Merger & acquisition in Malaysia: Profitability drivers of short-term wealth and post acquisition operating performance / Nurhazrina Mat Rahim and Associate Professor Dr. Pok Wee Ching

There is high number of announced M&A deals in Malaysia, little is known about the determinants of short-term wealth effects of M&As in emerging market Malaysia, in particular the third M&A wave. The purpose of this paper is to analyze the short-term wealth effects of M&As in Malaysia. In addition, this study also examines the factors that affect the short-term shareholders' wealth during M&A announcements in Malaysia. The short-term wealth effect is measured by the Cumulative Average Abnormal Returns (CAARs). For the purpose of this study, the wealth effects of a sample of 180 target and 196 bidding companies announced in Malaysia during the period from 2001 to 2009 are analyzed. Results of the study revealed that there are positive market reactions by both target and bidding shareholders towards M&A announcements. However, target shareholders earned significantly higher CAARs than bidding shareholders. There is sufficient evidence to suggest that economic condition surrounding merger announcements, type of acquisition (diversified/related), premium paid and status of bid (successful/failed) affect the short-term wealth effects of target and bidding shareholders during M&A announcements. However, the impact on the target and bidding shareholders are different. Relative size negatively affects bidding shareholders wealth. Target with higher ROE also earned significantly higher returns. In addition this paper also examines the operating performance of the same sample of Malaysian companies involved in Mergers & Acquisitions (M&A). However, the samples used in this analysis are only for the period 2004 to 2008. The analysis is based on accounting measures to test the effects of M&As on the corporate performance of companies. It tests two hypotheses: first, whether there have been significant differences in corporate performance following the M&A event. Second, whether the type of acquisition (related or diversified) has an impact on corporate performance. Empirical results revealed that post-acquisition profitability and asset turnover, on average, show no improvement compared with pre-merger values. Similar result is also obtained for D/E ratio where there is no improvement following M&As. However, companies which acquired target in different industries show significant improvement in asset turnover. Thus, operating synergy was created for companies involved in diversified M&As

Analysis of syariah quantitative screening norms among Malaysia syariah-compliant stocks / Pok Wee Ching … [et al.]

The purpose of this study is to investigate whether Malaysian Syariahcompliant quantitative screening adopts criteria, which can be considered more liberal than those used by the DJIM, S&P and FTSE Syariah index providers, and also to assess the financial health of the sample companies. To do these, a sample of 477 Syariah-compliant firms were tested using the financial ratios, namely, liquidity ratio, interest ratio, debt ratio and non-permissible income ratio used by these world-leading index providers. The results showed that fewer companies (12.16%) qualify under the DJIM criteria and even more companies (63.10%) qualify under the FTSE criteria. The reasons for this difference are (1) the use of different formulae to calculate the ratio (2) the use of different thresholds and (3) the different emphases applied by the world index providers. The results of the financial health screen show that the majority of the Syariah-compliant companies are financially healthy

Stock index futures hedging in the emerging Malaysian market

The paper investigates hedging effectiveness of dynamic and constant models in the emerging market of Malaysia where trading information is not readily available and market liquidity is lower compared to the developed equity markets. Using daily data from December 1995 to April 2001 and bivariate GARCH(1,1) and TGARCH models, the paper uses differing variance–covariance structures to obtain hedging ratios. Performance of models is compared in terms of variance reduction and expected utility levels for the full sample period as well as the three sub-periods which encompass the Asian financial crisis and introduction of new capital control measures in Malaysia. Findings show that rankings of the hedging models change for the in-sample period depending on evaluation criteria used. TGARCH based models provide better hedging performance but only in the period of higher information asymmetry following the imposition of capital controls in Malaysia. Overall, despite the structural breaks caused by the Asian financial crisis and new capital control regulations, out of sample hedging performance of dynamic GARCH models in the Malaysian emerging market is as good as the one reported for the highly developed markets in the previous literature. The findings suggest that changes in the composition of market agents caused by large scale retreat of foreign investors following the imposition of capital control regulations do not seem to have any material impact on the volatility characteristics of the Malaysian emerging market

The impact of the introduction of futures contracts on the spot market volatility: the case of Kuala Lumpur Stock Exchange

In investigating the impact of futures trading on spot market volatility, it is not obvious to what extent the results obtained using data from well developed and highly liquid markets are applicable to emerging markets. This paper provides evidence on the impact of the introduction of futures trading on spot market volatility using data from both the underlying and non-underlying stocks in the emerging Malaysian stock market. Results show that the onset of futures trading increases spot market volatility and the flow of information to the spot market. It is found that the underlying stocks respond more to recent news, while the non-underlying stocks respond more to old news. The lead-lag and causal relationship between futures trading activity and spot market volatility is also examined. VAR results show that the impact of the previous day's futures trading activity on volatility is positive but short (only a day). This is further confirmed by Granger's causality test.

The Predictability of KLSE CI Stock Index Futures Returns and The Conditional Multifactor APT Model

Numerous studies have shown that returns on stocks and futures can to some extent be predicted over time, and that for developed financial markets, the predictions are compatible with the beta-asset pricing (APT) paradigm. Increasingly more studies have been undertaken of the veracity of such a paradigm in emerging markets. It has been contended that the paradigm is inapplicable to those markets and will, in any event, be unable to account for predicted asset returns. In this study we consider the Stock Exchange futures market in Malaysia, which has been neglected in the literature. Our econometric findings (using GMM) indicate that the APT model can be used as a rationale for the predictability of asset returns using local information, with the betas’ being constant and the expected risk premia being time-varying.