The Capital Markets Review (CMR) was formerly published by the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia) and the Research Institute of Investment Analysts Malaysia (RIIAM). Beginning 2004, the Malaysian Finance Association (MFA) has been given the privilege to take over the publication of CMR and MFA is now the official publisher of CMR. ISSN 1823-4445 eISSN 2805-430X Established 2004 Frequency Biannually Instruction for Authors Submit Paper Now!
Kuala Lumpur Stock Exchange (now known as Bursa Malaysia) and the Research Institute of Investment Analysts Malaysia (RIIAM)
Empirical Models of Sovereign Credit Ratings: A Critical Systematic Review and Future Research Directions
Research Question: What are the prevailing modelling approaches, determinants, and limitations in empirical sovereign credit rating models? Motivation: Sovereign credit ratings occupy a central position in capital markets, both as a transmission mechanism through which sovereign credit risk is reflected in bond yields and other financial asset prices, and as an institutional input embedded within investment mandates and risk management frameworks. This dual role has generated an expanding body of empirical research, warranting a structured synthesis to reconcile modelling approaches and assess their limitations. Idea: This paper undertakes a critical, structured review of the empirical sovereign credit rating literature, with the objective of synthesising existing research, clarifying prevailing modelling conventions, and identifying methodological and empirical gaps. Data: The analysis draws on the existing body of empirical studies on sovereign credit ratings, spanning multiple countries, time periods, and data constructions documented in the academic literature. Method/Tools: A structured taxonomic framework is applied to classify prior studies along key dimensions, including modelling methodologies, the composition of explanatory variables, and sample characteristics. Findings: The classification reveals clear regularities alongside systematic gaps. First, the literature exhibits a pronounced reliance on conventional regression-based approaches, while alternative methodologies, including dimension reduction techniques and artificial intelligence methods, remain comparatively underutilised despite evidence of their ability to capture latent structures and enhance predictive performance. Second, most studies rely on broad pooled samples of sovereigns, with limited stratification by economic development, credit quality, or geographic scope, even though model estimates are sensitive to sample composition. Third, there is a structural imbalance in variable selection, with a dominant emphasis on macroeconomic fundamentals, while financial market indicators, particularly fixed income variables, receive comparatively limited attention despite their direct relevance to sovereign credit risk. Contributions: The paper provides a structured synthesis that enhances comparability across studies and clarifies points of convergence and divergence in existing findings. It also outlines a forward-looking research agenda, emphasising the need for more granular sample construction, broader adoption of alternative modelling techniques, and deeper integration of financial market variables to strengthen the explanatory and contextual validity of sovereign credit rating models.
Copyright (c) 2026 Capital Markets Review https://creativecommons.org/licenses/by-nc/4.0
Exploring ESG Performance and Executive Pay Structures in Malaysia: Evidence from Listed Companies
Research Question: This study examines the relationship between Environmental, Social and Governance (ESG) performance and executive pay structures in Main Market among Malaysian listed companies span from 2023 to 2025. Motivation: As global corporate governance trends increasingly emphasize sustainability, integrating ESG criteria into executive pay structures has gained substantial attention. This aligned with the Bursa Malaysia Board Remuneration Policy introduced in April 2025 recently. However, the extent to which Malaysian listed companies align executive remuneration with ESG performance remains unclear. Idea: The research aims to assess the prevalence, determinants and impact of ESG-linked compensation, offering empirical insights into corporate governance practices among Malaysian listed companies. Data: A quantitative approach was employed, utilizing secondary data from publicly available financial reports and ESG disclosures of Bursa Malaysia Main Market firms for the year 2023 to 2025. Using LSEG Workspace data, a sample of 296 Main Market was analyzed. Panel data regression analysis has also been conducted to estimate the relationship between ESG performance and executive pay structures. Method/Tools: The study applied regression models to examine the correlation between compensation policy, ESG scores, financial performance indicators and executive pay structures span from 2023 to 2025. The research framework is grounded in agency theory and stakeholder theory, providing insights into how firms balance managerial incentives with both shareholder and stakeholder interests. Findings: The results indicate that ESG performance partially contribute to the executive pay structures, suggesting that ESG-linked pay structures are not yet widely adopted in Malaysia. However, firms with structured executive compensation tend to offer significantly higher executive pay, underscoring the role of corporate governance frameworks in shaping remuneration practices. Contributions: The study provides partial support for the hypothesis that ESG performance affects executive compensation and encourages further exploration in this area. A key limitation is the absence of qualitative insights into leadership commitment toward ESG adoption. Future research should examine industry-specific variations and incorporate qualitative assessments to develop a more comprehensive understanding of ESG-linked executive compensation. Overall, this study contributes to the corporate governance discourse by emphasizing the need for stronger regulatory frameworks to enhance ESG integration into executive remuneration score.
Credit Deepening: A Cross-Country Variations in the Dual Banking System
Research Question: This study explores the shared goal of Islamic and conventional banks across 20 countries in achieving credit deepening for sustained business success. Accordingly, it asks: what are the key bank-specific determinants of credit deepening in dual banking systems across different countries, and how do these determinants vary between Islamic and conventional banks across the credit growth distribution? Motivation: Credit deepening is central to banking activities, yet its role in fostering economic growth or increasing financial fragility remains debated. While conventional and Islamic banks share the same goal of expanding credit, they differ in operational principles, capital structures, and risk appetites. Prior studies have mainly focused on linear relationships and single-country settings, thereby overlooking heterogeneity across countries and bank types. This study addresses these gaps by employing a non-linear quantile approach to capture variations in determinants across the credit deepening distribution. Idea: This research aims to uncover the main determinants of credit deepening for Islamic and conventional banks, while accounting for geographical location and temporal distributions. Data: The study examines commercial banking institutions across 20 Asia Pacific countries operating under dual-banking systems, comprising both Islamic and conventional banks. The final sample consists of 558 banks, yielding 2,618 observations over a 10-year period (2011–2020), subject to data availability. All annual data were sourced from the FitchConnect database. Method/Tools: The study utilizes non-linear quantile regression with a moment approach to address data heterogeneity and normality concerns. The study examines the impact of geographical location, banks’ specialization, and size differences on credit deepening. Employing a robust Quantile Regression via Moment model mitigates potential endogeneity and non-normality issues. Findings: Quantile analysis reveals distinct relationships and magnitudes of banks’ liquidity and size in influencing credit deepening. Contributions: The findings offer insights for policymakers to formulate relevant strategies, fostering stronger credit deepening for banks across diverse countries. The study contributes by (1) introducing a quantile-based framework for analyzing credit deepening in dual banking systems, (2) revealing threshold effects and non-linearities in the determinants of credit growth, and (3) providing bank-type-specific policy recommendations to enhance sustainable credit expansion.
Bibliometric Analysis of Bankruptcy Prediction in Financial Institutions: Themes, Evidence, and a Future Research Agenda
Research Question: What are the dominant themes and methodological gaps revealed through co-word and bibliographic coupling analyses of Bankruptcy Prediction in Financial Institutions? Motivation: Starting from the need for an accurate and auditable early warning system in financial institutions, this study maps the bankruptcy prediction research landscape through a Web of Science-based bibliometric analysis (1970-2025) and VOSviewer visualization. Idea: This article combines performance analysis (publications, citations, and h-index) with science mapping (bibliographic coupling and co-word analysis) to explore intellectual foundations, research frontiers, and methodological gaps. Data: Publication record from 1970 to 2025 in Web of Science with a total of 2,410 articles. Method/Tools: The methods start by defining the scope of the topic (Bankruptcy Prediction in Financial Institutions) and the time horizon (1970-2025). The list of keywords is compiled iteratively by combining key terms and their synonyms. Boolean operators and wildcards are used to expand/detail the outcome. This study implemented the co-word and bibliographic coupling analyses using VOSviewer. Findings: The results show 2,410 publications, 42,247 citations, and an h-index of 89; output and impact have increased sharply since 2015, indicating an acceleration of interest in this topic. Four main clusters are identified: (1) Machine Learning (ML) ensembles for credit risk & bankruptcy, (2) sovereign-bank nexus, capital, and credit risk systems, (3) capital risk, governance & bank failure prediction, and (4) network-based systemic risk & tail-connectedness. The analysis also reveals divergent findings between conventional logit models and ML algorithms, the importance of addressing class imbalance, the need for temporal (out-of-time) validation, and feature selection contextualized to regulatory and systemic dynamics in the financial sector. Contributions: This study presents a concise taxonomy of methods and proposes a research agenda to address identified gaps and promote more accurate, transparent, and testable models across market regimes. This study provides a compass map for designing research that is both relevant and replicable.
MEASURING ISLAMIC FINANCIAL INCLUSION AND ITS ROLE IN PROMOTING ECONOMIC GROWTH: THE CASE OF MALAYSIA
Research Question: What is the dynamic relationship between Islamic financial inclusion, trade openness, foreign direct investment (FDI), inflation, and economic growth in Malaysia? Motivation: This study is motivated by the growing importance of inclusive and ethical financial systems in supporting sustainable economic growth in Islamic emerging economies, particularly Malaysia, where empirical evidence on the macroeconomic role of Islamic financial inclusion remains limited. Idea: The study develops a composite index of Islamic financial inclusion and examines its dynamic relationship with economic growth alongside trade openness, FDI, and inflation, capturing both long-run equilibrium relationships and short-run adjustment dynamics, including the impact of the COVID-19 shock. Data: The analysis uses annual Malaysian data covering the period 2013–2022. Method/Tools: The Augmented Autoregressive Distributed Lag (ARDL) bounds testing approach is employed, with Augmented Dickey–Fuller (ADF) tests confirming a mixed order of integration and justifying the ARDL framework. Findings: The augmented bounds test provides strong evidence of a long-run cointegrating relationship among the variables; long-run estimates reveal that Islamic financial inclusion has a positive and statistically significant effect on economic growth, while trade openness also promotes long-term growth, whereas FDI exhibits a negative long-run impact and inflation is insignificant. In the short run, the error correction term is negative and significant, indicating rapid adjustment toward equilibrium; Islamic financial inclusion continues to exert a strong positive contemporaneous effect, trade openness shows a negative short-run impact likely reflecting adjustment costs, FDI contributes positively to growth, and the COVID-19 dummy variable confirms a significant contractionary effect on GDP. Contributions: This study contributes to the literature by constructing a composite Islamic financial inclusion index and providing robust empirical evidence on its pivotal role in enhancing macroeconomic stability and growth in Malaysia, while offering nuanced insights into short-run and long-run trade-offs associated with external openness and capital flows, with important policy implications for designing resilient, inclusive, and sustainable growth strategies in Islamic emerging economies.
The announcement of the tariff on 2 April will undoubtedly mark a historic milestone for international monetary systems. This date could ultimately alter the dollar’s established status as the world’s primary reserve currency. Trump’s announcement of tariffs triggered significant shocks in global markets, which unfolded in two distinct phases. The initial stage involved a wide range of panic-driven selling across both financial and non-financial asset classes. Market professionals often describe this behaviour as a “flight to safety” during periods of uncertainty. Initially, US Treasury yields tumbled as investors sought refuge from market volatility. In the first two days after the tariff announcement, the 10-year Treasury bond yield fell significantly. Yields decreased from 4.2% to 3.9% as equity investors swiftly shifted capital into traditionally safe-haven assets.
Copyright (c) 2025 Capital Markets Review https://creativecommons.org/licenses/by-nc/4.0
Sentiment Analysis and Machine Learning-Based Stock Prediction for 10 KLSE Index Stocks
Abstract:Research Question: How can the integration of localized investor sentiment from social media with historical stock data enhance the predictive accuracy of machine learning models for Kuala Lumpur Stock Exchange (KLSE) index stocks? Motivation: This study introduces novelty by utilizing a localized sentiment dataset extracted from the KLSE Screener, a platform specific to Malaysian investors. This approach better reflects regional investor behavior, language diversity, and local market dynamics compared to global datasets, offering a more contextualized analysis of the Malaysian financial ecosystem. Idea: The core idea is to develop a hybrid prediction model that integrates historical stock data with quantified investor sentiment scores. The central hypothesis is that this integration will yield superior forecasting performance compared to models using historical data alone. The dependent variable is the stock’s closing price, and key independent variables include the historical price features and the sentiment score. Data: Ten years of historical price data were analyzed for the top KLSE stocks. This was combined with one year of investor comments scraped from the KLSE Screener. Sentiment was measured using the Valence Aware Dictionary and Sentiment Reasoner (VADER) lexicon tool. Method/Tools: After preprocessing and normalizing the data, six machine learning models implemented and compared. Model performance was evaluated using several performance indicators. Findings: XGBoost emerged as the best-performing model, MSE=0.0001 and R²=0.99998, effectively capturing complex patterns between price and sentiment data. Correlation analysis revealed mixed, generally weak relationships between sentiment and price movements across different stocks, indicating that investor sentiment in this context is often reactive rather than predictive. This finding adds nuance to literature that often assumes a straightforward positive correlation. Contributions: This paper’s primary contribution is twofold: it demonstrates the superiority of ensemble methods like XGBoost for financial forecasting with sentiment data, and it provides a pioneering analysis using a localized Malaysian sentiment dataset, establishing a foundation for more regionally-aware financial market research.
Dynamic Factors of Inflation in Pakistan
Abstract:Research Question: This paper examines the long run and short run associations between inflation rate and its regressors such as unemployment rate, money supply growth rate, interest rate, labor productivity growth rate, output gap and inflationary shocks in Pakistan. The research specifically addresses how these macroeconomic variables influence inflation dynamically and whether inflationary shocks have asymmetric effects. Motivation: The persistent inflation in Pakistan, driven by both monetary and real sector factors, emphasizes the necessity for a comprehensive empirical investigation to support the formulation of effective economic policies. Data: The study uses annual data from 1991 to 2020, including inflation, unemployment, money supply, interest rate, labor productivity, and output gap. The data were collected from both monetary and real sectors including Federal Bureau of Statistics, State Bank of Pakistan (SBP), International Labor Organization Statistics (ILO) and World Development Indicators (WDI). Method/Tools: Bootstrap Non-linear Autoregressive Distributed Lag (NARDL) cointegration tests (McNown et al. 2018) is opted to identify the long-run cointegration among exogenous and endogenous variables. This approach also captures asymmetric effects by analysing how positives and negatives shocks influence inflation in Pakistan. Findings: The results show that there is a significant impact of labor productivity, output gap and unemployment rate on inflation rate. Monetary variables are also observed as the important drivers of inflation fluctuations. The findings suggest a contractionary monetary policy in the long run and expansionary monetary policy in the short run to stabilize inflation rate in Pakistan. This study also provides evidences on the positive impact of inflationary shocks on increase in inflation. Negative inflation shocks are found more influential than positive inflation shocks. Contributions: This study contributes to the inflation literature by introducing asymmetric dynamics using the NARDL approach and integrating real sector variables like labor productivity and output gap in the Pakistan, offering new insights for monetary policy formulation.
Bitcoin's Role as a Diversification Instrument for ASEAN Investors During COVID-19 Pandemic
Should ASEAN-based conventional and Islamic equity investors invest in Bitcoin to gain portfolio diversification benefits during the Covid-19 pandemic? Motivation: Prior research on the diversification benefits of Bitcoin during the recent pandemic is not conclusive especially from the ASEAN perspective. Convergence of volatility among all stock index returns during the pandemic period may limit investor’s portfolio diversification options due to higher financial integration of international markets. Thus, we propose the possible use of Bitcoin as a diversification tool. With ASEAN region playing a significant role in the world economy, our findings would help many investors understand the implications of including Bitcoin in their portfolios during troubled times. Idea: We examine the conditional volatilities and correlations of Bitcoin returns with conventional and Islamic stock indices during the Covid-19 pandemic era. Our observation period starts from day one after Covid-19 is declared a pandemic until June 2022. Data: We use daily prices of Bitcoin and index returns of six largest stock markets in the ASEAN region from March 13, 2020, to June 30, 2022. We have data for over 600 trading days. We retrieve all data from Thomson-Reuters DataStream and Yahoo Finance. Method/Tools: We use the multivariate GARCH DCC to examine time-varying volatilities and correlations amongst stock indices with Bitcoin. The stages involved include estimating univariate volatility parameters in the first stage and subsequently time varying correlation matrix are estimated in the second stage. Findings: Conditional volatilities are at high levels across all indices when Covid-19 was declared a pandemic and correlations with Bitcoin remains below 0.2. Bitcoin being the most volatile compared to the rest of the indices in the study period, exhibited low correlations with the returns of ASEAN stocks thus revealing potential portfolio diversification benefits. Our findings complement some prior research and contrast with others and bring some new insights on the diversification properties of Bitcoin. Contributions: We provide new evidence that Bitcoin provide diversification benefits to ASEAN-based investors especially Vietnamese-based conventional and Islamic equity investors during Covid-19 pandemic. Overall, Islamic indices despite recording higher volatilities, exhibit lower correlation with Bitcoin than conventional indices.
Monetary Policy and Inflation: Evidence from Xinjiang
Abstract: Research Question: What are the effects of monetary policy on inflation? Motivation: Since the COVID-19 pandemic, global monetary policies have undergone unprecedented shifts. In 2020–21, most central banks adopted aggressive easing measures to cushion economic activity. By 2022–23, however, inflation surged, prompting widespread tightening to stabilize prices. More recently, by 2024, many economies returned to easing policies to prevent sharp slowdowns. These rapid and frequent policy adjustments highlight the importance of understanding the transmission mechanisms of monetary policy under evolving economic conditions. For China, where regional disparities in development remain pronounced, examining the effectiveness of monetary easing at the provincial level is critical for policymakers tasked with balancing development objectives and price stability. Idea: This paper investigates the effects of monetary easing on inflation in Xinjiang, China’s largest province with unique challenges —relatively slower economic development, rising living costs, and structural vulnerabilities. This provincial-level analysis captures localized dynamics and sheds light on how national monetary policy translates into inflationary pressures in less-developed regions. Data: The study uses annual data from 1994 to 2020, covering variables such as consumer prices, fixed asset investments, money supply, disposable income per capita, monetary policy-related interest rates, and West Texas Intermediate oil prices. Data sources include the National Bureau of Statistics, the Xinjiang Statistical Yearbook, International Financial Statistics, and the Federal Reserve Bank of St. Louis. Method/Tools: A Vector Autoregression (VAR) model is employed to assess the relationships between monetary policy and inflation. Findings: The study finds that the policy rate indirectly influences inflation in Xinjiang by affecting fixed asset investment and money supply. Expansionary monetary policies aimed at promoting development must be carefully calibrated to avoid exacerbating the cost of living. Contributions: This study provides understanding of how monetary policy affects inflation in less-developed areas, where transmission channels might differ from those at the national level. For policymakers, the findings offer practical guidance in designing monetary interventions that support growth objectives while mitigating inflationary risks. More broadly, the paper enriches debates on regional heterogeneity in monetary policy effectiveness, particularly in emerging economies with uneven development trajectories.
An Examination of Adverse Emotions on Social Media and Their Impact on Dividend Decisions
Abstract: Research Question:Research Question: Does adverse emotions on social media influence dividend decisions? Motivation: This study is motivated by the need to understand how corporations navigate the challenges posed by negative emotions—such as disgust, anger, fear, sadness, and hate—expressed on social media. By examining the influence of these emotions on corporate decisions, particularly dividend policy, this research aims to shed light on an emerging field that explores the economic impact of social media-driven emotional responses. Idea: This study examines the relationship between adverse emotions expressed on social media platforms and their consequential influence on firms’ decisions regarding dividend payments. Data: The data for this study is derived from a sample of 2,909 firm-year observations of Fortune 500 firms from 2010 to 2017. Method/Tools: Logit regression is deployed to estimate the influence of adverse emotions on social media on firms’ dividend decisions. Findings: The results show that adverse emotions – disgust, anger, fear, sadness, and hate, on social media negatively affect dividend payment decisions. This analysis additionally illustrates that the impact of adverse emotions on social media on firms’ dividend payment decisions is more prominent in firms exhibiting high growth and less evident in those with higher corporate governance scores. Contributions: Through an examination of the influence of adverse emotions on social media on dividend outcomes, the author extends the research on dividend decisions and offers insights by elucidating how expressions of disgust, anger, fear, sadness, and hate on social media can shape financial strategies. This is particularly pertinent to dividend policies. Beyond its theoretical contribution, the study highlights important practical implications. Firms are advised to systematically monitor and analyse social media sentiment, leveraging tools such as natural language processing and social media analytics, in order to proactively address adverse perceptions that may influence financial policy. Such an approach can safeguard firms’ reputations while enabling more resilient and agile dividend strategies. The study acknowledges limitations related to data scope and sample generalizability, and recommends future research across industries, firm types, and longer time horizons to deepen understanding of how adverse social media emotions affect dividend policy.
A Structural Modeling of International Parities between Malaysia and China in the Liberalisation Era
Abstract: This paper constructs a system assessment of Purchasing Power (PPP) and Interest Rate Parity (IRP) conditions between Malaysia-China using the structural VARX modeling method over 1994: Jan to 2011: June. The findings uphold support for long run PPP and IRP, when exchange rate regime and structural breaks of the Asia crisis and subprime crisis are taken into account. Despite the direct imported inflation, exchange rate also plays a significant role in the price transmission mechanism. Though Malaysia maintains a relative monetary autonomy against China in the short run, the price channel will affect the extent of IRP conditions between the two nations. Lastly, the faster pace of adjustment towards price instead of interest rate equilibrium implies the non appearance of sequencing problem in market integration. In essence, our model contribution is as an early warning system for Malaysia's economic defense against global shocks.
How Market Makers Affect Efficiency: Evidence that Markets are Becoming Less Efficient
Abstract: Stock exchanges around the world have integrated a hybrid trading system. This has added anonymity for traders, making it harder for market makers to match large continuous trades, leading to an increase in volatility and a decrease in informational efficiency. This occurs because less information is contained in the price of a stock at any given time. Using a relative difference-in-difference estimation, I find that with increasing adoption of the hybrid market, there is increasing market volatility (for both the NYSE and LSE) relative to an electronic market. Although the use of a hybrid market may increase transaction speed, it decreases informational efficiency.
Innovative Islamic Hedging Products: Application of Wa’d in Malaysian Banks
Abstract: The principle of wa'd or promise can be used to structure innovative shari'ah compliant hedging instruments. Conventional hedging products such as forward currency contracts and currency swaps are prohibited in Islamic finance principally due to the issue of ri'ba and to the violation of bay al-sarf rule which requires currency trading to be done on 'spot' basis only. The usage of wa'd has grown rapidly in recent years since it offers great flexibility and many of the world's first shari'ah compliant derivatives such as Islamic cross currency swaps and Islamic profit rate swaps have been developed by Malaysian banks using wa'd. This paper discusses and examines wa'd applications in seven selected Malaysian Islamic banks, specifically in its application as an Islamic hedging instrument. Based on a survey of the banks' official information disclosed to the public, the finding of this research indicates that all Islamic banks under study have used wa'd in structuring their Islamic hedging products. This paper represents a preliminary study of wa'd applications in the Malaysian banks; it shows that wa'd is a flexible mechanism and has the prospect of playing a vital role in facilitating Islamic financial institutions manage their business risks and liquidity effectively.
Family and Government-Controlled Firms and their Recognition of Goodwill Impairment
Abstract: Given a highly concentrated family and government ownership in Malaysia, this paper argues that family and government control could have some influence on a firm's recognition of goodwill impairment. The 'entrenchment effect' in a controlling firm which results in expropriation of minority shareholder assets may reduce a firm's value. Therefore, the effect increases the tendency of managers to manipulate earnings. Evidence shows that family-controlled firms are more likely to record goodwill impairment than non family-controlled firms. The results are, however, not significant in government-controlled firms. Similar evidence with prior studies is found where Malaysian firms are more likely to recognize goodwill impairment loss in their first year of adoption than in the subsequent years.
Trade-off Theory of Optimal Capital Structure and Adjustment to Long-run Target: Evidence from Dynamic Panel Data
Abstract: The main objective of this paper is to test the trade-off theory of capital structure in South Africa. Using dynamic panel model and Generalized Method of Moments (GMM) estimation technique, the results show that fixed asset has a significant positive relation with total debt. with long-term debt. Similarly, fixed asset has a significant positive relation with total debt. Moreover, the study reveals that South African firms have long-run target debt, but the rate of adjustment to the long-run target debt is slow. Based on the findings, the study suggests that fixed asset is required as collateral to obtain long-term debt capital needed to finance profitable investment projects. Besides, the study suggests that costs of deviating finance profitable investment projects. Besides, the study suggests that costs of deviating from the optimal target debt ratio could be insignificant for South African firms. The paper contributes to capital structure research by testing trade-off theory in South Africa. In addition, the paper uses a better estimation technique, the Generalized Method of Moments.
Dividend Announcements and Stock Market Reaction: Further Evidence
This paper examines stock market reactions to announcements of dividend ses and decreases in Bursa Malaysia. The data consist of all the firms that inced dividend increases or decreases from 2001 to 2005. Using an event iy approach, the evidence shows that dividend increase announcements are. positively by investors, while there is some evidences suggesting investors negatively prior to dividend decrease announcements. The observations are separated into the magnitude of dividend change and income change. This also separates the observations into government linked companies (GLCS) non GLCs. For the income-increase group of GLCs and non GLCs, the buy- hold abnormal return is positive and statistically significant in the post- increment period.
Initial Premium, Flipping Activity and Opening-Day Price Spread of Malaysian IPOs
Abstract: This paper examines the significance of some ex-ante variables on the initial premium of Malaysian IPOs and the immediate aftermarket behavior of investors during period January 2004 to December 2007. Overall, there is a positive relationship between investor demand and initial premium, but only the Main Board registers a strong relationship between investor demand and flipping. Firm size is inversely related to initial premium, flipping activity and price spread. Offer size is inversely related to flipping.
How Well Do Monetary Fundamentals Forecast Exchange Rates in Developing Economies?
The main objective of this study is to re-investigate the exchange rates predictability puzzle using the monetary model. It is hypothesized that the performance of exchange rate predictability is better off in countries with monetary instability. We employed bootstrap technique as proposed by Kilian (1999) to alleviate statistical inference intricacies inherent in the long horizon forecasting for three different monetary models (flexible price, sticky price and relative price) for selected developing economies. The empirical result shows the superiority of sticky price model along with the evidence of exchange rate predictability for high inflation economies.
Information Asymmetry and Earnings Management: Causes of Inefficient Investment in Malaysia
Abstract: Using data from 1998 10.2004 from 180 manufacturing firms, th paper provides ‘evidence that insiders, with controlling interest of more than 36.78 per cent, increase camings management (discretionary accruals) by 10.6 per cent. However, they appear to be risk-adverse and avoid inefficient investment after the financial crisis. On the other hand, firms in high concentrated industries accelerate information asymmetry, but do not engage in camings management. Ou findings show that investment in Malaysia is dominated by inefficient investment. Through earnings management which inflates stock prices, firms increase investment at the expense of external shareholders as stock returns diminish before external shareholders realise the actual value of the firm's performance. A fim with negative stock returns is associated with a 37.6 er cent increase in discretionary accruals, which in turn leads to an additional 3.6 per cent n inefficient investment.
Benefits of Co-trading: Evidence from Australian and Singapore Stock Exchanges
Dichotomous comparisons of evenly-pivoted pre- and post-event windows that co-trading of 38 stocks each from the Australia Stock Exchange (ASX) and the Singapore Stock Exchange (SGX) accrues asymmetric benefits for stocks of the Singapore Portfolio risk decreases and return-per-unit-risk ratio increases for SGX and post-co-trading, and they show no statistical significant change for the stocks of the average individual stock's total risk, systematic risk, and idiosyncratic risk all for SGX stocks after the introduction of co-trading, but not so for the ASX Trading volume and bid-asked spread, however, show no statistically significant for both bours pre- and post-co-trading. The ASX unilaterally terminated co- taking less than 3/4 years.
Market Consequences of Earnings Quality for Malaysian Listed Companies
This study draws on the theory that information risk, as posed by unreliable earnings figures is priced, and examines whether market penalises (rewards) companies for (high) earnings quality. Two ex ante measures of cost of equity (Gebhardt et al.2001 and Ohlson and Juetner-Nauroh 2000 (OJN)) and five accounting-based measures were estimated. A positive relationship between cost of equity estimates and earnings measures provided evidence that the market requires a higher return for a lower quality. The results showed a significant positive relationship between earnings quality measures of accrual quality and predictability, with both estimates of cost of equity. The abnormal total accruals and abnormal current accruals were significantly related OIN estimate of accruals quality only. The earnings quality measure of persistence, however, was not significantly related to either estimate of cost or equity.
Determinants of Credit Risk in Malaysian Islamic Banks
Abstract: Credit risk is the oldest form of risk in the financial markets and has been receiving great attention mainly in the banking institutions. Credit risk continues to be the leading source of problems in banking institutions all over the world. It is the largest source of risk for banking institutions in Malaysia due to the fact that a banking institution's financing portfolio is typically the largest asset and the major source of revenue. Financing default will cause cash flow problems and affect banks liquidity, which then reduce the banks profitability. Therefore, credit risk mitigation and management is very crucial. It is assumed that the more rigorous risk mitigation and management attached in banks management, the lower the credit risk, hence the higher profit received by banks. The aim of this study is to examine determinants of credit risk in Malaysian Islamic banks. The study makes use of panel least squares and generalised least squares regression methods based on an unbalanced panel data of 96 observations from 15 Islamic banks for the period of 1999 to 2007. Twelve variables representing internal determinants are tested empirically using panel data estimation. This study reveals that financing extended to risky sectors, ratio of debt over asset, leverage, financing and bank size determine credit risk significantly in Malaysian Islamic banks. Possible implications are addressed based on the findings to enhance risk management culture in Islamic banking institutions.
Assessing the Impact of Mergers and Acquisitions on Bank Cost Efficiency
Abstract: The paper examined the impact of forced mergers and acquisitions on the cost efficiency of the Malaysian banking sector, The analysis consisted of three stages. Firstly, by using the Data Envelopment Analysis (DEA) approach, we calculated the cost, allocative, and technical efficiency of individual banks during the period 1997-2003. Secondly, we ‘examined changes in the efficiency of the Malaysian banking sector during the pre- and post-merger periods by using a series of parametric and non parametric univariate fests. Finally, we employed the multivariate Tobi regression analysis (0 examine factors that influenced the efficiency of the Malaysian banking sector during the pre- and post-merger periods. The empirical findings suggest that the merger has resulted in a higher mean cost efficiency of the Malaysian banking sector post-merger. We found acquirers (0 have been relatively more cost efficient in al of the seven merger cases analysed. The results from the multivariate regression analysis suggest the loans intensity. size, income diversification, and capitalization exhibit a positive relationship with bank efficiency. On the other hand. market share and expense preference behavior were found to be negatively related to bank efficiency levels. The empirical findings suggest that banks in the control group have been relatively more cost efficient than those involved in mergers. The results suggest that the variations in Malaysian bank cost efficiency are not significantly related to economic ‘conditions and concentration.
Financial Efficiency of SMEs in the Northern Corridor Economic Region: A DEA Analysis
Abstract: Given the important role of SMEs as an endogenous growth factor in the local economy, ensuring strong and competitive development for this segment of industry has become a key concern in making the Northern Corridor Economic Region (NCER) a success. “This paper gauges the operating efficiency of SMES in NCER in channelling financial resources (0 revenue and profit. Data Envelopment Analysis (DEA) was used to analyse 1047 SMEs in Kedah, Penang and Perak forthe financial year 2007. DEA shows that only 20 SMEs scored 100 per cent efficiency, and they are mostly from Kedah and Perak. Most of them belong to Wholesale and Retail Trade and Restaurant and Hotels, followed by Financing Insurance, Real Estate, Investment and Business Services, and Manufacturing. ‘This sectoral represcatation for the efficient SMES is consistent with the distribution of ‘SMEs inthe NCER population. From our DEA analyses, we conclude three findings: first financial efficiency is not related 0 company size; second, oversize in capital (inputs) is ‘more critcal than profit (output) generation in determining relative efficiency third, the distribution of financial efficiency is not balanced across the three sates in NCER. The first and third points are consistent with the Korean case reported in Yang (2006).
Corporate Finance Practices in Malaysia: A Survey Analysis
Abstract: This paper discusses some aspects of corporat finance practices in Malaysia ‘based on various surveys done from carly 1990s until 2007. Time-series and cross-sectional analyses are done on the changes in the perceptions of corporate financial managers of ‘Malaysian listed companies and their practices over the years. In particular, the study focuses on capital budgeting. capital structure and dividend policies and practices of the companies. Its found tha in making capital investments, there is a clear indication tha the managers are adopting the right evaluation tools n recent years compared 0 several years. azo. In terms of capital structure practices, Malaysian companies are noted for their long: erm debt aversion, but debt usage is increasing over the years. As for dividends, there are remarkable similarities in dividend behaviour and practices of local firms compared to those in developed markets, despite the differences in dividend tax regime in Malaysia compared to the US. In summary, our corporate managers seem 10 be progressing on a learning curve towards financial polices and practices of developed markets.
Initial Returns of Shariah-Compliant IPOs in Malaysia
Abstract: This paper investigates the initial returns of Malaysian Shariah-compliant IPOs comprising 86 per cent of the overall 386 Malaysian IPOs issued) between January 1999 and December 2007. Our preliminary results indicate that initial returns and other profiles of the Shariah IPOs, to a great extent, match those of the overall IPOs. Initial returns of Malaysian IPOs dropped substantially to 31 per cent from 95 per cent reported from the pre-crisis period of 1990 to 1998, a level more comparable to that reported in advanced markets. Despite the drastic change in the level of IPO under-pricing, the results of regression analyses show that initial returns are still driven by the same factors found in the earlier study. Specifically, initial returns of Shariah-compliant IPOs in Malaysia are found to be consistently and significantly explained by an over-subscription ratio. Overall, the finding of this study suggests that initial returns of the Shariah-compliant IPOs are driven by demand rather than the supply factor.
Financial Practice in Malaysia: Risks Assessments in Capital Budgeting
Abstract: The objectives of tis paper is to examine the discount rates and the techniques used in addressing risks of major capital investment projects for companies listed on the Main Board and Second Board of Bursa Malaysia. The findings of the study show that the ‘companies from the Main Board and Second Board used weighted average cost of capital WAC) more than other discount rates for investments appraisal. However, the Main ‘Boast companies utilised WACC more frequently. than companies on the Second Board which are considered 10 be smaller. In terms of risks assessment, sensitivity or scenario analysis was the most favored technique used by the Main Board and Second Board ‘companies. Sophisticated techniques such as the beta analysis were applied by a_ lesser member of companies.
Fundamentals of Exchange Rate Determination: Malaysia and the ASEAN Emerging Countries
Abstract: This paper reports new findings on exchange rate dynamics concerning non parity Fundamentals and party factors effects on exchange rates within a group of closely trading emerging countries: non parity fundamental factors suggested by economic theories have yet been systematically related to exchange rates. We use a high- and low-frequency mult- country pooled time series panel data approach. The evidence that emerges from this paper is that non parity factors, which we included, are significant contributors to exchange Fates. These new findings on other than-parity fundamentals add to a richer understanding of exchange rate behaviour as well a clarify why existing findings are mixed.
Corporate Take-overs in Malaysia: Determinants of Post Acquisition Values of Acquiring Firms
Abstract: This study investigates acquiring firms’ value before and after take-overs using Tobin's g measure. The effect on acquiring firms’ value of variables such as the identity of the dominant owner, characteristics of the acquired firms and transaction characteristics ‘were examined. The findings show that acquirers had higher g value relative to control ims prior 0 a take-over but it declined subsequently. Ownership variable. was found to have greater explanation for post take-over firm value than he target firm characteristics and transaction characteristics. The findings also show that acquiring firms which are family owned create more value than firms with othe forms of ownership siete, implying that there is less agency problem in the former.