M. IMAM ALAM and TANWEER HASAN
The present study investigates the direction of causality between stock market development and economic growth in the case of the United States. We use the Johansen‐Juselius…
Abstract
The present study investigates the direction of causality between stock market development and economic growth in the case of the United States. We use the Johansen‐Juselius cointegration procedure followed by vector error‐correction modelling. We examine both the long‐run cointegrating relationships and associated causal orderings, and short‐run interactions among the variables. The results indicate that there are stable long‐run equilibrium relationships among the variables and that the stock market contains information about future changes in real income.
Tanweer Hasan, Muliaman Hadad and Kamran Ahmed
The purpose of this paper is to measure the accuracy of management profit forecast in initial public offerings (IPO) prospectuses and investigate the determinants of any observed…
Abstract
Purpose
The purpose of this paper is to measure the accuracy of management profit forecast in initial public offerings (IPO) prospectuses and investigate the determinants of any observed forecast error in Indonesia.
Design/methodology/approach
A sample of 105 Indonesian IPO firms over a ten-year period, 1999-2008, is used in the present study. The accuracy of management profit forecasts, or forecast errors, in IPO prospectuses is calculated, following Lee et al. (2006), over the ten-year sample period. Then, a multivariate model, following the extant literature, is used to identify the determinants of any observed forecast error in Indonesia.
Findings
A mean (median) forecast error of 19 percent (9 percent) is reported over the entire sample period. Multivariate analysis shows that, among the explanatory variables used in the present study, forecast horizon and management optimism seem to be the most significant determinants of forecast error in Indonesia.
Research limitations/implications
The ordinary, specifically small, investors in Indonesia lack the sophistication needed to evaluate new issues while alternative independent sources of information or analysis on IPOs are virtually non-existent. Consequently, whether the forecasts made by the managers during IPOs are reliable or not is of particular importance in Indonesia.
Originality/value
Indonesia is a significant emerging market in Asia. However, to date, no published work has examined the accuracy of management profit forecasts or forecast errors in this market. The present study attempts to fill this gap in the literature and is the first to capture the magnitude/degree of forecast accuracy or error and investigate the determinants of the documented forecast error in Indonesia using a sample of 105 IPO firms over the period 1999 through 2008.
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Microfinance practitioners have emphasized that appropriate control mechanisms are critical for the success of a microfinance institution (MFI). The purpose of this paper is to…
Abstract
Purpose
Microfinance practitioners have emphasized that appropriate control mechanisms are critical for the success of a microfinance institution (MFI). The purpose of this paper is to study the effects of external governance mechanisms on MFIs' performance, whereby external governance is defined as the control exercised by stakeholders and markets, and accountability mechanisms that operate to enforce internal governance.
Design/methodology/approach
This paper uses a database of 108 MFIs operating in over 30 countries and analyzes their performance by adopting an empirical approach usually employed in cross‐country banking research on the impact of market forces and regulation on performance. MFI performance is measured by sustainability and outreach indicators and is modeled as a function of external audit, microfinance rating, and regulatory status and controls for MFI and country‐specific characteristics.
Findings
Results indicate that regulatory involvement and financial statement transparency do not impact performance, while some but not all rating agencies may play a disciplining role.
Research limitations/implications
At the time of the study, available data are limited to 108 organizations and since then more MFIs have made their financial statements available, therefore, the hypotheses of this paper can be retested.
Practical implications
Stakeholders should be aware that external control mechanisms in microfinance are weak, thus adequate internal governance mechanisms are important.
Originality/value
This paper offers empirical evidence that external governance mechanisms have limited impact on MFI performance.
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A.K.M. Waresul Karim, Kamran Ahmed and Tanweer Hasan
The purpose of this paper is to investigate the impact of audit quality and ownership structure on the degrees of accuracy and bias in earnings forecasts issued in initial public…
Abstract
Purpose
The purpose of this paper is to investigate the impact of audit quality and ownership structure on the degrees of accuracy and bias in earnings forecasts issued in initial public offering (IPO) prospectuses in a frontier market, Bangladesh.
Design/methodology/approach
The paper uses both univariate and multivariate tests on the sample of 75 IPOs. The paper employs the tests to see the association between the degree of forecast bias and three corporate governance variables.
Findings
The results reveal that the magnitude of earnings forecast bias is significantly explained by issuer, auditor reputation, proportions of capital raised from domestic as well as foreign investors, and whether the IPO firm is a start-up venture. Underwriter prestige, length of the issuing firms' operating history, leverage, whether the firm went public during a stock market boom, and forecast horizon do not appear to be statistically significant in explaining the degree of forecast bias.
Originality/value
Although auditor reputation and the proportion of equity retained by pre-IPO owners have been investigated in several studies on IPO forecast accuracy and/or bias, no study has attributed them to corporate governance as a whole by combining auditor reputation, and ownership categories held by small private investors and foreign portfolio investors.
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The purpose of this paper is to review the Bangladesh experience with microfinance popularly known as microcredit. The success of microfinance in Bangladesh has generated immense…
Abstract
Purpose
The purpose of this paper is to review the Bangladesh experience with microfinance popularly known as microcredit. The success of microfinance in Bangladesh has generated immense interest in other countries of the world. The paper emphasizes the role of autonomous national microfinance fund and analyzes the efficiency of microfinance delivery mechanisms in Bangladesh. The paper examines the new realities/challenges faced by the microfinance movement in Bangladesh.
Design/methodology/approach
The paper provides an overview of the evolution of microfinance institutions (MFIs), their coverage of borrowers and activities funded in Bangladesh. Results of some independent impact assessment studies have been presented. Data from various institutions of Bangladesh and from some surveys conducted in Bangladesh are used.
Findings
The paper shows how the concept of microfinance, the MFI and various modalities of delivery of financial services to the poor have contributed to the development efforts of Bangladesh where a large number of people live below the poverty line.
Research limitations/implications
The paper is based on data and information of a limited time period and covering some selected issues. Further studies may be carried out on second generation issues and problems based on more available data.
Practical implications
The paper brings out the implications of microfinance as an effective tool for development and poverty alleviation.
Originality/value
The paper points out the practical aspects to build up a robust and sustainable system for increasing the access of the poor to financial services.
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Shakil Quayes and Tanweer Hasan
– The purpose of this paper is to analyze the relationship between financial disclosure and the financial performance of microfinance institutions (MFIs).
Abstract
Purpose
The purpose of this paper is to analyze the relationship between financial disclosure and the financial performance of microfinance institutions (MFIs).
Design/methodology/approach
The paper utilizes ordinary least squares method to analyze the impact of disclosure on financial performance, an ordered probit model to investigate the possible effect of financial performance on disclosure and utilizes a three-stage least squares method to delineate the endogenous relationship between disclosure and financial performance of MFIs.
Findings
The paper finds that better disclosure has a statistically significant positive impact on operational performance of MFIs; second, it also shows that improved financial performance results in better financial disclosure. Keeping the endogenous nature of the relationship between disclosure and performance, the paper uses a three-stage least squares method to show that disclosure and financial performance positively affect each other simultaneously.
Research limitations/implications
The paper attempts to delineate a positive association between better disclosure on financial performance of MFIs, which can be used for developing a better disclosure policy by management, formulating more effective guidelines for disclosure by the stakeholders and mandating more appropriate laws and uniform disclosure practice by regulators.
Originality/value
This is the first study that uses a large number of MFIs from 75 countries; second, it uses a uniform scale of designating a disclosure rating (assigned by MIX Market) to show the relationship between disclosure and performance. Finally, it uses three-stage least squares method to address the possible endogeneity between disclosure and performance.
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James C. Brau, Shon Hiatt and Warner Woodworth
The purpose of this paper is to investigate microlending outcomes among Latin American non‐governmental organizations (NGOs), specifically microfinance institutions (MFIs). While…
Abstract
Purpose
The purpose of this paper is to investigate microlending outcomes among Latin American non‐governmental organizations (NGOs), specifically microfinance institutions (MFIs). While there is a growing movement of non‐profit ventures channeling small loans to the poor worldwide, assessments of their impacts are lacking. Thus, field interviews with clients who had various degrees of involvement in the process of receiving microloans from MFIs were conducted over a summer in Guatemala.
Design/methodology/approach
Using a dataset of 393 clients from Guatemalan MFIs, microfinance impacts from two dimensions are examined and impacts measured along financial and social dimensions by surveying new clients, current clients, and graduated clients of five MFIs in Guatemala.
Findings
Applying univariate and multivariate analyses shows that for Guatemala, MFIs do produce a measure of improvement in the lives of microfinance clients. This improvement is concentrated along the social dimensions of housing, health, and client empowerment.
Research limitations/implications
A limitation of this paper is that it focuses on only five of several dozen MFIs in Guatemala. What is needed is further use of the survey instruments to carry out subsequent studies throughout more of Latin America, and beyond.
Practical implications
This research suggests that microfinance demonstrates promising results associated with social benefits to various client populations. As such, it holds a variety of implications for government and other policymakers as they consider innovative ways to reduce poverty and human suffering around the globe.
Originality/value
It is anticipated that this field study will contribute to the furtherance of literature on the effects of lending among the poor.
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AKM Waresul Karim and Tanweer Hasan
The purpose of this paper is to provide a comprehensive analysis of the audit services market in Bangladesh. It explores the trend in audit fees over a period of 14 years and…
Abstract
Purpose
The purpose of this paper is to provide a comprehensive analysis of the audit services market in Bangladesh. It explores the trend in audit fees over a period of 14 years and shows that in real terms audit fees have actually been declining although in nominal terms it appears otherwise. The study aims to expand the domain of audit fee literature by determining audit concentration in the market and thereby showing how the market is not dominated by the so‐called Big Four firms. The paper also examines the degree of inside ownership as a possible determinant of audit fees.
Design/methodology/approach
The paper employs a multivariate analysis of estimating audit fees against mainly client‐specific attributes. It computes Helfindahl Index to measure audit concentration in the market.
Findings
Results from the multivariate analysis show that the degree of inside ownership inversely affects audit fees. Client size and their multinational affiliation have a significant positive effect on audit fees. Firms in the financial sector also tend to pay significantly higher audit fees in Bangladesh. The reported inverse relationship between the audit fee and proportion of inside‐ownership in the auditee firm indicates, per agency theory prediction, that firms with more diverse ownership in Bangladesh pay more in audit fees. However, contrary to the findings in prior empirical studies, audit fee was reported to be significantly negatively related to audit complexity. As the audit complexity measure is revised, the variable ceases to be a significant driver of audit fees. This could be attributable to a methodological flaw in the traditional method of measuring audit fees as the ratio of inventory and receivables to total assets or to increased efficiency achieved by auditors via scale economies while auditing companies owned essentially by the same group of people.
Research limitations/implications
The main limitation of the paper is that the closing period of the data is 2003, although there is no evidence to believe that the general determinants of audit fees have changed in Bangladesh since 2003.
Practical implications
A decline in real audit fees is a matter of concern for the quality of audit services because it may impede audit firms to invest in talent and other forms of audit technology essential to delivering a high quality audit. It may also have wider implications on the quality of financial reporting in the country.
Social implications
If the audit fees do not increase keeping pace with general power, the profession would struggle to recruit talented individuals to the auditing profession. This may have longer‐term social implications as it may drive away potential graduates with little or no parental resources to support them to develop an accounting career with substantial dependence on family funds.
Originality/value
The current study is the first to introduce ownership structure based perspective, in a multivariate format, to explain what drives audit fees in a developing country setting. It also is the first to compute audit concentration in a developing country context. This is the first paper to present audit fee trend in real terms, i.e. inflation adjusted, client size adjusted, and so on.
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Nicholas Biekpe and Josephat M. Kiweu
The purpose of this paper is to highlight important factors that influence funding decisions from the perspective of commercial lenders, and suggest commercialization of…
Abstract
Purpose
The purpose of this paper is to highlight important factors that influence funding decisions from the perspective of commercial lenders, and suggest commercialization of microfinance as a source of alternative development finance.
Design/methodology/approach
A survey of industry experts on funding decisions representative of proponents of commercial microfinance is conducted to help provide views on the most important considerations in their lending practice.
Findings
The study finds that specific critical success factors define minimum pre‐conditions for microfinance institutions considering commercial funding as an alternative source of finance. The study reveals that the three most important considerations for lending evaluation are transparency in financial reporting, sound financial management, and previous history of borrowing.
Research limitations/implications
The study carried out is based on a relatively small sample and puts significant reliance on respondents' opinions.
Originality/value
This is probably one of few attempts to explore the possibility of a linkage between microfinance and capital markets. The paper will be of interest to microfinance institutions, commercial banks, international donors and wholesale funds with an interest in investing in the microfinance industry.