Financial Risk and Management Reviews

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No. 1

Decision Making of Charity Fund Allocation: Evidence from Hong Kong

Pages: 88-98
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Decision Making of Charity Fund Allocation: Evidence from Hong Kong

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DOI: 10.18488/journal.89.2020.61.88.98

Chun Cheong Steve FONG

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Chun Cheong Steve FONG (2020). Decision Making of Charity Fund Allocation: Evidence from Hong Kong. Financial Risk and Management Reviews, 6(1): 88-98. DOI: 10.18488/journal.89.2020.61.88.98
This article aims to study the financial decision-making mechanism by charity funding organizations in Hong Kong using case study approach. As charitable resources are limited, social return on investment (SROI) has become a commonly accepted approach by charity foundation trustees. Lo Kwee Seong Foundation in Hong Kong is one family supported charity foundation to exercise such kind of charity funding decision-making mechanism. Funding principles and project selection guidelines were first illustrated. Professional screening and selection processes were also detailed. Then three approved funding proposals and another three rejected funding proposals were illustrated to demonstrate the considerations when the Foundation handled the funding decision process. These cases provided evidences to explain practical issues of how SROI contributed to the charity fund allocation decision. Impacts of other non-financial, especially behavioral decision-making concerns were illustrated. Limitations of the case study approach were also discussed to reflect the practical concerns in company finance data collection.
Contribution/ Originality
The paper contributes the first logical analysis of the implementation of social return on investment (SROI) for financial decision-making in charity funding organizations in Hong Kong. A case studies of both successful and unsuccessful projects have been deployed to investigate the phenomena within the real-life context.

Financial Risks in Turkish Banking Industry: A Panel Data Analaysis on Istanbul Stock Exchange

Pages: 79-87
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Financial Risks in Turkish Banking Industry: A Panel Data Analaysis on Istanbul Stock Exchange

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DOI: 10.18488/journal.89.2020.61.79.87

Cem Berk , Eyyup Arslan

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Cem Berk , Eyyup Arslan (2020). Financial Risks in Turkish Banking Industry: A Panel Data Analaysis on Istanbul Stock Exchange. Financial Risk and Management Reviews, 6(1): 79-87. DOI: 10.18488/journal.89.2020.61.79.87
Global price movements have been affecting markets dramatically in recent years. The changes in exchange rates, interest rates, and liquidity directly affect market value of firms. These risks are called financial risks and typically affect financial institutions. Many methods are developed to compute these risks. This study has a panel data analysis on 7 banks listed on Istanbul Stock Exchange. The motivation of this study is to investigate the relationship between financial risks (interest rate risk, exchange rate risk and liquidity risk) and market value of these banks. Many tests are available in the research such as VIF, AR Roots, Lag Length Selection Criteria, Cross Section Dependence Test, Delta Test, Unit Root Tests, Model Selection Tests, Heteroscedasticity and Autocorrelation Tests. Based on the tests, two way fixed effects model is developed. The results reveal that financial risks explain 29% of all price movements of commercial banks. The model is statistically significant. There is a positive relationship between liquidity and market value and negative relationships between interest rate risk and market value, and exchange rate risk and market value. The results are also consistent with the literature. The research is unique for the Turkish Banking industry and therefore is important academically as well as for risk management practice. Results show that banks operating in Turkey don’t properly manage financial risks. Macroeconomic dynamics and maturity mismatch problems in Turkey require great attention on financial risks. It is recommended that banks should operate with more risk management instruments such as financial derivatives and corporate risk management.
Contribution/ Originality
This study is one of the very few studies which have investigated the relationship between financial risks and market value of Turkish commercial banks. Most studies on financial risks have analyzed non-financial firms. And the studies on financial risks of financial firms primarily focus on profitability.

International Financial Reporting Standards Adoption and Earnings Management: The Fundamental Effect Framework

Pages: 52-78
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International Financial Reporting Standards Adoption and Earnings Management: The Fundamental Effect Framework

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DOI: 10.18488/journal.89.2020.61.52.78

NWAUBANI, Anthony Nzeribe Chizue

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NWAUBANI, Anthony Nzeribe Chizue (2020). International Financial Reporting Standards Adoption and Earnings Management: The Fundamental Effect Framework. Financial Risk and Management Reviews, 6(1): 52-78. DOI: 10.18488/journal.89.2020.61.52.78
The study mainly examined effect of adoption of International Financial Reporting Standards on earnings management and earnings quality in banks using a new approach - Fundamental Effect Framework. Specifically, effect on profit after tax, net interest income and ratio of loan loss provisioning of the Nigerian banks were examined. Ex-post facto research design was adopted. Secondary data on nine listed deposit money banks were analyzed using Paired Student t-test. The banks were those whose annual financial reports for 2011 and 2012 were available and contained figures under Nigerian GAAP and IFRS-equivalent of the 2011 figures. Findings revealed that IFRS adoption in Nigeria results in insignificant rise in earnings management and low earnings quality as measured by Profit After Tax and Ratio of Loan Loss Provision but leads to insignificant reduced earnings management and improved earnings quality in terms of net interest income. It is concluded that though some individual banks recorded significant reduction in earnings management under IFRS, fundamentally, the adoption in has no significant effect on earnings management and earnings quality of the banks based on the reported performance as at the date of the mandatory adoption in Nigeria. The study recommends inter-alia that IFRS Foundation and the national reporting authorities in all IFRS jurisdictions should monitor implementation and application of IFRS9 to minimize likely manger’s discretion under the “forward -looking expected- credit loss” model of the IFRS 9.
Contribution/ Originality
This study examined the effect of adoption of International Financial Reporting Standards on earnings management and earnings quality in banks using a new approach - Fundamental Effect Framework.

Factors Affecting the Capital Structure of the Textile Industry in Bangladesh: An Inferential Study

Pages: 40-51
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Factors Affecting the Capital Structure of the Textile Industry in Bangladesh: An Inferential Study

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DOI: 10.18488/journal.89.2020.61.40.51

Aysha Ashraf , Sonia Rezina

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Aysha Ashraf , Sonia Rezina (2020). Factors Affecting the Capital Structure of the Textile Industry in Bangladesh: An Inferential Study. Financial Risk and Management Reviews, 6(1): 40-51. DOI: 10.18488/journal.89.2020.61.40.51
The main objective of the study is to recognize the major factors influencing the capital structure of the textile firms and to identify the association among them from the context of Bangladesh. The researchers reviewed different conditional theories of capital structure before identifying the determinants of the textile firms. For this purpose, panel data for A-category listed textile companies of the Dhaka Stock Exchange were selected. The study developed multiple regression models for the period 2008 to 2017. Key -independent variables include firm profitability, tangibility, growth, age, liquidity and Size. Leverage ratio was used as the dependent variable. The study explored that profitability; firm size and liquidity have significant positive relationship with the debt ratio, which is consistent with the Trade-off theory. On the other hand, tangibility, growth rate and age are not significantly related with the said ratio. The findings of this study will help financial managers to make the right decisions on fund borrowing and equity financing. Then they can use borrowing in a proper way to support the market value of their companies.
Contribution/ Originality
This study is one of the very few studies which have investigated the direct relationship of determinant factors with the debt maturity of the listed textile companies in the stock exchange by using panel data analysis.

The Relationship between Creative Accounting Risks and Auditing Risks from the Perspective of External Auditors in Saudi Arabia

Pages: 22-39
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The Relationship between Creative Accounting Risks and Auditing Risks from the Perspective of External Auditors in Saudi Arabia

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DOI: 10.18488/journal.89.2020.61.22.39

Wejdan Hassan M. Ghamri

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Abu Alkhair, A. A. A. (2018). The role of international auditing standards in reducing creative accounting practices in the financial statements: A field study on a sample of external auditing offices in the Republic of Yemen. Faculty of Commerce, Neelain University.  

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Wejdan Hassan M. Ghamri (2020). The Relationship between Creative Accounting Risks and Auditing Risks from the Perspective of External Auditors in Saudi Arabia. Financial Risk and Management Reviews, 6(1): 22-39. DOI: 10.18488/journal.89.2020.61.22.39
The present study aimed to identify the relationship between creative accounting risks and auditing risks from the perspective of external auditors in Saudi Arabia. The sample comprised licensed auditors who serve in Saudi statutory audit offices. The outcomes showed that external auditors were aware of creative accounting risks. In addition, their professional technical factors, such as professionalism, commitment to training programs and continuing education, mentorship, considering professional standards in auditing, good planning for external auditing, their supervision of auditing teamwork, and auditing fees, enormously helped identify creative auditing practices. There were no statistically significant differences in the external auditors' estimates of the effect of creative accounting risk on auditing risks according to the variables of (academic qualification, professional qualification, occupation, and experience). No statistically significant differences were found in the external auditors' estimates of the external auditor's responsibility to detect creative accounting practices according to these variables. The research recommends giving concern to the concept of creative accounting risks, and set the standards and procedures that the auditor must follow to address these practices because of their negative effects on the reliability of the financial statements.
Contribution/ Originality
This study was the first in Saudi Arabia to identify the external auditors' views on the impact of creative accounting risks on auditing. The findings will encourage statutory audit offices to consider detecting creative accounting practices, and thus confidence in financial reports is promoted.

Evaluating the Effectiveness of CAPM and APT for Risk Measuring and Assets Pricing

Pages: 14-21
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Evaluating the Effectiveness of CAPM and APT for Risk Measuring and Assets Pricing

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DOI: 10.18488/journal.89.2020.61.14.21

Fahim Afzal , Pan Haiying

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Fahim Afzal , Pan Haiying (2020). Evaluating the Effectiveness of CAPM and APT for Risk Measuring and Assets Pricing. Financial Risk and Management Reviews, 6(1): 14-21. DOI: 10.18488/journal.89.2020.61.14.21
Persistent with the problem of quantifying the risk associated with securities, this study examines the applicability and validity of Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) while evaluating the stock prices and returns of listed companies in the Pakistan stock exchange. While examining the applicability of CAPM and APT, this study considers the stock return of top ten sectors listed in stock exchange from the period of 2014 to 2019. The result shows that the application of APT for risk estimations may not be showing satisfactory results from the observed data. On average, the p-value is more than 30% for all factors which should be less than 5%. Therefore, in order to compare the application of methods and find out the stock risk, it can be concluded that CAPM approach is more reliable than APT. Thus, it is suggested to adopt the CAPM approach to estimate the realistic stock returns. Additionally, the investor can also consider different indigenous and exogenous economic factors according for calculating market risk and maximizing the return.
Contribution/ Originality
This study contributes in the existing literature in a way to show that CAPM is still a valid tool to estimate the return in Pakistani capital market, which implies that the market risk can better be estimated by the companies. Investors must consider the market index performance for realistic stock return rather to follow other economic indicators.

Evaluating the Model of Demand for Money in Nigeria

Pages: 1-13
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Evaluating the Model of Demand for Money in Nigeria

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DOI: 10.18488/journal.89.2020.61.1.13

Fasipe, Temidayo B. , Wasiu A. Yusuf

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Fasipe, Temidayo B. , Wasiu A. Yusuf (2020). Evaluating the Model of Demand for Money in Nigeria. Financial Risk and Management Reviews, 6(1): 1-13. DOI: 10.18488/journal.89.2020.61.1.13
In Nigeria, demand for money is frequently affected by factors that regularly experience shocks in the economy. Therefore, regular adjustment and reforms are done to monetary policy which creates a lot of uncertainties in the market. This paper therefore examined the demand for money (narrow money, M1) in Nigeria, using quarterly time series data from 2006 to 2018, the study attempted multiple OLS regression analysis and ARDL. The result found out that money demand function cannot be appropriately estimated by OLS estimation technique due to the presence of the lagged value of both the dependent and independent variables. Although, the no long run relationship among the variables but the result indicates that M1 is largely influenced by inflation, exchange rate, MPR (Monetary Policy Rate), and savings as well as real GDP to some extent; particularly in the short run. It was observed from the analysis that economic units in Nigeria are shedding more of cash assets (Naira) as inflation increases while stocking up on foreign cash and assets (dollar and foreign denominated assets) as shown by the positive-related exchange rate.
Contribution/ Originality
This study contributes to the existing literature by examining the demand for money (narrow money, M1) in Nigeria and using quarterly time series data from 2006 to 2018, the study attempted multiple OLS regression analysis and ARDL.