Current Issue

Capital Markets Review Vol. 27, No. 2, pp. 1-13 (2019)

Adopting a Structured Abstract Design to More Effectively Catch Reader Attention:
An Application of the Pitching Research® Framework

Robert W. Faff1
1UQ Business School, University of Queensland, Australia.

Abstract: Research Question: Creating a simple and effective structured abstract design for CMR. Motivation: The key purpose of abstracts is to communicate to readers the main messages. Abstracts need to catch reader (attention), just like fishermen trying to “hook big fish”. But, readers are impatient/time poor – they aren’t easy fish to catch – they are very easy to lose! Readers need the “right” bait and while a simple structured abstract design can serve this purpose – like any bait, it needs to be fresh and “tasty”, not stale and bland. What’s new? While structured abstracts are generally not new, for stakeholders of CMR this approach is new. So what? A structured abstract should engage readers and lead to more journal activity – more reads, cites, submissions. Idea: Leveraging the recent actions and experience of two other (“early-adopter”) journals heading down this path, we outline CMR’s adoption of a structured abstract design based on Faff’s (2015, 2019) Pitching Research framework – to catch reader attention. Data: Essentially the “data” relevant to this paper are qualitative – the relevant literature showing the key applications of the pitching research framework and, more specifically, recent applications of structured abstracts. Method/Tools: The tools are non-quantitative in nature, essentially based on a relaxed narrative style that derives learnings from and draws comparisons with the recent experience of other similar journals. We also use a technique of qualitative extension, in which we show other journal-linked applications of the Pitching Research framework. Findings: Similar to “early-adopter” journals, the CMR word limit is 300-350 words, and the same basic abstract structure is used: Research Question; Motivation; Idea; Data; Tools; Findings and Contribution. Two examples are given – one each, from the two early-adopter journals. Other journal-related applications of the framework are discussed: pre-registrations; replications and “Shark Tanks”. Contribution: Adopting a simple, focused, structured abstract design, allows CMR to meet the basic aim of communicating relevant new knowledge to its readership base. More generally, we argue that this structured abstract design increases awareness of the broader pitching research framework, helping all stakeholders to build on this initial “awakening”, to describe and ultimately design their own scholarly research.


Capital Markets Review Vol. 27, No. 2, pp. 15-35 (2019)

Institutional Quality, Tax Avoidance, and Analysts’ Forecast:
International Evidence

Akmalia M. Ariff & Khairul Anuar Kamarudin2
1Faculty of Business, Economics and Social Development, Universiti Malaysia Terengganu, Malaysia.
2Faculty of Accountancy, Universiti Teknologi Mara, Malaysia.

Abstract: Research Question: This study examines the joint-effect of tax avoidance and institutional quality on analysts forecast. Motivation: The aspects of tax are important in the valuation by financial analysts in the capital markets, but the extent to which the analysts incorporate tax avoidance in their forecasts is uncertain. The complexity associated with tax avoidance may lead to more efforts for appropriate forecast, but such complexity may also reduce the ability of the analysts in forecasting. Further, when institutional theory is considered, the strength of country-level institutional environment may influence the role of the analysts in factoring tax avoidance in their forecast. Idea: This study hypothesized that tax avoidance is associated with analyst forecast, and the strength of institutional quality jointly affects the association between tax avoidance and analyst forecast. Data: The dataset consists of 22,690 firm-year observations from 36 countries over the period 2007-2016. Data were gathered from Institutional Brokers’ Estimate System I/B/E/S, Thomson Reuters Fundamentals, the World Governance Indicators, OSIRIS and ownership data reported in La Porta et al. (2006). Method/Tools: The regression models employ two measures of analyst forecasts as the dependent variables; forecast dispersion and accuracy. The test variables are tax avoidance that is proxied by firms’ effective tax rate, institutional quality that is an index from Kaufmann et al. (2009) to proxy for country-level institutional environment, and the interaction between tax avoidance and institutional quality. Findings: Findings indicate that high tax avoidance is associated with high forecast dispersion but more accurate forecast. There are evidence that the effect of tax avoidance on properties of analyst forecast is weakened for firms in high institutional quality countries. The results are robust even after employing the two-stage least square regression to address endogeneity issue, and the weighted least square in overcoming issue of differences in sample size between countries. Contributions: The findings corroborate evidence on tax avoidance and analyst forecast, and enrich the international accounting literature. This study provides insights to policy makers on the role of institutional quality in reducing information asymmetry, specifically on tax and forecast activities.


Capital Markets Review Vol. 27, No. 2, pp. 37-57 (2019)

An Empirical Study of Herding Behaviour in China’s A-Share and B-Share Markets:
Evidence of Bidirectional Herding Activities

Oi-Ping Chong1, A.N. Bany-Ariffin2 , Annuar Md Nassir3 & Junaina Muhammad2
1Putra Business School, Universiti Putra Malaysia, Malaysia.
2Faculty of Economics and Management, Universiti Putra Malaysia, Malaysia.
3School of Economics and Management, Xiamen University, Malaysia.

Abstract: Research Question: This paper examines whether A-share markets predominated by unsophisticated local investors follow the trading of the B-share markets, dominated by sophisticated foreign institutional investors. Motivation: Our goal was to explore whether A-share investors follow the trading behaviour of the B-share investors or vice versa given the uniqueness of the Chinese markets. This paper drew on the findings of Chui and Kwok (1998) and Doukas and Wang (2013) who claimed that the Chinese foreign investors are more sophisticated and thus have an information advantage over unsophisticated local investors. Idea: The core idea of this paper was to empirically examine the herding behaviour in the four local Chinese markets and herding effect during the turbulent and calm period. The study was conducted using Cross-sectional Absolute Deviation (CSAD) as the dependent variable, the average of the cross-sectional returns of the market portfolio, the absolute value of market returns, and market returns squared as independent variables. Data: The analysis was conducted based on 1,782 days of observing the 188 individual firm’s stock returns from January 2010 to October 2016 from Shanghai A-share, Shanghai B-share, Shenzhen A-share, and Shenzhen B-share. All relevant data was downloaded from DataStream. Method/Tools: We utilised the CSAD method to calculate the value of all the variables. Then we employed robust-regression to regress all these variables and t-test to determine the intensity of herding during the turbulent and calm period to reach the findings of this study. Findings: The results pointed out that the A-share markets were herding around the B-share markets and vice versa. Besides, there was cross-herding between the Shanghai Stock Exchange and Shenzhen Stock Exchange due to information transmission between the A-share and B-share holders in both markets. Finally, this study also discovered that there was a significant difference between the herding coefficients during the stock market turbulent period and the calm periods. Contributions: This study extends existing research on herding behaviour related to Chinese A-share and B-share markets which yet to be explored in detail and whether herding is more pronounced during the turbulent period compared to calm period.


Capital Markets Review Vol. 27, No. 2, pp. 59-87 (2019)

The Effect of Financial Constraints on Audit Fees

Samuel Jebaraj Benjamin11
1Waikato Management School, University of Waikato, New Zealand.

Abstract: Research Question: From a supply-side and demand-side standpoint, it is conjectured that financial constraints elevate client-specific risk and lead to higher audit effort and fees. It is further posited that the effects of financial constraints on audit fees can be mediated by three possible channels: corporate cash holdings, discretionary accruals and corporate tax avoidance strategies. Motivation: Explicit evidence on how auditors react, in terms of audit fees to firms’ financial constraints is not available in the audit or finance literature. Idea: Financial constraints are defined as the frictions stemming from reasons such as credit constraints, inability to borrow, inability to issue equity, reliance on bank loans and illiquidity of assets that inhibit firms from funding desired investments (Lamont et al., 2001). This paper examines the effects of financial constraints faced by firms on audit fees, and the mediating effects of corporate cash holdings, discretionary accruals and corporate tax avoidance activities. Data: This study is based a large sample of U.S. listed firms from 2000 to 2016. Method/Tools: This study use the conventional audit-fee model, with an emphasis on controlling for fee determinants associated with firm risk, client characteristics, and audit and auditor characteristics. Findings: The results reveal that there is a positive and significant effect of financial constraints on audit fees. The finding is robust to alternative proxies of financial constraints and regression specifications. Moreover, the effects of financial constraints on audit fees are mediated positively by corporate cash holdings, discretionary accruals and corporate tax avoidance. Contributions: This study extends our understanding of how auditors incorporate an increase in client risk emanating from financial constraints, a hitherto untested audit-fee determinant. This study also contributes to the capital market literature that examines audit fees and financial constraints as well as to other studies that consider the implications of corporate cash holdings, financial reporting quality and corporate tax avoidance. This study also contributes to the emerging research that enriches our understanding of certain economic consequences of firms’ financial constraints.


Capital Markets Review Vol. 27, No. 2, pp. 89-102 (2019)

Effect of Standardization of Trading Board Lot on Abnormal Liquidity
in Malaysian Stock Market

Nor Elliany Hawa Ibrahim1 , Kamarun Nisham Taufil Mohd1 & Karren Lee-Hwei Khaw 2
1School of Economics, Finance and Banking, Universiti Utara Malaysia, Malaysia.
2Faculty of Business and Accountancy, University of Malaya, Malaysia.

Abstract: Research question: This study examines the liquidity reaction surrounding the standardization of trading board lot (STBL) event that was announced and implemented in 2003. Motivation: The STBL event called for a reduction in the trading lot size from 1000 and 200 units per lot to a uniform size of 100 units per lot. The event that affected 98% of Malaysian listed firms is claimed to have improved the market liquidity and increased trading activities. Hence, this study is motivated to examine the claim. Idea: Specifically, this study examines the liquidity effect surrounding the event announcement and implementation dates. We hypothesize that the STBL event has significant impact on market liquidity. Data: We have a sample of 869 firms. February 5, 2013 is taken as the event announcement date. Since the STBL was implemented in three phases, we have three implementation dates that affected different groups of firms. Method/Tools: To begin with, this study examines the liquidity effect using an event study methodology, followed by cross-sectional regression analyses. Liquidity is measured by (1) volume turnover, (2) bid-ask spread, and (3) Amihud illiquidity ratio to gauge the impact of the new policy on the market. Findings: There is a significant liquidity deterioration following the announcement of STBL due to the lack of information content. However, the implementation leads to significantly higher volume turnover in the first stage, while the bid-ask spread is significantly narrower in the second stage. In the last stage, we find significant improvement in all three liquidity measures. This is driven by an optimistic market outlook inspired by the positive liquidity effects observed in the earlier stages. Contribution: The findings confirm the significantly higher trading activities after the implementations of STBL, which further contribute to the limited literature on the minimum trading unit. The reduction of trading lot size leads to greater trading volumes. Lastly, the outcome of this study can be used as a reference for the regulators in evaluating the effectiveness of current policies or formulating future regulations.

Updated on 30 December 2019 by S.F. Chuah