Do corporate financial flexibility, financial sector development and regulatory environment affect corporate investment decisions?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yasin Mahmood ◽  
Abdul Rashid ◽  
Muhammad Faisal Rizwan
Keyword(s):  
Banking Sector ◽  
Investment Decisions ◽  
Financial Sector ◽  
Corporate Investment ◽  
Market Development ◽  
Financial Flexibility ◽  
Content Type ◽  
Financial Sector Development ◽  
Regulatory Quality ◽  
Banking Sector Development

PurposeThis study aims to examine how corporate financial flexibility, financial sector development and the regulatory environment influence corporate investment decisions in an emerging economy after controlling for several macroeconomic factors.Design/methodology/approachThe authors estimated random-effects models to empirically examine the impacts of corporate financial flexibility, banking sector development, equity market development, regulatory quality and corruption on corporate investment decisions. The empirical analysis is based on an unbalanced annual panel data set of a sample of 198 non-financial firms listed on the Pakistan Stock Exchange for the period 1992–2018.FindingsThe results show that financially flexible firms tend to invest more. The increased banking sector development, stock market development and better regulatory quality play a pivotal role for enabling firms to increase their investment ability. However, the results reveal that corruption acts as a barrier and reduces corporate investments during the examined period. The results suggest that unused borrowing capacity is a good source of financial flexibility. These results strongly support the pecking order theory, which explains why firms incline toward internal sources for financing their investments and why they prefer debt to equity when go for external financing.Practical implicationsThe empirical findings of the study enable corporate managers to make better financing and investment decisions by understanding the significance of the attainment and maintenance of the corporate financial flexibility to enhance firm value. Furthermore, the findings enable corporate managers to examine and understand the role of banking sector development (BSD), equity market development (EMD), regulatory quality and the role of corruption in affecting corporate firms' investment ability, allowing them to make appropriate investment decisions, especially from an emerging economy perspective. The findings also help investors in making appropriate investment decisions while they are purchasing financial assets. Finally, the findings of the study have some implications for regulators as well. Specifically, the findings suggest that the authorities should implement economic and financial policies favoring banking sector as well as equity market development to enhance corporate investment.Originality/valueThe study significantly adds to the literature by examining the impact of financial flexibility, financial sector development and regulatory environment on corporate investment decisions. According to the authors' knowledge, the empirical evidence examining the impact of all of these factors on corporate investment is very scarce. Therefore, this study is an effort to fill the gap left in the literature.

Do banking sector concentration, banking sector development and equity market development influence firms’ financial flexibility? Evidence from Pakistan

2019 ◽  
Vol 9 (1) ◽  
pp. 115-129 ◽  
Author(s):  
Yasin Mahmood ◽  
Maqsood Ahmad ◽  
Faisal Rizwan ◽  
Abdul Rashid
Keyword(s):  
Banking Sector ◽  
Developing Economies ◽  
Bank Lending ◽  
Equity Market ◽  
Debt Financing ◽  
Market Development ◽  
Financial Flexibility ◽  
Content Type ◽  
Banking Sector Development ◽  
The Impact

Purpose The purpose of this paper is to investigate the role of banking sector concentration, banking sector development and equity market development in corporate financial flexibility (FF). Design/methodology/approach The study used annual data for the period from 1991 to 2014 to examine the relationship between banking sector concentration, banking sector development, equity market development and corporate FF; hypotheses were tested using an unbalanced panel logistic regression model. Findings The paper provides empirical insights into the relationships between macroeconomic factors and corporate FF. The results suggest a substantial change in FF across firms; banking sector concentration discourages firms from borrowing, leading to the reduction of corporate borrowing, consequently an increase in FF can be observed. Banking sector development facilitates debt financing, hence reducing FF. Equity market development also has a positive impact on FF, as it is a substitute for debt financing. Practical implications The banking sector is an important provider of capital to business entities. A concentrated banking system discourages the provision of capital to firms; hence regulators have to take appropriate measures to resolve the problem of a reduced supply of capital. Banking sector development facilitates the provision of capital; further development may reduce bank lending rates to firms. Equity market development positively affects FF; hence, firm managers can use equity financing to resume FF. By following pecking order theory, managers use internal sources to finance value-maximizing investment projects, debt and issue shares as the last choice to get financing. When borrowing capacity is depleted, managers can obtain further funds by issuing stocks. Originality/value FF is an emergent area of research in advanced countries, while in developing economies, it is in the initial stages. Little work is available in this area to find the impact of banking sector concentration, banking sector development and equity market development, therefore, this study fills this gap in the existing literature.

scholarly journals The macroeconomic drivers of stock market development: evidence from Hong Kong

2019 ◽  
Vol 12 (2) ◽  
pp. 185-207 ◽  
Author(s):  
Sin-Yu Ho ◽  
Nicholas M. Odhiambo
Keyword(s):  
Hong Kong ◽  
Stock Market ◽  
Inflation Rate ◽  
Banking Sector ◽  
Trade Openness ◽  
Market Development ◽  
Content Type ◽  
Stock Market Development ◽  
Banking Sector Development ◽  
Short Run

Purpose The purpose of this paper is to examine the macroeconomic drivers of stock market development in Hong Kong during the period 1992Q4-2016Q3. Specifically, it investigates the impact of banking sector development, economic growth, inflation rate, exchange rate, trade openness and stock market liquidity on stock market development. Design/methodology/approach This paper uses quarterly time-series data covering the period 1992Q4-2016Q3, which have been obtained from various reliable sources. The study uses the autoregressive distributed lag bounds testing procedure to identify both the long- and short-run macroeconomic drivers of stock market development in Hong Kong. Findings We find that banking sector development and economic growth have positive impacts on stock market development, whereas the inflation rate and the exchange rate have negative impacts on stock market development both in the long and short run. In addition, the results show that trade openness has a positive long-run impact but a negative short-run impact on stock market development. Originality/value Despite the phenomenal growth of stock market in Hong Kong, there are, to the best of the authors’ knowledge, no relevant studies on the macroeconomic drivers of stock market development in Hong Kong. Therefore, this paper endeavours to enrich the literature by examining the macroeconomic drivers of stock market development in Hong Kong during the period 1992Q4-2016Q3.

Stock market, banking sector and economic growth

2019 ◽  
Vol 36 (3) ◽  
pp. 348-364
Author(s):  
Soumya Guha Deb ◽  
Sibanjan Mishra ◽  
Pradip Banerjee
Keyword(s):  
Stock Market ◽  
Causal Relationship ◽  
Emerging Economies ◽  
Banking Sector ◽  
Financial Sector ◽  
Real Sector ◽  
Content Type ◽  
Developed Economies ◽  
Financial Sector Development ◽  
Economic Boom

Purpose The purpose of this paper is to examine the causal relationship between economic development and financial sector development for 28 countries at different stages of their development. The authors specifically focus on the nature of causality during economic boom and tranquil cycles. Design/methodology/approach The study uses quarterly time series panels of 17 developed and 11 emerging countries, during 1993Q1-2014Q4 with each having three sub-panels – full sample, a period of the economic uptrend (UP), and period of the economic downtrend. The authors use a univariate analysis for initial screening followed by panel unit root test, panel co-integration and causality test proposed by Toda–Yamamoto to examine the causal relationship. Findings The principal results suggest that for developed economies, there is a causal flow from financial sector to real sector in line with the “supply-leading” hypothesis, whereas for emerging economies, it is from real sector to financial sector, in line with the “demand-following” hypothesis. This overall relationship is strong for both emerging and developed economies during economic boom or UP cycles, but becomes weak during economic downturns or tranquil periods. Originality/value This study is different from previous studies on this issue and contributes to the existing literature in a number of ways. First, the focus of this paper revolves around identification of differential patterns in causal flows between real and financial sectors for different economies, across different economic cycles. Second, to present a robust representation of financial sector, the authors consider both banking sector and stock market parameters as the proxy for financial sector development. Third, the authors address the “stock-flow problem” in the measurement of financial variables a typical criticism of some of the previous studies. Finally, the authors use a rich sample size comprising of about 2,500 quarterly observations for each variable, with about 1,500 observations from developed and 1,000 from emerging economies.

scholarly journals Financial development and economic growth: panel evidence from BRICS

2019 ◽  
Vol 24 (47) ◽  
pp. 113-126 ◽  
Author(s):  
Biplab Kumar Guru ◽  
Inder Sekhar Yadav
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Financial Development ◽  
Banking Sector ◽  
Market Development ◽  
Content Type ◽  
Stock Market Development ◽  
Development Indicators ◽  
Banking Sector Development ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between financial development and economic growth for five major emerging economies: Brazil, Russia, India, China and South (BRICS) during 1993 to 2014 using banking sector and stock market development indicators. Design/methodology/approach To begin with, the study first examined some of the principal indicators of financial development and macroeconomic variables of the selected economies. Next, using generalized method of moment system estimation (SYS-GMM), the relationship between financial development and growth is investigated. The banking sector development indicators used in the study include size of the financial intermediaries, credit to deposit ratio (CDR) and domestic credit to private sector (CPS), whereas the stock market development indicators are value of shares traded and turnover ratio. Also, some macroeconomic control variables such as inflation, exports and the enrolment in secondary education were used. Findings The examination of the principal indicators of financial development and macroeconomic variables have shown considerable differences between the selected economies. Results from the dynamic one-step SYS-GMM estimates confirm that in presence of turnover ratio, all the selected banking development indicators such as size of financial intermediaries, CDR and CPS are positively significantly determining economic growth. Similarly, in presence of all the selected banking sector development indicators, value of shares traded is found to be positively significantly associated with economic growth. However, the same is not true when turnover ratio is regressed in presence of banking sector variables. Overall, the evidence suggests that banking sector development and stock market development indicators are complementary to each other in stimulating economic growth. Practical implications A positive association between financial development and growth indicates that the policymakers should take necessary measures toward simultaneous development of both banking sector as well as stock market for inducing growth. Originality/value The present paper attempts to examine the relationship between financial development and growth using both banking sector and stock market development indicators which has not been attempted before for BRICS. Also, most of the existing studies are found in case of developed economies. This paper tries to fill this void by studying five major emerging economies.

scholarly journals Financial market performance: An influence of personal remittances

2017 ◽  
Vol 14 (2) ◽  
pp. 268-273
Author(s):  
Kunofiwa Tsaurai
Keyword(s):  
Banking Sector ◽  
Secondary Data ◽  
Financial Sector ◽  
Vector Error Correction ◽  
Financial Sector Development ◽  
Long Run ◽  
Banking Sector Development ◽  
Short Run ◽  
Annual Time Series ◽  
The Relationship

This study examined the relationship between banking sector development and personal remittances in Zambia using the vector error correction model (VECM) approach with annual time series secondary data ranging from 1980 to 2014. Literature has found out that the relationship between financial sector development and remittances is fourfold: (1) financial sector development influences remittances inflow into the receiving country, (2) remittances positively influences financial sector development, (3) there is a feedback relationship between financial sector development and remittances inflow and (4) there is no or negligible relationship between the two variables. The study found out that there existed a long run causality relationship running from either banking sector development towards personal remittances or from personal remittances towards banking sector development in Zambia during the period under study. The short run causality from either side to another could not be confirmed in this study. It is against this background that the current study encourages Zambian authorities to stimulate banking sector development in order to increase personal remittances inflow. They should also design sustainable remittances harnessing policies as that will go a long way in as far as promoting banking sector development is concerned.

Knowledge management systems usage: application of diffusion of innovation theory

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammad Khaleel Okour ◽  
Chin Wei Chong ◽  
Fadi Abdel Muniem Abdel Fattah
Keyword(s):  
Knowledge Management ◽  
Diffusion Of Innovation ◽  
Information Quality ◽  
Banking Sector ◽  
Financial Sector ◽  
Decision Makers ◽  
Relative Advantage ◽  
System Quality ◽  
Content Type ◽  
Knowledge Quality

Purpose The purpose of this study is to investigate the influence of technological antecedents on the usage of decision makers for the implemented knowledge management system (KMS) amongst Jordanian banks. This study extends the investigation by assessing the influence of knowledge or information quality on KMS usage. This study aims to assess whether knowledge or information quality is significantly correlated to system compatibility, relative advantage and complexity (technological antecedents). Design/methodology/approach The study model was developed by using Rogers’ diffusion of innovation (DOI) theory, on which seven hypotheses were developed. To examine these research hypotheses, a self-administered questionnaire was carried out with 341 decision makers who are using the KMS to perform their job-related activities. Structural equation modelling analysis of moment structures software was used for data analysis. Findings The findings revealed that decision makers usage of the implemented KMS’s is affected significantly by relative advantages, system complexity and knowledge quality, but not system compatibility. Moreover, the findings showed that knowledge quality is significantly correlated with DOI technological antecedents. Practical implications Bank managements are now in a better position to understand what kind of resources and supports are needed to achieve the maximum pay-off from KMS usage within their banks. This study has proved that it is not sufficient for Jordanian banks to focus solely on the system quality; they must also take the quality of knowledge or information (system output) as a critical factor that can affect their investments in KMS’s. Originality/value This study is one of the limited conducted studies to investigate the importance of KMS usage and related antecedents in the Arab world; particularly, in the context of the Jordanian banking sector. The findings of this study have contributed to the Jordanian financial sector for its vital evaluation of the KMS actual usage behaviour. Findings can be used by the Jordanian ministry of finance to improve the understanding of the factors influencing KMS usage in the financial sector. This study has contributed to reducing the gap of DOI literature amongst developed and developing countries, particularly in the Jordanian context.

scholarly journals Financial development, openness in financial services trade and economic growth

2019 ◽  
Vol 3 (2) ◽  
pp. 42-65 ◽  
Author(s):  
Rabia Khatun ◽  
Jagadish Prasad Bist
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Financial Development ◽  
Financial Services ◽  
Banking Sector ◽  
Market Development ◽  
Services Trade ◽  
Content Type ◽  
Stock Market Development ◽  
Insurance Sector

Purpose The purpose of this paper is to examine the relationship between financial development, openness in financial services trade and economic growth in BRICS countries for the period 1990–2012. Design/methodology/approach An index for financial development has been constructed using principal component analysis technique by including banking sector development, stock market development, bond market development and insurance sector development. For the robustness of the result, the long-run cointegrating relationship amongst the variables has been analyzed. Findings Overall financial development has a positive and significant impact on economic growth. To take the full advantage of openness in financial services trade, countries need to put more emphasis on the development of their stock markets, bond markets and the insurance sector. The result shows that openness in financial services trade has a positive impact on economic growth when the stock market, bond market and insurance sector are included in the system. Research limitations/implications The policy implication of the findings is that policymakers should focus more on developing all four areas of finance to get the full benefit of the financial system on the process of economic growth. Originality/value The authors have constructed the better indicators of financial development in the case of BRICS economies. Most of the studies in BRICS economies have measured the development of the financial sector as either banking sector development or stock market development. However, the present study includes all four areas of finance (banking sector development, stock market development, insurance sector development and bond market development) into account.

The dynamics of banking sector and stock market maturity and the performance of Asian economies

2014 ◽  
Vol 30 (1) ◽  
pp. 16-44 ◽  
Author(s):  
Rudra P. Pradhan ◽  
Mak B. Arvin ◽  
Neville R. Norman ◽  
John H. Hall
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Banking Sector ◽  
Panel Cointegration ◽  
Principal Component ◽  
Financial Sector ◽  
Estimation Methods ◽  
Asian Countries ◽  
Content Type ◽  
Causality Tests

Purpose – The purpose of this paper is to examine the nature of causal relations between banking sector maturity, stock market maturity, and four aspects of performance and operation of the economy: economic growth, inflation, openness in trade, and the degree of government involvement in the economy. Design/methodology/approach – The authors look for possible links between the variables by conducting panel cointegration and causality tests, using a large sample of Asian countries over the period 1960-2011. Novel panel data estimation methods allow for robust estimates, using both variation between countries and variation over time. Findings – The study identifies interesting causal links among the variables deriving uniquely from our innovations. In particular, The paper finds that for all regions considered, banking sector maturity and stock market maturity are causally linked, sometimes in both directions. Furthermore, stock market maturity may lead to economic growth, both directly and indirectly through indicators such as inflation and trade openness. The findings also support the notion that economic growth affects the maturity of the stock market in most regions. Practical implications – The results lend support to the notion that a mature financial sector is a key contributor to generating economic growth. Furthermore, economic growth itself has the potential to bring about maturity in the financial sector. Originality/value – The paper uses sophisticated principal-component analysis, panel cointegration, and Granger causality tests, methods not used in this literature before. The method was applied to recent data pertaining to 35 Asian countries – a group of countries that has previously not been adopted in this literature.

The impact of board characteristics on corporate investment decisions: an empirical study

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ben Kwame Agyei-Mensah
Keyword(s):  
Regression Analysis ◽  
Board Of Directors ◽  
Investment Decisions ◽  
Corporate Investment ◽  
Independent Directors ◽  
Investment Efficiency ◽  
Content Type ◽  
Board Characteristics ◽  
The Board Of Directors ◽  
The Impact

Purpose The purpose of this study is to investigate the influence of board characteristics on firms’ investment decisions. Design Methodology Approach The study used data sourced from annual reports of firms listed on the Ghana Stock Exchange from 2014 to 2018. Descriptive analysis was performed to provide the background statistics of the variables examined. This was followed by a regression analysis which forms the main data analysis. Findings The multiple regression analysis results indicated that the proportion of independent directors and financial experts on the board are negatively related to firm investment. These findings imply that independent directors and financial experts on the board can help firms reduce overinvestment and improve investment efficiency. Originality Value The extant literature shows that the board of directors are an effective mechanism to reduce agency problems in firm decisions and operating performance. However, there has been little research on the role of the board of directors in corporate investment policy.

Russian banks will need tight control and pruning

2016 ◽  
Keyword(s):  
Banking Sector ◽  
Foreign Currency ◽  
Banking System ◽  
Tight Control ◽  
Content Type ◽  
Perceptions Of Risk ◽  
Banking Sector Development ◽  
Foreign Loans ◽  
The Cost ◽  
Systemically Important Banks

Subject Measures to keep Russia's banking system sustainable. Significance In 2015, the majority of Russian banks recorded operating losses, with the exception of Sberbank. Banks had to repay foreign currency-denominated loans whose cost rose as the ruble fell in value. Access to further foreign loans was severely constrained by Western sanctions, the cost of domestic borrowing was high and consumers' real incomes declined. The Central Bank of Russia (CBR) continues to support the sector by offering refinancing facilities and capital support for systemically important banks while shutting down banks engaged in high-risk activity. Impacts Western sanctions continuing into 2017 will worsen investor perceptions of risk. CBR intervention will avoid a collapse in depositor confidence. Geopolitical isolation will limit banking sector development.

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