Financial Firms Research Articles

Does Earnings Quality Affect Investment Efficiency? Evidence from Listed Firms in the Nairobi Securities Exchange of Kenya

Aim/purpose – This paper aims at examining the impact of earnings quality on investment efficiency. The motivating factor is occasioned by poor financial reporting quality standards, higher costs of investment that characterize most developing countries and in particular Kenya where agency problems and insufficient information sent to the public by managers are rather severe and likely to lead to inefficient investment. Design/methodology/approach – This study uses a sample of 28 Non financial firms listed in the Nairobi Securities Exchange and data for the period 2010-2020. Data was analyzed through fixed effects regression analysis. Findings – The study finds a positive link between earnings quality and investment efficiency of firms listed in the Nairobi Securities Exchange. Specifically, high earnings quality increases investment efficiency and improves investment project selection by reducing information asymmetry between managers and shareholders. Research implications – Based on the results, the study recommends that since earnings quality enhances investment efficiency, firms need to strengthen internal mechanisms and increase earnings quality. Besides, corporate shareholders should pay more attention to the earnings quality to gain more return on their investment opportunities. Further, it is necessary for shareholders to continuously monitor the firm's activities and prevent adverse activities from harming their interests.

Related party transactions, ownership structures and cost of debt: evidence from GCC listed firms

PurposeThis study aims to investigate the relation between firms’ use of related party transactions (RPTs) and cost of debt (COD) in Gulf Cooperation Council (GCC) countries.Design/methodology/approachThe authors obtain data from annual reports and the Standard and Poor’s Capital IQ database over the period 2005–2016 period of nonfinancial publicly listed firms on the UAE, KSA, Oman, Bahrain, Kuwait and Qatar stock exchanges. Using a final sample of 1,810 firm-year observations, the authors empirically assess the relation between strategic use of RPTs, the COD issuance and the moderating effects of governance mechanisms.FindingsThe authors find that high levels of total RPTs and purchase-based RPTs increase firms’ COD. Furthermore, propping of sales through increased sale-based RPTs is found not to have a significant effect on firms’ COD. The authors also find that ownership factors pertaining to family member founding and royal family ownership negatively moderate the association between the firm’s RPTs and COD. Additionally, the voluntary formation of executive committees has a positive and significant mediating effect on the relation between firms’ purchase-based RPTs and COD. The results are robust to several additional tests and alternative measurement specifications.Research limitations/implicationsThe positive relationship between purchase-based RPTs and firm financing costs is magnified in countries with high quality of RPT disclosures. This has implications for funding of GCC entities by governments and financial institutions.Originality/valueTo the best of the authors’ knowledge, this study is the first to examine how wealth transfer via RPTs in the GCC region is associated with higher COD. The authors also contribute to the outcome of emerging governance regimes in the GCC, which could impact the level of credit risk and/or default risk faced by a firm and, thus, the relation between RPTs and COD. In doing so, the authors provide a more nuanced study by investigating the potential channels that could account for such a relation in an emerging market setting.

Hedge fund manager timing and selectivity skill over time. A holdings-based estimate

We study the performance of hedge fund firms from 1999 through 2017, employing a holdings-based approach to decompose overall performance into stock selection and three distinct timing abilities: market return, volatility, and liquidity. In particular, we introduce a liquidity timing ability for the first time using a holdings-based measure. In aggregate, we find evidence for stock picking skill that diminishes over time, but little evidence of timing ability. We find weak evidence that managers exhibit persistence in selectivity skill. At the individual hedge fund firm level, bootstrap analysis suggests that the top managers’ selectivity skill can be separated from luck.

Determinants of litigation risk in the Jordanian financial sector: the role of firm-specific indicators

Purpose This study aims to examine the impact of firm indicators on litigation risk in the Jordanian financial sector from 2017 to 2021, where the relationship between firm indicators and litigation risk in the Jordanian financial sector is a crucial area of research that can help financial institutions understand the factors that increase their probability of litigation risk. Design/methodology/approach The sample for this study comprised 92 publicly traded financial firms listed on the Amman Stock Exchange. The study used a quantitative research approach to analyse the relationship between four firm indicators (profitability, firm size, leverage and age) and their impact on litigation risk in the Jordanian financial sector from 2017 to 2021. Findings Our findings reveal that firm size has a significant positive impact on litigation risk, whereas profitability was found to have no significant impact on litigation risk. Moreover, the authors found that financial leverage substantially positively impacts litigation risk levels. However, the firm age was found to have no significant impact on litigation risk. Originality/value The results provide valuable insights into factors contributing to litigation risk in the Jordanian financial sector and the findings can inform strategic decisions for financial firms as they seek to manage litigation risk and improve financial performance. The study contributes to the existing literature on litigation risk by examining the impact of multiple firm indicators on litigation risk in the context of the Jordanian financial sector.

“We made a mistake”: How top executives dialectically narrate strategic errors in situations of strategic change

Based on 21 in-depth interviews with chief executive officers (CEOs) and board chairs leading 900,000 people in large financial firms in Europe, this study surfaces the acknowledgment of strategic errors in top executives’ narratives as a broad theme associated with strategy change. This theme is intriguing because errors are typically associated with negative connotations undermining leaders’ self-image and credibility. More specifically, this study identifies in top executives’ error narratives a dialectic process consisting of mobilizing errors and de(if)fusing errors or distancing themselves from them; the paper models seven narrative practices within the process. As a first contribution to narrative research on strategy and change, this study introduces strategic errors as a narrative trigger in top executives’ retrospective accounts of strategy change, frequently associated with the plausible economic failure of their firms. Second, while extant research generally focuses on the coherence of individual narratives, this study adds on the relatively rare studies recognizing a dialectic in individual narratives on change.

Managerial incentives for ESG in the financial services industry: direct and indirect association between ESG and executive compensation

PurposeThis study investigates the empirical association between environmental, social and corporate governance (ESG) performance and top executive compensation in the US financial services industry. Considering that financial firms can inflict systemic shocks across the economy, it has been argued that they must conduct ethical and sustainable business in accordance with ESG principles. This study examines whether ESG efforts are beneficial to managers.Design/methodology/approachThe authors use CEO compensation and ESG performance ratings data for all US financial firms (SIC 6000–6799) from 2015 to 2019. Employing fixed effects regressions, the authors test whether lagged ESG performance is related to CEO compensation, after controlling for other firm characteristics such as size, financial performance, leverage and CEO stock ownership.FindingsThe authors find that lagged ESG ratings are strongly associated with all forms of compensation. An increase of one standard deviation in the composite ESG rating is associated with a 14%–16% increase in the total pay. Among the three ESG pillars, only S (social) and G (governance) exhibit persistent and significant associations with both short- and long-term executive pay. The authors also document the significant moderating effects of ESG on the relationships among firm performance, size, leverage, ownership and executive pay, identifying how ESG is associated with compensation.Originality/valueThe authors conclude that managers receive ESG incentives implicitly and explicitly. The novel finding of direct and indirect associations between ESG and top executive compensation contributes to the growing ESG literature on the financial sector and ongoing debate about the explicit inclusion of ESG targets in compensation design.

Financial Statements Fraud of Banks and other Financial Institutions in Nigeria

Purpose: There is evidence that managers engage in opportunistic practice to manipulate reported performance to attract unsuspecting investors. This paper seeks to detect the likelihood of manipulations on the financial reports of financial service firms (banks and other financial institutions) as well as to identify the financial indicators that are the likely predictors of the probability of manipulations in Nigeria. Theoretical framework: The M-score models, from Beneish (1999), are employed as theoretical basis for the paper. The model use financial ratios computed using accounting data to confirm the probability that firms’ reported earnings are manipulated. Design/Methodology/Approach: The study uses data from the Nigerian Exchange Group, from 2010 to 2019 to compute M8/M5-scores and classify firms into likely manipulators and unlikely manipulators. In addition, a probit regression model was applied to establish financial ratios that significantly predict the likelihood of FSF amongst the financial firms. Findings: The results based on M8 (M5)-score indicate that 26.67% (23.33%) of firms likely manipulate financial books and exhibit the possibility of FSF. In addition, only sales in receivable, sales growth, depreciation expenses, leverage and accruals to assets ratios are found to be (positive) significant predictors of the probability of manipulations. Research, Practical & Social implications: The implication of the outcome is that subjecting financial statements to empirical and statistical scrutiny should not be ignored because it would detect and reduce associated risks to manipulations. Therefore, more regulatory interventions and empirical auditing of reports are needed to ensure their readability and reliability to the investors. Originality/Value: The study offers a novel and first evidence, based on Beneish M-score, to scrutinise reports of financial firms in Nigeria. The evidence ensures quality reporting of the financial statements in order to credibility as well as protect the integrity of the capital markets.

Adoption of Cloud-Based Accounting to Achieve Sustainable Development in Banking Industry: A Case of Indonesia

Objective: This study aims to explain the factors that influence of cloud accounting adoption in the Banking industry by applying the technology acceptance model (TAM) and technology-organization-environment (TOE). Methods: The research method that was evaluated empirically used survey data from employee in banking industry. Data processing was carried out using Partial Least Squares-Structural Equation Modeling (PLS-SEM). Result: The results showed that management support, organizational competence, service quality, system quality, perceived usefulness and perceived ease of use had a significant relationship with intention to use cloud accounting. The intention to adopt of cloud accounting had a significant relationship to the use of cloud accounting. Conclusions: This research contributes to a theoretical understanding of the factors that enable the intention to adoption of cloud accounting while providing benefits to financial firms in general that enable them to further develop cloud accounting frameworks.

Moderating Effect of Audit Liberty on Reporting Timeliness of NonBank Financial Firms in Nigeria

This study investigated the effect of auditors’ liberty on audit reporting timeliness of financial firm in Nigeria from (2011-2020). Two research hypotheses were formulated for the study. Expost facto research design was employed in the study. The population of the study included all financial firms quoted and trading on the Nigerian Exchange Group (NXG) (NSE) as at 31st December 2021 with a sample size of Twenty-three (23) financial firms selected from the population sector. The study relied on secondary sources of data which was obtained from Annual reports of sampled firms as provided by individual firms and Nigerian Exchange Group (NXG) website. Random Effect Panel least square regression analysis was employed in validating the hypotheses. The study revealed a significant negative effect of audit fees on audit reporting timeliness while there is no moderating effect of audit committee gender diversity on the association between audit fee and audit reporting timeliness. Consequent on the findings, the study therefore recommends amongst others that companies should engage Audit firms with better exposure who will put due diligence and professional ethics above any pressure resulting from high or low fee. The study also recommended that firms should budget an optimal amount for audit fees to ensure they do not spend more than necessary yet not compromising audit quality and reporting timeliness. Further studies can be undertaken on other specific factors that affect audit report lag in manufacturing companies and the oil and gas sector.

Board diversity, Political Connections and Firm value: An Empirical Evidence from Financial Firms in Nigeria

This study investigates the effect of board diversity, political connections, and firm value on the listed financial services firms in Nigeria. Firm value, proxied by Tobin's q and computed as the ratio of the firm's market value of equity to its book value of total assets, is the study's explained variable, while board gender diversity, board nationality, board ethnic diversity, and political connections are the study's explanatory variables. The study’s population consists of 51 listed financial service firms on the Nigerian Stock Exchange as of December 31, 2020. Thirty-five (35) of these firms made up the sample size for a period of nine years (2012–2020). Data was gathered from the annual reports of the sampled companies and analyzed using the feasible generalized least squares regression (FGLS) approach. According to the study, board gender diversity, board nationality, and board ethnic diversity have a positive and significant effect on the firm value of listed financial service firms in Nigeria, whereas political connections have a positive but insignificant effect. According to the findings, the boards of directors of listed financial service organizations in Nigeria should ensure that females are considered for directorship seats on the boards, as suggested by the resource dependency theory.Also, the board should be made up of foreign directors in order to lure foreign investors to the firm and enhance its value. In addition, the boards of directors of listed financial services firms in Nigeria should consist of a mix of both northerners and southerners to leverage national spreads and improve firm value.

Does Cross-Border-Establishment Improve Competition and Performance of Indonesia’s Financial Sector?

This study examines the effects of cross-border establishment of financial institutions on competition level in Indonesia’s financial sector. We use sample data on all conventional banks, securities firms, life and general insurance companies from 2013-2020. To measure competition, we use Lerner index, Boone indicator and Panzar-Rosse. Our analysis shows that the entry of foreign financial institutions may increase the competition in the financial sector. Further analysis shows that the increasing competition have positive impact to profitability and intermediation, reflected by the return on asset, loan ratio, transaction value, and insurance premium income to total asset ratio. However, foreign financial firms tend to have higher market power compared to domestic counterparts due to the efficiency in doing their businesses. Hence, domestic financial institutions need to boost efficiency, particularly through the adaption of technology and capacity enhancement of human resources, in order to compete with more advanced foreign financial firms.

Board Gender Diversity, Board Ethnic Diversity and Firm Value of Listed Financial Firms in Nigeria

This study investigates the effect of board gender diversity, board ethnic diversity, and firm value on the listed financial service companies in Nigeria. Firm value, measured by Tobin's q and computed as the ratio of the firm's market value of equity to its book value of total assets, is the study's explained variable, while board gender diversity and board ethnic diversity are the study's explanatory variables. The study’s population comprises fifty-one (51) listed financial service firms on the Nigerian Stock Exchange as of December 31, 2020. Thirty-five (35) of these firms made up the sample size for a period of nine years (2012–2020). Data was acquired from the sampled companies' annual reports and analyzed using the feasible generalized least squares regression (FGLS) approach. According to the study, board gender diversity and board ethnic diversity had a significant positive impact on the firm value of listed financial services firms in Nigeria. According to the findings, the boards of directors of listed financial service organizations in Nigeria should ensure that females are considered for directorship seats on the boards in order to increase their value, as suggested by the resource dependency theory. In addition, the boards of directors of listed financial services firms in Nigeria should consist of a mix of both northerners and southerners to improve firm value.

The effect of corporate social responsibility on firm performance: Evidence from Vietnam

The vitality of corporate social responsibility (CSR) toward sustainability has been rising rapidly in business activities. Good CSR practices are one of the most critical instruments to satisfy stakeholders’ interests and improve business performance. This study explores the nexus between economic, social, and environmental dimensions of CSR and firm performance based on a balanced scorecard. The sample includes 336 Vietnamese enterprises, excluding financial firms. The survey was conducted from March to June 2021. The empirical results of the partial least squares structural equation modeling (PLS-SEM) demonstrate that CSR significantly affects company performance. The economic dimensions of CSR have the strongest impact on financial performance (p < 0.01; t > 2.57; sample mean is 0.362). However, the environmental dimensions of CSR have not been found to influence customer performance. This study also finds that the three dimensions of CSR positively impact learning and growth, which lead to higher internal business processes and then better customer performance, eventually positively influencing profitable results. Consequently, the firm’s leaders should have strategies for effective CSR implementation to increase financial performance and achieve sustainable development goals. Furthermore, the government and other organizations should actively improve legal policies and regulations related to CSR in order to ensure organizational and national sustainability. AcknowledgmentThis study is funded by Funds for Science and Technology Development of the University of Danang under project number B2020-DN07-08.

Monetary transmission and government investment in China

The quantity measure of money supply—the M2 growth, in particular—has been used as the intermediate target of monetary policy in China since 2000. We document three findings on the transmission of money supply shocks to firm investment and financing over the period from 1998 to 2016. First, positive money supply shocks have significant negative effects on firm investment and do not have consistent impacts on firm financing, contradicting the standard monetary transmission mechanism. Second, using short-term global capital flows as an exogenous money supply factor, we recover the standard positive effect of money supply shocks on firm investment and financing, suggesting that M2 growth contains confounding factors and it is inappropriate to use it directly as an intermediate target or indicator of monetary policy. Third, we show that removing the government investment-related component from M2 growth leads to a monetary supply measure that conforms to the standard monetary transmission mechanism. Overall, we argue that our refined measure of M2 growth can serve as a superior indicator for the intermediate target of monetary policy in China.

Corporate Social Responsibility and Firm Financial Performance: The Mediating Role of Firm Innovation

This study aimed to determine the effect of Corporate Social Responsibility (CSR) on the financial performance of companies in the mining sector listed on the Indonesia Stock Exchange (IDX) in 2018-2021. It also aims to explore the role of corporate innovation as a mediating factor in the link between CSR and financial performance. The sampling technique in this study was purposive sampling. Path analysis is used as a data analysis technique in this study. The results of the study show that CSR has a positive effect on financial performance and firm innovation. In addition, firm innovation has a positive effect on financial performance. The results also support the partial mediating effect of firm innovation on the relationship between CSR and corporate financial performance. The findings of this study can increase stakeholder awareness of the importance of CSR. This is because CSR is proven to be one of the important drivers for companies to be more innovative and gain competitive advantage

Data Access Technologies and the ‘New Governance’ Techniques of Financial Regulation

Abstract Modern data and information technologies are having a profound impact on financial services and opening new frontiers in regulation. This article explores the opportunities for using modern tools of data access and sharing to embed regulatory objectives within the management and decision-making processes of financial firms. This can enhance oversight of prudential and conduct risks as well as substantially lowering compliance costs. It can also help address the information imbalances that limit the effectiveness of older approaches in which the firm is a ‘black box’ that can only be externally supervised. The central challenge is establishing an appropriate governance of data in regulated firms to ensure the achievement of both regulatory and business objectives. Such an approach can be viewed as a further and more radical development of established ‘new governance’ techniques of financial regulation.

Effect of Environmental Disclosure on Shareholders’ Value Maximization: Evidence from Non-Financial firms in Nigeria

This study examined the effect of environmental disclosure on shareholders’ value maximization. The population of the study is all quoted non financial firms listed in Nigerian Stock Exchange. Sample of 60 companies from different sectors were used for the period of ten years spanning from 2011 to 2020. The study employed ex-post facto and cross sectional research design. The secondary sources of data were collected from annual reports and account of the selected non financial firms quoted in Nigeria stock exchange and three (3) specific objectives and hypotheses were tested and analyzed. The panel data were subjected to preliminary data tests such as descriptive analysis, correlation analysis and Hausman effects tests for the period of ten years. Multiple panel least regression analysis was employed via E-Views 10.Using a sample of 600 firm-year observations, the result of the tested hypotheses revealed that employee health and safety disclosure, and environmental remediation disclosure have positive but insignificant effect on shareholders’ value maximization while environmental waste management disclosure has positive and significant effect on shareholders’ value maximization which was statistically significant at 5% level of significance. The study recommends among others, that managers of non-financial firms should pay more attention to environmental waste management disclosure in their host communities to boost their performance and hence add value to their shareholders’ wealth creation. Moreover, due attention should be paid to environmental remediation disclosure by non financial firms in Nigeria since such disclosure influence strategic decision such as shareholders’ value maximization.

Maintaining High Integrity and Ethical Practices as an Investment Adviser

In finance, unethical behavior is a regular occurrence. Across History, and most notably the 2008 financial crisis, the age of risk-taking and profit maximization has been at the forefront of financial firms' and institutions' minds beyond the prioritization of integrity. Through the literature review, I researched this conversation to reveal the leading unethical practices that have arisen in the investment advisory industry. The main ethical problems include but are not limited to compensation, corporate culture, and risk-taking. In the scholarly conversation, articles bypass coming to a standard narrative that helps present a solution to these problems. Establishing my research question, “How can Investment Advisers in the United States most effectively promote ethical behavior beyond having good intentions alone?” Semi-structured interviews with six investment advisers were used to accomplish this best. Then a thematic analysis was used, with the most common themes being acting voluntarily, establishing a moral framework, and fostering knowledge through mentorship and experience. After the conversation of these themes, I present a standard narrative. From establishing the themes such as ethical obligation and knowledge, virtue ethics, an ancient philosophy coined by Aristotle in his book “The Nicomachean Ethics,” which encompasses moral and intellectual virtues, will most effectively bridge the absence of ethics in the industry. It is an advanced moral perspective young advisers usually do not have; therefore, researchers must study the role of virtue ethics in the industry and its implications.

Intellectual Capital Potency and Firm Value in Nigeria; Evidence from Listed Nonfinancial Firms in Nigeria

The objective of this paper is to investigate the influence of intellectual capital potency on firm value of non-financial firms in Nigeria. This study uses analysis technique to measure ICD. Secondary data were obtained from the Audited account reports of selected non financial firms and Nigerian exchange factbook for the period 2011-2020.This study selected 76 firms out of 107 quoted firms in non-financial sector of Nigerian economy using simple purposive sampling method. The 76 firms were analyzed using regression analysis. The results shows that there is negative influence of capital employed efficiency on firm value while human capital employed efficiency have positive but no significant influence on firm value. The moderating variables of firm size (FISZ) have negative and significant influence, while firm age (FIRA) has positive and non significant influence on firm value of non- financial firms in Nigeria. The findings enhanced the knowledge base of intellectual capital in emerging economies such as Nigeria. Based on the findings this study recommended that, the human capital component of intellectual capital should be trained and educated regularly, innovated, nurture capacity, creativity, know-how and previous experience, teamwork capacity, employee flexibility, tolerance for ambiguity, motivated, satisfied, so as to enhance the usefulness of its output to total input. Also firm specific growth and sustainability policy should strongly placed using corporate governance code and other enhanced internal structural innovative processed to ensure that the firm does not extinct.

Interconnected networks: Measuring extreme risk connectedness between China’s financial sector and real estate sector

We propose interconnected networks through the network VAR model, which can simultaneously investigate the risk connectedness of intra- and inter-layer. Using the conditional autoregressive value at risk (CAViaR) tool to measure the extreme risk of financial firms and real estate firms, we apply the proposed approach to examine the extreme risk connectedness between China’s financial sector and real estate sector. We also identify the key drivers of extreme risk spillovers between sectors by constructing the inter-sector systemic importance indicator. Our results show that isolated networks underestimate extreme risk connectedness in the financial and real estate sectors, and there are significant differences between isolated networks and interconnected networks. There are lots of extreme risk spillovers between the financial sector and the real estate sector, where the extreme risk spillover from the real estate sector to the financial sector is stronger than the reverse extreme risk spillover. According to firm-level analysis, we observe that financial firms are the main risk receivers in interconnected networks, while real estate firms are the main risk transmitters. Also, we notice that financial firms are key nodes connecting inter-sector risk spillovers. Our conclusions provide new insights into preventing and defusing systemic risks.