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Vol. 3 & 4, Special Issue, 2005-2006

 
Cost Efficiency, Profitability and Firm Size of Thai Insurance Companies
Mohd.Zaini Abdul Karim and ChantaJhantasana
Universiti Utara Malaysia
 
Abstract Ɩ Full Text
With an increasingly open economic condition in Thailand, insurance firms exposed to competition should improve efficiency to ensure their survival. This paper examines the cost efficiency and its relationship with profitability of life insurance firms: Cobb-Douglas stochastic cost frontier model is used. We find that the industry, on average, is 86 percent to 114 percent inefficient. There is no significant relationship between inefficiency and age of firms. The test results show that inefficiency is negatively correlated with the ROE ratio suggesting that efficient firms, on average, have higher return on equity. Inefficiency has substantial effect on the profitability of life insurance companies. The mean inefficiency is positively correlated with size suggesting a need for rationalization of the insurance industry. One solution could be consolidation of the large number of smaller insurers: another is to increase capital requirements of life insurers.
 
Keywords: Financial institutions, cost efficiency, profitability, firm size
JEL Classification: G14, G20 & G21
 

 
Polish Banking Industry Efficiency: DEA Window Analysis Approach
1Magdalena Kisielewska, 2Malgorzata Guzowska, 3Joseph G Nellis and 4Dariusz Zarzecki
Szczecin University and 3Cranfield University
 
Abstract Ɩ Full Text
The Polish banking industry has been transformed since the country’s transition to a market economy which began at the end of the 1980s. The industry has now developed and expanded to encompass more than 60 participants and it can thus be described today as a relatively competitive market. Against this background, this paper evaluates the financial performance at the industry over time, based on the ten largest Polish banks that represent around 80 percent of the total sector in terms of assets. In particular, cost efficiency of the banks is analyzed on the basis of six production models. Efficiency scores are obtained using Data Envelopment Analysis between 1995-2003 period, using intertemporal and locally intertemporal data. Productivity changes within the sector are investigated using the Malmquist Index approach.
 
Keywords: DEA analysis, Malmquist index, efficiency, productivity, Polish banking
JEL Classification: G11
 

 
Is the Polish Stock Market Weak Form Efficient?
Pijanowski Slawomir
Poznan University of Economics
 
Abstract Ɩ Full Text
This paper explores the definition of predictability of Warsaw Stock Index returns by using measures elaborated in Shannon-Mazur’s cybernetic information theory, potentially a new approach to understand capital market informational efficiency. The main message of this research is that the use of information theory methods may shed new light on the applicability of weak-form efficiency tests and the phenomenon of return unpredictability. Cybernetic interpretation in answering the question about market returns predictability and, in retrospect, may contribute to the discussion on the predictability tests of market returns.
 
Keywords: Cybernetic information theory, weak form efficiency, price predictability
JEL Classification: G1, G14 & G81
 

 
Regulation of Deposit-Taking Institutions: Price Effect at Disclosures of New Regulations
Nor Hayati Ahmad and Mohamed Ariff
Universiti Utara Malaysia and Monash University, Australia
 
Abstract Ɩ Full Text
This paper presents findings on the impact of revisions to a unique bank regulation yet studied. An old hypothesis in banking literature is tested by examining share price reactions to two-way changes to statutory reserve ratio (SRR) requirement over a recent eight-year period. Announcements of these regulatory changes appear to lead to statistically and economically significant abnormal returns. These new findings suggest that a decrease in statutory reserve has a risk-reducing effect on financial institutions. Thus, this study provides a test of the prediction of theory that SRR is a powerful macroeconomics policy tool to revive an economy in the aftermath of a financial crisis.
 
Keywords: Financial institutions, regulations, risk, price effect, prudential rules
JEL Classification: G14, G20 & G21
 

 
Money Balances, Economic Activities and Selective Capital Controls in Malaysia
Che Ani Mad
Universiti Utara Malaysia
 
Abstract Ɩ Full Text
This paper reports results of a test of money demand and supply as predicted by recent studies applied to small economies with greater openness to external factors. These results suggest that the short- and long-run money balances are determined by both the interest rate policies as well as the price levels in the economy. With open conditions generally prevailing in our tested small economy, increases in interest rates attract portfolio funds, which helped to spur asset price bubble to build up. When the economy came under strain as a result, the bubble bursts as happened at the time of the Asian financial crisis, which led to a severe currency crisis that lasted for about 18 months, causing severe economic downturns thereafter. The findings may be taken to mean that control of short-run portfolio flow is critical in a more open small economy.
 
Keywords: Money demand, portfolio funds, interest rates, narrow money, short- and long-run effects, monetary regulation
JEL Classification: E51
 

 
Emerging Market Economies as Potential FDI Host Countries
Kozun-CiexlakGrazina
Technical University of Radom, Poland
 
Abstract Ɩ Full Text
This paper reviews the literature and analyzes foreign direct investment using UNCTAD methodology to test the role of this form of cash flow in economic development. Direct investment in another country is the most advanced form of foreign capital inflow as it supplies know how. Many developing countries are becoming potential targets for foreign investments. Among the numerous groups of developing countries, the emerging markets attract 80 percent of foreign direct investment. Our analysis concludes that the allocation of capital within the emerging markets group is not even. Five out of 25 countries (China, Hong Kong, Mexico, Singapore, and Brazil) dominate in attracting over 60 percent of the cash flow. In that regard, a large part of the analyzed group, 18 countries, is assessed as having a high potential for attracting foreign capital.
 
Keywords: Foreign direct investment, developing countries, potential for investment
JEL Classification: F21
 

 
A Note on Performance Evaluation of New Zealand Mutual Funds
1Puspakaran Kesayan, 2Nuttawat Visaltanachoti and 3Tammy Tao Lin
Universiti Utara Malaysia and 3Massey University, New Zealand
 
Abstract Ɩ Full Text
This paper reports on the performance of the New Zealand unit trusts over 11 years using the Fama-French three-factor model and the Cahart (1997) unconditional asset pricing test. The results reveal that the funds had negative Jensen’s alphas and thus poor performance. The conditional model shows that funds underperformed the benchmark by 0.34 percent per month. These findings suggest that the funds had poor performance during the tested period. It is puzzling to observe a substantial growth of unit trusts in the same time period despite poor performance of these funds. It is very likely that the fund growth has more to do with regulatory effect of promoting savings than the effect of funds providing above-normal return for the growth of the market.
 
Keywords: Unit trusts, New Zealand, fund performance, alpha
JEL Classification: G23
 

 
Economic Value Added Versus Cash Value Added: The Case of Companies in Transitional Economy, Poland
Edward Urbanczyk, Edyta Midoduchowska-Jaroszewicz and AgnieszkaDzczesna-Urbaniak
University of Szczecin, Poland
 
Abstract Ɩ Full Text
This paper examines the application of the increasingly popular economic value added (EVA) and cash value added (CVA) measures of financial performance of private and publicly-traded firms. EVA and CVA are measured for a sample of Polish firms. Since traditional accounting measures are not robust indicators of corporate performance of firms in transitional economies, these alternate measures provide better assessment of value/cash flow creation and solvency. The results suggest that Polish firms, though reportedly making accounting profits, are indeed unable to generate value to shareholders. Further, the cash flow measures indicate a great deal of solvency risk. Thus, we recommend the use of these EVA and CVA measures for evaluating performance of companies, especially, in transitional economies.
 
Keywords: Cash value added, transitional economies, economic value added, solvency
JEL Classification: O16

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