Managerial Finance最新文献

Purpose

This study investigates the influence of corporate income tax on two corporate financial decisions — dividend and capital structure policies, particularly for Shariah compliant companies in Malaysia.

Design/methodology/approach

The study considered data from a sample of 529 Malaysian listed companies from four industrial sectors from 2007–2021 (6,746 company-year observations, before eliminating outliers). Panel models such as Fixed Effect and Random effect models were used. The study specifically tested the effect of corporate income tax on dividend and capital structure policies for Shariah compliant companies (3,148 observations) and controlled for industrial sectors.

Findings

(1) Firms are mostly Shariah-compliant, less liquid, less profitable and smaller in size, (2) Broadly when analysed together, tax has no impact on debt-equity ratio while it has an impact on dividend per share, (3) However, when tested separately for Shariah compliant companies, the influence of effective tax on capital structure is very evident but not for dividend and (4) influence of industrial sector on the relationship between corporate tax and capital structure and dividend policy is significant. Results indicate that Shariah firms might be raising debt to gain tax advantage. Companies in general pay dividends to avoid reputational damage.

Research limitations/implications

This study assumes that leverage and dividend policy decisions are the main outcomes of the changing tax policies, while it seems that there could be other important outcomes that can be tested in future research. The study also shows the changing tax regimes of different ASEAN countries but they have not been tested to see the differences between countries. It will be indeed interesting for future researchers to focus on this aspect.

Originality/value

The findings contribute to the literature on tax planning of the Shariah-compliant firms, a high growth business segment in the Asian context. The study discussed potential tax-based Islamic market product development.

Purpose

This paper investigated whether a bank’s popularity and depositors' fear of Google search volume could affect bank deposits and credit.

Design/methodology/approach

The authors used two different quarterly data from Google Trends and banking data from 2012 Q1 to 2020 Q1. Based on available data, Google Trends data start from 2012. The authors exclude data after 2020 Q1 because the Covid-19 pandemic arguably increased the volume of Internet users due to shifting behavior to online activities. They merged and cleaned the data by winsorizing at 5 and 95 percentiles to avoid any outlier problems, reaching 74 banks in the sample. They used panel data estimation of quarterly data following Levy-Yeyati et al. (2010) and Trinugroho et al. (2020).

Findings

The results show that a higher search volume of a bank’s name leads to higher deposits. A higher search volume of depositor fear reduces deposits and credit. The authors also found that banks with high risk and a high search volume of their name have a significantly lower volume of deposits.

Originality/value

To the best of the authors’ knowledge, not many papers in banking and finance have used Google Trends data to gauge related issues regarding depositors' behavior. The authors have filled a gap in the literature by investigating whether the popularity of Google search and depositors' fear could impact deposits and credit. This study also attempted to establish whether Google Trends data could be a reliable source of information to predict depositors' behavior by using a Zscore to measure bank risk.

Purpose

This study examines the non-linear effect of board independence on the investment efficiency of listed firms worldwide. This study further tests whether the COVID-19 pandemic, industry competition and economic development influence the relationship between board independence and investment efficiency.

Design/methodology/approach

The data are retrieved from the Thomson Reuters (Refinitiv) database and include international data from 33 countries, comprising 21,363 firm-year observations. The authors' regression analyses include firm-specific variables as controls that may impact investment efficiency. The authors also perform various robustness tests including, alternative measures of investment efficiency, weighted least squares regression, quantile regression and endogeneity issues.

Findings

The results reveal a non-linear relationship between board independence and investment efficiency. Specifically, the relationship follows a U-shaped pattern, indicating that the negative impact of board independence on investment efficiency becomes positive after it reaches its optimal point, thus supporting optimal board structure theory. Interestingly, the authors find no significant evidence of board independence’s effect on investment efficiency during the pandemic. In contrast, the relationship between board independence and investment efficiency is significant only during the non-pandemic period. Furthermore, the authors discover evidence of a U-shaped relationship in both emerging and developed markets, as well as in industries with high and low competition.

Research limitations/implications

The authors' study discovers new evidence on the non-linear impact of board independence on investment efficiency, which has not been explored previously in existing research.

Practical implications

This study has practical implications for investors by emphasising the importance of corporate governance and the appointment of independent directors. Investors should consider the findings of this study when making decisions related to corporate governance, as they can impact a firm's investment efficiency.

Originality/value

Despite a considerable body of literature exploring the link between corporate governance and investment effectiveness, there is a dearth of research on the non-linear effects of board independence. Furthermore, the effects of the COVID-19 pandemic, industry competition and economic development remain unexplored.

Purpose

This paper examines whether the adoption of Japan’s Stewardship Code by institutional investors influences their preference for investee companies' governance quality. The Code, introduced by the Financial Services Agency in 2014, promotes constructive engagement between institutional investors and investee companies. Engagement with investees should improve institutional investors' ability to assess governance quality across their portfolios. The paper examines if this results in a positive relationship between the levels of Code-compliant institutional shareholding and investee governance quality.

Design/methodology/approach

The association between Code-compliant institutional shareholding levels and a governance quality score is examined for Nikkei 500 companies.

Findings

A positive association is observed between shareholdings by Code-compliant institutional investors and investee governance, with board independence playing a key role. Analysis shows that the association between institutional shareholding and governance is stronger for the Code-compliant shareholding than for overall institutional shareholdings. In addition, no significant relationship is found between the levels of shareholding by non-Code-compliant institutional investors and the governance quality score of investee companies. Taken together, the results suggest that Code adoption strengthens institutional investors' preference for high-quality investee governance.

Originality/value

Despite the introduction of stewardship regulation worldwide, there is a scarcity of empirical research that examines its operation. The study contributes to the existing literature by providing insights into how compliance with stewardship regulation influences institutional investor decision-making.

Purpose

The study explored various dimensions of overconfidence bias (OB) among retail investors in Indian financial markets. Further, these dimensions were validated through formative assessments for OB.

Design/methodology/approach

The study applied exploratory factor analysis (EFA) to 764 respondents to explore dimensions of OB. These were validated with formative assessments on 489 respondents by the partial least square path modeling (PLS-PM) approach in SmartPLS 4.0 software.

Findings

The major findings of EFA explored four dimensions for OB, i.e. accuracy, perceived control, positive illusions and past investment success. The formative assessments revealed that positive illusions followed by past investment success among retail investors played an instrumental role in orchestrating the OBs that affect investment decisions in financial markets.

Practical implications

The formative index of OB has several practical implications for registered financial and investment advisors, bank advisors, business media companies and portfolio managers, besides individual investors in the domain of behavioral finance.

Originality/value

This research provides a novel approach to provide a formative index of OB with four dimensions. This formative index can acts as an overview for upcoming researchers to investigate the OB of retail individual investors.

Highlights

1. Overconfidence bias is an important predictor of retail investors' behavior

2. Formative dimensions of the overconfidence bias index.

3. Accuracy, perceived control, positive illusions and past investment success are important dimensions of overconfidence bias.

4. Modern portfolio theory and illusion of control theory support this study.

Purpose

The intention of the empirics is to contribute to the general understanding of investor responses to market price shocks. The authors review assumptions about investor behavior in response to price shocks and investigate alternative rebalancing heuristics.

Design/methodology/approach

The authors use market data over 40 years to define market shocks. Portfolio rebalancing implements constrained Markowitz mean-variance (MV) heuristics.

Findings

Momentum rebalancing in portfolio management outperforms contrarian rebalancing in the study interval. Sensitivity analysis by decade, sector constraints and proportion of security holdings bought or sold continue to support momentum rebalancing.

Research limitations/implications

The results are consistent with under-responding to price shocks at consensus levels in financial markets. The theoretical background provides a basis for experimental lab studies of shocks of different magnitudes under conditions in which participants have information on the levels of other participants and a condition in which they can only observe their previous estimates.

Practical implications

Managing portfolios in the face of price disturbances of different magnitudes is informed by empirical studies and their implications for investor behavior.

Originality/value

This is the first study the authors can locate that uses market data with alternative rebalancing heuristics to estimate price returns from the respective heuristics over a time interval of 40 years. The authors support the results with sensitivity estimates and consider implications for the underlying agent heuristics in light of background studies.

Purpose

The purpose of this study is to examine how lenders alter their behavior when faced with real earnings management.

Design/methodology/approach

This study uses the incremental R-square approach as in Kim and Kross (2005) to examine how much lenders rely on income statement and balance sheet ratios as the degree of real earnings management increases.

Findings

As real earnings management affects mostly the income statement, the authors find that lenders rely less on income statement ratios in making credit decisions in the presence of real earnings management. The authors also find that lenders do not alter their reliance on balance sheet ratios when faced with real earnings management.

Originality/value

This paper is the first to study how lenders alter their reliance on financial statements in making credit decisions in the presence of real earnings management. The findings of this paper could help the regulators set standards to improve the usefulness of financial statements. The findings of this paper could also help practitioners (borrowers and lenders) understand how real earnings management affects credit decisions.

Purpose

The authors seek to analyze the impact of weak corporate governance by top executives of a firm on the firm's earnings reports. This research is meant to further emphasize the impact of co-opted executives on a firm, primarily through their impact on earnings management.

Design/methodology/approach

Using financial data from 11,473 firm-year observations, the authors utilize ordinary least squares (OLS), 2-stage IV regressions, propensity score matching (PSM) and entropy balancing to analyze the impact of a co-opted top management team on discretionary accruals and restatements.

Findings

The authors find empirical evidence that firms with weak corporate governance from top executives are more likely to manipulate reported earnings and have lower financial reporting quality. The authors also find that the effect of co-opted executives on earnings management is weaker when a chief executive officer's (CEO’s) incentives are not aligned with those of top executives, suggesting that executives prevent earnings management due to reputational concerns. Co-opted chief financial officers (CFOs) increase the magnitude of earnings management in a firm but are not solely responsible for the authors' results.

Originality/value

The authors' results suggest that the top executive team provides an important first defense in the prevention of earnings management and corporate wrongdoing. Co-option of the top executive team may be an important consideration when doing research into corporate governance.