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The International Journal of Banking and Finance (IJBF) Vol. 2 No. 1, June 2004

 
Information Content of Dividend Changes in an Emerging Market
Nur Adiana Hiau Abdullah, Rosemaliza Abdul Rashid & Yusnidah Ibrahim
Universiti Utara Malaysia
 
Abstract Ɩ Full Text
Supports on the free cash flow and agency cost theory from dividend announcements studies have been heavily discussed in the Western literature, but they have not been given much attention in the Asian countries, particularly in Malaysia. This paper focuses on examining the relationship of the stock market reactions due to dividend announcements and ten company-specific variables identified from the literature as potential determinants. The results from cross-sectional and stepwise regressions both showed that none of the determining variables could explain the variation in cumulative abnormal returns (CARs) for the increasing dividend announcements. For decreasing dividend announcements, both regressions identified the degree of anticipation to be significant and inversely related to CARs. In addition, the indigenous population ownership, which is a unique characteristic of the Malaysian equity market is also found to be significant in influencing the effect of decreasing dividend announcements. The findings provide no support for the free cash flow and agency cost theory.
 
Keywords: Dividend announcements, emerging market, corporate finance theoretical models, company-specific characteristics.
 

 
A Synthesis of Theoretical Relationship between Systematic Risk and Financial and Accounting Variables
1Edward R. Lawrence, 2Suchismita Mishra, 3Arun J Prakash
1University of Nebraska, Lincoln
2&3Florida International University, Miami
 
Abstract Ɩ Full Text
In this paper we summarize the theoretical relationship between beta, the measure of relative systematic risk on one hand and financial and accounting variables, such as leverage, size, growth in earnings, capital adequacy etc. The purpose is to bring together a comprehensive treatise of these relationships.
 

 
Purchasing Power Parity in Developing Countries: Evidence from Conventional and Fractional Cointegration Tests
1A. C. Arize, 2John Malindretos, 3Elias C. Grivoyannis
1College of Business and Technologym, Texas A & M University U.S.A.
2&3Yeshiva University, New York, NY 10033 - 3201, U.S.A.
 
Abstract Ɩ Full Text
This paper examines the long-run validity of purchasing power parity (PPP) for fourteen developing countries. The period examined is 1973:4 through 2002:8. The methods of Elliot, Rothemberg and Stock (1996), Kwiattkoski et al. (1992) and Geweke and Porter-Hudak (1983) are employed to detect the time series properties of exchange rates and consumer price indices of these countries. We find that these variables are nonstationary. We then utilize these data to test the PPP using both conventional and fractional approaches. Estimates of the cointegrating relations are obtained using estimators suggested by Stock and Watson (1993) and Phillips and Hanson (1990), respectively. The results are consistent with the argument that, during the recent floating exchange-rate period, PPP holds well, at least in a weak form, in developing countries where the general price level movements overshadow the factors causing deviations from the PPP.
 

 
Derivatives and Risk Management in the Banking Industry
Abraham Mulugetta, HristoHadjinikolov
Ithaca College, New York
Abstract Ɩ Full Text
 
The purpose of this study is to examine issues surrounding the enactment of Financial Accounting Statement 133 (SFAS 133) in managing risk in the banking industry. It examined the financial statements of ten major U.S. banks by investigating their 10Ks and 10Qs from 1999 to 2002. It found out that banks that had large hedge positions before SFAS 133 reduced their exposures for a while and increased their positions in 2002. Interestingly, those banks with small hedged positions before the rule, increased their positions after the adoption of SFAS 133. As expected the statement increased the degree of disclosure and transparency of derivatives activities which compliments the Sarbanes Oxley Act of 2002.
 
Market Efficiency and Long Run Purchasing Power Parity Disequilibria of the Mexican Peso Under Changing Exchange Rate Regimes
1Alejandra Cabello, 2Edgar Ortiz, 3Robert Johnson
1&2Universidad Nacional Autonoma de Mexico
3University of San Diego
 
Abstract Ɩ Full Text
This paper tests if the efficient market version of Purchasing Power Parity (EMPPP) holds for the Mexican case for the 1970-2002 period in an environment of changing exchange rate regimes. Two regression analyses which extend PPP to a dynamic intertemporal model, based on market efficiency, are used, and in addition two unit root tests are applied. In general, the obtained empirical evidence does not support the EMPPP. Results suggest an inefficient market resulting from weak exchange rate policies and weak adoptions of several exchange rate regimes without proper inflation targeting and the application of strong and disciplined macroeconomic policies and structural changes.
 

 
Compensating Balance: A Comment
1Youngna Choi, 2Yeomin Yoon
1Montclair State University
2Seton Hall University
 
Abstract Ɩ Full Text
Compensating balance are deposits the borrowing firm keeps with the lending bank in non-interest bearing accounts on loans. It is well known that, when there is no compensating balance imposed, the effective cost of debt remains the same in the two different payment methods, full amortization method and bullet loan (bond) method. It has been experimentally shown that when a compensating balance is imposed, however, the respective effective costs of debt under the two payment methods become different and that the true cost of a fully-amortized loan is always greater than that of a bullet loan. This paper provides a mathematical proof than this is always true. It concludes that, whenever a bank imposes a compensating balance, the borrowing firm should prefer a bullet loan to a fully-amortized one if it wishes to avoid an ambush posed by such a compensating balance.
 
Keywords: Compensating balance, effective cost of debt, net present value, amortization, bullet payment method

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