Cash flow forecast for South African firms

This paper applies models in the extant literature that have been used to forecast operating cash flows to predict the cash flows of South African firms listed on the Johannesburg Stock Exchange. Out-of-sample performance is examined for each model and compared between them. The reported results show that some accrual terms, i.e. depreciation and changes in inventory do not enhance cash flow prediction for the average South African firm in contrast to the reported results of studies in USA and Australia. Inclusion of more explanatory variables does not necessarily improve the models, according to the out-of-sample results. The paper proposes the application of moving average model in panel data, and vector regressive model for multi-period-ahead prediction of cash flows for South Africa firms

The information content of interim financial reports: U.K. evidence

The aim of this study is to investigate whether the public release of interim financial reports in the United Kingdom conveys information that affects share prices. The major objective for reporting the financial affairs of business enterprises is assumed to be the provision of information to help investors make investment decisions. Interim reports fulfil an important role as a source of frequent information regarding the events in the business enterprise which could give investors some indication about the risks and uncertainties attached to a particular firm's cash flows. Accounting data, therefore, is assumed to be part of the broad market information set that is utilised in establishing prices. The study is carried out in the context of a semi-strong form market efficiency since the announcement of interim earnings puts the information in the announcement in the public domain. An efficient securities market impounds price relevant information into prices instantaneously and without bias. Changes in security prices therefore reflect the flow of information to the market information set utilised in establishing prices. The information in interim earnings can therefore be established if security prices change on the public release of the earnings data barring any other price sensitive information at the same time period. The major finding in the study is that interim accounting reports have information contents which affect price activity on the day of release. It is argued that accounting policy makers have incentive to provide economic benefits by recommending the preparation of quarterly reports by firms

Corporate governance, Islamic governance and earnings management in Oman: A new empirical insights from a behavioural theoretical framework

Purpose: This paper examines the impact of corporate (CG) and Islamic (IG) governance mechanisms on corporate earnings management (EM) behaviour in Oman. Design/Methodology/Approach: We employ one of the largest and extensive datasets to-date on CG, IG and EM in any developing country, consisting of a sample of 116 unique Omani listed corporations from 2001 to 2011 (i.e.,1,152 firm-year observations) and a broad CG index containing 72 CG provisions. We also employ a number of robust econometric models that sufficiently account for alternative CG/EM proxies and potential endogeneities. Findings: First, we find that, on average, better-governed corporations tend to engage significantly less in EM than their poorly-governed counterparts. Second, our evidence suggests that corporations that depict greater commitment towards incorporating Islamic religious beliefs and values into their operations through the establishment of an IG committee tend to engage significantly less in EM than their counterparts without such a committee. Finally and by contrast, we do not find any evidence that board size, audit firm size, the presence of a CG committee and board gender diversity have any significant relationship with the extent of EM. Originality: To the best of our knowledge, this is a first empirical attempt at examining the extent to which CG and IG structures may drive EM practices that explicitly seeks to draw new insights from a behavioural theoretical framework (i.e., behavioural theory of corporate boards and governance). Keywords: Corporate governance, Islamic governance, earnings management, behavioural theory, endogeneity, Oman. Paper type: Research pape

Can emerging African Stock Markets improve their informational efficiency by formally harmonising and integrating their operations?

Despite experiencing rapid growth in their number and size, African stock markets remain highly segmented, small, illiquid and technologically bankrupt, severely affecting their informational efficiency. On this basis, with specific focus on the weak-form of the efficient markets hypothesis, we attempt to empirically ascertain whether African stock markets can improve their informational efficiency by formally harmonising and integrating their operations using a new robust non-parametric variance-ratios test in addition to its parametric alternative. On average, we find that irrespective of the diagnostic used, all the 24 African continent-wide indices applied returns’ display better normal distribution properties than those of the 8 individual national stock price indices examined. We record evidence of statistically significant improvements in the informational efficiency of the African continent-wide stock price indices over the individual national stock price indices used irrespective of the test statistic applied. The potential improvement in efficiency to be gained is much higher in economic sectors indices than in size and regional indices. Finally, consistent with prior evidence, (eg., Wright, 2000; Belaire-Franch and Opong, 2005, Ntim, et al., 2007), the results of the Lo and MacKinlay (1988) parametric variance-ratios test are ambiguous. By contrast, the ranks and signs alternative offer consistent results throughout.African stock markets, Integration, Efficiency, Variance-ratios, Ranks and signs

Corporate Boards and Ownership Structure as Antecedents of Corporate Governance Disclosure in Saudi Arabian Publicly Listed Corporations

We investigate whether and to what extent publicly listed corporations voluntarily comply with and disclose recommended good corporate governance (CG) practices, and distinctively examine whether the observed cross-sectional differences in such CG disclosures can be explained by ownership and board mechanisms with specific focus on Saudi Arabia. Our results suggest that corporations with larger boards, a big-four auditor, higher government ownership, a CG committee and higher institutional ownership disclose considerably more than those that are not. By contrast, we find that an increase in block ownership significantly reduces CG disclosure. Our results are generally robust to a number of econometric models that control for different types of disclosure indices, firm-specific characteristics and firm-level fixed-effects. Our results have important implications for policy-makers, practitioners and regulatory authorities, especially those in developing countries across the globe

A Nonparametric Variance-Ratio Test of the Behavior of U.K. Real Estate and Construction Indices

This study utilizes tests based on ranks and signs suggested by Wright (2000), in addition to the traditional variance-ratio test, to examine the behavior of United Kingdom real estate and construction security indices. The results suggest a positive dependence in the index return series and provide a strong rejection of the random walk hypothesis for the two U.K. index series examined in this study. Thus, the efficient market hypothesis (EMH) is not confirmed for these real estate securities indices in the U.K.variance ratio; heteroskedasticity; stock index; random walk; ranks; signsJournal: International Real Estate Review

Board effectiveness and firm performance of Canadian listed firms

An effective board of directors is central to agency theory's prescription to solving the problems of separation of ownership from control in the modern corporation. The shareholders' confidence in the board's ability to fulfil its duties is an important measure of the success or otherwise of this cornerstone of agency theory. The Board Shareholder Confidence Index focuses on the board of directors and is the standard by which Canadian governance best practices are measured. This paper investigates the relationship between board effectiveness and company performance. Using a sample of 699 firm year observations from 2003 to 2009, we find a positive association between the firm's measure of board effectiveness and the firm's contemporaneous and future market measure of performance, Tobin's Q. The results hold across a number of econometric models that control for different types of endogeneities

Corporate boards and ownership structure as antecedents of corporate governance disclosure in Saudi Arabian publicly listed corporations

We investigate whether and to what extent publicly listed corporations voluntarily comply with and disclose recommended good corporate governance (CG) practices, and distinctively examine whether the observed cross-sectional differences in such CG disclosures can be explained by ownership and board mechanisms with specific focus on Saudi Arabia. Our results suggest that corporations with larger boards, a big-four auditor, higher government ownership, a CG committee and higher institutional ownership disclose considerably more than those that are not. By contrast, we find that an increase in block ownership significantly reduces CG disclosure. Our results are generally robust to a number of econometric models that control for different types of disclosure indices, firm-specific characteristics and firm-level fixed-effects. Our results have important implications for policy-makers, practitioners and regulatory authorities, especially those in developing countries across the glob

Corporate governance, affirmative action and firm value: evidence from post-apartheid South African firms

Research Question/Issue: The post-Apartheid South African (SA) corporate governance (CG) model is a unique hybridisation of the traditional Anglo-American and Continental European-Asian CG models, distinctively requiring firms to explicitly comply with a number of affirmative action and stakeholder CG provisions, such as black empowerment and HIV/Aids. This paper examines the association between a broad CG index and firm value in this distinct corporate setting. Research Findings/Insights: Using a sample of 169 post-Apartheid SA firms from 2002 to 2007, we find a significant positive association between a broad CG index and firm value, as proxied by Tobin’s Q. Distinct from prior studies, but consistent with political cost, legitimacy and resource dependence theories, we find that compliance with affirmative action CG provisions impacts positively on firm value. The results are robust across a number of econometric models that control for different types of endogeneity, accounting and market-based firm valuation measures. Theoretical/Academic Implications: The paper contributes to the literature on the association between compliance with codes of good governance and firm value by specifically modelling the relationship within a unique institutional, legal and CG environment. Distinctively, we contribute to the literature by showing how affirmative action and stakeholder CG provisions impact on firm value. Practical/Policy Implications: The results have important policy implications for companies and regulators. They suggest that investors reward firms with better CG practices with higher market valuation, providing support to the efforts by various stakeholders at improving CG standards in SA companies. The results also suggest that SA companies who pay serious attention to complying with affirmative action and stakeholder CG provisions may reap benefits in the form of higher firm value

Can emerging African Stock Markets improve their informational efficiency by formally harmonising and integrating their operations?

Despite experiencing rapid growth in their number and size, African stock markets remain highly segmented, small, illiquid and technologically bankrupt, severely affecting their informational efficiency. On this basis, with specific focus on the weak-form of the efficient markets hypothesis, we attempt to empirically ascertain whether African stock markets can improve their informational efficiency by formally harmonising and integrating their operations using a new robust non-parametric variance-ratios test in addition to its parametric alternative. On average, we find that irrespective of the diagnostic used, all the 24 African continent-wide indices applied returns’ display better normal distribution properties than those of the 8 individual national stock price indices examined. We record evidence of statistically significant improvements in the informational efficiency of the African continent-wide stock price indices over the individual national stock price indices used irrespective of the test statistic applied. The potential improvement in efficiency to be gained is much higher in economic sectors indices than in size and regional indices. Finally, consistent with prior evidence, (eg., Wright, 2000; Belaire-Franch and Opong, 2005, Ntim, et al., 2007), the results of the Lo and MacKinlay (1988) parametric variance-ratios test are ambiguous. By contrast, the ranks and signs alternative offer consistent results throughout