The impact of microstructure innovations in emerging stock makets: evidence from Mumbai, India

We examine the impact on the Mumbai Stock Exchange of the introduction of screen-based trading (the “BOLT”) on 14 March 1995. We use event study methods to investigate if this reform had positive value using two samples of more liquid and less liquid stocks. We find that the impact was substantial: the average CAR for the more liquid A shares was about 4.5%, while that for the less liquid B shares was around 10%. We examine how far this improvement was associated with improvements in liquidity, efficiency and (reduced) volatility (LEV). We find evidence of increased liquidity and efficiency but more ambiguous results for volatility. A regression approach provides evidence that cross-sectional variations in the CARs can be explained by cross-sectional variations in firm-specific LEV improvements. Overall, the results suggest that the introduction of the BOLT improved the market microstructure for both A and B shares, with the effect on B shares being more marked

How do small firms in developing countries raise capital? Evidence from a large-scale survey of Kenyan micro and small scale enterprises

This paper utilizes a unique comprehensive dataset, drawn from the 1999 baseline survey of some 2000 micro and small-scale enterprises (MSEs) in Kenya. We analyse the financing behaviour of these enterprises within the framework of a heterodox model of debt-equity and gearing decisions. We also study determinants of the success rate of loan applications. Our results emphasize three major findings. First, MSEs in Kenya obtain debt from a wide variety of sources. Second, debt-equity and gearing decisions by MSEs and their success rates in loan applications can all be understood by relatively simple models which include a mixture of conventional and heterodox variables. Third, and in particular, measures of the tangibility of the owner's assets, and the owner's education and training have a significant positive impact on the probability of borrowing and of the gearing level. These findings have important policy implications for policy-makers and entrepreneurs of MSEs in Kenya

Financial Characteristics of Companies Audited by Large Audit Firms

Purpose “ The purpose of this paper is to examine how financial characteristics associated with the choice of a big audit firm with further investigation on the agency costs of free cash flows.Design/methodology/approach “ The sample used for this work includes industrial listed companies from Germany and France. To test our hypothesis, we used a number of logit models, extending the standard model selection audit firm, to include the variables of interest. Following previous work, our dependent dummy variable is Big4 or non-Big4.Findings “ We observed that most independent variables in the German companies show similar results to previous work, but we did not have the same results for the French industry. Moreover, our findings suggest that the total debt and dividends can be an important reason for determining the choice of a large audit firm, reducing agency costs of free cash flows.Research limitations/implications “ This study has some limitations on the measurements of the cost of the audit fees and also generates opportunities for additional searching.Originality/value “ The paper provides only one aspect to explain the relationship between the problems of agency costs of free cash flow and influence in choosing a large auditing firm, which stems from investors\u27 demand for higher quality audits

Capital structure and dividend policy: evidence from emerging markets

This thesis aims to add empirical evidence to the corporate finance literature by looking at two main financing issues, namely firms’ payout policies and capital structure decisions, in the context of emerging markets. The thesis consists of seven chapters, including five main standalone research papers. After an introductory chapter, the first research paper reviews the existing literature on the dividend policy controversy with an emphasis on recent empirical work. The following two chapters consist of two research papers which look separately at the dividend and capital structure decisions of firms in India and in Mauritius. In the second research paper an agency model of dividend policy is estimated and tested on a sample of Indian firms using Weighted Least Squares methodology. The third research paper applies panel data procedures to estimate and test a model of the determinants of leverage, using the entire population of non-financial quoted firms in Mauritius. The last two empirical papers investigate how affiliation with an Indian Business House impacts on the dividend and capital structure decisions of firms. The impact of group-affiliation on the payout decision is tested by Maximum Likelihood qualitative and limited dependent variable techniques. The analysis of the impact of group-affiliation on the capital structure decision is conducted using Ordinary Least Squares methods and incorporates group-level characteristics as explanatory variables. While the main findings of these papers are on the whole consistent with the theory, there are new major insights that represent the special case of emerging markets. These main insights, as well as the main conclusions of the study, are summarised in Chapter 7, including some promising ideas for future research