authority's power as taxpayers’ trust increases. The reconstruction model is believed to be able to dynamically transform an antagonistic into a synergistic climate to increase voluntary compliance.
Capital market research usually focuses on the investment decision of a risk-averse investor, who determines the relationship between risky assets and risk-free investment. Furthermore, numerous capital market models assume normally distributed security returns and rational investors. In this framework, ex-ante investment decisions depend solely on the expected return, risk of investment opportunities, and investor risk affinity. For decades, empirical research findings have criticized this idealized framework. New risk factors were empirically confirmed and established. This study attempts to shed light on this issue. A comparative analysis considers the Fama-French and Carhart factors and a principal component analysis based sentiment-risk factor considering 76 sentiment indicators to examine the possible explanatory contribution to German stock market returns.
The profitability of impact investments ranges from a return on investment to market returns. To accomplish social goals, certain investors forgo part of the financial return. This approach opposes the concepts of conventional finance theory, which see the individual as a rational profit-maximizing decision-maker. A quantitative experimental study was conducted with students from the Upper Austria University of Applied Sciences, Steyr Campus, whereby the subjects were divided into two groups. A social Transaction Atmosphere (TA) was created in one group through the targeted use of stimuli. Subsequently, both groups had to make an investment decision in an identical scenario. The aim of the study and point of intersection between transaction cost theory and the social finance (SF)/impact investing (II) area is to analyse the observable "irrationality" in SF/II with reference to the transaction atmosphere as the primary decision-making element. The underlying scientific question investigates the impact of a socially shaped TA on the decision-making of investors. Experiment results demonstrated that the use of stimuli significantly raised the proportion of impact investments to overall investments. This finding suggests that a socially moulded TA is essential for investors' decision-making, whereby receptivity to the stimuli depends on individual investor characteristics, such as moral standard, financial knowledge, and previous experience with investment decisions. The financial aspect continues to play an important role in the decision- making process of investors.
Providing empirical proof of the negative impact of manipulation activity pushed management to adhere to the available regulation by publishing high financial reporting quality. This one has a significant effect negatively on a volatile market price movement because of illustrates the actual earnings. It is not an obstacle for the investor in predicting the future return with high accuracy when there is a minimum chance for the opportunity behavior. This causal research has developed a new variable to measure the investor's perception, and it is the future market value as a proxy for future return. The observation data used the samples on the listed company in the industrial manufacturing sector from 2015 until 2020, which amounted to 384 observations. The management's effort to deduct the manipulation activity can be interpreted as the minimum level of misleading information. When the investor has no tolerance for manipulation activity, the management should be "prudent" in designing the accounting treatment policy to illustrate real earnings. It is a sign of high probability in reaching out to the better prospect, proving the interactive feedback between management and investor through the Decision Tree Model and Bayes Theorem. This research has adopted the maximum simplex models as an Artificial Intelligence simulation for maximizing each party's maximum utility as implication game theory, like investors and management in making their strategic decisions. Principally, the regulator should force management to level up the quality of financial reporting because of no tolerance for any infringement on the legal regulations.
In the face of business competition, a company strategy is needed by seeking and exploiting opportunities in the business environment, one of which is through political connections. Ownership structure plays an essential role in the company to determine the firm performance. The high concentration of family ownership has the power to reduce agency conflicts between management and stakeholders in a company. Concentrated ownership can serve as corporate governance mechanism for better and effective monitoring of management. This study was conducted to determine empirical evidence of the effect of political connections and family ownership structure on firm value. The sample in this study was 390 data of the manufacturing company. The data analysis used is moderating regression analysis. The results of this study are a positive influence of political connections and family ownership structure on firm value. The results showed that the more the company had a strong political connection and was controlled by the family, the more the firm value would increase. The interaction of political connections can strengthen the influence of family ownership on firm value. It proves that the family ownership structure plays a role in determining political connections in Indonesia, especially in manufacturing companies. The existence of empirical evidence that shows that the firm value controlled by a politically connected family is higher than companies that are not connected politically, which implies investors to invest in companies that are politically connected and companies controlled by families with majority ownership because it is proven to increase firm value.
In this study, we examine whether international portfolio diversification still matters despite an increase in the cross-country correlations of assets returns. More specifically, we explain why an increase in global return correlations does not necessarily imply a reduction in the benefits of international portfolio diversification. We also propose to compare empirically two traditional strategies of international diversification (by country and industry) in addition to a new strategy (by region) using two different methodological approaches, namely the mean variance spanning and multivariate cointegration analysis. Over the full sample period (1994- 2008), our results suggest that the three strategies of international diversification remain effective despite the secular increase in the cross-country return correlations. When we divide the sample into two different sub-periods (1994-2000 and 2000-2008), the findings indicate that the strategy based on regional diversification proved to be a new competing strategy during the second period in comparison to the other two traditional strategies.
The main purpose of this study is to address the association between investors’ divergence of opinion (DIVOP) and stock mispricing for UK firms listed in the London Stock Exchange Market. Previous research on this topic has provided mixed results. Some studies provide evidence consistent with the overpricing hypothesis, which indicates that DIVOP leads to overpricing because the market overweighs the most optimistic valuations, since optimistic investors can always buy a stock but pessimistic investors can only sell a stock if they already own it or need rely on short-selling, which has costs. Other studies support the underpricing hypothesis, which proposes that DIVOP works as a price risk factor that generates underpricing. We develop an empirical analysis that do not depend on the interpretation of abnormal future stock returns to assess contemporaneous mispricing. We use five explicit measures of mispricing. Also, to safeguard the development of a comprehensive study, we use three kinds of proxies of DIVOP, based on idiosyncratic volatility, dispersion in analysts’ forecasts and unexpected trading volume. The results show a positive significant association between DIVOP and stock mispricing on a yearly basis. This association is stronger for underpriced stocks, which is consistent with the underpricing hypothesis, and indicates that DIVOP signals risk. An implication of this study is that firms have incentives to provide high-quality and explicit information to limit DIVOP and avoid being underpriced.
The purpose of this paper is twofold. 1) We propose for the first time in the literature a theory (managerial learning hypothesis) that may explain why managers engage in corporate social responsibility (CSR). 2) We use an intuitive empirical methodology (Edmans et al. 2017) to test the relevance/irrelevance of our new theory. The idea behind our main contribution is that managers engage in CSR to learn new relevant information from other informed stakeholders. In return, managers will use both the new information and other information they already have to choose the optimal level of firm’s investment (Jayaraman and Wu, 2019). Therefore, we propose to examine whether a strong CSR engagement improves revelatory efficiency (Edmans et al. 2012, 2017). The latter accounts for the extent to which stock prices reveal new information to managers that will help them make value-maximizing choices. Our findings suggest that CSR activities do not allow firm’s managers to extract new information from their stock prices and ultimately improve the efficiency of their investment choices.
The green bond market is growing and becoming increasingly important in green finance and for the transition to a low-carbon economy. Still, the green bond market is to a large extent unstandardised. There is no commonly agreed definition of the term ‘green’. This has been seen as one of the biggest challenges when it comes to the development of the green bond market. The need of a unified EU standard has been raised and as an effect the establishment of the EU Green Bond Standard is now in development. However, new standards might not only bring advantages, but also challenges. Striking the right balance of strictness might be hard. The research has been conducted through qualitative method with semi-structured interviews. Nine interviews were held during November and December 2020. The data was then analysed through thematic coding in order to find patterns of meaning. The results show that Nordic green bond issuers overall are positive towards the EU Green Bond Standard. The EU GBS has a good aim, to harmonise and enlarge the green bond market. However, the standard brings challenges that are to a large extent known challenges which the EU GBS aims to address, such as labour intensive reporting processes, lack of initiative and reputational risk. Also, it is argued that the standard is not fair and applicable for all the countries and companies. Countries national laws may not always go hand in hand with the standard. For example, the requirements for green buildings are seen as challenging in the Nordics. If these challenges are not taken into consideration, Nordic green bond issuers fear that the market will not grow, but instead decrease. Additionally, Nordic green bond issuers argue the adoption of the EU GBS is not a guarantee for issuers. Bigger institutes are seen to be early adopters. For other issuers investor requirement and positive impact on their company reputation is seen as the key drivers for adoption of the standard.
Here, the link between the mandatory adoption of International Financial Reporting Standards (IFRS) and Real Earnings Management (REM), as well as Accrual Earnings Management (AEM), will be examined for non-financial listed firms in the London Stock Exchange. Robust regression analysis of the mandatory IFRS adoption will be conducted on the panel data, as well as earnings management using three AEM models and three REM models. Mixed results with respect to the qualities of AEM and REM were notably garnered, with mandatory IFRS adoption positively relating to the Roychowdhury of abnormal cash flow and the Roychowdhury of abnormal production. Meanwhile, the Roychowdhury of abnormal discretionary expenses, standard Jones, and Kothari negatively related to mandatory IFRS adoption, whilst modified Jones showed an insignificant relation to mandatory IFRS adoption. Changes in IFRS adoption and guidelines for UK firms may have an impact on AEM and REM, and, as predicted, mandatory IFRS adoption mostly affects the Kothari model followed by the standard Jones model as proxies for accounting earnings quality.
We investigate whether political independent supervisory boards (political I-SBs) help companies to reduce their corporate risks in the setting of Indonesian two-tier board system. This study is different from other studies in several ways. First, while most prior studies examine the effectiveness of independent boards in one-tier board setting, we use dual board system. This system promotes the strategic role of political I-SBs. Second, we use two measures of corporate risks: operating and market risks. Based on 1,176 firm-year observations for operating risk analysis and 1,254 firm-year observations for market risk analysis, we find that firms with political I-SBs have lower operating and market risks than firms with non- politically connected independent SBs. We also control for endogeneity problem using GMM (Generalized Method of Moments) method, and the results are still consistent.
he purpose of this study is to provide an updated version of the widely accepted three lines of defense model (3LoD) to better apply for regulated financial institutions. The author proposes the five lines of defense model (5LoD) which consists of the existing three lines along with external audit and regulators (comprising the fourth and fifth line of defense respectively). In spite of the fact that the bodies forming the two additional lines of defense constitute the external lines of defense, there should be active in supervising and monitoring control issues within the organization, in strong cooperation with the internal lines. This calls for closer interaction among the internal auditors, external auditors and regulators in the design and implementation of an efficient and effective internal control system, aiming to strengthen the existing framework regarding the governance of modern financial institutions, which operate in a highly demanding regulated environment.
Emanating from the influential survey of Barberis and Thaler (2003), this systematic literature review examines the significant volume of studies on behavioral finance from 36 reputable finance journals published be-tween 2009 and 2019. The findings are clustered into eight prominent research streams, which indicate the current developments in behavioral finance. Findings show that research intensively focuses on behavioral biases and their influence on economic phenomena. Driven by the impetus to understand the human mind, significant findings originated in the relatively new field of Neurofinance. Additionally, the analysis addresses the influence of market sentiment and its correlation with some of the other findings. Furthermore, implications on the limits to arbitrage in connection with some financial anomalies complete the holistic picture.
Bank lending is a major source of income for a bank. Compliance with higher Basel capital requirements (CAR) portends serious implication for distribution of loan portfolio across different sectors. The objective of the study is to examine African banks’ responses to higher CAR in terms of portfolio shift. The study used descriptive statistics and ANOVA for panel data of African commercial banks that have implemented Basel II or III CAR for the period 2000 and 2018. Based on the results of our analysis, implementation of higher Basel CAR by African banks revealed four key findings. Firstly, our results suggest that higher Basel CAR particularly Basel III reduced total loans for South African banks. Secondly, African banks engage in portfolio shift with higher Basel levels. Thirdly, higher Basel capital increased banks' capital ratios in Africa, but some banks are still characterized by low equity. Fourthly, African banks reduce lending to high risk-weighted loans such as real estate and commercial loans except for South African banks which increased lending to commercial loans with higher Basel CAR. Lastly, this study proffers key insight into the lending behaviour of African banks with the implementation of higher Basel CAR.
