Frontier Market Research Articles

Ownership concentration and firm valuation in a typical frontier market

This study investigates the valuation effect of concentrated ownership in a typical frontier market. Using an extensive sample of Vietnamese publicly listed firms, we find that the valuation effect is inconclusive before combined equity holdings reach a certain threshold beyond which market valuation increases exponentially with ownership. The latter log-linear effect can be interpreted as a more profound dominance of the monitoring incentives of large shareholders over the potential expropriation of minority shareholders at higher levels of concentration. Our finding reconciles the seemingly conflicting results of previous studies and contributes to understanding corporate governance practices in frontier markets.

Ownership concentration and firm valuation in a typical frontier market

Ownership concentration and firm valuation in a typical frontier market

An Empirical Evaluation of Alternative Asset Allocation Policies for Emerging and Frontier Market Investors in Africa

An Empirical Evaluation of Alternative Asset Allocation Policies for Emerging and Frontier Market Investors in Africa

Earnings Management and Dividend Policy: Evidence from a Frontier Market

Profit or the earnings figure of an entity plays a vibrant role in transmitting information to the decision-makers especially, for the investors. However, if that figure is manipulated, the main objective of the financial reporting becomes valueless. This study investigates the manifestation of earnings management in two selected sectors at the Colombo Stock Exchange and tests the impact of earnings management on dividend policy. The study selected the manufacturing sector and hotel and travel sector companies from 2012 to 2019 as the sample. We employed descriptive statistics, rankings, and panel regression analysis as the main tools of analysis in the study. Dividend policy is measured via dividend yield and dividend payout ratio, while real earnings management approach and total accruals are used as proxies to measure earnings management. In addition, the size of the firm and leverage are used as control variables of the study. The findings reveal that there is no significant impact of earnings management on dividend policy in both sectors. However, the results discovered that the company's preceding year dividend policy is the primary concern to decide the current year dividend policy of the selected sectors. The study becomes original as the first attempt to investigate the impact of earnings management on dividend policy in the Sri Lankan context and compare two vital sectors. The findings assist stakeholders, especially investors and managers, in their decision-making process.

Expiration-Day Effects of Index Futures in a Frontier Market: The Case of Ho Chi Minh Stock Exchange

This study employs OLS, GARCH and EGARCH regression models to test the expiration-day effects of index stock futures on market returns, volatility and trading volume for the Ho Chi Minh Stock Exchange (HOSE). Data used in this study is from a daily return series of the VN30-Index for the period from 10August 2017 through 30 June 2020. The results derived from GARCH(1,1) and EGARCH(1,1) models consistently confirm that Index futures expiration-day effects on market returns exists in the HOSE. Specifically, the average market return for expiration days is significantly lower than other trading days, by 0.13% at the 5% level of significance. However, the results obtained from the regression models indicate that the expiration-day has no impact on market volatility and trading volume.

Modelling and Forecasting the Conditional Heteroscedasticity With Different Distribution Densities – Frontier Market Evidence

This paper examines and compares alternative distribution density forecast methodology of three generalised autoregressive conditional heteroscedasticity (GARCH) models. We employed the symmetric GARCH, Glosten Jagannathan and Runkle version of GARCH (GJR-GARCH) and Exponential GARCH methodology to investigate the effect of stock return volatility using Gaussian, Student-t and Generalised Error distribution densities. The evidence reveals that news impact is asymmetric leading to the existence of leverage effect in stock returns. The presence of leverage effect suggests that investors in these markets are to be rewarded for taking up additional leverage risks. This implies that by allocating portfolios, fund managers and /or investors should go beyond the mean-variance analysis and look into information about volatility, information asymmetry, correlation, skewness, and kurtosis. Furthermore, the evidence exhibits reverse volatility asymmetry, contradicting the widely accepted theory of volatility asymmetry. Regarding forecasting evaluation, the results reveal that the symmetric GARCH model coupled with fatter-tail distributions presents a better out-of-sample forecast.

Green Sourcing: Effects on Supplier Performance Metrics in Fast Food Restaurants in Frontier Markets

Abstract Purpose: Following the banning of expanded polystyrene packaging material, the fast food restaurant industry was serendipitously plunged into green sourcing initiatives for its packaging materials leading to heightened efforts on evaluating the suitability of various suppliers of green packaging material. This study therefore sought to assess the performance of selected suppliers on supplier performance metrics of total cost of ownership, quality of sourced material and delivery performance, in Zimbabwe’s restaurant industry. Methodology: Data was collected from senior procurement officers of 30 officially registered fast food restaurants in Zimbabwe. Each restaurant randomly selected 5 suppliers from their supplier lists. Each unit was asked to rate their 5 major suppliers of packaging material leading to an effective sample size of 150 suppliers. Structural Equation Modeling (SEM) was used to analyse data in AMOS. The five steps in SEM, that is: model specification, model identification, parameter estimation, model evaluation and modification were done. Findings: The findings in this study revealed that green sourcing leads to improved procurement performance in terms of total cost of ownership, quality of the materials sourced, and delivery performance. Implications for theory and practice: It was therefore recommended that practically the restaurant industry should explore various options of green packaging material ranging from recyclable and reusable plastic, paper, aluminium and steel material. Originality and value: Although the study was done in a single market, there is dearth in literature on green sourcing in frontier markets, of which the study provides empirical evidence from the restaurant industry in Sub-Saharan Africa.

Role of emerging markets vis-à-vis frontier markets in improving portfolio diversification benefits

The study examines the value addition provided by frontier markets vis-à-vis emerging markets in improving the diversification benefits of an international portfolio. The analysis is performed for Asia-Pacific and Europe. It also surveys international investors to corroborate the empirical findings. The results indicate that though frontier markets offer higher diversification opportunities than emerging markets, the frontier market investments are recommended for investors with good risk appetite. Asia-Pacific emerging markets perform better than frontier markets in improving the portfolio's performance. European frontier markets' performance was adversely affected by Covid 19 pandemic. Overall, Asia-Pacific equity markets provide greater potential for diversification than their European counterparts.

Frontier Markets and Sustainable Entrepreneurial Competences: An Exploratory Study of the Impact of a New Industry in Guatemala

There is growing interest among scholars and policy makers to develop sustainable entrepreneurial competences in pre-emerging, frontier markets characterized by limited access to advanced capital, high protectionism, and weak formal institutional environments. To become internationally competitive, these markets need to radically rethink their long-standing, embedded practices, which have often been linked to socioeconomic inequality. Our study, grounded in corporate entrepreneurship, is an exploratory analysis of why and how well-established firms, operating in the financial service industry, created more equity-based businesses practices to enter the new industry of mobile banking. The firms in our study needed a combination of both economic incentives and social pressures to do so but, in the process, developed new entrepreneurial competencies. Successful firms were those that significantly altered their embedded practices and engaged in fostering new informal relationships with previously overlooked stakeholders, particularly customers from indigenous backgrounds. Our multi-case, inductive research design offers theoretical and practical insights regarding how incorporating internal and external corporate entrepreneurial factors in an underserved market setting, such as the frontier market of Guatemala, not only fosters socioeconomic equality but also creates international attractiveness and competitiveness.

The influence of earnings management on bank efficiency: the case of frontier markets

Frontier market banks fill key funding gaps in the markets they serve, resulting in increased evaluation (a positive) and earnings management (EM) (a negative). Examination of a large sample of banks in 22 frontier market countries from 2001 to 2018 reveals a downward trend in efficiency, indicating that loan quality issues persist despite increasing economic growth in the respective countries. Using stochastic frontier analysis to quantify efficiency and random effects and truncated regression to investigate the EM-efficiency relation, this study demonstrates that efficiency is negatively associated with EM. Furthermore, there was no clear relationship between bank size and efficiency, which counters economic efficiency theory and implies that frontier market banks absorb higher non-performing loan costs. The findings herein support prospect theory by demonstrating that managers engage in risk-seeking behaviour while making risk-averse decisions. Overall, the study's implications suggest that banks employ alternative loan provision practices to optimise resource allocation and, by extension, performance.

Conditional Relation between Beta and Returns: Evidence from a Frontier Market

Capital Asset Pricing Model (CAPM) is one of the most significant finance literature models, which assumes a positive linear relationship between the required rate of return and systematic risk on stocks. The model is frequently used in the business world, but empirical tests repeatedly reject the model's validity in its unconditional form. Pettengill et al. have developed an alternative conditional CAPM approach where the unconditional test procedure developed by Fama & MacBeth, (1973) is improved by taking up and down market conditions. This paper investigates both the conditional and unconditional versions of CAPM in both individual and portfolio stock returns between January 2008 and December 2019 on the stocks listed in the Colombo Stock Exchange (CSE). Population of this research includes all the companies listed on CSE and the top 50 stocks with large market capitalization has been selected as the sample. The results of unconditional test procedure show that there is no statistically significant risk-return relationship is found in any test period in both individual and portfolio stock returns. Thus, this result is similar with the previous literature findings. The results of the conditional tests show that there is no significant positive (negative) risk-return relationship in portfolio stock returns and individual stock returns in CSE during up (down) market months. But findings indicate a significant positive risk-return relationship in individual stock returns in upmarket periods; whereas, a significant inverse risk-return relationship is not provided in down market periods.
 Keywords: Colombo Stock Exchange, CAPM, Conditional Relation, Unconditional Relation

Effect of Mergers and Acquisitions on Stock Returns: Evidence from a Frontier Market

This study examines the mergers and acquisitions on stock returns in the Sri Lankan context. The main objective of this study is to investigate the effects of mergers and acquisitions on stock returns of Sri Lankan companies and establish whether there is any relationship between mergers and acquisitions on stock returns. For the intended purposes, the impact of mergers and acquisitions on stock returns, the secondary data is used from 10 listed companies for the period from 2010 to 2019. The event study methodology is used to examine the reaction of investors to the announcement of mergers and acquisitions. The event window was 80 days, which is 40 days before and after the announcement date. The result indicates that mergers and acquisitions announcements generate positive significant Cumulative average abnormal returns (CAAR) at the event date. However, after the event date, acquirer companies exhibit very low CAAR close to zero or sometimes negative value and not statistically significant. Thus, findings suggest that the shareholders' reaction to the information content of mergers and acquisitions limited to event day. After the announcement date, the CAAR takes a gradual declining trend.
 Keywords: Acquisition, Colombo Stock Exchange, Event Study analysis, Merger, Stock Return

The Impact of Chatbots on the Relationship between Integrated Marketing Communication and Online Purchasing Behavior in The Frontier Market

<p class="Default"><em><em><span>Artificial Intelligence (AI), applied in many fields, is the core of the fourth technological revolution. In business, AI is used for customer relationship management as applied in the autoresponder systems, i.e., chatbot. Chatbots were an essential tool in the marketing relationship as many companies applied this function to their website; hence, this study analyzed the influence of chatbots on the enterprise's integrated marketing communication (IMC) activities, resulting in impulse purchase behavior and repurchase intention behavior. The mixed research method was used, particularly the in-depth interview and the survey with 886 online consumers, who shop from the online websites with chatbots system in Vietnam as Tiki, Lazada, Sendo, excetera. The research results showed that the perceived usefulness and ease of use of chatbots have positively affected the attitude of online consumers to the IMC activities of businesses. Simultaneously, IMC leads to impulse buying as well as the repurchase intention behavior of customers. The study proposed some managerial implications for an online business to enhance the chatbot functions to consumer behaviors in the website.</span></em> </em></p>

Pay-performance sensitivity and corporate governance mechanisms: evidence from Tunisia

PurposeThe purpose of this study is to analyze the CEO compensation sensitivity to firm performance, termed as the pay-for-performance sensitivity (PPS) in the Tunisian context and to test the robustness of this relationship when corporate governance (CG) mechanisms are considered.Design/methodology/approachThe consideration of past executive pay as one of the explanatory variables makes this estimation model a dynamic one. Furthermore, to avoid the problem of endogeneity, this study uses the system-GMM estimator developed by Blundell and Bond (1998). For robustness check, this study aims to use a simultaneous equation approach (three-stage least squares [3SLS]) to estimate the link between performance and CEO pay with a set of CG mechanisms to control for possible simultaneous interdependencies.FindingsUsing a sample of 336 firm-years from Tunisia over the 2009–2015 periods, this study finds strong evidence that the pay-performance relationship is insignificant and negative, and it becomes more negative or remains insignificant after introducing CG mechanisms consistently with the managerial power approach. The findings are robust to the use of alternative performance measures. This study provides new empirical evidence that CEOs of Tunisian firms abuse extracting rents independently of firm performance.Originality/valueThis study contributes to the unexamined research on PPS in a frontier market. This study also shows the ineffectiveness of the Tunisian CG structure and thus recommends for the legislator to impose a mandatory CG guide.

Direct and indirect effects of customer financial condition in the acceptance of Islamic microfinance in a frontier market

PurposeThe study aims to identify a gap within the extant literature on the inadequacy of earlier extension of the theory of reasoned action (TRA) and theory of planned behavior (TPB) to accommodate the peculiarity of Muslims majority countries that experiencing poverty growth in modeling the factors influencing the acceptability of Islamic financial products and services. To address this gap, this study expands the aforementioned theories through the integration of customer financial condition through the analyzes of both direct and indirect effects.Design/methodology/approachThe quantitative research design was deployed through data, which was collected from samples of microentrepreneurs within the agricultural sector of northwestern Nigeria. The data from this sample was analyzed through hierarchical regression analysis.FindingsThe findings confirmed significant direct effects of all the original TPB variables; attitude, subjective norms and perceived behavioral control on acceptance intention of Islamic microfinance. More pioneering, the study established a significant direct negative effect of customer financial condition on the acceptance of Islamic microfinance among agribusiness customers. It further established the indirect (moderating) effects of customer financial condition on the influence of subject norms and perceived behavioral control on acceptance intention of Islamic microfinance, however, such indirect effect was not established in relation to the influence of attitude.Research limitations/implicationsThe findings implied that the providers of Islamic financial products and services should target Nigeria’s frontier market as a potential avenue for expanding their existing market share. More specifically, the agricultural sector of northwestern Nigeria could be given focus in such a marketing strategy. In terms of social impact, providing necessary finances to the agricultural sector will further enhance employment creation and reduce poverty in the northwestern region.Originality/valueDespite several extensions of TRA and TPB in various settings, this could the first study which examined both direct and indirect effects of customer financial condition not only in relation to the acceptance of Islamic microfinance but also all other Islamic financial products and services.

Corporate social responsibility, business group affiliation and shareholder wealth: evidence from an emerging market

PurposeThis paper aims to examine the relationship between corporate social responsibility (CSR) and shareholder wealth arising from announcement returns of security issuance from a frontier market. It also explores the role of business group affiliation (BGA) on this relationship.Design/methodology/approachThe study uses short-term scenarios to examine the link between CSR and shareholder wealth using the event study methodology which helps us mitigate the reverse causality problems related to studies of the relationship between CSR and firm value. Abnormal returns surrounding the security issue announcements were generated using the market model.FindingsThis paper finds that security issuers with high CSR scores are associated with higher shareholder value. However, this paper finds that CSR activities of security issuers with BGA are value-destroying which is consistent with the agency perspective of CSR.Research limitations/implicationsThis study is limited to only one nascent market, namely the Colombo Stock Exchange.Originality/valueThis study documents that CSR and BGA are important determinants, among others, of stock price reactions to security offerings in emerging markets.

Sovereign credit ratings, relative risk ratings and private capital flows: evidence from emerging and frontier markets

PurposeRelative risk ratings measure the degree by which a country’s sovereign rating is better or worse than other countries (Basu et al., 2013). However, the literature on the impacts of sovereign ratings on capital flows has not covered the role of relative risk ratings. This paper aims to examine the effect of relative risk ratings on private capital flows to emerging and frontier market economies is filled. In the analysis, the effect of relative risk ratings to that of absolute sovereign ratings in influencing private capital flows are compared.Design/methodology/approachThis paper examines the influence of sovereign credit ratings and relative risk ratings on private capital flows to 26 emerging and frontier market economies using quarterly data for a 20-year period between 1998 and 2017. A dynamic panel regression model is used to estimate the relationship between ratings and capital flows after controlling for other factors that can influence capital flows such as growth and interest rate differentials and global risk conditions.FindingsThe analysis finds that while absolute sovereign credit ratings were an important determinant of net capital inflows prior to the global financial crisis in 2008, the influence of relative risk ratings increased in the post-crisis period. The post-crisis effect of relative ratings appears to be driven mostly by portfolio flows. The main results are robust to an alternate measure of capital flows (gross capital flows instead of net capital flows), to the use of fixed gross domestic product weights in calculating relative risk ratings and to the potential endogeneity of absolute and relative ratings.Originality/valueThis study advances the literature on being the first attempt to understand the impact of relative risk ratings on capital flows and also comparing the impact of absolute sovereign ratings and relative risk ratings on capital flows in the pre- and post-global financial crisis periods. The findings imply that emerging and frontier markets need to pay greater attention to their relative economic performance and not just their sovereign ratings.

Frontier Markets, Liberalization and Informational Efficiency: Evidence from Vietnam

This paper examines the equity market opening in Vietnam, a frontier market that has taken gradual steps of relaxing capital control, by analysing whether liberalization policies in the period 2009–15 have had an impact on informational efficiency. We applied time-varying Hurst exponent during the liberalization period and tested Adaptive Market Hypothesis. The results confirm the role of foreign investors in improving the local market’s efficiency, however, the findings show that the liberalization does not always result in the increase of foreign participation, which then has a limited impact on the efficiency. The study also indicates the importance of governance policies, along with liberalization policies, in completing market structure and market dynamics, that promote equity price reflects truly firm’s intrinsic value.

Values gaps affecting human resources management relations between expats and locals: The case of a Chinese manufacturer in South Africa

ABSTRACT Chinese companies have continued to increase foreign direct investment (FDI) and engagement within Africa, perceived as a last global frontier market, particularly in light of China’s Belt and Road initiative. The literature highlights a number of human resources management (HRM) risks, challenges and misalignments, including values gaps between Chinese company expats and local stakeholders, affecting achievement of the objectives of FDI. Whilst Chinese (Confucianism) and African (Ubuntu) cultural values may appear similar on the surface, there are significant differences in their finer detail that cause HRM challenges in practice. This ethnographic study examined a Chinese manufacturer in post-apartheid South Africa, decoding significant gaps in values towards key themes affecting HRM relations between Chinese expats and local personnel, such as styles of communication, community building, transparency, and planning horizon. Addressing these values gaps was critical to achieving positive HRM outcomes, and thus to the success of the local organization and ultimately the achievement of FDI objectives. Recommendations indicate how the organization and individuals can further contribute towards bridging values gaps, thereby building HRM relations and relationships.

Regularization of Predictors of GDP and Individual Sectors of the Economy of the Republic of Kazakhstan

Today, the point of view is widespread that a developed stock market is a necessary component of sustainable development of the entire economy of a country, region. How true is this approach in the conditions of the frontier market and the developing economy, to which Kazakhstan belongs? In our study, we tried to quantify this approach. Compression (regularization) of predictors was carried out. The constructed model was tested on the predictors of civil aviation in Kazakhstan. The following results are obtained. The use of regularization with the goal of: data mining, identifying external predictors of development of various sectors of the economy, we consider it necessary and useful. Stock market capitalization is directly related to the money supply and, to a lesser extent, to household deposits. The view is partially confirmed that pumping money into the economy only leads to financial bubbles. The stock market index was sensitive to a wide range of social and macroeconomic indicators: population growth, unemployment, poverty, inflation, investment, devaluation. Our conclusion: for the development of the stock market does not require any specific financial measures, it is necessary to deal with the economy as a whole. Volumes of transactions with corporate securities do not have stable external predictors. The main indicators of civil aviation in the republic have stable external predictors. Passenger turnover, sending passengers directly depend on: the level of unemployment, wages, GDP per capita, various types of services and products, money supply. There are no external predictors for a separate type of aerial work - cargo transportation. Consequently, it is possible to obtain positive results through the reform of this particular segment of services.