Exchange Rate Volatility and Nigerian Stock Market Development

Purpose: The study aims to evaluate the impact of exchange rate volatility on the indicators of stock market, such as the returns, capitalization, liquidity, transaction volume, based on the Nigerian evidence.   Theoretical framework: The paper considers extant model of exchange rate-stock market interactions. Because the diversity of the market is important the paper follows suggestions by El-Wassal (2013) to examine variety of stock market indicators in order to offer accurate depiction of how the stock market drives exchange rate volatility.   Design/Methodology/Approach: The study employs a simple static regression model of stock market indicators with autoregressive adjustment component which absorb autocorrelation. The models are tested on annual data (1985-2020).   Findings: The study finds that the exchange rate volatility has negative impact on stock market development - returns, capitalization and volume. The paper reveals further that other correlated controls factors impinge different impacts on the stock market indicators.   Research, Practical & Social implications: One implication of the finding is that the volatility may discourage investors, reduce firm performance, and lead to reduction on the returns of firm shares. Policy makers should put in place growth-inducing infrastructural investments to make the business environment more conducive to attract foreign capital, while also positioning the capital market with several initiatives to increase trading activities.   Originality/Value: The connection between the foreign exchange and financial markets is of policy importance. Although the focus is on the Nigerian markets, the evidence could be extended to other African and global markets, to serve as guide to foreign investors

Monetary Policy and Inflation Control in Nigeria

This paper examines the effectiveness monetary policy as an anti-inflationary measure in Nigeria. in order to explore the relationship between inflation and monetary impulses, the cointegration and error correction methods approach were employed on quarterly time series data spanning from 1980Q1 to 2012Q4. The unit roots test shows that all the variables are differenced stationary. The cointegration test indicates a long-run relationship between inflation and the vector of regressors employed. The estimated result reveals that for the period covered, interest rate, exchange rate, money supply and oil-price are the major causes of inflation in Nigeria. It was also observed that although in the short-run increased in income encourages inflation, proper utilization of the growth would reduce inflation. The Money supply variable shows a significant positive impact on inflation both in short and long runs. This means that Nigerian inflationary situation is driven by monetary impulses. As such, anti-inflationary monetary policy measures, backed-up by some necessary fiscal policies are incumbent for structural and economic stabilization. Keywords: Monetary policy, Inflation and Cointegratio

EVALUATING UNEXPECTED ACCRUALS TO DETECT ACCOUNTING MANIPULATIONS: EVIDENCE FROM EMERGING MARKETS

This paper estimates and tests the power of unexpected accruals models as indicators of earnings misstatement. The models are implemented on a comprehensive sample of listed firms in Africa, with available information from 2006 to 2020. The paper aims to determine the specification-correctness as well as to confirm the most powerful of the models. The findings suggest that the models are well-specified when used on the considered firm-years. All the models are found to be powerful, although the Jones, modified Jones and adapted models are identified as most powerful on the basis of the induced expense (revenue) manipulations. At 5% level, the expense (revenue) manipulation of 6–10% accommodate at least 97% (98%) nulls’ rejections for Jones, modified (Jones) and adapted models, but slightly reduced rejections ranging 95%–98%, at 1% test level. This study offers vital assessment of earnings manipulations in trying to exploit future earnings to grow stock prices

Does Exchange Rates Swings Affect Trade? Evidence from an Emerging Open Economy

The volatility of the exchange rate is commonplace for every open economies. If excessive, it would have severe implications for the country’s international trades. Using the ARDL and cointegration bound tests on quarterly data [2000:Q2–2022:Q3], the study empirically explore how exchange rate volatility and other macroeconomic variables impacts real exports and imports demands for Nigeria. The evidence identify cointegration and the trade’ parsimonious models disclose a negative as well as significant short run effects of the exchange rate volatility. The estimated convergence ECM regressions indicate that exchange rates volatility cause significant decline in real exports and imports in the long run. Under this circumstance, the study supposes measures that will curb fluctuations beyond economic fundamentals. In particular, monetary authority should expand periodic exchange rate intervention to curtail excessive swings. This should be maintained intuitively and regularly appraise to avoid creating any counter-productive response

Financial Statements Fraud of Banks and other Financial Institutions in Nigeria

Purpose: There is evidence that managers engage in opportunistic practice to manipulate reported performance to attract unsuspecting investors. This paper seeks to detect the likelihood of manipulations on the financial reports of financial service firms (banks and other financial institutions) as well as to identify the financial indicators that are the likely predictors of the probability of manipulations in Nigeria.   Theoretical framework: The M-score models, from Beneish (1999), are employed as theoretical basis for the paper. The model use financial ratios computed using accounting data to confirm the probability that firms’ reported earnings are manipulated.   Design/Methodology/Approach: The study uses data from the Nigerian Exchange Group, from 2010 to 2019 to compute M8/M5-scores and classify firms into likely manipulators and unlikely manipulators. In addition, a probit regression model was applied to establish financial ratios that significantly predict the likelihood of FSF amongst the financial firms.   Findings: The results based on M8 (M5)-score indicate that 26.67% (23.33%) of firms likely manipulate financial books and exhibit the possibility of FSF. In addition, only sales in receivable, sales growth, depreciation expenses, leverage and accruals to assets ratios are found to be (positive) significant predictors of the probability of manipulations.   Research, Practical & Social implications: The implication of the outcome is that subjecting financial statements to empirical and statistical scrutiny should not be ignored because it would detect and reduce associated risks to manipulations. Therefore, more regulatory interventions and empirical auditing of reports are needed to ensure their readability and reliability to the investors.   Originality/Value: The study offers a novel and first evidence, based on Beneish M-score, to scrutinise reports of financial firms in Nigeria. The evidence ensures quality reporting of the financial statements in order to credibility as well as protect the integrity of the capital markets

BTC price volatility: Fundamentals versus information

This paper offers a plausible response to “what explains the sporadic volatility in the price of Bitcoin?” We hypothesized that market “fundamentals” and “information demands” are key drivers of Bitcoin’s unpredictable price fluctuation. We adopt the transfer-function [Autoregressive Distributed Lag, ARDL] model and its Bounds testing approach to verify how the volatility of the price of Bitcoin responds to its transaction volume, cryptocurrency market capitalisation, world market equity index and Google search. We found the existence of long-run cointegration relation and observed that all the variables except the equity index positively explain the volatility of Bitcoin price. The result established evidence that market fundamentals drive erratic swing in Bitcoin price than information. Keywords: Bitcoin price volatility Bitcoin market fundamentals information demand ARD

IS THERE EARNINGS DISCONTINUITY AFTER THE IMPLEMENTATION OF IFRS IN NIGERIA?

Earnings metrics are major financial indicators which capital market participants and investors focus on for informed decisions. Because reporting earnings increase may enhance firms’ stock price, many managers are motivated to avoid reporting earnings decreases, but prefer to consistently report increase earnings greater than its previous valuation. There is evidence that such practice has led to a situation of conspicuous upward shift in frequency of observations, starting from the left of identified earnings benchmark to the right. Recent studies have shown that a change in accounting regulation may have effects on the shape of the firm-year distribution of earnings. This paper examines the discontinuity evidence for Nigeria, in relation to the adoption of the international financial reporting standard. The aim is to establish whether discontinuity in earnings, represented by the asset-scaled net profits, as well the discontinuity in earnings-change, has reduced following the adoption. According to literature, the study employs three methods – empirical histogram, standardise differences tests and the permutation tests – to validate the aims. The findings suppose evidence for increase in discontinuity, indicating increased in small profits’ earnings management, after the adoption. Contrary, the evidence is not sufficient to conclude that the discontinuity has increase for the earnings-change. It can be argued that the adoption has not achieve much in ensuring firms are monitored against earnings management to avoid losses. The study has limitation, since it considers only the distributions of earnings and earnings-changes. The distribution of forecast errors is not investigated because such is influence by forecast management. Future studies may consider this for improvement

The Rand, Interest Rate and Intervention by the South African Reserve Bank

Purpose The study has a twofold aim. The first is to assess whether the interventions explain the short-term fluctuations of the exchange rate of the rand and interest rate in South Africa. The second is to confirm whether intervention shocks transmit to the exchange rate and interest rate settings. Methodology Data from 1975 to 2020 was collected from the World Bank\u27s website. The research used the Vector Autoregression (VAR) model to investigate the relationship between interventions, the exchange rate of the rand, and interest rates. FEVD was also employed to examine whether intervention shocks have discernible effects on both the interest rate and the exchange rate of the rand. Findings The evidence identifies that reserve growth positively and significantly influences the exchange rate, indicating that intervention causes the depreciation of the rand. However, the reserve growth has a negative and insignificant impact on the interest rate, indicating that intervention was unable to explain the interest rate set by SARB. The significance of the cumulative effects on the exchange rate is evidence that the interventions explain the short-run stabilization of the exchange rate. Conclusion In conclusion, the findings of this analysis highlight a clear impact of interventions on exchange rates, while concurrently revealing a lack of statistically significant influence on interest rates. This research offers a policy that can inform future policy decisions related to interventions and the broader monetary framework governing the rand exchange rate

RELATIVE EFFICACY OF THE CAPITAL MARKET OVER THE MONEY MARKET IN A GROWTH-FINANCING ECONOMY

This study investigates if the Nigerian capital market is more effective in impacting economic growth compared with the money market. The paper uses a growth model that depend on usual labour and capital, as well as incorporates the money and capital market variables to produce outputs. The study uses data from the Central Bank of Nigerian and Securities and Exchange Commission Bulletins between from 1981 and 2020. The paper finds the existence of a long-run link amidst the money market, capital market and growth. In the short- and long run, the capital market (new issue) shows positive and significant effects on growth, whilst the money market indicator (treasury bills) has a negative and significant effects. The growth elasticity with respect to the new issue of 0.27% is highly significant at 1%. The growth elasticity with respect to the traded shares of 0.06% is significant at 5%. The growth elasticity with respect to treasury bill of 0.08% is only significant at 10%. The positive impact of the capital market was found to outweigh that of money market. This supports the efficiency of capital market over the money market for growth financing. The paper recommends that the government should ensure it extends the on-going market reforms to increase the sophistication of the financial market and make it more globally competitive

Impact of Board Diversity on Financial Reporting Quality: Evidence from Nigeria

PurposeThis study aims to investigate how board diversity affects financial reporting quality by examining the relationship between board size, composition, and independence.MethodologyThe panel data of 32 firms from the Agriculture, Consumer Goods, Industrial Goods, Natural Resources, and Oil and Gas sectors were obtained from two published sources - the Nigerian Exchange Group (NXG) and audited financial statements of the companies from 2012 to 2021. The heteroskedasticity-corrected – the panel corrected standard error approach was used to test the firm-level dataFindingsThe result shows that board size and structure have a negative and significant impact on earnings management, while the impact of board independence is positive but not significant. This indicates that a negative significant influence on earnings management corresponds to improved financial reporting quality, while a positive significant influence corresponds to deteriorated financial reporting quality. Therefore, only board size and board structure are considered as board characteristics that impact financial reporting quality.ConclusionThe study concludes that quality financial reporting is important for participants in the capital markets to make informed decisions. The paper offers regulatory bodies more insights to support direction for support reforms, policy-making, and enforcement.