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 option pricing model introduced by Black-Scholes in 1974 gained wide acceptance for its simplicity but was inefficient in pricing options as it relied on implied volatility. Despite the evolution of various versions of option pricing models since their seminal work, little progress had been documented on the use of implied volatility, leaving Black-Scholes to be a mathematical identity to calculate the instantaneous implied volatility as it fails to be an efficient pricing equation. Although interpreted as market expectation of future volatility of stocks, implied volatility is literally a black box that captures market information that is not specifically known yet also internally inconsistent (e.g., having a different implied volatility surface for put and call options). The four main objectives of this thesis are: first, to empirically studying the performance of the Oscillator model developed by Baaquie (2019) and examining its efficiency in pricing options as compared to Black-Scholes model. The Oscillator model has only two sets of parameters in addition to the classical form of Black-Scholes; one to model for the underlying stochastic evolution of the stock price, and the second are of market time. Market time is a behavioural parameter introduced by Baaquie and Bouchaud (2004) which scales the time to maturity to capture the market sentiment of the underlying instrument. This thesis also introduced an alternative version of Black-Scholes by adjusting it for market time. Second, the thesis tested the put-call parity violation. Third, the thesis tested three main option hedging Greeks; Delta, Gamma, and Theta, which are partial differentiations of the option pricing equation. Fourth, the thesis discussed the calibrated output and parameters' behaviour to provide insights into the implied volatility information content and gain new understanding of the parametric gap of Black-Scholes particularly in the light of the Oscillator and Black-Scholes models adjusted for market time.

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.

Infrastructure is the backbone of modem economies; an adequate and efficient public infrastructure is essential for nations to achieve their economic growth objectives. Although the need and role of infrastructure are well recognized, little attention has been paid to the risks and pitfalls of the current infrastructure financing structures. The enormous infrastructure deficit and the increasing instances of debt restructurings, infrastructure project failures and expensive government bailouts, present enough reason for a deeper thought and action towards making infrastructure financing more robust. Through the thesis, the researcher sheds light on the problems related to such forms of financings and presents the case for an alternative model to finance infrastructure developments. The objective is to structure instruments based on Islamic risk-sharing principles and evaluate their efficacy to finance infrastructure projects. To test the viability of such instruments, we use the case study approach, whereby the cases of the Euro Tunnel and the Taiwan High Speed Rail have been simulated and backtested, to demonstrate how fortunes of these projects would have been different considering the use of the proposed instruments instead of conventional interest-bearing debt. The findings of the cash flow remodel are positive for both the cases and the introduction of the proposed instrument within the two project capital structures adds robustness to the projects. Moreover, the risk adjusted returns for investors tends to be higher in comparison to the conventional infrastructure financing structures. The findings provide a strong argument towards the use of lesser leverage for infrastructure financing and the use of risk-sharing instruments by governments to develop infrastructure. The proposed instrument while providing stability to infrastructure projects and economic benefits to its investors, is Shariah compliant or in line with the tenets of Islamic law and thus can be used by Shariah conscious investors to generate superior returns and by policy makers to further build the Islamic capital markets.

The Global Risk Report (2021) identifies ESG risks as the number one risk faced by the global economy. Banks have contributed to this risk and can also contribute to mitigating it. High exposure of Banks to ESG risks will contribute to climate disaster, which in turn will have financial risk implications for banks in the form of disaster events risks and energy transition risks. Depositors can discipline banks in reducing and preferably eliminating their ESG risks through enforcing market discipline by deposit withdrawal. This thesis investigates the extent to which deposit withdrawal works as market discipline against ESG risks in the banks of the OIC region. The thesis also examines the impact of financial risk represented by CAMELS variables on depositors' behavior. The generalized method of moments (System GMM estimator) is used for dynamic panel data models, as well as a sample from 65 countries over the period 2007 to 2016. Our findings indicate that depositors react significantly to environmental and governance risks while depositors' discipline does not exist with social risks. With regard to financial risks, our findings suggest weak evidence of market discipline. However, regressing CAMELS components separately provides better results and understanding than regressing CAMELS components collectively. In the OIC region, the study indicates that depositors tend to be sensitive to changes in capital adequacy, bank earnings and ESG risks, while in the non-OIC region, depositors are only sensitive to management quality.

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.

Technology startups (TSs) are critical to develop economic capacity, support innovation and stimulate entrepreneurial spirit In a nation. As TSs embark on innovative and disruptive journeys, they face their biggest challenge: financing. This study aims to examine the determinants of financing among TSs in Malaysia while critically examining the role of Islamic Finance. The study adopts a triangulation methodological approach, which consists of questionnaire survey and semi-structured interviews. It focuses on Malaysian technology startups, entrepreneurs and their financing needs mainly at two stages: the early stage and the later stage. The study examines the following dependent variables as financing determinants: Entrepreneurs' Profiles (EP), Ethnic Culture (EC), innovation (IN) and Government Interventions (GI). It also examines the role of Islamic Finance among TSs. Binary regression analysis was used to analyse the data collected from the questionnaire survey, respectively grounded theory was employed to analyse interview survey data ...

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.

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.

Although literature on shadow economy has been growing, the examination is scarce in the case of developing countries, especially the Organization of Islamic Cooperation (OIC) economies. In this study, we develop various testable hypotheses related to shadow economy. We investigate the determinants of shadow economy across a large sample of 141 countries and examine whether it varies across OIC (42) and non-OIC (99) countries. The average size of the shadow economy in OIC countries is 34.36% of gross domestic product (GDP) while it is 30.57% of GDP in non-OlC economies. The approach of exploring various definitions, historical development, types, Islamic viewpoint and the determining factors behind people's preference to join shadow economy is adopted in order to provide a deeper understanding of shadow economy. As far as our first objective Is concerned, we explored the determinants of shadow economy in OIC and non-OIC countries (1995-2015). Our results show that economic growth and institutional variables have negative association with shadow economy in both types of countries whereas government expenditure has a positive effect on shadow economy in both groups ...

This study empirically investigates the stochastic corporate coupon bond pricing model proposed by Baaquie (2020b) and the pioneering structural risky bond pricing model proposed by Merton (1974). Merton's risky zero-coupon bond pricing model is converted into a portfolio of zeros to study corporate coupon bonds. The seminal work of Merton (1974) is considered as the backbone of corporate bond pricing. Merton's model is based on the generalization of Black and Scholes (1973) option pricing theory. The coupon bond pricing model, proposed by Baaquie (2020b), is based on Merton's bond pricing theory, but coupons are stochastic. Hence, we can call it a stochastic coupon bond pricing model where coupon varies from payment to payment based on the issuer's performance. The proposed model of stochastic coupons has a built-in hedge for the issuer and has the feature of profit and loss sharing between investor and issuer, making it a viable instrument for Islamic finance. The model can be calibrated and tested using market data. This thesis is structured into six chapters, including an introductory chapter, a review chapter, three core chapters, and a concluding chapter. The introductory chapter highlights the motivation, problem statement, and objectives of this study. In review chapter, theoretical and empirical works along with derivation of Merton (1974) and Baaquie (2020b) are reviewed. In conclusion, a summary of the thesis, policy recommendation, limitation, and future directions are discussed. In the third chapter of the thesis, we investigate the following three questions. First, how can one use the proposed model for an empirical study of fixed coupon bonds, since apparently, the model implies stochastic coupons being paid continuously? Second, how the newly introduced parameters, three exogenous parameters - market time and firm's effective valuation and two endogenous parameters - stochastic coupon and firm value volatility, behave for different categories of the bonds and contribute to the improvement of the model's fit? Third, does the stochastic coupon model estimate the bonds' market price more accurately compared to Merton's model? To answer these questions, we have shown how to calibrate and test the stochastic corporate coupon bond pricing model along with newly introduced parameters using a sample of fixed coupon bonds issued by the US corporations. Estimated coupon bond prices from the stochastic model are then compared with the estimated prices from the extended version, portfolio of zeros, of the Merton model.

In spite of the expanding number of studies investigating the effect of institutional quality on capital flows, a very few attempts has been made to investigate the impact of capital flows on the institutional quality of host countries.This study investigates the role of capital flows on the institutional infrastructure of the OIC countries, which are divided into three separate essays. The first essay investigates the impact of the official development assistance (ODA) on the institutional development of the OIC counties. The research uses system GMM, and the data for this study is obtained from 40 OIC countries for the three-year average period from 1991 to 2016. Empirical findings suggest that aid reduces the Institutional quality for the aid recipient countries. For robustness test and heterogeneous relationship among aid recipient countries, this study uses panel quantile regression and finds that foreign aid generally reduces Institutional quality, and its reduction effect is greater in less institutionally developed countries ...

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.

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.

Theoretically, one of the ways governments that aim to improve economic growth in their countries is by increasing expenditure on human capital. However, some empirical evidence from OIC countries do not support the finding that expenditure on the two most important aspects of human capital (expenditure on education and health) affects growth positively. One of the plausible reasons for the observed unusual finding could be the presence of moderating variables. Therefore, this study investigates the relevance and applicability of one such moderating variable, namely the quality of institutions, given the relatively low global ranking of OIC countries in terms of institutional quality. This study contributes to the new institutional economics literature by discovering that some institutional quality variables determine the way human capital expenditure affects economic growth. This study uses the methodology of panel data analysis and interaction graph plots. Interaction graph plots show the marginal effect of a continuous variable on another continuous variable. Without the inclusion of interaction terms, we find that, on average, in OIC countries, the effect of government education expenditure (GEE) on growth is insignificant while the effect of government health expenditure (GHE) on growth is either insignificant or significant and negative. The interaction graph plots show the effect of government human capital expenditure on growth at different levels of growth. When we consider the marginal effect of institutional quality, we find that generally, better bureaucracy quality, control of corruption, government effectiveness, law & order and rule of law augment the positive effect of GEE on growth. We also find that better government effectiveness and law & order augment the positive effect of GHE on growth.

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.

The Islamic banking industry has grown and gained a remarkable position in the global share of the financial sector. This growth requires a strong emphasis on intellectual capital (IC) that includes dedicated human capital, reliable structural capital, and a committed and long lasting relational capital among participants in the Islamic banking ecosystem. The study aims is to examine and compare the intellectual capital disclosure (ICD) practices of Islamic banks under different reporting regimes. The IFRS issued by IASB and FAS issued by AAOIFI are the two commonly used standards for financial repoting by Islamic banks. The findings indicate that, on average, there is not much difference between IFSB and AAOIFI scores (IASB:57.25% vs AAOIFI: 56.58%); in fact, most of IFSB-based banks performed better that AAOIFI-based banks throughout the period of study except in first year (i.e. 2012). The study also examined the relationship of corporate governance and the moderating role of Shariah committee with the extent of ICD practices among the Islamic banks. Several corporate governance mechanisms such as board size, number of board meetings, board gender, board independence, board expertise, audit committee size, number of audit committee meeting, audit committee gender, audit committee independence, and audit committee expertise were used as dependent variables. While, selected Shariah committee characteristics that, included Shariah committee size and Shariah committee gender were the moderating variables and firm characteristics were used as control variables to control for cross-sectional differences associated with ICD. The study applied the prominent resourced-based, agency and legitimacy theories and formulated twenty-three (23) hypotheses. Based on a total sample of 231 Islamic banks in four countries, namely Malaysia, Brunei, Bahrain and Jordan covering year 2012 to 2018, the findings revealed that having an effective governance structure is essential, as it is able to influence the ICD practices of Islamic banks. Specifically, the study found that ICD practices of Islamic banks is significantly and positively associated with board size, board independence, audit committee gender and audit committee independence. The results suggest that larger or reasonable board size tends to have varied skills and expertise among the board members, resulting in more information by allowing for greater diversity of backgrounds and viewpoints.

Financially distressed companies always bring about enormous financial and economic losses to many stakeholders, such as management, stockholders, employees and customers together with a substantial social and economic cost to the country. Therefore, a distress prediction model that can predict the event and identify the determinants in advance would serve to reduce such losses by providing a pre-warning signal to stakeholders. Preventive actions can then be taken by stakeholders if they can obtain early warning signal of probable failure that will lead to the efficient allocation of available resources to reduce losses. For these reasons, identifying the financial distress determinants that can give accurate prediction has become an essential aspect of finance. Our study will try to identify the financial distress determinants in Malaysia by applying logistic regression analysis (LRA) method together with multivariate discriminant analysis (MDA) and artificial intelligence algorithm (ANN) for robustness. Twenty-one independent variables were selected in our study that can be categorised as financial ratio variables, market variables and non-financial data variables. Data samples were derived from 158 Malaysian public listed companies and the assessment period was from the year 2001 until 2012 ...

This paper attempts to examine the relationship of financial development with environmental quality, incorporating the role of institutional quality. There are three objectives of this study which are: to examine the impact of financial development on environmental quality and to ascertain the existence of Environmental Kuznets Curve (EKC); to examine the role of institutional quality in the relationship; and to highlight differences, if any, between Islamic countries and non-Islamic countries on the said relationship. This research applies generalized method of moments (GMM) for estimation which is the most suitable estimator to manage the unobserved fixed-effects and endogeneity issue between dependent and independent variables. Average 3-years data is used from World Development Indicator of World Bank and ICRG database of 72 countries globally and with period ranging from of 1980 to 2012. The dependent variable is environmental quality while independent variables are financial development, GDP per capita, energy use, trade openness and institutional quality. The results from the GMM estimation suggests that financial development have significant impact on environmental quality. However, the direction of the impact is inconsistent, depending on the type of emission. In addition, there is an evidence of EKC relationship between environmental quality and income. Energy use has a significant and positive impact on environmental quality, although trade openness has no significant impact on environmental quality. The study further analyses the role of institutional quality on these relationships and proves that institutional quality does play a role in reinforcing financial development to improve environmental quality. Nonetheless, the degree of impact varies with the strength of the institutional quality.