Prior research has documented effects of bank loan covenant violations on various firm behaviors from the perspective of shareholders. Our paper extends this stream of research by examining how bank loan covenant violations affect public corporate bondholders. Using an event study approach, we find that the bond price response to a bank loan covenant violation is marginally negative in the 1990s and becomes significantly positive in the 2000s. The favorable price response in more recent years indicates that bondholders benefit from covenant violations. The differential bond price responses suggest an evolution of banks' use of loan covenants. Specifically, banks gradually take covenants as "trip wires," enabling them to step in and take necessary actions to safeguard their interests when early warning signals show up through covenant violations. Such disciplinary actions benefit not only banks but also bondholders. In addition, this paper finds that bondholder and stockholder reactions are positively correlated in the 2000s and that managerial entrenchment could decrease banks' influence after covenant violations.
{"title":"Roy’s (1952) Revisited in Today’s Investing Contexts","authors":"M. Tarrazo","doi":"10.5430/afr.v11n3p14","DOIUrl":"https://doi.org/10.5430/afr.v11n3p14","url":null,"abstract":"Prior research has documented effects of bank loan covenant violations on various firm behaviors from the perspective of shareholders. Our paper extends this stream of research by examining how bank loan covenant violations affect public corporate bondholders. Using an event study approach, we find that the bond price response to a bank loan covenant violation is marginally negative in the 1990s and becomes significantly positive in the 2000s. The favorable price response in more recent years indicates that bondholders benefit from covenant violations. The differential bond price responses suggest an evolution of banks' use of loan covenants. Specifically, banks gradually take covenants as \"trip wires,\" enabling them to step in and take necessary actions to safeguard their interests when early warning signals show up through covenant violations. Such disciplinary actions benefit not only banks but also bondholders. In addition, this paper finds that bondholder and stockholder reactions are positively correlated in the 2000s and that managerial entrenchment could decrease banks' influence after covenant violations.","PeriodicalId":34570,"journal":{"name":"Journal of Islamic Accounting and Finance Research","volume":"29 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2022-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77865864","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines firms’ corporate bond price reactions to bank loan covenant violations. Using an event study approach, we find that firms’ bond price response is marginally negative in the 1990s and becomes significantly positive in the 2000s. The positive bond price reactions suggest bondholders benefit from bank loan covenant violations in more recent years. Specifically, bank loan covenant violations enable banks to step in and take necessary actions to protect creditors’ interests, which benefit not only private lenders but also public corporate bondholders. In addition, the temporal change in bond price response suggests the disciplining role of bank loan covenants becomes increasingly important in recent years: banks gradually take debt covenants as “trip wires”, which give banks an option to take necessary actions when the early warning signal shows up through covenant violations. Furthermore, we find that bondholders and stockholder reactions are positively correlated in recent years, and that managerial entrenchment could decrease banks’ influence after violations.
{"title":"Corporate Bondholder Reactions to Bank Loan Covenant Violations and the Evolution of Bank Loan Covenants","authors":"Yuqian Wang, C. Chiu, Shu-ling Wu","doi":"10.5430/afr.v11n3p1","DOIUrl":"https://doi.org/10.5430/afr.v11n3p1","url":null,"abstract":"This paper examines firms’ corporate bond price reactions to bank loan covenant violations. Using an event study approach, we find that firms’ bond price response is marginally negative in the 1990s and becomes significantly positive in the 2000s. The positive bond price reactions suggest bondholders benefit from bank loan covenant violations in more recent years. Specifically, bank loan covenant violations enable banks to step in and take necessary actions to protect creditors’ interests, which benefit not only private lenders but also public corporate bondholders. In addition, the temporal change in bond price response suggests the disciplining role of bank loan covenants becomes increasingly important in recent years: banks gradually take debt covenants as “trip wires”, which give banks an option to take necessary actions when the early warning signal shows up through covenant violations. Furthermore, we find that bondholders and stockholder reactions are positively correlated in recent years, and that managerial entrenchment could decrease banks’ influence after violations.","PeriodicalId":34570,"journal":{"name":"Journal of Islamic Accounting and Finance Research","volume":"26 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2022-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87919546","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The corporate governance structure of companies has been subjected to intense examination in recent time due mainly to recent corporate collapses and other financial mis-conduct by management. The benefits of an effective corporate governance structure are well documented, ranging from reduce cost of capital to improved transparency in ethics, morality and financial disclosure. Evaluating the effectiveness of a company’s corporate governance structure normally involves the use of a corporate governance score. This study investigates the appropriateness of some of the more commonly used components in compiling the corporate governance score. The study found that the presence of both an audit committee and a compensation committee along with effect of CEO duality had significant statistical effect on the corporate governance score. However, the results also showed that the size of the board and the number of independent directors were not statistically significant components of the corporate governance score.
{"title":"Understanding the Corporate Governance Score: Are Some Components of Corporate Governance Overrated? Evidence from a Developing Country","authors":"P. James","doi":"10.5430/afr.v11n2p48","DOIUrl":"https://doi.org/10.5430/afr.v11n2p48","url":null,"abstract":"The corporate governance structure of companies has been subjected to intense examination in recent time due mainly to recent corporate collapses and other financial mis-conduct by management. The benefits of an effective corporate governance structure are well documented, ranging from reduce cost of capital to improved transparency in ethics, morality and financial disclosure. Evaluating the effectiveness of a company’s corporate governance structure normally involves the use of a corporate governance score. This study investigates the appropriateness of some of the more commonly used components in compiling the corporate governance score. The study found that the presence of both an audit committee and a compensation committee along with effect of CEO duality had significant statistical effect on the corporate governance score. However, the results also showed that the size of the board and the number of independent directors were not statistically significant components of the corporate governance score. ","PeriodicalId":34570,"journal":{"name":"Journal of Islamic Accounting and Finance Research","volume":"42 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2022-05-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78545035","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study aims to analyze the effect of the represented asset management efficiency (total asset turnover (TAT), fixed asset turnover (FAT), and working capital turnover (WCT)) on the earnings per share (EPS) of industrial companies listed on the Amman Stock Exchange (IASE) as the data were obtained from the Amman Stock Exchange (ASE) from 2005 to 2019, where the unit root test was analyzed for the time series of the study variables. Results revealed that all the variables stabilize at the first differences 1 (1), several diagnostic tests, such as variance instability, Ramsay stability, and serial correlation tests were also performed, all of which confirmed the fit and validity of the model used. Results showed the positive and strong impact of the asset turnover rate on EPS, the positive and strong impact of the fixed asset turnover rate on the return on profitability, and the positive impact of the (WCT) on EPS. Therefore, asset management efficiency positively affects the EPS. Moreover, this result indicates the efficiency of industrial companies in managing assets during the study period.
{"title":"The Impact Of Asset Management Efficiency Ratios on Earnings per Share Case Study of Industrial Companies Listed on the Amman Stock Exchange from 2005 to 2019)","authors":"A. Alawneh","doi":"10.5430/afr.v11n2p35","DOIUrl":"https://doi.org/10.5430/afr.v11n2p35","url":null,"abstract":"This study aims to analyze the effect of the represented asset management efficiency (total asset turnover (TAT), fixed asset turnover (FAT), and working capital turnover (WCT)) on the earnings per share (EPS) of industrial companies listed on the Amman Stock Exchange (IASE) as the data were obtained from the Amman Stock Exchange (ASE) from 2005 to 2019, where the unit root test was analyzed for the time series of the study variables. Results revealed that all the variables stabilize at the first differences 1 (1), several diagnostic tests, such as variance instability, Ramsay stability, and serial correlation tests were also performed, all of which confirmed the fit and validity of the model used. Results showed the positive and strong impact of the asset turnover rate on EPS, the positive and strong impact of the fixed asset turnover rate on the return on profitability, and the positive impact of the (WCT) on EPS. Therefore, asset management efficiency positively affects the EPS. Moreover, this result indicates the efficiency of industrial companies in managing assets during the study period.","PeriodicalId":34570,"journal":{"name":"Journal of Islamic Accounting and Finance Research","volume":"6 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2022-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89901075","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The aim of this paper is to investigate the link between firm attributes and tax aggressiveness in Nigeria and South Africa. A comparative analysis was carried out on the variables of firm size, age, profitability, leverage, liquidity, complexity, foreign ownership and tax aggressiveness on banks in Nigeria and South Africa. The study employed the longitudinal research design and took a comparative analysis approach. The population consists of the 13 listed commercial banks quoted on the Nigerian Stock Exchange and the 16 local commercial banks listed on the Johannesburg Stock Exchange. The time frame for the study was from 2012-2020. Data collated was analysed using the techniques of descriptive statistic, correlation and panel data regression technique while MAPE and Theil’s inequality coefficient were used in evaluating the forecast abilities of the models. Two alternative measures of tax aggressiveness (GAAP-ETR and D_BTD) were adopted as dependent variables. The panel data collected was analysed. The result of the Nigerian model (using the D_BTD measure) showed that firm size and firm complexity both have a significant positive relationship with tax aggressiveness while firm age and profitability asserted significant negative impacts on tax aggressiveness. The outcome of the South Africa model (using the GAAP-ETR measure) showed that firm age and profitability have a significant negative relationship with tax aggressiveness while firm size and liquidity have significant positive relationships with tax aggressiveness. The study recommends, that regulatory bodies and tax authorities should beam their searchlight on tax saving strategies of small size companies with a view to effectively monitoring their aggressive tax avoidance schemes.
{"title":"Firm Attributes and Corporate Tax Aggressiveness: A Comparative Study of Nigeria and South Africa Banks","authors":"John Obiora Anyaduba, Ivie Ologhosa Ogbeide","doi":"10.5430/afr.v11n2p18","DOIUrl":"https://doi.org/10.5430/afr.v11n2p18","url":null,"abstract":"The aim of this paper is to investigate the link between firm attributes and tax aggressiveness in Nigeria and South Africa. A comparative analysis was carried out on the variables of firm size, age, profitability, leverage, liquidity, complexity, foreign ownership and tax aggressiveness on banks in Nigeria and South Africa. The study employed the longitudinal research design and took a comparative analysis approach. The population consists of the 13 listed commercial banks quoted on the Nigerian Stock Exchange and the 16 local commercial banks listed on the Johannesburg Stock Exchange. The time frame for the study was from 2012-2020. Data collated was analysed using the techniques of descriptive statistic, correlation and panel data regression technique while MAPE and Theil’s inequality coefficient were used in evaluating the forecast abilities of the models. Two alternative measures of tax aggressiveness (GAAP-ETR and D_BTD) were adopted as dependent variables. The panel data collected was analysed. The result of the Nigerian model (using the D_BTD measure) showed that firm size and firm complexity both have a significant positive relationship with tax aggressiveness while firm age and profitability asserted significant negative impacts on tax aggressiveness. The outcome of the South Africa model (using the GAAP-ETR measure) showed that firm age and profitability have a significant negative relationship with tax aggressiveness while firm size and liquidity have significant positive relationships with tax aggressiveness. The study recommends, that regulatory bodies and tax authorities should beam their searchlight on tax saving strategies of small size companies with a view to effectively monitoring their aggressive tax avoidance schemes.","PeriodicalId":34570,"journal":{"name":"Journal of Islamic Accounting and Finance Research","volume":"36 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2022-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82234348","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Stock market indices are considered to be a powerful economic indicator. These indices can be classified based on the methodology of weight allocation for each stock and the rules governing the entry, retention and exit criteria of various stocks in the index. This paper presents a descriptive and an exploratory analysis carried out on the daily returns data of NASDAQ 100 (^NDX) index and shortlist of 20 stocks in the index. Random sampling was conducted at the sector level strata of all stocks that make up the index. This approach was followed to avoid selection bias and that stocks from the varied sectors are represented equally for this analysis. R-squared values and correlation coefficients were used to determine the explain-ability and relationship between the stock returns and the index returns respectively. The paper applied descriptive univariate analysis on daily returns at an individual stock level and at an aggregated sector level. Inter-relationship between stocks and the index returns was carried out by computing Pearson’s correlation coefficient across the different combinations of stocks and index return values. Linear regression was carried out identify the explain ability of the variance in the returns of from the index to the returns from the stocks. All analysis was carried out using the python and the stats-models library. As anticipated, the returns of randomly picked 20 stocks were able to explain ~85 % of the variance of the returns of index. One of the primary focus of the paper was to explore whether NASDAQ-100 index can explain the variability of the technology stocks relatively more than the stocks that belong to other sectors in its portfolio owing to the nature of most stocks that make up the index.
{"title":"An Empirical Risk and Return Analysis of Select Stocks in NASDAQ 100","authors":"A. Banerjee","doi":"10.5430/afr.v11n2p1","DOIUrl":"https://doi.org/10.5430/afr.v11n2p1","url":null,"abstract":"Stock market indices are considered to be a powerful economic indicator. These indices can be classified based on the methodology of weight allocation for each stock and the rules governing the entry, retention and exit criteria of various stocks in the index. This paper presents a descriptive and an exploratory analysis carried out on the daily returns data of NASDAQ 100 (^NDX) index and shortlist of 20 stocks in the index. Random sampling was conducted at the sector level strata of all stocks that make up the index. This approach was followed to avoid selection bias and that stocks from the varied sectors are represented equally for this analysis. R-squared values and correlation coefficients were used to determine the explain-ability and relationship between the stock returns and the index returns respectively. The paper applied descriptive univariate analysis on daily returns at an individual stock level and at an aggregated sector level. Inter-relationship between stocks and the index returns was carried out by computing Pearson’s correlation coefficient across the different combinations of stocks and index return values. Linear regression was carried out identify the explain ability of the variance in the returns of from the index to the returns from the stocks. All analysis was carried out using the python and the stats-models library. As anticipated, the returns of randomly picked 20 stocks were able to explain ~85 % of the variance of the returns of index. One of the primary focus of the paper was to explore whether NASDAQ-100 index can explain the variability of the technology stocks relatively more than the stocks that belong to other sectors in its portfolio owing to the nature of most stocks that make up the index.","PeriodicalId":34570,"journal":{"name":"Journal of Islamic Accounting and Finance Research","volume":"446 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2022-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90298685","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines style drift and alphas for a sample of 110 international retail funds offered to individual investors. We show that when fund managers “deviate” from their stated categories, alphas are biased upward. While previous studies in the international stock arena typically employ theoretical constructs to benchmark fund performance, we employ an actual investable vehicle (tradeable ETFs) in the same categories as the funds. For the period 2002-2020, we show empirically that managers do indeed deviate from their stated fund categories with subsequent upward bias to their fund alphas. For over half of the funds in our sample, we find significant drift to emerging markets and to the US equity market. We observe that alpha is biased upward an average of 86 basis points for the retail funds examined in this study.
{"title":"Style Drift and Alphas: A Case Study in International Retail Funds","authors":"C. S. Goldberg, C. Graham, Francisco A. Delgado","doi":"10.5430/afr.v11n1p24","DOIUrl":"https://doi.org/10.5430/afr.v11n1p24","url":null,"abstract":"This paper examines style drift and alphas for a sample of 110 international retail funds offered to individual investors. We show that when fund managers “deviate” from their stated categories, alphas are biased upward. While previous studies in the international stock arena typically employ theoretical constructs to benchmark fund performance, we employ an actual investable vehicle (tradeable ETFs) in the same categories as the funds. For the period 2002-2020, we show empirically that managers do indeed deviate from their stated fund categories with subsequent upward bias to their fund alphas. For over half of the funds in our sample, we find significant drift to emerging markets and to the US equity market. We observe that alpha is biased upward an average of 86 basis points for the retail funds examined in this study.","PeriodicalId":34570,"journal":{"name":"Journal of Islamic Accounting and Finance Research","volume":"62 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2022-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84910153","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Supreme Court and the Public Company Accounting Oversite Board (PCAOB) has said that an amount is material if there is a substantial likelihood it will influence a reasonable investor’s judgment. The American Institute of Certified Public Accountants (AICPA) has said that an amount is material if there is a substantial likelihood it will influence a reasonable user’s judgment. The Financial Accounting Standards Board (FASB) has refused to define materiality. The Securities and Exchange Commission (SEC) has said that qualitative factors can make even small amounts material. Reasonable implies a consensus of opinion. This article is a meta-analysis of 31,155 materiality decisions made by 335 cohorts in 48 studies with the objective of defining what is reasonable. A cohort is a group of like individuals faced with a common materiality decision. Materiality in this study is measured as a percentage of net income. The mean threshold of materiality is 7.84% and the median is 6.81%. Both thresholds are substantially higher than the often-discussed threshold of 5.0%. A quarter of the participants in these studies set the threshold of materiality at 11.90% and the threshold for a statistically significant difference from the consensus is 17.51%. Ultimately, materiality will be decided through civil and criminal litigation. Finders of fact, usually jurors, will be asked to determine what a reasonable investor would conclude. Few jurors have the training and experience of investors, so without context, they can only guess what a reasonable investor would conclude. This study provides that context.
美国最高法院和美国上市公司会计监督委员会(PCAOB)曾表示，如果一笔金额极有可能影响合理投资者的判断，那么它就是实质性的。美国注册会计师协会(American Institute of Certified Public Accountants, AICPA)曾表示，如果一笔金额极有可能影响合理使用者的判断，那么它就是实质性的。财务会计准则委员会(FASB)拒绝定义重要性。美国证券交易委员会(Securities and Exchange Commission，简称SEC)曾表示，定性因素可以使哪怕是很小的金额变得重要。合理意味着意见一致。本文对48项研究中335个队列的31,155项重要性决策进行了荟萃分析，目的是确定什么是合理的。群体是一群面临共同重大决策的相似个体。本研究中的重要性以净收入的百分比来衡量。重要性的平均阈值为7.84%，中位数为6.81%。这两个阈值都大大高于经常讨论的阈值5.0%。在这些研究中，四分之一的参与者将重要性的阈值设定为11.90%，而与共识的统计显着差异的阈值为17.51%。最终，物质性将通过民事和刑事诉讼来决定。事实的发现者，通常是陪审员，将被要求判断一个理性的投资者会得出什么结论。很少有陪审员受过投资者的培训和经验，所以在没有背景的情况下，他们只能猜测一个理性的投资者会得出什么结论。这项研究提供了这样的背景。
{"title":"A Meta Analysis of Materiality Studies","authors":"David E. Vance","doi":"10.5430/afr.v11n1p1","DOIUrl":"https://doi.org/10.5430/afr.v11n1p1","url":null,"abstract":"The Supreme Court and the Public Company Accounting Oversite Board (PCAOB) has said that an amount is material if there is a substantial likelihood it will influence a reasonable investor’s judgment. The American Institute of Certified Public Accountants (AICPA) has said that an amount is material if there is a substantial likelihood it will influence a reasonable user’s judgment. The Financial Accounting Standards Board (FASB) has refused to define materiality. The Securities and Exchange Commission (SEC) has said that qualitative factors can make even small amounts material. Reasonable implies a consensus of opinion. This article is a meta-analysis of 31,155 materiality decisions made by 335 cohorts in 48 studies with the objective of defining what is reasonable. A cohort is a group of like individuals faced with a common materiality decision. Materiality in this study is measured as a percentage of net income. The mean threshold of materiality is 7.84% and the median is 6.81%. Both thresholds are substantially higher than the often-discussed threshold of 5.0%. A quarter of the participants in these studies set the threshold of materiality at 11.90% and the threshold for a statistically significant difference from the consensus is 17.51%. Ultimately, materiality will be decided through civil and criminal litigation. Finders of fact, usually jurors, will be asked to determine what a reasonable investor would conclude. Few jurors have the training and experience of investors, so without context, they can only guess what a reasonable investor would conclude. This study provides that context.","PeriodicalId":34570,"journal":{"name":"Journal of Islamic Accounting and Finance Research","volume":"28 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2022-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85195594","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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