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Volume 8
Issue 4
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Int. J. Financial Stud., Volume 8, Issue 4 (December 2020) – 21 articles

Cover Story (view full-size image): As the events of 2020 have shown, social and economic responsibilities are innately connected. Banks are at the core of these connections because banks determine which investments get made. This study considers how the CSR investments that banks make impact their own future, making a distinction between internal and external CSR investments. Internal investments are those that narrowly consider internal stakeholders, while external investments consider a broader, more inclusive nexus of stakeholders. The results show that CSR investments by banks do create bank value and lower bank risk, but this is entirely driven by their external CSR investments, not by their internal CSR investments. The moral is that greenwashing destroys value while long-term strategic and inclusive CSR investments create value, growth and prosperity for U.S. banks. View this paper.
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16 pages, 556 KiB  
Article
The Business Sector, Firm Age, and Performance: The Mediating Role of Foreign Ownership and Financial Leverage
by Edmund Mallinguh, Christopher Wasike and Zeman Zoltan
Int. J. Financial Stud. 2020, 8(4), 79; https://doi.org/10.3390/ijfs8040079 - 17 Dec 2020
Cited by 24 | Viewed by 8678
Abstract
The paper explores the business sector and firm age effects on firm performance mediated by foreign ownership levels in domestic firms and financial leverage by examining 146 Medium Enterprises (MEs). The results show that except for ownership, the business sector, firm age, foreign [...] Read more.
The paper explores the business sector and firm age effects on firm performance mediated by foreign ownership levels in domestic firms and financial leverage by examining 146 Medium Enterprises (MEs). The results show that except for ownership, the business sector, firm age, foreign ownership level, and financial leverage significantly influence performance. Foreign ownership substantially mediates the correlation between firm age and performance but not leverage. Both foreign ownership and leverage have no substantial mediating effect on the relationship between the business sector and financial performance. Moreover, the findings reveal business sectors whose performance is statistically different from zero based on the referent group. Full article
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21 pages, 347 KiB  
Article
The Effect of Board Links, Audit Partner Tenure, and Related Party Transactions on Misstatements: Evidence from Chile
by Sakthi Mahenthiran, Berta Silva Palavecinos and Hanns De La Fuente-Mella
Int. J. Financial Stud. 2020, 8(4), 78; https://doi.org/10.3390/ijfs8040078 - 16 Dec 2020
Cited by 3 | Viewed by 3499
Abstract
Companies restate when material misstatements are identified in previously issued financial statements. Misstatement research in Latin America is sparse, even though they are an important context to study this phenomenon. Chile’s corporate governance regulations are considered exemplars for Latin American countries but its [...] Read more.
Companies restate when material misstatements are identified in previously issued financial statements. Misstatement research in Latin America is sparse, even though they are an important context to study this phenomenon. Chile’s corporate governance regulations are considered exemplars for Latin American countries but its auditing profession is not well developed. Thus, Chile provides an interesting context to study the complementary roles of audit and board governance affecting misstatements. Using a sample of 104 Chilean listed firms over seven years, our study finds that the board links and audit partner tenure negatively affect misstatements. Specifically, given the prevalence of related party transactions (RPTs) in conglomerates, the finding suggests that cross directors monitor high-value RPTs, but that this is not a substitute for auditor expertise. The findings raise questions about the advisability of mandating audit partner rotation to strengthen auditor independence because the results indicate that a short audit partner tenure leads to the auditor not developing client-specific knowledge. The study makes contributions to the corporate governance literature by highlighting that board monitoring is not a good substitute for auditor monitoring of financial reporting integrity, and suggesting the need for having licensing requirements to become an auditor. Full article
(This article belongs to the Special Issue Corporate Governance and Financial Reporting)
13 pages, 2451 KiB  
Article
The Fractional Step Method versus the Radial Basis Functions for Option Pricing with Correlated Stochastic Processes
by Yusho Kagraoka
Int. J. Financial Stud. 2020, 8(4), 77; https://doi.org/10.3390/ijfs8040077 - 1 Dec 2020
Viewed by 2019
Abstract
In option pricing models with correlated stochastic processes, an option premium is commonly a solution to a partial differential equation (PDE) with mixed derivatives in more than two space dimensions. Alternating direction implicit (ADI) finite difference methods are popular for solving a PDE [...] Read more.
In option pricing models with correlated stochastic processes, an option premium is commonly a solution to a partial differential equation (PDE) with mixed derivatives in more than two space dimensions. Alternating direction implicit (ADI) finite difference methods are popular for solving a PDE with more than two space dimensions; however, it is not straightforward to employ the ADI method for solving a PDE with mixed derivatives. The aim of this study is to find out which numerical method would be appropriate to solve PDEs with mixed derivatives based on the accuracy of the solutions and the computation time. This study applies the fractional step method and the radial basis functions to solve a PDE with a mixed derivative, and investigates the efficiency of these numerical methods. Numerical experiments are conducted by applying these methods to exchange option pricing; exchange options are selected because the exchange option premium has an analytical form. The numerical results show that the both methods calculate premiums with high accuracy in the presence of mixed derivatives. The fractional step method calculates the option premium more accurately and much faster than the radial basis functions. Therefore, from the numerical experiments, this study concludes that the fractional step method is more appropriate than the radial basis functions for solving a PDE with a mixed derivative. Full article
(This article belongs to the Special Issue Alternative Models and Methods in Financial Economics)
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17 pages, 455 KiB  
Article
Corporate Social Responsibility: Motives and Financial Performance
by Muhannad Atmeh, Mohammad Shaban and Malek Alsharairi
Int. J. Financial Stud. 2020, 8(4), 76; https://doi.org/10.3390/ijfs8040076 - 27 Nov 2020
Cited by 5 | Viewed by 5054
Abstract
The relationship between companies and society has been questioned for a long time. However, the effect of the motives behind CSR regarding the companies’ actual engagement with CSR has received little attention, especially in emerging markets. This paper tackles this issue for the [...] Read more.
The relationship between companies and society has been questioned for a long time. However, the effect of the motives behind CSR regarding the companies’ actual engagement with CSR has received little attention, especially in emerging markets. This paper tackles this issue for the first time using a sample of Jordanian companies. We explore the effect of two types of motives on the level of engagement in CSR: extrinsic motive (financial) and intrinsic motives (ethical and altruistic). The relationship between the company’s actual financial performance and CSR is also investigated. Primary data were collected using a questionnaire, distributed to Jordanian company’s managers in five sectors: pharmaceutical, technology and telecommunication, construction, farming, and financial services. Multiple regression analysis was conducted to depict the relationships. Results show that the intrinsic motives have a significant effect on CSR, while the extrinsic motive has none. When intrinsic motives were tested separately, results showed that the ethical motive had a significant effect, while the altruistic had no effect. In both cases, CSR was shown to be more significantly driven by the company’s financial performance. Different stakeholders such as policymakers, entrepreneurs, researchers, and investors may use the results of this study to increase companies’ involvement in CSR. Full article
(This article belongs to the Collection Corporate Social Responsibility in Finance)
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12 pages, 308 KiB  
Article
The Role of Corporate Culture in Performance Measurement and Management Systems
by Michaela Kotkova Striteska and David Zapletal
Int. J. Financial Stud. 2020, 8(4), 75; https://doi.org/10.3390/ijfs8040075 - 27 Nov 2020
Cited by 5 | Viewed by 5151
Abstract
Recently, there has been increasing pressure to change current performance measurement and management systems from control systems to those that support learning and continuous improvement. This change requires a specific corporate culture that supports the effective operation of performance measurement and management. This [...] Read more.
Recently, there has been increasing pressure to change current performance measurement and management systems from control systems to those that support learning and continuous improvement. This change requires a specific corporate culture that supports the effective operation of performance measurement and management. This paper aims to clarify the relationship between corporate culture and performance measurement and management systems. Questionnaire survey data from Czech medium and large companies were collected and analyzed by Pearson’s chi-squared test to validate the proposed hypothesis. The research findings confirmed that performance measurement and management systems of companies that devoted sufficient energy and attention to performance-driven culture are more effectively developed. Analysis of different performance-driven culture attributes revealed which are the most important ones. Full article
14 pages, 257 KiB  
Article
Correlation between the DJSI Chile and the Financial Indices of Chilean Companies
by Karime Chahuán-Jiménez
Int. J. Financial Stud. 2020, 8(4), 74; https://doi.org/10.3390/ijfs8040074 - 26 Nov 2020
Cited by 1 | Viewed by 3077
Abstract
The Dow Jones Sustainability Index Chile (DJSI Chile) is made up of leading sustainability companies that are investing great effort into sustainable management. This study correlates the DJSI Chile with the financial indices (return on equity (ROE), return on assets (ROA), market value, [...] Read more.
The Dow Jones Sustainability Index Chile (DJSI Chile) is made up of leading sustainability companies that are investing great effort into sustainable management. This study correlates the DJSI Chile with the financial indices (return on equity (ROE), return on assets (ROA), market value, earnings, and leverage) of companies that belong to the General Stock Price Index (IGPA) in Chile. The methodology used was quantitative, considering Chilean companies in the IGPA, including companies belonging to the DJSI Chile, applying a normality and correlation test based on the results. In conclusion, the study shows that in the results for the ROE, ROA, and leverage variables, there is no positive correlation with the DJSI Chile. However, the DJSI Chile is correlated with market value (for approximately 80% of the companies), and with earnings, there is a slightly higher correlation for the companies that belong to the DJSI Chile than for the remaining companies in the IGPA, thus if there exists a correlation between the DJSI Chile index and the variables market value and earnings, the index enables the prediction of those financial variables or predicts the finance indices (value market and earnings) of the companies that make up the DJSI Chile basing in the DJSI Chile index. Full article
(This article belongs to the Collection Corporate Social Responsibility in Finance)
25 pages, 563 KiB  
Article
The Impact of Financial Statement Comparability on Earnings Management: Evidence from Frontier Markets
by Wil Martens, Prem W. S. Yapa and Maryam Safari
Int. J. Financial Stud. 2020, 8(4), 73; https://doi.org/10.3390/ijfs8040073 - 19 Nov 2020
Cited by 9 | Viewed by 6068
Abstract
This paper examined whether financial statement comparability constrains opportunistic earnings management in frontier market countries. Using a large sample of 19 frontier market countries, and an accounting comparability method that maps comparability across several accounting standards, the results show that enhanced financial comparability [...] Read more.
This paper examined whether financial statement comparability constrains opportunistic earnings management in frontier market countries. Using a large sample of 19 frontier market countries, and an accounting comparability method that maps comparability across several accounting standards, the results show that enhanced financial comparability constrains accruals earnings management (AEM). Contrary to developed markets and novel to this study, a significant relationship between financial comparability and real earnings management (REM) was not found. For greater robustness, AEM and REM were also tested on both International Financial Reporting Standards (IFRS) adopting and non-adopting countries. The results suggest IFRS adoption constrains AEM, yet exhibited no impact on constraining REM. Additionally, the use of BigN auditors failed to conclusively show an ability to moderate EM. When combined, the results suggest that frontier markets engage in less REM than expected. It is also noted that the legal roots (civil vs. common law) play a significant role in constraining earnings management. Common law countries exhibited lower AEM when comparability increased; this significance was not found in countries that were rooted in civil law. Contributions from this study show that findings from developed markets cannot be generalised to frontier markets. Full article
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22 pages, 1243 KiB  
Article
Corporate Social Responsibility and Firm Value Protection
by Daniel Ogachi and Zeman Zoltan
Int. J. Financial Stud. 2020, 8(4), 72; https://doi.org/10.3390/ijfs8040072 - 18 Nov 2020
Cited by 9 | Viewed by 7054
Abstract
The conception of Corporate Social Responsibility has continued to gain a lengthy discussion in all aspects of corporate finance with a particular focus on its contributing to financial performance. Despite its prominence globally, many companies have not embraced the concept, as most of [...] Read more.
The conception of Corporate Social Responsibility has continued to gain a lengthy discussion in all aspects of corporate finance with a particular focus on its contributing to financial performance. Despite its prominence globally, many companies have not embraced the concept, as most of them have remained doubtful about its contribution to corporate financial performance. Several companies have digressed the idea to merely an aspect of charity and cost instead of cost reduction and market creation. The fixed-effect model of panel data analysis was applied for the study period from 2010 to 2019 to measure relationships on CSR’s effect on the financial performance of listed companies in Kenya. The study used panel data for the years 2010–2019. The research used trend analysis for ten years to analyse data using canonical correlations, Logistic Regression analysis and ARIMA models to establish relationships among the variables of the study. Our results offer new evidence on the linearity effect of CSR on financial performance suggest that Corporate Social Responsibilities activities are very vital influencers of firm value, as they have a positive influence on the financial performance of companies. Full article
(This article belongs to the Collection Corporate Social Responsibility in Finance)
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16 pages, 1517 KiB  
Article
Monetary Policy Rule and Taylor Principle in Mongolia: GMM and DSGE Approaches
by Hiroyuki Taguchi and Ganbayar Gunbileg
Int. J. Financial Stud. 2020, 8(4), 71; https://doi.org/10.3390/ijfs8040071 - 16 Nov 2020
Cited by 7 | Viewed by 3752
Abstract
This article aims to examine the monetary policy rule under an inflation targeting in Mongolia with a focus on its conformity to the Taylor principle, through two kinds of approaches: a monetary policy reaction function by the generalized-method-of-moments (GMM) estimation and a New [...] Read more.
This article aims to examine the monetary policy rule under an inflation targeting in Mongolia with a focus on its conformity to the Taylor principle, through two kinds of approaches: a monetary policy reaction function by the generalized-method-of-moments (GMM) estimation and a New Keynesian dynamic stochastic general equilibrium (DSGE) model with a small open economy version by the Bayesian estimation. The main findings are summarized as follows. First, the GMM estimation identified an inflation-responsive rule fulfilling the Taylor principle in the recent phase of the Mongolian inflation targeting. Second, the DSGE-model estimation endorsed the GMM estimation by producing a consistent outcome on the Mongolian monetary policy rule. Third, the Mongolian rule was estimated to have a weaker response to inflation than the rules of the other emerging Asian adopters of an inflation targeting. Full article
(This article belongs to the Special Issue Alternative Models and Methods in Financial Economics)
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19 pages, 3867 KiB  
Article
A Study on the Pass-Through Rate of the Exchange Rate on the Liquid Natural Gas (LNG) Import Price in China
by Chaofeng Tang and Kentaka Aruga
Int. J. Financial Stud. 2020, 8(4), 70; https://doi.org/10.3390/ijfs8040070 - 16 Nov 2020
Cited by 1 | Viewed by 3009
Abstract
The Chinese liquid natural gas (LNG) import price has been unstable because the stability of LNG import prices is related to changes in the exchange rates. This paper analyzes the pass-through rate of the Chinese Yuan (CNY) and Japanese Yen (JPY) on the [...] Read more.
The Chinese liquid natural gas (LNG) import price has been unstable because the stability of LNG import prices is related to changes in the exchange rates. This paper analyzes the pass-through rate of the Chinese Yuan (CNY) and Japanese Yen (JPY) on the Chinese LNG import price. The Time-Varying Parameter vector autoregressive (TVP-VAR) model is adopted to verify the pass-through rate of the exchange rates on the LNG import price using the Markov chain Monte Carlo (MCMC) method. Since September 2005, the JPY pass-through rate on the Chinese LNG import price has been decreasing while that of the CNY has been increasing. Notably, the pass-through rate of CNY began to exceed that of JPY after 2008. Moreover, since 2005, the lag effect of the CNY on the Chinese LNG import price became longer compared to JPY. If any new currency reform of the CNY is implemented in the future, then the impact of JPY on the Chinese LNG import price could be reduced and the lag effect of the CNY on the Chinese LNG import price could become longer. Therefore, the fluctuation of the CNY is becoming an important factor in understanding the movements of the Chinese LNG import price. This implies the significance of considering the effect of the exchange rate on an energy market when the market is influenced by a monetary reform of the importing country. Full article
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21 pages, 759 KiB  
Article
A Comprehensive Approach for Calculating Banking Sector Risks
by Carmelo Salleo, Alberto Grassi and Constantinos Kyriakopoulos
Int. J. Financial Stud. 2020, 8(4), 69; https://doi.org/10.3390/ijfs8040069 - 10 Nov 2020
Cited by 4 | Viewed by 3297
Abstract
We propose a comprehensive approach for the analysis of real economy and government sector risk transmission to the banking system and apply it in ten Euro-Area countries from 2005 to 2017. A flexible methodology is developed to model banks’ assets according to the [...] Read more.
We propose a comprehensive approach for the analysis of real economy and government sector risk transmission to the banking system and apply it in ten Euro-Area countries from 2005 to 2017. A flexible methodology is developed to model banks’ assets according to the risk-adjusted balance sheet of the counterparts. The use of distance to distress as a popular risk metric shows that Contingent Claims Analysis underestimates banks risk in stable periods and overstates it during crisis. Furthermore, the approach succeeds in detecting spillovers from households, non-financial corporations and sovereign sectors: for the countries examined the main source of instability comes from the Non-Financial Corporation sector and its increased assets volatility. Full article
(This article belongs to the Special Issue Quantitative Finance)
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22 pages, 572 KiB  
Article
Non-Performing Loans for Italian Companies: When Time Matters. An Empirical Research on Estimating Probability to Default and Loss Given Default
by Giuseppe Orlando and Roberta Pelosi
Int. J. Financial Stud. 2020, 8(4), 68; https://doi.org/10.3390/ijfs8040068 - 9 Nov 2020
Cited by 15 | Viewed by 4739
Abstract
Within bank activities, which is normally defined as the joint exercise of savings collection and credit supply, risk-taking is natural, as in many human activities. Among risks related to credit intermediation, credit risk assumes particular importance. It is most simply defined as the [...] Read more.
Within bank activities, which is normally defined as the joint exercise of savings collection and credit supply, risk-taking is natural, as in many human activities. Among risks related to credit intermediation, credit risk assumes particular importance. It is most simply defined as the potential that a bank borrower or counterparty fails to fulfil correctly at maturity the pecuniary obligations assumed as principal and interest. Whenever this happens, a loan is non-performing. Among the main risk components, the Probability of Default (PD) and the Loss Given Default (LGD) have been the subject of greater interest for research. In this paper, logit model is used to predict both components. Financial ratios are used to estimate the PD. Time of recovery and presence of collateral are used as covariates of the LGD. Here, we confirm that the main driver of economic losses is the bureaucratically encumbered recovery system and the related legal environment. The long time required by Italian bureaucratic procedures, simply put, seems to lower dramatically the chance of recovery from defaulting counterparties. Full article
(This article belongs to the Special Issue Alternative Models and Methods in Financial Economics)
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18 pages, 280 KiB  
Article
Population, Income, and Farmland Pricing in an Open Economy
by Huijian Dong and Xiaomin Guo
Int. J. Financial Stud. 2020, 8(4), 67; https://doi.org/10.3390/ijfs8040067 - 28 Oct 2020
Viewed by 2492
Abstract
Farmland valuation models usually incorporate local purchasing power as one of the pricing factors. A plausible rationale is that a larger population and higher income per capita imply increasing demand for agricultural products and farmland. In this paper, we study the relationship between [...] Read more.
Farmland valuation models usually incorporate local purchasing power as one of the pricing factors. A plausible rationale is that a larger population and higher income per capita imply increasing demand for agricultural products and farmland. In this paper, we study the relationship between the agricultural land prices, the regional population, and income per capita in an open economy setting in nominal and real variable terms using data from 1929 to 2018 at the state level. We show that in most areas of the United States, agricultural land prices are less affected by the state population or personal income. The valuation of agricultural land should not factor in the local purchasing power factors, with a few exceptions. Full article
(This article belongs to the Special Issue Quantitative Finance)
14 pages, 507 KiB  
Article
Generalized Hyperbolic Distribution and Portfolio Efficiency in Energy and Stock Markets of BRIC Countries
by José Antonio Núñez-Mora and Eduardo Sánchez-Ruenes
Int. J. Financial Stud. 2020, 8(4), 66; https://doi.org/10.3390/ijfs8040066 - 28 Oct 2020
Cited by 2 | Viewed by 2710
Abstract
Oil, also called black gold, is considered as the commodity which has the greatest impact on the world’s economy, and it has been studied in terms of its relationship and effects on macroeconomic variables such as Gross Domestic Product (GDP), inflation, trade balance, [...] Read more.
Oil, also called black gold, is considered as the commodity which has the greatest impact on the world’s economy, and it has been studied in terms of its relationship and effects on macroeconomic variables such as Gross Domestic Product (GDP), inflation, trade balance, exchange rate and some others. Likewise, the relationship of oil with the financial market has been deepened and is very interesting in the case of emergent economies such as Brazil, Russia, India and China (BRIC) countries. There are many studies and approaches to this topic, but few of them focus on seeking investment opportunities through the diversification of these variables and therefore creating efficient portfolios using other distribution from the norm. This research proposes the construction of diversified portfolios with the returns of the indexes and oil mixes of the BRIC countries modeled under a Normal Inverse Gaussian (NIG) distribution, which is a notable member of the Generalized Hyperbolic (GH) family, and analyzing the effect on investment, by the inclusion of each variable into the portfolio. An important property of the GH family is that the correlations matrix of the returns is obtained from estimation of the parameters of empirical distribution through maximum likelihood. The results show in an optimal configuration, that each instrument of India, China and Brazil, contributes to the portfolio efficiency, in contrast to the index and oil mix of Russia, that do not contribute significantly. Full article
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28 pages, 570 KiB  
Article
Internal vs. External Corporate Social Responsibility at U.S. Banks
by Brian Bolton
Int. J. Financial Stud. 2020, 8(4), 65; https://doi.org/10.3390/ijfs8040065 - 23 Oct 2020
Cited by 7 | Viewed by 7567
Abstract
This study analyzes the effect that banks’ investments in corporate social responsibility (CSR) have on bank performance. I find that banks’ investments in CSR have a positive impact on financial performance, measured in terms of both accounting performance and stock market value. However, [...] Read more.
This study analyzes the effect that banks’ investments in corporate social responsibility (CSR) have on bank performance. I find that banks’ investments in CSR have a positive impact on financial performance, measured in terms of both accounting performance and stock market value. However, not all CSR investments are the same. I distinguish between internal CSR and external CSR. This distinction is based on which constituents are most directly affected by the CSR initiatives. Separating bank CSR activities into internally focused and externally focused ones provides evidence on how different constituents value bank CSR activities. I find that CSR-related value creation is primarily a result of banks’ external investments and not a result of their internal investments. I also consider how internal and external CSR activities influence bank risk. I find that banks with higher CSR scores are less risky. This is driven by their external CSR investments and not by their internal CSR investments. Banks with a larger gap between internal and external CSR investments have worse performance, lower valuations, and greater risk than banks with a more balanced distribution between internal and external CSR investments. Banks which are committed to long-term structural CSR investments that benefit a broad community of stakeholders are rewarded by the financial markets. Moreover, from a regulatory policy perspective, these same banks are less risky and less likely to contribute to systemic macroeconomic risk. Full article
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13 pages, 422 KiB  
Article
Compensations of Top Executives and M&A Behaviors: An Empirical Study of Listed Companies
by Jiao Xue, Heng Fan and Zhanxun Dong
Int. J. Financial Stud. 2020, 8(4), 64; https://doi.org/10.3390/ijfs8040064 - 23 Oct 2020
Cited by 1 | Viewed by 3162
Abstract
This study empirically examines the relationship between executive compensation and mergers and acquisitions (M&A) behaviors by identifying the influence of short- and long-term incentive on the propensity and scale of M&A. When the short-term incentive is insufficient, M&A behaviors serve as a beneficial [...] Read more.
This study empirically examines the relationship between executive compensation and mergers and acquisitions (M&A) behaviors by identifying the influence of short- and long-term incentive on the propensity and scale of M&A. When the short-term incentive is insufficient, M&A behaviors serve as a beneficial compensation mechanism. Thus, lack of executives’ incentive promotes the propensity to engage in M&A and significantly affects the scale of M&A. With regard to long-term incentives, M&A behaviors serve as a beneficial creation mechanism. Shareholding of executives promotes M&A propensity, and does not significantly affect the scale of M&A. This study significantly contributes to research in M&A behaviors by revealing the beneficial distribution mechanisms of M&A behaviors. Full article
(This article belongs to the Special Issue Advances in Behavioural Finance and Economics)
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24 pages, 644 KiB  
Article
Does Regulation Influence Microfinance Institutions to Be More Client-Responsive?
by Zakir Morshed, Mohshin Habib and Christine Jubb
Int. J. Financial Stud. 2020, 8(4), 63; https://doi.org/10.3390/ijfs8040063 - 20 Oct 2020
Cited by 4 | Viewed by 3435
Abstract
The regulation of microfinance services is likely to have a wide-ranging influence on the microfinance sector, particularly on institutions and their clients. This paper reveals the impact of a specific regulatory regime, the “Microcredit Regulatory Authority Act, 2006”, enacted by the Bangladesh government [...] Read more.
The regulation of microfinance services is likely to have a wide-ranging influence on the microfinance sector, particularly on institutions and their clients. This paper reveals the impact of a specific regulatory regime, the “Microcredit Regulatory Authority Act, 2006”, enacted by the Bangladesh government to monitor and supervise nonprofit nongovernment organizations (NGOs). We analyzed survey and interview data provided by clients of both nonprofit microfinance institutions (MFIs) registered under the Act and nonprofit institutions that are unregistered, all lending only to women. Client-level analysis using fixed effects for specific MFI membership is applied, focusing on the role of regulation by comparing protections as consumers of financial intermediations in terms of financial literacy, awareness, and status of clients of registered and unregistered MFIs. We found compelling evidence of a positive association between the financial status, financial literacy, and financial awareness of clients of registered MFIs, but not unregistered MFIs. These findings support the need for MFIs to implement consumer protection measures and inform their consumers about key issues to achieve improved client outcomes. Full article
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16 pages, 1458 KiB  
Article
A Quasi-Closed-Form Solution for the Valuation of American Put Options
by Cristina Viegas and José Azevedo-Pereira
Int. J. Financial Stud. 2020, 8(4), 62; https://doi.org/10.3390/ijfs8040062 - 16 Oct 2020
Cited by 1 | Viewed by 2689
Abstract
This study develops a quasi-closed-form solution for the valuation of an American put option and the critical price of the underlying asset. This is an important area of research both because of a large number of transactions for American put options on different [...] Read more.
This study develops a quasi-closed-form solution for the valuation of an American put option and the critical price of the underlying asset. This is an important area of research both because of a large number of transactions for American put options on different underlying assets (stocks, currencies, commodities, etc.) and because this type of evaluation plays a role in determining the value of other financial assets such as mortgages, convertible bonds or life insurance policies. The procedure used is commonly known as the method of lines, which is considered to be a formulation in which time is discrete rather than continuous. To improve the quality of the results obtained, the Richardson extrapolation is applied, which allows the convergence of the outputs to be accelerated to values close to reality. The model developed in this paper derives an explicit formula of the finite-maturity American put option. The results obtained, besides allowing us to quickly determine the option value and the critical price, enable the graphical representation—in two and three dimensions—of the option value as a function of the other components of the model. Full article
(This article belongs to the Special Issue Alternative Models and Methods in Financial Economics)
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10 pages, 264 KiB  
Article
Dealing with Carbon Risk and the Cost of Debt: Evidence from the European Market
by Fabio Pizzutilo, Massimo Mariani, Alessandra Caragnano and Marianna Zito
Int. J. Financial Stud. 2020, 8(4), 61; https://doi.org/10.3390/ijfs8040061 - 13 Oct 2020
Cited by 23 | Viewed by 4684
Abstract
The ever-increasing attention towards climate change has led to investigate the economic and financial impact of environmental risk. In this scenario, we aimed at investigating the relationship between a specific component of environmental risk, namely the so-called carbon risk, and the cost of [...] Read more.
The ever-increasing attention towards climate change has led to investigate the economic and financial impact of environmental risk. In this scenario, we aimed at investigating the relationship between a specific component of environmental risk, namely the so-called carbon risk, and the cost of debt. This research is motivated by the fact that few studies have focused on the aforementioned relationship. We fill this gap by using a sample of companies listed on the Eurostoxx 600 Index. Our results evidence a positive relationship between carbon risk and cost of debt, providing a relevant contribution to the scarce existing literature on this topic. Full article
(This article belongs to the Special Issue Socially Responsible Investments)
25 pages, 328 KiB  
Article
Do Analysts’ Cash Flow Forecasts Improve Firm Value?
by Hyun Min Oh, Sam Bock Park and Jong Hyun Kim
Int. J. Financial Stud. 2020, 8(4), 60; https://doi.org/10.3390/ijfs8040060 - 13 Oct 2020
Cited by 2 | Viewed by 3600
Abstract
We examine whether analysts’ cash flow forecasts improve firm value. First, we analyze whether the joint issuance of financial analysts’ earnings and cash flow forecasts improve firm value. Second, we analyze whether the quality of analysts’ cash flow forecasts improve firm value. The [...] Read more.
We examine whether analysts’ cash flow forecasts improve firm value. First, we analyze whether the joint issuance of financial analysts’ earnings and cash flow forecasts improve firm value. Second, we analyze whether the quality of analysts’ cash flow forecasts improve firm value. The empirical results of our study are as follows. First, the joint issuance of analysts’ earnings and cash flow forecasts has a significantly positive effect on firm value; providing cash flow forecasts reduces information asymmetry and increases earnings quality, thereby increasing corporate value. Second, the quality of analysts’ cash flow forecasts has a significantly positive effect on firm value; the more accurate cash flow forecasts are, the higher firm value is. Our study provides empirical evidence for that the conclusion that cash flow forecasting information produced by financial analysts provides useful information for capital market participants in economic decision making. Full article
15 pages, 1728 KiB  
Article
Candlestick—The Main Mistake of Economy Research in High Frequency Markets
by Michał Dominik Stasiak
Int. J. Financial Stud. 2020, 8(4), 59; https://doi.org/10.3390/ijfs8040059 - 10 Oct 2020
Cited by 3 | Viewed by 3231
Abstract
One of the key problems of researching the high-frequency financial markets is the proper data format. Application of the candlestick representation (or its derivatives such as daily prices, etc.), which is vastly used in economic research, can lead to faulty research results. Yet, [...] Read more.
One of the key problems of researching the high-frequency financial markets is the proper data format. Application of the candlestick representation (or its derivatives such as daily prices, etc.), which is vastly used in economic research, can lead to faulty research results. Yet, this fact is consistently ignored in most economic studies. The following article gives examples of possible consequences of using candlestick representation in modelling and statistical analysis of the financial markets. Emphasis should be placed on the problem of research results being detached from the investing practice, which makes most of the results inapplicable from the investor’s point of view. The article also presents the concept of a binary-temporal representation, which is an alternative to the candlestick representation. Using binary-temporal representation allows for more precise and credible research and for the results to be applied in investment practice. Full article
(This article belongs to the Special Issue Alternative Models and Methods in Financial Economics)
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