Financial Economics

Lian Kee Phua · Char-Lee Lok · Yong Xia Chua · Tan-Chin Lim ·Malaysian Journal of Economic Studies ·2021 ·JEL: G32, M41

In the face of crises such as Covid-19, businesses become devastated by greater risk exposure, particularly in currency exchange, supply chain disruption, and fluctuation in commodity prices that cause volatile earnings trends. Higher earnings volatility is frequently associated with greater risk. Consequently, firms could be inspired to engage in earnings management or derivative use as attempts to mitigate earnings volatility. Using a sample of 169 of the largest non-financial firms with 507 firm-years observations from an emerging market, the researchers examined the relationship among derivative use, earnings volatility, and earnings management. The results of a panel regression analysis showed that derivative use by Malaysian public listed companies was positively connected with earnings volatility, inferring that the use of derivatives did not mitigate earnings volatility as intended. This study also found that both earnings volatility and derivative use have a positive relationship with earnings management. This implies that firms engage in earnings management to curb earnings volatility under circumstances where derivative use is associated with higher earnings volatility. Evidence derived from this study contributes to extant literature on financial risk management involving financial instruments, an area that is very much understudied in the contexts of emerging markets.

Junaina Muhammad · Mohamed Hisham Dato' hj Yahya · Sabarina Mohammed Shah · Mohammad Mizanur Rahman ·Asian Economic and Financial Review ·2018

Islamic financial market is the growing innovation of global financial market which moves together with conventional and sectorial counterpart in many countries. As the fastest growing investment component, Shariah compliant stock index in Bursa Malaysia has picked up positive momentum and attracted more attention to the investors, policy makers, issuers and researchers. The main objective of this study is to investigate the co-movement between Shariah compliant stock and sectorial stocks indexes performance in Bursa Malaysia using a standard time series techniques. For understanding a long run and short run co-movement among the Shariah compliant stock index, composite stock index and sectorial stock indexes, a co-integration approach, Vector Error Correction Model (VECM) have been applied respectively in this study. In addition, Granger causality test have been adopted to determine the lead-lag relationship. The findings show that in the long run, Shariah compliant index stock price and sectorial indexes stock price move together but in short run, speed of adjustment varies among the variables. Ganger causality test shows that there are bidirectional, unidirectional and no causality relationships between Shariah compliant and sectorial indexes.

Mansor H. Ibrahim ·Journal of Islamic Monetary Economics and Finance ·2020 ·JEL: C33; G21; G32

This paper examines the performance of Malaysia’s banking sector and its relationship to the presence of Islamic banking in the country. More specifically, by controlling for the theoretically relevant determinants of bank performance we compare the efficiency, profitability and risk of Islamic banks to conventional banks and examine the spillover effects of Islamic banking penetration on bank performance. To these ends, we adopt a panel modelling approach. Taking note that our focal variables comprise the timeinvariant Islamic banking dummy and potentially endogenous Islamic banking share, we apply the Hausman–Taylor (HT) instrumental-variable estimator in the analysis. Our results indicate that Islamic banks in Malaysia are less profitable than their conventional counterparts and that Islamic banking penetration is associated with lower bank profitability. However, the increasing presence of Islamic banking appears to make Malaysian banks less risky and, with limited evidence, more efficient. Finally, the efficiency–risk trade-off seems to have potential as the Islamic banking portion of the sector increases in size . These results are reasonably robust comparedto alternative specifications of the model .

Umar Ndako · Afees A. Salisu · Muritala O. Ogunsiji ·Asian Economics Letters ·2021

In this paper, the predictive value of geopolitical risk (GPR) for the return volatility of Islamic stocks in Indonesia and Malaysia is examined. GPR data, whether global or country-specific, heighten the return volatility of Islamic stocks in both countries, albeit with a greater impact on Indonesia. Additional analyses show improved out-of-sample forecast gains with the inclusion of GPR data in the predictive model of the return volatility of Islamic stocks

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.

Khanifah Khanifah · Pancawati Hardiningsih · Asri Darmaryantiko · Iryantika Iryantik · Udin Udin ·Journal of Asian Finance, Economics and Business ·2020 ·JEL: E44, M14, Q56

A series of corporate failures and financial crises have raised attention to organizational governance issues, especially for financial institutions. In the banking system, corporate governance further plays a unique role because of the uniqueness of the banking organizations. Therefore, this study aims to examine the effect of corporate governance disclosure on bank performance by building a corporate governance disclosure index (CGDI) for 10 Islamic banks operating in Iran, Saudi Arabia and Malaysia. The data used in this study are secondary data taken from annual reports and sourced from the official websites of each banks include Iran Exchange, Stock Market Quotes and Financial News, and Bursa Malaysia. This study uses content analysis of the annual bank report within five years (2014-2018). The results show that Islamic banks comply with 72.4% of the attributes discussed in the CGDI. The most frequently reported and disclosed elements are board structure and audit committee. The regression results provide evidence that Islamic banks with a higher level of corporate governance disclosure reported high operating performance measured by ROA. In contrast to the expectation, the financial performance of ROE and Tobins'q are not significantly related to the disclosure of sharia bank governance.

Peter Rosenkranz · Monica Melchor ·Economic Analysis and Policy ·2022

Past crisis episodes have illustrated the interplay of macroeconomic and financial conditions, including the presence of harmful macrofinancial feedback effects. Meanwhile, financial markets have become increasingly connected and economic and financial cycles more synchronized over time. Against the backdrop of past financial crises and the ongoing COVID-19 pandemic, we document and analyze trends in Asia’s financial interconnectedness over the past 3 decades, as well as its possible role in predicting financial crises. Employing a vector-autoregressive model and a panel probit regression, we find that financial interconnectedness increased across Asia and the Pacific, being particularly pronounced during past crises, including the present COVID-19 pandemic. We also find that increased interconnectedness is strongly and positively associated with the probability of crisis onset.

Meng-wai Lee · Kim-leng Goh ·Economics Bulletin ·2019

In Malaysia, infrastructure financing requirements can be served through domestic bond markets, including its corporate bond markets. However, financial crises have exacted a heavy toll on government debts, which are often funded by issuance of government bonds. Persistent fiscal deficits and growing issuance of government bonds can become a double-edged sword and result in crowding-out of private bond markets. This paper represents a first attempt to analyze the potential determinants of the domestic corporate bond market in Malaysia to facilitate a closer examination of the possibility of crowding-out on the Malaysian corporate bond market. This paper finds no evidence of crowding-out effects on Malaysia's domestic corporate bond market from the country's growing government debt. Importantly, findings strongly suggest that the well-functioning Malaysian government bond market has served as a strong foundation for the growth of its domestic corporate bond market.

Pancawati Hardiningsih · Indira Januarti · Etna Nur Afri Yuyetta · Ceacilia Srimindarti · Udin Udin ·International Journal of Energy Economics and Policy ·2020 ·JEL: E44, M14, Q56

This study aims to analyze the effect of sustainability information disclosure on financial and market performance. Using purposive sampling, this study obtains 21 mining sector companies in Indonesia and 18 companies in Malaysia. Regression analysis with WarpPLS is used to test the proposed hypotheses. The results show that environmental and social disclosure has a significant effect on return on assets, return on equity, price-earnings ratio, and Tobin’Q in Indonesia and Malaysia. Overall, there is no significant difference in financial and market performance between Indonesia and Malaysia. Good sustainability information disclosure further improves financial performance and trust among stakeholders and regulators in decision making, which in turn, increases corporate value.

Chee Yoong Liew; YoungKyung Ko; Bee Lian Song; Saraniah Thechina Murthy ·Journal of Industrial Business and Economics ·2022

We examine the association between directors’ compensation and firm value and investigate whether ownership concentration moderates this relationship by utilising a sample of Malaysian public-listed firms for the period from 2004 to 2014. Using fixed effect regression, we find that the remuneration of executive and non-executive directors is positively related to firm value. However, there is no conclusive evidence on the moderating effect of ownership concentration on the relationship between executive directors’ and non-executive directors’ compensation and firm value. Our findings indicate that executive and non-executive directors’ compensation packages should be linked to firm performance. The implication of this research addresses one of the key issues in corporate finance i.e., whether it is worth compensating directors in emerging markets or not.

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.

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.

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.

Ooi Kok Loang · Zamri Ahmad ·Millennial Asia ·2022

This study examines the existence, tendency and determinants of herding in the Malaysian stock market under market stress from 2016 to 2020. This study adopts ordinary least square and quantile regression models to estimate herding. Three types of measurements are used to capture volatility, which are realized volatility, Parkinson volatility and Garman and Klass volatility. The result shows that herding exists in the Malaysian stock market. Investors are observed to herd stronger in the bearish (down) market condition compared to bullish (up) market condition, especially in the upper quantile (τ > 50%). Realized volatility is found to be significant in every quantile except for the median quantile (τ = 50%) and Garman and Klass’s volatility is significant in the upper quantiles of 0.75 and 0.90. This study assists analysts and investors to formulate better investment strategies. Regulators and policymakers shall also control and regulate the herding behaviour of investors, which can deviate the stocks from their fundamentals. The existence of herding also violates the assumptions of EMH in assuming that investors are rational.

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.