Journal of Risk and Financial Management

9 pages, 734 KiB

Open AccessArticle

Empirical Distribution of the U.S. Housing Market during the Great Recession: Nonlinear Scaling Behavior after a Major Crash

by Fotios M. Siokis

J. Risk Financial Manag. 2024, 17(3), 130; https://doi.org/10.3390/jrfm17030130 - 21 Mar 2024

Viewed by 1418

Abstract

This study focuses on the real estate bubble burst in the US housing market during 2007–2008. We analyze the dynamics of the housing market crash and the after-crash sequence during the Great Recession. When a complex system deviates away from its typical path [...] Read more.

This study focuses on the real estate bubble burst in the US housing market during 2007–2008. We analyze the dynamics of the housing market crash and the after-crash sequence during the Great Recession. When a complex system deviates away from its typical path by the occurrence of an extreme event, its behavior is strongly characterized as nonstationary with higher volatility. With the utilization of a robust method, we present the characteristics of the aftershock period and provide useful information about the spatial distribution and the decay process of the aftershock sequence in terms of time. The returns of the housing price indices are well approximated by the empirics of a power law. Although we deal with low-frequency data, a time power-law relaxation pattern is identified. Our findings align with those in geophysics, indicating that the value of the relaxation parameter typically hovers around one and varies across different thresholds. Full article

(This article belongs to the Special Issue Financial Valuation and Econometrics)

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21 pages, 325 KiB

Open AccessArticle

The Impact of CEO Characteristics on the Financial Performance of Family Businesses Listed in the Euronext Exchange

by Zouhour El Abiad, Rebecca Abraham, Hani El-Chaarani, Yahya Skaf, Ruaa Omar Binsaddig and Syed Hasan Jafar

J. Risk Financial Manag. 2024, 17(3), 129; https://doi.org/10.3390/jrfm17030129 - 21 Mar 2024

Cited by 1 | Viewed by 2616

Abstract

This paper identifies the CEO characteristics that have an impact on the performance of family businesses listed in the Euronext in the post-COVID 19 period. CEO characteristics are evaluated on two dimensions, i.e., personal characteristics and corporate governance mechanisms. A sample of 137 [...] Read more.

This paper identifies the CEO characteristics that have an impact on the performance of family businesses listed in the Euronext in the post-COVID 19 period. CEO characteristics are evaluated on two dimensions, i.e., personal characteristics and corporate governance mechanisms. A sample of 137 firm-year observations from Portugal, Luxembourg, the Netherlands, Ireland, France, and Belgium was chosen. CEO attributes of age, gender, education, and family membership were combined with corporate governance mechanisms of ownership concentration, CEO duality, CEO directorships, and CEO tenure, to predict return on assets and return on equity, using OLS regression. GMM estimation and Two-Stage Least Squares were employed to establish the robustness of the results. Among CEO personal characteristics, CEO family membership has a positive impact on return on assets, and a positive impact on return on equity. Among corporate governance mechanisms, CEO duality had a negative impact on return on assets, and a negative impact on return on equity. CEO ownership, and CEO tenure had a positive impact on return on assets, and a positive impact on return on equity. This paper’s value lies in its evaluation of the under-researched area of family businesses of Euronext-listed firms. It can be used by family businesses in the region, for the selection and training of CEOs to fulfill the goal of achieving superior financial performance. Full article

(This article belongs to the Section Economics and Finance)

17 pages, 786 KiB

Open AccessArticle

Segmenting Bitcoin Transactions for Price Movement Prediction

by Yuxin Zhang, Rajiv Garg, Linda L. Golden, Patrick L. Brockett and Ajit Sharma

J. Risk Financial Manag. 2024, 17(3), 128; https://doi.org/10.3390/jrfm17030128 - 21 Mar 2024

Cited by 1 | Viewed by 2199

Abstract

Cryptocurrencies like Bitcoin have received substantial attention from financial exchanges. Unfortunately, arbitrage-based financial market price prediction models are ineffective for cryptocurrencies. In this paper, we utilize standard machine learning models and publicly available transaction data in blocks to predict the direction of Bitcoin [...] Read more.

Cryptocurrencies like Bitcoin have received substantial attention from financial exchanges. Unfortunately, arbitrage-based financial market price prediction models are ineffective for cryptocurrencies. In this paper, we utilize standard machine learning models and publicly available transaction data in blocks to predict the direction of Bitcoin price movement. We illustrate our methodology using data we merged from the Bitcoin blockchain and various online sources. This gave us the Bitcoin transaction history (block IDs, block timestamps, transaction IDs, senders’ addresses, receivers’ addresses, transaction amounts), as well as the market exchange price, for the period from 13 September 2011 to 5 May 2017. We show that segmenting publicly available transactions based on investor typology helps achieve higher prediction accuracy compared to the existing Bitcoin price movement prediction models in the literature. This transaction segmentation highlights the role of investor types in impacting financial markets. Managerially, the segmentation of financial transactions helps us understand the role of financial and cryptocurrency market participants in asset price movements. These findings provide further implications for risk management, financial regulation, and investment strategies in this new era of digital currencies. Full article

(This article belongs to the Special Issue Editorial Board Members’ Collection Series: Journal of Risk and Financial Management)

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17 pages, 1836 KiB

Open AccessArticle

The Current and Expected Pricing Markup as Derived from the Capital Asset Pricing Model and Tobin’s Q and Applied to the UK’s FTSE 100

by Paul Hackworth

J. Risk Financial Manag. 2024, 17(3), 127; https://doi.org/10.3390/jrfm17030127 - 20 Mar 2024

Viewed by 1902

Abstract

Price markups and firms’ Tobin’s Q ratios are widely believed to have been increasing in the past several decades. Various models for the calculation of price markups have been developed, each relying on the historically held definition of the ratio of price to [...] Read more.

Price markups and firms’ Tobin’s Q ratios are widely believed to have been increasing in the past several decades. Various models for the calculation of price markups have been developed, each relying on the historically held definition of the ratio of price to marginal cost; however, all of these have methodological drawbacks, and some of the results they have produced have been poorly reflective of the near past wider macroeconomic experience. This paper defines a new approach for the definition and measurement of markup pricing, and it also avoids some of the issues surrounding the marginal cost approaches by using the measure of economic rent and the capital asset pricing model. The results show limited markup pricing for the UK’s FTSE 100 companies (2018–2023), but that certain real estate, technology/media and financial services/equity investment firms have enjoyed higher price markup levels. An analysis of the business models of these firms is used to qualitatively propose explanations for such markups. This work offers formal proof that that the expected price markup is equal to Tobin’s Q and finds that the empiric market level of markup is near equivalent to the market Tobin’s Q; the differences between the markup and Tobin’s Q at the level of the firm are equally assessed. This work challenges the general consensus that price markups are above one and have been increasing; it may also aid policy makers with respect to taxation policy and regulatory measures, as well as the financial management of firms in decisions concerning capital deployment and portfolio management. The method merits expansion to wider data sets, as well as to those from outside of the UK. Full article

(This article belongs to the Section Economics and Finance)

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26 pages, 1520 KiB

Open AccessArticle

Trade Agreements and Financial Market Integration in Latin America and the US

by Obed Fernando Izaguirre, Seungho Shin and Duygu Zirek

J. Risk Financial Manag. 2024, 17(3), 126; https://doi.org/10.3390/jrfm17030126 - 20 Mar 2024

Viewed by 1972

Abstract

The primary objective of this study is to examine the extent of financial integration between Latin American and US financial markets, particularly in light of recent efforts to foster integration through trade agreements. Spanning from 1 January 1990 to 31 December 2019, the [...] Read more.

The primary objective of this study is to examine the extent of financial integration between Latin American and US financial markets, particularly in light of recent efforts to foster integration through trade agreements. Spanning from 1 January 1990 to 31 December 2019, the sample focuses on major market indices and key sectors. Financial integration is quantified using a DCC multivariate GARCH model, incorporating a smooth transition model, structural breaks, and regression-based approaches. Results indicate increased comovement with the US for main market indices in Argentina, Chile, Colombia, Mexico, and Peru, while Brazil shows a decrease. Similar trends are observed in sectoral analyses. This study also reveals heightened correlation post-trade agreements. Structural break analysis highlights significant shifts in dynamic correlations for countries with US free trade agreements. These findings support the argument of increased financial integration, bearing significance for portfolio diversification and international policy formulation. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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14 pages, 891 KiB

Open AccessFeature PaperArticle

Analyzing Portfolio Optimization in Cryptocurrency Markets: A Comparative Study of Short-Term Investment Strategies Using Hourly Data Approach

by Sonal Sahu, José Hugo Ochoa Vázquez, Alejandro Fonseca Ramírez and Jong-Min Kim

J. Risk Financial Manag. 2024, 17(3), 125; https://doi.org/10.3390/jrfm17030125 - 20 Mar 2024

Cited by 1 | Viewed by 4272

Abstract

This paper investigates portfolio optimization methodologies and short-term investment strategies in the context of the cryptocurrency market, focusing on ten major cryptocurrencies from June 2020 to March 2024. Using hourly data, we apply the Kurtosis Minimization methodology, along with other optimization strategies, to [...] Read more.

This paper investigates portfolio optimization methodologies and short-term investment strategies in the context of the cryptocurrency market, focusing on ten major cryptocurrencies from June 2020 to March 2024. Using hourly data, we apply the Kurtosis Minimization methodology, along with other optimization strategies, to construct and assess portfolios across various rebalancing frequencies. Our empirical analysis reveals significant volatility, skewness, and kurtosis in cryptocurrencies, highlighting the need for sophisticated portfolio management techniques. We discover that the Kurtosis Minimization methodology consistently outperforms other optimization strategies, especially in shorter-term investment horizons, delivering optimal returns to investors. Additionally, our findings emphasize the importance of dynamic portfolio management, stressing the necessity of regular rebalancing in the volatile cryptocurrency market. Overall, this study offers valuable insights into optimizing cryptocurrency portfolios, providing practical guidance for investors and portfolio managers navigating this rapidly evolving market landscape. Full article

(This article belongs to the Special Issue Editorial Board Members’ Collection Series: Journal of Risk and Financial Management)

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16 pages, 1167 KiB

Open AccessArticle

The Moderating Role of Corporate Governance on the Associations of Internal Audit and Its Quality with the Financial Reporting Quality: The Case of Yemeni Banks

by Nabil Ahmed Mareai Senan

J. Risk Financial Manag. 2024, 17(3), 124; https://doi.org/10.3390/jrfm17030124 - 19 Mar 2024

Viewed by 2255

Abstract

This study investigates the moderating effect of corporate governance on the associations of the internal audit and quality of the internal audit with the quality of financial reporting among commercial banks in the Republic of Yemen. The final sample includes 210 internal auditors, [...] Read more.

This study investigates the moderating effect of corporate governance on the associations of the internal audit and quality of the internal audit with the quality of financial reporting among commercial banks in the Republic of Yemen. The final sample includes 210 internal auditors, heads of internal auditors, chairpersons, and members of audit committees. Using a survey-based methodology, the results of the Smart-PL4 analysis showed a positive association between the internal audit and quality of the internal audit and quality of financial reporting. Interestingly, the results showed an insignificant association between the internal audit, quality of the internal audit, and quality of financial reporting when considering the moderating effect of corporate governance. It is worth noting that the results confirm the existence of a positive relationship between the internal audit, quality of the internal audit, and quality of financial reporting. This confirms the importance of the internal audit and quality of the internal audit in enhancing the quality of financial reports and instilling confidence in improving internal control processes and the financial reporting framework. Among the study’s many contributions are that it enhances current research on the interrelationship between internal auditing, quality of internal audits, and quality of financial reporting. It highlights the pivotal role of the internal audit, its effectiveness, and its ability to improve the quality of financial reports. This study calls for more stringent internal controls and posits that strengthening the internal audit and quality of the internal audit, along with improving corporate governance, can enable managers to raise financial reporting standards in banks. It also provides a mechanism for audit committees to monitor internal audit processes and evaluate internal performance. Full article

(This article belongs to the Section Banking and Finance)

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24 pages, 578 KiB

Open AccessArticle

Volatility Spillover from Carbon Prices to Stock Prices: Evidence from China’s Carbon Emission Trading Markets

by Jinwang Ma, Jingran Feng, Jun Chen and Jianing Zhang

J. Risk Financial Manag. 2024, 17(3), 123; https://doi.org/10.3390/jrfm17030123 - 18 Mar 2024

Cited by 1 | Viewed by 2257

Abstract

The carbon emission trading markets represent an emerging domain within China. The primary objective of this study is to explore whether carbon price volatility influences stock market volatility among companies subject to these emission trading regulations. Employing daily returns data from 293 publicly [...] Read more.

The carbon emission trading markets represent an emerging domain within China. The primary objective of this study is to explore whether carbon price volatility influences stock market volatility among companies subject to these emission trading regulations. Employing daily returns data from 293 publicly traded companies regulated by these emission trading markets, this study encompasses the national carbon market and eight pilot regional carbon markets spanning from August 2013 to October 2023. The results demonstrate that volatility in regional carbon prices positively impacts the stock volatility of companies in the corresponding emission trading region, indicating a volatility spillover effect. Moreover, this spillover effect is more pronounced in sectors marked by lesser carbon intensity than those with greater carbon intensity. The volatility transmission is more pronounced in coastal areas than in inland regions. However, no notable distinctions in volatility transmission are discerned between the periods before and throughout the COVID-19 pandemic. Vector autoregression analyses substantiate that lagged carbon price fluctuations possess limited predictive capacity for contemporaneous equity market volatility and vice versa. The robustness of these outcomes is fortified by applying the E-GARCH model, which accounts for the volatility clustering phenomenon. As the first investigation into the volatility spillover effect between China’s emission trading market and corresponding stock markets, this study offers valuable insights into the investment strategies of retail investors, the formulation of carbon regulations by policymakers, and the carbon emission strategies of corporate managers. Full article

(This article belongs to the Section Sustainability and Finance)

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19 pages, 2687 KiB

Open AccessArticle

Gold Smuggling in India and Its Effect on the Bullion Industry

by Maria Immanuvel Susai and Lazar Daniel

J. Risk Financial Manag. 2024, 17(3), 122; https://doi.org/10.3390/jrfm17030122 - 18 Mar 2024

Viewed by 5369

Abstract

This study strives to examine when and where most of the gold smuggling takes place in India. It further analyses the causal relationship between smuggled gold and other macroeconomic variables. Finally, it analyses how the smuggled gold affects the Indian bullion industry. The [...] Read more.

This study strives to examine when and where most of the gold smuggling takes place in India. It further analyses the causal relationship between smuggled gold and other macroeconomic variables. Finally, it analyses how the smuggled gold affects the Indian bullion industry. The data related to gold smuggling has been sourced from the website of the Directorate Revenue Intelligence and analysed using graphs and the Granger causality test. The variables used in the study are the quantity of smuggled gold, exchange rates, the major stock indices in the world, the number of auspicious days in a month, domestic and international gold prices, India’s jewellery export, the GDP, customs duty, and the domestic gold supply. The results revealed that most of the gold smuggling takes place on Fridays and mostly occurs in the months of October, November, and December. The states of West Bengal, Delhi, Maharashtra, and Tamil Nadu account for most of the gold smuggling in India. A positive correlation is observed between the smuggled gold, India’s gold demand, the number of auspicious days in the month, India’s jewellery export, India’s GDP, India’s domestic gold supply, and stock indices such as SENSEX, FTSE100, DFMGI. Gold smuggling in India is caused by India’s gold demand, the level of jewellery export, the GDP, domestic and international gold prices, and India’s customs duty. Full article

(This article belongs to the Special Issue Commodity Market Analysis)

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15 pages, 2456 KiB

Open AccessArticle

Renewable Energy Stocks’ Performance and Climate Risk: An Empirical Analysis

by Lingyu Li, Xianrong Zheng and Shuxi Wang

J. Risk Financial Manag. 2024, 17(3), 121; https://doi.org/10.3390/jrfm17030121 - 18 Mar 2024

Viewed by 2048

Abstract

This article studies the relationship between renewable energy stocks’ performance and climate risk. It shows that publicly held renewable energy stocks underperform as a reaction to climate policy information releases, modeled by feed-in tariff (FIT) legislation announcements. The study examined stock price behaviors [...] Read more.

This article studies the relationship between renewable energy stocks’ performance and climate risk. It shows that publicly held renewable energy stocks underperform as a reaction to climate policy information releases, modeled by feed-in tariff (FIT) legislation announcements. The study examined stock price behaviors 2 days before and 30 days after FIT policy announcements. The stock sample used in the study has 3702 firm-day combinations, which included 180 cleantech firms and 32 events from 2007 to 2017. Based on the residual analysis of the sample’s abnormal return, it indicated that the FIT announcements are associated with significant declines in returns. The cumulative abnormal return until Day 18 was a significant −0.83%, while the average abnormal return on the day was −0.16% at normal levels. The study partially excluded the likelihood of a transitory result by varying the measurement horizon. It also adopted both the market model and the Fama–French three-factor models to rule out model misspecification when estimating abnormal returns and thus increased the robustness. In fact, the results were stable to changes in estimating the model’s specifications. In addition, the study compared the portfolio’s performance with mimicking portfolios in terms of size, book-to-market equity (BE/ME), and the firms’ geographic location. It demonstrated that the documented anomaly of the portfolio of renewable energy companies is robust. Full article

(This article belongs to the Special Issue Finance, Risk and Sustainable Development)

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27 pages, 967 KiB

Open AccessArticle

Predicting Risk of and Motives behind Fraud in Financial Statements of Jordanian Industrial Firms Using Hexagon Theory

by Ahmad Ahed Bader, Yousef A. Abu Hajar, Sulaiman Raji Sulaiman Weshah and Bisan Khalil Almasri

J. Risk Financial Manag. 2024, 17(3), 120; https://doi.org/10.3390/jrfm17030120 - 15 Mar 2024

Cited by 1 | Viewed by 3359

Abstract

This study intends to identify the motives that lead to increasing or fighting the fraud risk in the Financial Statements (FSs) of industrial companies whose shares are traded in regulated and unregulated markets at the Amman Stock Exchange (ASE) based on the Hexagon [...] Read more.

This study intends to identify the motives that lead to increasing or fighting the fraud risk in the Financial Statements (FSs) of industrial companies whose shares are traded in regulated and unregulated markets at the Amman Stock Exchange (ASE) based on the Hexagon theory, which divides the motives for fraud into six factors. The study relied on secondary data to collect and measure the study variables by extracting them from the annual reports that were published by those companies on the website of the ASE during the period of 2012–2017. The collected data were analyzed using the logistic regression model on the SPSS program. The results confirmed that the return on assets (ROA), percentage of independent members in audit committees, and tone-related party transactions had a statistically significant relationship with predicted fraudulent FSs, where these three variables belong to pressure, opportunity, and collusion fraud motives, respectively. Thus, it is worth mentioning that this study is distinguished from previous studies that examined the issue of fraud in Jordanian companies by detecting the motives of fraud according to the Fraud Hexagon theory. Moreover, some of the fraud motives were measured using new variables such as a change in inventory, the age of auditing committee’s members, and tone-related party transactions. Full article

(This article belongs to the Special Issue Risk Planning and Management in Companies)

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13 pages, 1345 KiB

Open AccessArticle

Digital Literacy, Insurtech Adoption and Insurance Inclusion in Uganda

by Archillies Kiwanuka and Athenia Bongani Sibindi

J. Risk Financial Manag. 2024, 17(3), 119; https://doi.org/10.3390/jrfm17030119 - 14 Mar 2024

Viewed by 1829

Abstract

The purpose of this study was to establish whether digital literacy and insurtech adoption influence insurance inclusion in Uganda. Principally, we sought to determine whether insurtech adoption mediates the nexus between digital literacy and insurance inclusion. This study adopted a cross-sectional and quantitative [...] Read more.

The purpose of this study was to establish whether digital literacy and insurtech adoption influence insurance inclusion in Uganda. Principally, we sought to determine whether insurtech adoption mediates the nexus between digital literacy and insurance inclusion. This study adopted a cross-sectional and quantitative correlational approach. The study’s sample was 391 individuals who had used digital platforms such as mobile phones and computers to access insurance products and services in Uganda. Data were collected using structured survey questionnaires. Partial Least Squares Structural Equation Modelling (PLSEM) was employed to test the hypothesised relationships. The results demonstrated that both digital literacy and insurtech adoption significantly and positively influence insurance inclusion. We also found digital literacy to be a significant and positive determinant of insurtech adoption. Markedly, it was found that insurtech adoption mediates the association between digital literacy and insurance inclusion in Uganda. However, this study was conducted in a developing country with an underdeveloped insurance market and with low technological advancement. This may affect the generalisation of the study’s findings. This study’s novelty lies in establishing how digital literacy and insurtech adoption interact to influence insurance inclusion in Uganda. This is the first study to examine the effect of digital literacy and insurtech adoption on insurance inclusion. Full article

(This article belongs to the Special Issue InsurTech Development and Insurance Inclusion)

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23 pages, 359 KiB

Open AccessArticle

The Benefits of Workforce Well-Being on Profitability in Listed Companies: A Comparative Analysis between Europe and Mexico from an ESG Investor Perspective

by Oscar V. De la Torre-Torres, Francisco Venegas-Martínez and José Álvarez-García

J. Risk Financial Manag. 2024, 17(3), 118; https://doi.org/10.3390/jrfm17030118 - 14 Mar 2024

Cited by 1 | Viewed by 2747

Abstract

This paper evaluates the relationship between investing in workforce well-being and profitability of listed companies in Mexico compared to European companies from an Environmental, Social, and Governance (ESG) investor perspective. In this case, the Refinitiv workforce score or High-Performance Work Policies (HPWP) is [...] Read more.

This paper evaluates the relationship between investing in workforce well-being and profitability of listed companies in Mexico compared to European companies from an Environmental, Social, and Governance (ESG) investor perspective. In this case, the Refinitiv workforce score or High-Performance Work Policies (HPWP) is used as an indicator of the quality of workforce well-being by including the industry effects (economic and business sectors) and the behavioral (sentiment) factors as control variables. Specifically, this article examines the relationships between HPWP, stock price changes (measured as a percentage), profitability (ROE), and market risk (betas). We used a sample of companies from the Refinitiv Mexico and European stock indices for this purpose. In the Mexican case, the results show that a higher level of well-being promotion relates to better company profits. The opposite happens in European companies. Regarding market prices, European companies show higher prices when they have higher HPWP and Mexican companies confirm the opposite. Regarding market risk, only European basic materials with high HPWP show less risk. Finally, in almost all Mexican business sectors, the relationship between market risk and workforce well-being is negative. Full article

(This article belongs to the Special Issue Bankruptcy Prediction, Equity Valuation and Stock Returns)

15 pages, 1072 KiB

Open AccessArticle

Analysis of Long-Term Bond Yields Using Deviations from Covered Interest Rate Parity

by Gab-Je Jo

J. Risk Financial Manag. 2024, 17(3), 117; https://doi.org/10.3390/jrfm17030117 - 13 Mar 2024

Viewed by 1745

Abstract

In this study, the impact of arbitrage resulting from Covered Interest Parity (CIP) deviations on Korea’s long-term interest rates was analyzed, utilizing Vector Error Correction (VEC) models for Granger Causality and Impulse Response Function analyses. This analysis covered the period from February 2002 [...] Read more.

In this study, the impact of arbitrage resulting from Covered Interest Parity (CIP) deviations on Korea’s long-term interest rates was analyzed, utilizing Vector Error Correction (VEC) models for Granger Causality and Impulse Response Function analyses. This analysis covered the period from February 2002 to September 2023, with a comparative analysis of the periods before and after the Global Financial Crisis (GFC). The Granger Causality analysis indicated that changes in the swap basis reflecting CIP deviation presented a significant Granger causal relationship with the variations in domestic long-term interest rates. Notably, in the post-GFC period, when CIP deviations were relatively pronounced, the incentives for arbitrage trading exhibited a stronger leading effect in terms of inducing changes in domestic long-term interest rates. The Impulse Response Function analysis showed that domestic long-term interest rates significantly and negatively responded to the positive shocks in the swap basis. This response was even more pronounced during the period following the GFC. Additionally, foreign long-term interest rates and monetary policy variables also demonstrated a significant impact on domestic long-term interest rates. These findings imply that the adjustment path back to equilibrium from CIP deviations, driven by arbitrage, was developed more through changes in domestic interest rates rather than exchange rate fluctuations, especially after the GFC. Full article

(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)

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19 pages, 1320 KiB

Open AccessArticle

Macroeconomic Shocks and Economic Performance in Malaysia: A Sectoral Analysis

by Willem Thorbecke

J. Risk Financial Manag. 2024, 17(3), 116; https://doi.org/10.3390/jrfm17030116 - 12 Mar 2024

Viewed by 3287

Abstract

Many shocks, including COVID-19, wars, inflation, contractionary U.S. monetary policy, and oil price hikes, have recently buffeted the world economy. The literature has reported mixed results concerning how these shocks impact Malaysian stock returns. Some studies found that U.S. monetary policy mattered for [...] Read more.

Many shocks, including COVID-19, wars, inflation, contractionary U.S. monetary policy, and oil price hikes, have recently buffeted the world economy. The literature has reported mixed results concerning how these shocks impact Malaysian stock returns. Some studies found that U.S. monetary policy mattered for Malaysia, while others reported that it did not. This paper, employing two U.S. monetary policy measures over the 2001–2019 period, finds that U.S. policy matters little for Malaysian equities. Some studies found that oil price hikes increased Malaysian stock returns while others reported that they did not. This paper, employing updated data, reports that oil price increases, driven by both world demand shocks and oil supply shocks, raise Malaysian stock returns. The paper also compares the performance of Malaysian equities since the pandemic began, with returns forecasted based on macroeconomic variables. The period since the pandemic started has been labeled the megacrisis era. Interconnected crises, including the pandemic, wars, rising commodity prices, and climate events, all overlapped. The results indicate that industrial metals and banks have performed well since the pandemic began. Food producers, healthcare providers, medical equipment suppliers, tourist-related companies, and semiconductor firms have suffered. This paper considers several steps that could help these sectors to recover. Full article

(This article belongs to the Special Issue Advances in Macroeconomics and Financial Markets)

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15 pages, 270 KiB

Open AccessArticle

Bank Loan Loss Provision Determinants in Non-Crisis Years: Evidence from African, European, and Asian Countries

by Peterson K. Ozili

J. Risk Financial Manag. 2024, 17(3), 115; https://doi.org/10.3390/jrfm17030115 - 12 Mar 2024

Cited by 1 | Viewed by 2579

Abstract

Loan loss provision is an important accounting accrual in the banking sector. There have been numerous debates about the determinants of loan loss provision in several contexts. This study extends the debate by investigating the determinants of bank loan loss provision in non-crisis [...] Read more.

Loan loss provision is an important accounting accrual in the banking sector. There have been numerous debates about the determinants of loan loss provision in several contexts. This study extends the debate by investigating the determinants of bank loan loss provision in non-crisis years for 28 countries from 2011 to 2018. The non-crisis years cover the periods after the global financial crisis and the periods before the COVID-19 pandemic while the countries consist of African, European, and Asian countries. Using the generalized linear model regression and the quantile regression methodologies, the results show that institutional quality is a significant determinant of bank loan loss provision, indicating that the presence of strong institutions decreases the size of bank loan loss provision in non-crisis years. In the regional analyses, it was found that economic growth is a significant determinant of bank loan loss provisions in African and Asian countries. Loan loss provision is higher in times of economic prosperity in African and Asian countries. Bank overhead cost is a significant determinant of bank loan loss provisions in Asian countries. Meanwhile, bank loan loss provision determinants are insignificant in European countries. Full article

(This article belongs to the Special Issue Advances in Accounting & Auditing Research)

16 pages, 1739 KiB

Open AccessArticle

Asymmetric Effects of Economic Policy Uncertainty on Food Security in Nigeria

by Lydia N. Kotur, Goodness C. Aye and Josephine B. Ayoola

J. Risk Financial Manag. 2024, 17(3), 114; https://doi.org/10.3390/jrfm17030114 - 11 Mar 2024

Viewed by 1735

Abstract

This study investigates the asymmetric effects of economic policy uncertainty (EPU) on food security in Nigeria, utilizing annual time series data from 1970 to 2021. The study used descriptive statistics, unit root tests, the nonlinear autoregressive distributed lag (NARDL) model and its associated [...] Read more.

This study investigates the asymmetric effects of economic policy uncertainty (EPU) on food security in Nigeria, utilizing annual time series data from 1970 to 2021. The study used descriptive statistics, unit root tests, the nonlinear autoregressive distributed lag (NARDL) model and its associated Bounds tests to analyze the data. The analysis reveals that adult population, environmental degradation, exchange rate uncertainty (EXRU), financial deepening, food security (FS), government expenditure in agriculture uncertainty (GEAU), inflation, and interest rate uncertainty (INRU) exhibit positive mean values over the period, with varying degrees of volatility. Cointegration tests indicate a long-term relationship between EPU variables (GEAU, INRU, and EXRU) and food security. The study finds that cumulative positive and negative EPU variables have significant effects on food security in the short run. Specifically, negative GEAU, positive INRU, positive and negative EXRU have significant effects in the short run. In the long run, negative GEAU, positive and negative EXRU have significant effects on food security. Additionally, the research highlights asymmetric effects, showing that the influence of GEAU and EXRU on food security differs in the short- and long-run. The study underscores the importance of increased government expenditure on agriculture, control of exchange rate and interest rate uncertainty, and the reduction in economic policy uncertainty to mitigate risks in the agricultural sector and enhance food security. Recommendations include strategies to stabilize exchange rates to safeguard food supply and overall food security. Full article

(This article belongs to the Special Issue Economic Policy Uncertainty)

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19 pages, 285 KiB

Open AccessArticle

The Relation between CEO-Friendly Boards and the Value of Cash Holdings

by Hoontaek Seo, Sangho Yi, Qing Yang and William McCumber

J. Risk Financial Manag. 2024, 17(3), 113; https://doi.org/10.3390/jrfm17030113 - 11 Mar 2024

Cited by 1 | Viewed by 1456

Abstract

Our study investigates how CEO-friendly boards influence the value and utilization of cash resources. In this paper, we analyze two conflicting views on CEO-friendly boards and their impact on corporate cash holdings: one view posits that such boards might be too lenient, fostering [...] Read more.

Our study investigates how CEO-friendly boards influence the value and utilization of cash resources. In this paper, we analyze two conflicting views on CEO-friendly boards and their impact on corporate cash holdings: one view posits that such boards might be too lenient, fostering managerial moral hazard problem, while the other contends that they encourage CEOs to share information, despite CEOs knowing that better-informed boards could enforce stricter oversight. By measuring board friendliness through CEO-board social ties, we find that firms with a friendly board tend to maintain lower cash reserves but their excess cash is valued higher by the market compared to firms without such a board. Moreover, these boards deploy excess cash in ways that significantly enhance firm value. The results remain robust even after controlling for various governance variables and CEO characteristics. Our findings offer crucial insights for corporate practitioners and policymakers, highlighting the importance of appointing and retaining CEO-friendly directors to foster effective information exchange, especially in firms with substantial CEO-board information asymmetry in capital budgeting. Full article

(This article belongs to the Section Business and Entrepreneurship)

19 pages, 841 KiB

Open AccessArticle

Impacts of the Expected Credit Loss Model on Pro-Cyclicality, Earnings Management, and Equity Management in the Portuguese Banking Sector

by Miguel Resende, Carla Carvalho and Cecília Carmo

J. Risk Financial Manag. 2024, 17(3), 112; https://doi.org/10.3390/jrfm17030112 - 9 Mar 2024

Cited by 1 | Viewed by 1840

Abstract

This article delves into the pro-cyclicality of loan loss provisions (LLPs) and earnings management, along with equity management, in Portuguese banks against the backdrop of implementing the IFRS 9’s expected credit loss (ECL) model. It concentrates on how LLPs mirror economic cycles and [...] Read more.

This article delves into the pro-cyclicality of loan loss provisions (LLPs) and earnings management, along with equity management, in Portuguese banks against the backdrop of implementing the IFRS 9’s expected credit loss (ECL) model. It concentrates on how LLPs mirror economic cycles and financial management practices, providing valuable insights into the operational dynamics of the Portuguese banking sector, marked by distinct economic and regulatory challenges. The research examined a sample of five Portuguese commercial banks, chosen from a group of seventeen in the Portuguese Banking Association. Data spanning from 2013 to 2022 were manually gathered. A multiple linear regression model was employed to scrutinize the relationship between LLPs and variables indicative of economic cycles and the earnings and equity management. The methodology use was a multiple linear regression model. The analysis indicates a pro-cyclicality in LLPs within the Portuguese context, with a positive response of LLPs to economic indicators like unemployment. Contrarily, the extent of earnings and equity management under the ECL model was less marked compared to the incurred credit loss (ICL) model, suggesting the impact of more stringent regulatory measures. The research corroborates the pro-cyclicality of LLPs in Portuguese banks under the ECL framework, underscoring the necessity for ongoing monitoring and refinement of models for forecasting and recognizing credit losses. The findings point to an area for improvement in financial management practices, despite regulatory enhancements, to promote transparency and ensure financial stability. Full article

(This article belongs to the Special Issue Earnings Management and Loan Contracts)

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20 pages, 4219 KiB

Open AccessArticle

A Bibliometric Analysis of Borrowers’ Behavior

by Douglas Mwirigi, Mária Fekete-Farkas and Zoltán Lakner

J. Risk Financial Manag. 2024, 17(3), 111; https://doi.org/10.3390/jrfm17030111 - 9 Mar 2024

Cited by 2 | Viewed by 2457

Abstract

Understanding borrowers’ behavior is essential in making lending decisions, strengthening financial inclusion, and alleviating poverty. This research adopts a bibliometric approach to provide an overview of the borrower’s behavior relative to the selected literature. Bibliometric analysis quantifies the impact and quality of scientific [...] Read more.

Understanding borrowers’ behavior is essential in making lending decisions, strengthening financial inclusion, and alleviating poverty. This research adopts a bibliometric approach to provide an overview of the borrower’s behavior relative to the selected literature. Bibliometric analysis quantifies the impact and quality of scientific production. This study reviewed 989 articles obtained from SCOPUS and published from 1987 to 2023. Data were cleaned, formatted, and analyzed using VOS viewer (1.6.19) and the R-Bibliometrix package. The research established an increased interest in borrowers’ behavior among scholars. Nonetheless, it is overshadowed by studies in lending behavior, microfinance, banking, peer-to-peer lending, and fintech. The scholarly focus is mainly on the supply side of the credit industry with little regard to demand-side dynamics, such as borrowers’ decision-making processes, which can affect the performance of credit facilities. This study recommends that further studies on credit facility demand-side dynamics should be carried out to understand the drivers of borrowers’ decisions. Full article

(This article belongs to the Special Issue Borrowers’ Behavior in Financial Decision-Making)

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18 pages, 2529 KiB

Open AccessArticle

Bidirectional Risk Spillovers between Chinese and Asian Stock Markets: A Dynamic Copula-EVT-CoVaR Approach

by Mingguo Zhao and Hail Park

J. Risk Financial Manag. 2024, 17(3), 110; https://doi.org/10.3390/jrfm17030110 - 7 Mar 2024

Viewed by 1840

Abstract

This study aims to investigate bidirectional risk spillovers between the Chinese and other Asian stock markets. To achieve this, we construct a dynamic Copula-EVT-CoVaR model based on 11 Asian stock indexes from 1 January 2007 to 31 December 2021. The findings show that, [...] Read more.

This study aims to investigate bidirectional risk spillovers between the Chinese and other Asian stock markets. To achieve this, we construct a dynamic Copula-EVT-CoVaR model based on 11 Asian stock indexes from 1 January 2007 to 31 December 2021. The findings show that, firstly, synchronicity exists between the Chinese stock market and other Asian stock markets, creating conditions for risk contagion. Secondly, the Chinese stock market exhibits a strong risk spillover to other Asian stock markets with time-varying and heterogeneous characteristics. Additionally, the risk spillover displays an asymmetry, indicating that the intensity of risk spillover from other Asian stock markets to the Chinese is weaker than that from the Chinese to other Asian stock markets. Finally, the Chinese stock market generated significant extreme risk spillovers to other Asian stock markets during the 2007–2009 global financial crisis, the European debt crisis, the 2015–2016 Chinese stock market crash, and the China–US trade war. However, during the COVID-19 pandemic, the risk spillover intensity of the Chinese stock market was weaker, and it acted as the recipient of risk from other Asian stock markets. The originality of this study is reflected in proposing a novel dynamic copula-EVT-CoVaR model and incorporating multiple crises into an analytical framework to examine bidirectional risk spillover effects. These findings can help Asian countries (regions) adopt effective supervision to deal with cross-border risk spillovers and assist Asian stock market investors in optimizing portfolio strategies. Full article

(This article belongs to the Section Financial Markets)

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20 pages, 1130 KiB

Open AccessArticle

The Investigation of Preference Attributes of Indonesian Mobile Banking Users to Develop a Strategy for Mobile Banking Adoption

by Toto Edrinal Sebayang, Dedi Budiman Hakim, Toni Bakhtiar and Dikky Indrawan

J. Risk Financial Manag. 2024, 17(3), 109; https://doi.org/10.3390/jrfm17030109 - 7 Mar 2024

Viewed by 2341

Abstract

A new normal has been established as a result of the effects of the COVID-19 pandemic on social behavior, technology, and business. This has a significant effect on how technology is used, such as mobile banking services, which offer more hygienic and secure [...] Read more.

A new normal has been established as a result of the effects of the COVID-19 pandemic on social behavior, technology, and business. This has a significant effect on how technology is used, such as mobile banking services, which offer more hygienic and secure payment alternatives than cash. Mobile banking has been viewed as having the ability to enhance access to unbanked customers in developing economies such as Indonesia, where 100 million people remain unbanked. This study aims to develop strategies using importance-performance analysis (IPA) to improve adoption based on the perceived importance and performance of 1441 mobile banking users during the COVID-19 pandemic. Data were collected using an online questionnaire administered during the period of September 2022 to March 2023 using the mobile banking adoption attributes of Attitude, Perceived Usefulness, Perceived Ease of Use, Compatibility, Subjective Norm, Interpersonal Influence, External Influence, Perceived Behavior Control, facilitating conditions, self-efficacy, firm reputation, trust, disease risk, performance risk, financial risk, privacy risk, time risk, psychological risk, and perceived risk. IPA results were divided into four quadrants: “concentrate here”, “keep up the good work”, “low priority”, and “possible overkill” with a representation that respondents regard as important and well-addressed. The findings show that bank strategists seeking competitive advantage must push innovation efforts to protect users by improving privacy risk and financial risk and enhancing mobile banking security from potential cyberattacks. Digital banks and associated institutions need to educate mobile banking customers on the benefits of security measures for these services, which may improve confidence and trust, and consequently, accelerate mobile banking adoption. Full article

(This article belongs to the Special Issue Banking during the COVID-19 Pandemia)

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20 pages, 1251 KiB

Open AccessArticle

FinTech and Financial Inclusion: Exploring the Mediating Role of Digital Financial Literacy and the Moderating Influence of Perceived Regulatory Support

by Muhammed Basid Amnas, Murugesan Selvam and Satyanarayana Parayitam

J. Risk Financial Manag. 2024, 17(3), 108; https://doi.org/10.3390/jrfm17030108 - 7 Mar 2024

Cited by 7 | Viewed by 11818

Abstract

Exploring the potential of financial technology (FinTech) to promote financial inclusion is the aim of this research. This study concentrated on understanding why people use FinTech and how it affects their access to financial services by taking into account the mediating role of [...] Read more.

Exploring the potential of financial technology (FinTech) to promote financial inclusion is the aim of this research. This study concentrated on understanding why people use FinTech and how it affects their access to financial services by taking into account the mediating role of digital financial literacy and the moderating effect of perceived regulatory support. This study used partial least squares structural equation modeling (PLS-SEM) for testing the research model by collecting data from 608 FinTech users in India. The results revealed the role of trust, service quality, and perceived security are essential in promoting the utilization of FinTech services. This study also demonstrated that FinTech positively impacts financial inclusion, making it easier for individuals to get into formal financial services. Furthermore, digital financial literacy emerged as an important mediator between FinTech use and financial inclusion. The research also confirmed that perceived regulatory support has a significant moderation influence on the relationship between FinTech and financial inclusion. This research would contribute to advancing theoretical frameworks and offer practical advice for policymakers and FinTech companies to make financial services more inclusive. Full article

(This article belongs to the Special Issue Financial Technologies (Fintech) in Finance and Economics)

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15 pages, 1874 KiB

Open AccessArticle

Evaluation of Weather Yield Index Insurance Exposed to Deluge Risk: The Case of Sugarcane in Thailand

by Thitipong Kanchai, Wuttichai Srisodaphol, Tippatai Pongsart and Watcharin Klongdee

J. Risk Financial Manag. 2024, 17(3), 107; https://doi.org/10.3390/jrfm17030107 - 7 Mar 2024

Viewed by 1760

Abstract

Insurance serves as a mechanism to effectively manage and transfer revenue-related risks. We conducted a study to explore the potential financial advantages of index insurance, which protects agricultural producers, specifically sugarcane, against excessive rainfall. Creation of the index involved utilizing generalized additive regression [...] Read more.

Insurance serves as a mechanism to effectively manage and transfer revenue-related risks. We conducted a study to explore the potential financial advantages of index insurance, which protects agricultural producers, specifically sugarcane, against excessive rainfall. Creation of the index involved utilizing generalized additive regression models, allowing for consideration of non-linear effects and handling complex data by adjusting the complexity of the model through the addition or reduction of terms. Moreover, quantile generalized additive regression was deliberated to evaluate relationships with lower quantiles, such as low-yield events. To quantify the financial benefits for farmers, should they opt for excessive rainfall index insurance, we employed efficiency analysis based on metrics such as conditional tail expectation (CTE), certainty equivalence of revenue (CER), and mean root square loss (MRSL). The results of the regression model demonstrate its accuracy in predicting sugar cane yields, with a split testing R² of 0.691. MRSL should be taken into consideration initially, as it is a farmer’s revenue assessment that distinguishes between those with and those without insurance. As a result, the GAM model indicates the least fluctuation in farmer income at the 90th percentile. Additionally, our study suggests that this type of insurance could apply to sugarcane farmers and other crop producers in regions where extreme rainfall threatens the financial sustainability of agricultural production. Full article

(This article belongs to the Special Issue Advances in Predictive Analytics and Systemic Risks in Finance and Insurance)

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13 pages, 234 KiB

Open AccessArticle

Did Emotional Intelligence Traits Mitigate COVID-19 Uncertainty Effects on Financial Institutions’ Board Decision-Making Process?

by Jessica Hall, Gregory Jones, Claire Beattie and John Sands

J. Risk Financial Manag. 2024, 17(3), 106; https://doi.org/10.3390/jrfm17030106 - 6 Mar 2024

Viewed by 1682

Abstract

This study uses a qualitative research mixed methods design to explore the Coronavirus pandemic’s uncertainty effect on mature board governance practices and a board decision processes framework within 16 large Australian financial services entities. Findings provide support for two effects. Firstly, the Coronavirus [...] Read more.

This study uses a qualitative research mixed methods design to explore the Coronavirus pandemic’s uncertainty effect on mature board governance practices and a board decision processes framework within 16 large Australian financial services entities. Findings provide support for two effects. Firstly, the Coronavirus pandemic had led to a hesitation effect on the board members on-going journey of developing a conscious sense of ‘self’ and awareness. Secondly, the skills and diversity of personalities of directors comprising the board has a positive impact on the effectiveness and success of strategic decisions. The ongoing ambiguity impact of the Coronavirus pandemic on effective board decision-making processes was investigated. The board members expressed confidence in the Australian financial services sector’s ability to overcome the global Coronavirus pandemic’s temporary uncertainty impact on board decision processes frameworks. Future research may extend the focus to senior executives’ or owners’ EI personality traits to investigate the relationship between such individual’s or teams’ traits and ongoing effective board decision-making processes during uncertainty in either developing or developed countries or a cross-cultural study. Full article

(This article belongs to the Special Issue Banking during the COVID-19 Pandemia)

20 pages, 347 KiB

Open AccessReview

Financial Inclusion and Its Ripple Effects on Socio-Economic Development: A Comprehensive Review

by Deepak Mishra, Vinay Kandpal, Naveen Agarwal and Barun Srivastava

J. Risk Financial Manag. 2024, 17(3), 105; https://doi.org/10.3390/jrfm17030105 - 3 Mar 2024

Cited by 4 | Viewed by 12825

Abstract

This study provides an overview of the different dimensions of financial inclusion, its socioeconomic impacts on society’s sustainable development, and future research agendas. Initially, 620 studies were identified using Scopus and other databases, employing keywords such as financial literacy, financial inclusion, financial capability, [...] Read more.

This study provides an overview of the different dimensions of financial inclusion, its socioeconomic impacts on society’s sustainable development, and future research agendas. Initially, 620 studies were identified using Scopus and other databases, employing keywords such as financial literacy, financial inclusion, financial capability, women’s empowerment, fintech, artificial intelligence, financial accessibility, sustainable development goals, and economic growth. After refinement based on focus and relevance, 325 papers were analyzed in detail for review, primarily focused on India and emerging economies. This review highlights that access to finance by untouched segments of society is essential for sustainable and socio-economic development in developing economies. The official banking system, an effort by the government to assist the financially disadvantaged, can incorporate the impoverished into a formal financial system through campaigns and credit system reforms. Socioeconomic programs reinforce one another and foster the development of children, women, families, and society. This research paper undertakes a systematic literature review primarily focused on relevant articles in broad areas of financial inclusion and its impact analysis and offers a valuable agenda for future research. Full article

(This article belongs to the Special Issue Financial Reporting, Managing Risk and Banking)

19 pages, 3953 KiB

Open AccessArticle

Predictive Power of Random Forests in Analyzing Risk Management in Islamic Banking

by Ahmet Faruk Aysan, Bekir Sait Ciftler and Ibrahim Musa Unal

J. Risk Financial Manag. 2024, 17(3), 104; https://doi.org/10.3390/jrfm17030104 - 1 Mar 2024

Cited by 1 | Viewed by 2260

Abstract

This study utilizes the random forest technique to investigate risk management practices and concerns in Islamic banks using survey data from 2016 to 2021. Findings reveal that larger banks provide more consistent survey responses, driven by their confidence and larger survey budgets. Moreover, [...] Read more.

This study utilizes the random forest technique to investigate risk management practices and concerns in Islamic banks using survey data from 2016 to 2021. Findings reveal that larger banks provide more consistent survey responses, driven by their confidence and larger survey budgets. Moreover, a positive link is established between a country’s development, characterized by high GDPs and low inflation and interest rates, and the precision of Islamic banks’ survey responses. Analyzing risk-related concerns, the study notes a significant reduction in credit portfolio risk attributed to improved risk management practices, global economic growth, stricter regulations, and diversified asset portfolios. Concerns related to terrorism financing and cybersecurity risks have also decreased due to the better enforcement of anti-money laundering regulations and investments in cybersecurity infrastructure and education. This research enhances our understanding of risk management in Islamic banks, highlighting the impact of bank size and country development. Additionally, it emphasizes the need for ongoing analysis beyond 2021 to account for potential COVID-19 effects and evolving risk management and regulatory practices in Islamic banking. Full article

(This article belongs to the Special Issue Blockchain Technologies and Cryptocurrencies)

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15 pages, 317 KiB

Open AccessArticle

The Impact of Non-Interest Income on Commercial Bank Profitability in the Middle East and North Africa (MENA) Region

by Bashar Abu Khalaf, Antoine B. Awad and Scott Ellis

J. Risk Financial Manag. 2024, 17(3), 103; https://doi.org/10.3390/jrfm17030103 - 1 Mar 2024

Cited by 6 | Viewed by 4198

Abstract

This study examines the effects of non-interest income on bank performance in the Middle East and North Africa (MENA) region, addressing existing research gaps and conflicting results. The analysis is based on data from 40 banks (5 banks from each country) operating in [...] Read more.

This study examines the effects of non-interest income on bank performance in the Middle East and North Africa (MENA) region, addressing existing research gaps and conflicting results. The analysis is based on data from 40 banks (5 banks from each country) operating in Bahrain, Egypt, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates between 2010 and 2022. Using correlation analysis and three regression models (OLS, FE, and RE), this study explores the relationship between non-interest income, overheads, capital adequacy, loan loss provision, bank size, and return on assets. The findings reveal positive associations among banks’ overhead, size, capital adequacy, and loan loss provision. Additionally, a favorable correlation is observed between non-interest income and bank performance. Non-interest income significantly influences the profitability of MENA region banks across all three models, supporting the main hypothesis. While the study’s limitations include sample size and geographic focus, the findings of this study provide valuable insights for policymakers, allowing them to recognize the positive impact of increasing non-interest income on commercial bank profitability in the MENA region and consider implementing policies that encourage and support banks in diversifying their income sources. Full article

(This article belongs to the Section Banking and Finance)

13 pages, 401 KiB

Open AccessArticle

Long-Term Orientation and Tax Avoidance Regulations

by Katarzyna Bilicka, Danjue Clancey-Shang and Yaxuan Qi

J. Risk Financial Manag. 2024, 17(3), 102; https://doi.org/10.3390/jrfm17030102 - 1 Mar 2024

Viewed by 1636

Abstract

In this paper, we explore the relationship between the culture of the country where a multinational corporation (MNC) is headquartered and the MNC’s stock market reaction to tax avoidance regulations. Specifically, we examine the different responses of MNCs following the implementation of the [...] Read more.

In this paper, we explore the relationship between the culture of the country where a multinational corporation (MNC) is headquartered and the MNC’s stock market reaction to tax avoidance regulations. Specifically, we examine the different responses of MNCs following the implementation of the 2010 UK reform that restricted profit shifting for a specific group of firms. We find that, in countries with short-term-oriented cultures, MNCs affected by this reform experienced positive stock market responses relative to their unaffected counterparts. This is not found in long-term-oriented cultures. This difference in response can partly be explained by the differing perceptions of the role tax havens play in tax minimization practices between more long-term-oriented cultures and those oriented towards the short term. We provide evidence that investors from more future-oriented cultures may recognize the short-lived effectiveness of a regulation ex ante, and thus price the quasi-exogenous market shock differently than their more short-term-oriented counterparts. Full article

(This article belongs to the Special Issue International Financial Markets and Risk Finance)

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14 pages, 845 KiB

Open AccessArticle

The Effects of Geopolitical Risk on Foreign Direct Investment in a Transition Economy: Evidence from Vietnam

by Loc Dong Truong, H. Swint Friday and Tan Duy Pham

J. Risk Financial Manag. 2024, 17(3), 101; https://doi.org/10.3390/jrfm17030101 - 1 Mar 2024

Cited by 3 | Viewed by 4925

Abstract

Foreign direct investment (FDI) is a key driver of economic development of both developed and developing countries. Understanding and having insights into the factors that motivate increased FDI arevery important for both academics and policy makers. A key factor that multinationals incorporate in [...] Read more.

Foreign direct investment (FDI) is a key driver of economic development of both developed and developing countries. Understanding and having insights into the factors that motivate increased FDI arevery important for both academics and policy makers. A key factor that multinationals incorporate in their decisions on FDI is geopolitical risk (GPR). Therefore, this study is devotedto investigating the short-term and long-term effects of GPR on FDI in Vietnam. Data used in this study are the yearly geopolitical risk index, FDI, and other control variables covering the period from 1986 to 2021. Using the autoregressive distributed lag (ARDL) bounds testing approach, the empirical results confirm that geopolitical risk (GPR) has a significantly negative effect on FDI in Vietnam in the longterm. Specifically, in the longterm, 1 percent increase in the GPR index is associated with 5.7983 percent decrease in Vietnam’s FDI. In addition, the results derived from the ARDL model indicate that in the shortterm, GPR has a significantly positive effect on the FDI for the one-year lag, meaning that an increase in the GPR index leads to an increase in FDI. Moreover, the results derived from the error correction model (ECM) indicate that 42.89% of the disequilibria from the previous year are converged and corrected back to the long-run equilibrium in the current year. Based on the findings, some policy implications are drawn for policymakers to mitigate the negative effects of GPR on FDI. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond, 3rd Edition)

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