We extend the recent literature concerning accounting based valuation models to investigate financial firms from six European countries with substantial financial sectors: France…
Abstract
We extend the recent literature concerning accounting based valuation models to investigate financial firms from six European countries with substantial financial sectors: France, Germany, Italy, Netherlands, Switzerland and the UK. Not only are these crucial industries worthy of study in their own right, but unusual accounting practices, and inter‐country differences in those accounting practices, provide valuable insights into the accounting‐value relationship. Our sample consists of 7,714 financial firm/years observations from 1,140 companies drawn from 1989–2000. Sub‐samples include 1,309 firm/years for banks, 650 for insurance companies, 1,705 for real estate firms, and 3,239 for investment companies. In most countries we find that the valuation models work as well or better in explaining cross‐sectional variations in the market‐to‐book ratio for financial firms as they do for industrial and commercial firms in the same countries, although Switzerland is an exception to this generalization. As expected, the results are sensitive to industrial differences, accounting regulation and accounting practices. In particular, marking assets to market value reduces the relevance of earnings figures and increases that of equity.
Collins G. Ntim, Kwaku K. Opong, Jo Danbolt and Frank Senyo Dewotor
The purpose of this paper is to investigate and compare the weak‐form efficiency of a set of 24 African continent‐wide stock price indices and those of eight individual African…
Abstract
Purpose
The purpose of this paper is to investigate and compare the weak‐form efficiency of a set of 24 African continent‐wide stock price indices and those of eight individual African national stock price indices.
Design/methodology/approach
Variance‐ratio tests based on ranks and signs were used to examine the weak‐form efficiency of the 32 stock price indices investigated.
Findings
On average, it was found that irrespective of the test employed, the returns of all the 24 African continent‐wide stock price indices examined in the study are less non‐normally distributed compared to the eight individual national stock price indices examined. The authors also report evidence of the African continent‐wide stock price indices having significantly better weak‐form informational efficiency than their national counterparts.
Practical implications
The policy implication of this evidence is that the African equity price discovery process can be significantly improved if African stock markets integrate their operations. Economically, this may contribute to improved liquidity and more efficient allocation of capital, which in turn can be expected to have a positive impact on economic growth.
Originality/value
The paper makes two major contributions to the extant literature. First, it offers for the first time a comparative analysis of the informational efficiencies of a sample of national stock price indices as against African continent‐wide stock price indices. Second, there is no prior evidence as to whether African stock markets can improve their informational efficiencies by integrating their operations. The paper fills this gap by demonstrating that the African equity price formation process can be improved if African stock markets integrate their operations.
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Collins G. Ntim, Kwaku K. Opong, Jo Danbolt and Dennis A. Thomas
The purpose of this paper is to investigate as to whether post‐Apartheid South African (SA) listed corporations voluntarily comply with and disclose recommended good corporate…
Abstract
Purpose
The purpose of this paper is to investigate as to whether post‐Apartheid South African (SA) listed corporations voluntarily comply with and disclose recommended good corporate governance (CG) practices and, if so, the major factors that influence such voluntary CG disclosure behaviour.
Design/methodology/approach
The paper constructs a broad voluntary CG disclosure index containing 50 CG provisions from the 2002 King Report using a sample of 169 SA listed corporations from 2002 to 2006. The authors also conduct regression analysis to identify the main drivers of voluntary CG disclosure.
Findings
The results suggest that while compliance with, and disclosure of, good CG practices varies substantially among the sampled companies, CG standards have generally improved over the five‐year period examined. The authors also find that block ownership is negatively associated with voluntary CG disclosure, while board size, audit firm size, cross‐listing, the presence of a CG committee, government ownership and institutional ownership are positively related to voluntary CG disclosure.
Practical implications
These findings have important implications for policy‐makers and regulators. Evidence of improving CG standards implies that efforts by various stakeholders at improving CG standards in SA companies have had some positive impact on CG practices of SA firms. However, the substantial variation in the levels of compliance implies that enforcement may need to be strengthened further.
Originality/value
There is a dearth of evidence on the level of compliance with the King Report. This study fills this gap by providing evidence for the first time on the level of compliance achieved, as well as contributing generally to the literature on compliance with codes of good governance and voluntary disclosure.
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Lei Chen, Jo Danbolt and John Holland
The purpose of this paper is to provide a new way of rethinking banking models by using qualitative research on intangibles. This is required because the banking sector has been…
Abstract
Purpose
The purpose of this paper is to provide a new way of rethinking banking models by using qualitative research on intangibles. This is required because the banking sector has been transformed significantly by the changing environment over the past two decades. The 2007-2009 financial crisis also added to concerns about existing bank business models.
Design/methodology/approach
Using qualitative data collected from interviews with bank managers and analysts in the UK, this paper develops a grounded theory of bank intangibles.
Findings
The model reveals how intangibles and tangible/financial resources interact in the bank value creation process, how they actively respond to environmental changes, how bank intangibles are understood by external observers such as analysts, and how bankers and analysts differ in their views.
Research limitations/implications
Grounded theory provides the means to further develop bank models as business models and theoretical models. This provides the means to think beyond conventional finance constructs and to relate bank models to a wider theoretical literature concerning intellectual capital, organisational and social systems theory, and “performativity”.
Practical implications
Such development of bank models and of a systems perspective is critical to the understanding of banks by bankers, by observers and for their “critical and reflexive performativity”. It also has implications for systemic risk and bank regulation.
Originality/value
The paper reveals the core role of intellectual capital (IC) in banks, in markets, and in developing theory and research at firm and system levels.
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Sailesh Tanna, Ibrahim Yousef and Matthias Nnadi
The purpose of this paper is to investigate whether the probability of deal success/failure in mergers and acquisitions (M&As) transactions is influenced by a range of deal, firm…
Abstract
Purpose
The purpose of this paper is to investigate whether the probability of deal success/failure in mergers and acquisitions (M&As) transactions is influenced by a range of deal, firm and country-specific characteristics which tend to affect acquirers’ shareholder returns. The specific hypotheses under investigation relate to the method of payment (cash versus stock), target status (listed versus non-listed), diversification (domestic versus cross-border and industry-wide) and acquirers’ prior bidding experience. Additionally, the authors also investigate whether announced deals reflect an expectation about likelihood of deal completion.
Design/methodology/approach
The authors analyse the probability of deal success/failure in M&As by combining event study and probit regression-based methods. The authors use the standard event study methodology to calculate acquirers’ abnormal returns for up to 10 days before and after the announcement date. In the probit model, the dependent variable is the probability of deal i being failure depending on four sets of explanatory variables: method of payment, target status, diversification and acquirer bidding experience, along with a set of control variables.
Findings
The findings from event study confirm that market reaction is indifferent to whether announced deals are likely to be successfully completed or not, consistent with the efficient markets hypothesis. However, the results from cross-sectional, cross-country regressions confirm that the aforementioned deal characteristics, as well as certain firm and country level attributes do influence the likelihood of whether an announced deal is subsequently completed or terminated.
Originality/value
In examining whether the specific characteristics affecting the likelihood that M&A transactions, once announced, will ultimately succeed or fail, it seems natural to ask whether the market reaction at the time of deal announcement reflects an expectation regarding deal completion. This could be associated with specific deal or firm-level characteristics influencing shareholder returns or risk, and represents a unique contribution of this study, over and above the use of a global sample of M&A data. The empirical analysis investigates these issues by using an extensive, global sample of 46,758 M&A transactions from 180 countries and 80 industries, which took place between the years 1977 and 2012.
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Bashar S. Al‐Yaseen and Husam Aldeen Al‐Khadash
This paper seeks to examine the risk relevance of fair value income measures under IAS 39 and IAS 40.
Abstract
Purpose
This paper seeks to examine the risk relevance of fair value income measures under IAS 39 and IAS 40.
Design/methodology/approach
The study sample comprises Jordanian insurance companies. Data were collected from two main sources: Jordanian insurance companies' annual reports, and the official website of the Amman Stock Exchange. The study begins by investigating the volatility of four income measures, calculated by including and excluding holding gains or losses of financial instruments and property investments. Then it examines the association between its four income volatility measures and one stock market‐based risk factor, in order to provide evidence on the risk‐related information content of each income volatility measure.
Findings
Income based on fair values reflects income volatility more than historical cost‐based income. It is also found that income is (not) more volatile with the recognition of unrealized fair value gains/losses on financial instruments (investment property). Results of assessing the relative explanatory power of income volatility measures suggest that not all fair value income volatility measures can be a good proxy of the total risk. On the contrary, none of our income volatility measures provides significant incremental risk‐relevant information for total risk.
Originality/value
Most prior studies have focused on the value relevance of fair value accounting in Western developed countries, and mainly in the banking sector. This study makes a significant contribution to existing knowledge via exploring the applications of fair value accounting by insurance companies and investigating the implications of mark‐to‐market on risk, instead of share price, in an emerging country – Jordan. The findings of this study are useful to researchers and capital‐market participants interested in explaining accounting and market risk measures.
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Ibrahim N. Khatatbeh, Hamdi W. Samman, Wasfi A. Al Salamat and Rasmi Meqbel
This study aims to examine the effect of corporate governance (CG) mechanisms on financial fragility in non-financial corporations, using Nishi’s operationalization of Minsky’s…
Abstract
Purpose
This study aims to examine the effect of corporate governance (CG) mechanisms on financial fragility in non-financial corporations, using Nishi’s operationalization of Minsky’s financial instability hypothesis. Specifically, the study investigates the influence of board size, board independence, CEO duality and audit quality on the financial fragility of non-financial companies (NFCs).
Design/methodology/approach
Using a panel logit regression model, the authors analyse annual data from (66) NFCs listed on the Amman Stock Exchange, spanning over the period 2015–2021. This methodology enables us to assess the relationships between the identified CG mechanisms and the categorical proxy of financial fragility.
Findings
The findings of this study reveal that a large share of NFCs fall within Minsky’s “Ponzi” classification, indicating elevated levels of financial vulnerability. Remarkably, the analysis demonstrates that larger board sizes and the CEO-Chairman duality exacerbate financial fragility within these firms. Conversely, the study results suggest that board independence and audit quality exhibit limited effects on financial fragility. In addition, profitability, firm size and financial leverage are identified as key predictors of financial fragility.
Originality/value
This study adds to the current literature by using a financial fragility index grounded in Minsky’s financial instability hypothesis. The constructed index is then used to examine specific CG factors in relation to financial fragility, which offers new insights into the dynamics influencing the default exposure of NFCs. Furthermore, the study findings have direct implications for policymakers and stakeholders aiming to enhance CG practices and foster financial stability in the private sector.
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The purpose of this paper is to examine the relationship between business ethics practices disclosure and corporate governance characteristics in Sub-Saharan Africa.
Abstract
Purpose
The purpose of this paper is to examine the relationship between business ethics practices disclosure and corporate governance characteristics in Sub-Saharan Africa.
Design/methodology/approach
The study uses multiple regression to investigate the association between business ethics disclosure (BED) and corporate governance characteristics in SAA. The study sample is based on 573 non-financial corporations listed on the national stock exchanges of Ghana, Kenya, Nigeria, South Africa and Zimbabwe as of 31 December 2015.
Findings
The findings show that corporate governance characteristics (including the proportion of government ownership, board independence and board gender diversity) are positively and significantly related to BED.
Originality/value
The study contributes to the limited literature by analyzing the relationship between BED practices and corporate governance characteristics in the sub-Sahara African context, which is significantly different from the Anglo-Saxon world.
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Abdul Latif Alhassan and Mary-Ann Afua Boakye
In their role as monitors and advisors, boards are expected to address agency conflicts associated with the separation of ownership from control in large corporations. The ability…
Abstract
Purpose
In their role as monitors and advisors, boards are expected to address agency conflicts associated with the separation of ownership from control in large corporations. The ability to effectively perform these functions and enhance corporate outcomes largely depends on their influence in decision-making. This paper aims to examine the effect of corporate governance attributes, in the form of board characteristics, on technical efficiency in the South African life insurance industry.
Design/methodology/approach
Using the two-stage data envelopment analysis technique, bootstrapped efficiency scores are estimated for 73 insurers from 2007 to 2014 in Stage 1. The truncated bootstrapping procedure of Simar and Wilson (2007) and the tobit estimation techniques are used to examine the effect of corporate governance characteristics and other insurer level attributes on technical efficiency scores in Stage 2 analysis.
Findings
The findings suggest that life insurers operate with high levels of inefficiency within a highly independent governance structure. The results from Stage 2 analysis identifies audit committee size and independence to improve efficiency while board independence is found to be detrimental to efficiency.
Practical implications
The findings provide a useful reference point for insurance regulators in developing economies in the formulation of an effective governance mechanism for the efficient operation of the insurance industry.
Originality/value
As far as the authors are concerned, the analysis contained in this paper presents the first empirical assessment of the corporate governance structure and its effects on corporate outcomes in an African insurance market.