Issue #3 (Volume 18 2021)
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ReleasedSeptember 28, 2021
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Articles33
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77 Authors
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181 Tables
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53 Figures
- abnormal return
- absolute return funds
- absolute return index
- accounting accruals
- accounting effective tax rate
- administrative costs
- Amman Stock Exchange
- analysis
- aspiration performance
- asset allocation
- asymmetric distribution
- audit finding
- augmented ARDL
- backtesting
- BankTech
- behavioral agency theory
- capital structure
- cash conversion cycle
- cash effective tax rate
- cointegration
- commissioners board size
- competition
- composite index
- consumer goods industry
- cost behavior
- COVID-19
- cross-border
- cryptocurrency
- cyclicity
- dealers
- debt maturity
- deposits
- digitization
- disclosure
- discretionary accruals
- discriminant regression
- distraction measure
- dividend tax
- economic development
- economic growth
- EMDEs
- emerging markets
- enterprise risk management committee
- enterprise risk management disclosure
- event studies
- exchange rates
- expected loss
- expert opinion
- extreme events
- Fama decomposition of return
- family firms
- FGLS estimation
- financial failure prediction
- financial innovation
- financial market
- FinTech
- firm growth
- firm size
- fund manager
- GARCH
- GARCH-type models
- GDP
- Generalized Pareto Distribution
- GMM
- gross fixed capital formation
- gross operating profit
- heuristic
- India
- Indonesia
- industrial companies
- industry analysis
- inflation rates
- innovation
- institutional shareholders
- insurance
- insurance market
- insurance payments
- insurance premiums
- InsurTech
- interest rates
- internal rating
- investment inefficiency
- investment strategy
- investor behavior
- irrational investing
- Jensen’s alpha
- Jordan
- Jordanian industrial companies
- Jordan Insurance Federation
- leverage
- liquidity
- listed companies
- local government
- long-short strategy
- macro-economic
- macroeconomic uncertainty
- market capital
- market capitalization
- market efficiency
- market proxy
- market response
- mixed frequency
- monetary policy
- monitoring intensity
- monopoly
- multi-step forecast
- mutual fund
- National Stock Exchange
- neutral interest rate
- Nolan’s S0-parameterization-stable distributions
- non-family firms
- non-performing loans
- nonlinear ARDL
- oligopoly
- operating cash flow
- operating cash flows
- outsourcing
- ownership concentration
- pairs trading
- pension savings funds
- Poland
- portfolio formation
- Portfolio Management
- portfolio performance evaluation
- price effect
- probability of default
- profitability
- psychological factors
- quantile regression
- real option theory
- RegTech
- regulation
- relative impact
- remittances
- return on assets
- return on equity
- risk-adjusted
- risk forecast
- ROA
- ROE
- securities
- selection abilities
- self-similarity
- selling costs
- simulations
- single index model
- size
- South Africa
- specified purpose acquisition companies
- startup
- sticky cost
- stock market development
- systematic investment plan
- systematic risk
- system GMM
- Tadawul
- tax aggressiveness
- tax avoidance
- tax clientele
- tax reforms
- the rule of uncovered interest rate parity
- Tobin’s q
- trading performance
- TY causality test
- Ukraine
- use of proceeds
- value-at-risk
- value averaging
- value based DEA
- vector error correction model
- Vietnam Stock Exchange
- volatility
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Monitoring intensity, investment inefficiency and institutional shareholders: Evidence from JSE listed companies in South Africa
Oloyede Obagbuwa , Farai Kwenda , Gbenga Wilfred Akinola doi: http://dx.doi.org/10.21511/imfi.18(3).2021.01Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 1-15
Views: 916 Downloads: 404 TO CITE АНОТАЦІЯThis study investigates how variation in monitoring intensity affects the efficiency of firms’ investment decisions in an emerging market in South Africa. The study hypothesis argues that the distraction of institutional shareholders has a statistically significant positive effect on corporate investment inefficiency. Using a more robust Generalized Method of Moments (Sys GMM) estimation approach to analyze data collected for firms listed at the Johannesburg Stock Exchange (JSE) for the period 2004–2019, the results showed that the distraction of institutional shareholders has a positive and statistically significant impact on investment inefficiency. That is, when the attention of institutional shareholders is shifted, the intensity of their monitoring drops, and the executive is involved in investment decisions that are not profitable. This insight has an implication for stakeholders and the value-creating corporate governance mechanism. The study concludes that institutional shareholders must always sustain their monitoring intensity to ensure that corporate decisions are consistent with the firm’s value.
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Selection of the right proxy market portfolio for CAPM
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 16-26
Views: 3261 Downloads: 1563 TO CITE АНОТАЦІЯThe purpose of the paper is to select the right market proxy for calculating the expected return, since critically evaluating proxies or selecting the correct proxy market portfolio is essential for portfolio management because the change in the market portfolio proxy affects returns. In this study, monthly data of equity indices are evaluated to find out the better market proxy. The indices taken are BSE 30 (Sensex), Nifty 50, BSE 100, BSE 200, and BSE 500. The macroeconomic variables used in the study are industrial production index (IIP), consumer price index (CPI), money supply (M1), and exchange rate in India. To avoid the influence of COVID-19, the research period was from January 2013 to December 2019 to critically evaluate these proxies in order to find the most appropriate market proxy. This paper reveals a noteworthy relationship between stock market returns and macroeconomic factors, while suggesting that the BSE 500 is a better choice for all equity indices, as the index also shows a significant relationship with all macroeconomic variables. BSE500 is a composite index comprising all sectors with low, mid and large cap securities, therefore it reflects the impact of macroeconomic factors most efficiently, taking it as a market proxy. This study was carried out in the context of India and can be replicated for other countries.
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Earnings management and initial public offerings among Indonesian manufacturing companies
Andreas Andreas , Enni Savitri , Tatang Ary Gumanti , Nurhayati doi: http://dx.doi.org/10.21511/imfi.18(3).2021.03Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 27-39
Views: 906 Downloads: 291 TO CITE АНОТАЦІЯEarnings management (EM) refers to the common use of accounting techniques in various economic settings, such as Initial Public Offerings (IPOs), to produce financial statements. This study, therefore, analyzes the effect of firm size, operating cash flow, the used IPO proceeds, earnings changes, and leverage on EM of manufacturing companies on the Indonesia Stock Exchange from 1989 to 2013. This sector comprises the essential chemical industry, miscellaneous organizations, and consumer goods, with 63 firms being used to meet the selection criteria. The regression analysis showed that the intended use of funds and leverage had a negative and significant impact on EM. Furthermore, the process is measured using Friedlan’s (1994) Discretionary Current Accruals model with similar results found in each industry group and their insignificant differences used to regulate the level of discretionary accruals between the three sectors. This study implies that the EM level is qualitatively similar among IPO companies in the three sub-sectors examined.
Acknowledgments
The authors are grateful to the audience for their comments during the 11th Environmental and Sustainability Management Accounting Network-Asia Pacific (EMAN-AP) Conference held at the Danang University of Economics, Danang, Vietnam, 12-13 August 2019. The early draft was titled “Earnings Management and Initial Public Offerings on Manufacturing Sectors Companies”. -
Application of multi-criteria decision analysis for investment strategies in the Indian equity market
Sudipa Majumdar , Rashita Puthiya , Nandan Bendarkar doi: http://dx.doi.org/10.21511/imfi.18(3).2021.04Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 40-51
Views: 960 Downloads: 268 TO CITE АНОТАЦІЯIn the Indian equity market, the Systematic Investment Plan (SIP) is the most popular strategy due to its convenience for disciplined investing regardless of market conditions. This study analyzes the excess returns of an extensive dataset of listed Indian companies from 2010 to 2019, along with a value-based version of the Multi-Criteria Decision Analysis (MCDA), to identify top performing stocks, based on their sectors and market capitalization. The findings of the study provide empirical evidence of Value Averaging (VA) as a viable alternative strategy over SIP (also known as Dollar Cost Averaging or Rupee Cost Averaging) as 352 out of 359 companies yielded higher returns under VA. The superiority of the VA strategy over the SIP was particularly marked in the consumer goods, financial services and industrial manufacturing sectors, with a clear dominance of small cap companies. The results also show that risk factors for VA strategy play an important role and should be taken into account, rather than base investment decisions on excess returns alone. The efficiency scores of individual stocks provide important insights for mutual funds, financial brokers and individual investors in India.
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Components of working capital and profitability in Saudi Arabian companies
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 52-62
Views: 1237 Downloads: 709 TO CITE АНОТАЦІЯThe study examines the influence of the cash conversion cycle (one of the components of working capital) on the firm profitability measured in terms of return on equity (ROE), return on assets (ROA), Tobin’s q, and gross operating profit (GROP) in the manufacturing sector of Saudi Arabia. The study selects a sample of 100 companies from nine industrial sectors listed on the Tadawul Stock Exchange starting from 2008 to 2019. A pooled regression is estimated to report the empirical results. The results report a positive and significant association between the components of working capital in terms of cash conversion cycle and the firm profitability in terms of ROA, ROE, and Tobin’s q, except for the GROP, where there is a negative and significant relationship. The study reports that the growth in firm performance is associated with supplier’s financing terms and inventory ordering cost. The results also show that larger firms are more profitable than smaller firms. Hence, the current study confirms the formulated hypothesis of having a significant association between the components of working capital and firm profitability.
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The impact of COVID-19 on formation and evaluation of portfolio performance: A case of Indonesia
Immas Nurhayati , Endri Endri , Titing Suharti , Renea Shinta Aminda , Leny Muniroh doi: http://dx.doi.org/10.21511/imfi.18(3).2021.06Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 63-73
Views: 1331 Downloads: 1102 TO CITE АНОТАЦІЯThis paper examines how to build a portfolio and assess the impact of the COVID-19 on portfolio performance using the Sharpe single index model. The research sample consists of ten high market capitalization stocks representing five price fractions of the population listed stocks on the Indonesia Stock Exchange during the COVID-19 outbreak from March 1 to May 31, 2020. The results show that there are four stocks that are included in the portfolio formation, namely CASA with a proportion of 50%, BNLI with a proportion of 26 %, UNVR with a proportion of 15%, and HMSP with a proportion of 9%. Based on portfolio performance testing using the Sharpe single index model, it is known that the portfolio during the COVID-19 has a negative Sharpe ratio, meaning that portfolio performance is underperforming. The findings provide evidence that COVID-19 has had a negative impact on the stock market so that many investors have suffered losses on their portfolios. The implications of findings are that investors must evaluate portfolio performance and restructure the formation of new portfolios by considering the COVID-19 pandemic outbreak as a systematic risk factor that can determine the expected returns.
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The impact of stock market development on economic growth: A GMM approach
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 74-81
Views: 1126 Downloads: 1369 TO CITE АНОТАЦІЯThis study investigated the impact of stock market development (SMD) on economic growth (EG) among emerging markets and developing economies (EMDEs) in Asia. The data sample includes eight Asian EMDEs (China, Indonesia, India, Sri Lanka, Malaysia, the Philippines, Thailand, and Vietnam) from 2008 to 2019. These countries share several similarities, so this ensures reliability of the results. Regarding the analysis, the generalized method of moments (GMM) is used for the estimation. The results show that SMD exerts a positive impact on EG. This finding confirms the importance of SMD in improving efficient capital accumulation and allocation, and also allows investors to reduce risks and increase liquidity, which will boost EG. Further, the significant influence of domestic credit (DC), control of corruption (CC), and inflation (INF) on EG is also highlighted. These findings are valuable empirical evidence that greatly contributes to reinforcing the suitability of classical economic growth theories, especially the theory of endogenous growth. They are also essential to EMDEs in Asia. Accordingly, the EMDEs should develop effective policies to improve the stock market’s scale, which contributes substantially to the development of EG. Moreover, these economies need to pursue many appropriate policies in sync, such as stimulating SMD, improving governance effectiveness and implementing effective macroeconomic policies.
Acknowledgment
This study was funded by the Industrial University of Ho Chi Minh City (IUH), Vietnam (grant number: 21/1TCNH01). -
Quasi-hedge funds market in Poland in view of their performance persistence
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 82-93
Views: 675 Downloads: 219 TO CITE АНОТАЦІЯPerformance persistence analysis is important as it has a decisive influence on investor allocation decisions. Investors can use quasi-hedge funds’ persistence to build effective investment strategies. Thus, the paper explores performance persistence of quasi-hedge funds operating at the Polish capital market. The methodology is based on constructing the new market performance index intended only for absolute return funds. It is validated regarding absolute returns of Polish quasi-hedge funds. The Absolute Return Index (ARI) is used to rate quasi-hedge funds’ performance persistence in assessing their fundamental purpose: to deliver consistently positive returns in all market conditions. For this, their quarterly return rates are used. All 53 funds operating for at least 36 months and representing 48.2% of the entire segment of absolute return funds are analyzed. The use of ARI allows examining quasi-hedge funds’ performance persistence in terms of market changes and the assessment of their purpose. In the short term (6 months) profitability remained persistent, while in the long term (12 months) such a hypothesis could be refuted. More than 40% of funds showed positive persistence within six months; only positive persistence occurred in the short term. 9.4% of funds repeatedly obtained negative returns, so absolute return funds’ negative performance persisted neither in the short nor long term. Closed-ended investment funds showed much stronger persistence of above-average positive returns, which additionally tended to avoid repeating negative returns in two-quarter and four-quarter series. This confirms the assumption that in this respect the Polish market is similar to the developed ones.
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Impact of efficiency indicators and its related aspects on the market return: An applied study on Palestine Stock Exchange
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 94-103
Views: 676 Downloads: 212 TO CITE АНОТАЦІЯThe study deals with the efficiency of the Palestine Stock Exchange (PSE) indicators that explain the market return. The data published in the Palestine Exchange and the Palestinian Monetary Authority during 2010–2018 have been analyzed. The multiple regression method has been employed to determine the correlation between efficiency indicators and market return. However, the findings, on the one hand, determined that there was no statistically significant effect of efficiency indicators measured by the stock turnover rate and the market capital ratio. On the other hand, they demonstrated the impact of market concentration on market return, which shows a widespread weakness in the efficiency indicators. Therefore, PSE does not enjoy the required levels of efficiency even at the weak level. The study explored the absence of liquidity indicators required for market depth, speed of market response, and market concentration. Thus, the stock prices at the PSE become randomly moving, volatile, and unstable. Consequently, the outcomes of the aforementioned findings recommended the necessity to take the essential measures that activate the elements of market efficiency to reflect the available returns according to the scientific method. The paper also recommends that there should be incentives that motivate and encourage institutions to raise their capital and put their securities into the stock exchange to enhance their role in achieving economic development. However, it should be mentioned that the increasing number of companies leads to an increase in investments as it contributes to the expansion of the market.
Acknowledgment
Special thanks to Palestine Technical University for their continued and valuable support. -
Moderating effect of internal control system to determinants influencing the financial statement disclosure
Khoirul Aswar , Jumansyah Jumansyah , Sri Mulyani , Mahendro Sumardjo doi: http://dx.doi.org/10.21511/imfi.18(3).2021.10Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 104-112
Views: 1791 Downloads: 725 TO CITE АНОТАЦІЯThis study examines whether the internal control system moderates the relationship among budget expenditure, government size, legislative size, and audit findings on financial statement disclosure in Indonesia. This is a quantitative study that uses the purposive sampling technique to collect data from 240 local governments in Indonesia. Data were analyzed using Structural Equation Modelling (SEM) with Smart PLS. The results show that government size, legislative size, and audit findings had a positive and significant effect on financial statement disclosure, whereas budget expenditure does not. In addition, the findings revealed that the internal control system moderates the relationship between government size and legislative size and financial statement disclosure, but not by audit findings. The study contributed to extending the institutional and agency theory that explains these factors toward disclosure in the local government in Indonesia. The findings suggest that Indonesia’s local governments consider potential factors regarding increasing pressure to carry out disclosure of financial statements, as well as increasing the proper disclosure required by applicable Indonesian regulations.
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Failure threats of insurance companies: A case study of financial environments of Jordan
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 113-126
Views: 776 Downloads: 385 TO CITE АНОТАЦІЯInsurance firms are known to have unique financial failure characteristics that affect the financial environment of the countries. Therefore, the purpose of this study is to assess the validity of the model used in predicting the financial failures of insurance companies. The model is believed to help in stabilizing the financial environment of the countries by predicting any collapses in the insurance sector. A discriminate regression technique was used to test 28 indicators chosen from 11 financial failure model parameters. 11 parameters of the model are the following: solvency, profitability, operational capabilities, structural soundness, capital expansion capacity, capital adequacy, reinsurance and actuarial issues, management soundness, capital expansion capacity, earnings and profitability, and liquidity. The results of the study proved that 22 variables from 11 parameters were significant; the study also validated the use of the financial failure model as a stable predictor of the financial failure of ASE insurance firms. The stability of the insurance industry is interpreted through the minimum deviation between the real and measured performances. The deviation was present in 3 out of 95 observations, and it affected only 3 firms out of 19, 1 firm out of 3 turned out to be affected by the risker deviation which is the type II error distorted observation. To conclude, the study by mentioning that insurance firms are not threatened by failure or distress and the financial failure model is a valid prediction model.
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Pairs trading in cryptocurrency market: A long-short story
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 127-141
Views: 1137 Downloads: 5394 TO CITE АНОТАЦІЯPairs trading that is built on ’Relative-Value Arbitrage Rule’ is a popular short-term speculation strategy enabling traders to make profits from temporary mispricing of close substitutes. This paper aims at investigating the profit potentials of pairs trading in a new finance area – on cryptocurrencies market. The empirical design builds upon four well-known approaches to implement pairs trading, namely: correlation analysis, distance approach, stochastic return differential approach, and cointegration analysis, that use monthly closing prices of leading cryptocoins over the period January 1, 2018, – December 31, 2019. Additionally, the paper executes a simulation exercise that compares long-short strategy with long-only portfolio strategy in terms of payoffs and risks. The study finds an inverse relationship between the correlation coefficient and distance between different pairs of cryptocurrencies, which is a prerequisite to determine the potentially market-neutral profits through pairs trading. In addition, pairs trading simulations produce quite substantive evidence on the continuing profitability of pairs trading. In other words, long-short portfolio strategies, producing positive cumulative returns in most subsample periods, consistently outperform conservative long-only portfolio strategies in the cryptocurrency market. The profitability of pairs trading thus adds empirical challenge to the market efficiency of the cryptocurrency market. However, other aspects like spectral correlations and implied volatility might also be significant in determining the profit potentials of pairs trading.
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Predictive value of accruals and the moderating role of company size: Empirical evidence from Jordan
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 142-150
Views: 645 Downloads: 313 TO CITE АНОТАЦІЯThe cash flow statement aids the management to ascertain the profitability and liquidity position of a company. One can understand from the cash flow statement how efficiently the company is paying its obligation in various forms of liability and expense. This study aimed to explore the ability of short-term accounting accruals to predict cash flows. The sample included 77 Jordanian companies listed between 2006–2019. Cash flows were measured by net operating cash flows, and short-term accounting accruals were expressed as: change in account receivable, change in accounts payable, change in inventories, and other accruals. The results demonstrated the ability of short-term accounting accruals to predict future cash flows. The relationship between future cash flows and the short-term accounting accruals was significant, except for its relationship to the change in accounts payable. However, the findings indicate that the size of the company has not moderated the relationship between accounting accruals and operating cash flow. The study recommends using other accounting items besides short-term accounting accruals, to improve their ability to predict future cash flows and use of control variables that can increase the predictive power of the study model, such as financial leverage and company size.
Acknowledgments
I would like to thank Amman Arab University for its great support, and for funding this study. -
Estimating the value-at-risk of JSE indices and South African exchange rate with Generalized Pareto and stable distributions
Kimera Naradh , Knowledge Chinhamu , Retius Chifurira doi: http://dx.doi.org/10.21511/imfi.18(3).2021.14Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 151-165
Views: 690 Downloads: 282 TO CITE АНОТАЦІЯSouth Africa’s economy has faced many downturns in the previous decade, and to curb the spread of the novel SARS-CoV-2, the lockdown brought South African financial markets to an abrupt halt. Therefore, the implementation of risk mitigation approaches is becoming a matter of urgency in volatile markets in these unprecedented times. In this study, a hybrid generalized autoregressive conditional heteroscedasticity (GARCH)-type model combined with heavy-tailed distributions, namely the Generalized Pareto Distribution (GPD) and the Nolan’s S0-parameterization stable distribution (SD), were fitted to the returns of three FTSE/JSE indices, namely All Share Index (ALSI), Banks Index and Mining Index, as well as the daily closing prices of the US dollar against the South African rand exchange rate (USD/ZAR exchange rate). VaR values were estimated and back-tested using the Kupiec likelihood ratio test. The results of this study show that for FTSE/JSE ALSI returns, the hybrid exponential GARCH (1,1) model with SD model (EGARCH(1,1)-SD) outperforms the GARCH-GPD model at the 2.5% VaR level. At VaR levels of 95% and 97.5%, the fitted GARCH (1,1)-SD model for FTSE/JSE Banks Index returns performs better than the GARCH (1,1)-GPD. The fitted GARCH (1,1)-SD model for FTSE/JSE Mining Index returns is better than the GARCH (1,1)-GPD at 5% and 97.5% VaR levels. Thus, this study suggests that the GARCH (1,1)-SD model is a good alternative to the VaR robust model for modeling financial returns. This study provides salient results for persons interested in reducing losses or obtaining a better understanding of the South African financial industry.
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Pension assets as an investment in economic growth: The case of post-socialist countries and Ukraine
Oleh Kolodiziev , Наnna Telnova , Ihor Krupka , Myroslav Kulchytskyy , Iryna Sochynska-Sybirtseva doi: http://dx.doi.org/10.21511/imfi.18(3).2021.15Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 166-174
Views: 762 Downloads: 206 TO CITE АНОТАЦІЯPost-socialist governments are looking for the best options to implement a fully funded pension system along with a pay-as-you-earn pension scheme. The paper aims to establish the impact of pension assets on economic growth using the example of post-socialist countries (Hungary, the Slovak Republic, Slovenia, Poland, and the Czech Republic). The use of methods of correlation and regression analysis allows determining the type of dependence (linear, exponential, gradual, and logarithmic) of countries’ economic growth indicators on pension assets and patterns for their investment (deposits, securities of public and private sectors). The obtained economic growth indicators of the studied post-socialist countries show a strong logarithmic dependence on the size of pension assets: Gross fixed capital formation depends on changes in the pension asset amount by 76.44% and GDP by 71.01%. The economic growth of the studied post-socialist countries is most significantly influenced by pension assets invested in deposits. Investing pension savings in public and private sector securities is less effective. The proved provisions determine the expediency of moving from the predominant pay-as-you-earn pension scheme to the predominant fully funded pension system for Ukraine. Such a transformation requires a stable and efficient construction of the country’s banking system, a developed policy for reforming the pension system while considering the criteria of the internal demographic, social, and financial situation.
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Determinants of corporate debt maturity: Evidence from the consumer goods sector in Vietnam
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 175-182
Views: 739 Downloads: 392 TO CITE АНОТАЦІЯDebt maturity structure plays an important role in enterprises’ capital structure policies, and debt maturity varies from industry to industry. The paper investigates the determinants that affect the debt maturity structure of listed firms in the consumer goods industry from 2009 to 2019. The data is collected from consumer goods companies listed on the Vietnam Stock Exchange. The feasible generalized least squares (FGLS) estimation is demonstrated to consider not only micro but also macroeconomic variables that have influenced the corporate debt maturity policy. The empirical results show that five microeconomic factors, such as capital structure, asset structure, asset liquidity, profitability, and firm size, have influenced the debt maturity and are statistically significant. Meanwhile, macroeconomic factors such as inflation rate and credit growth have significantly affected the corporate debt maturity. Finally, the paper provides some suggestions for financial managers on the optimal corporate debt maturity in the consumer goods sector and recommendations for policy-makers when implementing macroeconomic policies.
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The impact of family ownership and under-aspiration performance on a firm’s capital structure
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 183-193
Views: 641 Downloads: 173 TO CITE АНОТАЦІЯResearch on the capital structure of family firms has flourished in recent years, but the impact of performance aspiration and family ownership together on capital structure remains inadequately investigated. Therefore, the purpose of this study is to explore the impact of family ownership and under-aspiration performance and their interaction on capital structure. Panel data estimations were applied with a unique dataset of 3.857 observations from 387 public firms in Vietnam from 2010 to 2020 (134 family firms and 253 non-family firms). The results reveal that family ownership and under-aspiration performance each has a positive effect on capital structure. However, under-aspiration performance negatively moderates the positive effect of family ownership on capital structure. These findings contribute to a stream of studies on the capital structure of family firms by exploring the role of under-aspiration performance, as well as provide important implications for shareholders, managers and debtors in financial management.
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A longitudinal analysis of tax planning schemes of firms in East Africa
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 194-203
Views: 806 Downloads: 438 TO CITE АНОТАЦІЯTaxes play a significant role in the social and economic development of counties. On the other hand, taxes represent a significant cost to firms; hence they devise legal ways to reduce their taxes through tax planning. In East Africa, the statutory tax rate of firms averages 30%, which is considered a major burden to the firms. As a result, this study aims to longitudinally examine the tax planning practices of listed firms in East Africa countries (EACs). The study used twelve-year annual reports of ninety-one firms from EACs. Both cash effective tax rate (CEFR) and accounting effective tax rate were employed as tax planning measures. Descriptive statistics together with Wilcoxon signed-ranked test were used to analyze the results. The study demonstrates the existence of corporate tax planning by the listed firms in EACs. The average CETR of the firms was 17% as opposed to the statutory tax rate of 30%, demonstrating that the firms actively engage in tax planning activities. The evidence further demonstrated a gradual decrease in the tax planning activities of the firms over the past twelve years. The study further found out that the rates of decline in the firms’ tax planning were statistically insignificant. Despite the decrease in the firms’ tax planning, the tax authorities in EACs should enforce tax laws to eliminate the tax planning problem.
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Can the risk management committee improve risk management disclosure practices in Indonesian companies?
Linda Agustina , Kuat Waluyo Jati , Niswah Baroroh , Ardian Widiarto , Pery N. Manurung doi: http://dx.doi.org/10.21511/imfi.18(3).2021.19Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 204-213
Views: 957 Downloads: 511 TO CITE АНОТАЦІЯThis study examines the role of the risk management committee as a moderating variable. The risk management committee will moderate the relationship between firm size, profitability, ownership concentration, and the size of the Enterprise Risk Management (ERM) disclosure board. The study is based on agency theory, which discusses the relationship between management and company owners and shareholders. The research sample consisted of 56 manufacturing companies in Indonesia with 224 units of analysis obtained using the purposive sampling technique. It has been proven that the risk management committee can moderate the relationship between firm size and ERM disclosure and ownership concentration and ERM disclosure. Company size is known to affect the disclosure of risk management in a company. But ownership concentration shows different things, that is, it does not affect corporate risk management disclosures. The results also show that the risk management committee cannot moderate the relationship between profitability and the size of the board of commissioners on the company’s risk management disclosures. It has also not been proven that profitability and the size of the board of commissioners directly affect corporate risk management disclosures. Thus, it can be stated that the risk management committee plays a role in controlling the extent of the company’s risk management disclosures; this is necessary to maintain stakeholder trust in the company.
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Problems of estimating the neutral interest rate: conclusions for Ukraine
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 214-228
Views: 1855 Downloads: 337 TO CITE АНОТАЦІЯEstimation of the actual and projected level of the neutral interest rate is a central issue in the application of modern monetary theory in the practical context of monetary policy. Views on the role and key drivers of neutral interest rates have evolved over time in parallel with the development of the theory of capital, money, credit and economic growth. Therefore, the paper is aimed at generalizing methods for assessing the neutral interest rate for open economies with emerging markets and formulating recommendations for improving the existing methodological tools for estimating the neutral rate in Ukraine. To achieve this goal, theoretical sources, advisory and research materials of international organizations, central banks and statistical databases were analyzed. It is established that the key issue of the current discussion about the tools for estimating the level of neutral interest rates in countries with small open economies is the relationship between the effects of external and internal factors. The paper identifies the advantages and disadvantages of the method for estimating the level of the neutral rate on the basis of uncovered interest parity rule used by the National Bank of Ukraine within the semi-structural macroeconomic model. The expediency of methodological tools introducing into the practice of monetary regulation of Ukraine for estimating the neutral rate of Ukraine based on the Laubach-Williams approach has been proved with adaptation to the conditions of an open economy, which will consider сinternal factors of economic development – changes in potential GDP and savings.
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Do Chinese-focused U.S. listed SPACs perform better than others do?
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 229-248
Views: 813 Downloads: 259 TO CITE АНОТАЦІЯThe extraordinary growth of China from the early 2000s until now made it one of the biggest economies in the world. Over the years, more and more Chinese companies merged with the U.S. listed special purpose acquisition companies (“SPACs”) to become public and attract foreign capital. This paper examines the differences between this specific subsample of SPACs focused on completing a merger with a business located in China among those listed on the U.S. Stock Exchanges and the other U.S. listed SPACs. The intent is to verify whether the sample differs from the rest of the market in their main characteristics, have better, equal, or worse prospects of completing a merger, and offer better, equal, or worse returns to investors. 329 SPACs were identified, of which 41 targeting Chinese businesses. Logistic regression is performed to understand whether the China market focus influences the chances of consuming a business combination. Moreover, two different models (event study approach and buy-and-hold approach) are implemented to assess the share performances of the two subsamples. The conclusions that stem from the obtained results are that China-focused SPACs differ consistently from the rest of the market in certain features but need similar time to identify a target and close the deal. Focusing on China seems to be beneficial for the SPAC’s prospects of closing a deal, being statistically significant at a 10% level. Last, a portfolio composed of the sample SPACs’ shares overperforms the non-China one in both the short and long terms.
Acknowledgment
The authors would like to thank their brilliant student, Mr. Daniele Notarnicola, for the precious support given during the review of the paper. -
Liquidity, leverage, and solvency: What affects profitability of industrial enterprises the most?
Maha D. Ayoush , Ahmad A. Toumeh , Khaled I. Shabaneh doi: http://dx.doi.org/10.21511/imfi.18(3).2021.22Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 249-259
Views: 2177 Downloads: 1100 TO CITE АНОТАЦІЯThe purpose of this paper is to show the relative impact of liquidity, leverage, and solvency on profitability of industrial enterprises listed on the Amman Stock Exchange to ascertain which of them has the most effect on profitability. To reach the objectives of this study, 44 Jordanian industrial companies are examined from 2012 to 2018. Return on assets (ROA) and return on equity (ROE) are examined as measures of performance, current ratio and quick ratio as measures of liquidity, debt ratio and debt to equity ratio as measures of leverage, and the interest coverage ratio as a measure of financial solvency. Multiple regression analysis was used to check the hypotheses. A negative and statistically significant impact was found at the 1% level between financial leverage and profitability. At the same time, findings did not show the same for the effect of liquidity and solvency on profitability. In addition, leverage has the highest relative impact among independent variables on profitability, followed by solvency and then liquidity. Moreover, it is indicated that company size is a control variable of the effect between liquidity, leverage, and solvency on performance. Thus, it is concluded that management of industrial companies should reduce dependence on debt to finance companies to achieve the highest possible returns; it is recommended to maintain an acceptable level of liquidity to ensure the continuity of companies and attention to the level of solvency within companies to maintain a high financial performance.
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Impact of Covid-19 on SME portfolios in Morocco: Evaluation of banking risk costs and the effectiveness of state support measures
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 260-276
Views: 816 Downloads: 313 TO CITE АНОТАЦІЯThis study proposed a method for constructing rating tools using logistic regression and linear discriminant analysis to determine the risk profile of SME portfolios. The objective, firstly, is to evaluate the impact of the crisis due to the Covid-19 by readjusting the profile of each company by using the expert opinion and, secondly, to evaluate the efficiency of the measures taken by the Moroccan state to support the companies during the period of the pandemic. The analysis in this paper showed that the performance of the logistic regression and linear discriminant analysis models is almost equivalent based on the ROC curve. However, it was revealed that the logistic regression model minimizes the risk cost represented in this study by the expected loss. For the support measures adopted by the Moroccan government, the study showed that the failure rate (critical situation) of the firms benefiting from the support is largely lower than that of the non-beneficiaries.
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Mutual funds behavior and risk-adjusted performance in Nigeria
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 277-294
Views: 632 Downloads: 260 TO CITE АНОТАЦІЯThe paper investigates the behavior of mutual funds and their risk-adjusted performance in the financial markets of Nigeria between April 2016 and May 31, 2019, using descriptive statistics, as well as CAPM, Jensen’s alpha, and other risk-adjusted portfolio performance measures such as Sharpe and Treynor ratios, as well as Fama decomposition of return. The descriptive tests revealed that 80.77% of the funds were superior to market returns, while 13.46% were riskier. The market and the fund returns behaved abnormally with asymptotic and leptokurtic characteristics as their skewness and kurtosis varied from the normal requirements. Diagnostically, the normality test by Jacque-Berra showed that the return was not normally distributed at a 1% significance level. The market was more aggressive relative to the funds. The average risk-free rate was 6.75% above the market’s return. The risk-adjusted portfolio returns measured by Sharpe and Treynor ratios showed that 67.31% of the funds underperformed the market compared to 40.38% that outperformed the market using Jensen’s alpha. Fama decomposition of return revealed that the fund managers are risk-averse with 48% superior selection ability and rationally invested over 85% of investors’ funds in schemes with fixed income securities at a given risk-free return that cushioned the negative effects of the systematic and idiosyncratic risks and consequently threw the total returns into positive territories. Overall, the fund managers possessed 52% of inferior selection abilities that only earned 33% of superior risk-adjusted returns and hence, failed to achieve the desired diversification in the relevant period.
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Nexus between financial innovations, remittances and credit performance: Evidence from augmented ARDL and nonlinear ARDL
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 295-311
Views: 642 Downloads: 332 TO CITE АНОТАЦІЯThe motivation for this study is to assess the impact of financial innovation and remittances on bank-based financial institutions’ credit performance in Bangladesh for the period 1981–2019. The study applies augmented ARDL (AARDL) and nonlinear ARDL (NARDL) to identify both long-run and short-run effects and directional causality by performing non-granger casualty tests. AARDL confirms the presence of a long-run association between financial innovation, remittance, trade openness, FDI, and credit performance, which is measured by non-performing loans. In the long run, financial innovation and FDI volatility expose a positive link with NPLs, but remittance inflows and trade openness establish a negative association. Asymmetry shocks in financial innovation reveal a positive relationship with credit performance. In contrast, the asymmetric shock of remittance and trade openness unveil a negative tie to credit performance, especially in the long run. Furthermore, directional causality provides evidence to support a feedback hypothesis explaining causality between financial innovation and credit performance, as well as remittance inflows and credit performance. These findings suggest that credit performance is guided by future development in remittances and financial innovation; thus, closer attention from policymakers and financial experts is persistent to capitalize or mitigate the impact of the financial system.
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Innovation imperatives of global financial innovation and development of their matrix models
Nataliia Savchuk , Tetiana Bludova , Dmytro Leonov , Olena Murashko , Nataliia Shelud’ko doi: http://dx.doi.org/10.21511/imfi.18(3).2021.26Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 312-326
Views: 779 Downloads: 242 TO CITE АНОТАЦІЯThe global financial market is undergoing transformational changes under the growing influence of innovative factors. Such changes are due, in particular, to the concentration and scaling up and diversification of the structure of financial services, the renewal of the financial sector on the basis of FinTech operations and blockchain technologies. This requires taking into account the impact of innovation factors on the transformation of the financial market in the dimension of FinTech. The study aims to identify the imperatives of global financial innovation and show ways to develop innovative models in the interpretation of S-curves for next-generation products using new technologies when key technologies on the previous S-curve become obsolete. Also, the matrix of financial innovations is presented and the synergy of its innovation models is proved.
The results of the study are to prove that each of the presented models is not independent, it evolves and develops itself, as well as affects other models. This made it possible to identify prognostic pathways for the development of innovative models in their synergy in the form of two-ring motion. Thus, the study emphasizes the need for further research aimed at developing innovative models that will determine strategic decisions in the formation of innovation imperatives. -
Cost stickiness and firm profitability: A study in Saudi Arabian industries
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 327-333
Views: 967 Downloads: 425 TO CITE АНОТАЦІЯThis study examined the impact of cost stickiness on firm profitability in different industrial sectors in Saudi Arabia. The sample size for the study consists of 102 companies listed on Tadawul (Saudi Stock Exchange) from 2009 to 2018. The study estimated a panel regression using pooled OLS, fixed and random effects, and Generalized Method of Moments (GMM). The variable Return on Investment (ROI) is used as a proxy to measure a firm’s profitability. The results of all the three models are similar to each other. The study found a negative and significant correlation between profitability and cost stickiness, indicating firms’ inability to control the selling, general and administrative costs (SG&A), ultimately leading to lower profits. In addition, firm size is positively associated with profitability, indicating that larger firms are more profitable compared to smaller ones, while the leverage is negatively related to profitability, indicating that companies have higher debts.
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The impact of the COVID-19 outbreak on the Indian stock market – A sectoral analysis
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 334-346
Views: 7462 Downloads: 3513 TO CITE АНОТАЦІЯThis paper aims to examine the impact of the COVID-19 outbreak on Indian firms listed on the NSE and analyze its impact on various sectors. In addition, a sub-sample analysis based on market capitalization was performed to understand the effect of size during extreme events. The sample consisted of 1,335 firms listed on the NSE India. A standard event study outlined by Brown and Warner (1985) was employed to analyze the price impact on the COVID-19 outbreak. The event windows from -10 days to +10 days were selected. The estimation window is 250 days. The Nifty 50 has been chosen as a proxy for market return. The sample firms witnessed a negative impact of the COVID-19 outbreak with a negative CAAR in different event windows. In addition, various sectors are classified according their responsiveness towards the COVID-19 outbreak into three groups: highly negatively affected, moderately negatively affected, and slightly negatively affected. The paper also points out that the pandemic substantially affects the above-median market capitalized firms than the below-median market capitalized firms, which contradicts the size effect phenomenon. The results assist shareholders in managing their portfolios and mitigate the systematic risk of their investments during extreme events such as a pandemic, wars, and others. This study is the first comprehensive analysis of the impact of the COVID-19 outbreak on different sectors in India. It is also the first study to investigate the size effect anomalies during extreme events.
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Investment asset allocation in response to tax relief for mutual funds: The case of South Korea
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 347-358
Views: 558 Downloads: 151 TO CITE АНОТАЦІЯThis study examines whether the management style of a fund differs depending on the type of fund being managed for tax purposes, given the rules of temporary tax relief for fund investments. The study considers a change in the ratio of tax-favored assets to the net asset value of a tax relief qualified fund around the effective date of tax relief laws in South Korea in 2007 and 2016. A regression model is used to test sample data from domestic and overseas equity funds available in the three months before and after the 2007 and 2016 Restriction of Special Taxation Act came into effect. It was found that the ratio of the value of tax-favored assets to the net asset value in the tax relief qualified fund increased significantly since the enactment of tax relief laws in both 2007 and 2016. These findings suggest that fund managers may try to change the asset allocation in a managed fund to increase the after-tax return of the fund investor, which means that fund managers do take into account the potential tax burden on fund investors and try to minimize it.
Acknowledgment
This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF- 2019S1A5A8035027). -
Food and beverage stocks responding to COVID-19
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 359-371
Views: 1002 Downloads: 827 TO CITE АНОТАЦІЯThis paper investigated how food and beverage (F&B) stocks react to COVID-19. The event study method was applied to four events including the first and second events, were the first COVID-19 positive patients detected in the largest and second-largest economic center of Vietnam. The third and fourth events are related to strong measures to prevent the spread of COVID-19: the nationwide lockdown at the beginning of the second quarter of 2020, and the lockdown of Danang at the beginning of the third quarter of 2020. The results show that the reaction of F&B stock prices to events supports the semi-strong form of efficient market theory. The strong and lasting negative reaction of F&B stocks to the first event can be explained by surprise (first case in Vietnam) and Hochiminh city’s economic engine driving role in the development of Vietnam’s economy. The study finds that heuristic decision-making from nationwide lockdowns (suppression of supply chains during lockdowns) can explain the sub-sector of farming-fishing-ranching products reacted more strongly to the lockdown event in Danang. Based on the research results, this paper provides some policy implications for managers and notes for securities investors.
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Multiple-step value-at-risk forecasts based on volatility-filtered MIDAS quantile regression: Evidence from major investment assets
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 372-384
Views: 676 Downloads: 166 TO CITE АНОТАЦІЯForecasting multiple-step value-at-risk (VaR) consistently across asset classes is hindered by the limited sample size of low-frequency returns and the potential model misspecification when assuming identical return distributions over different holding periods. This paper hence investigates the predictive power for multi-step VaR of a framework that models separately the volatility component and the error term of the return distribution. The proposed model is illustrated with ten asset returns series including global stock markets, commodity futures, and currency exchange products. The estimation results confirm that the volatility-filter residuals demonstrate distinguished tail dynamics to that of the return series. The estimation results suggest that volatility-filtered residuals may have either negative or positive tail dependence, unlike the unanimous negative tail dependence in the return series. By comparing the proposed model to several alternative approaches, the results from both the formal and informal tests show that the specification under concern performs equivalently well if not better than its top competitors at the 2.5% and 5% risk level in terms of accuracy and validity. The proposed model also generates more consistent VaR forecasts under both the 5-step and 10-step setup than the MIDAS-Q model.
Acknowledgment
The authors are grateful to the editor and an anonymous referee. This research is sponsored by the National Natural Science Foundation of China (Award Number: 71501117). All remaining errors are our own. -
Development of the insurance market in Ukraine and forecasting its crises
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 385-396
Views: 621 Downloads: 245 TO CITE АНОТАЦІЯInsurance market is an important part of the financial market, the functioning of which helps to protect individuals and legal entities from the negative and stressful effects of today’s unstable economic environment. The purpose of this study is to determine trends in the insurance market in Ukraine and its potential crises.
The study found that Ukraine’s insurance market constantly grows, but is volatile and in a state of concentration. The dynamics of most indicators are cyclical, with a cycle length from 4,66 quarters to 14 quarters.
The randomized R/S-analysis confirmed the stability of the dynamics of Ukraine’s insurance market and its fractal similarity. Fractal similarity was proved for six out of ten analyzed indicators of the insurance market. In addition, it was confirmed that at the moment of transition from one fractal to another, a trend break occurs. Thus, the emergence of crises on the insurance market of Ukraine is associated with the self-similarity of the dynamics and the coincidence of the moments of bifurcation of certain indicators in its development. A partial crisis on the Ukrainian insurance market at the beginning of 2019 coincided with the bifurcation of the number of concluded insurance contracts, determined based on the results of fractal analysis.
Calculations made it possible to conclude that potentially crisis periods for the insurance market of Ukraine fall on Q1-2 2017, Q1 2019, Q1 2020, of which only one was realized (Q1 2019). The nearest potential moments of crises on the insurance market of Ukraine may be the following periods: Q1 2023 and Q1 2026. -
Structural attributes of firms, irreversibility, and uncertainty of corporate investment in Nigeria
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 397-407
Views: 433 Downloads: 195 TO CITE АНОТАЦІЯIn the Nigerian context, there is a gap in the literature on the structural attributes of firms and the extent to which corporate investments are irreversible. Thus, this study was to empirically examine the structural attributes of firms, irreversibility, and uncertainty of corporate investment using the real options theory of investment. The study is based on annual data series of firms listed on the Nigerian Stock Exchange from 2005 to 2019. The study measured structural attributes using competitiveness and monopoly/oligopoly of a firm, macroeconomic uncertainty, inflation, interest, and exchange rates, and examines their association with corporate investments. The study was conducted using a panel dataset adopting a fixed-effect estimation technique that takes into account potential endogeneity and firm specific-effects. The result showed that the macroeconomic uncertainty measure of exchange rate volatility is strongly detrimental to corporate investment decisions. Furthermore, interest rate and inflation volatilities are not detrimental to investment growth, while exchange rate uncertainty has a substantial negative influence on corporate investment. Besides, macroeconomic uncertainty was found to be a greater disincentive for firms with irreversible investments than for firms with more easily reversible investment projects.