Stock market development: a reflection of governance regulatory framework in Nigeria

PurposeThe article examines the possible long-run and short-run impact of regulatory quality on stock market performance in Nigeria for 1996–2019 period.Design/methodology/approachThe study adopts autoregressive distributed lag (ARDL) bounds test and cointegrating regression techniques.FindingsFindings reveal that regulatory quality positively and significantly influences the performance of stock market, which strengthens the view that market-enhancing governance can engender an improvement in stock market performance. The study further demonstrates that quality of the regulatory environment is a critical component of market operations, since the improvement of the operation of stock market performance depends on appropriate policy measures, which could be the outcome of improved governance.Practical implicationsIt is suggested that, while improving the institutional environment is a challenge to regulators, there is need for strong and effective regulatory mechanism to enhance the development of stock market in the country.Originality/valueBased on the two competing hypotheses and limited attention, previous studies accorded the role of regulatory quality in the performance of stock market in the context of Nigeria. This study assessed the gap in the literature by taking the task of validating the impact of regulatory quality on stock market development.

Investigating the relationship between bank performance and accounting standards: evidence from M&As in European banking

PurposeThe study aims to identify whether international financial reporting standards (IFRS) or local generally accepted accounting principles (GAAP) reporting provides investors and senior management of acquirer banks with superior information on target banks under post-merger bank performance.Design/methodology/approachThe authors examine the claim that IFRS improves corporate transparency and increases financial reporting quality in European Bank merger and acquisitions (M&As). The authors compare the financial performance of merged banks where the target and acquirer banks employed the same reporting system (up to 305 merged banks) to the performance of a control group of banks not engaged in M&A activity (up to 1,690 European banks).FindingsLocal GAAP reporting allows a more transparent assessment of financial performance using traditional indicators, making it a superior tool for assessing potential acquisition targets.Practical implicationsOverall, the empirical findings are consistent with prior studies and indicate a significant relationship between local GAAP and post-merger performance, while IFRS does not contribute to post-merger bank performance.Originality/valueThe study is one of the very few studies to investigate the relationship between bank performance, M&A activity and accounting standards in EU-28 countries. The primary contribution the finding of poor performance of IFRS reporting merged banks compared to local GAAP banks in EU-28 countries in line with prior results of Huian (2012). In addition, several deal- and bank-specific characteristics that affect accounting standards influence M&A transactions in European banks.

Integration in banking efficiency: a comparative analysis of the European Union, the Eurozone, and the United States banks

PurposeThis paper investigates the development of efficiency and the progress of banking integration in the European Union by checking for convergence among banks of European and Eurozone countries as well as contrasting the results with those of United States banks.Design/methodology/approachInitially, we employ the two-stage semi-parametric double bootstrap DEA method, which absorbs the effects of possible integration barriers in the measurement of efficiency. Afterwards, we apply a panel data model, in order to investigate the process of banking integration by testing for convergence and for convergent clusters in banking efficiency.FindingsOur main findings show that the bank efficiency of the US is considerably higher than that of the Eurozone and the European Union. Although there is no evidence of convergence across the banking groups, our results indicate the presence of club convergence. We also conclude that the US banking system is closer to convergence than the Eurozone and the European Union banks. Nevertheless, this outcome is subject to change in the future due to the fact that Eurozone and European Union banks' speed of convergence is higher than that of US banks.Originality/valueOur survey is unique in trying to check for convergence while controlling for country-specific and bank-specific factors that affect the efficiency of European and Eurozone banks. Moreover, recent literature does not compare the convergence of efficiency of Eurozone, European and US banking. Finally, in our paper special consideration was given to the comparison of commercial, cooperative and savings banks, as subsets of our banking groups.

Large US bank takeovers in 2008: performance and implications

PurposeBecause systemically important banks' takeovers in the US were expected to contain the 2008 global financial crisis (GFC) but were found to have imposed large cost on shareholders, this paper examines the effectiveness of these acquisitions during the GFC and investigates what went wrong with the market for corporate control of large banks.Design/methodology/approachThis paper presents a model of the disciplinary takeover based on the efficient market hypothesis which provides appropriate measures for it to examine the financial performance of acquiring banks after takeover.FindingsThe results indicate that the takeover market for large banks was ineffective in two aspects: the market did not distinguish strong banks from weak banks before the crisis and acquirers performed worse after takeover. Such ineffectiveness reflects the fundamental deficiencies of large bank takeovers arising from some key distinguishing characteristics of large banks.Research limitations/implicationsThe sample size of systemically important banks' takeovers is small so large-sample standard statistical inferences cannot be used.Practical implicationsThe deficiencies of large bank takeovers need to be rectified in order to aid in resolving future crises.Originality/valueThis paper provides rare and detailed insight based on case studies of large US bank takeovers during the GFC.

Equity crowdfunding and financial literacy of individual investors in Japan

PurposeThis study aims to fill the gap in previous research that focuses on the superficial aspects of equity crowdfunding (ECF) campaigns and financial practices by examining financial literacy aspects, such as due diligence and valuation, in terms of factors that influence Japanese individual investors' investments in ECF.Design/methodology/approachThe status of information disclosure in ECF campaigns is checked. In addition, the feasibility of the initial due diligence and valuation using this information is verified. Specifically, the lack of financial literacy hypothesis is developed and (1) expected market capitalization in the final fiscal year of the business plan and (2) expected returns on investment (IRR: internal rate of return) are estimated.FindingsECF campaigns in Japan disclose information equivalent to that obtained by professional venture capitalists. Analysis of the disclosed business plan allows for initial due diligence and valuation. By contrast, due diligence reveals that some projects are unlikely to be listed even if their business plans are met, and others have low IRRs. In addition, a stock acquisition rights project, in which even professional investors are unable to calculate IRRs, is completed at the same rate as a common stock project; this suggests that individual investors lack financial literacy.Originality/valueAnalyzing ECF from financial literacy aspects, such as due diligence and valuation, is unique. Such aspects are essential for private equity investments but have not been addressed in previous studies.

What does corporate social advocacy signal? Evidence from boycott participation decisions

PurposeThis paper explores how a firm's public stand on a social-political issue can be a salient signal of the firm's values, identity and reputation. In particular, it investigates how boycott participation–conceptualized as a cue of a corporation's stand on important social-political issues–may affect the stock market valuation of that corporation, as well as how corporations legitimise their stand on the issues.Design/methodology/approachThe authors employ a mixed-methods design that uses both qualitative techniques (content analysis) and quantitative methods (event study methodology) to examine a sample of US firms who participated in a boycott campaign that sought to call attention to issues of hate speech, misinformation and discriminatory content on social media platform Facebook.FindingsFindings from the qualitative content analysis of company statements show that firms legitimise their stand on, and participation in, the boycott by expressing altruistic values and suggesting to stakeholders that their stand aligns not only with organizational values/convictions but also with the greater social good. Importantly, the event study results show that firms who publicly announced their intention to participate in the boycott, on average, earn a statistically significant positive abnormal stock return of 2.68% in the four days immediately after their announcements.Research limitations/implicationsFindings relate to a specific case of a boycott campaign. Also, the sample size is limited and restricted to US stocks. The signalling value of corporate social advocacy actions may vary across countries due to institutional and cultural differences. Market reaction may also be different for issues that are more charged than the ones examined in this study. Therefore, future research might investigate other markets, use larger sample sizes and consider a broader range of social-political issues.Practical implicationsThe presence of significant stock price changes for firms that publicly announced their decision to side with activists on the issue of hate propaganda and misinformation offers potentially valuable insights on the timing of trades for investors and arbitrageurs. Insights from the study also provide a practical resource that can be used to inform organizations' decision-making about such issues.Social implicationsTaking the lead to push on social-political issues, such as hate propaganda, discrimination, among others, and communicating their stands in a way that speaks to their values and identity, could be rewarding for companies.Originality/valueThis study provides novel evidence on the impact that corporate stances on important social-political issues can have on stock market valuation of firms and therefore extends the existing related research which until now has focused on the impact on consumer purchasing intent and brand loyalty.

Dynamic risk-based optimization on cryptocurrencies

PurposeIt is crucial to find a better portfolio optimization strategy, considering the cryptocurrencies' asymmetric volatilities. Hence, this research aimed to present dynamic optimization on minimum variance (MVP), equal risk contribution (ERC) and most diversified portfolio (MDP).Design/methodology/approachThis study applied dynamic covariances from multivariate GARCH(1,1) with Student’s-t-distribution. This research also constructed static optimization from the conventional MVP, ERC and MDP as comparison. Moreover, the optimization involved transaction cost and out-of-sample analysis from the rolling windows method. The sample consisted of ten significant cryptocurrencies.FindingsDynamic optimization enhanced risk-adjusted return. Moreover, dynamic MDP and ERC could win the naïve strategy (1/N) under various estimation windows, and forecast lengths when the transaction cost ranging from 10 bps to 50 bps. The researcher also used another researcher's sample as a robustness test. Findings showed that dynamic optimization (MDP and ERC) outperformed the benchmark.Practical implicationsSophisticated investors may use the dynamic ERC and MDP to optimize cryptocurrencies portfolio.Originality/valueTo the best of the author’s knowledge, this is the first paper that studies the dynamic optimization on MVP, ERC and MDP using DCC and ADCC-GARCH with multivariate-t-distribution and rolling windows method.

Leverage and firm performance: new evidence on the role of economic sentiment using accounting information

PurposeThe goal of this paper is twofold. First, to examine the role of expectations in shaping agents' behaviour within an extended time frame which incorporates a prolonged harsh downturn of economic activity. Therefore, the authors allow for an indirect impact of economy-wide expectations operating via their coexistence with firms' balance sheet factors. Second, it is tested whether the behaviour of listed firms as regards to debt follows the pecking order theory.Design/methodology/approachThe authors use the panel data methodology in the estimation of the financial structure models since unobservable heterogeneity is an important determinant towards the target leverage. A fixed effects estimation procedure, with robust intercepts allowed to vary across firms, was employed to examine the relationship between leverage and performance.FindingsThe findings offer evidence of patterns of pecking order behaviour and thus for the necessity of internal financing over external debt. The authors also extended the set of determinants by investigating the effect of macroeconomic conditions on the debt decision of firms. Contrary to the authors’ expectations, short-run beliefs of economic agents appear to play a negative role in leverage.Originality/valueThis paper contributes to the literature in a number of ways. First, following the growing literature of loan dynamics, the findings provide useful insights into corporate capital structure decisions in an economy in which businesses were almost excluded from external financing for over a decade. Second, in order to better understand corporate financing decisions, it is necessary to consider the overall economic framework in which companies and especially the listed ones operate.

Determinants of capital structure for firms in an Islamic equity index: comparing developed and developing countries

PurposeThe paper aims to identify the differences between developed and developing country firms with respect to firm-specific and country-level determinants of their capital structure. For this purpose, all constituent firms in one of the oldest Islamic equity indices, Dow Jones Islamic Market World Index (DJIM), are considered and the Muslim-majority status of each firm's domicile country is recognized.Design/methodology/approachThe study employs Hausman–Taylor random effects regression with endogenous covariates to explain the debt ratios of firms in DJIM by separating them into developed and developing country subsamples in an unbalanced panel data setting. Developing country subsample is further split into two based on the Muslim-majority status of each firm's domicile country.FindingsConsistent with the previous literature, this study finds that firm-specific characteristics are the main determinants of their capital structure. Additionally, the paper shows that country-level characteristics have an impact on the debt ratio, however, the types of factors vary across developed and developing countries. Debt ratios in developing country firms are lower than those in developed country firms, largely due to the significantly smaller leverage ratios of firms in Muslim-majority countries. Although the debt ratios of DJIM firms are higher in “non-Muslim” countries, the set of firm-level capital structure determinants are not statistically explained by operating in a “Muslim” country. The study also documents that, before the global financial crisis of 2008, companies in developing countries have gradually become less leveraged worldwide.Originality/valueThis paper provides a new perspective into the differences between developed and developing country firms' capital structures by focusing on a relatively homogeneous data set restricted by leverage screening rules of an Islamic equity index and recognizing the Muslim-majority status of each firm's domicile country.