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J. Risk Financial Manag., Volume 16, Issue 11 (November 2023) – 27 articles

Cover Story (view full-size image): We investigate the effect of gas/oil markets (spot/futures) on herding in stock markets in BRICS over 15 years. The effect of gas/oil markets on herding is minimal (even during the ongoing Russia–Ukraine war), and investors herd selectively during crises. Low volatility in energy markets can trigger herding (consistent with previous research in US, China) in all BRICS. Speculative activities during (non)crises appear to have a minimal impact on herding. However, as the degree of intensity (volatility) in speculative activities increases in oil/gas markets, it causes herding in all countries, except Brazil. It is not the speculation activity per se but the intensity/volatility in speculation activity that causes herding, an expected finding given the uncertainty that speculation causes. View this paper
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15 pages, 1900 KiB  
Article
The Relationship between Promoters’ Holdings, Institutional Holdings, Dividend Payout Ratio and Firm Value: The Firm Age and Size as Moderators
J. Risk Financial Manag. 2023, 16(11), 489; https://doi.org/10.3390/jrfm16110489 - 20 Nov 2023
Viewed by 1222
Abstract
The present paper aims to empirically examine the effect of promoters’ holdings and institutional holdings on dividend payout ratio and the firm value. Most importantly, this paper explores the age and size of the firm as the moderators in the relationships. Data collected [...] Read more.
The present paper aims to empirically examine the effect of promoters’ holdings and institutional holdings on dividend payout ratio and the firm value. Most importantly, this paper explores the age and size of the firm as the moderators in the relationships. Data collected from 23 companies from India and 253 data points were analyzed to test the hypothesized relationships. The results indicate that promoters’ holdings and institutional holdings are positively associated with dividend payout ratio and firm value. Further, moderator hypotheses suggest that (i) firm age moderates the relationship between promoters’ holdings and dividend payout ratio, (ii) firm size moderates the relationship between institutional holdings and dividend payout ratio, (iii) firm age moderates the relationship between promoters’ holdings and firm value, and (iv) firm size moderates the relationship between institutional holdings and firm value. The implications for theory and practice are discussed. The conceptual model developed and tested in this research contributes to both the literature on dividend payout ratio and firm value and to the needs of institutional investors interested in increasing the firm value. Full article
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13 pages, 435 KiB  
Article
Pinpointing the Driving Forces Propelling Digital Business Transformation
J. Risk Financial Manag. 2023, 16(11), 488; https://doi.org/10.3390/jrfm16110488 - 18 Nov 2023
Viewed by 1503
Abstract
Comprehending the motivating factors that drive Digital Business Transformation (DBT) is crucial for cultivating success in DBT initiatives. The objective of the research outlined in this paper was to pinpoint and categorize the factors that inspire companies to embark on the DBT journey. [...] Read more.
Comprehending the motivating factors that drive Digital Business Transformation (DBT) is crucial for cultivating success in DBT initiatives. The objective of the research outlined in this paper was to pinpoint and categorize the factors that inspire companies to embark on the DBT journey. Through qualitative analysis, employing expert interviews as the method, the authors extracted the necessary information to address three key research questions: (i) What are the external drivers of DBT in the plastic extrusion machine industry? (ii) Which internal factors are driving DBT in these companies? (iii) Is there anything else significantly impacting the DBT initiatives? The identified driving forces propelling DBT in German businesses within this industry include external factors: skill shortage, social impact, COVID-19, supply bottlenecks, competitiveness, and customer requirements; internal factors: cost reduction, process acceleration, efficiency increases, and time savings; and mixed factors: attitude of young people, basic education, and work–life balance. The insights derived from this research enhance the understanding of the circumstances and dynamics of traditional companies across other Western European countries. Our findings enrich the existing theory by presenting a distinctive threefold categorization of the drivers behind DBT, providing unique insights into the factors propelling the advancement of DBT initiatives. Full article
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18 pages, 1574 KiB  
Article
The Impact of Non-Financial and Financial Variables on Credit Decisions for Service Companies in Turkey
J. Risk Financial Manag. 2023, 16(11), 487; https://doi.org/10.3390/jrfm16110487 - 17 Nov 2023
Viewed by 1248
Abstract
This study aims to analyze and generalize the factors influencing credit decision-making in Turkey’s service sector, which has seen substantial growth and increased dynamism post-2000, coinciding with accelerated economic development. The evolving competitive landscape and shifting consumer purchasing perceptions have led companies within [...] Read more.
This study aims to analyze and generalize the factors influencing credit decision-making in Turkey’s service sector, which has seen substantial growth and increased dynamism post-2000, coinciding with accelerated economic development. The evolving competitive landscape and shifting consumer purchasing perceptions have led companies within this sector to seek differentiation strategies to attain a competitive edge. In this context, access to credit emerges as a crucial enabler for companies to expand and capture market share. The research focuses on the financial and non-financial characteristics of medium-sized service sector firms seeking credit, recognizing that both sets of variables play a pivotal role in the credit allocation process conducted by banks. The core of this study involves applying established assumption tests from extant literature, followed by an extensive regression analysis. The primary objective of this analysis is to identify and underscore the key financial and non-financial factors that significantly impact credit decisions in the service sector. By examining these variables, the study seeks to contribute valuable insights into the credit decision-making process, addressing the nuanced and varied nature of the service sector. This approach not only provides a deeper understanding of the sector’s credit dynamics but also assists in formulating more informed strategies for businesses seeking financial support within this evolving economic landscape. The primary conclusion reached by the study is that non-financial variables exert a greater influence on credit decision-making in the service sector compared to financial variables. Full article
(This article belongs to the Special Issue Financial Data Analytics and Statistical Learning)
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23 pages, 742 KiB  
Article
The Effect of Short-Sale Restrictions on Corporate Managers
J. Risk Financial Manag. 2023, 16(11), 486; https://doi.org/10.3390/jrfm16110486 - 17 Nov 2023
Viewed by 1197
Abstract
This paper studies the effect of short selling on corporate managers from 2002 through 2010. We examine how the exemption of short-sale uptick tests due to the Regulation SHO pilot program affects managers’ decisions to abandon value-reducing acquisition attempts. We find that when [...] Read more.
This paper studies the effect of short selling on corporate managers from 2002 through 2010. We examine how the exemption of short-sale uptick tests due to the Regulation SHO pilot program affects managers’ decisions to abandon value-reducing acquisition attempts. We find that when deciding whether to abandon value-reducing acquisition attempts during the program, managers of pilot firms, whose stocks are less subject to short-selling impediments, are more sensitive to stock price changes than managers of nonpilot firms. We find no difference in managers’ sensitivity prior to nor post SHO. These results indicate that, despite their dislike of short sellers, managers believe that the level of informativeness from capital markets is superior when short sellers are less impeded. Full article
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15 pages, 930 KiB  
Review
Determinants of Voluntary International Financial Reporting Standards Application: Review from Theory to Empirical Research
J. Risk Financial Manag. 2023, 16(11), 485; https://doi.org/10.3390/jrfm16110485 - 16 Nov 2023
Viewed by 1374
Abstract
IFRS has become a global financial reporting standard, with many countries adopting it as their primary framework and others contemplating its adoption. Research on voluntary IFRS adoption sheds light on global convergence progress and its impact on accounting practices. This study aims to [...] Read more.
IFRS has become a global financial reporting standard, with many countries adopting it as their primary framework and others contemplating its adoption. Research on voluntary IFRS adoption sheds light on global convergence progress and its impact on accounting practices. This study aims to elucidate the factors influencing the voluntary adoption of IFRS by examining, analyzing, and synthesizing findings from empirical studies conducted worldwide. The research scrutinizes 185 relevant studies on the voluntary adoption of IFRS published before August 2023, employing a systematic literature review methodology. Our assessment reveals that, in prior research, the factors influencing the voluntary adoption of IFRS are categorized into seven main factors, including corporate operations, capital structure, ownership structure, internationalization, financial performance, corporate governance, and several other factors. These studies employ various methodologies, including data surveys and cross-sectional data, to estimate the relationships between these factors and the voluntary adoption of IFRS. In addition to providing an evaluation of the research in this field, this study can serve as a framework for future researchers to link and compare the results of different studies. We anticipate that this research will be beneficial for future scholars interested in the factors influencing the voluntary adoption of IFRS. Furthermore, the study proposes essential guidance for future research considerations. Full article
(This article belongs to the Section Sustainability and Finance)
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23 pages, 7593 KiB  
Article
Cash Holdings and Marginal Value of Cash across Different Age Groups of U.S. Firms
J. Risk Financial Manag. 2023, 16(11), 484; https://doi.org/10.3390/jrfm16110484 - 14 Nov 2023
Viewed by 1143
Abstract
Using a sample of 11,365 unique US firms over the period 1966 to 2021, this study examines the relationship between the age of a firm and its cash holdings. We categorize firms as young, mature, or old based on their age or years [...] Read more.
Using a sample of 11,365 unique US firms over the period 1966 to 2021, this study examines the relationship between the age of a firm and its cash holdings. We categorize firms as young, mature, or old based on their age or years of operation. Our results show that firm age is one of the important determinants of cash holdings and that managers adjust cash holdings in response to changing financial needs and risks as firms age. We find that young firms tend to hold higher levels of cash than more established firms and that the marginal value of cash holdings is higher for younger firms. This is consistent with the notion that young firms are more focused on growth and investment and may have limited access to external financial resources. In contrast, mature and old firms tend to hold lower cash levels, possibly due to greater financial stability, increased creditworthiness, and a lower need to manage financial risks. Controlling for significant variables, we confirm our findings with the robustness tests. Taking care of the endogeneity issue, we still can confirm that firm age is negatively significant to the level and the marginal value of cash holdings. Full article
(This article belongs to the Special Issue Corporate Finance: Financial Management of the Firm)
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18 pages, 356 KiB  
Article
The Effect of COVID-19 on Consumer Goods Sector Performance: The Role of Firm Characteristics
J. Risk Financial Manag. 2023, 16(11), 483; https://doi.org/10.3390/jrfm16110483 - 14 Nov 2023
Viewed by 1240
Abstract
This study investigates the impact of the COVID-19 pandemic on company performance in the consumer goods industry. Additionally, it explores how company characteristics influence the relationship between the pandemic and company performance based on industry type and region. Analyzing data from 1491 companies [...] Read more.
This study investigates the impact of the COVID-19 pandemic on company performance in the consumer goods industry. Additionally, it explores how company characteristics influence the relationship between the pandemic and company performance based on industry type and region. Analyzing data from 1491 companies across 79 countries between 2018 and 2022, we utilized ordinary least squares (OLS) with robust standard errors. Our findings confirm the pandemic’s overall adverse effect on the performance of consumer goods companies. However, variations emerged when examining diverse industries and regions. Notably, larger companies, particularly in the Americas, Europe, and Asia–Pacific, demonstrated greater resilience and performance during the pandemic. Furthermore, effective leveraging, especially in the Americas and Asia–Pacific, contributed to supporting performance amid the pandemic. These results hold crucial policy implications for companies aiming to enhance their performance in the face of health crises. Full article
(This article belongs to the Special Issue Corporate Finance: Financial Management of the Firm)
19 pages, 1357 KiB  
Article
Credit Access and the Firm–Government Connection: Is There Any Link?
J. Risk Financial Manag. 2023, 16(11), 482; https://doi.org/10.3390/jrfm16110482 - 13 Nov 2023
Viewed by 1117
Abstract
Access to credit for businesses is an unresolved issue, especially in developing countries and transition economies. There has been a lot of research exploring factors affecting firms’ credit accessibility. Particularly, factors related to borrowers and lenders are always placed under consideration. However, besides [...] Read more.
Access to credit for businesses is an unresolved issue, especially in developing countries and transition economies. There has been a lot of research exploring factors affecting firms’ credit accessibility. Particularly, factors related to borrowers and lenders are always placed under consideration. However, besides those factors, institutional elements could also play an important role in guiding companies’ operations. In countries where the economy lacks transparency and low-level development is limited, informal institutional factors can have potential impacts. In this paper, we focus on exploring the relationship between firm–government links and credit access, thereby offering managerial implications through utilizing cross-sectional data sets at the firm level, with an initial sample of 26,849 observations from 38 countries at different levels of development around the world. The results show a positive correlation of firm–government connection with credit access. Moreover, this relationship may vary depending on the market in which the business primarily operates. Specifically, firms working internationally are less influenced by links with governments and tend to rely more on their own characteristics and conditions. Full article
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12 pages, 1307 KiB  
Article
Safety versus Compensation for Professional Athletes Who Face the Prospect of Career-Ending Injuries: An Economic Risk Analysis
J. Risk Financial Manag. 2023, 16(11), 481; https://doi.org/10.3390/jrfm16110481 - 13 Nov 2023
Viewed by 1274
Abstract
The National Football League and National Hockey League have instituted several rule changes, equipment improvements and medical protocols in response to the frequency of serious career-ending injuries. These two professional leagues and others have litigated lawsuits by former players who have sought financial [...] Read more.
The National Football League and National Hockey League have instituted several rule changes, equipment improvements and medical protocols in response to the frequency of serious career-ending injuries. These two professional leagues and others have litigated lawsuits by former players who have sought financial compensation. This paper constructs a simple economic model of a risk averse athlete who faces the uncertain prospect of a career-ending injury. Improving the athlete’s welfare can be accomplished by reducing the probability of a serious injury or providing increased compensation in the event of such an injury. The net marginal preference for safety is high in sports with moderate to high probabilities of serious injury. Compensation plans are favored in sports with moderate to low probabilities. Significant increases in player salaries have little effect on a players net marginal preference for safety. These results are robust to constant or decreasing absolute risk aversion. Full article
(This article belongs to the Special Issue Subjective Well-Being and Financial Decision Making)
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22 pages, 707 KiB  
Article
Using the Capital Asset Pricing Model and the Fama–French Three-Factor and Five-Factor Models to Manage Stock and Bond Portfolios: Evidence from Timor-Leste
J. Risk Financial Manag. 2023, 16(11), 480; https://doi.org/10.3390/jrfm16110480 - 12 Nov 2023
Cited by 1 | Viewed by 2619
Abstract
Timor-Leste is a new country still in the process of economic development and does not yet have a capital market for stock and bond investments. These two asset classes have been invested in international capital markets such as the US, the UK, Japan, [...] Read more.
Timor-Leste is a new country still in the process of economic development and does not yet have a capital market for stock and bond investments. These two asset classes have been invested in international capital markets such as the US, the UK, Japan, and Europe. We examine the performance of the capital asset pricing model (CAPM) and the Fama–French three-factor and five-factor models on the excess returns of Timor-Leste’s equity and bond investments in the international market over the period 2006 to 2019. Our empirical results show that the market factor (MKT) is positively and significantly associated with the excess returns of the CAPM and the Fama–French three-factor and five-factor models. Moreover, the two variables Small Minus Big (SMB) as a size factor and High Minus Low (HML) as a value factor have a negative and significant effect on the excess returns in the Fama–French three-factor model and five-factor model. Further analysis revealed that the explanatory power of the Fama–French five-factor model is that the Robust Minus Weak (RMW) factor as a profitability factor is positively and significantly associated with excess returns, while the Conservative Minus Aggressive (CMA) factor as an investment factor is insignificant. Full article
(This article belongs to the Special Issue Featured Papers in Mathematics and Finance)
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22 pages, 4003 KiB  
Review
What Aspects Explain the Relationship between Digital Transformation and Financial Performance of Firms?
J. Risk Financial Manag. 2023, 16(11), 479; https://doi.org/10.3390/jrfm16110479 - 10 Nov 2023
Viewed by 1595
Abstract
The emergence of digital transformation and digitization has significantly influenced business growth, particularly in response to the COVID-19 pandemic. This study conducts a systematic bibliometric analysis to investigate the relationship between digital transformation and firms’ financial performance. The primary objectives are identifying research [...] Read more.
The emergence of digital transformation and digitization has significantly influenced business growth, particularly in response to the COVID-19 pandemic. This study conducts a systematic bibliometric analysis to investigate the relationship between digital transformation and firms’ financial performance. The primary objectives are identifying research gaps and proposing future research directions and policy implications. Specifically, we examine the evolution of digital transformation in companies and its impact on their financial performance, while highlighting the major trends in digital transformation research. Employing text mining techniques, network analysis, and a systematic literature review (SLR), we evaluated 153 articles published between 2014 and 2023. Our analysis delves into academic publication journals, geographical locations, authors’, and academic institutions’ contributions, assessing their influence on the existing literature’s development. Our findings indicate a current absence of a consistent theoretical framework in the scientific literature pertaining to the study of digital transformation and its effects on firms’ financial performance. Furthermore, we have pinpointed specific areas that warrant further investigation, including SMEs, non-listed companies, and intermediary or mediating variables. Finally, this systematic bibliometric analysis contributes to the ongoing discourse on digital transformation and its influence on firms’ financial performance, summarizing the current scientific research and proposing new research directions for future studies, while also offering valuable insights for researchers, policymakers, and practitioners. Full article
(This article belongs to the Special Issue Financial Performance and Corporate Sustainability)
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16 pages, 2952 KiB  
Technical Note
Implementing Triple Entry Accounting as an Audit Tool—An Extension to Modern Accounting Systems
J. Risk Financial Manag. 2023, 16(11), 478; https://doi.org/10.3390/jrfm16110478 - 10 Nov 2023
Viewed by 1482
Abstract
Despite the technological leaps modern accounting systems have brought about, fraud is still prevalent. This necessitates spending time and money on audits. Connecting modern accounting ledgers to a public blockchain would make accounting records easily verifiable, aiding the audit evidence gathering and analytics [...] Read more.
Despite the technological leaps modern accounting systems have brought about, fraud is still prevalent. This necessitates spending time and money on audits. Connecting modern accounting ledgers to a public blockchain would make accounting records easily verifiable, aiding the audit evidence gathering and analytics process. Continuous audits will be made viable by readily available audit evidence from the public blockchain. The proposed audit solution creates verifiable “Financial Fingerprints” (signed indexes) for every accounting entry. These Financial Fingerprints are then published to a certain range of addresses on the public blockchain. The objective is to help accounting ledgers be structured in a Triple Entry Accounting format. The third entry can be defined as publishing a notarized index of each accounting entry to the public blockchain. The crux of Triple Entry Accounting is atomicity, meaning there can only be one book. Trying to present an alternative set of books would still be possible, but it would be automatically detected. The method used to achieve the objective can be presented as two value propositions. The first value proposition of Triple Entry Accounting is to define a provable official true set of books. This is important because it is a door into the market without being dependent on network effects. The second value proposition of Triple Entry Accounting is to break down the data silos by using the blockchain as a shared ledger and thus help auditors immensely in their tedious work to gather sufficient and appropriate audit evidence. Because of value proposition number one, Triple Entry Accounting presents standalone value even before the network effect begins. The result of this is an open standardized protocol for implementing Triple Entry Accounting as an extension to modern accounting systems. Full article
(This article belongs to the Special Issue Triple Entry Accounting)
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29 pages, 1772 KiB  
Article
Determinants of Access to Bank Financing in SMEs in Mexico
J. Risk Financial Manag. 2023, 16(11), 477; https://doi.org/10.3390/jrfm16110477 - 09 Nov 2023
Viewed by 1230
Abstract
Several empirical studies indicate that the lack of financing is one of the main barriers that affects the economic growth of small and medium enterprises (SMEs). The main objective of this investigation was to determine to what extent the economic sector, the enterprise [...] Read more.
Several empirical studies indicate that the lack of financing is one of the main barriers that affects the economic growth of small and medium enterprises (SMEs). The main objective of this investigation was to determine to what extent the economic sector, the enterprise size, the characteristics inherent to the enterprise, the legal status, the variables linked to the performance of the enterprise, and the attributes of the owner influence the access to the bank financing of SMEs in Mexico. Using a discrete-response probit regression model, the impact of enterprise characteristics on the probability of obtaining a bank loan was determined. The data collected are from the Enterprise Surveys of Mexico, carried out by the World Bank. The sample of 1480 enterprises is representative by enterprise size, by economic sector, and by region. The research has a quantitative approach with a correlational scope, and a nonexperimental and transectional design. One of the main results highlights that the determinants with the greatest influence on access to bank financing are: the age, the small size, foreign participation, and the manufacturing sector. These results are consistent with other empirical studies, as well as with the pecking-order theory and the financial life-cycle theory. Full article
(This article belongs to the Special Issue Emerging Issues in Economics, Finance and Business)
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18 pages, 1163 KiB  
Article
Bankruptcy Risk in Discounted Cash Flow Equity Valuation
J. Risk Financial Manag. 2023, 16(11), 476; https://doi.org/10.3390/jrfm16110476 - 07 Nov 2023
Viewed by 1327
Abstract
We investigate the importance of bankruptcy risk in discounted cash flow (DCF) equity valuation. Our analyses first show how bankruptcy risk is incorporated in DCF valuation, where investment risk is captured by cash flow certainty equivalents. Within this general setting, we find [...] Read more.
We investigate the importance of bankruptcy risk in discounted cash flow (DCF) equity valuation. Our analyses first show how bankruptcy risk is incorporated in DCF valuation, where investment risk is captured by cash flow certainty equivalents. Within this general setting, we find that bankruptcy risk can be captured by discounting factors incorporating period-specific bankruptcy probabilities, allowing the numerators in a DCF valuation model to follow a binary random walk. Elaborating a model of this kind, we assess the value of the equity holders’ limited liability right (the equity holders’ right to hand over the firm to its creditors if bankruptcy occurs). Two valuation models commonly used in academic research and professional practice—the Dividend Discount Model (DDM) and the Residual Income Valuation (RIV) model—are addressed specifically. Our analyses show that bankruptcy probabilities are important for the estimation of the value drivers in both models. Even if bankruptcy probabilities are as low as 0.02, equity values might be severely exaggerated if bankruptcy risk is ignored in DDM or RIV. In particular, this holds for firms expected to have high future growth (conditioned on firm survival). For the RIV model to properly capture bankruptcy risk, we identify “bankruptcy event accounting principles” and an additional term that must be included in the model. We also show that bankruptcy risk under certain conditions can be handled through a specific calibration of the discounting rate/-s in all DCF models, allowing the value drivers—i.e., future dividends or residual income—to be forecasted conditioned on firm survival. Full article
(This article belongs to the Special Issue Bankruptcy Prediction, Equity Valuation and Stock Returns)
23 pages, 1471 KiB  
Article
Dynamics of Venture Capital and Private Equity Investments in India: An Empirical Analysis
J. Risk Financial Manag. 2023, 16(11), 475; https://doi.org/10.3390/jrfm16110475 - 03 Nov 2023
Viewed by 1638
Abstract
In this study, we explore the inter-dynamics among holding periods, return multiples, fund types, and exit routes of different VC and PE investments in the emerging economy context of India. We employ data spanning from January 2004 to March 2021, and our results [...] Read more.
In this study, we explore the inter-dynamics among holding periods, return multiples, fund types, and exit routes of different VC and PE investments in the emerging economy context of India. We employ data spanning from January 2004 to March 2021, and our results indicate that there is a negative association between the holding period and return. The results also indicate that the average holding periods for India-dedicated and foreign funds are not significantly different. Furthermore, the results show that India-dedicated funds outperform foreign funds significantly in generating returns. Finally, the findings suggest that all exit routes can potentially yield similar results, contrary to the prevailing belief that certain exit routes guarantee superior returns. These findings provide useful insights for a spectrum of stakeholders, including entrepreneurs, practitioners, investors, financial analysts, and policymakers. Full article
(This article belongs to the Special Issue Emerging Markets II)
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24 pages, 984 KiB  
Article
Relations among Bitcoin Futures, Bitcoin Spot, Investor Attention, and Sentiment
J. Risk Financial Manag. 2023, 16(11), 474; https://doi.org/10.3390/jrfm16110474 - 03 Nov 2023
Viewed by 1208
Abstract
This research investigates the function of price discovery between the Bitcoin futures and the spot markets while also analyzing the impact of investor sentiment and attention on these markets. This study utilizes various statistical models to examine the short-term and long-term relations between [...] Read more.
This research investigates the function of price discovery between the Bitcoin futures and the spot markets while also analyzing the impact of investor sentiment and attention on these markets. This study utilizes various statistical models to examine the short-term and long-term relations between these variables, including the bivariate Granger causality model, the ARDL and NARDL models, and the Johansen cointegration procedure with a vector error correction mechanism. The results suggest that there is no statistical evidence of price discovery between the Bitcoin spot price and futures, and the term structure of the Bitcoin futures neither enriches nor impairs this lead lag relation. However, the study finds robust evidence of a long-run cointegrating relation between the two markets and the presence of asymmetry in them. Moreover, this research indicates that investor sentiment exhibits a lead lag relation with both the Bitcoin futures and the spot markets, while investor attention only leads to the Bitcoin spot market, without showing any lead lag relation with the Bitcoin futures. These findings highlight the crucial role of investor behavior in affecting both Bitcoin futures and spot prices. Full article
(This article belongs to the Special Issue Featured Papers in Mathematics and Finance)
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17 pages, 2272 KiB  
Article
Triangulating Risk Profile and Risk Assessment: A Case Study of Implementing Enterprise Risk Management System
J. Risk Financial Manag. 2023, 16(11), 473; https://doi.org/10.3390/jrfm16110473 - 03 Nov 2023
Viewed by 2025
Abstract
Establishing an enterprise risk management (ERM) system is widely viewed as providing firms with the tools and processes needed to build resilience and expertise, enabling them to manage the consequences of crises that have led to the collapse of major firms across different [...] Read more.
Establishing an enterprise risk management (ERM) system is widely viewed as providing firms with the tools and processes needed to build resilience and expertise, enabling them to manage the consequences of crises that have led to the collapse of major firms across different industries globally. Intended for use in advanced accounting, auditing, and finance courses, this case study (of a true event) describes the development and implementation of an ERM system for a U.S. multinational nonprofit firm during the 2015–2021 period. The case study’s main learning objectives are several-fold. First, couched within the recent economic environment, it informs students on some of the more important academic and applied research on corporate risk management. Second, students will learn to analyze the content of a questionnaire designed to capture the integrated effects of the firm’s risk culture, risk structure, risk governance, and control for establishing its risk profile. Third, they will learn to create and apply multi-dimensional risk indices to measure and prioritize the firm’s risk exposures. Finally, the last learning outcome focuses on strategies to triangulate the firm’s overall risk profile and risk prioritization results to construct mitigation strategies that build resilience and create value through risk diversification, information signaling, the exploitation of natural hedges, and enhancing the board’s governing efficiency. The nonprofit nature of the firm in this case study introduces no methodological or conceptual constraints or limitations in applying the proposed risk management methodologies to for-profit or publicly traded firms. Full article
(This article belongs to the Special Issue Organizational Risk Management)
19 pages, 356 KiB  
Article
A Global Analysis of the COVID-19 Pandemic and Capital Structure in the Consumer Goods Sector
J. Risk Financial Manag. 2023, 16(11), 472; https://doi.org/10.3390/jrfm16110472 - 02 Nov 2023
Cited by 1 | Viewed by 1664
Abstract
Understanding a company’s capital structure is essential for optimizing financial resources amid the challenges posed by the COVID-19 pandemic. This research examines how the pandemic affected the capital structures of global consumer goods companies across industries, market types, and regions. In this study, [...] Read more.
Understanding a company’s capital structure is essential for optimizing financial resources amid the challenges posed by the COVID-19 pandemic. This research examines how the pandemic affected the capital structures of global consumer goods companies across industries, market types, and regions. In this study, a fixed effects model was employed to analyze panel-data regression data spanning from 2018 to 2022, encompassing 1491 companies across 80 countries. The results revealed a significant and positive impact of COVID-19 on capital structure in the initial two years, contrasting with a negative trend in the third year, notably in the short-term debt to total assets ratio. The pandemic’s influence on the capital structure varied across sectors, markets, and regions, starting with a consistent positive impact before shifting to a negative and significant effect. The study provides valuable insights for businesses, policymakers, and researchers grappling with the financial implications of external shocks like the pandemic. It underscores the importance of prudent financial decision-making, leveraging the opportunities stemming from a conservative debt approach, and the growing reliance on short-term debt while staying adaptable in response to evolving market dynamics and economic changes. Full article
17 pages, 525 KiB  
Article
Heterogeneous Impact of Fintech on the Profitability of Commercial Banks: Competition and Spillover Effects
J. Risk Financial Manag. 2023, 16(11), 471; https://doi.org/10.3390/jrfm16110471 - 02 Nov 2023
Cited by 1 | Viewed by 1587
Abstract
Using annual panel data of 46 listed commercial banks in China from 2012 to 2021 and constructing a two-way fixed-effects model, this study empirically analyzed the competition and technology spillover effects of fintech on the profitability of commercial banks. The results showed the [...] Read more.
Using annual panel data of 46 listed commercial banks in China from 2012 to 2021 and constructing a two-way fixed-effects model, this study empirically analyzed the competition and technology spillover effects of fintech on the profitability of commercial banks. The results showed the following: (1) In the early stages of fintech development, the competition effect was larger than the technology spillover effect; thus, it was negatively correlated with commercial banks’ profitability. However, with the spread of innovative fintech, technology spillover effects and commercial bank profitability will gradually improve. (2) The influence of fintech on the profitability of commercial banks differed. Compared with large commercial banks, fintech had more significant negative effects on small- and medium-sized commercial banks in the short run. However, the role of fintech for such banks will also grow in the future. The results of this study provide practical guidance for how commercial banks can respond to the fintech wave. To realize the sustainable development of the banking industry, commercial banks should change their business philosophy and revenue model, vigorously improve their fintech innovation capability, differentiate their choice of fintech development routes, develop personalized customization with a focus on users, and ultimately realize digital transformation and upgrading. Full article
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14 pages, 521 KiB  
Article
Investment Behavior of Foreign Institutional Investors and Implied Volatility Dynamics: An Empirical Study on the Indian Equity Derivatives Market
J. Risk Financial Manag. 2023, 16(11), 470; https://doi.org/10.3390/jrfm16110470 - 01 Nov 2023
Viewed by 1318
Abstract
The aim of this study is to examine the association between the capital flows of foreign institutional investors (FIIs) in the equity derivatives market in India and the implied volatility of options. Previous studies on FIIs and realized volatility in the equity market [...] Read more.
The aim of this study is to examine the association between the capital flows of foreign institutional investors (FIIs) in the equity derivatives market in India and the implied volatility of options. Previous studies on FIIs and realized volatility in the equity market provide the basis for this study. Covering a period of ten years (2012–2021), this study established the importance of FII capital flows in explaining the implied volatility of options. The Granger causality test confirms the unidirectional flow of causality between FII and implied volatility (VIX) in the Indian stock market. The vector autoregression model developed in the study confirms the dynamic relationship between implied volatility and the investment behavior of foreign institutional investors (FIIs). The outcome of this study will help options traders to understand the mispricing of options because of FII’s buying pressure on implied volatility. The results will also help policymakers understand how institutional investors influence option pricing so that appropriate decisions can be made. Full article
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19 pages, 368 KiB  
Article
Role of Bank Credit and External Commercial Borrowings in Working Capital Financing: Evidence from Indian Manufacturing Firms
J. Risk Financial Manag. 2023, 16(11), 468; https://doi.org/10.3390/jrfm16110468 - 31 Oct 2023
Viewed by 1602
Abstract
Determinants and levels of working capital financing (WCF) in the manufacturing sector have been empirically proven to impact firm profitability across emerging as well as developed nations. With time, firms adjust toward financing their working capital requirement (WCR), although the speed of adjustment, [...] Read more.
Determinants and levels of working capital financing (WCF) in the manufacturing sector have been empirically proven to impact firm profitability across emerging as well as developed nations. With time, firms adjust toward financing their working capital requirement (WCR), although the speed of adjustment, financing constraints, and bargaining power are subject to variations. In this study, we estimate the effect of bank credit and firm foreign currency borrowing on working capital financing with three distinct models for manufacturing firms in India. We examine the relationship between short-term foreign currency borrowings and WCF. Further, we investigate if the internal capital market affects WCF in the form of business group affiliation; lastly, we assess the impact of bank dependency and financial distress on WCF. We conclude that the debt–equity ratio becomes relevant, whereas firm characteristics such as age, size, and asset tangibility become irrelevant. Our original contribution to the literature is the finding that even smaller emerging market firms with well-managed, low debt exposure have improved access to WCF. Our results support that financial distress negatively impacts WCF but deviates from macroeconomic fundamentals, such as the GDP growth rate. This indicates deterioration in the health of Indian manufacturing, as a capital-intensive sector. Bank dependency remains significant, wherein smaller firms and those without a dividend pay-out continue to have longer cash conversion cycles and less efficient WCR. As a unique finding, we note foreign currency borrowings significantly contribute to WCF in the case of less developed credit markets in emerging economies such as India. Full article
(This article belongs to the Special Issue Emerging Markets II)
20 pages, 1915 KiB  
Article
Tail Risks in Corporate Finance: Simulation-Based Analyses of Extreme Values
J. Risk Financial Manag. 2023, 16(11), 469; https://doi.org/10.3390/jrfm16110469 - 30 Oct 2023
Viewed by 1425
Abstract
Recently, simulation-based methods for assessing company-specific risks have become increasingly popular in corporate finance. This is because modern capital market theory, with its assumptions of perfect and complete capital markets, cannot satisfactorily explain the risk situation in companies and its effects on entrepreneurial [...] Read more.
Recently, simulation-based methods for assessing company-specific risks have become increasingly popular in corporate finance. This is because modern capital market theory, with its assumptions of perfect and complete capital markets, cannot satisfactorily explain the risk situation in companies and its effects on entrepreneurial success. Through simulation, the individual risks of a company can be aggregated, and the risk effect on a target variable can be shown. The aim of this article is to investigate which statistical methods can best assess tail risks in the overall distribution of the target variables. By doing so, the article investigates whether extreme value theory is suitable to model tail risks in a business plan independent of company-specific data. For this purpose, the simulated cash flows of a medium-sized company are analyzed. Different statistical ratios, statistical tests, calibrations, and extreme value theory are applied. The findings indicate that the overall distribution of the simulated cash flows can be multimodal. In the example studied, the potential loss side of the cash flow exhibits a superimposed, well-delimitable second distribution. This tail distribution is extensively analyzed through calibration and the application of extreme value theory. Using the example studied, it is shown that similar tail risk distributions can be modeled both by calibrating the simulation data in the tail and by using extreme value theory to describe it. This creates the possibility of working with tail risks even if only a few planning data are available. Thus, this approach contributes to systematically combining risk management and corporate finance and significantly improving corporate risk management. Based on these findings, further analyses can be performed in terms of risk coverage potential and rating to improve the risk situation in a company. Full article
(This article belongs to the Special Issue Advances in Corporate Finance and Investments)
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24 pages, 339 KiB  
Article
Pandemics and Stock Price Volatility: A Sectoral Analysis
J. Risk Financial Manag. 2023, 16(11), 467; https://doi.org/10.3390/jrfm16110467 - 28 Oct 2023
Viewed by 1136
Abstract
In this paper, we assess the impacts of the five most recent pandemics on the volatility of stock prices across forty-nine sectors of the economy in the United States. These five most recent pandemics are the 1957–1958 Asian flu, the 1977 Russian flu, [...] Read more.
In this paper, we assess the impacts of the five most recent pandemics on the volatility of stock prices across forty-nine sectors of the economy in the United States. These five most recent pandemics are the 1957–1958 Asian flu, the 1977 Russian flu, SARS-CoV-1, swine flu and COVID-19. Applying the GJR-GARCH model, we find that pandemics other than COVID-19 have heterogeneous impacts on the volatility of stock returns. The results of our analysis indicate that COVID-19 has increased the volatility of stock returns in all sectors. Similarly, stocks in more than seventy percent of sectors in our study declined during the ongoing pandemic, perhaps reflecting the severity of the pandemic. In addition, our results on sectors such as healthcare and natural gas diverge from other literature. The mixed results on SARS-CoV-1 are partially explained by the fact it emerged at a time when stock valuations were particularly pessimistic. In the case of Russian flu, it was relatively short-lived and limited in spread relative to other pandemics in our study. Full article
(This article belongs to the Special Issue Stability of Financial Markets and Sustainability Post-COVID-19)
41 pages, 1642 KiB  
Article
What Is the Effect of Oil and Gas Markets (Spot/Futures) on Herding in BRICS? Recent Evidence (2007–2022)
J. Risk Financial Manag. 2023, 16(11), 466; https://doi.org/10.3390/jrfm16110466 - 27 Oct 2023
Viewed by 1379
Abstract
We investigate the effect of gas/oil markets (spot/futures) on herding in stock markets in BRICS over 15 years (2007–2022). We consider the effect(s) of crises (Global financial, European debt, COVID-19, and Russia–Ukraine war), bull/bearish energy markets, volatility, and speculation. The effect of gas [...] Read more.
We investigate the effect of gas/oil markets (spot/futures) on herding in stock markets in BRICS over 15 years (2007–2022). We consider the effect(s) of crises (Global financial, European debt, COVID-19, and Russia–Ukraine war), bull/bearish energy markets, volatility, and speculation. The effect of gas and oil markets on herding in stock markets is minimal, and investors herd selectively during crises. Even during the ongoing Russia–Ukraine war, the effect of energy markets on herding in BRICS is minimal. Causality tests show that oil (spot/futures) Granger causes CSAD during COVID-19 only. Gas (spot/futures) has no effect. We also find that energy (spot/futures) market states (bearish/bullish) have no effect on herding in stock markets. Low volatility in energy markets can trigger herding (consistent with previous research in US, China) in all BRICS. Speculative activities during (non)crises appear to have minimal impact on herding. However, as the degree of intensity (volatility) in speculative activities increases in oil/gas, it causes herding in all countries (India is affected mostly), except Brazil. It is not the speculation activity per se in (non)crises that causes herding, but the intensity/volatility in speculation activity. Overall, oil/gas markets (especially gas markets) appear to have a smaller impact on herding than expected, contrary to public belief; however, as the intensity/volatility in speculative activities increases, then herding also increases, which is expected given the uncertainty that speculation causes. Full article
(This article belongs to the Special Issue Financial Assets as Profit-Makers in Inflationary Periods)
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24 pages, 3622 KiB  
Review
Not So New Kid on the Block: Accounting and Valuation Aspects of Non-Fungible Tokens (NFTs)
J. Risk Financial Manag. 2023, 16(11), 465; https://doi.org/10.3390/jrfm16110465 - 25 Oct 2023
Cited by 1 | Viewed by 1677
Abstract
Aggregated trading volume in February 2023 across the leading six NFT marketplaces totalled USD 1.89 billion. This reflects a continuing positive trajectory, marked by a 91.9% month-on-month (MoM) growth from January 2023, where NFT trading volume amounted to USD 987.9 million. This study [...] Read more.
Aggregated trading volume in February 2023 across the leading six NFT marketplaces totalled USD 1.89 billion. This reflects a continuing positive trajectory, marked by a 91.9% month-on-month (MoM) growth from January 2023, where NFT trading volume amounted to USD 987.9 million. This study conducts a systematic review and textual analysis of industry and academic articles on NFTs primarily related to Accounting, Finance, and Information Systems where the NFT is treated as a tradable digital asset. The sample period spans 2012 to 30 June 2023, using an initial set of 5549 and a final set of 146 articles. In addition, the authors develop an NFT valuation framework, using Scopus bibliometrics data and public domain materials, that can aid in the fair valuation of NFTs and understanding their accounting implications. We further examine the accounting implications of NFTs in terms of international accounting standards, fair value recognition, taxation, auditing, and the metaverse. NFTs have the potential to become a cross-technology and cross-field topic, attracting interest from auditors, accountants, financial institutions, accounting professional bodies, regulators, governments, and investors. Full article
(This article belongs to the Special Issue FinTech, Blockchain and Cryptocurrencies)
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24 pages, 602 KiB  
Article
The Effect of Religion in European Financial Statement Disclosures: A Real Earnings’ Management Case
J. Risk Financial Manag. 2023, 16(11), 464; https://doi.org/10.3390/jrfm16110464 - 24 Oct 2023
Viewed by 1215
Abstract
Prior research has extensively examined the relationship between religion and accrual-based earnings management. However, there is currently little research on the relationship between religion and real (non-accrual) earnings management, especially in Europe. This paper aims to fill this research gap and examines whether [...] Read more.
Prior research has extensively examined the relationship between religion and accrual-based earnings management. However, there is currently little research on the relationship between religion and real (non-accrual) earnings management, especially in Europe. This paper aims to fill this research gap and examines whether and how the effect of religion could be linked with firms’ real earnings management activities. Four hypotheses are developed and tested, with our results providing indications that the degree of overall religiosity is negatively and significantly associated with real earnings management. Furthermore, when investigating the effects of different religions in Europe, Christianity and Islam have the opposite impact on firms’ real earnings management activities. Overall, our paper indicates that in European countries, the religious environment can mitigate firms’ manipulations on earnings. Full article
(This article belongs to the Special Issue Global Trends and Challenges in Economics and Finance)
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15 pages, 327 KiB  
Article
Do Changes in Risk Perception Predict Systemic Banking Crises?
J. Risk Financial Manag. 2023, 16(11), 463; https://doi.org/10.3390/jrfm16110463 - 24 Oct 2023
Viewed by 1186
Abstract
This paper examines if incorporating changes in financial market risk perception improves the predictive power of an early-warning system for systemic banking crises. In explaining systemic banking crises, the existing literature identifies inflating stock and real estate bubbles, credit booms, and surges in [...] Read more.
This paper examines if incorporating changes in financial market risk perception improves the predictive power of an early-warning system for systemic banking crises. In explaining systemic banking crises, the existing literature identifies inflating stock and real estate bubbles, credit booms, and surges in net capital inflows as the common drivers. Employing panel logit models to predict the postwar systemic banking crises in advanced economies to occur within three–four years, the paper’s key finding is that, even after controlling for the effects of surges in asset and credit markets and net capital inflows that are above the long-run trends for an extended period, market participants’ increasing underestimation of downside risks is a significant predictor of these crises. Incorporating changes in risk perception improves the prediction accuracy of the model significantly. This finding is robust across alternative prediction horizons, systemic crisis definitions, and risk-perception measures. Consistent with the recent theoretical developments in the form of the diagnostic expectations hypothesis for financial markets, the interpretation is that recent recurring good news about financial markets and the broader economic trends for sufficiently long periods lead to growing neglect of tail risks and riskier financial transactions, raising systemic risk and the likelihood of a financial crisis. The finding suggests monitoring financial market risk perception, in addition to the conventional indicators, to predict and avert systemic banking crises. Full article
(This article belongs to the Section Banking and Finance)
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