1. Scholarly Works

This study examines the extent and nature of foreign exchange exposure in 405 listed corporations operating in the ASEAN-4 nations, Indonesia, Malaysia, Singapore, and Thailand. The study period of 23 years, from 1995 to 2017, covers the two major crisis periods, the Asian financial crisis (AFC) of 1997 and the global financial crisis (GFC) of 2008. Our study improves on earlier work by using two alternative assessment methods, i.e., stock returns (SR) and cash flow (CF) methods. We report several interesting and noteworthy results. First, we find that the stock returns approach results in a higher incidence of exchange rate exposure relative to the cash flow method. Specifically, about 65% and 28% of the total ASEAN-4 firms had significant exposure to all currencies under the stock returns and cash flow methods, respectively. Second, we find the sample firms to have predominant exposure to the US dollar, signifying the important role played by the United States (US) as the major trading partner of the ASEAN-4. Third, when evaluating time-varying exposure, we find that the incidence of the exchange rate exposure is event-specific. Most of our sample firms were highly exposed to exchange rates during the mid-points of the AFC and the GFC.

The present study attempts to investigate whether shadow economy and the tourism sector are related. In the European countries, Schneider reported that 20 to 25 per cent of the shadow economy is represented in the tourism-related industries – wholesale and retail, automotive and motorcycle sales and maintenance; transportation, storage and communications; and hotels and restaurants. For the tourism sector, the services given by operators (unregistered and/or underreporting) operate in the shadow economy will ultimately wiped off the map of high quality tourist destinations and destroyed the development of the tourism industry itself. This study examines the short-run and long-run relationships between international tourism receipts and shadow economy for 149 countries over the period 1995-2008. We use a generalized one-step error-correction model (ECM) in combination with a system Generalized Method of Moments (GMM) to explore the long-run relationship between these two variables. Our results suggest that tourism receipts and shadow economy are cointegrated. This implies that shadow economy and the tourism industry worldwide are related in the long-run. The long-run elasticities indicate a negative impact of the shadow economy on the tourism sector suggesting that increase in shadow economy activities will adversely affecting the tourism industry.

In this paper, we examine the interrelations between bank lending, macroeconomic conditions and financial uncertainty for an emerging economy, Malaysia. Adopting time series techniques of cointegration, causality and vector autoregressions (VARs), we arrive at the following main results. We note long run positive relations between real output and both real bank credits and real stock prices. However, with slow adjustment of real output in responses to credit expansion or stock price increase and weak exogeneity of the latter two variables, both credits and stock prices can be persistently higher than their fundamental values. The phenomenon can be detrimental since it heightens market uncertainty. Our results suggest that heightened market uncertainty is negatively related to output in the long run and, on the basis of dynamics analysis, it is likely to depress real output, real credit and real stock prices. At the same time, we note significant dynamic impacts of interest rate shocks on other variables. Taken together, these results have important implications for macroeconomic performance and stability for the case of Malaysi

This paper reports evidence of a banking liquidity impact on stock prices in the three Asean countries. Banking liquidity impacts suggested by Friedman is yet to be fully investigated nor verified despite several attempts. If improved liquidity of banks leads to credit expansion, which in turn leads to more positive net present value projects undertaken by firms, earnings of the latter must go up, and hence the share prices should rise. This link is worth an investigation. According to an influential of the US stock market, up to 52% of share returns are due to changes in the macro economy. Using a 3-equation structural model as well as employing corrections for cross-section dependence, we examine the link between money supply, liquidity and stock prices over 2001:4Q and 2012:2Q in three developing countries. It is found money supply changes lead to a positive liquidity effect and banking liquidity impacts share market prices positively. These findings are new and in support of Friedman's liquidity proposition, and also constitute evidence of a banking liquidity having a positive effect on asset prices.

This research attempts to explore the impact of banking competition on financial stability employing more precise measure of market power. It was found that Islamic banks are less stable and are enjoying lower market power. The analysis shows that higher market competition makes the banking sector vulnerable to defaults, supporting the "competition-fragility view". This research finds no difference in the relationship for Islamic banks indicates that Islamic banks might be involved in traditional banking activities as conventional banks. The results are consistent and robust to different estimation approaches and subsamples. This research carries regulatory and policy implications.

Malaysian firms have been reported to be involved in Asset-Backed Securities since 1986 when Cagamas Bhd was the pioneer in the field. This research aims to examine the factors influencing spread in Malaysia's securitization market. In order to provide a test of stability and a choice of model, the multicollinearity test was conducted by providing information on the degree of correlation between the explanatory variables used in the multivariate regression analysis. Ordinary Least Square method was used for baseline, and panel data analysis was applied during the study period (2004-2012) for a more robust check of the analysis. The data were obtained from 90 non-financial firms or institutions and the number of observations carried out was 387. The results show that four determinants influence or contribute to the primary market spread and are statistically significant in developing securitisation in Malaysia. It can be concluded that loan to value, maturity, debt and crisis significantly contribute to the determinant primary market spread. From five hypotheses, two hypotheses support that the determinants have a relationship with primary market spread. The result will act as a model and benchmark for other ASEAN countries to use as Malaysia was resilient during the subprime mortgage crisis in 2008. Policy makers can use this study to execute the timing and quantum of issuance securitisation. The other findings of this study have considerable policy relevance. It could be stated that the higher the risk reflects the higher the spread of the firm, especially when there is lower credit rating during crisis periods and higher debt. Therefore, the role of a firm is to reduce the risk in order to reduce the spread, and simultaneously reduce the cost of financing by finding alternative sources of funding. The continued success of the Malaysian securitisation firms depends on their efficiency in using their resources and the competitiveness of the firms.

This paper contradicts the existence of a universal value anomaly by studying Malaysia, a country with a unique institutional setting. We investigate this counter-example to attribute the anomaly to: 1) the leverage effect of value firms; 2) the investment pattern of growth firms; 3) the economic environment. We find that the value premium cannot be ascribed solely to risk as it is time varying and dependent on the attributes of the companies. Our results illustrate that small cap value firms perform relatively well during favourable economic conditions. In contrast, large cap growth firms perform better than their counterparts (i.e., large cap value firms) in economic upturns as they are preferentially awarded projects to revive the nation's growth.

This study examines the impact of foreign aid on the institutional quality (IQ) of the OIC countries. Using the data of OIC countries for the three-year average period from 1991 to 2016, the system GMM finds that aid in general deteriorates the IQ for the aid recipient countries. However, quantile regression suggests that the negative impact of foreign aid on institutional quality (IQ) is relatively greater in the countries where the existing quality of institution is poor. The findings of the study suggest that improving the existing capacity is essential for reaping the optimum benefit of foreign aid on institutional development.

In presence of the market frictions, firms aim to attain target capital structure by making strategic choices towards re-engineering the leverage. These choices influence not only firm’s investment patterns, capital costs and expected returns but also lead to conflict of interest among the stakeholders. The dynamic market forces make targeting a continuous exercise for the firm, as it strives to make optimal financing decisions to raise its value and reduce the risk of bankruptcy. An occurrence of acute financial crisis disturbs the capital structure and firms may foresee this and try to adjust. If adjustment is seen prior to a crisis in favour of higher leverage and moving away from the optimum capital structure, then it may signify cheaper adjusting costs and greater access to the debt financing. If adjustment takes place post crisis, then it means that valuable lessons are learnt and steps are taken to attain the optimum capital structure.

This paper investigates the effect of political patronage on firms' capital structure. The evidence is from Malaysia, a country characterised by relationship-capitalism, and covers 1988 to 2009. Using a system GMM estimator we find firms set leverage targets and adjust towards them following deviations at the rate of 28% per annum. Next, we construct a natural experiment and use a difference-in-differences model to investigate if the strategic financing decisions of politically patronised firms differ from non-connected firms after an exogenous shock caused by the 1997 Asian crisis. Our results unambiguously demonstrate a significant difference in the capital structure of patronised firms relative to non-connected firms following the exogenous shock but only for the crisis period 1998–2001. After 2002 the capital structures of patronised and non-connected firms are statistically equivalent.

The present paper analyzes the role of stock market, more specifically real stock prices and stock market uncertainty/volatility, on private consumption behavior for an emerging market, Malaysia, using quarterly data from 1991 to 2009. Employing the autoregressive distributed lag approach to cointegration test, the paper establishes a long-run equilibrium that ties private consumption to its determinants - real income, real stock prices, real lending rate, and stock market volatility. In the long run, the presence of the stock market wealth effect is documented. At the same time, the stock market volatility is also noted to depress private consumption particularly when the volatility is at the degree as observed during the Asian crisis. The authors further note the short-run influences of real stock price changes on consumption growth and the adjustment of private consumption to the long-run level when it is modeled in an error-correction setting. Our simple simulation indicates that the drop in the private consumption due to the decline in stock market wealth post-crisis is substantial, amounting to 2.7% of average post-crisis gross domestic product.

This article undertakes an in-depth study of the foreign exchange exposure of Malaysian listed firms. We examine several issues related to firm-specific and overall exposure, including an evaluation of the efficacy of adopting a hard-peg on such exposure. Our sample consists of 158 listed firms and spans the 16 year period, 1990–2005. A multivariate model using four bilateral exchange rates is used to determine firm level exposure while panel data analysis using a random-effects Generalized Least Squares (GLS) model is used to determine system-wide or aggregate sample exposure. We find a total 71% of our sample firms to have significant exchange rate exposure, a rate substantially higher than that reported for most countries, especially developed ones.

This study provides new evidence on the relationship between external audit price and corporate governance of the largest (based on market capitalization) 100 listed firms on both the main and second board of the Bursa Malaysia (BMB) (previously known as the Kuala Lumpur Stock Exchange). The findings show that for main board companies, external audit price is positively and significantly associated with corporate size, complexity and internal governance variable (i.e. director’s remuneration). For the second board firms, complexity, corporate size and internal governance variables (i.e. proportion of non-executive directors to total directors) were important determinants of external audit pricing. External audit price had a significant negative relationship with individual shareholders ownership for both main and second board companies, and companies’ age for companies listed on the second board.

This paper examines several issues related to the implementation of ESOs among Malaysian companies. We examine a total of 52 companies, 26 ESO firms and their matched industry peers over a span of 12 years. We find ESO firm stocks to have marginally higher mean returns and lower volatility than do their pre-ESO peers. Malaysian companies are more likely to initiate ESOs when the market valuation of their stocks is low. If there is any timing, ESO initiation is timed to be most favourable to employee recipients. Market reaction to ESO announcements is significantly negative. Furthermore, stock prices do not seem to recover to pre-announcement levels during at least the subsequent 20 trading days or one calendar month. In line with US findings, operating performance deteriorates for ESO companies. Comparative analysis of control firms rules out industry or external factors as elements of the deterioration. Firm size has been identified in previous studies as a determinant of market reaction and post-ESO performance. Indeed we find this to be the case for Malaysian ESOs. We find a positive announcement effect for large firms but a significantly negative one for small firms. Though puzzling, the market reaction makes sense when we consider the poor operating performance post-ESO of small firms relative to large ones. It appears that the impact of an ESO is negative for small firms but neutral for large ones. The market appears to anticipate this outcome and react accordingly. An ESO realigns the interest of the stakeholders of a company. Employee recipients gain, while shareholders mostly lose. Bondholders of large ESO firms are only marginally affected, but those of small firms stand to lose from the diminution of profits and increased leverage post-ESO. Based on our results, it will be difficult to make a case that the objectives of and rationale for an ESO are being fulfilled.

The objective of this study are to examine the impact of colonization on former colonies on their economic growth performances. The relationship between economic growth and selected independents variables are discussed covering 72 former colonies for the period of 1995 to 2015. The objective is to investigate the determinants of growth in former colonies colonized by four former conquerors namely Spain, France, The United Kingdom and The Soviet Union (Russian Federation). To achieve this objectives, we employed Generalized Method of Moment (GMM) estimator popularized by Arellano and Bond (1991) and Blundell and Bond (1998) and the independent variables of the estimation to achieve the targeted objectives, are the control variables of growth gross fixed capital formation (GFCF), as a proxy for capital and total population (TPOP) as a proxy for labor. This study also uses other independent variables such as length of colonial period (COLOH) which is the focus variable, domestic credit to private sector (DCPS), trade openness (TOP), foreign direct investment (FDI) and a couple of institutional qualities representing variables such political rights (PR) and civil liberties (CL). The results are quite consistent and robust - colonization is positive and highly significant implying that colonization indeed has a positive impact on the colonized countries, though the masters are perceived as parasites. They also prepare the right infrastructures that could enable the colonized countries to grow economically. As for the other variables including the control variables population, domestic credit to private, trade openness, and gross fixed capital formation are also positive and significantly related.

Countries with high levels of human development should be able to reduce the impact of natural disasters in terms of the total numbers of people killed and affected, and damage. In this study we investigate the impact of human development indicators such as income per capita and human capital (education level) on natural disaster fatalities (total deaths, total affected and total economic losses) in 79 selected countries. Using dynamic panel data analysis, we found that the level of economic development plays an important role in mitigating the impact of natural disasters such as droughts, earthquakes, extreme temperatures, floods, storms, volcanoes, landslides and wildfires. Other factors that are found to determine the number of natural disaster fatalities include population, population density, unemployment, investment, government consumption, openness, education and corruption. Using the dynamic panel data model, we found that education, investment, government consumption and openness display an inverse relationship, while population and population density have a direct positive relationship.

This paper investigates the impact of non-intermediation activities of banks on economic growth and volatility of OIC. For the purpose, we utilize LSDVC estimation approach using the sample of Organization of Islamic Countries (OIC) member countries for the period of 2001-2013. We find non-intermediation income to be insignificant for both economic growth and volatility of OIC member countries in general though it reduces volatility of Gulf Cooperation Council (GCC) economies. Intermediation activities are found to be insignificantly related with the growth of OIC member countries, but on the other hand, they are found to reduce volatility in OIC member countries. Our results are robust across different specifications and estimators.

Exchange Traded Funds (ETFs) are one of the most successful financial innovations of the last decades. The main focus of this study is to examine the risk adjusted performance, tracking error and trading characteristics of emerging and developed markets ETF. 43 passively managed equity ETFs have been chosen to cover both markets. The results indicate that the emerging markets are less efficient in terms of index replication and possess higher tracking error compared to the developed market ETF. Conversely, emerging markets provide better risk adjusted performance. Last but not least, it is also found that assets size has positive impacts towards ETFs performance and in contrast, the expense ratio has a negative impact on ETFs performance. To determine the policy matters, investment types and strategy for the two different types of capital market products, this study is quite relevant to the individual investor, institutional investors, policy makers and the regulators.

We reconfirm the presence of value premium in emerging markets. Using the Brazil-Turkey-India-China (BTIC) grouping during a period of substantial economic growth and stock market development, we attribute the premium to the investment patterns of glamour firms. We conjecture based on empirical evidence that glamour firms hoard cash, which delays undertaking of growth options, especially in poor economic conditions. Whilst this helps to mitigate business risk, it lowers market valuations and drives down expected returns. Our evidence supports arguments that the value premium is explained by economic fundamentals rather than a risk factor that is common to all firms.

The present paper examines the mitigating effect of social capital on the environmental Kuznets curve (EKC) for CO2 emissions using a panel data of 69 developed and developing countries. Adopting generalised method of moments (GMM) estimators, the paper finds evidence substantiating the presence of EKC. Moreover, the evidence suggests that the pollution costs of economic development tend to be lower in countries with higher social capital reservoir. Surprisingly, there is also evidence to indicate that the income threshold point beyond which CO2 emissions decline is higher in countries with higher social capital. These results are robust to addition of alternative controlled variables in the EKC specification. Thus, in addition to policy focus on investments in environmentally friendly technology and on the use of renewable energy, investments in social capital can also mitigate the pollution effects of economic progress.

The estimated total tax evasion as reported by the Tax Justice Network in 2011 is in the excess of USD3.1 trillion or about 5.1% of world's GDP. Tax evasion is a crime and tax revenue losses have negative consequences to the government ability to fueled economic growth by providing enough public infrastructure and other services. In this study we have estimated the share of tax evasion to the official economy for five ASEAN economies, namely; Indonesia, Malaysia, the Philippines, Singapore and Thailand for the period 1980-2013. Tax evasion was calculated from the estimated size of the shadow economy using the modified-cash-deposits-ratio (MCDR) approach suggested by Pickhardt and Sardia (2011). We investigate the contention made by Blackburn et al. (2012) and Bose et al. (2012) that financial development can mitigate tax evasion - higher level of financial development lead to lower level of tax evasion. Employing the pooled mean group estimator (PMG), our results show that there is a non-linear long-run relationship between tax evasion and financial development in ASEAN-5 economies, an inverted U-shaped curve, suggesting that at lower (higher) level of financial development commensurate with higher (lower) level of tax evasion. One policy implication from this study is that the financial sector in ASEAN-5 economies can play an important role in reducing tax evasion by improving the accessibility to financing and to the credit market.