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Volume 8, December

Int. J. Financial Stud., Volume 9, Issue 1 (March 2021) – 16 articles

Cover Story (view full-size image): Nonprofit organizations resemble pass-through businesses in size but differ in terms of the taxes paid. Although not profit-driven, nonprofits should seek to maximize their value through optimal financing like profit-driven enterprises such as pass-throughs. In this study, we compute optimal outcomes for nonprofits and pass-throughs using the capital structure model (CSM) when there is a risk class for nonprofits that is similar to that for pass-throughs. For our computations, we also assume the same before-tax cash flows, the same costs of borrowing, and the same growth rates. Given our assumptions, we compute precise outcomes for nonprofits and pass-throughs with differences in outcomes explained by the tax-exempt status for nonprofits. View this paper
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Article
Why the Par Value of Share Matters to Investors
Int. J. Financial Stud. 2021, 9(1), 16; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010016 - 16 Mar 2021
Viewed by 845
Abstract
The purpose of the study is the analysis of the relationship between the par value (also known as nominal value or face value) and the parameters influencing a company’s financing. Additionally, the utility of the par value as a manipulation tool for equity [...] Read more.
The purpose of the study is the analysis of the relationship between the par value (also known as nominal value or face value) and the parameters influencing a company’s financing. Additionally, the utility of the par value as a manipulation tool for equity offerings is examined. The study is based on a sample of IPO firms which went public on the Warsaw Stock Exchange. The study finds that an excess supply of shares has a negative impact on their valuation. In contrast, decreasing the par value prompts perceptual biases among investors beneficial to the success of the issuance. Moreover, share capital is found to be a useful signaling tool to improve the company’s position on the financial market. Full article
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Article
Determinants of Financial Performance in China’s Intelligent Manufacturing Industry: Innovation and Liquidity
Int. J. Financial Stud. 2021, 9(1), 15; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010015 - 08 Mar 2021
Viewed by 893
Abstract
This study focuses on the mediation channels through which the financial performance of intelligent manufacturing industries closely related to the Fourth Industrial Revolution has been affected. Along with compiling a massive volume of datasets publicized by the Chinese government and other authoritative institutions, [...] Read more.
This study focuses on the mediation channels through which the financial performance of intelligent manufacturing industries closely related to the Fourth Industrial Revolution has been affected. Along with compiling a massive volume of datasets publicized by the Chinese government and other authoritative institutions, a survey of the 317 listed enterprises of the intelligent manufacturing industries in China has been established for statistical analysis. Using Structural Equation Modeling (SEM), this research tests six hypotheses and confirms the inter-factor impact relationship between exogenous and endogenous factors. We find that innovation efforts mainly led by increasing investment in Research & Development (R&D), along with high liquidity, surely lead to good financial performance, whereas innovation efforts alone do not. Government support policy has been found to be closely related not only to higher liquidity, but to good financial performance through the common channel of R&D investment. Regional innovation capability has been revealed to be related to R&D investments, and, furthermore, to liquidity, which shows that the regional innovation system in China has been functioning relatively well to induce enterprises to increase investments and secure higher liquidity, and finally contribute to achieving better business performance. However, regional economic development shows no relationship with R&D investments, and consequently neither with liquidity nor with performance. Full article
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Article
Role of ICT Investment and Diffusion in the Economic Growth: A Threshold Approach for the Empirical Evidence from Pakistan
Int. J. Financial Stud. 2021, 9(1), 14; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010014 - 04 Mar 2021
Viewed by 813
Abstract
This study investigates the role of Information and Communication Technologies (ICT) investment and diffusion on Pakistan’s economic growth by proposing the threshold level of ICT investment. At our proposed level, the ICT imports significantly enhance the intermediate inputs to capital goods, ultimately enhancing [...] Read more.
This study investigates the role of Information and Communication Technologies (ICT) investment and diffusion on Pakistan’s economic growth by proposing the threshold level of ICT investment. At our proposed level, the ICT imports significantly enhance the intermediate inputs to capital goods, ultimately enhancing economic growth. For this empirical investigation, we use the maximum available data on technological innovation and investment, ranging from 2003 to 2018. Incorporating the structural breaks, the results of regression analysis reveal that Pakistan’s economic growth is unaffected by ICT development. However, we observe the mixed shreds of evidence on the ICT investment. Following existing literature, we use ICT goods exports and imports as a proxy for ICT investment. Interestingly, the economic growth of Pakistan is again unaffected by the ICT goods exports. However, we observe that a one percent increase in ICT goods imports enhances economic growth by 1.73 percent. Then, we extend this analysis to the threshold approach, which reveals that ICT imports affect the overall economic growth when the ICT goods imports reach the level of 4.13 percent of the total imports. At this threshold, the ICT goods import significantly enhances the intermediate input to the capital goods, leading to higher economic growth. Therefore, the policymakers should ensure that the ICT goods import must be greater than the 4.13 percent of Pakistani imports. Full article
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Article
Nonprofits and Pass-Throughs: Performance Comparison
Int. J. Financial Stud. 2021, 9(1), 13; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010013 - 27 Feb 2021
Cited by 1 | Viewed by 752
Abstract
This paper’s purpose is to compare nonprofits with pass-throughs in terms of valuation, leverage, and growth. To achieve this purpose, we use the Capital Structure Model. This model determines maximum firm valuation through incorporating real data (tax rates, credit spreads, and historical growth [...] Read more.
This paper’s purpose is to compare nonprofits with pass-throughs in terms of valuation, leverage, and growth. To achieve this purpose, we use the Capital Structure Model. This model determines maximum firm valuation through incorporating real data (tax rates, credit spreads, and historical growth rates). Since this is the first study to offer our particular set results on valuation, leverage and growth, our findings are value-additive in terms of the comparative research on nonprofits and pass-throughs. The new and scientific value of our findings are further established by robust tests that modify values for key variables. Major findings include the following. Nonprofits have over a fifty percent valuation advantage over pass-throughs and achieve a four times greater increase in dollar value when going from nongrowth to growth. The latter accomplishments are attained with a smaller before-tax plowback ratio and less retained earnings. Such achievements occur because nonprofits are not taxed on earnings retained for growth. While nonprofits have somewhat greater optimal leverage ratios than pass-throughs, they gain a bit less in dollars added from debt unless growth rates increase as projected when tax rates are lowered. Nonprofits gain less percentage-wise from debt because their unlevered firm value is greater than pass-throughs. Full article
(This article belongs to the Special Issue Practical Applications of Capital Structure Models)
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Article
Transmission of Trading Orders through Communication Line with Relativistic Delay
Int. J. Financial Stud. 2021, 9(1), 12; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010012 - 26 Feb 2021
Cited by 1 | Viewed by 693
Abstract
The notion of “relativistic finance” became ingrained in the public imagination and has been asserted in many mass-media reports. However, despite an observed drive of the most reputable Wall Street firms to establish their servers ever closer to the trading hubs, there is [...] Read more.
The notion of “relativistic finance” became ingrained in the public imagination and has been asserted in many mass-media reports. However, despite an observed drive of the most reputable Wall Street firms to establish their servers ever closer to the trading hubs, there is surprisingly little concrete information related to the relativistic delay of the trading orders. There is an underlying assumption that faster electronics are always beneficial to the stability of the network. In this paper, the author proposes a modified M/M/G queue theory to describe the propagation of the trading signal with finite velocity. Based on this theory, we demonstrate that, even if the reaction time of the system is negligible, the propagating signal is distorted by simple acts of trading along the transmission line. Full article
(This article belongs to the Special Issue Econophysics Applications to Financial Markets Ⅱ)
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Article
A Note on Universal Bilinear Portfolios
Int. J. Financial Stud. 2021, 9(1), 11; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010011 - 24 Feb 2021
Viewed by 669
Abstract
This note provides a neat and enjoyable expansion and application of the magnificent Ordentlich-Cover theory of “universal portfolios”. I generalize Cover’s benchmark of the best constant-rebalanced portfolio (or 1-linear trading strategy) in hindsight by considering the best bilinear trading strategy determined in hindsight [...] Read more.
This note provides a neat and enjoyable expansion and application of the magnificent Ordentlich-Cover theory of “universal portfolios”. I generalize Cover’s benchmark of the best constant-rebalanced portfolio (or 1-linear trading strategy) in hindsight by considering the best bilinear trading strategy determined in hindsight for the realized sequence of asset prices. A bilinear trading strategy is a mini two-period active strategy whose final capital growth factor is linear separately in each period’s gross return vector for the asset market. I apply Thomas Cover’s ingenious performance-weighted averaging technique to construct a universal bilinear portfolio that is guaranteed (uniformly for all possible market behavior) to compound its money at the same asymptotic rate as the best bilinear trading strategy in hindsight. Thus, the universal bilinear portfolio asymptotically dominates the original (1-linear) universal portfolio in the same technical sense that Cover’s universal portfolios asymptotically dominate all constant-rebalanced portfolios and all buy-and-hold strategies. In fact, like so many Russian dolls, one can get carried away and use these ideas to construct an endless hierarchy of ever more dominant H-linear universal portfolios. Full article
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Article
The Role of Betting on Digital Credit Repayment, Coping Mechanisms and Welfare Outcomes: Evidence from Kenya
Int. J. Financial Stud. 2021, 9(1), 10; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010010 - 01 Feb 2021
Cited by 1 | Viewed by 919
Abstract
Digital financial services and more importantly, mobile money, have become an important financial innovation to advance financial inclusion in developing and emerging economies. While digital financial services have improved the lives of many Kenyans, to the growing betting segment of the Kenyan population, [...] Read more.
Digital financial services and more importantly, mobile money, have become an important financial innovation to advance financial inclusion in developing and emerging economies. While digital financial services have improved the lives of many Kenyans, to the growing betting segment of the Kenyan population, these innovations have also brought great convenience to betting. The innovations have allowed easy access to digital credit which can be used for betting. Despite betting or gambling being a widely studied area, particularly in developed countries, little is known about its interaction with financial innovations such as digital financial services in developing and emerging economies. Using data from a 2017 digital credit survey in Kenya, this study investigates if bettors are more likely than non-bettors to be financially distressed or engage in welfare-undermining coping strategies and potentially experience inferior welfare outcomes. The study uses a representative sample of 1040 digital borrowers, of which 304 were digital bettors. Using multivariate logistic regressions, the study found that, after controlling for socio-economic and demographic factors, bettors are significantly more likely than non-bettors to be financially distressed, engage in welfare undermining coping strategies, and have inferior welfare outcomes. Full article
(This article belongs to the Special Issue The Financial Industry 4.0)
Article
The Moderating Role of Perceived Risks in the Relationship between Financial Knowledge and the Intention to Invest in the Saudi Arabian Stock Market
Int. J. Financial Stud. 2021, 9(1), 9; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010009 - 28 Jan 2021
Cited by 1 | Viewed by 1277
Abstract
This research study aims to investigate the moderating role of perceived risks in the relationship between financial knowledge (represented by objective knowledge and subjective knowledge) and the intention to invest in the Saudi Arabian Stock Market. The researcher collected data from four hundred [...] Read more.
This research study aims to investigate the moderating role of perceived risks in the relationship between financial knowledge (represented by objective knowledge and subjective knowledge) and the intention to invest in the Saudi Arabian Stock Market. The researcher collected data from four hundred Saudi Arabian participants who were interested in investing in the Saudi Arabian Stock Market. The researcher used structural equation modeling (SEM) through the Smart PLS 3.3.2 software to analyze the data. This study’s findings indicate that, in the formation of financial knowledge, the total effect of Subjective knowledge is greater than the total effect of objective knowledge. The findings also indicate that there is a positive relationship between financial knowledge and perceived risks and between financial knowledge and the intention to invest. Finally, the findings indicate that perceived risks have a negative effect on the relationship between financial knowledge and the intention to invest in the Saudi Arabian Stock Market. Full article
(This article belongs to the Special Issue Advances in Behavioural Finance and Economics)
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Editorial
Acknowledgment to Reviewers of International Journal of Financial Studies in 2020
Int. J. Financial Stud. 2021, 9(1), 8; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010008 - 24 Jan 2021
Viewed by 708
Abstract
Peer review is the driving force of journal development, and reviewers are gatekeepers who ensure that International Journal of Financial Studies maintains its standards for the high quality of its published papers [...] Full article
Article
Analysis of Volatility Volume and Open Interest for Nifty Index Futures Using GARCH Analysis and VAR Model
Int. J. Financial Stud. 2021, 9(1), 7; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010007 - 14 Jan 2021
Viewed by 1002
Abstract
The generalized autoregressive conditional heteroscedastic model (GARCH) is used to estimate volatility for Nifty Index futures on day trades. The purpose is to find out if a contemporaneous or causal relation exists between volatility volume and open interest for Nifty Index futures traded [...] Read more.
The generalized autoregressive conditional heteroscedastic model (GARCH) is used to estimate volatility for Nifty Index futures on day trades. The purpose is to find out if a contemporaneous or causal relation exists between volatility volume and open interest for Nifty Index futures traded on the National Stock Exchange of India, and the extent and direction of these relationships. A complete absence of bidirectional causality in any particular instance depicts noise trading and empirical analysis according to this study establishes that volume has a stronger impact on volatility compared to open interest. Furthermore, the impulse originating from volatility of volume and open interest is low. Full article
(This article belongs to the Special Issue Advances in Behavioural Finance and Economics)
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Article
Leading in Switzerland and Poland: A Case Study of Leadership Practices in Financial Services
Int. J. Financial Stud. 2021, 9(1), 6; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010006 - 06 Jan 2021
Viewed by 1052
Abstract
Leading across national borders is a challenge, partly due to the cultural differences among employees in different locations. We investigate this dynamic for employees of a Swiss financial services company located in Switzerland and in Poland by surveying employees about their leadership expectations [...] Read more.
Leading across national borders is a challenge, partly due to the cultural differences among employees in different locations. We investigate this dynamic for employees of a Swiss financial services company located in Switzerland and in Poland by surveying employees about their leadership expectations and experiences, as well as about their cultural values. We find that the leadership expectations of employees in these two locations do not differ significantly. However, their experience does, indicating the opportunity for further development of local Polish management practices and leadership behavior, and underlying the importance of local leadership development. In addition, we find that a few cultural dimensions have a significant impact on leadership expectations in both countries, indicating the opportunity to further refine situational leadership behavior throughout the organization independently of location. While organizations spanning across Western and Central European locations need to deal with significant differences in cultural and leadership expectation, our results suggest that they can effectively align leadership practices and thus mitigate the practical challenges arising from these differences. Full article
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Article
Intraday Volatility Spillovers among European Financial Markets during COVID-19
Int. J. Financial Stud. 2021, 9(1), 5; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010005 - 05 Jan 2021
Cited by 5 | Viewed by 1612
Abstract
During crises, stock market volatility generally rises sharply, and as consequence, spillovers are identified across markets. This study estimates the volatility spillover among twelve European stock markets representing all four regions of Europe. The data consists of 10,990 intraday observations from 2 December [...] Read more.
During crises, stock market volatility generally rises sharply, and as consequence, spillovers are identified across markets. This study estimates the volatility spillover among twelve European stock markets representing all four regions of Europe. The data consists of 10,990 intraday observations from 2 December 2019 to 29 May 2020. Using the methodology of Diebold and Yilmaz, we use static and rolling windows to characterize five-minute volatility spillovers. Our results show that 77.80% of intraday volatility forecast error variance in twelve European markets comes from spillovers. Furthermore, the highest gross directional volatility spillovers are found in Sweden and the Netherlands, while the minimum spillovers to other stock markets are observed in the stock markets of Poland and Ireland. However, German and Dutch markets transmit the highest net directional volatility spillovers. Splitting the whole sample in pre- and post-pandemic declaration (11 March 2020) we find more stable spillovers in the latter. The findings reveal important information about European stock market interdependence during COVID-19, which will be beneficial to both policy-makers and practitioners. Full article
(This article belongs to the Special Issue COVID-19 and the Stability of the Financial System)
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Article
The Impact of Environmental Sustainability Disclosure on Stock Return of Saudi Listed Firms: The Moderating Role of Financial Constraints
Int. J. Financial Stud. 2021, 9(1), 4; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010004 - 05 Jan 2021
Cited by 1 | Viewed by 1094
Abstract
Environmental sustainability represents nowadays a significant factor for business sector. Firms carry out many initiatives to develop environmental practices. Investors increasingly consider environmental discloser by firms and integrate this disclosure into the investment decision-making process. Using a database of Saudi listed firms, this [...] Read more.
Environmental sustainability represents nowadays a significant factor for business sector. Firms carry out many initiatives to develop environmental practices. Investors increasingly consider environmental discloser by firms and integrate this disclosure into the investment decision-making process. Using a database of Saudi listed firms, this study adds to the literature by examining the relationship between the environmental sustainability disclosure and stock return and whether this relationship is moderated by the financial constraints. We find that the environmental sustainability disclosure has significant and negative impact on stock return, indicating that investors do not consider environmental disclosure when valuing the stocks. Furthermore, our results propose that the negative impact of environmental disclosure on stock return is more evident in firms with financial constraints. This study provides managerial implications for regulatory authorities, firms and investors. The environmental practices can be value relevant. However, these practices need to be efficiently integrated into stock valuation. Full article
(This article belongs to the Special Issue Corporate Social Responsibilities)
Article
Does Time Varying Risk Premia Exist in the International Bond Market? An Empirical Evidence from Australian and French Bond Market
Int. J. Financial Stud. 2021, 9(1), 3; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010003 - 04 Jan 2021
Viewed by 874
Abstract
The presence of risk premium is an issue that weakens the rational expectation hypothesis. This paper investigates changing behavior of time varying risk premium for holding 10 year maturity bond using a bivariate VARMA-DBEKK-AGARCH-M model. The model allows for asymmetric risk premia, causality [...] Read more.
The presence of risk premium is an issue that weakens the rational expectation hypothesis. This paper investigates changing behavior of time varying risk premium for holding 10 year maturity bond using a bivariate VARMA-DBEKK-AGARCH-M model. The model allows for asymmetric risk premia, causality and co-volatility spillovers jointly in the global bond markets. Empirical results show significant asymmetric partial co-volatility spillovers and risk premium exist in the bond markets. The estimates of the bivariate risk premia show bi-directional causality exist between the Australia and France Bond markets. Overall results suggest nonexistence of pure rational expectation theory in the risk premium model. This information is useful for the agents’ strategic policy decision making in global bond markets. Full article
(This article belongs to the Special Issue Alternative Models and Methods in Financial Economics)
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Article
The Effects of Government Bonds on Liquidity Risk and Bank Profitability in Cape Verde
Int. J. Financial Stud. 2021, 9(1), 2; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010002 - 02 Jan 2021
Viewed by 1233
Abstract
To analyze the effects of government debt securities on the liquidity risk and profitability of banks in Cape Verde, this research employs an unbalanced panel dataset from 2000 to 2017 on the activity of all commercial banks operating at the end of 2017 [...] Read more.
To analyze the effects of government debt securities on the liquidity risk and profitability of banks in Cape Verde, this research employs an unbalanced panel dataset from 2000 to 2017 on the activity of all commercial banks operating at the end of 2017 (seven in total). The study employs models with lagged regressors, estimated by the ordinary least squares estimation method. The results show that government debt securities have no effect on bank liquidity risks, but they have an effect on bank profitability, with government debt securities having a positive impact on assets’ profitability, in the long run. When government debt securities include Consolidated Securities of Financial Mobilization, the effects on profitability are negative both in the short and the long run. The study concludes that banks’ strategy to hold the more conventional government debt securities as safe assets and risk-free alternative for the domestic application of liquidity surpluses is appropriate and a viable way to gain profitability in the long run. These results show the negative effect of government debt securities when the Consolidated Securities of Financial Mobilization are included, which helps to explain the low average profitability rates of Cape Verde’s banks, when compared to other similar sub-Saharan African countries, like Mauritius or Seychelles. Full article
(This article belongs to the Special Issue Banks and Profitability of Banks)
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Article
Determinants of Intercorporate Investments: An Empirical Investigation of Indian Firms
Int. J. Financial Stud. 2021, 9(1), 1; https://0-doi-org.brum.beds.ac.uk/10.3390/ijfs9010001 - 22 Dec 2020
Viewed by 972
Abstract
We examine the determinants of intercorporate investments for a sample of 127 firms listed in the National Stock Exchange (NSE) in India for the period 2015–2019. This research indicates that the investor firm’s intercorporate investments are influenced by free cash flows, dividend yield, [...] Read more.
We examine the determinants of intercorporate investments for a sample of 127 firms listed in the National Stock Exchange (NSE) in India for the period 2015–2019. This research indicates that the investor firm’s intercorporate investments are influenced by free cash flows, dividend yield, promoter holding, and leverage. Interestingly, contrary to anecdotes in the financial press, the investor firms where promoter holding (equity) is more, prefer to invest less in the other firm’s capital (as part of intercorporate investment). Using OLS regression, this analysis does not find evidence for the variables, that is, the firm’s age, the capital expenditure required, growth in earnings per share, board independence, and CEO duality for significant influence on intercorporate investments. Further tests for industry effect reveal the consumer and retail sector’s intercorporate investments to be significantly different (i.e., lower) from the manufacturing and service sectors. Full article
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