bluuebunny/crossref_metadata_2025 huggingface dataset:
Impact of earnings management on value‐relevance of accounting information: empirical evidence from Japan
Authors: Habib Ahsan
Published: June 2007

This paper investigates the impact of earnings management on value relevance of accounting information in the context of Japan. Researchers carrying out earnings management research usually rely on the Jones (1991) or the modified Jones model (1995) to disaggregate accruals into its discretionary and non‐discretionary components. However, because of criticisms leveled against extant models of discretionary accruals, this study instead uses earnings management measures constructed by Leuz et al. (2001) and Bhattacharya et al. (2001) and examines the relationship between these measures and their impact on the value‐relevance of accounting information. The latter is operationalized by the explanatory power of book values and earnings (combined model) and earnings alone (earnings model) for stock price. Results based on 5,318 consolidated firm‐year observations over 1992‐1999 show that, both earnings management measures and aggregate earnings management measures (combination of both earnings smoothing and earnings management measures) are significantly negatively associated with the combined value relevance of book values of equity and earnings (combined model) and value relevance of earnings (earnings model).
Quality of earnings inferred from the profitability of EP trading rules
Authors: Kang Tony
Published: June 2007

In this study, we rely on the profitability of EP (earnings‐to‐price ratio) trading rules to infer the quality of earnings. Under the extrapolation hypothesis (Lakonishok, Shleifer, and Vishney 1994), the profitability of an EP trading rule that is based on higher quality earnings (i.e., earnings that are more representative of the fundamental profit generating power of the firm), should have higher return predictability. Among the four specifications of the EP ratio examined, i.e., the conventional earnings‐to‐price, core earnings‐to‐price, gross margin‐to‐price, and ex‐ante earnings‐to‐price, we find that core earnings‐to‐price and gross margin‐to‐price significantly outperform the other two in predicting returns. This result suggests that investors view the earnings components that reflect the fundamental operation of the firm, such as sales, to be of higher quality than the rest. Further, the evidence indicates that an EP trading rule based on gross margin‐to‐price generates an abnormal return not fully explained by the market, size, and book‐to‐market.
Seasonality and regime switching in equity markets: evidence from the US and UK
Authors: Cochran Steven J.
Published: June 2007

This study investigates whether cyclical turning points in the U.S. and U.K. stock markets are unevenly distributed over the year, that is, whether they are more likely to occur during certain months of the year. In examining this form of periodic seasonality, a Markov switching‐model is applied to U.S. and U.K. stock market chronologies of monthly peak and trough dates for the periods May 1835 through March 2000 and May 1836 through September 2000, respectively. In order to provide some evidence on robustness with respect to the sample data, results are obtained for the entire sample periods as well as for various sub‐. For both markets, the evidence indicates that while the probability of moving from an expansion to a contraction does not depend on the month of the year, the probability of switching from a contraction is greater for some months. Additionally, the durations of contractions, but not expansions, are dependent on the month of the year in which they begin.
The mechanics behind investment funds: why closed‐end funds provide superior returns
Authors: Glenn Brian J. , Patrick Thomas
Published: June 2007

This study examines the performance of both open‐ended and closed‐end mutual funds – as fixed income securities and vehicles for capital gains. A determination will be made of which categories one group was able to outperform the other and to recognize why a group performs better or worse over time.
Have banking and financial reforms in transition countries been effective?
Authors: Ping‐Ngoh Foo Jennifer
Published: June 2007

The transition countries have been pursuing a market economy since the early 1990s. Crucial reforms in the banking and financial sectors are necessary to provide a financial structure that supports a market economy, particularly the private and enterprise sector, leading to economic growth. This paper examines the banking and financial development in the transition countries. Arguments for banking reforms are made and the conditions for an efficient banking system are examined. A comparison in the progress of banking reforms and economic growth provides useful lessons not only for the transition countries but for developing and other emerging countries. Lastly, policy choices are suggested for the transition countries.
Competition, liberalization and efficiency: evidence from a two‐stage banking model on banks in Hong Kong and Singapore
Authors: Lim Guan H. , Randhawa Dipinder S.
Published: June 2007

Hong Kong and Singapore are economically similar and rival international financial centers. Banks in both Hong Kong and Singapore operate in very similar environments: internationally oriented with protected domestic banking market and firm regulators. With liberalization under the Financial Services Accord of the World Trade Organization (WTO), comes more competition and the growing importance for banks to ensure that they are X‐efficient so as to compete successfully or risk being marginalized. This paper uses data envelopment analysis (DEA) to assess X‐efficiency of banks in Hong Kong and Singapore via a two‐stage (combining both the intermediation and production stages) banking model. Changes in X‐efficiency over time are computed to determine if policy initiatives have facilitated improvements in efficiency. Our results on X‐efficiency of banks demarcated by size and ownership provide valuable insights into the issues of scale economies and the impact of family ownership on X‐efficiency.
Supporting the paradigm shift in vendor selection: multicriteria methods for sole‐sourcing
Authors: Seydel John
Published: June 2007

Procurement is an increasingly important activity within most firms, and severe financial and operational consequences can result from the failure to optimize the procurement function. The multiple criteria, including the financial significance, involved in the selection of a sole‐source vendor are addressed here. Two multicriteria approaches to decision support for vendor selection are presented and are demonstrated through an example. One approach, the simple multiattribute rating technique, is relatively widely used in selection problems. The other approach, data envelopment analysis, is rarely used in such problems but serves as a very acceptable alternative for supporting the vendor selection decision. The results from these two approaches are compared to those based upon a pure aggregation and averaging procedure. For the example being considered, both multicriteria approaches provide similar results, which differ considerably from those for pure aggregation. In addition, the short‐term financial implications are examined so as to underscore the commitment needed by management if non‐cost criteria are to be incorporated into vendor selection.
Systems dynamics model of a transition firm
Authors: Olson David L. , Dimitrova‐Davidova Paraskeva , Stoykov Ivan
Published: June 2007

Eastern European countries are undergoing a transition from centralized economic planning to more open economic systems. A team of Bulgarian and U.S. researchers have collaborated to study this problem, using a real Bulgarian winery as the focus of their research. System dynamics modeling was selected as a tool to provide better understanding of management issues. A framework for future objective research, and as a pedagogical tool. This system dynamics model generates output on a number of measures. This paper presents initial output from the model, reporting profit ability, risk, and market share measures. These multiple measures create the need for multiple criteria analysis. Three multiple criteria techniques are demonstrated, and their value in the system dynamics simulation modeling process is discussed.
Trustworthiness of investment manager
Authors: Wintoro Djoko
Published: June 2007

The relationship between trustees of pension funds and investment managers has been well recognised in invest mentmanagement practice but studies of trust relationship between them are few. This study explores trustworthiness of investment managers as an important factor for trustees in building and developing trust relationship with the investment managers. Case study research method is used togather and analyse data collected from indepth interviews with the trustees. The major research findings of this study shows that (1) trust is an important factor in the relationship between trustees of pension funds and investment managers; and (2) the key factors of trust worthiness of investment managers are
determined by their ability, benevolence, integrity, and openness in communication.
Efficiency of the New York independent system operator market for transmission congestion contracts
Authors: Siddiqui Afzal S. , Bartholomew Emily S. , Marnay Chris , Oren Shmuel S.
Published: June 2007

The physical nature of electricity generation and delivery creates special problems for the design of efficient markets, notably the need to manage delivery in real time and the volatile congestion and associated costs that result. Proposals for the operation of the deregulated electricity industry tend towards one of two paradigms: centralized and decentralized. Transmission congestion management can be implemented in the more centralized point‐to‐point approach, as in New York state, where derivative transmission congestion contracts (TCCs) are traded, or in the more decentralized flowgate‐based approach. While it is widely accepted that theoretically TCCs have attractive properties as hedging instruments against congestion cost uncertainty, whether efficient markets for them can be established in practice has been questioned. Based on an empirical analysis of publicly available data from years 2000 and 2001, it appears that New York TCCs provided market participants with a potentially effective hedge against volatile congestion rents. However, the prices paid for TCCs systematically diverged from the resulting congestion rents for distant locations and at high prices. The price paid for the hedge not being in line with the congestion rents, i.e., unreasonably high risk premiums are being paid, suggests an inefficient market. The low liquidity of TCC markets and the deviation of TCC feasibility requirements from actual energy flows are possible explanations.
Alternative approaches to weather derivatives pricing
Authors: Geman Hélyette , Leonardi Marie‐Pascale
Published: June 2007

The goal of the paper is to analyse the various issues attached to the valuation of weather derivatives. We focus our study on temperature‐related contracts since they are the most widely traded at this point and try to address the following questions: (i) should the quantity underlying the swaps or options contracts be defined as the temperature, degree‐days or cumulative degree‐days? This discussion is conducted both in terms of the robustness of the statistical modelling of the state variable and the mathematical valuation of the option (European versus Asian). (ii) What pricing approaches can tackle the market incompleteness generated by a non‐tradable underlying when furthermore the market price of risk is hard to identify in other traded instruments and unlikely to be zero? We illustrate our study on a database of temperatures registered at Paris Le Bourget and compare the calls and puts prices obtained using the different methods most widely used in weather markets.
Valuation of investment and opportunity‐to‐ invest in power generation assets with spikes in electricity price
Authors: Deng Shi‐Jie
Published: June 2007

We address the problem of valuing electricity generation capacity and the opportunities to invest in power generation assets in the deregulated electric power industry. The spark spread option‐based valuation framework is extended to take into consideration the electricity price spikes. This framework provides a valuable tool for merchant power plant owners to perform hedging and risk management. With jumps in the value process of power generation capacity, we demonstrate how to determine the value of an opportunity to invest in acquiring the generation capacity and the threshold value above which a firm should invest. We illustrate the implications of price spikes on the value of electricity generating capacity and the investment timing decisions on when to invest in such capacity.
On the valuation and incentive effects of executive cash bonus contracts
Authors: Martellini Lionel , Urošević Branko
Published: June 2007

Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex‐ante, i.e., before uncertain ties are resolved, cash bonuses are valued ex‐post, i.e., by discounting the realized cash grants. Such a lack of consistency can, potentially, distort empirical results. A related, yet mostly overlooked, problem is that when ex‐post valuation is used pay‐performance measures cannot be well defined. Consistent use of ex‐ante valuation for all components of a compensation package would simultaneously resolve both of these problems and provide a natural framework for the analysis of agency problems. In this paper, we perform ex‐ante valuation of cash bonus contracts as if the executive’s performance were measured by the company stock price, demonstrate how the shape of the bonus contract influences the executive’s attitude toward risk, and study the pay‐performance sensitiv ty of such contracts. We commence by demonstrating that a typical executive bonus contract with a linear incentive zone has a pay off structure equivalent to a portfolio of standard and binary European call options so that the ex‐ante contract value is given by the linear combination of Black and Scholes call and binary call prices, with the strike prices at the boundary points of the incentive zone. Assuming that a risk neutral executive can choose the level of stock price volatility by selecting a set of projects at origination, we show that bonus contract terms can dramatically affect the executive’s risk taking behavior and pay performance incentives. Our results are extended to bonus contracts with non‐linear incentive zones, and performance share contracts with vesting risk.
Executive valuation of simple compensation packages: the interaction of risk aversion, leverage and volatility
Authors: Heaney Richard
Published: June 2007

This paper analyses the value to a poorly diversified risk‐averse executive of a compensation package consisting of a risk free asset, restricted stock and stock options. The Lambert, Larcker and Verrecchia (1991) model is extended to include leverage and this facilitates comparison of cost to the firm and benefits to the executive of restricted stock and stock options. It also provides insight into the impact of executive risk aversion, firm leverage and underlying as set volatility on the value of a compensation package in the hands of the executive.
“Doing Well While Doing Good” Revisited: A Study of Socially Responsible Firms' Short‐Term versus Long‐term Performance
Authors: Shank Todd , Manullang Daryl , Hill Ron
Published: June 2007

This article reexamines the “doing well while doing good” debate within the financial management literature, using comparisons among socially responsible mutual funds (SRMF(, the NYSE Composite Index, and a portfolio made up of firms most valued by SRMF managers )MostSRF(. The performance of MostSRF did no better or no worse than the over all market or SRMF in three to five year comparisons. However, results from the ten‐year performance comparison refute earlier studies and indicate that the market prices social responsibility characteristics in the long run. Given MostSRF out performed the other two indices in this time line, a new paradigm for understanding the impact of SRI is revealed.
“You are the guardians”
Authors: Levitt Arthur
Published: June 2007

On March 10th, 2000, NASDAQ was at 5,048. Today March 2003 it’s a little over 1,200. Three years ago the dot‐com bubble had not entirely burst. Accounting firms bragged in advertisements about their aggressive consulting services, as their lobbyists fought ferociously to preserve their ability to offer those services. Now they are funding full page ads, like the recent one from Pricewaterhouse Coopers, declaring that Corporate America has entered a new era of transparency. Hot shot analysts were doling out millions in initial public offerings. Corporate governance was a topic best left to academics. Foreign policy ranked almost dead last on a list of America’s top concerns. Enron was trading in the neighborhood of $80 per share. And for the previous five years, for tune magazine had touted the company as the most innovative in America. Little did we know that its most noteworthy innovations were not being done in their business, but in their books. . .
The Enron fallout: Was Enron an accounting failure?
Authors: Baker C. Richard , Hayes Rick
Published: June 2007

This paper traces the development of Enron Corp. from a regulated natural gas distribution company to a worldwide energy trading company to its ultimate demise in bankruptcy in December 2001. The paper examines whether Enron should be viewed as an accounting failure, with investors and creditors being severely misled by false financial statements, or whether it was a business failure that was obscured by accounting practices that strained the limits of credibility. It is the contention of this paper that astute financial analysis would have revealed the instability of the Enron business model, thereby alerting investors and creditors to the lack of credit worthiness of the company. At the same time, the paper argues that had there been an appropriate level of transparency in the financial statements, investors and creditors would have been provided with a more realistic view of the company’s financial position and its results of operations, thereby facilitating their ability to assess the viability of the company and avoid their bankruptcy losses.
Independent financial experts: From wished for to wistful thinking
Authors: Burrowes Ashley , Hendricks Ann
Published: June 2007

The aftermath of the Enron collapse included Congressional legislation known as the Sarbanes‐Oxley Act (SOX), which was rushed into law on July 29, 2002, by President Bush. This legislation, aimed at restoring confidence in the financial markets, addresses many aspects of corporate governance. This article addresses the audit committee provisions of SOX, particularly the requirements for independent membership and financial expertise. The article outlines the legislative requirements and then discusses the possible effects of this ‘patch‐up’. Is it too little too late and how long will the patch last?
A theory of interest rate swap overhedging
Authors: Hwang Angela L.J. , Jensen Robert E.
Published: June 2007

This paper explains the concepts of underhedging and overhedging in interest rate swaps and demonstrates how overhedged and underhedged swaps might be accounted for under Statement of Financial Accounting Standards No. 133 (FAS 133) and international Accounting Standard No. 39. To illustrate, we use an interest rate swap with receive‐fixed, pay‐fixed swap leg foreign currency to explain the un derlying differences between overhedging and underhedging on foreign exchange risk. We further clarify that when both legs of an interest rate swap are specified with the same currency as in the situation of FAS 133 ‐ Example 5 beginning in Paragraph 131, accounting for overhedging or underhedging will be no different because there is no foreign exchange overhedging or underhedging risk that impacts swap valuation.
Multinational Cash Management in Europe Towards Centralisation and Disintermediation: The Philips Case
Authors: Wester man Wim , von Eije Henk
Published: June 2007

Liberalisation and deregulation of financial markets, lower currency volatility and the introduction of the euro have reduced transaction and bankruptcy costs for multinationals in Europe. Internal European transfers of cash have become easier and cheaper. This has enabled the centralisation of cash management activities. The centralisation at headquarters of multinational enterprises has also opened the road to financial disintermediation. These trends may have helped to create conglomerate benefits in Europe. The case of the cash management at the Netherlands‐based Royal Philips Electronics is used to illustrate these tendencies.
Cost Efficiency, Environmental Influences and UK Credit Unions, 1991 to 2001
Authors: McKillop Donal G. , Colin Glass J. , Ward Ann‐Marie
Published: June 2007

This study uses a stochastic frontier analysis to evaluate the relative performance of UK credit unions over the period 1991 to 2001. The analysis found that UK credit unions are subject to high levels of (gross) in efficiency. The analysis also revealed that the environment within which individual credit unions operate plays a critical role in the relative efficiency of credit unions. In terms of direction of influence, the analysis of environmental effects highlighted (main in sights) that larger credit unions are more cost efficient as are credit unions which do not draw their membership exclusively from areas of high deprivation. These directional influences were viewed as offering some encouragement to the thrust of the Financial Services Authority’s new policy regime for credit unions which may well result in a smaller number of larger credit unions each with a more varied membership mix.
Long‐Term Interdependence between Hedge Fund Strategy and Stock Market Indices
Authors: Füss Roland , Herrmann Frank
Published: June 2007

This study presents an investigation of the long and short‐term co‐movements between different hedge fund strategy indices and the stock markets of France, Germany, Japan, North America and the UK. To analyse relationships among these price indices, the EngleGranger methodology, based on bivariate testing for cointegration, and correlation analysis are conducted. The question of long‐term dependence instead of short‐term consideration is of particular interest, because portfolio optimization is based upon the cointegration of prices, rather than the correlation of returns. However, as is generally known, there is an information loss when returns are used instead of prices. Results indicate that there exists no station ary, long‐term relationship between the two as set groups. The overall suggestion is that opportunities exist to diversify an international portfolio by taking hedge funds into account. Moreover, this applies not only in terms of a limited time period, but also in the long‐run. Besides this main result, the augmented Dickey‐Fuller test statistics for cointegration residuals show quite different behaviour in comparison to the correlation co efficients. The values of the test statistics show that there seems to be a weaker tendency towards long‐term interrelation between hedge fund strategies and the US stock market. This applies even though average correlation co efficients among these assets exceed those of other combinations between stock and hedge fund indices.
The Cross‐Section of Expected Stock Returns: An Empirical Study in the Athens Stock Exchange
Authors: Theriou Nikolaos G. , Maditinos Dimitrios I. , Chadzoglou Prodromos , Anggelidis Vassilios
Published: June 2007

This paper explores the ability of the capital asset pricing model, as well as the firm specific factors, to explain the cross‐sectional relationship between average stock returns and risk in Athens Stock Exchange (ASE). The objective of this study is to investigate the cross‐section of stock returns in the Greek stock market for the period from July 1993 to June 2001. A methodology similar to that of Fama and French (1992) is employed, by taking into account the constraints imposed by a smaller sample both in time and in terms of number of stocks. Our findings indicate that in the Greek stock market there is not a positive relation between risk, measured by β, and average returns. On the other hand, there is a “size effect” on the cross‐sectional variation in average stock returns.
Over‐optimism when pricing IPOs
Authors: Paleari Stefano , Vismara Silvio
Published: June 2007

Purpose

The purpose of this paper is to contribute to the literature on the valuation of initial public offerings (IPOs). In particular, it tests the presence of over‐optimism when pricing IPOs on the Italian Nuovo Mercato.

Design/methodology/approach

The paper investigates whether the analysts make systematic errors when forecasting the performance of the firm undergoing the IPO by comparing analysts’ ex‐ante expectations to actual ex‐post figures. Using a sample of pre‐IPO analysts’ reports, the paper performs a regression analysis using the forecast errors (FE) of post‐issue sales as dependent variable in order to find out the determinants of mis‐valuation.

Findings

It is found that the Nuovo Mercato has been essentially a “market for projects” in which young enterprises endowed with a few tangible assets sold their business plans to the market exploiting high‐growth opportunities. In the aftermarket, stock and operating performances are found to be declining, falling short of initial expectations. The extent of the actual post‐issue growth was lower than the ex‐ante estimations by financial analysts, whose valuations were systematically upwardly biased. Affiliated analysts are found not to be more over‐optimistic than the unaffiliated. FE appear to be primarily driven by the extent of forecasted growth, by market sentiment and (inversely) by the size of the firm.

Originality/value

From the perspective of investors, this study contributes to the understanding of the helpfulness and limits of the analysts’ forecasts in investment decisions and, more generally, of the determinants of over‐optimism. This study addresses the issue of over‐optimism and provides empirical evidence of it. This paper also contributes to the literature on the rise and fall of the new European stock markets.
The long‐run performance of UK IPOs: can it be predicted?
Authors: Goergen Marc , Khurshed Arif , Mudambi Ram
Published: June 2007

Purpose

The aim of the paper is to study the long‐run under‐performance of UK initial public offerings (IPOs) by relating it to the pre‐IPO financial performance of the firm as well as the managerial decisions taken before the IPO.

Design/methodology/approach

The three‐year share returns of UK IPOs is studied using various methodologies such as buy and hold returns, cumulative abnormal returns and Fama and French three‐factor returns.

Findings

It was found that the percentage of equity issued and the degree of multinationality of a firm are the key predictors of its performance after the IPO. It is also found that small firms behave differently from large firms and suffer from worse long‐run performance than large firms.

Research limitations/implications

There is a great need for future research to focus on ownership structure and long‐run returns. Further, a focus on the level of debt and venture capital financing in the pre‐IPO period may also uncover important relationships with the long‐run performance of a firm.

Practical implications

The results obtained from this study provide important information for the prospective long term investors in new issues. While pre‐IPO performance of a firm cannot predict the post‐IPO performance with certainty, nevertheless the results of this study suggest that long‐term investors should show caution while deciding on long term investment in IPO firms.

Originality/value

The paper explains the post‐IPO underperformance of firms by relating it to the pre‐IPO managerial decisions made in the firm. It also documents the role of multinationality in explaining long run underperformance.
Oil prices and stock markets in GCC countries: new evidence from nonlinear cointegration analysis
Authors: Maghyereh Aktham , Al‐Kandari Ahmad
Published: June 2007

Purpose

The purpose of this research is to examine the linkages between oil prices and stock market in Gulf Cooperation Council (GCC) countries. Prior work argues that oil prices and the GCC stock markets are not related. This conclusion could be due to the fact that only linear linkages have been examined.

Design/methodology/approach

This study employs newly developed techniques of rank tests of nonlinear cointegration analysis proposed by Breitung and Gourieroux and Breitung. The Breitung's method is selected in this study due its potential superiority at detecting cointegration when the error‐correction mechanism is nonlinear.

Findings

The empirical analysis of the paper supports that oil price impact the stock price indices in GCC countries in a nonlinear fashion. Thus, the statistical analysis in this paper obviously supports a nonlinear modeling of the relationship between oil and the economy.

Research limitations/implications

The paper contains the normal limitations associated with the econometric method including statistical bias.

Practical implications

The implication of this paper findings is that policy makers at GCC countries should keep an eye on the effects of changes in oil price levels on their own economies and stock markets. For individual and institutional investors, the nonlinear relationship between oil and stock markets imply predictability in the GCC stock markets.

Originality/value

The paper presents new findings on the relationships between oil prices and the stock market in GCC countries. These findings should be of interest to researchers, regulators, and market participants.
The determinants of stock market development in the Middle‐Eastern and North African region
Authors: Ben Naceur Samy , Ghazouani Samir , Omran Mohamed
Published: June 2007

Purpose

The purpose of this study is to investigate the role of stock markets in economic growth and to shed some light on the macroeconomic determinants which must have an important influence on stock markets development.

Design/methodology/approach

The empirical study is conducted using an unbalanced panel data from 12 Middle Eastern and North African (MENA) region countries. Econometric issues are based on estimation of some fixed and random effects specifications.

Findings

It is found that saving rate, financial intermediary, stock market liquidity and the stabilization variable are the important determinants of stock market development. In addition, it is found that financial intermediaries and stock markets are complements rather than substitutes in the growth process.

Practical implications

This paper has some policy implications to MENA region countries. In order to promote stock market development in the region, it is important to encourage savings by appropriate incentives, to improve stock market liquidity, to develop financial intermediaries and to control inflation.

Originality/value

Since it is unclear whether emerging markets in the MENA region respond, similarly, to economic and political shocks like other emerging markets and/or developed markets. This paper fills this gap by making an in‐depth analysis of 12 MENA capital markets in order to assess how they can improve their capital markets, and hence, benefit the global investor.
Market efficiency, time‐varying volatility and the asymmetric effect in Amman stock exchange
Authors: Al‐Zoubi Haitham , Bashir Bashir
Published: June 2007

Purpose

The purpose of this paper is to empirically examine the market efficiency, asymmetric effect and time varying risk–return relationship for daily stock return of Amman Stock Exchange (ASE).

Design/methodology/approach

The Box–Jenkins selection model is used to determine the stochastic process of equity returns; the exponential generalized autogressive conditional heteroscedesticity (EGARCH) and threshhold autoregressive conditional heteroscedasticity in mean are utilized to measure the persistent of volatility, risk–return relationship and volatility magnitude to bad and good news.

Findings

The univariate statistics show negative skewness, excess kurtosis and deviation from normality for the ASE index. The results show that stock return follows an ARMA (1, 1) stochastic process with significant serial correlation, implying stock market inefficiency. The results also show significant positive relationship between equity return and risk in the ASE, which is consistent with the portfolio theory. The EGARCH model suggests the existence of the asymmetric effect.

Originality/value

The paper offers insights into market efficiency, time‐varying volatility and asymmetric effect in the ASE.
Empirical testing of the loss provisions of banks in the GCC region
Authors: Zoubi Taisier A. , Al‐Khazali Osamah
Published: June 2007

Purpose

The purpose of this study is to examine the factors which affect loss provision for loans and investment in Murabaha, Musharka, and Mudarabah for banks in the Gulf Cooperation Council (GCC) region. The effect of prior period earnings, legal and statutory reserves, size of the bank, level of debt, and loan and investment to deposit ratio on the loss provisions of banks are examined for the period 2000‐2003.

Design/methodology/approach

To test the factors that explain the loan loss provision and to test the income smoothing hypothesis, debt to equity hypothesis, and reserve hypothesis, a single stage regression model was developed and tested.

Findings

The results indicate that when return on assets (ROA) before tax and loss provisions for the current year is higher than the prior year ROA and the actual capital reserve is below the legal required reserve, then management is expected to increase loss provisions for the current year. This result is robust for all the years of this study.

Originality/value

While prior research has examined the issue of the loan loss provision in USA, Japan, and Europe, no research has examined the issue of the loss provisions in the GCC region. This study demonstrates that the income smoothing hypothesis is relevant across different regulatory requirements, economic conditions, and different accounting standards. Managers of banks in the GCC region use the loss provision, among other things, to smooth earnings to achieve certain objectives.
On the need and opportunities for improving costing and cost management in healthcare organizations
Authors: Capettini Robert , Chow Chee W. , McNamee Alan H.
Published: June 2007

Explains how activity‐based costing (ABC) can be applied to hospitals and outlines some previous research on its use and benefits. Reports a survey of US health administrators to establish their view of the cost hierarchy and uses the information in a numerical example based on a radiology department to demonstrate the differences between using traditional costing methods and allocations based on the cost hierarchies. Shows that many survey respondents were dissatisfied with their traditional costing systems and argues that the use of ABC could not only improve pricing and product mix decisions but could also enhance profitability by facilitating the management of activities and elimination of waste at all levels of the cost hierarchy, i.e. continuous improvement of processes.
Cost management system: an operational overview
Authors: Agrawal Surendra P. , Mehra Satish , Siegel Philip H.
Published: June 2007

Defines cost management as “a set of techniques and methods for controlling and improving a company’s activities and processes, its products and services” to achieve continuous improvement and deal with global competition; with commitment from top management and worker involvement. Offers a model of a “self‐perpetuating system of improvement” to continuously improve value added and decrease non‐value added activities, using activity‐based costing to develop the information needed for activity‐based management, just‐in‐time, total quality management and process improvement. Explains these techniques, referring to research, and discusses the necessary conditions for top management commitment and worker involvement. A useful summary of the interaction of many modern management accounting tools
Dual office holding, corporate governance and takeover gains
Authors: Duggal Rakesh , Cudd Mike
Published: June 2007

Outlines various criticisms of the corporate practice of having the same individual as chief executive officer and chairman of the board but recognizes that it may also have some benefits. Uses data from a sample of US firms bidding in takeovers from 1985‐1990 to explore the relationship between takeover gains and the existence of dual office holding, insider ownership and the proportion of independent directors. Finds that dual office holding does not reduce the bidders’ wealth, possibly because it is often associated with a high proportion of independent directors who are likely to control the dual office holder in the interests of shareholders.
The effects of management control mechanisms on firm level capital equipment investment
Authors: Yates Barbara M. , Tinius David E.
Published: June 2007

Discusses previous research on the disincentive effects of some management performance measures on capital investment and the relationship between agency mechanisms (responsibility centre performance measures, tax incentives, compensation schemes and ownership influence) and investment behaviour. Uses a sample of US manufacturing firms in two industries to examine their investment behaviour from 1973‐1982 and relate it to the agency mechanisms applying to the investment decision makers. Finds the use of profit and net return on investment as management performance measures has a significant negative correlation with the investment; but that ownership influence and long‐term incentive compensation are positively related to it. Recognizes the limitations of the study and considers its implications for the use of performance measures, long‐term incentives and tax incentives.
Stock return volatility in an emerging market: a case study of the Karachi Stock Exchange
Authors: Uppal Jamshed Y.
Published: June 2007

Reports concerns that the lifting of restrictions on portfolio investment by foreigners would lead to overheating or excessive volatility in the capital markets of developing countries. Describes the abrupt lifting of restrictions on the Karachi Stock Exchange in Pakistan, given six notable developments in 1991. Examines the homogeneity of variance on weekly returns on the market index from 1988 to 1993 (over the period of liberalization). Finds that stock market volatility will reflect economic variables in the long run, while the market is shown to be information‐efficient.
The usefulness of the value‐added statement in South Africa
Authors: van Staden C.J.
Published: June 2007

Notes the lack of research on value added statements (VASs) from the users’ perspective and their increased publication by South African listed companies. Reports a survey of representatives of all financial statement user groups in South Africa to assess their use of VASs, their problems, possible future uses and the information needs/decisions being affected. Compares past and present use of VASs, discusses their shortcomings and shows how usage might increase if these were overcome. Summarizes reasons for the low usage of VASs and concludes that they should not be published in South Africa any more.
A social security reform proposal
Authors: Saunders William , Haley Joseph D.
Published: June 2007

Identifies three “pillars” of US retirement benefits policy (savings, redistribution and insurance) and outlines the legislative development of private pensions since the 1920s. Supports reform of the social security system and proposes that employee contributions should be held in privately managed, government qualified accounts while employer contributions should continue to be used by the federal government to help low earners. Calculates the final values arising from three different levels of contribution for buying a qualified minimum benefit retirement annuity. Discusses some features of this idea in greater detail, shows how it relates to the three “pillars” and believes it could reduce the burden of social security on employers.
A current look at the debate: whole life insurance versus buy term and invest the difference
Authors: Carney Robert J. , Graham Lise
Published: June 2007

Notes increasing US support for the BTID insurance strategy, i.e. buy low cost term life insurance and invest the difference between the cost of this and of whole life insurance. Points out some other investment possibilities and compares the terminal and interim wealth accumulation potential of five different insurance/saving combinations for both sexes at five ages, taking tax into account. Discusses ease of access to savings, taxation of death proceeds and restrictions on creditor rights to distribution for various types of insurance/savings and considers the implications. Draws some conclusions about the best investment performance but stresses that investment choice also depends on individual factors, e.g. tax bracket, risk, tolerance and investment knowledge.
Knowledge and the firm
Authors: Bauer Richard J. , Dahlquist Julie R.
Published: June 2007

Discusses research ideas on the distinctions between data, information and knowledge, the categories of knowledge and knowledge‐processing activities in Holsapple and Whinston’s (HW’s) taxonomy (1987, 1988a, 1988b), and their application to markets and the activities of the firm. Describes a manufacturing firm’s inputs, production processes and outputs in terms of HW’s taxonomy, pointing out that management must filter the information surrounding the firm to turn it into knowledge of various types, e.g. descriptive, derived, assimilative etc. Considers the role of information for customers of and investors in the firm; and the relationship between knowledge and efficiency. Identifies three types of knowledge workers (builders, stewards and appliers) and calls for further research on the taxonomy of knowledge and standards of knowledge within the finance discipline.
Big players and the Russian rouble: explaining volatility dynamics
Authors: Paul Broussard John , Koppl Roger
Published: June 2007

Outlines previous research attempts to explain the behaviour of second moments of price and return distributions and theories of how Big Players (i.e. those with enough discretionary power to influence the market but little sensitivity to profit/loss consequences) affect the volatility and informational efficiency of markets. Contrasts the 1883‐1892 fluctuations in the exchange value of the Russian rouble under interventionist (i.e. big player) and non‐interventionist finance ministers; and analyses the statistics using GARCH techniques. Shows that under the Big Player, both unconditional variance and the persistence of conditional volatility increased. Suggests that policy regimes affect the degree of noise‐trader influence and calls for further research.
Performance measurement, budgeting and strategic implementation in the multinational enterprise
Authors: Barsky Noah P. , Bremser Wayne G.
Published: June 2007

Considers the implications for budgeting and performance measurement of the emphasis on strategic management of human and information resources to obtain global competitive advantage. Summarizes relevant research, noting increasing use of economic value added, non‐financial measures and the balanced scorecard; and explaining Simons’ (1995) “levers of control” framework. Illustrates how this can be applied to the budgeting process, stressing the importance of interactive control systems which capture an integrated set of critical performance measures, and uses Skandia (insurance, Sweden) as an example. Lists the ten non‐financial performance metrics identified by Ernst & Young (1997) as important to investors and discusses the ten differences between budgeting in a traditional as opposed to a balanced scorecard environment put forward by Govindarajan and Shank (1992). Concludes that the need for multinationals to be flexible means that control and measurement systems must be aligned with strategic goals, taking account of national cultures, investors’ expectations and demands for employee empowerment.
The gold standard: a critique of Friedman, Mundell, Hayek and Greenspan from the free enterprise perspective
Authors: Block Walter
Published: June 2007

Argues that the gold standard is the only monetary regime consistent with the philosophy of free enterprise and assesses the contributions of Friedman, Mundell and Hayek to monetary theory as supporters of the free market but opponents of the gold standard. Critically reviews the basic ideas of each and notes that Greenspan, while apparently endorsing the gold standard, has not actually used his position as chairman of the US Federal Reserve System to move towards it. Lists some economists who support both free enterprise and the gold standard as a “vital aspect of political economy”.
Research note: neural network analysis of dividend policy
Authors: Vincent Eagan J. , Subrahmanyam Vijaya , Alli Kasim
Published: June 2007

Summarizes the main hypotheses used in previous research on dividend policy and reports a study of patterns in dividend payouts/growth using neural networks as a data mining technique. Discusses the properties of neural networks, recognizes that they are unsuitable for hypothesis testing and uses sensitivity analysis on 1992‐1997 data from 201 US firms. Presents the results, which do not outperform a previous model based on factor analysis, finds no significant nonlinear relationship in the data; but shows that dividend variability is sensitive to input variables, especially dividend growth.
The international stock market crisis of 1997 and the dynamic relationships between Asian stock markets: linear and non‐linear Granger causality tests
Authors: Alexakis Panayotis , Siriopoulos Costas
Published: June 2007

Examines the dynamic relationships between stock markets in Japan, Hong Kong, Singapore, Malaysia, Taiwan and Thailand before, during and after the October 1997 crisis. Discusses linear and non‐linear Granger causality tests and applies both to stock market data for three time periods between Jan 1997 and Oct 1998. Presents the results, which suggest that Hong Kong, Singapore and Malaysia led the Asian crisis, Taiwan and Thailand followed but Japan played no part in spreading it. Considers consistency with other research and the implications for these stock exchanges, their regulators and future research.
The exchange rate exposure of Greek banking institutions
Authors: Merikas Andreas G.
Published: June 2007

Outlines the effect of exchange rate fluctuations on bank performance and investigates the relationship between exchange rate exposure and stock value for eight major Greek banks. Explains the methodological problems involved, develops a mathematical model and applies it to 1995‐1998 data for the banks. Discusses the results for each bank individually and suggests that although their stock returns are affected by exchange rate variations, other factors (e.g. asset/liability structure, management style etc.) are also important. Calls for further research on the impact of changes in exchange rates.