European Journal of Economics, Finance and Administrative Sciences

Issue 71
January, 2015

Are Italian Co-operative Banks Suffering from Capital Fever? Evidence over the Lending Crisis
5-25
Marco Migliorelli

Abstract:
The decline in bank loans observed during the recent economic crisis in Italy has been attributed by a number of commentators to nothing more than the usual decline in the loan demand that occurs in a recession. This paper finds evidence that a capital crunchoccurred in theco-operative banking segmentin Italy in 2013, shedding some light on the presence of significant supply-side factors on lending retrenchment. Co-operative banks succeeded for years in supporting business and households despite the economic downturn, playing an important role in the economy in smoothing the effects of the crisis. Nevertheless, the persistent economic depression in Italy seems to have eventually weakened their capitalization and pushed them to cut-back lending in order to restore safer capital-to-asset positions.In addition to theseempirical findings, the paper adds tothe consolidated literature by introducing the notion of Capital fever, defined asthe condition of the market in which the likelihood of a systemic-wise alteration of the lending capacity of the banks due to a generalizedshortfall in banks’ capitalization is not negligible. By discussing the recent difficulties of the banking system to finance businesses and households, the paper contributes to the ongoing debates on the opportunity of evolving the traditional co-operative banks’ business model and on the necessity of introducing instruments able to disintermediate the established banking channel.
Keywords: Co-operative banks, Lending, Credit crunch, Capital crunch, Capital fever
JEL Classification codes: G21, E51

The Effect of CEO Power on the Informativeness of Stock Prices
26-31
Pradit Withisuphakorn and Pornsit Jiraporn

Abstract:
Motivated by agency theory, we explore how powerful CEOs influence the extent of stock price informativeness. Using idiosyncratic volatility to measure stock price informativeness, we find that firms with more powerful CEOs experience a more opaque information environment. This is consistent with the notion that more powerful CEOs tend to be more entrenched and are more likely to take actions that do not maximize shareholders’ wealth. To conceal their opportunistic actions, they are less likely to disclose information, resulting in more information asymmetry and therefore lower stock price informativenesss. Our additional results based on propensity score matching also confirm the conclusion.
Keywords: CEO power, stock price informativeness, information asymmetry, agency theory, agency conflict
JEL Classification codes: G32, G34

Free Cash Flow, Governance, and Financial Policy: Interactions and Efficiency of Governance Mechanisms
32-51
Hamdouni Amina

Abstract:
Question/Issue: This paper investigates the governance implications of firm’s debt, ownership structure and board structure and the substitutability or the complementarity of these three mechanisms in controlling the free cash flow agency problem.
Research Findings/Insights: Based on a sample of 99 Saudi firms with a total of 396 firm year observations for the period ranging from 2007 to 2010, we estimate three stage least square simultaneous model.The finding results suggest: (1) Debt and ownership concentration attenuate the free cash flow problem. (2) Board structure has no significant influence on the free cash flow problem. (3) Debt and ownership concentration act as substitutes in attenuating a firm’s free cash flow problem but this substitution effect is not significant. (4) Debt and proportion of nonexecutive directors act as substitutes in attenuating a firm’s free cash flow problem and this substitution effect is significant. (5) Failure to incorporate the substitutability and endogeneity leads to underestimates of the implication of the disciplinary role of both mechanisms.
Theoretical/Academic Implications: This study provides empirical support for the governance implications of firm’s debt, ownership structure and board structure and the substitutability or the complementarity of these three mechanisms in controlling the free cash flow agency problem at the national. As such, it suggests new avenues of research for both the comparative corporate governance literature, as well as for the substitutability or the complementarity of these three mechanisms in controlling the free cash flow agency.
Practitioner/Policy Implications: This study offers insights to directors, stakeholders interested in enhancing the efficiency of corporate governance mechanisms and in reducing free cash flow problem. In addition, it provides a new response for possible substitutability of corporate governance mechanisms.
Keywords: Corporate Governance, Free Cash Flow, Debt Policy, Ownership Structure, Board Structure.

Patriotism in Nation-Building: A Study of Brigadier-General Benjamin Adekunle, also Known as the Black Scorpion
52-67
Dare Ojo, Omonijo, OlumuyiwaAkinrole, Oludayo, Godwin Aturuchi, Eche andOnyekwere Oliver Chizaram, Uche

Abstract:
This article used data from descriptive background to examine the person of late Brigadier-General Benjamin Adekunle, the icon of the Nigerian civil war on the subject of patriotism in nation-building. Also, it delvedinto his life history. The study equally explored his unbeatable military strategies that granted victory to Nigeria during the civil war. Further to that, the study examined various criticisms levied against him on humanitarian grounds, mostly by the secessionists, using some of the existing literature on patriotism and on nation-building. The study concluded that The Back Scorpionwasnot a wicked person but a patriot par excellence.
Keywords: patriotism, nation-building, late Brigadier-General Benjamin Adekunle.

Estimating Bank Efficiency using a Bootstrapping Malmquist Indices
68-79
Bannour Boutheina, Labidi Moez and Lamouchi Ali

Abstract:
We conduct a consistent bootstrap estimation method for Malmquist indices of productivity and their decompositions. We assume constant returns to scale (Fare et al., 1992) and estimate distance functions to construct estimates of efficiency, technology and productivity change. We are therefore able to draw robust conclusions about estimate Malmquist indices that are significantly different from unity at the 0.10 and 0.05 levels.
Keywords: DEA; Bootstrap; Malmquist indices; Resampling; Productivity.

Factors Influencing Investment Decisions in Capital Market: A Study of Individual Investor in Bangladesh
80-96
Tania Afroze, S.M. Zahidur Rahman, Jannatul Ferdous Bristy and Farhana Parvin

Abstract:
This study is intended to identify the factors influencing individual investor’s choice in stock market of Bangladesh. It also attempted to compare the identified factors in terms of investor’s demographic factors like gender, age, occupation, monthly income and educational level. The area of this study is Khulna city. Research involved survey methodology with a structured, close-ended questionnaire having twenty-five questions under five variables (firm’s image, accounting information, reliability, expert advice, investors’ action against specific issues) measured on Likert scale. Convenience sampling method has been applied. A total of 116 questionnaires has been distributed but 100 valid questionnaires were found. For data analysis purposes descriptive statistics, independent sample t-test and one-way ANOVA have been applied. Reliability of instrument has been judged by applying cronbach’s alpha that has a score of 0.756 representing reliable instrument. The study found that accounting information is the mostly important factor that the investors consider during their decision making and reliability of information about the firm is the least important factor. Moreover, it found some factors to vary with respect to the demographic factors of the respondents while others do not vary.
Keywords: Investors, Investment Decision, Demographic Factors, Bangladesh.
JEL Codes: G02, G11, G19


A VAR Approach on the Financial Market Development in China
97-105
Marco Mele and Angelo Quarto

Abstract:
In this paper we investigated the causal relationship between FDI, exchange rate and financial market development using monthly data from China. In particular, we want determine whether there existed any significant causal nexus was from FDI exchange rate to financial market development or the other way round in China utilizing a VAR approach.
The results indicated that FDI explain nearby 36% of variation of SSE, and FDI depicts positive relationship with financial market development; while Exchange rate variation (RMB), although it also showed a positive relationship with Shanghai Stock Exchange Composite Index time series dataset, the magnitude of the effect is rather small.
Keywords: Financial market development; FDI; exchange rate; VAR; China.
JEL Codes: C32, F36, G15.

Remittances, Economic Growth, Exchange Rate Regime: The Case of Morocco
106-123
Olga Marzovilla and Marco Mele

Abstract:
This paper examines the effects of remittances on the Moroccan economic growth and their implications for economic policy choices, with particular attention to those relating to the exchange rate regime. In order to verify the link between remittances and development in Morocco, the study employs a VAR approach and variance decompositions analysis. Its result is that, for Morocco, the remittances have been a fundamental engine of economic growth, pro-cyclic and constant in time. This conclusion implies that the role of remittances in the Moroccan economic development must be ever present in economic policy decisions and, especially, in the exchange rate policy. In the opinion of authors, for a country, such as Morocco, characterized by strong migration outflows, directed mainly towards euro area, and by significant remittance inflows in the currency of the same area, the best exchange rate system is a basket peg, whose composition reflects not only the direction of trade and financial flows, but also those of migration flows and remittances.
Keywords: Morocco, economic growth, economic cycle, remittances, exchange rate system, basket peg, VAR.
JEL Classification: C3, 01, F3, F22

A Survey on Natural Persons and Corporate Person-hoods’ Investment Behavior in Tehran Stock Exchange, in Time of Sanctions (With Concentration on Strategic Investment in Uncertainty)
124-135
Ardalan Sameti, Hamidreza Khalili and Bahman Saedyan Rad

Abstract:
In recent years, Iran has been subject to severe international sanctions. Sanctions have caused additional ambiguity and uncertainty that can change investor behavior. The extant research considers recent scientific strategic investment theories in uncertainty, and considers how investors use this method in current conditions of Tehran stock exchange, in order to determine how much these theories are applied in investment decisions. It is noteworthy that studying recent scientific research on strategic investment in uncertainty reveals that prospect theory; cumulative prospect theory, real option theory, and behavioral finance (which are psychologically and behaviorally correlated to one another) are considered as basics of new strategic investment in uncertainty. In the present research, Spearman and linear regression are used for analyzing the research hypotheses. A single sample t test is used to describe investors’ behaviors, and independent two-sample t test is used to compare natural persons’ society and corporate personhoods’ society. Despite the research results indicating that investors find the investing environment replete with uncertainties, the impact of the uncertainty on investors’ approach to learning and applying new strategic investment methods, while controlling for behavioral biases, is not proven. Keywords: Strategic Investment, Uncertainty, Prospect Theory, Cumulative Prospect Theory, Real Option Theory, Behavioral Finance, Behavioral Biases
JEL Classification: G02

Managerial Ability and Bond Credit Ratings
136-148
Thanachai Bunsaisup, Pattanaporn Chatjuthamard and Pornsit Jiraporn

Abstract:
This paper examines the relation between managerial ability and bond credit ratings, using the managerial ability, MA_SCORE developed by Demerjian et al. (2012). The empirical results reveal that the impact of managerial ability on bond credit ratings is non-monotonic. In particular, in the region of less managerial ability, an increase in managerial ability results in higher bond credit ratings, implying that the CEO tends to be risk averse, cares about his reputation, and is less likely to act against the bondholders. However, when managerial ability reaches a certain point, any further increase is associated with lower bond credit ratings. The CEO in this region of managerial ability is less likely to have to compromise with directors or other decision makers in the firm and may find his way for perquisite consumption or overcompensation. We estimate that the CEO has to have managerial ability at least 25th percentile before the CEO is less likely to compromise with other directors and may make decisions for himself. We also show that the results are unlikely vulnerable to endogeneity.
Keywords: managerial ability, bond credit ratings, cost of bond financing, MA_SCORE
JEL Classification Codes: G32, G34, G38

Development of Processes of Quality Management System in the Engineering Enterprise
149-157
Zabit Aslanov

Abstract:
The purpose of this paper is to design the process of quality management at the engineering enterprises of Azerbaijan. On the basis of previous works, author proposes the procedure for definition of management processes by production quality according to ISO 9001:2001. Also the article describes the ways of establishment of integrated systems of quality management with business orientation. It is concluded that in search of optimal solutions in the quality management system, in the evaluation of stakeholders’ satisfaction with engineering production quality, the theory of inaccurate sets can be applied. Further research may be appointed in order to develop methods for modeling and optimization in the process of manufacturing engineering products, as well as the use of software systems. This paper provides new evidence about a still unexplored topic, trying to bridge the existing gap in the literature about the quality management system and its implementation at the Azerbaijan enterprises.
Keywords: Business management, Quality control, Mechanical engineering, System analysis
JEL Classification Codes: M110, L620