International Journal of Finance & Economics

Publisher:: Wiley
Publication date:: 2021-02-01

ISBN:: 1076-9307

Issue Number

Latest documents

A kernel fuzzy twin SVM model for early warning systems of extreme financial risks
It is an important component of risk management in financial markets to develop an early warning systems (EWS) for extreme financial risk. In this paper, we establish a novel EWS called kernel fuzzy twin support vector machine (KFT‐SVM). Unlike T‐SVM, KFT‐SVM can deal with the noises and outliners in dataset and the fuzzy dataset with a lot of potential uncertain but important factors in financial markets by introducing the fuzzy approach. More importantly, the introduced kernel method can aid the fuzzy approach to achieve more valuable fuzzy memberships by transporting dataset from the input space to the kernel space and further improve the generalization performance of T‐SVM. Computational comparisons of KFT‐SVM against SVM, T‐SVM and FT‐SVM indicate the significant superiority of our proposed KFT‐SVM. Furthermore, we have investigated the favourable ability of KFT‐SVM for overcoming the class imbalance problem by comparison with that combined with the resampling method of the synthetic minority over‐sampling technique (SMOTE). The experimental result shows that our proposed KFT‐SVM can effectively overcome the class imbalance problem.
Dynamic relationship between corporate board structure and firm performance: Evidence from Malaysia
Corporate governance is being acknowledged by almost all kinds of business communities and firms as an ultimate driver to improve the firm financial performance. This study examined the association between corporate board structure and corporate financial performance using a dynamic panel model. Principles of corporate governance deliver an explicit board structure for the purpose to facilitate the board members, which helps in making good decisions. The board of directors consists of the CEO, the chairman, the internal directors, and the external non‐executive directors to work for the shareholders. This study undertakes different corporate governance attributes including non‐executive directors, board size, and CEO duality and examines its effect on firm performance. The dynamic panel model is used, and preestimation and postestimation tests were conducted for the validity of the model. This study found a significant effect of board size, CEO duality, and non‐executive directors on firm performance. The findings show that most of the governance variables are endogenous by nature. Results are consistent with agency theory. This study provides the theoretical and empirical evidence and applies a superior model (dynamic panel model) to better explain the association between corporate board structure and corporate firm performance in listed firms.
Depreciate to save the economy? An empirical evidence worldwide
Can depreciation save the economy? This paper conducts an empirical examination with balanced panel data for 133 economies from 1980 to 2014. In the study, the impact of depreciation is dichotomized into common effect and individual effect. The results show that, first of all, the common effect is negative in the current period, and turns to be positive in the lag period, while the magnitude of the former is higher. Secondly, it is also revealed that in terms of individual effect, the negative impact of the common effect will be intensified by the degree of openness, but be mitigated by the scale, floatability, and development level of economies. Among them, scale has a decisive influence. Third, when putting the two tiers of effects together, the aggregate results are generally not strong; moreover, only a few economies can benefit from depreciation. The exceptions are the US and China, which can obtain approximately 0.58% benefits from a 1% depreciation. Fourth, insufficient evidence was found to show a contribution of exchange rate change to total factor productivity. Fifth, there is a two‐way causal relationship between exchange rate and output; however, the causality between exchange rate and productivity is not obvious.
ECB'S non‐standard monetary policy and asset price volatility: Evidence from EU‐6 economies
In this paper, we provide evidence that the effects of the different waves of asset purchase programmes implemented by the ECB from 2009 onwards have spilled over into a group of six Central and Eastern European economies belonging to the EU but not to the euro area, contributing to shield their financial markets from the negative shocks that hit international investors' degree of risk aversion in recent years. By means of a Dynamic Conditional Correlation Multivariate Generalized Autoregressive Conditional Heteroskedasticity Model, and resorting to three different proxies to describe the functioning, and measure the impact, of the ECB's programmes of asset purchase, we show that such non‐standard monetary measures have had a marked role in dampening volatility spikes in EU‐6 financial markets, likely reflecting the working of a “risk taking” and a “liquidity” channel of transmission. Results are in general robust to an extensive series of tests, including changes in the estimation methodology.
The determinants of systematic risk: A firm lifecycle perspective
This paper investigates how systematic risk varies over the lifecycle of the firm. If market equity beta is determined by firm characteristics as the literature on the determinants of systematic risk holds, and if those characteristics change over the lifecycle of the firm following a definite pattern as firm lifecycle theory suggests, then market equity beta should change over the lifecycle of the firm following a predictable pattern. Our findings indicate that holding other determinants of beta constant, the coefficient of systematic risk tends to fall in magnitude following a nonlinear pattern as firm age increases. In addition, we find that the volatility of market equity beta also tends to fall over the lifecycle of the firm. We argue that our main variable of concern, that is, firm age, proxies for variables that have hitherto been omitted in the literature on the determinants of systematic risk. In particular, we maintain that firm age proxies for the mispricing propensity that young firms lose as they mature. This research is useful for both practitioners and researchers in that it may suggest ways to adjust empirical estimates of systematic risk. In addition, our results are important for research on beta forecasting as they show that the length of the stationary interval of betas is shorter for young companies, and therefore it is necessary to take into account this time varying characteristic in the estimation process in order to improve the beta forecasting.
On the impact of exchange rate uncertainty on private investment in Ghana
High levels of private investment are correlated with higher economic growth and development across countries, but questions remain whether this relationship is sustainable given the high levels of exchange rate uncertainty in developing economies albeit other macroeconomic instabilities. This paper examines empirically the impact of real exchange rate uncertainty on private investment in Ghana. We, thus, apply the accelerator theory to investigate the contributing effect of real exchange rate uncertainty on the movement of private investment from the economic standpoint of an import‐dependent economy such as Ghana. The study employs annual time series data from 1980 to 2016. Moreover, we adopt the autoregressive distributed lag model of cointegration where we find evidence of a long‐run positive relationship between positive private investment and real exchange rate uncertainty as well as trade openness. The short‐run evidence provides a confirmation of the impact of inflation, trade, and real exchange rate uncertainty on private investment. Specifically, our results show that there is a positive pass‐through effect from real exchange rate uncertainty to private investment decision in resource allocation. Shocks from lending rate and terms of trade were found to exhibit negative effects on private investment in the short and long run. As a matter of policy, it is imperative for policymakers in developing economies to consider the effect of exchange rate and terms of trade associated with bilateral trade and investment‐related agreements to minimize the effects of contemporaneous shocks from uncertainties.
Managerial entrenchment, financial constraints, and investment choice in unlisted firms
This paper examines how internally generated cash is allocated for investment in unlisted firms in the post‐global financial crisis period. We estimate models using a panel data set from unlisted firms in the United Kingdom from 2009 to 2014. With the use of a commercially available credit rating and a widely used index in the literature to proxy for external financial constraints, the paper concludes that less financially constrained firms display a higher investment‐cash flow sensitivity. This association has been consistent across the post‐global financial crisis period. We find some evidence to suggest that investment inefficiencies reduce investment‐cash flow sensitivity, and this is intensified in the presence of external financial constraints. We extend the investment choice literature in the presence of financial constraints using evidence from unlisted firms. We also enhance the investment choice literature by incorporating the managerial entrenchment effect along with financial constraints. Provision of financial support for private entities is a crucial policy focus for any government. We call for policymakers to enhance microfinancing options for unlisted firms to reduce the impact from external financial frictions.
Issue Information
Are competitive microfinance services worth regulating? Evidence from microfinance institutions in Sub‐Saharan Africa
In recent years, there is increasing appetite for regulation of microfinance services after the 2008 financial crisis. Policy questions such as whether competitive microfinance institution (MFI) requires strong regulation to reduce, for example, credit risk or competition and regulation operate in the opposite direction, which each tends to dampen the effect of the other, are an empirical issue that this paper provides answers based on data on Sub‐Saharan Africa (SSA) for the period 1995–2015, utilizing panel data approaches. Finding from the study indicates that low competition increases credit risk among MFIs in SSA, which regulation helps reduce such behaviour. The effect of regulation on credit risk is conditional on the level of competition, at the first percentile of competition (imply more competition); regulation does not reduce credit risk behaviour of MFIs but does at competition level above the 25th percentile (imply less competition). Regulation, on the other hand, does not affect operational risk at any level of competition. These findings have implications for policy formulation on the regulation and operations of MFIs in SSA. Our findings suggest that the MFI industry could be regulated efficiently if policymakers develop policies targeted at reducing credit risk exposures of MFIs than their exposure to operational risk.
Banking sector stability and economic growth in post‐transition European Union countries
Economic growth is considered to be an essential means for poverty alleviation and improving countries' well‐being. Disturbances and instability in the banking sector may jeopardize financial stability and generate adverse, considerable and long‐lasting consequences therefor. This study analyzed the dynamic and causal effects of various indicators of banking sector stability on economic growth by employing new generation panel cointegration and causality tests in post‐transition European Union countries over the period 1998–2016. Taking into account cross‐sectional dependence between countries, the presence of heterogeneity in the errors, endogeneity and structural breaks, the long and short run analyses revealed the cointegration relation between the variables, the statistically significant positive effect of banking sector stability on economic growth and the efficiency of the error correction mechanism. The causality analysis disclosed the opposite causality direction between the particular banking sector stability indicators and economic growth, suggesting that banking sector stability is a complex, hierarchically structured multidimensional construct. Its different dimensions require different policy responses aiming at preventing future shocks and mitigating the adverse effects, while encouraging economic growth.