Int. J. Financial Stud., Volume 8, Issue 2 (June 2020) – 19 articles

It is largely assumed that Islamic microfinance institutions (IMFIs) deal with family empowerment instead of women’s empowerment. However, women are the main beneficiaries of Baitul Maal Wat Tamwil (BMT), Indonesia’s first IMFIs. This paper aims to explore the origins, the initiators, and the visions of BMTs and the extent to which they intersect with women’s empowerment. Employing a qualitative approach, this study selected four BMTs in Yogyakarta as a case study. It found that four critical groups that have a significant role in the development of Indonesian BMTs: ICMI (Association of Indonesian Muslim Intellectual), Islamic mass organizations, NGOs, and local governments. The issues of loan sharks and poverty alleviation were the primary factors driving the inception of BMTs. Despite women being crucial clients, none of the studied BMTs explicitly invoked women’s empowerment in their organizational vision. To conclude, the BMTs’ preference for women is not based on an understanding of gender inequality, but rather motivated by pragmatic business considerations, particularly the self-sustainability paradigm that underpins their practices. Full article

There is considerable hype about blockchain in almost every industry, including finance, with significant investments globally. We conduct a systematic review of 851 records and construct a final article sample of 183 for the sample period 2012 to 2020 to identify relevant factors for blockchain adoption in corporate governance. We conduct textual and empirical analysis to develop a decentralized autonomous governance framework and link traditional corporate governance theories to blockchain adoption. Furthermore, we explore present and future use cases and implications of blockchains in corporate governance. Using our systematic review and textual analysis, we further identify gaps and common trends between prior academic and industry literature. Moreover, for our empirical analysis, we compile a unique database of blockchain investments to forecast future investments. In addition, we explore blockchain potential in corporate governance during and post COVID-19. We find prior academic articles to mostly focus on regulation (49 studies) and Initial Coin Offerings (ICOs) (46 studies), while industry articles tend to concentrate on exchanges (10 studies) and cryptocurrencies (9 articles). A significant growth in literature is observed for 2017 and 2018. Finally, we provide behavioural, regulatory, ethical and managerial perspectives of blockchain adoption in corporate governance. Full article

The study investigates the relationship between monetary policy and bank profitability in New Zealand using the generalized method of moments (GMM) estimator. Our sample comprises 19 banks from New Zealand over the period 2006–2018. Our results suggest that an increase in short-term rate leads to an increase in the profitability of banks, while an increase in long-term interest rates reduces bank profitability. In addition to monetary policy variables, capital adequacy ratio, non-performing loan ratio, and cost to income ratio are also important determinants of the profitability of banks in New Zealand. Capital adequacy ratio has a positive impact on bank profitability, while non-performing loan ratio and cost to income ratio have a negative impact on bank profitability. Full article

This paper investigates herding behavior and the connection between herding behavior and investor sentiment. We apply a Cross-Sectional Absolute Deviation (CSAD) approach and the quantile regression method to capture herding behavior in the KOSPI and KOSDAQ stock markets. The analysis results are outlined as follows. First, we find that herding behavior is exhibited during down-market periods in the KOSPI and KOSDAQ stock markets. However, we show that adverse herding behavior occurs in low-trading volume and low-volatility periods. Second, according to the results of the quantile regression, herding behavior is found in the low and high quantiles of the KOSPI and KOSDAQ stock markets. However, adverse herding behavior is also found, which means that investors herd in extreme market conditions. Third, the relationship between investor sentiment and herding behavior is analyzed through regression and quantile regression, and investor sentiment is confirmed to be one of the important factors that can cause herding behavior in the Korean stock market. Full article

The purpose of this article is to develop a quantitative model that supports policy makers in the tourism sector in making socially responsible investment decisions. In particular, this paper proposes a methodological approach to assess the impact of strategic decisions at the policy level, in the field of tourism, from an economic, environmental and social point of view. The Calabria region, in Italy, has been chosen as a real-world case study. Based on historical data, the study identifies the main levers that influence tourism-related dynamics in Calabria. A quantitative forecasting model to support future investment decisions for sustainable tourism has then been developed. This problem is modeled through a multi-criteria optimization framework. To initialize such a framework, a non-linear autoregressive network with exogenous inputs (NARX) has been used. The proposed model is a flexible instrument to evaluate public investment policies in the field of tourism from the point of view of sustainability and social responsibility. Full article

The purpose of the present paper is to provide an advanced overview of the practical applications of Banking 4.0 in Industry 4.0. This paper examines the technology trends in the Fourth Industrial Revolution and identifies the key indicators behind the creation of a strategic map for the fourth-generation banks and their readiness to enter Industry 4.0. This paper examines a systematic review of fully integrated Banking 4.0 and the application of the technologies of Industry 4.0 and illustrates a distinct pattern of integration of Banking 4.0 and Industry 4.0. One of the prominent features of this article is the performance of successful global banks in applying these technologies. The results showed that Banking 4.0 in Industry 4.0 is an integrative value creation system consisting of six design principles and 14 technology trends. The roadmap designed for banks to enter Industry 4.0 and how they work with industrial companies will be a key and important guide. Full article

This study assesses how the coronavirus pandemic (COVID-19) affects the intraday multifractal properties of eight European stock markets by using five-minute index data ranging from 1 January 2020 to 23 March 2020. The Hurst exponents are calculated by applying multifractal detrended fluctuation analysis (MFDFA). Overall, the results confirm the existence of multifractality in European stock markets during the COVID-19 outbreak. Furthermore, based on multifractal properties, efficiency varies among these markets. The Spanish stock market remains most efficient while the least efficient is that of Austria. Belgium, Italy and Germany remain somewhere in the middle. This far-reaching outbreak demands a comprehensive response from policy makers to improve market efficiency during such epidemics. Full article

The study aims to operationalize financial reporting quality in terms of the qualitative characteristics (QCs) as stated by the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI) standards, as well as to investigate their association with earnings quality (EQ) and banking performance. The study uses secondary data extracted from DataStream to operationalize and measure the financial reporting quality in the annual reports of 25 out of the 27 Islamic banks in the Gulf Council Countries (GCC) for a 5-year period (2014–2018), meaning 125 annual reports were used. The study applies a manual content analysis to the annual reports to score all the items of QCs and operationalizes 25 measurement items that represent the six QCs. All items use 5-point Likert-type scales to compute the sub-score and the overall index through the Neural Network System. The findings of the model paths show a significant positive relationship between EQ and most of the QCs. The first hypothesis is partially accepted as there is a positive relationship between EQ and relevancy, reliability, prudence and general quality; however, there is no significant relationship between EQ and understandability and there is a significant negative relationship between EQ and comparability. Moreover, the study finds a significant positive relationship between EQ and ROA on one hand and EQ and ROE on the other hand (p-value = 0.00), meaning the second hypothesis is supported. Full article

This paper primarily aims to assess the impact of financial literacy on households’ investment choices. The paper employs secondary data from the FinScope survey (2017) conducted by Financial Sector Deepening Trust (FSDT). In particular, the study aims at establishing whether the choices of investment platforms are influenced by the financial literacy level of the heads of households. To do so, the study employed both bivariate and multivariate analytical techniques. The study finds that financial literacy is positively and significantly associated with household investment choices. More specifically, as households become more financially literate, they divert from investing in informal groups towards more formal investment platforms such as investment accounts, agricultural ventures as well as personal business. Such observations may be partly attributable to the facts that individuals whose financial literacy is sound enough are more likely to be equipped with skills and knowledge of risks associated with investment opportunities and some other several financial products. The study also reveals that financial literacy is significantly associated with households’ socio-demographic factors, and that the adult population exhibits a large financial literacy gap and, therefore, adults should not be considered as a homogenous group—instead, gender, age, education and income levels of the households, which are showcased in this study, should also be taken into consideration. The study opines that, because most of households, as revealed in the survey from which the employed dataset is based, are hailing from rural settings where agriculture is the main economic activity, we establish that agricultural ventures require a complete revamp for Tanzania to become a middle-income economy through its industrialization agenda. The study also proposes the financial literacy programmes to be rolled on to students from early stage of their education such as secondary schools. Full article

It is important to evaluate the impact of Ethiopia’s financial inclusion strategy since it has been launched in 2014. Accordingly, this paper assesses the extent to which the target has been met. The main aim of this study is to measure the success or failure of Ethiopia’s financial inclusion in comparison with other countries in East Africa. Using secondary data, this study revealed that Ethiopia’s financial inclusion is not as successful as other East African countries. This study also found that Ethiopians prefer informal saving clubs rather than formal financial organs. This preference, combined with unemployment and low income, is the barrier to the financial inclusion strategy. Based on the findings, identifying and addressing root causes should be done by removing distance, cost, credit, and documentation barriers. Moreover, the findings showed that access to public transit can also expand the reach of formal financial institutions by encouraging more people to physically access financial institutions. This study recommended access to formal financial organs as a core to financial institutions. Access to formal financial organs should be boosted through increasing financial institutions. Educating individuals about their financial circumstances were also recommended so that people can increase their formal saving uptake. This paper also recommended that the government develop regulatory guidelines for the functioning of financial institutions. The main outcome, therefore, is that financial institutions could be more transparent and predictable, reduce costs, and simplify the rules for entering the market. Full article

The Current Expected Credit Loss (CECL) revised accounting standard for credit loss provisioning is the most important change to United States (US) accounting standards in recent history. In this study, we survey and assess practices in the validation of models that support CECL, across dimensions of both model development and model implementation. On the development side, this entails the usual SR 11-7 aspects of model validation; however, highlighted in the CECL context is the impact of several key modeling assumptions upon loan loss provisions. We also consider the validation of CECL model implementation or execution elements, which assumes heightened focus in CECL given the financial reporting implications. As an example of CECL model development validation, we investigate a modeling framework that we believe to be very close to that being contemplated by institutions, which projects loan losses using time-series econometric models, for an aggregated “average” bank using Federal Deposit Insurance Corporation (FDIC) Call Report data. In this example, we assess the accuracy of 14 alternative CECL modeling approaches, and we further quantify the level of model risk using the principle of relative entropy. Apart from the illustration of several model validation issues and practices that are of particular relevance to CECL, the empirical analysis has some potentially profound policy and model risk management implications. Specifically, implementation of the CECL standard may lead to under-prediction of credit losses; furthermore, coupled with the assumption that we are at an end to the favorable phase of the credit cycle, this may be interpreted as evidence that the goal of mitigating the procyclicality in the provisioning process that motivated CECL may fail to materialize. Full article

The study examines evidence for the transmission of the US and EU financial crises via investor holdings into the Chilean stock market following two global financial crises, in 2008 and 2011. The study modified the models of Bekaert et al. (2014), and Dungey and Gajurel (2015) on the 2007–2009 global financial crisis and extends the period to include the European debt crisis of 2010–2011. The study produced three main contributions. First, changes in the equity holdings of retail investors were a key source of contagion following the 2008 US financial crisis. Second, investor herding during the 2011 financial crisis is shown to be low based on the co-movement of equity holdings between the four investor groups studied. Third, investor behavior during the 2011 EU crisis differs from that of the 2008 US financial crisis, which we attribute to firms in Chile adopting international financial reporting standards (IFRS) and improving their corporate governance. We compared the findings to the prior contagion studies that rely on Chilean return data to highlight the contributions to international financial research, particularly as it relates to the functioning of emerging capital markets during financial crises. Full article

Bitcoin’s evolution has attracted the attention of investors and researchers looking for a better understanding of the efficiency of cryptocurrency markets, considering their prices and volatility. The purpose of this paper is to contribute to this understanding by studying the degree of persistence of the Bitcoin measured by the Hurst exponent, considering prices from the Brazilian market, and comparing with Bitcoin in USD as a benchmark. We applied Detrended Fluctuation Analysis (DFA), for the period from 9 April 2017 to 30 June 2018, using daily closing prices, with a total of 429 observations. We focused on two prices of Bitcoins resulting from negotiations made by two different Brazilian financial institutions: Foxbit and Mercado. The results indicate that Mercado and Foxbit returns tend to follow Bitcoin dynamics and all of them show persistent behavior, although the persistence in slightly higher for the Brazilian Bitcoin. However, this evidence does not necessarily mean opportunities for abnormal profits, as aspects such as liquidity or transaction costs could be impediments to this occurrence. Full article

Recent literature shows that market anomalies have significantly diminished, while research on market factors has largely improved the performance of asset pricing models. In this paper we study the extent to which data envelopment analysis (DEA) techniques can help improve the performance of multifactor models. Specifically, we test the explanatory power of the Fama and French three-factor model, combined with an additional factor based on DEA, on a sample of 2101 European equity funds, for the period from 2001 to 2016. Accordingly, we first form the fund portfolios that constitute our test assets and create the efficiency factor. Secondly, we estimate the prices of risk tied to the four factors using ordinary least squares (OLS) on a two-stage cross-sectional regression. Finally, we use the R-squared statistic estimated by generalized least squares (GLS), as well as the Gibbons Ross and Shanken test and the J-test for overidentifying restrictions in order to study the performance of the model, including and omitting the efficiency factor. The results show that the efficiency factor improves the performance of the model and reduces the pricing errors of the assets under consideration, which allows us to conclude that the efficiency index may be used as a factor in asset pricing models. Full article

Supply chain finance has been gaining attention in theory and practice. A company’s financial position affects its performance and survivability in dynamic and volatile markets. Those that have weak financial performance are vulnerable when operating in environments that are uncertain and financially unstable. Companies adopt various solutions and techniques to manage, effectively and efficiently, the flow of money to and from its suppliers and buyers. Reverse factoring is an innovative technique in supply chain financing. This paper develops a joint economic lot size model where a vendor coordinates operational and financial decisions with its multiple suppliers through the establishment of a reverse factoring arrangement. The creditworthy vendor systematically informs a financial institution (e.g., bank) of payment obligations to selected suppliers, enabling the latter to borrow against the value of the relevant accounts receivable at low interest (borrowing) rates. The paper also presents a numerical example and a sensitivity analysis to illustrate the behavior of the model and to compare the economic and operational performance of a supply chain with and without a reverse factoring agreement. The results show that the establishment of a reverse factoring agreement within the supply chain improves the economic performance and impacts on the operational decisions. Full article

This research is conducted to investigate the impact of corporate governance on stock price synchronicity in the context of the Vietnamese market. The paper tests four hypotheses proposing the effect of four crucial components of corporate governance including board size, board independence, managerial ownership, and foreign ownership on stock price synchronicity. The study sample includes 247 non-financial listed companies on the Ho Chi Minh Stock Exchange (HOSE) in Vietnam over a period of five years from 2014 to 2018. The fixed effects model is employed to address econometric issues and to improve the accuracy of the regression coefficients. The research results show the positive impact of board size and foreign ownership but the negative impact of managerial ownership on stock price synchronicity. This study confirms the viewpoint that stocks in the market move more together when the firms’ corporate governance gets better. In other words, the research findings suggest that low synchronicity signifies the corporate intransparency and weak information environment and vice versa. From this, the paper provides a new insight to managers on how to improve stock price synchronicity with corporate governance. Full article

We aim to analyze the impact of capital regulation and market discipline on capital to risk-weighted assets ratio. We used the panel data of Asian developing-countries banks for the period from 2009 to 2018. We collected data from the financial statements of 73 banks of Pakistan, Jordan, Indonesia, the Philippines, Saudi Arabia, and Thailand. We used the generalized method of moment (GMM) to analyze the results. We find that capital regulation and market disciplines significantly influence the capital ratio in Asian developing countries. Full article

This study analyzes corporate ownership as a corporate governance mechanism and its role in creating firm value. Previous research shows that there is no convergence on the firm-value corporate ownership relationship. Most research in this area takes a cross national approach ignoring the uniqueness of each institutional setting particularly those of emerging nations. Using a unique firm level dataset, we investigate how corporate control nature and ownership concentration affect the value of Chinese listed firms. First, non-state owned control is associated with a higher Tobin’s Q while a negative premium is found for state owned. Using the hybrid and the correlated random effects model we confirm a U-shaped non-linear relationship between ownership concentration and Tobin’s Q, implying that firm value first decreases and then increases as block holders own more shares. Further investigation reveals that the negative effect of ownership concentration is weaker when a firm equity nature is non-state owned enterprises (non-SOEs) compared to state-owned enterprises (SOEs). While ownership concentration appears to be an efficient mechanism for corporate governance its effect is weaker for SOEs compared to non-SOEs. The results support privatization of SOEs, sound reforms such as the split share structure reform as crucial for the development of China’s stock market. Full article

This paper aims at identifying a validated risk model for the cryptocurrency market. We propose a stochastic volatility model with co-jumps in return and volatility (SVCJ) to highlight the role of jumps in returns and volatility in affecting Value-at-Risk (VaR) and Expected Shortfall (ES) in cryptocurrency market. Validation results based on backtesting show that SVCJ model is superior in terms of statistical accuracy of VaR and ES estimates, compared to alternative models such as TGARCH (Threshold GARCH) volatility and RiskMetrics models. The results imply that for the cryptocurrency market, the best performing model is a stochastic process that accounts for both jumps in returns and volatility. Full article