Dhaka Stock Exchange Research Articles

Investigating the Relationship between Stock Liquidity and Firm Value

Purpose: This paper aims to investigate the effect of stock liquidity on firm value (MV), operating income to price (OIP), market value of equity to market value of the asset (MVEA), and operating income to assets (OIA) ratios in Bangladesh. This paper also investigates whether firm size, leverage, or financial crisis have any moderating role to play on the liquidity-firm value relationship. Method: The study used panel data on 159 nonfinancial firms listed in the Dhaka Stock Exchange for the period of 2006 to 2019. Ordinary Least Squares, Fixed Effect, and Two-Stage least Squares estimation methods are used to determine the desired relationship. Results: The results show that stock liquidity has a positive and significant impact on firm value and the results are robust to alternative estimation techniques. The relationship is found more acute for small and less levered firms and more intense in the post-crisis (after the 2010 stock market crash) period in Bangladesh. Implications: The role of firm size, leverage, or financial crisis on the liquidity-firm value relationship will help corporate managers to adopt policies and strategies for improving the stock liquidity, changing investors' perceptions, and overall, increasing the depth and stability of the capital market in Bangladesh or elsewhere. Limitations: Due to the unavailability of data, for the robustness check, we couldn't use any alternative proxy of stock liquidity such as bid-ask spreads.

IFRS adoption and real earnings management in Bangladesh: The role of board characteristics

The adoption of the international financial reporting standard (IFRS) has become an important research topic and received considerable attention from many empirical researchers worldwide. However, to the best of the authors’ knowledge, it’s one of the very few efforts to examine the relationship between IFRS adoption and real earnings management (REM) with the moderating role of board characteristics (board size, independence, expertise, CEO duality, and gender diversity). The study employs 94 firms listed on the Dhaka Stock Exchange (DSE) for six years, i.e., 564 firm year’s observations, over two time periods as pre (2004–06) and post (2013/14-15/16) adoption of IFRS. The underpinning theory of the study is agency theory, which explains the relationship among variables. To perform regression analysis on balanced panel data, STATA was used with PCSE estimators. The results show that IFRS has a significant negative relationship with REM. Board expertise and gender diversity have a significant negative relationship with REM, whereas CEO duality has a significant positive association with REM. Moreover, it is documented that board size and CEO duality have a significant negative moderating effect on the relationship between IFRS and REM. In contrast, board expertise, board independence, and gender diversity have significant positive moderation. It implies that a strong corporate governance mechanism may help to attain the objectives of IFRS adoption in Bangladesh. Thus, the findings of this study may persuade regulatory authorities in Bangladesh to make corporate governance compliance mandatory with punitive action, which would also act as a guideline for developing countries.

Investigating Corporate Environmental Risk Disclosure Using Machine Learning Algorithm

The volume of the environmental risk disclosure in the annual reports of firms in the pharmaceutical and chemical, tannery, telecommunications, and paper and printing industries listed on the Dhaka Stock Exchange (DSE) in Bangladesh was analyzed in this paper. The research used a content analysis of the annual reports of 43 companies that represented four DSE sectors. To quantify the level of environmental risk disclosure reporting practiced by corporations in their annual reports, the authors established the ERDIPCI for the pharmaceutical and chemical industry, the ERDITI for the tannery industry, the ERDITeI for the telecommunications industry, and the ERDIPPI for the paper and printing industry. Similarly, the machine learning clustering algorithm, k-means clustering, is used to cluster the companies based on the completion of different environmental indices. It is observed that from four sectors, the highest number of companies from the pharmaceutical and chemical industry disclosed environmental risk disclosures, and the lowest number of companies was from the tannery industry, followed by the telecommunications and the paper and printing industries. The enterprises differ significantly in their environmental risk disclosures, and the overall scenarios of the environmental reporting practices by companies in Bangladesh are quite poor. It also shows that among the 43 companies, a limited number of enterprises are placed first. The majority of the businesses are in the midst of a cluster that reflects the increasing order of indices fulfillment. This paper provided a few specific proposals to the relevant authorities in order to establish a regularity framework in which all the firms listed on the DSE in Bangladesh will be expected to address environmental risk disclosures and conservation actions in their annual reports towards adaptation to climate change and achieving environmental sustainability.

Disclosure of key audit matters (KAMs) in financial reporting: evidence from an emerging economy

PurposeThe new audit regulation for disclosure of key audit matters (KAMs) in financial reporting has been introduced in both developed and developing countries. This study investigates the influence of three distinctive sets of variables, namely industry features, firm characteristics and auditor attributes, on the extent, pattern and level of disclosure of KAMs by companies listed in Bangladesh, an emerging economy.Design/methodology/approachThe study uses qualitative and quantitative research approaches to investigate the pattern of disclosure of KAMs and their determinants. With a sample of 447 firm-year observations from companies listed on the Dhaka Stock Exchange over 2018–2020, the study reveals industry-level, firm-level and auditor-specific characteristics that affect KAMs' communication in the new audit reporting model.FindingsThe findings suggest that significant differences exist between firms in the number and types of KAMs reported and the extent of their disclosure. The study findings also observed variations both within and across different industry sectors. Highly regulated firms disclose a greater number of KAMs, while environmentally sensitive firms are found to provide a greater detail of the issues presented as KAMs. Further, both firm size and age positively impact the number of KAMs disclosed and the extent of the disclosure provided. Big-4-affiliated auditors do not issue a significantly higher number of KAMs but deliver extensive details to their KAMs description, compared to non-Big-4 auditors. In addition, while auditors, in general, tend to issue boilerplate KAMs, Big-4 associates are found to disclose more new KAMs. However, audit fees and auditor rotation do not influence KAMs disclosure.Research limitations/implicationsThis study is based on two years of publicly available data. However, future studies could consider in-depth interviews to explore the motivation behind KAMs' disclosure in Bangladesh and other developing countries with similar cultural and contextual values.Practical implicationsThese findings have substantial policy considerations for improving firms' audit quality and, thus, their financial reporting quality, with implications for national and international standard-setters, regulators and other stakeholders.Originality/valueThis study is one of the earliest endeavours to investigate KAMs in a context of an emerging country, such as Bangladesh, which adopted KAMs' disclosure in 2018.

Fitting Multi-Layer Feed Forward Neural Network and Autoregressive Integrated Moving Average for Dhaka Stock Exchange Price Predicting

The stock market plays a vital role in the economic development of any country. Stock market performance can be measured by the market capitalization ratio as well as many other factors. The primary purpose of this study is to predict the movement of the stock market based on the total market capitalization of the Dhaka Stock Exchange (DSE) using autoregressive integrated moving average (ARIMA) models as well as artificial neural networks (ANN). The data set covers monthly time series data of total market capitalization from November 2001 to December 2018. This study also shows the best model for forecasting the movement of DSE market capitalization. The ARIMA (2,1,2) model is chosen from among the several ARIMA model combinations. From several artificial neural networks (ANN) models as a modern tool, a three-layer feed-forward topology using a backpropagation algorithm with five nodes in the hidden layer, one lag, and a learning rate equal to 0.01 is selected as the best model. Finally, these selected two models are compared based on the Root-Mean-Square Error (RMSE), Mean Absolute Error (MAE), Mean Absolute Percentage Error (MAPE), and Theil’s U statistic. The results showed that the estimated error of ANN is less than the estimated error of the traditional method. Doi: 10.28991/ESJ-2022-06-05-09 Full Text: PDF

Do Corporate Governance Mechanisms Truly Act as the Drivers of Shareholder Value in the Banking Sector in Bangladesh? Evidence from the Economic Profit Perspective

This study examines whether corporate governance mechanisms (CGMs) truly act as the drivers of shareholder value (SV) in the banking sector in Bangladesh from the economic profit perspective. The study employs a random-effects model to test hypotheses in a sample of 29 banks listed on the Dhaka Stock Exchange for the period 2014–2018. Relying on the test results of CGMs on SV measured from the economic profit perspective, this study finds that only the independent audit committee acts as a driver of truly creating shareholder value. Contrary to expectations, other CGMs in the analysis (e.g. board size, independent non-executive directors, audit committee size, audit committee meetings, and institutional shareholding) are not found to create true shareholder value. The outcomes of the study are a matter of concern for the regulatory bodies of the Bangladeshi banking sector and institutions involved in constructing the code of corporate governance, as the existing CGMs are suboptimal in the sense that they do not truly act as value-driving mechanisms for shareholder value.

Influence of Corporate Governance on Sustainability Disclosure in Bangladesh

This research aims to investigate the relationship between an organization’s corporate governance and sustainability disclosure in Bangladesh. The study further designates sustainability reporting disclosure practices. The study used content scrutiny of the yearly statement of 175 companies listed in Dhaka Stock Exchange (DSE) for the year 2018, applying determinants count procedure and ordinary least square (OLS) regression analysis. Findings revealed that the level of sustainability reported among the listed companies in Bangladesh is deficient. Board independence and audit independence have a positive relationship with sustainability reports, but the female members in the board, audit committee size, and corporate governance compliance index have a negative relationship with sustainability as reporting. The board size of the companies is not a significant determinant of sustainability reported. The use of content analysis method for the measurement of sustainability report considering the quantity and ignoring the quality of disclosure, data consideration for only one year may contain subjectivity matter from the researcher’s perspective. Future research should be conducted based on content analysis with a mixed method to increase the quality. The findings of this study guided the essentials for step-up and the pursuance of corporate governance on sustainability exposure. This study contributes to works of literature on the association of corporate governance with sustainability disclosure.

Investigating the Impact of Bank-specific Determinants on Stock Price of Listed Commercial Banks: Evidence from Emerging Economy

This paper attempts to investigate the impact of bank-specific determinants on the stock price of Dhaka Stock Exchange (DSE) listed commercial banks in Bangladesh. Several bank-specific factors such as Book to Market Ratio, Return on Equity, Price/Earnings to Growth Ratio, Cash Flow per Share, Debt to Equity Ratio, Earnings per Share, Dividend per Share, Bank Size and Institutional Ownership Percentage have been analyzed for this study and tried to see the impact of each variable on the change in market price of share of 10 listed commercial banks spanning from 2011 to 2020. In empirical discussion four estimation models such as Fixed effects, Random effects, GLS, and Pooled OLS approach have been used to ensure the robustness of the models. To examine the validity of the models chosen for this study, the model specification test and many diagnostic checks were used, including the test of heteroskedasticity, the cross-sectional dependence test, the test of autocorrelation and the unit root test, etc. Our investiagtion reveals that only Bank Size and Book to Market Value explanatory variables are found significantly responsible for fluctuation in the change in share price of banks, contributing to the current literature by revealing the importance of bank-specific factors that include all metrics in their calculation. As a result, Bangladesh's DSE-listed banks should take appropriate measures to boost their stock values, such as attempting to improve the ratio that has a positive impact on the share price while decreasing the ratio that has a negative impact.

Exploring the influence of behavioral aspects on stock investment decision-making: a study on Bangladeshi individual investors

PurposeDetermining the impact of behavioral influences on the stock market has significant implications for investment analysis and portfolio management. Behavioral biases are parameters that need to be considered in investment decision-making. The purpose of this study is to inform Bangladeshi investors about behavioral biases that they may encounter when making investment decisions in the prevailing frontier environment.Design/methodology/approachThrough the chi-square test, one-way ANOVA, paired-samples t-test and descriptive analysis based on the facts collected from 281 respondents of the Dhaka Stock Exchange (DSE), the study has found that individual investors of Bangladesh often make investment decisions emotionally rather than based on theories.FindingsThe result shows that risk aversion and risk perception are the two most influential emotional dimensions that impact investors' decisions. The findings are consistent with the other researchers and highlight the fact that investors hardly act according to the norms recommended in the financial theories.Research limitations/implicationsThe findings are grounded on a small portion of investors at DSE on some particular days, which is not sufficient to study individual investors' entire complex decision-making behavior from various angles. Many respondents were reluctant and even confused to disclose their behavioral aspects. These, along with biased and careless answers, may impede the identification of the actual scenario of the behavioral responses in decision-making that demand further study.Originality/valueThe novelty of this study is unique in that it examined investors of the DSE, who are considered to be a representative in a frontier market like Bangladesh. Since this market is not very resilient, small investors need to be aware of the biases of behavioral factors to survive.

Does Share Price of Banking Industry Follow Stock Valuation Model?

Many factors and actors affect the market value of shares but this study is to investigate whether the share price of banking industry of Bangladesh follows any stock valuation models. Data were collected from the annual reports of selected 18 commercial banks listed in Dhaka Stock Exchange over the period of 2014-2018. Some stock valuation models such as ‘Variable Growth Model’, ‘Price Earnings Multiple Model’ and ‘Book Value Model’ have been applied to calculate the value of the share. Besides, ‘Gordon Model’ has been applied to calculate the ‘Require Rate of Return’ of equity. Moreover, ‘Kruskal-Wallis’ test has been applied to test whether the market value of share follow any stock valuation models. The study finds that the share price of banking industry of Bangladesh follows ‘Price Earnings Multiple Model’ as well as ‘Book Value Model’ but does not follow ‘Variable Growth Model’. On the basis of the findings, the study suggests that investors should consider stock valuation models to calculate value of the share before investing in banking sector.

HUMAN RESOURCE DISCLOSURE: A CASE STUDY ON LISTED BANKING COMPANIES IN BANGLADESH

As human resources (HR) are considered a strategic capital and the success of an organization highly depends on skilled manpower, it is essential to investigate HR disclosure practices. A dearth of research on human resource disclosure motivates this study to evaluate the human resources disclosure practices in the Bangladeshi banking industry. Using content analysis, the disclosure data are collected from the annual reports of 30 listed banks on the Dhaka stock exchange (DSE). Among the sample, 40% of the banks disclose HR practices within the range of 50%-60%, indicating that the banking sector has a wide scope to improve its HR practices. The average HR disclosure practice in the banking industry in Bangladesh is 59.25%. Of which, the highest disclosure is recorded by the HR development 91.25%, while the lowest is in the health and safety, documented by only 19.45%. The highest HR practices are recorded by Prime bank limited while the lowest is performed by EXIM and Standard bank limited. Therefore, the study suggests the banks’ managers, regulatory bodies and academicians focus more on the HR disclosure issue to encourage and formulate relevant policies that might create a more favorable working environment for the HR.

Profitability Determinants of Non-bank Financial Institutions under Basel Regulations: Evidence from a Frontier Market

This article examines the impact of firm-specific and macroeconomic variables on non-bank financial institution (NBFI) profitability in Bangladesh undertaking a gradual implementation of Basel III regulatory standards. One-step difference generalized method of moments (GMM) model is applied on a dataset comprising 15 NBFIs listed on the bourse of Dhaka Stock Exchange (DSE) Limited with a time span of 9 years ranging from 2011 to 2019. In this study, NBFI profitability is measured by return on asset (ROA) and return on equity (ROE). The results of the panel data analysis demonstrate that capital adequacy ratio (CAR), non-performing loans (NPL), gross domestic product (GDP) and inflation (INF) affect NBFI profitability negatively whereas debt to equity ratio (DER) and cost of funds (COF) have a statistically significant and positive impact on the same. The findings of this study are of the essence for policymakers, regulators, investors and other stakeholders in the financial market.

Corporate Social Responsibility Disclosure and Firm’s Productivity: Evidence from the Banking Industry in Bangladesh

Since the empirical evidence on the relationship between corporate social responsibility disclosure (CSRD) and firm productivity is scarce in the context of the banking industry, the study examines whether CSRD leads banks in Bangladesh to higher productivity. Using annual report data of all 30 banks listed on the Dhaka Stock Exchange in Bangladesh from 2011 to 2018, the study applied a data envelopment analysis (DEA) to determine the productivity of the sample banks, and then ordinary least squares (OLS) analysis to examine the impact of CSR on the banks’ productivity. Furthermore, the study utilized two-stage least squares (2SLS) and a generalized method of moments (GMM) to check the robustness of the findings amid the detection of endogeneity issues. The study also used several alternative variables to check and verify the reliability of the study. The findings indicate that the greater a bank’s contribution to CSR, the higher its productivity. However, banks with more debt to assets are less productive. Additionally, the study observed that the impact of CSRD on bank productivity is higher in GRI banks compared to non-GRI banks, non-politically connected banks as opposed to politically connected banks, and conventional banks compared to Islamic banks. The study provides valuable insight into how CSR activities can promote bank productivity, thus motivating the banks to execute a well-thought-out action plan to ensure more CSR contribution. This study is the first ever bank-level evidence that provides insight into how the patterns of CSR activity of publicly traded banks impact their productivity.

Anti-Corruption Disclosure, Corporate Social Expenditure and Political Corporate Social Responsibility: Empirical Evidence from Bangladesh

Corruption is a major concern globally, particularly in developing countries, such as Bangladesh, where it is the main obstacle to economic development. Corruption is also mentioned as the major impediment to accomplishing sustainable development. There is a dearth of studies on anti-corruption disclosure (ACD), political corporate social responsibility (PCSR), and cash holding in Bangladesh magnitude of this research. This study investigates different drivers and motivations of ACD practice of a less control of corruption country’s firm-level observations. This study incorporates an institutional and legitimacy theoretical lens to explain anti-corruption disclosure practice. In order to draw the best picture of corruption disclosure, the study uses all financial sector companies listed on the Dhaka Stock Exchange. Therefore, the total firm-year observations are 245 from 2012–2016. The authors developed a diverse set of 97 keywords as content for ACD. The regression results show that CSR expenditures, political corporate social responsibility (PCSR), financial constraint, internationalization of reporting, and media visibility positively and significantly affect firm-level ACD. Furthermore, cash holdings show negative and significant relationships. The study provides new evidence on CSR expenditure, PCSR, cash holdings, and media visibility from a developing country’s perspective. Therefore, the results suggest that policymakers and regulatory authorities can deal with ACD as a legitimization tool for society and stakeholders.

An Empirical Study on Microeconomic Factors Affecting Stock Price: A Study on Insurance Companies Listed in Dhaka Stock Exchange

An Empirical Study on Microeconomic Factors Affecting Stock Price: A Study on Insurance Companies Listed in Dhaka Stock Exchange

DISRUPTION OF CONTINUITY OR BUSINESS AS USUAL?: A SECTORAL ANALYSIS OF THE IMPACT OF COVID-19 ON EQUITY MARKETS IN BANGLADESH

The present paper analyses the impact of the COVID-19 breakout on the frontier stock market Dhaka Stock Exchange (DSE), exemplified by the case of Bangladesh. This study is based on secondary data from the official website of the Dhaka Stock Exchange. The sampling period extends across two sub-periods, referred to as the pre-lockdown period, extending from March 19, 2019, to March 25, 2020, and the re-opening period stretching from May 31, 2020, to March 11, 2021. Taken together, both sub-periods include a maximum of 442 data points. Our dataset consists of 106 listed companies from the Pharmaceutical, Engineering, and Insurance sectors in DSE. A classical Chow test was used to detect structural breaks. In a vast majority of cases, our results confirm the presence of structural breaks as an effect of Covid-19 by rejecting the null hypothesis. Our analysis of the statistical risk-return profiles of the companies under investigation indicates that the temporary interruption of stock trading in DSE was indeed a “game-changer”. Moreover, our findings support the view that pairwise return correlations tend to be larger during rapid market downturns than they are under “normal” or “positive” market conditions.

Corporate Social Responsibility (CSR) Disclosures in Group Affiliated Firms and Politically Connected Family Firms: Empirical Evidence From a Traditional Society

This paper explores whether the political connections in group-affiliated firms and family firms have any impact on the corporate social responsibility disclosure (CSRD) practices in a traditional society. Using a total sample of 792 company year observations from the Dhaka Stock Exchange (DSE) from 2010-2018, this paper documents that the firms, which are group affiliated and which are family controlled, are positively significant to CSRD, indicating more disclosure of CSR information. However, when the family firms are politically connected, the CSRD is negatively significant. Without denying the benefits of alternative theoretical lenses adopted in disclosure studies, this paper tries to identify whether elements of “traditionalism” such as display of loyalty to master, domination and control, as characterized by (Weber, 1978), can be used to explain the determinants of social and environmental disclosure in developing/ traditional economy. This paper contributes to the CSR literature by providing an alternative theoretical perspective for traditionalist societies and connecting political affiliation and ties of family firms and group affiliated firms with CSR disclosure. It provides a deeper insight into the dynamics and interplay between group affiliated firms and family controlled firms, its ownership structures and governance mechanism with the disclosure practices in a traditional setting.

Testing and Determining the Form of Market Efficiency in Dhaka Stock Exchange (DSE)

This paper is focused on the idea of whether Dhaka Stock Market (DSM) is efficient in weak-form of Efficient Market Hypothesis (EMH) or not. As any country’s economic condition can be indicated by the efficiency of its stock market, so determining and measuring the different forms of efficiency has always been a well explored topic for researchers. In this paper, attempts have been made to determine and test the market efficiency and randomness of Dhaka Stock Exchange (DSE) in weak form. The entire Dhaka stock exchange has been evaluated by employing daily return from the two indices- DS30 and DSEX. Employing the normality test it is found that both the return series are not normally distributed. Moreover few parametric tests named Augmented Dickey-Fuller test (ADF), Autocorrelation Function (ACF), and Variance Ratio test (Lo & MacKinlay) have been done to examine the historic price dependencies or to examine the random walk hypothesis. The entire test results suggested that DSE is not efficient in weak form which means return from DSE does not follow a random walk.

CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF FOOD INDUSTRY: AN AGRO-BASED EMERGING ECONOMY PERSPECTIVE

This study aims to investigate the relationship between capital structure and profitability of food industry from an agro-based emerging economy perspective. To attain the objective, we have compiled panel data food and allied companies, representing 64% of total population, listed in Dhaka Stock Exchange and administered ordinary least square (OLS), fixed effect model (FEM), and random effect model (REM) estimate to test the impact of capital structure on the profitability of listed food companies in Bangladesh. The current study usage three proxy variables as the measure of profitability, viz., return on assets (ROA), return on equity (ROE), and earnings per share (EPS). Our panel data estimation using EViews 10 demonstrates that short term leverage has a significant negative impact on ROA (OLS model) and a strong positive impact on ROE (REM estimation) of the listed food and allied firms. However, the study do not produce any significant effects of long term debt on the firm profitability. The findings of the current study help develop the understanding of the corporate managers, investors, policy makers, and academics about the relationship between optimum financing mix and financial performance of food industries and provides valuable insights from an agro-based emerging economy perspective.

Impact of Financial Performance on Green Banking Disclosure: Evidence from the Listed Banking Companies in Bangladesh

This paper examines the impact of green banking disclosures on the quality of financial performance over thirty listed banks of the Dhaka Stock Exchange. Time-series data through the year 2014 to 2017 have been scrutinized, out of which we have selected 70 effective samples because of the availability of the green banking disclosures. Multivariate analysis has been conducted where the spending on green banking is used as a dependent variable, the proxy variables of green banking disclosures. As the independent variable of financial performance, we have used three dimensions: profitability, liquidity, and solvency. The ROA, LR, and DAR have been used as proxy variables simultaneously. We found that green banking disclosures and ROA have a considerable positive relationship. In contrast, the other two financial performance variables, LR and DAR, have no statistically significant relationship with green banking spending. The study's findings will encourage the highly profitable listed banks to invest more in greening their activities, ultimately leading to sustainable development in this sector.