Revisiting capital structure theory : a test of pecking order and static order trade-of model from Malaysian capital market

This study revisits the capital structure theory and test Pecking Order Hypothesis (POH) and Static Order Trade-off theory (STOT) using Malaysian Listed firms over a period from 1999 to 2002. The evidence from pecking order model suggests that the internal fund deficiency is the most important determinant that possibly explains the issuance of new debt in Malaysian capital market despite the lower predicting power.  While static trade off-model is not fit to explain the issuance of new debt issue in Malaysian capital market. This is an interesting findings that confirm the fact that Malaysian firms do not too much care about tax-shield benefit derive from employ both debt and non-debt tax-shield. The finn's size, which is used to neutralize the size effect, appears to provide some explanation for the variation in its capital structure policy choice; however asset structure and growth no evidence of static-order-trade-off is observed in Malaysian capital market.

External monitoring, managerial ownership and form performance in Malaysian capital market: a GMM based panel data approach

This study re-examines whether the structure of share ownership by both directors and institutional ownership provides explanation for firm performances. These relationships are modelled and estimated using GMM based dynamic panel data over a period from 1997 to 2001 with a sample of 100 CI components companies listed on Main Board of Malaysia. The findings provide strong evidence of simultaneity between firm performance and managerial ownership. Although an insignificant relationship between firm performance and institutional ownership is~ observed, the institutional holdings provide strong substitute for managerial ownership with a strong negative relationship between managerial ownership and institutional ownership. This is in line with the managerial incentive hypothesis, which suggests that manager's share in the firm's ownership leads to better performance and the monitoring substitute hypothesis, which suggests that managerial ownership could be effectively replaced by institutional ownership.

Asymmetric recognition of good and bad news at Malaysian capital market : a pre and crisis analysis

The aim of this paper is to analyze the asymmetric recognition of good and bad news on reported earnings of Malaysian-listed firms. The study uses both descriptive and regression analyses to ascertain whether there is a contemporaneous relationship between news (good and bad) and reported earnings. The analysis is based on a sample of 150 firms listed on the Bursa Malaysia Index over a period of 10 years, from 1990 to 2000. Two regression models were adopted based on Basu (1997) and Giner and Rees (2001). The first model aims to capture asymmetric recognition of good and bad news into reported earnings while the latter model is developed to capture both asymmetric recognition of information shock and permanent earnings effect on contemporaneous earnings. The evidence from this study reported the steady increase in earnings per share till 1997. However, a drastic decline was observed for the period 1997 to 1999 because of Asian financial crisis. The findings from the regression model one suggested that the asymmetric recognition of good news was more prominent during the good time compare to bad time and vice versa. The findings from model two also suggested that autoregressive effect of permanent effect was very prominent both for crisis and non crisis periods.

Reviving the role of regulators in Bangladesh capital market

The capital market is visualised as a tool for economic development through mobilisation of scattered resources and their allocation to appropriate areas. The liquidity, solvency and efficiency of the economic system of a country can be better accomplished by capital market, when the banks and financial institutions of the country are reluctant to provide long-term and medium term resources for industrialisation and privatisation.

Banks have been traditionally major sources of all types of credits particularly industrial credits. Not only the banks these days are restricted to finance long-term credits due to short-term nature of the deposit- base of these banks, but also are struggling to overcome their liquidity problems. On the other hand, the development of financial institutions, the traditional suppliers of the long-term funds for private industry, is lying dormant due to the problems of profitability, liquidity and solvency of these institutions. Under this circumstances, the capital market beckons as the only major source of finance for industrialisation and privatisation. But the existing state of the capital market is hardly in a position to play as the mobiliser of resources for economic development.

Therefore, the country`s capital market needs structural change as well as proper regulation which are likely to improve the confidence of investors-both local and foreign and to boost the functions of capital market as well. The major regulators in Bangladesh capital market are Securities and Exchange Commission (SEC), Stock Exchanges, Registrar of Joint Stock Companies (RJSC) and ICB. In addition, the government has recently given permission to set up merchant banks to provide their support towards the growth, development and consolidation of capital market.

Conglomerate structure and capital market timing

We examine the effects of keiretsu structure on capital market-timing. Keiretsu groups offer a hybrid structure between fully integrated conglomerates and stand-alone firms. We find that past market conditions affect the capital structure of keiretsu firms more than they affect the capital structure of unaffiliated firms. The decision to issue equity is more correlated with market conditions for keiretsu members than it is for unaffiliated firms. The stock returns of keiretsu firms following the issuance of equity decrease with the size of the issuance. These results suggest that keiretsu members time the issuance of equity more so than stand-alone firms.

Market capitalization of Australian stock exchange (ASX) listed biotechnology companies

Comments on the market capitalization of Australian Stock Exchange listed biotechnology companies. Background on the Australian biotechnology stock market; Factors which determine the levels of risks; Points to consider when valuing Australian biotechnology companies.

National and international financial reporting standard convergence and the relevance for non-participants in capital markets : a preparer perspective

This study presents some implications of recent policy moves to enhance the harmonization of financial reporting and disclosure by adopting international financial reporting standards. In particular the impact on small organizations that do not participate in capital markets is considered. The results of a survey of practitioners indicate a perception that the non-capital market sector is likely to be significantly affected by additional reporting burden that convergence with international financial reporting standards imposes. On the whole the results show there was concern that the traditional users of the financial reports of organizations who do not participate in capital markets, would have limited if any, use for financial reports that conformed to international financial reporting standards, The results of this study have implications for nations such as Malaysia and New Zealand, which are currently engaging in the differential reporting debate.

Low-frequency volatility of yen interest rate swap market in relation to macroeconomic risk

Using ‘low-frequency’ volatility extracted from aggregate volatility shocks in interest rate swap (hereafter, IRS) market, this paper investigates whether Japanese yen IRS volatility can be explained by macroeconomic risks. The analysis suggests that this low-frequency yen IRS volatility has strong and positive association with most of the macroeconomic risk proxies (e.g., volatility of consumer price index, industrial production volatility, foreign exchange volatility, slope of the term structure and money supply) with the exception of the unemployment rate, which is negatively related to IRS volatility. This finding is fairly consistent with the argument that the greater the macroeconomic risk the greater is the use of derivative instruments to hedge or speculate. The relationship between the macroeconomic risks and IRS volatility varies slightly across the different swap maturities but is robust to alternative volatility specifications. This linkage between swap market and macroeconomy has practical implications since market makers and hedgers use the swap rate as benchmark for pricing long-term interest rates, corporate bonds and various other securities.

Institutional Ownership, Audit Committee and Risk Disclosure – Evidence from Australian Stock Market

This study investigates the influence of institutional ownership and audit committees corporate risk disclosures. Focusing on analysing firms’ risk disclosures make in their 2009 annual reports, our sample constitutes a sample of 66 Australian listed firms. We divide institutional shareholders into dedicated-type institutional block shareholders and transient-type institutional block shareholders. We find that while there is no significant relationship between dedicated-type institutional block shareholders and risk disclosure, there is a positive relationship between transient-type institutional block shareholders and risk disclosures. Our result is consistent with a principal that wields limited monitoring resources while achieving high resource dependency over management. We also find a significant and positive relationship between audit committee independence and risk disclosures, showing the positive role played by audit committee in improving the information transparency and reducing information asymmetry in capital market.

The importance of audit committees in initial public offerings

This paper follows Balvers, McDonald and Miller (1988), and Beatty (1989), who find lower underpricing in Initial Public Offerings (IPOs) when prestigious auditors are used to attest to the IPO's financial statements. Australian IPOs are not obliged to nominate audit firms in the prospectus, but often identify that they will have audit committees so as to assist in more appropriate corporate governance. This paper analyzes if IPOs identifying the existence of audit committees in the prospectus have a lower underpricing return. While our findings are consistent with previous studies concluding that both the size of the new issue and the use of an underwriter are important ingredients in the level of underpricing return, the inclusion of an audit committee in the prospectuses has actually increased underpricing returns. The capital market may view the audit committee identification with some skepticism.

The gender composition of boards after an IPO

Purpose - The purpose of this paper is to empirically analyse the change in the gender composition of the boards of large Australian companies, after listing.
Design/methodology/approach - This study investigates the gender composition of the boards of large Australian companies at the time of the initial public offering (IPO) and subsequently as these companies mature into established public companies. It also investigates industry influences and organizational size influences on the board composition at the time of the IPO and subsequently.
Findings - No significant change is found in the proportion of male and female directors holding directorships at the time of the IPO and some five to eight years later when the company is recorded as a top 500 company (by market capitalization) on the Australian lists. This implies that the capital market is generally satisfied by the gender composition of boards from the time of the IPO.
Originality/value - This paper extends on previous work which provides evidence of a relatively low proportion of female directors on the boards of Australian initial public offerings.

Board composition changes after an initial public offering

This paper follows Luoma and Goodstein (1999) who find increased stakeholder representation on the boards of U.S. companies. This study describes the changes in board composition by director type (stakeholder or shareholder) and by gender (male or female) of large Australian companies after listing. We find a substantial increase in the number of directors holding shares in the firms in which they hold their directorships and that essentially
directors putting their own capital at risk is an important element in the Australian capital market. We also report a slight decrease in the proportion of female directors post listing.