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Capital Markets Review Vol. 30, No. 1 pp. 1-83 (2021)

Capital Markets Review Vol. 30, No. 1, pp. 1-15 (2022)

The Effects of Market Strength, Information Asymmetry, and Industrial Characteristics on Malaysian Firms’ CAR During COVID-19 Pandemic

Saw Imm Song1, Jennifer Tunga Janang2, Erimalida Yazi2 & Fareiny Morni2
1Universiti Teknologi MARA, Cawangan Pulau Pinang, Malaysia
2Universiti Teknologi MARA, Cawangan Sarawak, Malaysia

Abstract: Research Question: Would the COVID-19 pandemic induce investment opportunities or threats for companies listed at Bursa Malaysia? Motivation: This study investigates whether the market strength and information asymmetry experienced during a crisis and industrial characteristics have an impact on shareholders’ abnormal returns. Idea: The study uses market strength as measured by trading volume and information asymmetry as measured by bid-ask spread aims to suggest potential investment opportunities in different categories of industries for investors. Data: The study uses data of 620 companies listed on Bursa Malaysia, collected from 16 Mar 2020 to 9 Jun 2020. The data were divided into 3 event windows based on the government’s Movement Control Order (MCO) announcements. Method/Tools: The event study method is used to calculate the cumulative abnormal returns (CAR) as the dependent variable. Multiple regression analysis with hierarchical model specifications were used in assessing the impact of the explanatory variables on the dependent variables. Findings: The findings suggest that during periods of uncertainty, firm characteristics such as larger and older firms are at a disadvantage compared to smaller and younger firms. In terms of market characteristics, the study shows that Increased trading volume has greater returns to investors. However, the bigger bid-ask spread associated with higher abnormal returns reflects the inefficiency of the stock market. This study also found that in the month following the announcement of the first MCO, the CAR of firms in vulnerable industries reduced by an extra 5% compared to firms who were not classified as vulnerable industry category. As the MCO prolonged, the CAR of firms in vulnerable industries fell by an extra 9.5% compared to other firms listed in Bursa Malaysia. The negative impact on the vulnerable industries shows glooming prospects of those firms. Contributions: Market reactions to pandemics and MCOs are negative especially at the beginning period. The strength of the market, information asymmetry, and industrial characteristics have a strong influence on the abnormal returns during the observed periods. The study also shows that historical financial track records are not good predictors of a firm’s prospects during this unprecedented COVID-19 pandemic.


Capital Markets Review Vol. 30, No. 1, pp. 17-35 (2022)

Board Governance, Dividend Payout and Executive Compensation in Malaysian Firms

Ravichandran K. Subramaniam1, Khakan Najaf2 & Murugasu Thangarajah1
1School of Business, Monash University Malaysia, Malaysia
2Department of Accounting and Finance, Sunway University, Malaysia

Abstract: Research Question: This study seeks to present and test how board governance mechanisms affect the relationship between a company’s dividend payout and CEO compensation. Motivation: In the face of the significant payouts to directors and abundant literature on executive pay, there is scant evidence on board governance the relationship between executive compensation and the dividend payout policy of listed firms in emerging capital markets. The independent variable used in this study is the dividend payout ratio, which is the dividend per share divided by primary earnings per share before extraordinary items. A direct measure of the dependent variable is the total executive compensation, inclusive of fixed salaries and variable bonuses. The research is built based on these three key papers, Bhattacharyya et al. (2011); Smith and Watts (1992); Gaver and Gaver (1993). Idea: Building on Bhattacharyya et al. (2011), this study examines how the board governance relationship between a company’s dividend payout and executive compensation in the context of a developing country. Data: Using a sample of 300 largest Malaysian public listed companies (PLCs) on Bursa Malaysia from 2008 until 2014. The data is from the Kuala Lumpur Stock Exchange, OSIRIS, DATASTREAM, BANKSCOPE databases, and the Malaysian Stock Performance Guide. Method/Tools: We test using the panel data. Findings: Our empirical results reveal three findings. First, our results suggest a direct relationship between dividend payout and executive compensation across all models. Our sub-sample analyses show that this phenomenon is limited to the non-government linked firms and non-family firms. Secondly, board governance shows that the Bumiputera, CEO-education, and non-executive directors are positively related to dividend payout. Lastly, the interaction between executive board compensation and the presence of Bumiputera has a negative relationship with the dividend payout. Contributions: The results of this study contribute to the growing scholarly work that examines board governance and the impact on dividend payout in an emerging market context.


Capital Markets Review Vol. 30, No. 1, pp. 37-49 (2022)

Impact of Governance Quality on Default Risk of Socially Responsible Firms: International Evidence

Bolaji Tunde Matemilola1, Suleiman Ahmed Badayi2 & Amin Noordin Bany-Ariffin1
1School of Business and Economics, Universiti Putra Malaysia, Malaysia
2College of Business & Management Studies, Jigawa State Polytechnic, Nigeria

Abstract: Research Question: Default risk problem is more prevalent during the recent covid-19 pandemic era, stopping economic activity, hurting firms, and exposing them to default risk but governance and CSR may lower this default risk problem. Motivation: As a result of the research work of Altman (1968), researchers have given great attention to the determinants of firms’ default risk. Previous studies (Asis et al., 2021; McGuinness et al., 2018) mostly focus on the link between leverage and default risk, our study introduces governance quality and CSR into the debate as new factors that may mitigate default risk of firms. Idea: This paper investigates the impact of governance quality on default risk of socially responsible firms from developing countries. Data: Governance quality data are obtained from the World Governance Indicators. The firm-level data are obtained from the DataStream databases. We use a total of 466 listed firms from 15 developing countries and cover 2010 to 2017 periods. Method/Tools: The two-step system generalized method of moments is applied to mitigate endogeneity problem. Findings: Governance quality (i.e., rule of law) has a significant negative impact on firms’ default risk in the full sample and three regional sub-samples (i.e., Asia, Africa and Middle-East, and Latin American Countries). The results suggest that strong governance quality appears to minimize bankruptcy costs which lower default risk of socially responsible firms in developing countries. Contributions: Unlike prior studies that focus more on the relationship between leverage and default risk and use single country dataset, this study focuses on the impact of governance quality on default risk of socially responsible firms, and thus contributes to an extensive body of theoretical and empirical work that focuses on firms’ default risk. Secondly. this paper covers three regions (i.e. Asia, Middle East and Africa, and Latin America regions) to improve the validity and robustness of our conclusion.


Capital Markets Review Vol. 30, No. 1, pp. 51-64 (2022)

An Empirical Study on Co-Integration and Causality Among GCC Stock Markets

Vikram Mohite1 & Vibha Bhandari1
11College of Applied Sciences Nizwa, University of Technology and Applied Sciences-Nizwa, Sultanate of Oman

Abstract: Research Question: This research attempts to explain the integration hypothesis in both short term and long term causal relationship in the Gulf Cooperation Council countries (GCC) stock markets. Motivation: GCC comprises some of the fastest growing economies in the world, mainly due to an increase in oil and natural gas revenues coupled with a construction and investment boom backed by reserves. Though being significant West Asian economies, studies of their stock markets have limited presence in academic literature. Hence, an attempt is made to establish interdependency among six GCC economies as not only they are culturally similar but also their energy dependency is unique geographically. The current study extends the work of Hysaj and Sevil (2021), Matar et al. (2021), Assraf (2003), to incorporate daily movement in the stock markets of these countries especially during the low international crude oil price environment. Idea: The objective is to establish cointegration and dependency among six GCC stock markets. Data: The data set for this study is the official daily market index levels of the Tadawul All Share (TASI) (Saudi Arabia), the Kuwait stock Exchange (Kuwait), the Bahrain Stock Exchange (Bahrain), the Muscat Stock Exchange (Oman), and the Dubai Financial Market (UAE) from 25th January 2011 to 25th January 2018 (1738 observations) collected from individual stock market’s website. Method/Tools: Unit root test and co-integration test are applied to assess the dependency among the time series data. In order to test the existence of relationship among the GCC markets, Vector Error Correction Model (VECM), impulse response function and variance decomposition are applied. Findings: The results obtained establish long run linkages among all the stock markets of GCC and asymmetric short run causality among the six markets. Contributions: This study will help in extending the prevailing literature on integration in various ways and directions particularly from daily movement of stock market indices. This study will also enrich the sparse literature on GCC stock markets and their causal linkages.


Capital Markets Review Vol. 30, No. 1, pp. 65-83 (2022)

Currency Carry Trades and Stock Market Returns in Africa

Godfred Aawaar1, Eric Nkansah2 & Irrshad Kaseeram3
1KNUST School of Business, Kwame Nkrumah University of Science and Technology, Ghana
2Department of Banking Technology and Finance, Kumasi Technical University, Ghana
3Faculty of Commerce, Administration and Law, University of Zululand, South Africa

Abstract: Research Question: Is there a causal link between African currency targeted carry trades and the returns of their stock market indices? What is the nature of return volatility in carry trades and stock markets, and does volatility spillover exist between the two series in Africa? Motivation: The interactive and dynamic relationship between currency carry trade returns and stock market returns has not been communicated in exactitude, especially in emerging and frontier markets of Africa. This study explores the causal link between African currency carry trades and stock market returns. It also explores the dynamic relationship and volatility spillover between the currency carry trades and stock market returns. Idea: The primary idea is that there is conclusive evidence on the empirical failure of the uncovered interest rate parity (UIP) condition, and currency carry trades, which are investment/trading strategies, seek to exploit this failure. Data: Data on prices of stock market indices, interbank interest rates, and exchange rates between the target currencies and funding currencies of weekly periodicity sourced from DataStream, Quantic EasyData, and the central banks of the sampled countries are used. Method/Tools: The vector autoregressive (VAR) – Granger causality framework and the dynamic conditional correlation-generalised autoregressive conditional heteroskedasticity (DCC-GARCH) estimation technique were employed in this study. Findings: The study finds evidence of causality running from carry trades to stock markets in 22 out of the 28 currency pairs studied, but not causality from stock markets to carry trades. Traces of volatility spillover could only be observed from carry trades to stock markets in 10 out of the 28 currency pairs studied. We conclude that the African currency carry trades drive their stock markets, that the conditional correlations between currency carry trades and stock market returns are dynamic and time-varying, and that there is high degree of persistence in African return volatility. Contributions: This study has made significant contribution to our knowledge on currency carry trades in Africa’s emerging and frontier markets. It has shown the interactive and dynamic relationships that exist between currency carry trade returns and the returns of stock market indices.

Updated on 30 March 2022