Securities Exchanges Research Articles

Sectoral performance of Indian stock market during 1st and 2nd wave of COVID-19 pandemic: an event study analysis

PurposeCapital markets are the backbone of an economy. COVID-19 has created an unacceptable and unpredictable economic environment worldwide, resulting in a significant setback for securities exchanges. India also experienced two waves of this pandemic, which led to a significant downturn in the capital market.Design/Methodology/ApproachResearchers have endeavored to study the impact of the first and second waves of COVID-19 on the performance of various sectoral stocks in India. The performance of selected sectoral indices of the Bombay Stock Exchange was compared with the market performance of the S&P BSE 100. An event study was conducted to analyze the normal return, abnormal return (A.R.), and t-statistics of A.R. for various sectoral stocks. In addition, the abnormal returns of sectoral stocks between the first and second waves of COVID-19 in India were comparedFindingsThe results of the tests showed heterogeneous A.R. between different sectors in both the first and second waves of COVID-19 in India. Positive investor outlook and government financial support programs for various sectors helped them recover from the second wave of COVID-19.Research limitations/implicationsThe study analyzed the impact of the peak of the first and second waves of COVID-19 on selected sectoral indices. There may be several reasons for the performance of this particular stock index. However, we have tried to analyze the best possible reasons for this turbulence in the performance of stocks of selected sectoral indices. The study can be further analyzed to examine the long-term impact of such a pandemic on other sectors.Originality/valueThe study is based on the panic behavior of investors during such a pandemic. No one was prepared for this and expected this pandemic to last this long. This pandemic has taught so many lessons to everyone involved. Investors need to be prepared and cautious for such unforeseen disasters before making any investment decision. They need to analyze which industry can survive under such circumstances, and then they should invest there. Industries and enterprises must adapt and improve by honestly looking at their weaknesses and trying to meet investors' expectations.

Firm Financial Characteristics and Leverage of Listed Commercial and Allied Companies in Nairobi Securities Exchanges

Firm Financial Characteristics and Leverage of Listed Commercial and Allied Companies in Nairobi Securities Exchanges

MACRO-ECONOMIC INDICATORS AND NON-PERFORMING LOANS OF PUBLIC LISTED COMMERCIAL BANKS ACROSS SECURITIES EXCHANGES IN EAST AFRICA

Banks play an important role in the financial system. Through their intermediation activities, banks facilitate the development process of an economy. Therefore, for this critical role to be sustainable, banks need to financially perform satisfactorily to enable them efficiently undertake their intermediation role. However, their performance in the country has been at risk due to rise in non-performing loans (NPLs) in the market. The rise in non-performing loans has led to risk aversion among banks denying ordinary people credit facilities. Numerous studies associate the rise in non-perming loans in banks with various macro-economic factors and monetary policies. These macroeconomic factors that affect a banking system, non-performing loans pose a worrisome threat to the performance of banks and the financial stability of an economy as a whole. This study established the influence of macroeconomic indicators on non-performing loans of public listed commercial banks in East Africa Securities Exchanges. The study analyzed panel dataset of 29 East Africa listed commercial banks with yearly data that spans the period from 2006 to 2020, a total of 435 bank years. The study used a correlational research design and a document review guide to extract and compile the required secondary data for analysis from the financial statements. The findings indicated that interest rate has a positive and significant effect on nonperforming loans. Inflation has a positive but non-significant effect on nonperforming loans. Growth of money supply has a positive and significant relationship on nonperforming loans of public listed commercial banks. Lastly, bank size has a positive and a significant effect on nonperforming loans of public listed commercial banks. The study concluded that interest rate, growth of money supply and bank size had a significant relationship with non-performing loans. However, inflation did not have a significant effect on non-performing loans. The study recommended that the management of the commercial banks should actively monitor and set appropriate lending rate for the loans they issue. This is because the lending rate has a significant effect on non-performing loans. Increase in lending rate means that the non-performing loans increase. Commercial banks should also enhance periodic/regular credit risk monitoring of their loan portfolios to reduce the level of non-performing loans. The study recommended that the commercial banks should come up with policies to control base lending rates to a manageable level even with high inflation rates. Central Bank of Kenya should incorporate the ever-changing operating environment of commercial banks when making changes in the money supply.

Active imitation or passive reaction: research on the peer effect on trade credit

PurposeUsing a sample of manufacturing firms listed in China between 2007 and 2019, first, this paper aims to examine whether peer firms influence corporate trade credit supply. Next, the authors examine the channels through which peer firms influence corporate trade credit supply by testing the predictions of rivalry and information theories. Furthermore, the authors examine the heterogeneity of the industry peer effect on corporate trade credit supply. Finally, the authors examine the economic consequences of the industry peer effect on corporate trade credit supply.Design/methodology/approachThe sample includes all manufacturing firms listed on both the Shanghai and Shenzhen securities exchanges for the sample period from 2007 to 2019, and the data come from the China Stock Market & Accounting Research database. The authors use the fixed effects method to examine the industry peer effect on trade credit supply. The results are robust to a series of robustness tests. To address the potential endogeneity problem, the authors adopt appropriate instruments by estimating instrumental variable models (two-stage least square). The authors use Heckman’s two-stage model to mitigate the sample selection bias.FindingsThe authors provide strong empirical evidence showing that the industry peer effect on trade credit supply exists in the manufacturing sector. It is also found that both competitive rivalry-based and information-based theories can provide explanations of the industry peer effect on trade credit supply. This process is both active imitation and passive reaction. Additional analysis suggests that the industry peer effect on trade credit supply is more pronounced for state-owned firms, firms with low customer concentration and firms with high geographical proximity. The amplification effect and spillover effect are the economic consequences of the industry peer effect on trade credit supply. In other words, the trade credit supply based on peer effect will not only increase the liquidity risk of the firm per se but also induce and increase the liquidity risk of the industry.Originality/valueThe study makes some important contributions. First, the authors find robust evidence that peer firms’ trade credit supply is an important factor in explaining corporate trade credit supply, which extends the literature by connecting the firm’s trade credit supply with the peer effect. Second, the study provides a new micro-perspective for understanding that firms use trade credit supply as a tool of competition, which proves the importance of rivals’ decision-making as a determinant of corporate decisions. Third, the authors examine the industry peer effect on trade credit supply, which not only helps to guide firms to pay more attention to the potential risk and spillover effects of the trade credit supply decision-making relevance but also helps to clarify the industry interaction phenomenon of corporate decision-making behavior. It is an important practical significance to play a role as a bridge between the microlevel of the firm and the meso-level of the industry. Finally, the study provides inspiration for the formulation of industry norms and policies.

Prepacks as a mechanism for resolving financial distress: The evidence

Prepacks as a mechanism for resolving financial distress: The evidence

Legal Aspects of Promoting the Participation of Collective Investment Schemes in Eastern and Southern African Frontier Securities Markets

African Frontier Securities Markets (FSMs) suffer from low capitalization and inadequate liquidity. They are also perceived as risky and volatile and, as such, are not often included in international institutional portfolios. The central argument of this article is that, the capitalization and liquidity of African FSMs could possibly be enhanced by promoting formation, and participation of various styles of successful and vibrant Collective Investment Schemes (CISs)—more especially the open-ended CISs—which could provide a platform for participation of small investors in the domestic securities markets. Open-ended CISs could also increase the supply of securities to securities markets through further issues to the existing investors as well as the general public. Using the qualitative approach, the study assesses the regulatory and institutional framework for Collective Investment Schemes (CISs) so as to establish whether or not the said framework provides adequate incentives for the formation, and participation of various styles of CISs on domestic securities exchanges. The study employs the doctrinal, non-doctrinal and comparative approaches to examining the effectiveness of legal and regulatory rules. The main findings of the study were that: (a) the legal and regulatory framework permits the formation, and participation of various styles of CISs on domestic securities exchanges (b) both domestic and foreign CISs are permitted to participate on domestic securities exchanges (c) the domestic securities regulator has power to conduct continuous investor education (d) the participation of CISs on securities exchanges stimulates growth in liquidity, and accelerates the development of the exchange.

The economics of prepackaged bankruptcy

The economics of prepackaged bankruptcy

Bank Characteristics and Dividend Payout of Selected Commercial Banks in Kenya

Dividend payout for Tier I banks in Kenya has remained relatively stagnant over the years even with improved financial performance. Central Bank of Kenya reports show that Kenya’s banking sector is very profitable with the average return on asset being about 2.6 per cent for the years between 2016-2021. Thus, this study sought to determine the effect of bank characteristics on dividend payout of Tier I banks. The study specifically aimed at objectively quantifying effect of bank size, liquidity, and profitability on dividend payout. Target population was all nine (9) Tier I banks listed at the Nairobi Securities Exchanges (NSE). Secondary data was acquired from audited and published financial reports of the nine (9) banks for the period between 2016-2021 using document review guide. Descriptive analysis and panel regression were applied for data testing. Independent variables were bank size, liquidity, and profitability while dependent variable was dividend payout. Market capitalization was used as a measure for bank size, book-to-market value as a measure for liquidity and earnings per share as a measure for profitability. Results indicated liquidity had a small negative statistically significant effect on dividend payout while both bank size and profitability had negative statistically insignificant effect on dividend payout. The study thus determined that bank characteristics had insignificant effect on dividend payout for Tier I banks. The study recommends that Central Bank of Kenya consider reducing Cash Reserve Ratio (CRR) and NSE consider an alternative stock classification system which will categorizes stocks in same sector based on size which will give a clear insight of the risk-return trade off characteristics at the NSE. Keywords: Dividend Payout, Commercial Banks, Bank Characteristics, Market Capitalization, Book-to-Market value, Earnings per Share, Kenya.

VIX Implied Volatility as a Time-Invariant, Stationary Assessor of Market Nervousness/Uncertainty

Financial markets serve numerous roles, amongst them of course is the uncoerced exchange of securities. In addition to that role, they serve a very useful function of conveying to market observers the information about the future, with the challenge being our ability to elicit and interpret that information. This paper addresses that latter function regarding the option markets which provide the value for the VIX 30-day implied volatility on the S&P 500 Market Index. It is demonstrated that the peak values of VIX during Persian Gulf I (1990–1991) and Persian Gulf II (2003) were nearly identical. The VIX measure is then computed during the crises of 2008–2009, 2020 and 2022. Critically, this paper demonstrates the valuable informational content provided by the “term structure of VIX”, the set of cross-sectional implied volatilities observed with different times to expiration.

Governing the Digital Economy: An Exploration of Blockchains with Chinese Characteristics

In 2019 President Xi Jinping called for the prioritisation of blockchain technology as part of China’s next phase of development. In China, blockchain technologies have been experimentally deployed in various areas including court records, securities exchanges, finance, and food supply chains. The emergence of blockchain as a governmental technology raises numerous questions, including: (i) what are the conditions of emergence and existence of China’s interest in blockchain technology? (ii) what are the features of “blockchains with Chinese characteristics”? (iii) what implications are there for the post-COVID-19 pandemic world, in which technological issues are likely to be pivotal points of contention? This article seeks to examine these questions and frame a research programme that can shed light on how blockchains may impact the evolution and shape of China’s social and economic structure and the interaction of China with the rest of the world, including the prospect of “decoupling” and “deglobalisation.” Examples of blockchain innovation are drawn from food and pharmaceutical supply chains, the Healthy China 2030 policy, the digital RMB/Yuan and the Belt and Road Initiative with attention to the emerging legal and institutional frames that support the application of blockchain technologies.

Board characteristics and sustainability reporting: a case of listed firms in East Africa

PurposeThis study aims to investigate the influence of board characteristics on sustainability reporting among listed firms in East Africa.Design/methodology/approachThe study uses a sample of 79 listed firms drawn from East African securities exchanges and data from 2011 to 2020. Sustainability reporting is measured using Global Reporting Initiative, and the data is analyzed by using three-panel data estimation models – fixed effect, random effect and the generalized method of moments.FindingsThe results reveal that board gender diversity, board financial expertise and board independence are positively and significantly associated with sustainability reporting. Conversely, board size has a negative and significant effect on sustainability reporting.Practical implicationsThe findings from the study provide valuable insights to firm owners and policymakers. The study highlights the importance of directors with financial knowledge, a high proportion of non-executive directors and women representation in board and smaller boards as a strategy that will help firms improve sustainability practices and reporting in East Africa.Social implicationsResults of this study underscore the effect of corporate governance (CG) dimensions on social responsibility activities, such as philanthropy, emission reduction and waste management initiatives as reported through sustainability responsibility.Originality/valueThis study adds to the growing literature on the relationship between CG attributes and sustainability reporting from a developing economy perspective. Specifically, the study examines how board gender diversity, size, independence and financial expertise affect sustainability reporting adoption.

The impact of CEO characteristics on the international entrepreneurship of small island-based firms

This paper examines the impact of CEO characteristics on the International Entrepreneurship (IE) of listed island-based firms (IBFs) during the period 2009-2018. The research considers 164 companies from a sample of eight small islands with securities exchanges including more than one firm headquartered on the island. The selected islands are: Barbados, Cyprus, Fiji, Iceland, Jamaica, Malta, Mauritius, and Trinidad & Tobago. Framed on the upper echelons theory and social network theory, the influence on IE of CEO’s tenure, academic background and achievement, family allegiance, and international exposure is studied, taking into account the small island particularities. Through a binary probit model, it is concluded that CEOs’ family allegiance, tenure, and academic background (if the CEO majored in Business Administration, Finance, Accounting, or Economics) are negatively related with IE, while CEOs’ academic achievement and international exposure are positively associated with IE. Some of these results are atypical in the existing literature; nevertheless, islandness can explain these results. The conclusions attained suggest new theoretical and empirical lines of IE research for IBFs.

Impact of the Electronic Trading on the Stock Prices of Jordanian Listed Companies

The development of economies has been significantly hampered by inadequate financing. The introduction of securities exchanges is considered as a key strategy for improving access to financing for organizations. The introduction of electronic trading systems in these markets is meant to enable them take advantage of technology and improve access to financing for listed companies. However, the system may have the adverse effect of increasing the level of stock price volatility. A quantitative study using data collected from the ASE is undertaken here. The increase in price volatility for the industrial stocks in the ASE was not statistically significant. The mean returns for the shares were similar in the period before and after the introduction of the system. The findings indicate that the electronic system increases the level of transparency in the market and improvement in efficiency is not accompanied by a change in the price volatility. It was expected that the change in market liquidity and portfolio flows would influence price changes in the market. This was not the case and it may be an indication that the level of returns in the market did not significantly increase.The market returns for the stocks of industrial listed companies are calculated. Using independent samples tests, the returns are evaluated for a period of 5 years before and after the introduction of the system.

State capitalism and capital markets: Comparing securities exchanges in emerging markets

Finance plays a major role in discussions about state capitalism in emerging markets, but the focus has so far been on banks. Capital markets have been neglected. Moreover, findings from the growing literature on financialization in emerging markets indicate that in some cases there is increasing state involvement in the development and functioning of capital markets. Hence, the relationship between the state and finance in these economies may be fundamentally different from the picture provided by liberal Western-centric perspectives. Instead of looking at capital markets as uniform entities, we propose to analyse them as variegated – while characterized by common financialization processes, they can be informed by different institutional logics, leading to very different market dynamics and outcomes. We explore to what extent these differences exist and how state-capitalist economies facilitate capital market development. Our comparative institutional analysis of securities exchanges as central parts of capital markets in six increasingly financialized emerging market economies – Brazil, China, India, Russia, South Africa and South Korea – focuses on the degree to which capital markets are integrated into state-capitalist institutions. Instead of mere platforms on which market transactions take place, we analyse exchanges as powerful actors which actively shape capital markets. While in most advanced economies exchanges are situated within an institutional setting informed by neoliberal institutional logic, we demonstrate that exchanges in emerging markets often organize capital markets to facilitate state objectives.

Antecedents of Dividend Payout Among Listed Non-Financial Companies listed in Nairobi Securities Exchanges, Kenya

: The objective of this study was to establish the antecedents of dividend payout among listed non-financial Companies listed in Nairobi Securities Exchanges, Kenya, with four specific objectives; to establish the effect of profitability, capital expenditure, leverage and liquidity on dividend pay-out of listed non-financial companies in NSE. The study was founded on Modigliani and miller hypothesis, signalling hypothesis, birds in hand fallacy, Agency and clientele policy. Using correlation research design, the study examined the antecedents of dividend pay-out of listed non-financial companies listed in Kenya for the period 2008 to 2019. The result showed a positive and significant relationship between dividend pay-out ratio and profitability, liquidity and leverage. It also shows negative association between dividend pay-out and capital expenditure. It was concluded that capital expenditure significantly influences dividend paid out negatively. Interest payment for long term debt takes priority as a charge on the profit made by the company. An improvement of a company's liquidity would lead to a better compensation to shareholder inform of dividend distributions. Listed companies therefore are expected to pay dividends when the companies are performing well because otherwise shareholders may question the proceeding of the announced profit or results to signaling effect. Listed companies should arrange the financing of capital expenditure so as ensure shareholder remains at an advantage and enable the company to recover its cost on capital and expected returns.

The anatomy of Holding Foreign Companies Accountable Act (HFCAA): a panacea or a double-edge sword?

Key points: -Accurate financial statements are critical to investors in making informed decisions and vital to the overall well-being of the US capital market. -For cross-listed and multi-jurisdictional businesses, the current regulatory frameworks fail to create governance equivalency between foreign and US domestic issuers that are listed in the USA. -The US Holding Foreign Companies Accountable Act (HFCAA) seeks to level the playing field. -Companies that use accounting firms which cannot be inspected by the Public Company Accounting Oversight Board for three consecutive years risk being de-listed from US securities exchanges and also becoming subject to a prohibition in over-the-counter trading in their stock. -Behind the statutory response in HFCAA are intertwined tensions between stakeholders and sovereigns. -The key to addressing the current imbalances will be to strike a balance between maintaining the US stock markets’ open to high-quality foreign issuers and enabling US investors to have access to reliable financial information. -It remains uncertain whether the HFCAA will reshape the governance landscape geoeconomically.

Socio-spatial relations observed in the global city network of firms.

One of the prevailing approaches to the study of the global economy is the analysis of global city networks based on the activities of multinational firms. Research in this vein generally conceptualises cities as nodes, and the intra-firm relations between them as ties, forming the building blocks for globally scaled interurban networks. While such an approach has provided a valuable heuristic for understanding how cities are globally connected, and how the global economy can be conceived of as a network of cities, there is a lack of understanding as to how and why cities are connected, and which factors contribute to the existence of ties between cities. Here, we explain how five distinct socio-spatial dimensions contribute to global city network structure through their diverse effects on interurban dyads. Based on data from 13,583 multinational firms with 163,821 international subsidiary locations drawn from 208 global securities exchanges, we hypothesise how regional, linguistic, industrial, developmental, and command & control relations may contribute to network structure. We then test these by applying an exponential random graph model (ERGM) to explain how each dimension may contribute to cities’ embeddedness within the overall network. Though all are shown to shape interurban relations to some extent, we find that two cities sharing a common industrial base are more likely to be connected. The ERGM also reveals a strong core-periphery structure in that cities in middle- and low-income countries are more reliant on connectivity than those in high-income countries. Our findings indicate that, despite claims seeking to de-emphasise the top-heavy organisational structure of the global urban economic network, interurban relations are characterised by uneven global development in which socio-spatial embeddedness manifests through a combination of similarity (homophily) and difference (heterophily) as determined by heterogeneous power relationships underlying global systems of production, exchange and consumption.

Analysis of Dividend Yield and Stock Return in Nairobi Securities Exchange in Kenya

Capital Markets have been reflecting erratic performance coupled with volatility globally, regionally and in domestic market. According to Capital market 2030, the future of equity capital markets report (2018), United States of America outperformed her major emerging markets. The combined United State of American’s Domestic market caps total US$30.4 trillion; total mainland China and Hong Kong was US$10.1 trillion. In 2011, it was US$ 15.6 trillion and US$ 5.7 trillion respectively. United States of America Securities exchanges are now three times the size of their Chinese counterparts compared with 2.7 times in 2011. The growth in the US market has outstripped expectations, while the growth of China and other emerging markets has lagged. Despite Capital markets performance in USA, indices showed volatility in performance of the S&P 500 and the Hang Seng relative to FTSE/JSE, Africa all All-share index and S&P Pan Africa with the FTSE 100 showing relative stability. Among other factors, volatility could be attributed to trade tariffs imposed by the US, primarily impacting China, continuing political. In Kenya, 20 shares Index which is used as a proxy of stock return in this study performed dismally in 2011 as compared to 2012 (Kenya Economic report, 2011). The total number of shares traded went down in 2014 and NSE 20 Share Index declined in the fourth quarter of 2016 (The Kenya economic survey, 2016). With volatility witnessed between 2009 and 2018, analysis of relationship between dividend yield and stock return is imperative. This study used quarterly data between 2009 and 2018. The study is a time series study and research design used is correlation. The data was transformed by converting them to their natural logarithms and then differenced to their first differences. After the first differences, the data became stationary. Results revealed that dividend yield has an inverse significant relationship on Nairobi Securities Exchange 20 Share Index, (t=-2.91, p=0.006). Results of this study are useful to policy makers, investors, regulators and finance analyst. Keywords : Dividend yield, NSE-20 Share Index, Stock Return, emerging markets, Volatility, Capital markets. DOI: 10.7176/RJFA/12-8-01 Publication date: April 30 th 2021

Quantum Algorithms for Mixed Binary Optimization Applied to Transaction Settlement

We extend variational quantum optimization algorithms for Quadratic Unconstrained Binary Optimization problems to the class of Mixed Binary Optimization problems. This allows us to combine binary decision variables with continuous decision variables, which, for instance, enables the modeling of inequality constraints via slack variables. We propose two heuristics and introduce the Transaction Settlement problem to demonstrate them. Transaction Settlement is defined as the exchange of securities and cash between parties and is crucial to financial market infrastructure. We test our algorithms using classical simulation as well as real quantum devices provided by the IBM Quantum Computation Center.

From use cases to a big data benchmarking framework in clearing houses and exchanges

Although big data technology (BDT) is revolutionizing a variety of industries, including the financial sector, its architecture is heterogeneous: different companies apply different hardware, software and approaches. With advances in artificial intelligence and improved hardware computing power, a more holistic approach to benchmarking is needed. Comparing the extent of big data applications for a given use case within and between companies from a given sector of the economy can help us to identify the existing gaps in implementing this new technology. But how can we compare the use of BDT across companies, and what constitutes better usage or a greater extent of implementation? How can technology influence return on investment and other economic benchmarks? In this paper, we propose a conceptual framework that links the technical and business benchmarks in the domain of clearing houses and securities exchanges. The approach is as follows. First, we identify plausible use cases in the value chain of clearing houses and exchanges that are eligible for the application of BDT. We focus mostly on machine learning applications. Second, we present the eligible technical benchmarks that can be applied to those use cases. Finally, we map the economic benchmarks to the identified use cases and associated technical benchmarks in an integrated framework. We describe methodologies and tools to help assess and maximize the business benefits of BDT adoption for clearing houses and exchange operators, providing criteria for the selection of the most appropriate BDT solutions. Moreover, we present use cases in which BDT has already been implemented in leading clearing houses.