scholarly journals Non-linear relationship between foreign currency derivatives and firm value: evidence on Sharīʿah compliant firms

2021 ◽  
Vol 28 (2) ◽  
pp. 156-173
Author(s):  
Zaminor Zamzamir@Zamzamin ◽  
Razali Haron ◽  
Zatul Karamah Ahmad Baharul Ulum ◽  
Anwar Hasan Abdullah Othman
Keyword(s):  
Risk Management ◽  
Linear Relationship ◽  
Firm Value ◽  
Dynamic Panel Data ◽  
Content Type ◽  
Quality Reporting ◽  
Linear Framework ◽  
Non Linear ◽  
The Impact ◽  
The Relationship

PurposeThis study examines the impact of hedging on firm value of Sharīʿah compliant firms (SCFs) in a non-linear framework.Design/methodology/approachThis study employs the system-GMM for dynamic panel data to examine the influence of derivatives usage on firm value (Tobin's Q, ROA and ROE). The sample comprised of 59 non-financial SCFs engaged in derivatives from 2000 to 2017 (18 years). The Sasabuchi-Lind-Mehlum (SLM) test for U-shaped is performed to confirm the existence of the non-linear relationship.FindingsThis study concludes that hedging significantly contributes to firm value of SCFs based on the non-linear framework. This study suggests that, first, the non-linear relationship occurs due to the different degree of derivatives usage and risk. Second, firms practice selective hedging to maintain the upside potential of firm value.Research limitations/implicationsThis study has important implications. First, the importance of risk management via derivatives to increase firm value, second, the evidence of selective hedging from the non-linear relationship between derivatives and firm value and third, the need for quality reporting on derivatives engagement by firms in line with the required accounting standard on derivatives.Originality/valueThis study fills the gap in the literature in relation to the risk management strategies of SCFs in three aspects. First, re-examines the relationship using recent data. Second, examines the relationship in the non-linear framework as the limited studies found in the literature on Malaysian firms are only based on linear relationship. Third, determines whether hedging undertaken by firms is optimal as this can only be addressed using the non-linear framework. This study is robust to the various definitions of firm value (Tobin's Q, ROA and ROE) and non-linear methodologies.

scholarly journals Hedging, managerial ownership and firm value

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zaminor Zamzamir@Zamzamin ◽  
Razali Haron ◽  
Anwar Hasan Abdullah Othman
Keyword(s):  
Risk Management ◽  
Firm Value ◽  
Foreign Currency ◽  
Management Strategies ◽  
Generalized Method Of Moments ◽  
Positive Influence ◽  
Managerial Ownership ◽  
Content Type ◽  
Quality Reporting ◽  
The Impact

PurposeThis study investigates the impact of derivatives as risk management strategy on the value of Malaysian firms. This study also examines the interaction effect between derivatives and managerial ownership on firm value.Design/methodology/approachThe study examines 200 nonfinancial firms engaged in derivatives for the period 2012–2017 using the generalized method of moments (GMM) to establish the influence of derivatives and managerial ownership on firm value. The study refers to two related theories (hedging theory and managerial aversion theory) to explain its findings. Firm value is measured using Tobin's Q with return on assets (ROA) and return on equity (ROE) as robustness checks.FindingsThe study found evidence on the positive influence of derivatives on firm value as proposed by the hedging theory. However, the study concludes that managers less hedge when they owned more shares based on the negative interaction between derivatives and managerial ownership on firm value. Hedging decision among managers in Malaysian firms therefore does not subscribe to the managerial aversion theory.Research limitations/implicationsThis study focuses on the derivatives (foreign currency derivatives, interest rate derivatives and commodity derivatives) and managerial ownership that is deemed relevant and important to the Malaysian firms. Other forms of ownership such as state-/foreign owned and institutional ownership are not covered in this study.Practical implicationsThis study has important implications to managers and investors. First is on the importance of risk management using derivatives to increase firm value, second, the influence of derivatives and managerial ownership on firm value and finally, the quality reporting on derivatives exposure by firms in line with the required accounting standard.Originality/valueThere is limited empirical evidence on the impact of derivatives on firm value as well as the influence of managerial ownership on hedging decisions of Malaysian firms. This study analyzes the influence of derivatives on firm value during the period in which reporting on derivatives in financial reports is made mandatory by the Malaysian regulator, hence avoiding data inaccuracy unlike the previous studies on Malaysia. This study therefore fills the gap in the literature in relation to the risk management strategies using derivatives in Malaysia.

Revisiting the role of inflation in financial development: unveiling non-linear and moderating effects

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kizito Uyi Ehigiamusoe ◽  
Suresh Narayanan ◽  
Wai-Ching Poon
Keyword(s):  
Linear Relationship ◽  
Financial Development ◽  
Inflation Rate ◽  
Content Type ◽  
Non Linear ◽  
The Impact ◽  
The Relationship ◽  
Moderating Role ◽  
Country Specific

PurposeThis paper aims to examine the non-linear impact of inflation on financial development, and the moderating role of GDP in the relationship between inflation and financial development in a panel of 125 countries.Design/methodology/approachIt employs the dynamic common correlated effects (CCE) that can control for heterogeneity and cross-sectional dependence. This technique enables us to conduct both panel and country-specific analyses.FindingsThough there is no significant evidence that inflation has a non-linear impact on financial development in the panel, the country-specific estimations reveal that inflation has a non-linear impact on financial development in 66 countries. The results also show that GDP mitigates the detrimental effect of inflation on financial development in 45 countries. An insight into the non-linear relationship between inflation and financial development is crucial for policy decision-making. Besides, knowledge of the moderating role of GDP in the relationship between financial development and inflation is fundamental for policy formulations.Originality/valueAlthough the extant literature has shown that the inflation rate plays a negative role in financial development, the literature overlooked the non-linear relationship between the two variables. Besides, the studies have not considered the role of GDP in moderating the impact of the inflation rate on financial development. This study fills these gaps in the existing body of finance literature.

scholarly journals Government Size and Corruption: A Non-linear Analysis in the Case of EMCCA

2021 ◽  
Vol 12 (4) ◽  
pp. 17
Author(s):  
Assoumou Ondo ◽  
Beau Jency Owono Ondo
Keyword(s):  
Linear Relationship ◽  
Central Government ◽  
Central Africa ◽  
Linear Analysis ◽  
Government Size ◽  
Economic Community ◽  
Non Linear ◽  
The Government ◽  
The Impact ◽  
The Relationship

This article analyzes the relationship between Government size and corruption. Unlike the works in the way which suppose a linear relationship between the two variables, we estimate a panel with change of the modes to characterize the impact of the size of the Central Government on corruption, in the countries of the economic community and monetary of Central Africa (EMCCA). The results show that there is a non-linear relationship between these two variables. Indeed, a strong involvement of the Government in economic activity results in a significant increase in corruption when the Government exceeds a size of 13.5508% of the GDP.

Market ranking and network structure: pathway to dominance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yasaman Sarabi ◽  
Matthew Smith ◽  
Heather McGregor ◽  
Dimitris Christopoulos
Keyword(s):  
Firm Value ◽  
Critical Role ◽  
Firm Characteristics ◽  
Interlocking Directorates ◽  
Content Type ◽  
Network Autocorrelation ◽  
The Uk ◽  
Market Capitalisation ◽  
The Impact ◽  
The Relationship

PurposeThe relationship between interlocking directorates and firm performance has been increasingly debated, with a focus on whether firm's centrality in interlock networks is associated with performance. The purpose of this study is to examine not only how a firm's position in this network is associated with performance but also how the performance of network partners can impact a firm's performance. This study examines how firms effectively utilise the interlock network to achieve the goal of higher market capitalisation – termed market capitalisation rank (MCR).Design/methodology/approachThe premise of the study is the UK FTSE 350 firms from 2014 to 2018. The paper makes use of a temporal network autocorrelation model to examine how firm characteristics, the structural position in the interlock network and the performance of network partners affect MCR over time.FindingsThe analysis indicates that firms with ties (via the interlock network) to firms with high market capitalisation are more likely to enhance their own MCR, highlighting network partners have the opportunity to play a critical role in a firm's dominance strategy to optimise firm value.Originality/valueThe value of this research is that it does not only look at the impact of a firm's position in the network on performance, but the impact of the performance of network partners on a firm's market performance as well.

scholarly journals The impact of related party transactions on firm value

2019 ◽  
Vol 17 (3) ◽  
pp. 571-588
Author(s):  
Ahmed A. Diab ◽  
Ahmed Aboud ◽  
Arafat Hamdy
Keyword(s):  
Firm Value ◽  
Design Methodology ◽  
Emerging Market ◽  
Content Type ◽  
Related Party Transactions ◽  
Intermediary Role ◽  
The Impact ◽  
The Relationship ◽  
Practical Implications

Purpose The purpose of this study is to address the impact of the related party transactions (RPTs) on firm value. The authors bring evidence from a usually ignored empirical setting: an African emerging market. Design/methodology/approach In particular, the authors focus on companies listed on the Egyptian stock market using a sample of EGX 30 from 2012 to 2017. Findings Unlike the literature, the authors find no significant relationship between RPTs and market value. Practical implications This research provides insights for policymakers and other interested parties concerning the perception of RPTs in Egypt. Originality/value The reported different findings of this study assure the intermediary role of the context and the local culture in the relationship between RPTs and firm value, in contrast to the negative view that is mostly reported in the literature.

scholarly journals Foreign finance, economic growth and CO2 emissions Nexus in OECD countries

2019 ◽  
Vol 12 (2) ◽  
pp. 161-181 ◽  
Author(s):  
Faris Alshubiri ◽  
Mohamed Elheddad
Keyword(s):  
Economic Growth ◽  
Linear Relationship ◽  
Environmental Quality ◽  
Foreign Investment ◽  
Fixed Effects ◽  
Oecd Countries ◽  
Content Type ◽  
Non Linear ◽  
The Relationship ◽  
Threshold Point

Purpose This study aims to examine the relationship between foreign finance, economic growth and CO2 to investigate if the environmental Kuznets curve (EKC) exists as an empirical evidence in 32 selected Organization for Economic Co-operation and Development (OECD) countries. Design/methodology/approach This study used quantitative analysis to test two main hypotheses: H1 is the U-shape relationship between foreign finance and environment, and H2 is the N-shaped association between economic growth and environment. In doing so, this study used panel data techniques. The panel set contained 32 countries over the period from 1990 to 2015, with 27 observations for each country. This study applied a panel OLS estimator via fixed-effects control to address heterogeneity and mitigate endogeneity. Generalized method of moments (GMM) with fixed effects-instrumental variables (FE-IV) and diagnostic tests were also used. Findings The results showed that foreign finance and environmental quality have an inverted U-shaped association. The three proxies’ foreign investment, foreign assets and remittance in the first stages contribute significantly to CO2 emissions, but after the threshold point is reached, these proxies become “environmentally friendly” by their contribution to reducing CO2 emissions. Also, a non-linear relationship denotes that foreign investment in OECD countries enhances the importance, as a proxy of foreign finance has greater environmental quality than foreign assets. Additionally, empirical results show that remittances received is linked to the highest polluted levels until a threshold point is reached, at which point it then helps reduce CO2 emissions. The GMM and FE-IV results provide robust evidence on inverse U-shaped relationship, while the N-shaped relationship explains that economic growth produces more CO2 emissions at the first phase of growth, but the quadratic term confirms this effect is negative after a specific level of GDP is reached. Then, this economic growth makes the environment deteriorate. These results are robust even after controlling for the omitted variable issue. The IV-FE results indicate an N-shaped relationship in the OECD countries. Practical implications Most studies have used different economic indicators as proxies to show the effects of these indicators on the environment, but they are flawed and outdated regarding the large social challenges facing contemporary, socio-financial economic systems. To overcome these disadvantages, the social, institutional and environmental aspects of economic development should also be considered. Hence, this study aims to explain this issue as a relationship with several proxies in regard to environmental, foreign finance and economic aspects. Originality/value This paper uses updated data sets for analyzing the relationship between foreign finance and economic growth as a new proxy for pollution. Also, this study simulates the financial and environmental future to show their effect on investments in different OECD countries. While this study enhances the literature by establishing an innovative control during analysis, this will increase to add value. This study is among the few studies that empirically investigate the non-linear relationship between finance and environmental degradation.

scholarly journals Non-linear effects of relational capital on supply-side resilience

2019 ◽  
Vol 39 (9/10) ◽  
pp. 1053-1075
Author(s):  
Yiyi Fan ◽  
Mark Stevenson
Keyword(s):  
Linear Relationship ◽  
Boundary Spanning ◽  
Curvilinear Relationship ◽  
Tie Strength ◽  
Supply Side ◽  
Relational Capital ◽  
Content Type ◽  
The Impact ◽  
The Relationship

Purpose Prior studies have largely overlooked the potentially negative consequences of a buyer’s relational capital (RC) with a supplier for supply-side resilience, assuming a positive linear relationship between the constructs. Meanwhile, the focus of research has been at an organisational level without incorporating the role of boundary spanning individuals at the interface between buyer and supplier. Drawing on social capital and boundary spanning theory, the purpose of this paper is to: re-examine the relationship between RC and supply-side resilience, challenging the linear assumption; and investigate how both the strength and diversity of a boundary spanner’s ties moderate this relationship. Design/methodology/approach Survey data are collected from 248 firms and validated using a subset of 57 attentive secondary respondents and archival data. The latent moderated structural equation method is applied to analyse the data. Findings An inverted U-shaped relationship between RC and supply-side resilience is identified. Tie strength in particular has a positive moderating effect on the relationship. More specifically, the downward RC–supply-side resilience relationship flips into an upward curvilinear relationship when boundary spanning individuals develop stronger ties with supplier personnel. Research limitations/implications A deeper insight into the RC–supply-side resilience relationship is provided. Findings are based on Chinese manufacturing firms and cross-sectional data meaning further research is needed to determine their generalisability. Practical implications In evaluating how to enhance supply-side resilience, buying firms must decide whether the associated collaborative benefits of developing RC outweigh the potential costs. Managers also need to be concerned with the impact of developing RC between organisations and enhancing the tie strength of individuals simultaneously. Originality/value The paper goes beyond the linear relationship between RC and supply-side resilience. Incorporating the moderating role of boundary spanners identifies a novel phenomenon whereby the RC–resilience relationship flips from an inverted to a U-shaped curve.

Risk management integration and supply chain performance in ISO 9001-certified and non-certified firms

2019 ◽  
Vol 69 (6) ◽  
pp. 1205-1225 ◽  
Author(s):  
Scott Dellana ◽  
John F. Kros ◽  
Mauro Falasca ◽  
William J. Rowe
Keyword(s):  
Risk Management ◽  
Supply Chain ◽  
Positive Impact ◽  
Mediating Effect ◽  
Iso 9001 ◽  
Supply Chain Performance ◽  
Content Type ◽  
Relationship Of ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to explore the mediating effect of supply chain risk management integration (RMI) on the relationship between supply chain logistics performance (LP) and supply chain cost performance (CP), as well as on the relationship between LP and supply chain service performance (SP). The impact of CP and SP on overall firm performance (FP) is also explored. ISO 9001-certified firms and non-certified firms are assessed to determine whether superior risk-based thinking, as required in the latest ISO 9001 standard, has a positive impact on the different relationships. Design/methodology/approach A theoretical model is developed and tested based on the participation of 140 supply chain managers. The proposed structural equation model positively relates LP, RMI, CP and SP. RMI is positively linked to CP and SP, while CP and SP are positively related to overall FP. Two subsamples (a group of 63 ISO 9001-certified firms and a group of 77 non-certified firms) are used to evaluate the model. Findings For certified and non-certified firms, LP is positively related to RMI, CP and SP, and SP and CP are positively related to FP. However, for certified firms, RMI partially mediates the relationship of LP with both CP and SP, while for non-certified firms, RMI does not mediate these relationships. The findings suggest that ISO 9001-certified firms are able to leverage RMI efforts to impact positively on supply chain performance, whereas non-certified firms are not. Research limitations/implications The study findings are based on the perceptions of managers. Even though the majority of the 63 certified firms included in this study were ISO 9001:2015 certified, the model results do not differentiate between companies certified to the 2008 version of the standard and the 2015 version (which specifically requires demonstration of risk-based thinking). Practical implications This study suggests that ISO 9001 provides a framework for risk management processes and collaboration with supply chain partners to positively impact the relationship of LP with cost and SP. Originality/value This is one of the first studies to characterize the benefits of using a structured approach for risk-based thinking that is associated with ISO 9001.

Does debt heterogeneity impact firm value? Evidence from an emerging context

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Amit Tripathy ◽  
Shigufta Hena Uzma
Keyword(s):  
Firm Value ◽  
Negative Impact ◽  
Generalized Method Of Moments ◽  
Dynamic Panel Data ◽  
Debt Financing ◽  
Bank Debt ◽  
Content Type ◽  
Indian Context ◽  
Long Run ◽  
The Impact

PurposeThe present paper attempts to explain the impact of debt diversification and various debt financing sources on firm value. The paper also aims to address the long-run causality of various factors affecting firm value.Design/methodology/approachThe study employs a dynamic panel data model for a sample of 233 listed firms from 2010 to 2019. Two-step generalized method of moments (GMM) is devised to study the impact of firm-specific factors on firm value.FindingsThe study establishes a negative impact of debt diversification on firm value. Further, the results also signal how the choice of debt instruments has a heterogeneous effect on firm value. Non-bank debt leads to a discount in firm value, while bank debt has no effect on firm value. The long-run determinants of firm value are debt ratio, tangibility and liquidity.Research limitations/implicationsThe findings of the study would aid the mangers in making informed decisions regarding the debt financing structure. Too much reliance on non-bank debt instruments leads to a negative impact on firm value. Therefore careful evaluation is necessary before accessing multiple debt sources.Originality/valueDebt heterogeneity is globally established; however, its presence in the Indian context has not been validated extensively. The study not only validates the existence of debt diversification but also investigates how individual debt instruments affect firm value that is yet to be examined in the Indian context.

The impact of business strategy on corporate cash policy

2020 ◽  
Vol 21 (4) ◽  
pp. 677-699
Author(s):  
Efstathios Magerakis ◽  
Dimitris Tzelepis
Keyword(s):  
Business Strategy ◽  
Firm Value ◽  
Corporate Strategy ◽  
Cash Holdings ◽  
Market Value ◽  
Theoretical Background ◽  
Empirical Literature ◽  
Content Type ◽  
The Impact ◽  
The Relationship

PurposeThe purpose of this study is to explore the association between cash holdings and business strategy for nonfinancial and nonutility US firms over the period from 1970 to 2016.Design/methodology/approachThe authors have used Miles and Snow's (1978, 2003) theoretical background and followed Bentley et al. (2013) to construct a strategy index. Thus, the authors have distinguished two extreme corporate strategies, prospectors and defenders, based on a firm's resource allocation and investment behavior patterns. Following the methodology of Bates et al. (2009), the authors have used the multiple regression analysis to explore the relationship between business strategy and corporate cash holdings.FindingsThe empirical results show that business strategy is positively related to cash holdings. Prospectors are more likely to hold higher cash levels than defenders. Furthermore, the authors have found that cash holding's speed of adjustment (SOA) is slower for prospectors than for defenders, suggesting that business strategy influences cash holding's trend. Interestingly, the results show that the market value of cash increases significantly only for the firms that pursue a defender strategy.Research limitations/implicationsThe results of this work have valuable implications for researchers, by unveiling the relationship between corporate strategy and firm's cash holdings. This study, however, is limited to a sample of US firms; empirical evidence based on international samples of firms would add value to the current literature.Practical implicationsThe findings could be useful to financial managers and investment strategists, who seek to maximize firm value through the adoption of an effective liquidity policy. What is more, this study provides support for the view that strategic choice and optimal cash management are of great importance for firms' market value.Originality/valueThis study enriches the knowledge of business strategy's impact on financing policy of firms and contributes to the empirical literature of cash holdings' determinants. In addition, it complements previous studies on US firms by documenting the effect of business strategy on the SOA in cash holdings and firm value.

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