Accounting and Finance Research

Journal Information
ISSN / EISSN : 1927-5986 / 1927-5994
Published by: Sciedu Press (10.5430)
Total articles ≅ 564
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Tiffany Jo Westfall, Aaron D. Crabtree
Published: 16 October 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n4p1

Abstract:
The prior behavioral theory of the firm research documents that a firm’s external environment impacts the risk-return relationship, suggesting that drivers outside the firm are part of the risk-return puzzle. This study examines whether firms’ misery scores impact the return relationship. Using a sample of firm-year observations from 2002 to 2011, we investigate the relationship between the external environment related to misery and firms’ risk-return relationships by regressing five factors that proxy for firms’ external environments (e.g. misery levels) on risk and return. Our results suggest that both economic and non-economic external environmental factors impact firms’ risk-return relationship. Specifically, low unemployment rates and taxes are associated with higher levels of risk-taking, whereas greater access to leisure amenities decreases risk-taking. A firm’s return is negatively impacted by risk-taking associated with low unemployment and taxes and greater access to education and healthcare. However, a firm’s return is positively impacted by risk-taking associated with better air quality and lower property crime. The results suggest that a firm’s external environment impacts its performance. Therefore, future research may consider including location fixed effects to control for the unobservable external environmental factors that impact firm performance. Second, the results are of interest to practitioners as businesses can utilize the findings to develop internal programs that neutralize the external environment’s effects on firm performance.
Keith I. Taylor, Halil Kiymaz
Published: 27 June 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n3p34

Abstract:
Most financial and accounting tasks and analytics, whether associated with the past or future, assume knowledge of process, variation, and statistics. Yet, finance and accounting personnel averaging 13 years of experience could not distinguish non-random from random time-series strings in an assessment using statistical process control charts. Respondents scored no better than guessing compared to a series of true-false questions. Latent class analysis methods within partial least square structural equation modeling successfully uncovered segments of respondents with large explained variance and significant paths to explicate tendencies toward type I or type II error rates, i.e., an illusion of control or illusion of chaos. Relationships between the desirability of control, personal fear of invalidity, and error rates were more varied than expected.
Yuqian Wang, Che-Wei Chiu, Shu-Ling Wu
Published: 27 June 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n3p1

Abstract:
This paper examines firms’ corporate bond price reactions to bank loan covenant violations. Using an event study approach, we find that firms’ bond price response is marginally negative in the 1990s and becomes significantly positive in the 2000s. The positive bond price reactions suggest bondholders benefit from bank loan covenant violations in more recent years. Specifically, bank loan covenant violations enable banks to step in and take necessary actions to protect creditors’ interests, which benefit not only private lenders but also public corporate bondholders. In addition, the temporal change in bond price response suggests the disciplining role of bank loan covenants becomes increasingly important in recent years: banks gradually take debt covenants as “trip wires”, which give banks an option to take necessary actions when the early warning signal shows up through covenant violations. Furthermore, we find that bondholders and stockholder reactions are positively correlated in recent years, and that managerial entrenchment could decrease banks’ influence after violations.
Manuel Tarrazo
Published: 27 June 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n3p14

Abstract:
Prior research has documented effects of bank loan covenant violations on various firm behaviors from the perspective of shareholders. Our paper extends this stream of research by examining how bank loan covenant violations affect public corporate bondholders. Using an event study approach, we find that the bond price response to a bank loan covenant violation is marginally negative in the 1990s and becomes significantly positive in the 2000s. The favorable price response in more recent years indicates that bondholders benefit from covenant violations. The differential bond price responses suggest an evolution of banks' use of loan covenants. Specifically, banks gradually take covenants as "trip wires," enabling them to step in and take necessary actions to safeguard their interests when early warning signals show up through covenant violations. Such disciplinary actions benefit not only banks but also bondholders. In addition, this paper finds that bondholder and stockholder reactions are positively correlated in the 2000s and that managerial entrenchment could decrease banks' influence after covenant violations.
Arindam Banerjee
Published: 13 March 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n2p1

Abstract:
Stock market indices are considered to be a powerful economic indicator. These indices can be classified based on the methodology of weight allocation for each stock and the rules governing the entry, retention and exit criteria of various stocks in the index. This paper presents a descriptive and an exploratory analysis carried out on the daily returns data of NASDAQ 100 (^NDX) index and shortlist of 20 stocks in the index. Random sampling was conducted at the sector level strata of all stocks that make up the index. This approach was followed to avoid selection bias and that stocks from the varied sectors are represented equally for this analysis. R-squared values and correlation coefficients were used to determine the explain-ability and relationship between the stock returns and the index returns respectively. The paper applied descriptive univariate analysis on daily returns at an individual stock level and at an aggregated sector level. Inter-relationship between stocks and the index returns was carried out by computing Pearson’s correlation coefficient across the different combinations of stocks and index return values. Linear regression was carried out identify the explain ability of the variance in the returns of from the index to the returns from the stocks. All analysis was carried out using the python and the stats-models library. As anticipated, the returns of randomly picked 20 stocks were able to explain ~85 % of the variance of the returns of index. One of the primary focus of the paper was to explore whether NASDAQ-100 index can explain the variability of the technology stocks relatively more than the stocks that belong to other sectors in its portfolio owing to the nature of most stocks that make up the index.
Ateyah Mohammad Alawneh
Published: 13 March 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n2p35

Abstract:
This study aims to analyze the effect of the represented asset management efficiency (total asset turnover (TAT), fixed asset turnover (FAT), and working capital turnover (WCT)) on the earnings per share (EPS) of industrial companies listed on the Amman Stock Exchange (IASE) as the data were obtained from the Amman Stock Exchange (ASE) from 2005 to 2019, where the unit root test was analyzed for the time series of the study variables. Results revealed that all the variables stabilize at the first differences 1 (1), several diagnostic tests, such as variance instability, Ramsay stability, and serial correlation tests were also performed, all of which confirmed the fit and validity of the model used. Results showed the positive and strong impact of the asset turnover rate on EPS, the positive and strong impact of the fixed asset turnover rate on the return on profitability, and the positive impact of the (WCT) on EPS. Therefore, asset management efficiency positively affects the EPS. Moreover, this result indicates the efficiency of industrial companies in managing assets during the study period.
Sarah Chen
Published: 13 March 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n2p58

Abstract:
Reviewer Acknowledgements for Accounting and Finance Research, Vol. 11, No. 2, 2022
John Obiora Anyaduba, Ivie Ologhosa Ogbeide
Published: 13 March 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n2p18

Abstract:
The aim of this paper is to investigate the link between firm attributes and tax aggressiveness in Nigeria and South Africa. A comparative analysis was carried out on the variables of firm size, age, profitability, leverage, liquidity, complexity, foreign ownership and tax aggressiveness on banks in Nigeria and South Africa. The study employed the longitudinal research design and took a comparative analysis approach. The population consists of the 13 listed commercial banks quoted on the Nigerian Stock Exchange and the 16 local commercial banks listed on the Johannesburg Stock Exchange. The time frame for the study was from 2012-2020. Data collated was analysed using the techniques of descriptive statistic, correlation and panel data regression technique while MAPE and Theil’s inequality coefficient were used in evaluating the forecast abilities of the models. Two alternative measures of tax aggressiveness (GAAP-ETR and D_BTD) were adopted as dependent variables. The panel data collected was analysed. The result of the Nigerian model (using the D_BTD measure) showed that firm size and firm complexity both have a significant positive relationship with tax aggressiveness while firm age and profitability asserted significant negative impacts on tax aggressiveness. The outcome of the South Africa model (using the GAAP-ETR measure) showed that firm age and profitability have a significant negative relationship with tax aggressiveness while firm size and liquidity have significant positive relationships with tax aggressiveness. The study recommends, that regulatory bodies and tax authorities should beam their searchlight on tax saving strategies of small size companies with a view to effectively monitoring their aggressive tax avoidance schemes.
Phillip C. James
Published: 13 March 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n2p48

Abstract:
The corporate governance structure of companies has been subjected to intense examination in recent time due mainly to recent corporate collapses and other financial mis-conduct by management. The benefits of an effective corporate governance structure are well documented, ranging from reduce cost of capital to improved transparency in ethics, morality and financial disclosure. Evaluating the effectiveness of a company’s corporate governance structure normally involves the use of a corporate governance score. This study investigates the appropriateness of some of the more commonly used components in compiling the corporate governance score. The study found that the presence of both an audit committee and a compensation committee along with effect of CEO duality had significant statistical effect on the corporate governance score. However, the results also showed that the size of the board and the number of independent directors were not statistically significant components of the corporate governance score.
Cathy S Goldberg, Carol M Graham, Francisco A Delgado
Published: 10 January 2022
Accounting and Finance Research, Volume 11; https://doi.org/10.5430/afr.v11n1p24

Abstract:
This paper examines style drift and alphas for a sample of 110 international retail funds offered to individual investors. We show that when fund managers “deviate” from their stated categories, alphas are biased upward. While previous studies in the international stock arena typically employ theoretical constructs to benchmark fund performance, we employ an actual investable vehicle (tradeable ETFs) in the same categories as the funds. For the period 2002-2020, we show empirically that managers do indeed deviate from their stated fund categories with subsequent upward bias to their fund alphas. For over half of the funds in our sample, we find significant drift to emerging markets and to the US equity market. We observe that alpha is biased upward an average of 86 basis points for the retail funds examined in this study.
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