Financial Economics

Neshaleni S. Paramanantham · Irene Wei Kiong Ting · Qian Long Kweh ·Institutions and Economies ·2018 ·JEL: G31; G32; G34

This study examines the impact of ownership concentration on debt structure. Based on marketcapitalisation, we obtained financial and governance data from Top 100 public listed companies in Malaysia for the period 2011-2015. Ordinary least squares and fixed-effect panel models were employed for examining data. The regression results showed that ownership held by the top five shareholders significantly and negatively affected long term debt and total debt ratios. The results remain qualitatively similar in both estimations using the ordinary least squares and fixed-effect panel models. In summary,this study offers some insights into how concentrated ownership influence corporate debt structure.

Nurul Hizetie Mohamed Nor · Anuar Nawawi · Ahmad Saiful Azlin Puteh Salin ·Pertanika Journal of Social Science and Humanities ·2018

The purpose of this study is to examine the relationship between audit characteristics and firm investment efficiency level. Audit characteristics have been characterized using audit committee (AC) independence and external auditor choice. Top 200 Malaysian listed companies based on market capitalization were selected as a sample. Binomial logistic regression analysis was employed to test the hypotheses for 3 years, that is, 2009, 2010, and 2011. The statistical results show no relationship between AC independence and investment inefficiency, while auditor choice was shown to be positively significant only in 1 year of the study, but was not significant in the other 2 years of study. The results provide further confirmation of the role of corporate governance in enhancing the investment performance of the company. This study provides an indicator to shareholders and investors that a company with strong governance structure will likely make better investment decision. Managers under strong governance are prevented from taking an aggressive investment risk approach that may result in overinvestment. In addition, the company will carefully plan to have an adequate capital so that a good opportunity investment will not being passed due to insufficient financing that will result underinvestment. This study is original, as it focuses on the direct relationship between corporate governance mechanism and firm investment efficiency level that is scarce in the literature, with a special focus on emerging markets in the process of developing their best governance practices.

Chin Chun How · Wong Hock Tsen ·Jurnal Ekonomi Malaysia ·2019

This study investigated the presence of abnormal returns surrounding stock split announcements and the determinants of cumulative abnormal return and the split factor. This study utilized the fnancial data of 45 corporations that had exercised stock splits on Bursa Malaysia from the years 2011 to 2015. The dependent variables were cumulative abnormal return for 40 days, cumulative abnormal return for 60 days, and the split factor. The independent variables, dividends per share and earnings per share, represent the signalling hypothesis for the stocks in Malaysia, while the bid-ask spread and the trading volume represent the liquidity hypothesis and the market capitalization, respectively. The signifcance of abnormal returns surrounding stock split announcements was tested using standardized t-statistics. The determinants of cumulative abnormal return and the split factor were determined based on Ordinary LeastSquares (OLS) multivariate regression and Stepwise Least-Squares. The empirical results show that there was a statistically signifcant positive abnormal return on day 1 [+1] after the stock split announcements. Dividend per share was found to have a statistically signifcant relationship with the cumulative abnormal return; thus supporting the signalling hypothesis. Bid-ask spread and trading volume were the main determinants of cumulative abnormal return, supporting the liquidity hypothesis under a different estimation window. Bid-ask spread was the only important determinant for the split factor. The results of this study could help investors and policymakers to design policies to improve the overall market effciency in Malaysia, particularly to increase the effectiveness of information disclosure regarding Malaysian stocks.

Ali Albada · Nurhuda Nizar ·International Journal of Economics and Management ·2022 ·JEL: G1, G4

COVID-19 is a highly contagious viral infection that has changed the world, with many human lives being lost. This study aimed to analyse investors' sentiment and stock market behaviour in Malaysia during the COVID-19 pandemic. Stock market performance was measured through the FTSE BURSA 100 Index (T100) from January 29, 2020, until March 31, 2021, by employing principal component analysis (PCA) to construct the investors' Sentiment Index (SMI). The results indicated that the sudden outbreak of COVID-19 and its rapid spread significantly impacted investors' psychology, which disrupted investors' investment decisions. Furthermore, rapid increases in confirmed COVID-19 cases and deaths increased the uncertainty and unpredictability of the country's economic situation. As a result, the Malaysian financial market showed a steep downward trend during the COVID-19 pandemic.

Imtiaz Sifat · Azhar Mohamad ·Journal of Economic Studies ·2020 ·JEL: D43, D47, D53

Despite regulatory claims of straitening volatility and preventing crashes, evidences on circuit breakers’ ability to achieve so are nonconclusive. While previous scholars studies general performances of circuit breakers, the authors examine whether Malaysian price limits aggravate volatility, impede price discovery, and interfere with trading activities in both tranquil and stressful periods. The study uses a combination of parametric and nonparametric techniques consistent with Kim and Rhee (1997) to examine the major ex-post hypotheses in circuit breaker research. For calm markets, the authors find significant success of upper limits in tempering volatility with low trading interference. Lower limits show mixed results. Conversely, in crisis markets limits fare poorly in nearly all aspects, particularly for lower limits.

Mujeeb Saif Mohsen Al-Absy · Ku Nor Izah Ku Ismail · Sitraselvi Chandren · Shehabaddin Abdullah A. Al-Dubai ·Journal of Asian Finance, Economics and Business ·2020 ·JEL: M40, M41, M42, M48

This paper investigates the effect of the involvement of the board chairman in the audit committee (AC) on earnings management (EM). It examines Bursa Malaysia-listed companies with the lowest positive earnings for the years 2013 to 2015. The Modified Jones Model by Kasznik (1999) was used to determine discretionary accruals. An AC that includes its board chairman as an ordinary member is associated with greater discretionary accruals. However, a board chairman who is also the chairman of the AC does not seem to influence discretionary accruals. This paper supports the agency theory and policy-makers’ efforts to prevent board chairmen from sitting on ACs. It is the first study that uses the agency theory to describe the association between the board chairman’s involvement in the both AC and EM. This study alerts policy-makers, stakeholders and researchers to the influence of a board chairman serving on the AC in curbing EM. Furthermore, it provides empirical evidence that the majority of Malaysian companies whose board chairmen are involved in the AC appoint the chairman as an ordinary member of the AC. This indicates that executive directors may affect such actions. Hence, more policies are needed to improve AC independence.

Azadeh Hadian · Cahit Adaoglu ·Journal of Asian Economics ·2020 ·JEL: F30, G32

This study examines the value effects of financial and operational hedging in a managed floating exchange rate regime with strict limitations on the trading of Malaysian Ringgit for a sample of 109 Malaysian multinationals from 2004–2018. Using Tobin’s Q as a proxy for company value, the two-step system GMM estimation results show that, on average, derivatives hedging creates a value premium range of 7.88–8.21 % in the short-run, and 18.81–19.80 % in the long-run. This value premium emerged both after controlling for non-operational foreign exchange profits (losses), and its two components: transaction and translation profits (losses). In contrast, foreign debt hedging, on average, creates a value discount range of 8.19–8.54 % in the short-run and 12.70–13.12 % in the long-run. No evidence shows value effect for operational hedging though. The positive value effect of derivatives hedging should motivate managers of Malaysian multinationals to hedge foreign currency exposure through derivatives and encourage policymakers to take steps in developing derivatives market and products. However, the negative value effect of foreign debt hedging indicates that it destroys value. This negative effect might reflect two potential causes; higher company risk due to FC debt financing, and improper hedging practices including high costs of hedging in the underdeveloped derivatives market. These potential causes need further empirical evaluations.

Jaratin Lily · Imbarine Bujang · Abdul Aziz Karia · Jaratin Lily · Mori Kogid ·Eurasian Business Review ·2017 ·JEL: F23; F31; G15

This paper investigates a tale of two measures, which are market portfolio returns and exchange rate movements. The two measures are important risk factors which affect firm share returns. This study also demonstrates that the orthogonalized exchange rate exposure model is better at capturing the effects of exchange rate movements towards large Malaysian firm share returns. In addition to this, it was found that there were not significant differences in terms of number of exposed firms to exchange rate movements, when the Trade Weighted Index (TWI) and multi bilateral exchange rates were used, both in nominal and real terms. The study results also have shown that large Malaysian firms, including financial firms, were exposed to exchange rate movements regardless their level of foreign involvement. Interestingly, most of the exposed large firms are negatively affected when there is depreciation on home currency especially to the US Dollar (USD) and Japanese Yen (JPY). Even though the exchange rate volatility has failed to solve the exchange rate exposure puzzle among large firms in Malaysia, but the high level of sensitivity for most of the firm share returns to exchange rate volatility should not be ignored. Policymakers and financial managers should closely monitor the foreign exchange markets to mitigate the negative impact of exchange rate movements. Future research should also look into the possibility that the relationship between exchange rate movements and share returns is asymmetric.

Shahanif Hasan · Aza Azlina Md. Kassim · Mohamad Ali Abdul Hamid ·International Journal of Economics and Financial Issues ·2020 ·JEL: G3, M42

In recent decades, there has been a noticeable increase in the practice of earnings management (EM) as a proxy for financial reporting, especially real activities, with effect on the quality of financial statements. The role of the audit committee in mitigating EM remains ambiguous because of inconclusive findings. Therefore, this study examines the moderating effect of audit quality and audit committee on financial reporting quality, also known as real earnings management in Malaysian companies. The results show that corporate governance mechanism such as financial accounting expert, meeting and indicate significant results with real EM while, audit committee independence and size, shows an insignificant result on real EM. In addition, the results show that audit quality of the audit committee leads to less aggressive EM practice in real activities. The findings also show that audit quality and audit committee has a significant role in restricting the real EM. Audit quality is found to significantly moderate the relationship between audit committee with financial reporting governance practices in ensuring credible accounting information

Muhamed Zulkhibri ·Journal of Economics, Finance and Administrative Science ·2018

Purpose This paper aims to examine the distributional differences of Islamic bank financing responses to financing rate across bank-specific characteristics in dual banking system. The study also aims to provide understanding of how efficiently Islamic banks perform their roles as suppliers of capital for businesses and entrepreneurs. Design/methodology/approach The study uses panel regression methodology covering all Islamic banks in Malaysia. The study estimates the benchmark model for Islamic bank financing with respect to bank characteristics and monetary policy. Findings The evidence suggests that bank-specific characteristics are important in determining Islamic financing behaviour. The Islamic financing behaviour is consistent with conventional lending behaviour that the Islamic bank financing operates depending on the level of bank size, liquidity and capital. There is no significant difference between Islamic bank financing and conventional bank lending behaviour with respect to changes in monetary policy. Originality/value Many problems and challenges relating to Islamic financing instruments, financial markets and regulations must be addressed and resolved. In practice, it would be a good idea if Islamic banks move away from developing debt-based instruments and concentrate more efforts to develop profit and loss sharing instruments.

Mongi Lassoued ·Quarterly Review of Economics and Finance ·2018 ·JEL: G18; G21; G32; G33

The study of credit risk is a great interest and the debate over the relative credit risk of Islamic banks remains open. The study aims at addressing this key question: Do Islamic banks (IBs) have higher credit risk than conventional banks (CBs) in Malaysia? Accordingly, some papers tried to answer this question but they were performed using cross-country data. The cross-country data should have been treated more cautiously since every country has its own developmental backgrounds and regional resulting in different characteristics of banking industry. Moreover, different financial systems that give support or limit the operation of Islamic banks will also make more difficult to compare the data of each country. For that reason, it is suggested to take suitable control for heterogeneity across countries to obtain consistently good conclusions about the credit risk. Different from the cross-country works, this study will focus on the country-level data of Malaysia. A panel data model was applied and it was used the generalized least squares (GLS) model and a yearly bank level data to evaluate the credit risk of 22 conventional banks and 17 Islamic banks in Malaysia. In addition, the study period, which lasted from 2005 to 2015, seems to be representative since it encompasses the period of the sub-prime crisis. This project is an extension of the study begun by Čihák and Hesse (2008) that used cross-country bank data such Malaysia. The results are particularly interesting and do not confirm the results generated by these researchers. The main contribution that this work will hopefully make is to show the reasons which account for the Islamic banks' higher degree of credit risk, and particularly to provide additional insights and complement the existing cross-country studies on Islamic bank stability.

Habib Ahmed · Ahmed H. Elsayeda ·Quarterly Review of Economics and Finance ·2019

This study examines the decoupling hypothesis between Islamic and conventional capital markets by analysing the dynamic interdependencies among conventional stock, Islamic stock, bonds and sukuk markets in Malaysia over the period January 3, 2007 to March 31, 2017. Empirical findings on the total spillover index show that, on average, one third of the total forecast error variance attributed to spillovers has affects across four markets, indicating that conventional and Islamic markets are highly interconnected. The conventional stock and bond markets are considered to be the main net transmitters of spillovers towards other markets, whereas the sukuk market is a net receipt of modest levels of return shocks from conventional, Islamic and bond markets throughout the sample period. The interlinkages and connectedness between sukuk and conventional bonds are robust compared with other markets but show variations in the spillovers over the period. While one way to explain the differences in the spillovers between the conventional bond and sukuk indices can be attributed to external factors such as the financial crisis, changes in the legal regime and political uncertainties, another explanation may lie in the differences in the contractual structures of these instruments.

Nur Ainna Ramli · Hengky Latan · Grace T.Solovida ·Quarterly Review of Economics and Finance ·2019 ·JEL: G14; G10; M41

We examine the impact of capital structure determinants on firm financial performance together with the mediation effect of firm leverage in Malaysia and Indonesia over the period of 1990–2010. Our results show that certain of the capital structure determinants directly affect firm financial performance. We also observe that only the Malaysian sample has a positive significant correlation between firm leverage and firm financial performance. Malaysian firms use external financing instead of internal financing to heighten performance. Our results also show that firm leverage plays a mediating role in Malaysia but not for the Indonesian sample. The asset structure, growth opportunities, liquidity, non-debt tax shield and interest rate are the attributes that were indirectly influenced by firm leverage on firm financial performance. Further analysis for multi-group analysis (MGA) in PLS was also used to test the equality of the parameter estimates. We observe that certain attribute coefficients in the determinants of capital structure and firm financial performance are significantly different between Malaysia and Indonesia.