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We reveal the reporting quality channel by investigating the mediating role of financial reporting quality (FRQ) in the relationship between product market competition (PMC) and analysts’ forecast quality (AFQ). We analyze a sample of 1,179 unique nonfinancial Chinese listed firms, resulting in 6,074 firm-year observations, over the period 2007-2016. We employ the Herfindahl-Hirschman Index (HHI) to measure PMC, the modified Jones model to measure FRQ, and analysts’ forecast dispersion and accuracy as measures of AFQ. We then apply a three-step mediation model following the Baron and Kenny approach to test our proposed hypotheses. The results of the mediation model support our hypotheses by revealing the mediating role of FRQ in the PMC-AFQ relationship. The results suggest that intense PMC enhances the FRQ of Chinese-listed firms, in turn enhancing AFQ. Our findings present important implications for both current and potential investors, financial analysts, and relevant government regulatory bodies.

While prior studies have mostly highlighted that firms engage in corporate social responsibility (CSR) because of social norms, we introduce a new perspective by proposing that firms’ motive towards CSR is defined largely by the expected utility perspective. Consistent with our proposition, we show that greater social trust in a region has a positive effect on CSR and that this effect is due to the expected utility mechanism rather than the social normative mechanism. We also show that the association between social trust and CSR is stronger when the focal firm’s peers carry out high-level CSR and when a firm is strongly influenced by Confucianism. Our findings extend the theoretical research on CSR by showing that a firm’s motive towards CSR is based mainly on the expected utility mechanism.

We show how board social capital influences stock price crash risk. Considering that directors are embedded in two kinds of social capital—internal and external—the association of internal and external board social capital with future stock crash is theoretically proposed and empirically presented. A sample of Chinese firms from 2004 to 2018 is used, and findings reveal that internal board social capital—networking experience among directors within a board—increases future stock crashes. By contrast, external board social capital—the external social networks of directors—reduces future crash risk. Moreover, institutional investors’ monitoring attenuates the effect of internal social capital but increases that of external social capital on future crash risk. Furthermore, information quality, accounting conservatism, and tax avoidance are identified as three potential channels, which explain the relationship between social capital and crash risk. The proposed theory advances the understanding that different types of social capital can have a differential effect on board outcomes.

PurposeThe purpose of this paper is to explore how multiple facets of board diversity influence technical efficiency (TE) and total factor productivity (TFP).Design/methodology/approachThe authors measure board diversity in two dimensions: relation-related dimension (age and gender) and task-related dimension (tenure, education and expertise). The authors use a balanced panel data of 806 nonfinancial Chinese firms over the period 2009–2017. The authors use a two-stage approach for analysis. In the first stage, the authors use a non-parametric frontier approach to calculate the TE and factor productivity scores. In the second stage, the authors regressed these scores on board diversity attributes (relation-related diversity and task-related diversity).FindingsBy using tobit regression and two-step system GMM, the authors find that board diversity improves TE and TFP. The authors’ analyses illustrate that a higher diversity on corporate board (in terms of age, gender, tenure, education and expertise) positively influence firm efficiency.Practical implicationsThe findings have important implications for policymakers. The findings suggest that regulators should devise policies to encourage board diversity. Because a diverse board can bring knowledge, skills, abilities, expertise and experience of diverse group members, which will ultimately enhance a firm’s efficiency. Especially, in the emerging markets (such as China), there is still a need for standard governance mechanisms; therefore, the authors suggest that policymakers should develop regulations and promote diversity of directors as one of the factors for improving the governance mechanisms, which will ultimately improve firms productivity.Originality/valuePrior studies mostly considered only one dimension (such as gender) of diversity and, therefore, have overlooked how other dimensions influence firms. The authors consider several dimensions of diversity and quantify them into relation-related (age and gender) and task-related (tenure, education and expertise) attributes and show how they influence firms’ efficiency. To the best of the authors’ knowledge, this is the first study to comprehensively investigate how several facets of diversity influence a firm’s TE and TFP.

Purpose The purpose of this study is to explore whether different board diversity attributes (corporate governance aspect) can be used to predict financial distress. This study also aims to identify what type of prediction models are more applicable to capture board diversity along with conventional predictors. Design/methodology/approach This study used Chinese A-listed companies during 2007–2016. Board diversity dimensions of gender, age, education, expertise and independence are categorized into three broad categories; relation-oriented diversity (age and gender), task-oriented diversity (expertise and education) and structural diversity (independence). The data is divided into test and validation sets. Six statistical and machine learning models that included logistic regression, dynamic hazard, K-nearest neighbor, random forest (RF), bagging and boosting were compared on Type I errors, Type II errors, accuracy and area under the curve. Findings The results indicate that board diversity attributes can significantly predict the financial distress of firms. Overall, the machine learning models perform better and the best model in terms of Type I error and accuracy is RF. Practical implications This study not only highlights symptoms but also causes of financial distress, which are deeply rooted in weak corporate governance. The result of the study can be used in future credit risk assessment by incorporating board diversity attributes. The study has implications for academicians, practitioners and nomination committees. Originality/value To the best of the authors’ knowledge, this study is the first to comprehensively investigate how different attributes of diversity can predict financial distress in Chinese firms. Further, this study also explores, which financial distress prediction models can show better predictive power.

This study explores the connectedness between cryptocurrencies (Bitcoin, Ethereum, Ripple, Bitcoin cash and Ethereum Operating System) and major stock markets (NYSE composite index, NASDAQ composite index, Shanghai Stock Exchange, Nikkei 225 and Euronext NV). Using the asymmetric dynamic conditional correlation (ADCC) and wavelet coherence approaches, we document a significant time-varying conditional correlation between the majority of the cryptocurrencies and stock market indices and that the negative shocks play a more prominent role than the positive shocks of the same magnitude. Overall, our findings explore potential avenues for diversification for investors across cryptocurrencies and major stock markets.

This study investigates whether Confucian culture can influence corporate tax avoidance. We measure Confucianism using geographical-proximity based method and opt ordinary least square regression considering a sample of Chinese firms during 2004–2016. We find strong evidence that Confucian culture and tax avoidance are negatively associated and this association is less prominent for state-owned firms. Additional analysis shows that tax enforcement efforts mitigate the effect of Confucianism on tax avoidance. The results are consistent and robust to alternative measures of tax avoidance and Confucianism. Overall, the findings enrich our understanding that Confucian culture reduces tax avoidance by promoting corporate ethical behavior.

This study investigates how uncertainty (economic policy uncertainty, market-based uncertainty, firm-specific uncertainty, and CAPM-based uncertainty) impacts the Chinese listed firms’ capital structure for the period 1999–2016, and further tests whether this relationship varies for state-owned enterprises (SOEs) and non-SOEs. In addition, we examine the moderating effect of a non-formal financing channel (trade credit) on the relationship between leverage and uncertainty. The findings show that firms decrease the level of leverage with an increase in uncertainty, and this impact is less prominent for firms owned by the state. Furthermore, the results reveal that trade credit decreases the negative association between uncertainty and leverage, suggesting that firms (especially non-SOEs) adjust their financing demands by using trade credit under high uncertainty. The findings provide implications for corporations and policymakers about how capital structure decisions are influenced by different types of uncertainties in a firm’s environment.

PurposeThis study examines how Confucianism, as an informal system, alleviates manager–shareholder conflicts and thus decreases managerial behavior of keeping higher levels of cash reserves. This study also investigates whether formal governance mechanisms (state ownership and institutional investors) moderate the relationship between Confucianism and cash holdings.Design/methodology/approachThis study opts a sample of Chinese listed firms over the period of 2004–2015. The geographical-proximity-based method was followed to measure Confucianism, which is the distance between a firm's registered address and the national Confucianism centers.FindingsThe results indicate that Confucianism adversely influences cash holdings. The authors’ findings illustrate that Confucian culture promotes ethical behavior, and therefore, firms in a strong Confucianism environment keep a lower level of cash reserves. The authors further document that the effect of Confucianism on cash holding is weaker for state-owned firms but stronger for firms with low institutional ownership.Practical implicationsThe findings provide implications for policymakers, academicians, and corporations. The results suggest that culture can reduce cash holdings. Especially, in emerging markets, such as China, where formal mechanisms are relatively less effective, informal institutions can serve an alternative system for alleviating adverse effects of agency conflicts.Originality/valueThis study contributes to the literature in two ways. First, this study contributes to cash holdings literature by showing that culture (Confucianism) is negatively associated with cash holdings. Second, this study extends the incumbent literature that seeks to explore how Confucian culture influences corporate behavior. To the best of the authors knowledge, this is the first study that identifies that Confucianism is associated with cash holdings.

Purpose The purpose of this paper is to examine the interaction between competition and corporate payout policy and more specifically to answer the question that whether competition mitigates the principal–principal agency conflicts and influences firms to distribute dividends to shareholders in Chinese corporations. Design/methodology/approach This research models measures of competition with scaled measures of dividends and analyzes a sample of 16,730 firm-year observations from Chinese-listed manufacturing firms for the period spanning 2003 to 2016. Further, this research uses the Tobit model (a censored regression) to empirically test the proposed hypotheses. Findings This research finds that intense competition not only mitigates agency problems and forces firms to disgorge cash but also increases a firm’s likelihood to pay dividends and weakens the negative association between agency conflicts and dividends. Practical implications The results show an important policy implication for the industry. As the principal–principal agency conflict restrains the dividends, the regulatory authorities could encourage a competitive environment and a more diverse ownership structure to induce a higher dividend rate and protect the minority shareholders. In addition, this study also has implications for other emerging markets characterized by concentrated ownership and principal–principal agency problems. Originality/value This study adds to the literature related to the disciplinary role of competition and identifies competition as a significant determinant of corporate payout policy. Furthermore, this research extends earlier research on corporate payout decisions that besides firm-level corporate governance and country-level legal system, industry-level competition also influences corporate payout decisions, significantly.

Purpose This study aims to explore the relationship between product market competition (competition hereafter) and the quality of analysts’ forecasts. Design/methodology/approach This study uses industry-level (i.e. Herfindahl–Hirschman index), as well as firm-level (i.e. Lerner index) measures of competition and uses forecast accuracy and forecasts dispersion as proxies for analysts’ forecast quality. Further, this study considers a sample of Chinese-listed manufacturing companies for the period spanning 2005 to 2016 and uses various estimation techniques to empirically test the hypothesized relationship. Findings The results show that firms in highly competitive industries are characterized by greater accuracy and smaller dispersion in forecasts. Further, this positive association is more pronounced in SOEs as compared to NSOEs, and in industries characterized by intense competition. The sensitivity analysis further endorses the main results. Practical implications Presenting theoretical and empirical evidence, this study suggests that regulatory bodies should take steps to promote the competitive environment in China. This can help financial analysts in developing more accurate and reliable forecasts and ultimately can bring informational efficiency to the market. Finally, investors would be able to perform their business valuation process in a better way and make economic-useful decisions regarding their capital resource allocation. Originality/value The contribution of the current research is threefold: first, it adds to the limited literature available on this specific topic; second, this study examines the issue in China and further single out the influence of state-ownership and intensity of competition on the relation between competition and forecast properties; and third, this study provides theoretical arguments for the positive association between competition and forecasts quality while setting directions for future research on the topic and suggests the potential channels such as the reporting quality channel and the information disclosure channel that need to be explored further, to better understand the mechanism where competition influences the quality of analysts’ forecasts.

This study investigates how short-term debt and debt capacity help firms to make efficient financing decisions and reduce underinvestment problem. The sample includes Chinese nonfinancial firms listed on the Shanghai and Shenzhen Stock Exchanges over the period 2007 to 2017. The findings indicate that short-term debt is positively related to leverage. The results also indicate that growth positively influences leverage. The results further show that short-term debt enhances the positive impact of growth on leverage. These findings reveal that short-term debt makes firms financially flexible, and allows them to obtain more cost-effective debt by repricing and renegotiation of debt contracts in the presence of valuable growth opportunities. Furthermore, the results illustrate that debt capacity is positively associated with leverage, suggesting that debt capacity helps firms to have an easy access to the credit market and reduce liquidity risk. Overall, the findings remain consistent across different types of firms (state-owned [S.O.E.] and non-state-owned enterprises [N.S.O.E.]) and by considering alternative proxy of growth.

This study investigates the effects of firm-specific, market-based, CAPM-based, and economic policy uncertainty on the relationship between leverage and investment for firms of different nature, i.e., state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). The study uses a panel of Chinese listed firms covering the period 1999–2016 and applies a robust two-step system Generalized Method of Moments technique to cope with the endogeneity problem. The findings show that leverage has a significant and adverse impact on non-SOEs investment behavior. The results further show that firm-specific and market uncertainties exacerbate the negative effect of leverage on investment for non-SOEs. However, economic policy uncertainty and CAPM-based uncertainty attenuate the association between leverage and investment for SOEs and non-SOEs, respectively. Overall the results suggest that the impact of leverage on investment can be mitigating or exacerbating depending on the underlying uncertainty and the nature of the enterprise.

We investigate whether social trust environment influences earnings management. Using a sample of Chinese firms during 2001–2016, we find strong evidence that social trust reduces earnings manageme...

This study attempts to assess the influence of investor-advisor personality congruence on the trading behavior of futures investor. This research tested the hypotheses based on the unique d...

The study investigates the effect of principal-principal (PP) conflicts on corporate cash holdings. By examining a sample of Chinese listed firms over the period 2003–2016, we observe that PP conflicts are positively associated with cash holdings. Furthermore, we observe that institutional ownership attenuates the positive association between PP conflicts and cash holdings. Additional analysis reveals that the positive effect of PP conflicts on cash holdings is more pronounced for firms with high cash holdings than for those with low cash holdings. Overall, the results support the argument that controlling shareholders expropriate minority shareholders by holding larger cash reserves.

PurposeThis paper aims to examine whether and how gender diversity and CEO gender can influence firm value in the emerging market of Pakistan. The study further tests whether these relations vary across state-owned enterprises (SOE) and non-state-owned enterprises (NSOE).Design/methodology/approachThis study considers Pakistani listed firms over the period 2010-2017. The firms have been divided into SOE and NSOE for additional analysis. Tobin’s Q is used to measure firm’s value.FindingsThe authors document that female directors (FDirectors) on corporate boards is positively associated with firm value. The findings also illustrate that female CEOs (FCEOs) enhances a firm value. Additional analyses show that the influence of FDirectors and FCEOs on firm value is stronger in NSOE than in SOE.Practical implicationsThe results suggest that gender diversity and CEO gender play a significant role in corporate decisions. The findings imply that FDirectors discipline the management, reduce agency conflicts and thereby improve corporate governance, resulting in higher firm value.Originality/valueThis study has two important contributions. First, while prior studies mostly based their arguments on using gender diversity of corporate boards, this study shows that a firm performance can be significantly improved if a female serves as a CEO. Second, this study also tests the stated relations for SOE and NSOE and show that gender diversity plays a significant role in NSOE than in SOE.

Research Question/Issue: This study examines how the informal hierarchy among directors of a firm influences the risk of stock price crash. We theorize that a clear informal hierarchy among directors increases managerial coordination of activities to hide bad news, which increases the risk of future stock price crash. Research Findings/Insights: Consistent with our theoretical predictions, our findings show that the informal hierarchy among directors, measured based on the number of board appointments they have, is positively associated with the risk of future stock price crash. This association is weaker for firms with larger boards but stronger when the CEO's status is higher than that of the majority of the directors on the board. We also find evidence that information hierarchy increases the degree to which managers hide bad news. Theoretical/Academic Implications: This study advances our understanding by showing that an informal hierarchy that tacitly forms among directors on a board can significantly guide boardroom interactions. Specifically, the findings suggest that a clear informal hierarchy among directors enhances their coordination to hide bad news and thereby increases stock price crash risk. Furthermore, the results provide evidence that CEO's status and board size are important factors influencing the functioning of board informal hierarchy. Practitioner/Policy Implications: The results have important implications for researchers and policymakers. The findings show that the informal hierarchy among directors can shape managerial behavior and guide boardroom interactions. The results also suggest that improving formal governance mechanisms can enhance boardroom interactions by moderating the effects of informal hierarchy in the context of China.

This study investigates the effect of terms of trade (TOT) on the economic growth of China over the period 1980–2013. Autoregressive distributed lag (ARDL) model proposed by Pesaran, Shin, and Smith (2001, Journal of Applied Econometrics, 16(3), pp. 289–326) is applied for examining the short-run and long-run associations. The causality analysis between variables is analyzed by using Granger causality test and variance decomposition test. The ARDL model reveals that TOT significantly and adversely affect economic growth in the short run as well as in the long run. The results also imply positive short-run and long-run effect of labor and capital on the economic growth of China. The Granger causality results reveal significant bidirectional causal relationship between economic growth and capital, and between capital and labor force. The results show unidirectional causality from TOT to labor force. The variance decomposition results show that most of the innovation in economic growth is explained by its own innovation, while other variables have very small contributions to its innovations. The notable findings of the study suggest that TOT deterioration is relatively important for enhancing the economic growth of China.

PurposeThe purpose of this paper is to examine how corporate governance instruments impact firm value in the context of Pakistan. This paper considers state- and non-state-owned enterprises and examines whether the influence of corporate governance on firm value varies across firms having different nature of ownership.Design/methodology/approachThis study opts for an unbalanced sample of state- and non-state-owned enterprises for the period 2010-2014. Panel data regression is adopted for estimation of main results. The suitable model, i.e. fixed and random effect model, is selected using Hausman specification test.FindingsThe notable findings show that board independence has a significant and positive relationship with firm value only for state-owned companies. Furthermore, the results show that market capitalization and return on assets have a significant and positive association with firm value for both state- and non-state-owned enterprises. All other variables are found insignificant for both state- and non-state-owned companies, but the results are consistent with those reported in previous studies.Practical implicationThe findings of the study suggest that fair induction of independent directors, appropriate board size and cost-benefit analysis to conduct frequent meetings can help corporations to improve their performance.Originality/valueThis study is adding to the current literature by providing new insights and shows that the impact of corporate governance on firm value varies across firms of different types of ownership, i.e. state- and non-state-owned enterprises.

Purpose The purpose of this paper is to investigate the role of financial advice on investor trading behavior by analyzing the influence of advisor personality. Design/methodology/approach The study utilized the Big Five personality framework from Costa and McCrae (1992) to measure personality traits of advisors and examined the data collected from 314 stock investor–advisor dyads. Personality traits of advisors were measured by the NEO-Five Factor Inventory (Costa and McCrae, 1989). Confirmatory factor analysis was conducted to assess the fitness of the Big Five model. We followed two-stage least square method for estimating endogenous covariate by employing instrumental variable analysis. Probit model was used to evaluate the moderating influence of advisor personality traits on the association between the usage of financial advice and trading behavior. Findings The authors found that financial advice positively impacts investors’ stock trading frequency. The authors also provide empirical evidence that financial advice is more likely to increase trading frequency when advisor personality tends to be openness, conscientiousness and agreeableness. On the other hand, information acquired from financial advisors causes fewer adjustments in investors’ portfolios when the personality of advisors is likely to be extraverted and neurotic. Research limitations/implications The theoretical model in our study seeks to explain that a psychological factor, namely, advisor personality, influences the way an investor interprets information signals from financial advice, which, in turn, influences the investor’s decision to trade in securities. Practical implications This research suggests that characteristics of advisors other than those of investors can be of relevance for policy makers in their attempts to improve their business in the financial services industry. Originality/value Survey-based studies in finance are lacking. This study adds to the existing literature of behavioral finance that accounts for the observed variations in investors’ financial decision making explained by psychological factors. No previous study has been conducted so far exploring variations in the impact of financial advice on investors’ stock trading behavior by the Big Five advisor personality, and this paper strives to fill this research gap in Chinese stock market.

Purpose This paper aims to examine the volatility spillover dynamics between stock and foreign exchange market of China considering subprime 2007 financial crisis period. Design/methodology/approach This study considered daily data from January 2, 2002, to December 31, 2013. The sample period has been further divided into three periods; full sample period (January 2002-December 2013), pre-crisis period (January 2002-October 2007) and post-crisis period (October 2007-December 2013). This study opted Exponential Generalized Autoregressive Heteroskedasticity (EGARCH) model for the purpose of investigating asymmetric volatility spillover. Findings The results obtained using the EGARCH model imply that volatility spillover dynamics varies from period to period. In full sample period, the results show evidence of significant unidirectional volatility spillover from foreign exchange market to stock market. In pre-crisis period, the results indicate unidirectional volatility spillover from stock market to foreign exchange market. However, in post-crisis period, the results reveal significant bidirectional volatility spillover between stock and foreign exchange market. Practical implications The results of the study are important for policy makers because understanding the behavior of the financial markets, i.e. stock and foreign exchange market, would increase the success of policies implemented in a crisis situation. The results would help investors to formulate efficient portfolios. Originality/value This study is an important contribution to the existing literature in terms of analyzing volatility spillover between stock and foreign exchange market in an emerging economy, China. Furthermore, this study explored the volatility spillover dynamics between the two markets by considering the pre and post subprime Asian crisis period.

The importance of solar energy has been accepted worldwide for the generation of electricity, but unfortunately, Pakistan has yet to exert efforts on the development of this source of energy. The purpose of this research is to explore the public acceptance and interest in solar home system (SHS). Moreover, the expectations of the public towards SHS development in Pakistan and the difficulties they face in SHS usage are identified. The result of the survey indicates that about 81% of the respondents show higher interest in SHS. However, many respondents claim that some hindrances obstruct them from using SHS which includes; high cost of solar panels, lack of information and trust on solar panel providers. Almost 60% of the respondents expect that government provision of incentives could be the best way to boost the usage of SHS countrywide. For the successful implementation of new SHS policy, the government of Pakistan needs to establish solar power plants, increase installation of solar panels, provides funding and full information for conducting independent research. In addition, almost 90% of the respondents believe that government should take the lead in developing the SHS sector. Therefore, this study provides some valuable references for SHS promotion in Pakistan.

Purpose The purpose of this paper is to investigate the impact of the frequency of information acquisition on the frequency of stock trading. The authors also examined if the Big Five personality traits of investor influence the association between information acquisition and stock trading behavior. Design/methodology/approach The authors adopted NEO Five-Factor Inventory (Costa and McCrae, 1989) inventory to measure the Big Five personality traits of investors and examined the data collected from 541 individual investors of the Chinese stock market. To overcome the potential endogeneity bias, the authors followed two-stage least square method for estimating endogenous covariate by employing instrumental variable analysis. The authors performed probit regression to evaluate the moderating influence of investor personality traits on the association between information acquisition and stock trading behavior. The authors also performed several other tests to check the robustness of the key findings. Findings This research confirmed the previous findings that the more frequently investors acquire information, the more often they trade in stocks. Moreover, the authors added to the existing literature by providing empirical evidence that the Big Five personality traits moderate the relationship of information acquisition with stock trading behavior. Information acquisition tends to increase stock trading frequency in investors with conscientiousness, extraversion and agreeableness traits. On the other hand, it also has the tendency to decrease the intensity of stock trading in investors with openness and neuroticism traits. Research limitations/implications The theoretical model in this study seeks to explain that the psychological factor, namely, investor personality, influences the way an investor interprets signals from information which in turn influences the investor decision to trade in securities. This research suggests that psychological characteristics of investors can be of relevance for policy makers in their attempts to improve their business in the financial services industry. Originality/value This study combines both information search literature and behavioral finance literature to investigate whether or not the information acquisition that relates to investors’ asset allocation decisions is influenced by investor personality. The study offers new theoretical insights into investors’ behavior due to the characteristics of the Chinese stock market which are uniquely different from other stock markets in the world. No previous study has been conducted so far in the Chinese stock market to explore variations in the impact of investors’ information acquisition on their stock trading by the Big Five personality and this paper strives to fill this research gap.

This study is an attempt to examine the income and price elasticities of crude oil demand in Pakistan using annual data from 1981 to 2013. The short-and long-run relationship was analysed by autoregressive distributed lag (ARDL) bounds testing approach. The results reveal that income and exchange rate show significant positive relationship with crude oil demand in short run as well as in long run. The analyses also show that crude oil price and domestic production have negative effect in both short and long run on crude oil demand. The income is found to be a strong determinant of crude oil demand in both short and long run. This study suggests that strategies would be formulated and adopted which may control the demand of crude oil without affecting the economic growth of Pakistan.

This paper analyzes the effect of terms of trade on economic growth of Pakistan considering annual time series data from 1980 to 2013. This study opted autoregressive distributed lag model for purpose of analyzing short- and long-run relationship. The results reveal significant negative long-run and short-run effects of terms of trade on economic growth. The analyses also indicate significant positive long-run and short-run effects of labour on economic growth. Further, capital stock is influencing positively the economic growth in long run only. We suggest that economic policies may be implemented to deteriorate terms of trade which will further enhance the economic growth of Pakistan. JEL: F13, F43

The purpose of this study is to investigate the presence of anomalies named; January effect, Islamic calendar effect, Day of the week effect, Time of the month effect, Turn of the month effect and Half of the month effect in an Islamic equity market of Pakistan. This study considered daily data from 30 September 2008 to 30th June 2015. The behavior of the data is tested by using the descriptive statistics method. The Generalized Auto Regressive Conditional Heteroskedasticity Model (GARCH) model is applied to capture the seasonality in returns and volatility in the Islamic equity market. The results of this study highlight certain interesting key findings. The notable findings indicates the absence of prominent January effect and the Ramadan effect. However, this study finds significant Day of the week effect, Turn of the month effect, Time of the month effect and Half of the month effect in the Islamic index. This study suggests that investors would be able to gain abnormal returns, if they would ...

Purpose The purpose of this paper is to examine the role of product market competition in shaping a firm’s reporting quality (RQ). Design/methodology/approach This research uses an aggregate measure of a firm’s RQ, considering both the absolute level of discretionary accruals (DA) and the quality of accruals, using modified Jones model and Francis et al. (2005) accruals quality model, respectively. Whereas, the Herfindahl-Hirschman index and the Lerner index are used to measure product market competition. Further, this study considers the transitional economy of China and employs panel data estimation techniques for testing the hypothesized relationships. Findings This study finds that firms operating in more competitive industries are associated with higher RQ. This association still prevails when analysis is done using the component measures of RQ (i.e. the absolute level of DA and the quality of accruals). Overall, the empirical results provide evidence on the disciplining role of product market competition among Chinese firms. Practical implications Given the complex governance structures and specific kind of agency problems in Chinese corporations, this study suggests that product market competition may play an external disciplining role to improve the corporate information environment. Originality/value This research explores the role of product market competition for a firm’s RQ in Chinese-listed companies, while the prior studies on the same topic are mostly from the developed countries.

We show how social trust environment influences tunneling. Using social norm theory, we argue that a high social trust environment mitigates unethical behavior from controlling shareholders and reduces tunneling. We further assume that the association between social trust and tunneling is weaker for enterprises controlled by the state and for those located in regions of high legal development. Using a sample of Chinese listed firms from 2003 to 2016, we find supportive evidence for our hypotheses. Similar conclusions were obtained with alternative measures, endogeneity corrections, and additional analyses. Our findings suggest that as a social norm, social trust can serve as an alternative mechanism for reducing agency problems in an emerging economy.

In recent years, the question of how uncertainty influences corporate decisions has received greater interest among academics, researchers, and corporations. This study is an attempt to investigate how uncertainties (firm-specific uncertainty (fsu), market-based uncertainty (mu), and economic policy uncertainty (epu)) influence research and development (R&D) investment and to further examine whether this relation is moderated by product market competition across firms of different sizes. Using a sample of Chinese listed firms covering 2000–2017, this study applies a two-step system GMM model to perform estimations and control for endogeneity issues. The findings show that uncertainties (fsu, mu, and epu) negatively influence R&D investment and that this negative relationship is more prominent for firms operating in competitive industries. In concentrated industries, however, the negative impact of uncertainty is mitigated for large firms, which have more internal resources and better access to external financing. This study contributes to real options theory by illustrating how different forms of uncertainty embedded in a firm’s internal and external environment reduce R&D investment, and by indicating how this relationship is moderated by product market competition.

The prime aim of this study is to investigate the impact of corporate governance practices on earnings management. We employed fixed effect estimators on a sample of 89 non-financial companies listed on KSE (Karachi Stock Exchange), for the period 2003–2012. Corporate governance has been quantified through its four different practices (namely, board size, managerial ownership, CEO–chair duality, and audit committee independence) whereas discretionary accruals have been used as a proxy for measuring earnings management and are calculated through modified Jones model developed by Dechow, Sloan and Sweeney (1995). The empirical findings are quite in line with the philosophy of corporate governance. Audit committee independence and earnings management are negatively correlated. Similarly, CEO–chair duality is positively associated with earnings management. However, two of the corporate governance variables (i.e., board size and managerial ownership) are found insignificantly related to earnings management. The study contributes in general to the existing literature on corporate governance and earnings management by examining their relationship; that corporate governance is negatively associated with earnings management. The study contributes specifically by evidencing that in developing countries like Pakistan, where the interest war is more prominent among the minority shareholder and controlling shareholders than among management and owners, corporate governance is playing an effective role to overcome these problems.

We show how board diversity influences stock price crash risk. By classifying board diversity into relation-oriented diversity (gender and age) and task-oriented diversity (tenure and education), we find that greater diversity on board can lower the risk of future stock crash. Additional analyses show that the effect of board diversity on future crash risk is stronger for firms with high information opacity and low institutional ownership. Overall, our findings provide new insights and suggest for more diverse boards to improve corporate governance practices.

In this study, we conjecture that Confucianism can curb the managerial bad news suppression behavior and consequently stock price crash risk. Using a unique sample of geographical-proximity-based Confucianism variables and Chinese nonfinancial firms over the period 2004–2014, we show that Confucianism is negatively associated with stock price crash risk. Further, we document that analyst coverage and institutional ownership, as formal governance mechanisms, attenuate the effect of Confucianism on stock price crash risk. The results are consistent to a battery of robustness tests and additional analyses. Overall the findings suggest that Confucianism, as an ethical system, mitigates crash risk in Chinese firms.

This study investigates the influence of corporate governance and the nature of the ultimate owner on the adjustment behavior of corporate cash holdings. This study uses a sample of Chinese listed firms over the period 2003–2016 and opts difference- and system-GMM (generalized method of moments) models to explore the target cash holdings of Chinese firms. The results demonstrate that Chinese firms have target cash holdings and that the cash holdings adjustment behavior varies across the state-owned enterprises and nonstate-owned enterprises. Finally, the results show that cash holdings adjustment rate varies across normal and crisis period. This study adds to the existing literature by showing how corporate governance attributes and the nature of ownership can impact the cash holdings. Finally, this study provides insights that the cash holdings adjustment varies in normal and a crisis period.

Background: This study examined the volatility spillover effects between the stock markets of Asian countries, i.e., Pakistan, India, Sri Lanka, China, Japan, and Hong Kong. Methods: The daily data was considered from the period 4 January 1999 to 1 January 2014, consisting five trading days from Monday to Friday. The volatility spillover between stock markets was captured by using the generalized autoregressive conditional heteroskedasticity (GARCH) model. Results: The empirical analyses show evidence of significant bidirectional spillover of return and volatility between China and Japan. The results also show significant bidirectional volatility transmission between the equity markets of the following countries: Hong Kong and Sri Lanka, China and Sri Lanka. The significant unidirectional transmissions of stock market volatility are found to be flowing from India to China, Sri Lanka to Japan, Pakistan to Sri Lanka, and Hong Kong to India and Japan. Conclusions: These results are important for economic policy makers in order to safeguard the financial sector from international financial shocks. The investors can use this information for making efficient portfolio which will reduce their risk and enhance their returns.