Capital Market Performance Research Articles

Evaluation of Effect of Global Economic Meltdown on Capital Market Performance

The recent financial crisis that loomed the global economy was considered more inclusive than any other period of financial turmoil in the past 60 years. This paper evaluates the implications of the global economic meltdown on the Nigerian Capital Market Performance using the market capitalization of the Nigerian Stock Exchange as a major indicator. When the global economic meltdown came, it poses a recession on the Market Capitalization and the volume of share index of the Nation. This study depends entirely on secondary data in form of annual aggregate time series data of Market capitalization (dependent variable), exchange rate, interest rate, inflation rate, market share index with Dummy variable to represent the period of economic crisis. Ordinary least square of multiple regressions was used to analyze the data into econometric model while F-statistics was used to test for the formulated hypothesis. This study depicts that the global economic meltdown has a negative effect on the Capital Market Performance. It was therefore recommended that the Federal government and the regulatory agencies (CBN, NSE, SEC etc.) should come up with intervention and fiscal policies that will suppress these effects and jumpstart the capital market and that the policies should be properly implemented and monitored.

Capital Market Openness and Output Volatility

Capital Market Openness and Output Volatility

Social Capital and Immigrants' Labour Market Performance

This paper analyses the role of social capital on immigrants' labour market outcomes. We use the principal component analysis (PCA) to build an index of social networks and explore its impact on the probability of getting a job and on wage levels using the Households Income and Labour Dynamics in Australia (HILDA) longitudinal survey data. We find a positive effect of social capital on migrants' employment outcomes and wages, especially for women. Distinguishing employment into blue and white-collar jobs, we find that social capital only affects the probability of getting a white-collar job. These results suggest that promoting opportunities to create social capital has a beneficial effect on migrants' integration in the host country.

Stock Market Performance and Economic Development in Nigeria between 2003 and 2007

This study examined stock market performance and economic development in Nigeria between 2003 and 2007. The central focus is that a high level of capital market performance is a necessary condition for accelerating growth in an economy. This is because of the central role of the capital market system in mobilizing savings and allocating same for the development process. The study made use of secondary data, sourced for a period of 5 years. The study specified nine explanatory variables based on theoretical underpinnings. The study sought to establish a relationship between these variables and capital market performance index. The two stages least squares analytical framework was used in the analysis. A trend analysis was also done in the study. At the end of the study, it was found that capital market performance index is low in Nigeria over the years under review. The study also found that the nine explanatory variables, as a whole were useful and had a statistical relationship with capital market performance. But four of the variables; lending rates, capital market savings ratio, cheques/GDP ratio and the deposit money banks/GDP ratio had a significant relationship with capital market performance. We concluded that: the capital market system has not sustained an effective capital market intermediation, especially credit allocation and a high level of monetization of the economy. Thus the regulatory framework should be restructured to ensure good risk management, corporate governance and stemming systemic crisis in the system.

A study of the environment as moderator of the strategy and performance relationship of Brazilian companies

This paper was designed to identify and discuss the function of Industry level performance, in the relations between corporate strategic factors and performance, following the classic and modern prospects of Industrial organization theory, applied to the Brazilian industrial activities. Objects of this study are Brazilian enterprises, in activity between 1997 and 2006. The results obtained by the study of the proposed models show that this research intend was successfully reached, helping the understanding of the industrial environment role in the relations between corporate strategy and performance, under the vision of the industrial organization economy; Insignificance of the strategy role. A relation between industrial environment and organization performance was also found. Although no moderator role is played by environment, as former proposed in this study, the influence of the corporate strategies appears directly in the interlocking strategies, and indirectly in strategies in terms of size and diversification, through the length of time variations, which in turn influence positively variations in the capital market performance, this way suggesting adoption of an evolutionary perspective, when doing new researches on the theme.

The performance of Ghana stock exchange for the period 2000 to 2009

Stock markets play a crucial role in financial development; however, the ability of stock markets to play the role that is ascribed to them depends upon the presence of market efficiency and hence the performance of the market. The essence of this paper is to estimate the performance of the capital market as Ghana is striving to attain middle income status. Using Eviews statistical software we computed market volatility, liquidity of returns and serial correlation of returns using cross – sectional data. We also took into consideration the effect of inflation on the determination of performance of the market. The finding was that the market over the period under review performed well in terms of liquidity and volatility of the market. It was also established that in the determination of market efficiency the effect of inflation is an important factor one has to consider. That could be the reason why market efficiency in most developing countries turns out to be inefficient. This is simply because of the high rate of inflation in these countries. It is recommended that in determining market efficiency or the performance of the capital market we need to work with real data rather than nominal data. Key words: Ghana stock exchange, volatility, liquidity, real returns and nominal returns.

Exploring the Nexus; Stock Market, T. Bills, Inflation, Interest Rate and Exchange Rate

The main objective of this study is to examine the relationship between Karachi stock exchange and macroeconomic variables i.e. inflation rate, exchange rate, treasury bills and interest rate. Monthly time series data from January 2005 to December 2010 have been used to investigate the causal association among macroeconomic indicators and Karachi stock market. The co-integration test and Granger Casualty have been applied to drive the short and long-term investigation. The results found bi directional Granger causality among KSE and exchange rate and One way Granger causality exists among KSE and interest rate, no Granger causality found among KSE and inflation rate and KSE and treasury bills. Which means performance of macro-economic variable somehow affects the stock index; moreover, stock prices in Pakistan do not reflect the macro-economic condition of the country. This study emphasizes on the crash of macro-economic indicators on the capital market performance of developing countries. The performance of capital markets of developing countries calculated by these macro-economic indicators.

The Determinants and Consequences of Heterogeneous IFRS Compliance Levels Following Mandatory IFRS Adoption: Evidence from a Developing Country

ABSTRACT The adoption of international accounting standards, namely the IFRS, at the country level has sparked two contrasting, but not mutually exclusive, viewpoints. One view is that IFRS engenders better reporting standards, and uniform adoption allows for greater comparability. The upshot is that IFRS adoption will improve a firm's information environment and hence contribute toward a lower cost of capital. The alternative view is that disclosure quality is shaped by political and economic forces, and hence higher-quality accounting standards will not necessarily translate into higher-quality reporting. We empirically evaluate these arguments on IFRS adoption using both private and public-traded firm observations from Kenya, a developing country with relatively open capital markets but limited enforcement resources. Our analysis takes advantage of a unique dataset involving firm-specific measurements of IFRS compliance. We find that while both private and public firms are required to adhere to IFRS, public, rather than private firms, exhibit greater IFRS compliance. Highlighting the influence of capital market openness, we find that foreign ownership is positively and significantly correlated with IFRS compliance. Probing the underlying causal relationship, additional analysis suggests that greater foreign ownership leads to greater IFRS compliance. Examining the effects of IFRS compliance, higher compliance is positively associated with share turnover. Overall, our evidence illustrates both the importance of economic incentives in shaping IFRS compliance and the capital market benefits to being compliant with IFRS in a low enforcement country. JEL Classifications: M41; M44; M47; G15; G38.

Compliance with the German Corporate Governance Code and firm performance: a ten-year experience

In 2002, the German Corporate Governance Code (GCGC) was established to improve corporate governance of German listed firms and to make the German corporate governance system and firm-specific corporate governance more transparent for (international) investors. With regard to the empirical corporate governance research it is not sure, whether these non-enforced soft law standards might contribute to a management-based influence of the behaviour of the investors. This paper explores how far companies are in line with the GCGC and if investors reward companies which comply with the GCGC. Against theoretical assumptions, reviewing the empirical studies on this topic we find compliance with the GCGC not to affect German listed firms' capital market performance significantly positive. The findings give good reason to discuss whether in view of the behavioural financial accounting enforcement of good corporate governance via soft law or rules is convenient for a still developing German capital market and the German bank-based corporate governance system with traditionally low investor protection (insider system).

The Feldstein–Horioka Puzzle and structural breaks: Evidence from EU members

The purpose of this paper is to investigate the level of capital mobility in European Union members using the Feldstein–Horioka puzzle proposed by Feldstein and Horioka (1980) in order to investigate relations between saving and investment flows. In this paper, data for 23 European countries were used over the period of 1995–2009 on the quarterly basis. Two different tests were used to estimate the stationarity of the model variables, which are the Ng and Perron (2001) unit root test procedure and approach proposed by Zivot and Andrews (1992) for unit root test allowing for a structural shift. Then the Kejriwal and Perron (2008, 2010) structural break test was applied to determine the presence of structural breaks in series. In most countries except Belgium and Finland UDmax and WDmax tests rejected the hypothesis of no breaks. To test the cointegration relationships between investment and saving flows of European Union members three different cointegration techniques were applied to the data. Firstly, the Johansen (1988) cointegration approach was used for the case of no cointegration shifts, then the Gregory and Hansen (1996) cointegration test was applied, which allows for one structural shift. Finally, again the Johansen' cointegration approach was used; however, this time with the inclusion of dummy variables related to earlier selected structural break locations. The empirical results provided stronger evidence of cointegration between investment and saving variables in the case of structural break accommodation compared to the case where the presence of structural breaks was ignored. The estimated saving retention coefficient in the presence of structural breaks using the Kejriwal and Perron (2008, 2010) approach appeared relatively low in many cases, illustrating by this the openness of estimated countries. In general, world and European countries with time have a tendency to a higher level of their capital market openness. Estimations of a saving retention coefficient in the presence of structural changes do not support the existence of the Feldstein–Horioka Puzzle in the considered EU countries, except Belgium.

Opposition to Capital Market Opening

We employ a neoclassical growth model to assess the impact of financial liberalization in a developing country on capital owners' and workers' consumption and welfare. We find in a baseline calibration for an average non-OECD country that capitalists suffer a 42 percent reduction in permanent consumption because capital inflows reduce their return to capital while workers gain 8 percent of permanent consumption because capital inflows increase wages. These huge gross impacts contrast with the small positive net effect found in a neoclassical represent agent model by Gourinchas and Jeanne (2006). We further show that the result for capitalists is insensitive to enhanced productivity catch-up processes induced by capital inflows. Our findings can help explain why poorer countries tend to be less financially open as capitalists' losses are largest for countries with the lowest capital stocks, inducing strong opposition to capital market opening.

Efficiency and Its Impact on the Performance of European Commercial Banks

The paper empirically analyzes the impact of the degree of efficiency on key performance figures of publicly traded European banks in the period from 2005 to 2009. Efficiency is measured by constructing non-parametric frontiers using the technique of data envelopment analysis on the cost, revenue, and profit sides. Decomposition of overall efficiency provides a detailed insight into effective risk and performance drivers in the banking industry. The results of our paper suggest that an increase in pure technical efficiency is related to more volatile assets, which is reflected in lower market values. Allocative and scale efficiency, however, boost capital market performance.

Participation of Firms in Voluntary Environmental Protection Programs: An Analysis of Corporate Social Responsibility and Capital Market Performance

The Environmental Protection Agency (EPA) employs voluntary programs as a policy instrument to encourage firms to go beyond mere compliance with laws and regulations in protecting the environment. Based on event study methodology, this paper tests for abnormal stock market returns from membership in the National Environmental Performance Track (NEPT) program. The analysis shows that there is strong evidence that acceptance of a facility to the NEPT adds significantly to the market capitalization of the accepted firms. Corporate social responsibility can be financially rewarding for firms and voluntary programs of the EPA can be an effective complement to performance-based regulatory instruments.

The Determinants and Consequences of Heterogeneous IFRS Compliance Levels Following Mandatory IFRS Adoption: Evidence from a Developing Country

The adoption of international accounting standards, namely the IFRS, at the country level has sparked two contrasting, but not mutually exclusive, viewpoints. One view is that IFRS engenders better reporting standards and uniform adoption allows for greater comparability. The upshot is that IFRS adoption will improve a firm’s information environment and hence contribute towards a lower cost of capital. The alternative view is that accounting quality is shaped by political and economic forces and hence higher quality accounting standards will not necessarily translate into higher quality reporting. We empirically evaluate these arguments on IFRS adoption using both private and publicly traded firm observations from Kenya, a developing country with relatively open capital markets but limited enforcement resources. Our analysis takes advantage of a unique dataset involving firm-specific measurements of IFRS compliance. We find that while both private and public firms are required to adhere to IFRS, public, rather than private firms, exhibit greater IFRS compliance. Highlighting the influence of capital market openness, we find that foreign ownership is positively and significantly correlated with IFRS compliance. Probing the underlying causal relationship, additional analysis suggests that greater foreign ownership leads to greater IFRS compliance. Examining the effects of IFRS compliance, higher compliance is positively associated with share turnover. Overall, our evidence illustrates both the importance of economic incentives in shaping IFRS compliance and the capital market benefits to being compliant with IFRS in a low enforcement country.

Efficiency and Its Impact on the Performance of European Commercial Banks

The paper empirically analyzes the impact of the degree of efficiency on key performance fig-ures of publicly traded European banks in the period from 2005 to 2009. Efficiency is meas-ured by constructing non-parametric frontiers using the technique of data envelopment analysis on the cost, revenue, and profit sides. Decomposition of overall efficiency provides a detailed insight into effective risk and performance drivers in the banking industry. The results of our paper suggest that an increase in pure technical efficiency is related to more volatile assets, which is reflected in lower market values. Allocative and scale efficiency, however, boost capi-tal market performance.

The Effects of Capital Market Openness on Exchange Rate Pass-Through and Welfare in an Inflation Targeting Small Open Economy

This paper analyzes the impact of capital market openness on exchange rate pass-through and subsequently on the social loss function in an inflation targeting small open economy under a pure commitment policy. Applying the intuition behind the macroeconomic trilemma, the author examines whether a more open capital market in an inflation targeting country improves the credibility of the central bank and consequently reduces exchange rate pass-through. First, the effect of capital openness on exchange rate pass-through is empirically examined using a New Keynesian Phillips curve. The empirical investigation reveals that limited capital openness leads to greater pass-through from the exchange rate to domestic inflation, which raises the marginal cost of deviation from the inflation target. This subsequently worsens the inflation output-gap trade-off and increases the social loss of the inflation targeting central bank under pure commitment. However, the calibration results suggest that the inflation output-gap trade-off improves and the social loss decreases even in the presence of larger exchange rate pass-through if the capital controls are effective at insulating the exchange rate from interest rate and risk-premia shocks.

The Nigerian Capital Market and the Standard of Living: An Empirical Inquiry

The major engine of growth and development for any economy is the capital market which accommodates certain institutions for the creation, custodianship, distribution and exchange of financial assets and management of long-term liabilities. Hence, the extent to which a country’s economy has grown and developed can be explained by the degree of development of her capital market. The capital market is the pivot upon which any economy revolves, especially in its role of creating, mobilizing and rationing long-term funds for economic growth and development. Economic development often defined as a sustained increase in income per capital, has been one of the main objectives pursued by successive governments in Nigeria. This quest is understandable since it can improve the well-being of the poor and increase the welfare of all members of society. Thus, successive government in Nigeria has adopted several fiscal and monetary policies among which were debt rescheduling, privatization, and commercialization of government enterprises; and recently, the consolidation of the banking and insurance industry. In all these efforts, the capital market played a major role. This study is intended to empirically examine the impact of the Nigerian capital market performance on the standard of living in Nigeria. In pursuance of this, we constructed a model in which the dependent variable was Per Capital Income (the proxy for standard of living),while the explanatory variables were Market capitalization, All shares index Value of transactions, Volume of transactions and Number of listed companies (proxies for capital market performance). The Ordinary Least Square (OLS) regression model was used for the analysis of data collected. Multiple regression model was used with aid of Microfit Interactive Econometric Software Package. The results indicated that: Market Capitalization, Value of transaction, All-Shares Index and number of listed companies were positively related to and capable of influencing per capital income. The results have proved that the performance of the capital market impacts positively on the standard of living in Nigeria. The study has also revealed a high popularity problem as evidenced in the impact of volume of transactions on per capital income, and the high buy-hold attitude of Nigerian investors. However, it is important to note that the place of the capital market as a catalyst for Nigeria’s Socio-economic development will remain more significant in the years to come, as it helps to support national growth and development and invariably improved standard of living.

Wake up or fall asleep-value implication of trusted computing

More than 10 years have passed since trusted computing (TC) technology was introduced to the market; however, there is still no consensus about its value. The increasing importance of user and enterprise security and the security promised by TC, coupled with the increasing tension between the proponents and the opponents of TC, make it timely to investigate the value relevance of TC in terms of both capital market and accounting performance. Based on both price and volume studies, we found that news releases related to the adoption of the TC technology had no information content. All investors, regardless of whether they are individual investors or institutional investors, or they are wealthy individual investors or less wealthy individual investor, all have similar views on the value of TC. Further, we show that the accounting benefit gained from the adoption of TC is trivial, which might explain the price invariance and volume invariance we observed in the stock market.

On the Non-Linear Negative Relationship between Growth and Volatility under International Capital Flows

This paper treats capital flows as risky growth opportunities for both investing and host countries in a standard mean-variance model. Differing optimal tradeoffs between growth and volatility on both sides of capital flows are examined on the basis of their different attitudes toward destabilizing risk, different considerations of capital market openness, and different levels of financial sector development. It is established that growth and volatility may have a positive or a negative relationship in theory, but in practice, they are correlated negatively with each other. This negative correlation is persistently non-linear after some normalization, and significantly holds not only for developing but also for developed countries. The paper explains why one side’s push for financial liberalization comes across the other side’s resistance to it. This conflict of interest can be resolved via negotiations for compromise equilibrium at which each side’s optimal tradeoff is made internationally compatible.

International Capital Flows: Tradeoff at Optimum and Delay in Bargaining

This paper analyzes differing optimal tradeoffs between growth and volatility by both sides of capital flows on the basis of their different considerations of capital market openness and different levels of financial sector development. Since growth and volatility are negatively correlated, volatility must be kept low to derive high growth from capital flows if wanting to integrate deeply into the global market. The reason why one side’s push for capital market liberalization comes across the other side’s resistance to it is that the former may benefit from openness at the expense of the latter which is financially weak. This conflict of interest can be resolved via negotiations for compromise equilibrium at which each side’s optimal tradeoff is made internationally compatible. Given that strategic delay is used in bargaining as a signaling device for informational revelation, differing valuations of capital flows along with differing degrees of time preference may cause the Lucas paradox and bargaining delay. The paper shows that it does not pay an investing country to force host countries to liberalize their capital markets prematurely.