Department of Finance

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https://hdl.handle.net/11073/5827

Work by the faculty and students of the Department of Finance

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Market Efficiency of Floating Exchange Rate Systems: Some Evidence from Pacific-Asian Countries
(Elsevier, 2011) Al-Khazali, Osamah; Leduc, Guillaume; Pyun, Chong S.
This paper examines the random walk hypothesis (RWH) and the martingale difference hypothesis (MDH) for the Australian dollar and five Asian emerging currencies relative to three benchmark currencies. We use Wright’s (2000) non-parametric procedure to test the RWH and Kuan and Lee’s (2004) procedure to test the MDH. The results of Wright’s tests and Kuan and Lee’s test are adjusted for size distortion. The RWH is rejected for all currencies before and after the Asian crisis. The results of Kuan and Lee’s test are consistent with the fact that the RWH is more stringent than the MDH. For the three testing periods, the MDH fails to reject the AUD. For all other currencies the MDH is rejected at least for one benchmark over two periods, indicating that the market efficiency in these markets have not significantly improved under the floating rate systems following the Asian financial crisis.
A Market Efficiency Comparison of Islamic and Non-Islamic Stock Indices
(Taylor & Francis Online, 2015) Al-Khazali, Osamah; Leduc, Guillaume; Alsayed, Mohammad Saleh
This article examines the martingale difference hypothesis (MDH) and the random walk hypothesis (RWH) for nine conventional and nine Islamic stock indices: Asia-Pacific, Canadian, Developed Country, Emerging, European, Global, Japanese, UK, and United States. It investigates whether Islamic stock indices are more, less, or as efficient as their conventional counterparts. We test four sub-periods of bullish and bearish stock markets, together with the financial meltdown and its recovery, over the period 1997–2012. We use the Escanciano and Lobato’s (2009) automatic portmanteau test (AQ) and Deo’s (2000) test for the MDH. We also apply the automatic variance ratio test (AVR) developed by Choi (1999) and Kim (2009) for the RWH. Over the period from 1997 to 2012, we find that three conventional indices (Europe, Japan, and UK) are efficient, but that none of the Islamic indices are efficient in these markets. During the recent financial crisis, our results indicate slightly more efficiency for the Islamic indices than their conventional counterparts. Our study finds that overall the conventional indices are more efficient than their Islamic counterparts. Nevertheless, during periods of general downturns the Islamic indices have shown the same level of efficiency as their counterparts. Furthermore, it appears that during the last two sub-periods under study, the Islamic indices have moved toward efficiency, displaying the same level of efficiency as their counterparts.
Corruption, lending and bank performance
(American University of Sharjah, 2019-11-03) Abuzayed, Bana; Ammar, Mouldi Ben; Molyneux, Philip; Al-Fayoumi, Nedal
This paper uses a sample of 7235 banks from 160 countries between 2000 and 2016 to investigate the link between corruption, lending and bank performance. It considers both country- and bank-level corruption. The study finds that while corruption increases bank lending, it has an adverse impact on bank profits and risks (credit, solvency and distance to default). Corporate lending is found to be most influenced by corruption. Bank-level corruption influences bank performance in both developed and developing countries as whereas country-level corruption has a lesser effect on lending in developing countries. The study also finds that greater bank competition, market concentration and improved regulatory environments reduce the effect of corruption on bank lending and performance. Policy makers should focus on enhancing regulatory rules and institutions in order to deal with the adverse impact of corruption on bank performance.
Religiosity, neglected risk and asset returns: theory and evidence from Islamic finance industry
(American University of Sharjah, 2018-11) Azmat, Saad; Ali, Haiqa; Azad, A. S. M. Sohel; Hassan, M. Kabir
This paper studies the sociological influence of religion on the risk and return in the financial markets with particular context of Islamic finance, a rapidly emerging and expanding financial industry. The paper builds a theoretical model to show how intermediaries serve their customers’ religious needs by creating innovative Islamic financial instruments. The customer's emphasis on religiosity exposes the industry to a theological risk, which can increase the financial fragility of the system. In our model, the theological risk emerges as a neglected component, which can be realized in the event of a bad news challenging the religious legitimacy of (Islamic) finance structures. To corroborate our theoretical findings, we present two sets of results. First, using stock prices data for 104 Islamic bond (Sukuk) issuers, we show that Sukuk issuers experienced a significant decline in their stock prices, following multiple formal and informal announcements in 2008, which challenged the religious legitimacy of Islamic bond structures. Second, using data from 1360 newly issued Malaysian Sukuk from 2006 to 2016, we find that following the regulatory changes the Sukuk margins have increased significantly. This suggests that there may be a significant difference between what Islamic and conventional customers may be willing to pay for Sukuk, exposing the industry to a unique form of religious risk.
Governance and Short Sales
(American University of Sharjah, 2015) Dupuis, Daniel; Kryzanowski, Lawrence
This paper investigates the relationship between short sales and governance. We argue that short sales are reversely linked to the overall level of corporate governance of a firm and that sellers react contemporaneously to changes in such governance. Our results show that short traders may also be able to forecast or influence changes in corporate governance and adjust their portfolios accordingly prior to the said changes. This reaction is asymmetric, with a pronounced increase in short positions for actual and anticipated negative changes in governance and a more subdued repurchase of shorted stock for positive expectations. We provide empirical evidence consistent with the notion that short sellers are informed investors and can generate a profit from corporate events by using analytical prowess or manipulative practices such as the record-date capture technique.
Has the Financial Crisis had an Adverse Effect on Bank Competition?
(American University of Sharjah, 2015-01-25) Mirzaei, Ali; Moore, Tomoe
This article investigates whether the recent financial crisis has had any adverse impact on bank competition for 24 emerging and 25 advanced countries with large and small-size banks over the sample period 2001-2010. The H-statistic advocated by Panzar and Rosse (1987) is employed as the measure of competition. We find that the adverse effect of the financial crisis on bank competition seems to be trivial and on the contrary, competition is marginally boosted during the crisis period. This applies to both types of economies, irrespective of bank size. This suggests that currently ongoing policies to avert further crises in the banking sector have not exerted so great an adverse effect on competition. In the individual countries' study, the recent global financial crisis, however, led to a significant decline in competition in some countries.
The Effects of Analyst Forecast Properties on the Cost of Debt: International Evidence
(American University of Sharjah, 2014-01-02) Boubakri, Narjess; El Ghoul, Sadok; Guedhami, Omrane; Samet, Anis
This study investigates whether financial analysts play a governance role in international debt markets by examining the link between analyst forecast characteristics and the cost of debt financing. Using a sample of 2,686 bond issues from 35 non-U.S. countries, we find statistically and economically significant evidence that analyst activities lower bond yield spreads, after controlling for bond- and firm-level control variables as well as various country-level institutional factors. We also find that this relation holds in countries with weak and strong governance institutions, although the effects appear to be economically more important in the former. Overall, our non-U.S. findings extend the U.S. evidence in Mansi et al. (2011) that financial analysts play an important governance role as information intermediaries between firms and market participants.
International Diversification and Corporate Social Responsibility
(American University of Sharjah, 2013-11-07) Attig, Najah; Boubakri, Narjess; El Ghoul, Sadok; Guedhami, Omrane
Using a large sample of 3,040 U.S. firms and 16,606 firm-year observations over the 1991-2010 period, we find strong evidence that firm internationalization is positively related to the firm's corporate social responsibility (CSR) rating. This finding persists when we use alternative estimation methods, samples, and proxies for internationalization and when we address endogeneity concerns. Next, we find that firm characteristics such as size, profitability, growth opportunities, R&D, and advertising expenses condition the link between internationalization and CSR. We finally provide novel evidence that firms with extensive foreign subsidiaries in countries with well-functioning political and legal institutions have better CSR ratings.
Firm Growth and Political Institutions
(American University of Sharjah, 2013-11-06) Boubakri, Narjess; El Ghoul, Sadok; Saffar, Walid
Using a large sample of 115,534 firm-year observations from 46 countries over the period 1992 to 2007, we investigate the impact of political institutions on firms' growth. We find that high levels of political constraint spur firms' growth and that this positive impact is more pronounced in poor legal environments. Our results are economically significant and are robust to alternative measures of firms' growth, various proxies for political institutions, additional controls, alternative periods, and firm-level and country level regressions. Our findings have broad implications for governments and policymakers. Specifically, our results suggest that reforms aimed at improving political institutions in the country can significantly impact firms' growth and expansion. The weak impact of legal institutions on firms' growth when political constraints are at high levels suggests that it is indeed through improved political institutions that incentives to grow are channeled to firms.
Investors' Payout-form Preference and Taxes
(American University of Sharjah, 2013-06-05) Chazi, Abdelaziz; Theodossioub, Alexandra; Zantout, Zaher
We find the form of U.S. corporate cash payout to shareholders often relevant to share price and in different directions at different times. Regularly cash-dividend paying firms have a significant share price premium compared to regularly stock-repurchasing firms in the early 1970s, but this premium exhibits a significant general negative trend and turns into a discount in the mid-to-late 2000s. Also, the premium (discount) is significantly related to the time-series changes in the differential tax burden on dividends and long-term capital gains. It is not related to the excess market return.

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