Int. J. Financial Stud., Volume 12, Issue 2 (June 2024) – 23 articles

The establishment of government investment funds serves as a crucial measure for governments at all levels to leverage their certification role and financial resources in attracting social capital to support enterprise development. This paper empirically examines the guiding certification effect and governance supervision effect of government investment funds on enterprise value enhancement, utilising panel data from listed companies and government investment fund investment event data spanning the period from 2011 to 2021. The research findings reveal that government investment funds significantly enhance the value of recipient enterprises. By leveraging their guidance and certification effects and governance supervision effects, these funds alleviate financing constraints, actively participate in corporate governance, and ultimately enhance corporate value. The impact of government investment funds is negatively moderated by the age and size of the enterprise, indicating that the “invest in early-stage and small businesses” investment strategy yields better results in promoting value enhancement. Furthermore, heterogeneity analysis demonstrates that government investment funds have a more pronounced impact on the value of non-heavily polluting industries, enterprises located in the eastern and southern regions of China, and non-state-owned enterprises. This article expands the research scope of government investment funds at the micro level, providing empirical evidence and theoretical support for optimising government investment funding policies and fostering the development of a modern capital market with distinctive Chinese characteristics. Full article

Political risk, one of the most significant uncertainty shocks, affects firms’ future attitudes toward risks and plays a crucial role in their decision making. A stock price crash risk is a classical topic in financial markets; therefore, this paper probes the relationship between firm-level political risk and stock price crash risk based on a sample of Chinese listed firms from 2011 to 2020. This paper collects the MD&A textual material of Chinese listed firms and calculates the firm-level political risk of Chinese listed firms. Our results show that a firm’s stock price crash risk is positively associated with its firm-level political risk exposure. Our findings hold after conducting various robustness tests, including instrument variable regression and altering the measurement of stock price crash risk. Further discussion reveals that political involvement mitigates the positive effect of firm-level political risk on the risk of a stock price jump. Full article

A robust body of research suggests that entrepreneurial activities benefit from financial development and external financing access. However, there is a gap in understanding how and the extent to which the accessibility to financial services is associated with entrepreneurial activity. Based on an unbalanced panel of 2104 Brazilian municipalities spanning 2010–2021 and comprising 23,769 municipality-year observations, our results not only confirm that bank accessibility, proxied by the number of bank branches in a municipality, is positively correlated with the number of firms but also that the relationship is nonlinear, being stronger for larger firms. By estimating a model using first differences, we find a positive causal impact of an additional bank branch on the number of firms in a municipality of 0.2% (about 26 extra firms on average). Our study contributes to the literature by corroborating that access to external financing services shapes entrepreneurial activities. Full article

We examine the nonlinear relationship between interest rates on bank risk-taking behavior in South Africa between 2008:q1 and 2022:q3 using nonlinear autoregressive distributive lag (NARDL) and quantile autoregressive distributive lag (QARDL) models. Whilst the preliminary estimates from linear ARDL produce results adhering to conventional theory, the NARDL and QARDL analysis shows that the relationship between the variables is more complex. On one hand, the NARDL model shows that the phase of monetary policy (cyclical asymmetries) is important in determining the pass-through effects of interest rates on bank risk behavior. We find that both contractionary and expansionary monetary policy increases long-term risk through decreased liquidity for the former and increased non-performing loans for the latter. On the other hand, the QARDL model shows that the level of bank risk behavior (location asymmetries) is also important in determining the impact of interest rates on bank risk behavior. We find that interest rates affect bank risk behavior in ‘medium-to-high risk environments’ for unsecured loans and lending and in ‘medium-to-low risk environments’ for liquidity. Overall, these results enable us to recommend ways in which the SARB can strengthen its monitoring mechanisms given the multifaceted impact of interest rates on bank risk-taking. Full article

The aim of this study is to analyse and assess the yields and liquidity of sovereign green bonds in selected countries and to compare the yields between sovereign green bonds and conventional bonds. Sovereign green bonds are issued by governments to finance environmental and social projects and represent a relatively new and growing asset class. This study seeks to analyse the financial performance of sovereign green bonds by examining yields and liquidity metrics, such as bid–ask spreads. The findings of this research suggest that the yield to maturity (YTM) of sovereign green bonds is influenced by conventional bond return, while conventional sovereign bonds are affected by the financial market return. Furthermore, the results confirm that the liquidity of sovereign green bonds can be explained by bond maturity. Full article

Despite the recent proliferation of research on internationalization, little attention has been paid to understanding the reasons behind the decrease in firm value accompanying international expansion. By delving into the underlying mechanisms and applying the concept of agency theory to a sample of US firms spanning from 2000 to 2022, we posit that an increased level of information asymmetry in internationally diversified firms incentivizes managers to prioritize their own interests. To protect their careers, CEOs of internationally diversified firms often suppress bad news. This behavior can lead to the accumulation of negative news and heighten the risk of a stock-price crash. Furthermore, we propose that higher levels of international experience, enhanced monitoring effectiveness, and efficient investment practices will negatively moderate the positive relationship between internationalization and stock-price crash risk. Full article

This study investigates the distinctive modeling of regret utility when compared with common utility. I also introduce the interplay between common utility and regret utility. Using this model, I examine the differences in decision making, which encompasses issues such as risk sharing and principal–agent dilemmas. Regret utility is set so that its risk aversion shows common utility’s prudence (i.e., downside risk aversion). This paper reveals, both qualitatively and quantitively and with a concrete model, that regret utility leads to a more balanced and optimal ratio of agent payouts to outputs compared with common utility, meaning when major outputs are kept by principal, there are relatively larger agent payouts, and when major outputs are kept by the agent, there are relatively smaller agent payouts. This means that regret makes a more balanced distribution, and regret utility is more conservative (not biased). In addition, preliminary empirical research was performed in which people were asked risk preference or averseness questions, and their risk averseness was calculated by using the CRRA (Constant Relative Risk Aversion) utility function. The regret condition leads to a more conservative attitude. Furthermore, the regret model can be used in other areas, like in conservative investment portfolio optimization. Full article

This study investigates the association between the compensation of Remuneration Committee Chairpersons (RCCs) and their characteristics. Utilizing data from firms listed on the UK FTSE350 index between 2010 and 2020, the research unveils that RCC remuneration is influenced by factors such as observable efforts, time commitment, and accumulated experience. Notably, the analysis reveals a substantial gender gap in RCCs’ pay. The results suggest that the contractual pricing of individual director-level attributes plays a role in explaining disparities in compensation for roles with similar responsibilities. Furthermore, the study sheds light on the intricate process of determining compensation within the directorial hierarchy. It delves into how differences in pay among individuals occupying similar positions across various companies can be elucidated by the distinct attributes and qualifications of each individual. Ultimately, the findings advocate for a nuanced examination of directorial roles, highlighting the necessity of distinguishing between different director roles rather than treating them as a homogeneous entity. Full article

This research explores the impact of financial indicators on the credit ratings of companies listed on the S&P 500, employing a Sys-GMM model to address endogeneity concerns. Three independent variables categorized as market and survival factors alongside seven control variables sourced from leverage, liquidity, interest coverage, profitability, market, survival, and macroeconomic domains were investigated. The sample consisted of 2398 observations from Capital IQ Pro, spanning nine years (2013 to 2021) and encompassing 240 public companies. The findings suggest that neither Tobin’s Q (TQ) nor Total Shareholder Return (TSR) lack significant correlations with credit ratings, implying that stock market performance and total shareholder return do not directly impact credit ratings. In contrast, the Altman Z-score (AZS) emerged as a significant predictor, indicating its importance in assessing credit risk. These insights enhance the understanding of financial indicators’ impacts on credit ratings, aiding financial institutions and companies in prudent lending and financing decisions. Full article

Investing in stocks and shares is a common strategy to pursue potential gains while considering future financial needs, such as retirement and children’s education. Effectively managing investment risk requires thoroughly analyzing stock market returns and making informed predictions. Traditional models often utilize normal variance distributions to describe these returns. However, stock market returns often deviate from normality, exhibiting skewness, higher kurtosis, heavier tails, and a more pronounced center. This paper investigates the Laplace distribution and its generalized forms, including asymmetric Laplace, skewed Laplace, and the Kumaraswamy Laplace distribution, for modeling stock market returns. Our analysis involves a comparative study with the widely-used Variance-Gamma distribution, assessing their fit with the weekly returns of the S&P 500 Index and its eleven business sectors, drawing parallel inferences from international stock market indices like IBOVESPA and KOSPI for emerging and developed economies, as well as the 20+ Years Treasury Bond ETFs and individual stocks across varied time horizons. The empirical findings indicate the superior performance of the Kumaraswamy Laplace distribution, which establishes it as a robust alternative for precise return predictions and efficient risk mitigation in investments. Full article

Accounting information systems (AIS) are primarily designed to convert financial data into usable financial and management information. Their effectiveness or success, which shows the extent to which the requirements of their users are satisfied, is an essential factor in decision making. Previous research has found that user satisfaction is a particularly widely utilized and indicative measure of information system (IS) success. In this setting, the success or failure of an AIS is a crucial issue for all companies since a particular IS cannot be appropriate for everyone, especially in the case of accounting software that has to satisfy the requirements of its users. Furthermore, given the hotel industry’s information-intensive and competitive character, the AIS user satisfaction of hotel financial and accounting executives can be vital to their performance and the hotel’s operational efficiency. The aim of this research is to investigate a number of factors that influence AIS user satisfaction in the post-implementation period in the case of the Greek hotel industry. The findings of our empirical study show that system quality, information quality, system use, service quality, firm’s size, years of system use, information technology integration, and organic structure have a positive effect on user satisfaction with AIS. On the contrary, statistical analysis shows that users’ level of education is negatively correlated with AIS user satisfaction. Finally, the current research findings contribute theoretically to the IS and accounting literature, and they also shine a light on the managerial implications for IS developers, hotel managers, and financial executives. Full article

In the context of the Chinese market, foreign cross-border venture capitalists have devised specific strategies to mitigate the challenges associated with the liabilities of foreignness, such as risks and information asymmetry. They have strategically leveraged social capital to not only decrease investment risk but also to influence their investment preferences and behaviors. To investigate the influence of different types of social capital on the investment decisions of cross-border venture capitalists, hypotheses are proposed and tested using regression analysis. Our research reveals several key findings in this regard. Firstly, cross-border venture capitalists with a robust structural social capital network exhibit a greater propensity to invest in early-stage companies. This suggests that well-established connections and partnerships within the Chinese entrepreneurial ecosystem provide a level of comfort and confidence when investing in ventures at their infancy. Interestingly, relational and cognitive social capital, though undoubtedly valuable, do not significantly impact the decision to make early-stage investments. Furthermore, we have observed that venture capitalists with higher levels of structural and cognitive social capital are more inclined to form syndications. Collaborative partnerships and shared knowledge networks seem to be crucial factors that drive syndication decisions. Lastly, venture capitalists endowed with substantial structural and relational social capital tend to allocate larger investment amounts, signifying the influence of business or personal relationships and network connections on the scale of their investments. Full article

We studied various fund investing options in the circular economy sector. We found that most circular economy mutual funds and exchange-traded funds charge higher fees and take higher risks than their benchmarks. However, they appear to have underperformed their benchmarks during their short existence so far. Most of these funds are rated as sustainable and low-carbon funds. Investors keen on circular economy startups may consider private equity/venture capital funds, but most of these funds are exclusive to institutional and accredited investors. Full article

Initial public offerings and mergers and acquisitions represent important opportunities for investors to exit and harvest their entrepreneurial success. Some firms are acquired shortly after their initial public offerings. This exit strategy is known as a double exit. In addition, issuing firms may choose to reincorporate in Delaware during their IPOs. In this study, we use hand-collected data from 1993 to 2020 to investigate whether and to what extent Delaware reincorporation may affect the M&As in the post-IPO stage. We use a Cox proportional hazard model to test the relation between Delaware reincorporation and the likelihood of being acquired for our sample IPOs. Recognizing that Delaware reincorporation is not a random decision, we adopt a Heckman switching regression method to estimate the relation between Delaware reincorporation and takeover premiums and announcement returns. We report that IPO firms choosing to reincorporate in Delaware experience a higher likelihood of being acquired compared to those IPO firms choosing to remain incorporated in their home states. We further document that IPO firms choosing to reincorporate in Delaware receive lower premiums in acquisitions, and experience lower abnormal returns on announcements. Full article

This study investigates the association among management fees, ESG scores, and investment performance of ESG funds in China. It explores the significance of comprehending the cost–benefit analysis and long-term yields associated with sustainable investing. The investigation specifically concentrates on China’s open-end equity funds and uncovers some noteworthy discoveries. Initially, funds with higher management fees tend to yield greater returns, suggesting a potential validation for these fees. Nevertheless, when taking risk-adjusted metrics into account, these funds do not exhibit superior performance, indicating that the elevated fees may not necessarily result in enhanced performance after factoring in risk. Furthermore, the analysis discloses an adverse influence of ESG factors on fund performance. In general, the findings indicate that ESG funds in China do not impose higher management fees and do not ensure better returns but often produce superior risk-adjusted investment performance if their ESG scores are moderately higher. Exceptionally high ESG scores can end up with the worst risk-adjusted investment performance. Full article

The purpose of this study was to evaluate the impact of financial development and renewable energy consumption in Vietnam and some selected countries in Southeast Asia. After researching over the period from 1970 to 2022, using quantitative analyses, including the ordinary least squares (OLS), fixed effects method (FEM), and random effects method (REM), and measuring the Driscoll–Kraay standard errors to assess cross-dependence between countries as well as a Dynamic Ordinary Least Squares (DOLS) estimation analysis to evaluate the robustness of the research, the research results confirm that financial development has a negative impact on renewable energy consumption, which reflects the important role of fossil energy sources in meeting energy consumption demand. Similarly, increased per capita income negatively affects renewable energy consumption. This study also confirms the positive impact of foreign direct investment on renewable energy use. Full article

In today’s investment landscape, the integration of environmental, social, and governance (ESG) factors with data-driven strategies is pivotal. This study delves into this fusion, employing sophisticated statistical techniques and Python programming to unveil insights often overlooked by traditional approaches. By analyzing extensive datasets, including S&P500 financial indicators from 2012 to 2021 and 2021 ESG metrics, investors can enhance portfolio performance. Emphasizing ESG integration for sustainable investing, the study underscores the potential for alpha generation. Time series analysis further elucidates market dynamics, empowering investors to align with both financial objectives and ethical values. Notably, the research uncovers a positive correlation between ESG risk and total risk, suggesting that companies with lower ESG risk tend to outperform those with higher ESG risk. Moreover, employing a long–short ESG risk strategy yields abnormal returns of approximately 4.37%. This integration of ESG factors not only mitigates risks associated with environmental, social, and governance issues but also capitalizes on opportunities for sustainable growth, fostering responsible investing practices and ensuring long-term financial returns, resilience, and value creation. Full article

This research investigates the synergistic relationship between sustainability and financial prosperity in businesses, specifically focusing on the impact of consumers on profit growth in Kosovo and Albania. The study aims to understand consumers’ perceptions of their purchases, the factors influencing their choice of businesses, and the types of businesses that effectively support consumers in these countries. Data were collected through a survey completed by 200 consumers and 200 businesses. The analysis, utilizing multivariate analysis of variance, descriptive analysis, and reliability analysis with SPSS, reveals that consumers significantly influence the sustainability of business profit growth. Moving forward, it is recommended that businesses prioritize offering reasonable prices, quality products/services, easy access to products/services, clear information about products/services, and convenient locations. The research has profound implications for businesses, consumers, and countries and suggests the need for further exploration of the impact of consumers on profit growth in diverse contexts. Full article

This study firstly applied a Bayesian symbolic regression (BSR) to the forecasting of numerous commodities’ prices (spot-based ones). Moreover, some features and an initial specification of the parameters of the BSR were analysed. The conventional approach to symbolic regression, based on genetic programming, was also used as a benchmark tool. Secondly, various other econometric methods dealing with variable uncertainty were estimated including Bayesian Model Averaging, Dynamic Model Averaging, LASSO, ridge, elastic net, and least-angle regressions, etc. Therefore, this study reports a concise and uniform comparison of an application of several popular econometric models to forecasting the prices of numerous commodities. Robustness checks and statistical tests were performed to strengthen the obtained conclusions. Monthly data beginning from January 1988 and ending in August 2021 were analysed. Full article

In an era where crowdfunding in Portugal is garnering increased public attention, exemplified by notable campaigns like the recent funding of the nurses’ strike, we explore its potential as an alternative financial source to traditional banking. Through a comprehensive case study, we delve into pertinent issues, encompassing European legislation, market dynamics, and a survey disseminated to representatives of the four prominent Portuguese crowdfunding platforms. Comprising forty-one questions across four categories, the survey extracts insights on platform details, company/project information, investor perspectives, and the financing process, along with an evaluation of platform advantages/disadvantages vis-à-vis traditional banking. Despite heightened visibility, crowdfunding remains relatively unfamiliar to the broader public, yet it diverges from banking not as a substitute but as a complementary financial mechanism. Emphasizing accessibility, process agility, and reduced bureaucracy, crowdfunding serves as a means of swiftly gaining recognition for a company or project while tapping into a broad audience. Rather than competition, it offers supplementary support, facilitating the identification and validation of investment opportunities and concepts. Moreover, it streamlines subsequent interactions with banks and investors, enhancing confidence in a project’s viability. In essence, crowdfunding emerges not as an alternative but a strategic complement, enriching the financial landscape with its unique attributes. Full article

The primary objective of this research was to investigate the potential moderating role of audit fees in the relationship between audit committee characteristics and earnings management. Specifically, this study aimed to establish connections between audit committee features, such as committee size, member independence, and financial expertise, and the practice of earnings management. To address these research questions, a convenient sample of 46 service providers listed on the Amman Stock Exchange between 2016 and the subsequent year was employed. Descriptive statistical methods were applied to characterize the variables under investigation, while a multiple regression model was utilized to assess the study’s hypotheses. The findings of the study revealed that there was no significant correlation between the size of the audit committee and earnings management. However, a negative correlation was observed between the audit committee’s independence and the financial expertise of its members. Importantly, when audit fees were introduced as a moderating variable, the relationships between committee member independence and earnings management, as well as between committee member financial expertise and earnings management, were found to be weakened. These results have potential implications for policymakers and regulators in Jordan. They may offer valuable insights into corporate governance reforms that could assist Jordanian businesses in enhancing their earnings management practices. Full article

We introduce a novel stochastically correlated two-factor (i.e., bivariate) diffusion process under the square-root format, for which we analytically obtain the corresponding solutions for the conditional moment-generating functions and conditional characteristic functions. Such solutions recover verbatim those of the uncorrelated case which encompasses a range of processes similar to those produced by a bivariate square-root process in which entries are correlated in the standard way, that is, via a constant correlation coefficient. Note that closed-form solutions for the conditional characteristic and moment-generating functions are not available for the latter. We focus on the financial scenario of obtaining closed-form expressions for the exact price of a zero-coupon bond and Asian option prices using a Fourier cosine series method. Full article

This study was conducted in Malaysia to examine the effectiveness of the microfinance programme for urban single mother entrepreneurs in MSMEs during the COVID-19 pandemic and Movement Control Order (MCO). Implemented as a response to the pandemic, the MCO significantly disrupted businesses, particularly MSMEs. The study aimed to investigate the relationship between empowerment factors (economic, social, digital, and psychological) and governance aspects concerning the effectiveness of microfinance programmes. Using a positivist paradigm and employing quantitative methods through online questionnaire distribution, this research established a framework based on empowerment theory. The findings underscore the importance of economic empowerment, digital empowerment, and governance aspects for microfinance programme success, and provide empirical backing for suitable mitigation strategies for MSME entrepreneurs. The study emphasises the importance of supporting single mother entrepreneurs through various developmental activities, technical and vocational training, and comprehensive financial and non-financial aid initiatives. It stresses the critical role of women, particularly single mothers, in propelling societal and economic advancement, and advocating for their empowerment through targeted interventions. Overall, the findings enhance understanding of the challenges MSMEs face during crises, and offer insights for policymakers and microfinance agencies to strengthen support for single mother entrepreneurs in navigating future challenges and fostering economic resilience and development. Full article