Current Issue

Capital Markets Review Vol. 31, No. 2, pp. 1-23 (2023)

Negative Social Media Sentiments and Capital Structure

Samuel Jebaraj Benjamin1*; Zhuoan Feng1 & Pallab Kumar Biswas2
1School of Accounting, Finance and Economics, University of Waikato, New Zealand.
2Department of Accountancy & Finance, University of Otago, New Zealand

Abstract: Research Question: Does negative social media sentiments have implications for a firm’s capital structure? Motivation: Little is known about how social media sentiments affect capital structure, despite the fact that previous studies have provided information on the detrimental consequences of negative SMS on firm performance, value, financial hardship, and revenue. However, choosing a capital structure is regarded as one of the crucial choices for every organisation. Idea: This study investigates the role of negative social media sentiments (SMS) in shaping the capital structure of firms; namely leverage, cost of debts, and the term to maturity. Data: We sample the United States Fortune 500 firms between 2010 – 2017. The data for this study is collected from the Infegy Atlas social media database, Thomson Reuters’ Asset4 and Compustat. Method/Tools: The pooled ordinary least squares (OLS) regression with robust standard errors technique and the Propensity score matching (PSM) analysis are deployed. Findings: We first study how negative social media sentiments effects capital structure by examining the level of leverage, cost of debts, and the term to maturity of firms. Our results suggest that firms that receive a significant amount of negative SMS will have a higher leverage, cost of debt and term to maturity. We further offer evidence that shows how Corporate Social Responsibility performance and firm size influence the negative SMS-capital structure nexus. Contributions: This the first stuty to examine the impact of negative SMS on capital structure. Our findings from this research add to the emerging debate on the role of SMS in affecting firm financial outcomes and performances.


Capital Markets Review Vol. 31, No. 2, pp. 23-53 (2023)

COVID-19 Dynamics and Financing of Cash Flow Shortages: Evidence from Firm-Level Survey

Yusuf Adeneye1*; Fathyah Hashim2; Yusuf Babatunde Rahman3 & Normaizatul Akma Saidi1
1Faculty of Hospitality, Tourism and Wellness, Universiti Malaysia Kelantan, Malaysia.
2Graduate School of Business, Universiti Sains Malaysia, Malaysia.
3Faculty of Management Sciences, Lagos State University, Nigeria.

Abstract: Research Question: We seek answers to two pertinent questions: (1) Do COVID-19 dynamics establish new determinants of financing structure following cash flow shortages, if yes, (2) To what extent do COVID-19 dynamics affect firms’ financing sources? Motivation: Firms experiencing cash flow shortages due to the COVID-19 crisis respond either operationally, by making changes to the production process and production lines, or in management and strategy, by making changes to employee job engagement and new technological approaches to delivering goods and services, or financially, through the choice of equity and debt capital and filings of bankruptcy. Idea: This study investigates the effects of Covid-19 dynamics (i.e., productivity shocks, credit agreements, closure strategy, employee welfare, online activity adoption, and economic policy response) on the financing structure of establishments. Data: A unique cross-country firm-level survey data covering 28 countries was obtained from the World Bank Enterprise Survey (WBES). Method/Tools: The study uses the logit regression estimation technique. Findings: Logit regression findings reveal that firms that temporarily close business operations due to COVID-19 took fewer bank loans to finance cash flow shortages. The adoption of online sales and delivery services has significant negative effects on account payables whereas it has positive effects on bank loans. Firms adopting remote work arrangements increase their bank loans. Sales on credit and purchases on credit significantly increase the use of accounts payables. Firms actively involved in the production conversion process used more bank loans and less equity finance. Also, firms that engage temporary workers use more equity finance and accounts payables and fewer bank loans. However, we do not find evidence that firms where workers quit voluntarily change their capital structure. Overall, we find evidence of the “spare tire” effect of the capital market as equity finance (i.e., retained earnings) dominates the financing structure across sampled firms in health crisis periods. Contributions: Our study is among the first to provide new determinants of capital structure following a health crisis.


Capital Markets Review Vol. 31, No. 2, pp. 55-68 (2023)

CSR Performance and Profitability of the Banking Industry in Southeast Asia Nations (ASEAN)

Berto Usman1*; Ridwan Nurazi1; Intan Zoraya1 & Nurna Aziza1
1Faculty of Economics and Business, University of Bengkulu, Indonesia.

Abstract: Research Question: Is non-financial information in CSR reports associated with the banking profitability? Is CSR performance related to profitability of public banks in ASEAN? Motivation: Literature have provided comprehensive empirical findings with respect to the relationship between CSR performance and its economic consequences for companies operating in the Environmentally Sensitive Industries (ESIs). However, little is known when it comes to the context of Non-Environmentally Sensitive Industries (i.e., banks) in ASEAN. Idea: This study aimed to investigate the relationship between CSR performance and profitability in the banking industry of Southeast Asia Nations (ASEAN), which is of interest to practitioners and academics in accounting finance as it relates to driving a company’s value. Data: The study used data from the banking industry of ASEAN (i.e., Indonesia, Malaysia, Singapore, the Philippines, and Thailand). Method/Tools: The study used panel data regression analysis to examine observations from 2011 to 2021. The results showed that CSR performance is not positively related to profitability in the banking industry in ASEAN. This was due to the use of CSR information availability and banks’ CSR performance scores as the main proxies of CSR performance, which were tested against the banking industry’s profitability measured using the market profitability value and the accounting net interest margin. Additionally, the study selected an appropriate model, clustering error standards, and several company-specific attributes as control variables to minimize estimation bias. Findings: The results contravened the proposed hypothesis, necessitating an intellectual discussion and a literature review. This means that CSR practices in the ASEAN banking industry have not met the expectations regarding non-financial information reporting. However, non-financial information reporting is an effort to show the public that the company is operating ethically and sustainably. Additionally, CSR practice is often considered symbolic rather than substantive in the ASEAN banking industry. Contributions: This study is among the first investigating the CSR performance and bank profitability nexus in ASEAN. Thus, it contributes to the new empirical evidence of CSR studies in the Non-Environmentally Sensitive Industry (NESI).


Capital Markets Review Vol. 31, No. 2, pp. 69-87 (2023)

Financial Performance as a Determinant of The Cost of Capital: An Empirical Study on Listed Companies in India

Naseem Ahamed1* & Nitya Nand Tripathi1
1Faculty of Finance and Accounting, ICFAI Business School, Hyderabad, ICFAI Foundation for Higher Education University, India.

Abstract: Research Question: The purpose of this study is to examine the relationship between financial performance and the cost of capital of firms. Motivation: Access to inexpensive capital is a great enabler for firms especially during periods of uncertainty. The cost of capital reflects the investor’s attitude towards risk. The McKinsey Quarterly (in the December 2008) edition, found that the long-term price of risk has increased over time. This motivated us to examine the impact of firms performance on its cost of capital. Idea: The premise forming the bedrock of this study is that access to inexpensive capital would help a firm undertake multiple projects that would otherwise have not been financially feasible. Data: This study takes all non-financial companies listed on the National Stock Exchange (NSE hereafter) of India from 2004 to 2020 from the Prowess database containing more than 12,369 firm-year data points. Method/Tools: Multivariate panel regression model is used for analysis using firm and year fixed effects. We used financial data, board profile and dummies for sector and affiliation of firms. Findings: We found an inverse relationship between asset and cost of capital. This implies the corporate landscape of India is dominated by business groups and they are better placed to raise inexpensive capital than their standalone counterparts. Firms with a high dividend pay-out ratio also enjoy a lower cost of capital. Better corporate governance mechanisms such as board independence help lower the cost of capital. The results are particularly important for policymakers of emerging economies like India. Making policy decisions that would encourage wider retail investors’ participation in markets would go a long way in expanding the available capital pool for commercial enterprises. Contributions: One of the primary contributions of this study is the examination of the relationship between firm performance and cost of capital in the context of an emerging economy that is characterized by the predominance of business groups, concentrated ownership and institutional voids.


Capital Markets Review Vol. 31, No. 2, pp. 89-101 (2023)

The Performance of ESG ETFs in the U.S.

Gerasimos G. Rompotis1*
1Department of Economics, National and Kapodistrian University of Athens, Greece.

Abstract: Research Question: ESG ETFs may serve noble purposes of investors. However, do they help them gain material financial returns? This paper seeks to answer this question by examining the performance and performance persistence of the ESG equity ETFs in the U.S. Motivation: This study has been motivated by the strong interest in ESG investments, and particularly in ESG ETFs. This interest is evidenced by the billions of dollars which are invested in relevant financial products worldwide. Idea: A common belief among many investors is that ESG investing requires a level of sacrifice in terms of financial returns. In this study, we examine the idea of the “waived” financial returns is the case for ESG ETFs. Data: The sample includes 61 ESG equity ETFs traded in the United Sates. The study period spans from 1/1/2019 to 31/12/2021. Method/Tools: Performance and performance persistence is examined with standard methodology, which includes the single-factor market model, the Fama-French-Carhart six-factor model and risk-adjusted metrics, such as the Sharpe and Treynor ratios. Findings: The findings show that, in raw return terms, the average ESG ETF outperforms the S&P 500 Index, even though there are several funds in the sample which do not do so. Moreover, about 16% of the examined ESG ETFs (10 out of 61 ETFs) offer positive and significant alphas. The average term of these significantly positive alphas is 7 bps and are obtained via the multi-factor performance regression model but not via the single-factor model. With respect to persistence, daily returns display a reverting behavior. This pattern applies to weekly returns too, but with less statistical significance. Contributions: Sustainable investing with mutual funds has drown significant interest by researchers. However, ESG ETFs are under-researched. We aim at fulfilling this gap in the literature. In addition, the results obtained are quite encouraging to investors. In some cases, ESG ETFs in the U.S. are found to outperform the market index in some cases. This finding implies that, from a financial perspective, ESG investing is not an a priori lost cause, as it is frequently considered to be.



Updated on 30 September 2023