Journal of Risk and Financial Management

20 pages, 4658 KiB

Open AccessArticle

Modeling Funding for Industrial Projects Using Machine Learning: Evidence from Morocco

by Soukaina Laaouina and Mimoun Benali

J. Risk Financial Manag. 2024, 17(4), 173; https://doi.org/10.3390/jrfm17040173 - 22 Apr 2024

Viewed by 277

Moroccan manufacturing companies investing in the metallurgical, mechanical, and electromechanical industries sector are among the contributors to the growth of the national economy. The projects they are awarded do not have the same specific features as those of operating activities within other companies. [...] Read more.

Moroccan manufacturing companies investing in the metallurgical, mechanical, and electromechanical industries sector are among the contributors to the growth of the national economy. The projects they are awarded do not have the same specific features as those of operating activities within other companies. They share several common features, making them particularly complex to fund. In such circumstances, supervised machine learning seems to be a suitable instrument to help such enterprises in their funding decisions, especially given that linear regression methods are inadequate for predicting human decision making as human thinking is a complicated system and not linear. Based on 5198 industrial projects of 53 firms operating in the said sector, four machine learning models are used to predict the funding method for some industrial projects, including are decision tree, random forest, gradient boosting, and K-nearest neighbors (KNN). Among the four machine learning methods, the gradient boosting method appears to be most effective overall, with an accuracy of 99%. Full article

(This article belongs to the Section Financial Technology and Innovation)

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18 pages, 341 KiB

Open AccessArticle

Do ESG Factors Prove Significant Predictors of Systematic and Downside Risks in the Russian Market after Controlling for Stock Liquidity?

by Tamara Teplova, Tatiana Sokolova and Sergei Gurov

J. Risk Financial Manag. 2024, 17(4), 172; https://doi.org/10.3390/jrfm17040172 - 22 Apr 2024

Viewed by 287

Abstract

This paper reveals the impact of environmental, social, and governance (ESG) scores on systematic and downside risks in the Russian stock market. We analyze the influence of a broad set of ESG factors controlling for stock liquidity, financial indicators of companies, and macroeconomic [...] Read more.

This paper reveals the impact of environmental, social, and governance (ESG) scores on systematic and downside risks in the Russian stock market. We analyze the influence of a broad set of ESG factors controlling for stock liquidity, financial indicators of companies, and macroeconomic indicators. The period under consideration is from 2013 to 2021. The methodology of our research is based on regression analysis with multiplicative variables to reveal the changes induced by the COVID-19 pandemic. We obtain several novel results. Social responsibility is one of the most significant non-fundamental factors influencing both systematic and downside risks. The most important environment-related component is the measure of a company’s propensity to environmental innovations. Some dimensions of stock liquidity are also significant. For some factors, such as the COVID-19 pandemic and debt burden, we find an unexpected direction of influence on liquidity. Full article

(This article belongs to the Special Issue Empirical Corporate Finance and Corporate Governance in the Era of ‘New Normal’)

17 pages, 546 KiB

Open AccessArticle

Corporate Social Responsibility: Impact on Firm Performance for an Emerging Economy

by Neeraj Singhal, Pinku Paul, Sunil Giri and Shallini Taneja

J. Risk Financial Manag. 2024, 17(4), 171; https://doi.org/10.3390/jrfm17040171 - 22 Apr 2024

Viewed by 387

Abstract

Corporate Social Responsibility (CSR) was usually referred to as a concept where companies initiate voluntary action towards social and environmental concerns in the context of business operations related to the stakeholders of the company prior to the CSR Act 2013 in India. Post-2013, [...] Read more.

Corporate Social Responsibility (CSR) was usually referred to as a concept where companies initiate voluntary action towards social and environmental concerns in the context of business operations related to the stakeholders of the company prior to the CSR Act 2013 in India. Post-2013, the voluntary initiative was replaced by regulatory guidelines to address social and environmental concerns. The CSR applicability–investment gap was used as a base concept in this study with instrumental theory; the study offers a strategic perspective of CSR and how organizations emphasized maximizing stakeholders’ value. In order to further investigate the effect of CSR on corporate financial performance (CFP) through the measure of shareholders’ value, i.e., the return on equity (ROE), the study used the sample from the National Stock Exchange (NSE)-Nifty-100 indexed companies of Emerging Economy—India for a span of fourteen years (2009–2023). The vast majority of research in this domain is conducted in developed countries; the research gap is filled by this study by considering India and drawing samples from multiple industries. The empirical model was developed by using panel data regression, where the dependent variable was ROE, and the independent variables were earning per share (EPS), log total income (LTI), CSR applicability/profit after tax (CRSAPPPAT), and CSR investment/profit after tax (CSRIPAT). The findings also highlighted the CSR applicability and investment of the firms during pre- and post-Sustainable Development Goal (SDG) periods. The same was also analyzed for the firms committed to CSR and not committed to CSR. The results indicated that there is no significant impact of the CSR/ESG initiatives (applicability and investment) on the ROE of the firms. The performance could be better if the companies minimize the CSR/ESG promise–performance gap through effective communication with stakeholders. Full article

(This article belongs to the Special Issue Corporate Sustainability and Firm Performance: Models, Practices and Policy Perspective)

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17 pages, 5105 KiB

Open AccessArticle

Estimating Asset Parameters Using Levy’s Moment Matching Method

by Masatoshi Miyake

J. Risk Financial Manag. 2024, 17(4), 170; https://doi.org/10.3390/jrfm17040170 - 21 Apr 2024

Viewed by 327

Abstract

Conventionally, the unknown parameters in Merton’s model are set using a calibration method that estimates the current asset value and volatility from observable stock prices. This paper describes a completely different approach for estimating these asset parameters. The proposed approach uses Levy’s moment [...] Read more.

Conventionally, the unknown parameters in Merton’s model are set using a calibration method that estimates the current asset value and volatility from observable stock prices. This paper describes a completely different approach for estimating these asset parameters. The proposed approach uses Levy’s moment matching method to derive an equation for the asset value based on the sum of equity and debt on the balance sheet, with the current debt value treated as an unknown and estimated from stock prices. Empirical analysis reveals that this method results in simpler calculations than the calibration method and can estimate the asset parameters and default probability to the same degree of accuracy. An additional advantage of the proposed method is that it estimates the asset correlation if the current debt value is known, allowing Merton’s model to be extended to multiple companies. The asset correlation obtained by the proposed method is estimated from multiple parameters related to equity, debt, and the evaluation period, which is useful when the influence of equity volatility, leverage, and time must be considered in estimating asset correlations based on equity correlations. Full article

(This article belongs to the Section Mathematics and Finance)

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23 pages, 316 KiB

Open AccessArticle

The Information Content of Stock Splits: In the Context of Stock Splits Concurrently Announced with Earnings

by Joohyung Ha

J. Risk Financial Manag. 2024, 17(4), 169; https://doi.org/10.3390/jrfm17040169 - 21 Apr 2024

Viewed by 241

Abstract

This paper examines the market responses to concurrent earnings and stock split announcements for evidence on the information content of stock splits. The majority of stock split research excludes splits announced with other information events due to confounding issues. However, it is difficult [...] Read more.

This paper examines the market responses to concurrent earnings and stock split announcements for evidence on the information content of stock splits. The majority of stock split research excludes splits announced with other information events due to confounding issues. However, it is difficult to extract the information content of splits by merely focusing on the standalone split announcement because stock splits are devoid of any information regarding firms’ future cash flows. This study explicitly considers how a stock split is evaluated in conjunction with current earnings. This study shows that the market reacts more positively to earnings news concurrently announced with stock splits, consistent with the idea that splits are favorable news. Furthermore, this study finds that stock returns of concurrent split–earnings announcers exhibit a greater association with future cash flows, suggesting that investors should value stock splits favorably for more persistent earnings ahead. Full article

(This article belongs to the Section Financial Markets)

25 pages, 441 KiB

Open AccessArticle

Testing and Ranking of Asset Pricing Models Using the GRS Statistic

by Mark J. Kamstra and Ruoyao Shi

J. Risk Financial Manag. 2024, 17(4), 168; https://doi.org/10.3390/jrfm17040168 - 19 Apr 2024

Viewed by 374

Abstract

We clear up an ambiguity in the statement of the GRS statistic by providing the correct formula of the GRS statistic and the first proof of its F-distribution in the general multiple-factor case. Casual generalization of the Sharpe-ratio-based interpretation of the single-factor GRS [...] Read more.

We clear up an ambiguity in the statement of the GRS statistic by providing the correct formula of the GRS statistic and the first proof of its F-distribution in the general multiple-factor case. Casual generalization of the Sharpe-ratio-based interpretation of the single-factor GRS statistic to the multiple-portfolio case makes experts in asset pricing studies susceptible to an incorrect formula. We illustrate the consequences of using the incorrect formulas that the ambiguity in GRS leads to—over-rejecting and misranking asset pricing models. In addition, we suggest a new approach to ranking models using the GRS statistic p-value. Full article

(This article belongs to the Special Issue Editorial Board Members’ Collection Series: Journal of Risk and Financial Management)

26 pages, 2956 KiB

Open AccessArticle

What Drives Asset Returns Comovements? Some Empirical Evidence from US Dollar and Global Stock Returns (2000–2023)

by Marco Tronzano

J. Risk Financial Manag. 2024, 17(4), 167; https://doi.org/10.3390/jrfm17040167 - 18 Apr 2024

Viewed by 298

Abstract

This paper focuses on returns comovements in global stock portfolios including the US Dollar as a defensive asset. The main contribution is the selection of a large set of macroeconomic and financial variables as potential drivers of these comovements and the emphasis on [...] Read more.

This paper focuses on returns comovements in global stock portfolios including the US Dollar as a defensive asset. The main contribution is the selection of a large set of macroeconomic and financial variables as potential drivers of these comovements and the emphasis on the predictive accuracy of proposed econometric models. One-year US Expected Inflation stands out as the most important predictor, while models including a larger number of variables yield significant predictive gains. Larger forecast errors, due to parameters instabilities, are documented during major financial crises and the COVID-19 pandemic period. Some research directions to improve the forecasting power of econometric models are discussed in the concluding section. Full article

(This article belongs to the Special Issue International Financial Markets and Risk Finance)

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26 pages, 1037 KiB

Open AccessArticle

Investor Perception of ESG Performance: Examining Investment Intentions in the Chinese Stock Market with Social Self-Efficacy Moderation

by Xiaojia Zhang, Li Ma and Miao Zhang

J. Risk Financial Manag. 2024, 17(4), 166; https://doi.org/10.3390/jrfm17040166 - 18 Apr 2024

Viewed by 396

Abstract

The increasing importance of environmental, social, and governance (ESG) factors has sparked scholarly interest in how company reputation influences stock market investment decisions. Most ESG research has focused on secondary data from public firms, ignoring the potential of surveys as a research tool. [...] Read more.

The increasing importance of environmental, social, and governance (ESG) factors has sparked scholarly interest in how company reputation influences stock market investment decisions. Most ESG research has focused on secondary data from public firms, ignoring the potential of surveys as a research tool. Addressing this gap, our study investigates the relationship between retail investors’ perceptions of corporate ESG performance and their investment attitude, as well as the impact on intention, with social self-efficacy serving as a moderator. The theoretical framework of this research was adopted from the theory of planned behavior (TPB) and previous studies that used TPB to measure intention reveal a range of explanations for the connection between the factors influencing intention through attitude. Structural Equation Modeling (SEM) analysis was used in this study, and the new findings show that Chinese investors’ perceptions of corporate ESG performance positively influence their investment attitudes and intentions. Furthermore, social self-efficacy moderates the relationship between the corporate environment and governance performance, attitudes, and intentions. Accordingly, this study identifies the contribution of explaining how investment intentions are related to corporate ESG performance, which has been based on past ESG studies, to lay a platform for sustainable corporate practices in the Chinese stock market. Full article

(This article belongs to the Section Financial Markets)

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17 pages, 262 KiB

Open AccessArticle

Investigating the Application of Digital Tools for Information Management in Financial Control: Evidence from Bulgaria

by Zhelyo Zhelev and Silviya Kostova

J. Risk Financial Manag. 2024, 17(4), 165; https://doi.org/10.3390/jrfm17040165 - 17 Apr 2024

Viewed by 463

Abstract

This paper discusses the application of digital information management tools in the context of financial control. In Bulgaria, such research is innovative as it is the first time that digital transformation in crucial financial control institutions, which influence the formation of the revenue [...] Read more.

This paper discusses the application of digital information management tools in the context of financial control. In Bulgaria, such research is innovative as it is the first time that digital transformation in crucial financial control institutions, which influence the formation of the revenue part of the state budget and the spending of public funds, has been studied. The study aims to answer the research question of to what extent the application of digital tools in financial control improves its effectiveness. It analyses how modern technologies improve the efficiency and accuracy of information used in financial control institutions. The authors examine the impact of digital tools, such as database management systems, business analytics platforms, and electronic document management tools, on collecting, analyzing, and managing financial and non-financial information. The study uses descriptive statistics and a correlation analysis, which significantly contributes to establishing the relationship between implemented digital tools and improvements in financial control procedures. The results show that despite the conditions created for digitalization in financial control institutions, digital tools are used to a limited extent in the information management process. The study emphasizes the need for continuous investment in digital technologies and training to maximize the benefits of their application in financial control. Full article

(This article belongs to the Section Financial Technology and Innovation)

16 pages, 1240 KiB

Open AccessArticle

The Role of Artificial Neural Networks (ANNs) in Supporting Strategic Management Decisions

by Maria do Rosário Texeira Fernandes Justino, Joaquín Texeira-Quirós, António José Gonçalves, Marina Godinho Antunes and Pedro Ribeiro Mucharreira

J. Risk Financial Manag. 2024, 17(4), 164; https://doi.org/10.3390/jrfm17040164 - 16 Apr 2024

Viewed by 1016

Abstract

Nowadays, the dynamism caused by constant changes to strategic decisions in markets poses an additional difficulty in an organization’s management. The strategic decisions made by managers can easily become obsolete. One of the major difficulties in managing a commercial organization is predicting, with [...] Read more.

Nowadays, the dynamism caused by constant changes to strategic decisions in markets poses an additional difficulty in an organization’s management. The strategic decisions made by managers can easily become obsolete. One of the major difficulties in managing a commercial organization is predicting, with some precision, the impact some strategic decisions have on the financial results. Business intelligence (BI) is widely used to help managers make strategic decisions. However, the methods used to achieve the conclusions are kept secret by BI company-based services. Modeling the environment may help predict the impact of an action in a real environment. A good model should provide the most accurate result of an applied action in a given environment. Artificial neural networks (ANNs) are proven to be excellent in modeling environments with very high data noise. The same strategic action can have different results when applied to different organizations. A tool that allows the evaluation of an applied strategic action in an environment will be of great importance in the field of management. Modeling the environment will save time and money for the organization, allowing the performance of the strategic plan to be improved. If one evaluates the state of the environment after a certain strategic action is applied, it can be possible to mitigate its risk of failure. As we will verify, it is possible to use ANNs to model strategic environments, allowing precision in the prediction of sales and operating results using particular strategies. Full article

(This article belongs to the Section Mathematics and Finance)

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14 pages, 488 KiB

Open AccessArticle

Impacts of the Transition to the Expected Loss Model on the Portuguese Banking Sector

by Miguel Resende, Carla Carvalho and Cecília Carmo

J. Risk Financial Manag. 2024, 17(4), 163; https://doi.org/10.3390/jrfm17040163 - 16 Apr 2024

Viewed by 617

Abstract

This study addresses the implementation of the International Financial Reporting Standard 9 (IFRS 9) in the European Union as of 1 January 2018, replacing the International Accounting Standard 39 (IAS 39) to introduce a new model for recognizing Loan Loss Provisions (LLP), based [...] Read more.

This study addresses the implementation of the International Financial Reporting Standard 9 (IFRS 9) in the European Union as of 1 January 2018, replacing the International Accounting Standard 39 (IAS 39) to introduce a new model for recognizing Loan Loss Provisions (LLP), based on Expected Credit Loss (ECL). This model responds to criticisms of the former Incurred Credit Loss (ICL) system for its inability to reflect credit losses in a timely manner, potentially exacerbating the effects of financial crises. This study focuses on the effects of adopting the ECL model on the level of Loan Loss Allowances (LLA) in loans, own equity, and the Common Equity Tier 1 (CET1) ratio across 13 Portuguese commercial banks. A mean comparison test is used to evaluate scenarios before and after the application of the ECL model, highlighting the importance of regulator actions and the adequacy of loss recognition policies, including the effects of European Union. The results obtained demonstrate significant negative impacts on the net values of loans, own equity, and the CET1 ratio upon adopting the IFRS 9 ECL model due to the widespread increase in LLAs. Full article

(This article belongs to the Special Issue Financial Accounting, Reporting and Disclosure)

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12 pages, 326 KiB

Open AccessArticle

An Alignment of Financial Signaling and Stock Return Synchronicity

by Tarek Eldomiaty, Islam Azzam, Karim Tarek Hamed Afifi and Mohamed Hashim Rashwan

J. Risk Financial Manag. 2024, 17(4), 162; https://doi.org/10.3390/jrfm17040162 - 16 Apr 2024

Viewed by 319

Abstract

Financial signaling and stock return synchronicity may not be at crossroads. This paper optimizes the signaling effect of firms’ financial indicators on stock return synchronicity. The ultimate objective is to align firms’ financial signaling and stock return synchronicity, which implies a benefit of [...] Read more.

Financial signaling and stock return synchronicity may not be at crossroads. This paper optimizes the signaling effect of firms’ financial indicators on stock return synchronicity. The ultimate objective is to align firms’ financial signaling and stock return synchronicity, which implies a benefit of hedging against fluctuations in the stock market index. The data cover quarterly periods from June 1992 to March 2022 for the non-financial firms listed in the DJIA30 and NASDAQ100. This paper examines the observed return synchronicity as the dependent variable. The independent variables are classified into six groups namely, Solvency (or Liquidity) ratios, Assets Efficiency ratios, Expense Control ratios, Debt (or Leverage) ratios, Profitability ratios, and Dividend ratios. The analysis is conducted on two different groups. The first group examines the observed firms’ financials that affect observed stock return synchronicity. The second group examines optimal firms’ financials that help optimize stock return synchronicity. The final results show that (a) current stock return synchronicity is affected positively by cash ratio, and negatively by receivables and historical growth of earnings; (b) optimal stock return synchronicity can be elevated using significant financial indicators namely, Inventory/Current Assets, Net Working Capital/Total Assets, Net worth/Fixed Assets, and Sales Annual Growth; (c) agency conflicts between managers and shareholders can be mitigated by the aforementioned financial indicators, which do not include debt financing being the common source of agency conflicts; and (d) dividends are still insignificant to stock return synchronization. Full article

(This article belongs to the Special Issue Financial Accounting)

18 pages, 869 KiB

Open AccessArticle

Stock Overvaluation, Management Myopia, and Long-Term Firm Performance

by Jialin Song, Luyu Wang, Sihong Wu and Yiyi Su

J. Risk Financial Manag. 2024, 17(4), 161; https://doi.org/10.3390/jrfm17040161 - 16 Apr 2024

Viewed by 293

Abstract

How does stock overvaluation in secondary financial markets affect long-term firm performance when significant corporate “insiders” seek to realize self-benefit? Using a sample of Chinese listed companies from 2007 to 2018, we find that overvaluation of stock price has a negative impact on [...] Read more.

How does stock overvaluation in secondary financial markets affect long-term firm performance when significant corporate “insiders” seek to realize self-benefit? Using a sample of Chinese listed companies from 2007 to 2018, we find that overvaluation of stock price has a negative impact on long-term firm performance. Moreover, our results show that management myopia mediates the relationship between stock overevaluation and long-term performance. Our study enriches the discussion of stock overvaluation and extends the management myopia literature by considering unique aspects of the irrational behavior of firm decision makers, providing implications for governments to improve their capital market reform and development. Full article

(This article belongs to the Special Issue Financial Markets, Financial Volatility and Beyond (Volume III))

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15 pages, 1475 KiB

Open AccessArticle

The Diversification Benefits of Foreign Real Estate: Evidence from 40 Years of Data

by C. Mitchell Conover, Joseph D. Farizo, H. Swint Friday and David S. North

J. Risk Financial Manag. 2024, 17(4), 160; https://doi.org/10.3390/jrfm17040160 - 16 Apr 2024

Viewed by 406

Abstract

We investigate the potential of global real estate to improve the long-term performance of a US equity portfolio, utilizing a recent dataset of 40 years’ worth of US stocks, US real estate, 13 foreign stock markets, and 13 foreign real estate markets across [...] Read more.

We investigate the potential of global real estate to improve the long-term performance of a US equity portfolio, utilizing a recent dataset of 40 years’ worth of US stocks, US real estate, 13 foreign stock markets, and 13 foreign real estate markets across diverse regions. Despite a modest performance in terms of risk and return, foreign real estate has consistently lower correlations with US stocks compared to foreign equities. Rolling correlation analysis indicates that foreign real estate markets remain relatively segmented compared to foreign equity, despite increasing financial market correlations over time. Efficient frontier analysis demonstrates that portfolios including foreign real estate consistently outperform those limited to US stocks and US real estate or those including foreign stocks, indicating the importance of foreign real estate in optimizing portfolio performance. Subperiod analysis reveals that foreign real estate retains its diversification benefits even in the latter, more integrated period. Our results are robust when using Conditional Value-at-Risk as a measure of risk. Overall, our findings highlight the persistent diversification benefits and superior risk-adjusted returns from incorporating foreign real estate into US equity portfolios. Full article

(This article belongs to the Special Issue Recent Advancements in Real Estate Finance and Risk Management)

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16 pages, 294 KiB

Open AccessArticle

Pathways to Success: The Interplay of Industry and Venture Capital Clusters in Entrepreneurial Company Exits

by Saurabh Ahluwalia and Sul Kassicieh

J. Risk Financial Manag. 2024, 17(4), 159; https://doi.org/10.3390/jrfm17040159 - 15 Apr 2024

Viewed by 427

Abstract

This study investigates the dynamics within entrepreneurial ecosystems, focusing on the influence of venture capital (VC) financing clusters and industry clusters on startup success. VC financing clusters, geographic hubs with intense VC funding activities, and industry clusters, regions with concentrated sector-specific firms, are [...] Read more.

This study investigates the dynamics within entrepreneurial ecosystems, focusing on the influence of venture capital (VC) financing clusters and industry clusters on startup success. VC financing clusters, geographic hubs with intense VC funding activities, and industry clusters, regions with concentrated sector-specific firms, are integral components. Expanding existing research that links proximity to these clusters with successful exits through mergers and acquisitions (M&A), our study includes initial public offerings (IPOs) as a vital exit strategy. Results show that affiliations with venture capitalists in prominent VC financing clusters enhance M&A and IPO success for startups. Intriguingly, startups in industry strongholds exhibit a greater likelihood of M&A success, but, this effect is not seen for IPO exits. Additionally, the absence of startup co-location with venture capitalists in VC financing hubs does not impact IPO exits but hinders M&A success. These nuanced insights highlight the complex relationships within entrepreneurial ecosystems and underscore the need for tailored perspectives considering diverse exit pathways. Full article

(This article belongs to the Section Business and Entrepreneurship)

17 pages, 385 KiB

Open AccessArticle

A Discrete Risk-Theory Approach to Manage Equity-Linked Policies in an Incomplete Market

by Francesco Della Corte and Francesca Marzorati

J. Risk Financial Manag. 2024, 17(4), 158; https://doi.org/10.3390/jrfm17040158 - 14 Apr 2024

Viewed by 404

Abstract

We construct a model where, at each time instance, risky securities can only take a limited number of values and the equity-linked policy sold by the insurer to policyholders pays benefits linked to these securities. Since the number of states in the model [...] Read more.

We construct a model where, at each time instance, risky securities can only take a limited number of values and the equity-linked policy sold by the insurer to policyholders pays benefits linked to these securities. Since the number of states in the model exceeds the number of securities in the (incomplete) market, the martingale measure is not unique, posing a problem in pricing insurance instruments. In this framework, we consider how a super-replicating strategy violates the assumption of absence of arbitrage, yet simultaneously allows the insurance company to fully hedge against financial risk. Since the super-replicating strategy, when considered alone, would be too costly for any rational insured person, through the definition of the safety loading, we demonstrate how the insurer can still hedge against financial risk, albeit at the expense of increasing its exposure to demographic risk. This approach does not aim to show how the pricing of the index-linked policy can actually be performed but rather highlights how risk theory-based approaches (via the definition of the profit and loss random variable) enable the management of the trade-off between financial risk and demographic risk. Full article

(This article belongs to the Special Issue Big Data and Complex Networks in Finance and Insurance)

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22 pages, 1825 KiB

Open AccessArticle

Valuation of Patent-Based Collaborative Synergies under Strategic Settings with Multiple Uncertainties: Rainbow Real Options Approach

by Andrejs Čirjevskis

J. Risk Financial Manag. 2024, 17(4), 157; https://doi.org/10.3390/jrfm17040157 - 13 Apr 2024

Viewed by 334

Abstract

Recent years have seen increasing initiatives involving more applications of real options to value the strategizing process. These initiatives, referred to as Real Option Theory (ROT), imply greater inclusiveness of simple and advanced real options in strategizing processes. While substantial theoretical groundwork on [...] Read more.

Recent years have seen increasing initiatives involving more applications of real options to value the strategizing process. These initiatives, referred to as Real Option Theory (ROT), imply greater inclusiveness of simple and advanced real options in strategizing processes. While substantial theoretical groundwork on ROT has been laid in corporate finance, and both qualitative and quantitative studies on ROT in business management journals are appearing on an increasing basis, there remain significant opportunities for more research on strategic synergism in patent-based acquisitions. In this vein, the current paper aims to explore a rainbow real options application (real options that are exposed to two sources of uncertainty) to measure patent-based collaborative synergies in high-tech mergers and acquisitions. Having conducted the deviant case study of ZOOX start-up’s acquisition by Amazon.com in 2020, this paper justifies the proposition of the employability of rainbow real options for the valuation of network and relational synergies in highly risky patent-based acquisitions with multiple uncertainties. Full article

(This article belongs to the Special Issue The New Econometrics of Financial Markets)

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20 pages, 3336 KiB

Open AccessArticle

Macroeconomic Dynamics in the Greek Economy during the Pre- and Post-Euro Adoption Periods

by Dimitrios R. Barkoulas and Dionysios Chionis

J. Risk Financial Manag. 2024, 17(4), 156; https://doi.org/10.3390/jrfm17040156 - 12 Apr 2024

Viewed by 470

Abstract

This study examines the relationships between Greek macroeconomic variables, examining before and after the euro’s introduction as a currency. We conducted an extensive analysis from 1980 to 2019, examining various economic indicators such as government expenditure, unemployment rates, taxation, inflation, and national debt, [...] Read more.

This study examines the relationships between Greek macroeconomic variables, examining before and after the euro’s introduction as a currency. We conducted an extensive analysis from 1980 to 2019, examining various economic indicators such as government expenditure, unemployment rates, taxation, inflation, and national debt, employing causal and correlation analysis and econometric modeling with and without time-varying effects. The results revealed a significant correlation between the introduction of the euro and a tighter relationship between government spending and unemployment levels, while one more remarkable point was that higher government spending or debt reduction initiatives appeared to positively impact joblessness, particularly in the context of the euro. Our research underscored the correlation between national debt and government spending as increased debt led to reduced government expenditure and vice versa. Unemployment cited an increased impact on government spending right after the euro adoption, and on the other hand, the effect of unemployment on government spending decreased. The debt–government spending nexus was decreasing for many years before the euro adoption, while just before the euro adoption, the relationship between debt and government spending was rather stable. Finally, during the euro adoption, the effect of inflation on tax increased, while the corresponding inflation tax remained stable. Our findings have significant implications for policymakers shaping the economic strategies in Greece as they point out the necessity for stable and balanced approaches that manage government spending and debt to address unemployment effectively. Full article

(This article belongs to the Special Issue Open Economy Macroeconomics)

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17 pages, 1325 KiB

Open AccessArticle

Asymmetric Effects of Uncertainty and Commodity Markets on Sustainable Stock in Seven Emerging Markets

by Pitipat Nittayakamolphun, Thanchanok Bejrananda and Panjamapon Pholkerd

J. Risk Financial Manag. 2024, 17(4), 155; https://doi.org/10.3390/jrfm17040155 - 12 Apr 2024

Viewed by 515

Abstract

The increase in global economic policy uncertainty (EPU), volatility or stock market uncertainty (VIX), and geopolitical risk (GPR) has affected gold prices (GD), crude oil prices (WTI), and stock markets, which present challenges for investors. Sustainable stock investments in emerging markets may minimize [...] Read more.

The increase in global economic policy uncertainty (EPU), volatility or stock market uncertainty (VIX), and geopolitical risk (GPR) has affected gold prices (GD), crude oil prices (WTI), and stock markets, which present challenges for investors. Sustainable stock investments in emerging markets may minimize and diversify investor risk. We applied the non-linear autoregressive distributed lag (NARDL) model to examine the effects of EPU, VIX, GPR, GD, and WTI on sustainable stocks in seven emerging markets (Thailand, Malaysia, Indonesia, Brazil, South Africa, Taiwan, and South Korea) from January 2012 to June 2023. EPU, VIX, GPR, GD, and WTI showed non-linear cointegration with sustainable stocks in seven emerging markets and possessed different asymmetric effects in the short and long run. Change in EPU increases the return of Thailand’s sustainable stock in the long run. The long-run GPR only affects the return of Indonesian sustainable stock. All sustainable stocks are negatively affected by the VIX and positively affected by GD in the short and long run. Additionally, long-run WTI negatively affects the return of Indonesia’s sustainable stocks. Our findings contribute to rational investment decisions on sustainable stocks, including gold and crude oil prices, to hedge the asymmetric effect of uncertainty. Full article

(This article belongs to the Special Issue Financial Valuation and Econometrics)

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25 pages, 2381 KiB

Open AccessArticle

Separating Equilibria with Search and Selection Effort: Evidence from the Auto Insurance Market

by David Rowell and Peter Zweifel

J. Risk Financial Manag. 2024, 17(4), 154; https://doi.org/10.3390/jrfm17040154 - 11 Apr 2024

Viewed by 375

Abstract

The objective of this paper is to assess the behavior of policyholders and insurance companies in the presence of adverse selection by accounting for costly search and selection efforts, respectively. Insurers seek to stave off high-risk types, while consumers are hypothesized to maximize [...] Read more.

The objective of this paper is to assess the behavior of policyholders and insurance companies in the presence of adverse selection by accounting for costly search and selection efforts, respectively. Insurers seek to stave off high-risk types, while consumers are hypothesized to maximize coverage at a given premium. Reaction functions are derived for the two players giving rise to Nash equilibria in efforts space, which are separating almost certainly regardless of the share of low risks in the market. Empirical evidence from the Australian market for automobile insurance is analyzed using Structural Equation Modeling. Convergence has been achieved with both the developmental and test samples. Both consumer search and insurer selection are found to be positively correlated with risk type, providing a good measure of empirical support for the theoretical model. Full article

(This article belongs to the Special Issue Featured Papers in Mathematics and Finance)

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19 pages, 687 KiB

Open AccessArticle

Role of Remittance on Sustainable Economic Development in Developing and Emerging Economies: New Insights from Panel Cross-Sectional Augmented Autoregressive Distributed Lag Approach

by Shasnil Avinesh Chand and Baljeet Singh

J. Risk Financial Manag. 2024, 17(4), 153; https://doi.org/10.3390/jrfm17040153 - 11 Apr 2024

Viewed by 577

Abstract

In this study, we aim to investigate the effects of remittance on sustainable economic development in 52 developing and emerging economies from 1996 to 2021. The study uses other variables such as real GDP per capita, total natural resource rents, globalization, and foreign [...] Read more.

In this study, we aim to investigate the effects of remittance on sustainable economic development in 52 developing and emerging economies from 1996 to 2021. The study uses other variables such as real GDP per capita, total natural resource rents, globalization, and foreign direct investment. To achieve the mentioned objective, we apply a series of second-generation panel estimation approaches. These include CIPS unit root, Westerlund cointegration, cross-sectional augmented autoregressive distributed lag (CS-ARDL), and robustness using augmented mean group (AMG) and common correlated mean group (CCEMG). These methods are useful provided they are robust towards cross-country dependencies, slope heterogeneity, endogeneity, and serial correlation, which are disregarded in the conventional panel estimations. The empirical findings indicate that remittance accelerates sustainable economic development. Additionally, real GDP per capita and globalization also positively contribute towards sustainable economic development. However, total resource rents deteriorate sustainable economic development. This study offers key policy implications based on the empirical findings for the developing and emerging economies. Full article

(This article belongs to the Special Issue Realizing Economic Diversification from Diverse Economic Perspectives)

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22 pages, 493 KiB

Open AccessArticle

The Impact of the Digital Capability of College Students’ New Enterprises on Business Model Innovation Driven by the Digital Economy: The Mediating Effect of Digital Opportunity Discovery

by Fengliang Li and Khunanan Sukpasjaroen

J. Risk Financial Manag. 2024, 17(4), 152; https://doi.org/10.3390/jrfm17040152 - 11 Apr 2024

Viewed by 429

Abstract

Based on the theoretical frameworks on dynamic capabilities and business model innovation, we conducted a comprehensive survey and analysis involving 451 Chinese university student enterprises. The primary objective was to investigate the synergistic mechanism between these two factors, assessing their impact on business [...] Read more.

Based on the theoretical frameworks on dynamic capabilities and business model innovation, we conducted a comprehensive survey and analysis involving 451 Chinese university student enterprises. The primary objective was to investigate the synergistic mechanism between these two factors, assessing their impact on business model innovation and tracing the evolutionary path. The study revealed the following key findings: (1) positive correlations exist between digital capabilities and business model innovation; (2) entrepreneurial passion serves as a mediator in the positive relationship between digital capabilities and the discovery of digital opportunities; (3) digital opportunity discovery acts as a mediator in the relationship between digital capabilities and business model innovation; (4) under the mediation of dynamic capabilities, digital opportunity discovery significantly promotes business model innovation. Our research contributes to the empirical exploration of digitization in enterprises, shedding light on the collaborative influence of digital capabilities and digital opportunity discovery on business model innovation. Importantly, it elucidates the contextual boundaries that influence business model innovation through diverse pathways, enhancing our comprehensive understanding of the dynamic landscape in the evolution of digital business transformations. Full article

(This article belongs to the Special Issue Fintech and Green Finance)

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19 pages, 301 KiB

Open AccessArticle

The Impact of Audit Oversight Quality on the Financial Performance of U.S. Firms: A Subjective Assessment

by Rebecca Abraham, Hani El Chaarani and Zhi Tao

J. Risk Financial Manag. 2024, 17(4), 151; https://doi.org/10.3390/jrfm17040151 - 10 Apr 2024

Viewed by 523

Abstract

Audit committees are appointed by the board of directors of corporations to oversee the financial reporting process, monitor financial control processes, hire and assess independent auditors, and communicate findings with management and auditors. We propose two new measures of audit oversight quality. The [...] Read more.

Audit committees are appointed by the board of directors of corporations to oversee the financial reporting process, monitor financial control processes, hire and assess independent auditors, and communicate findings with management and auditors. We propose two new measures of audit oversight quality. The first measure is purely subjective, in that it scores audit committees on a scale based on their ability to fulfill one or more of their responsibilities, as mentioned in annual reports, Form 10-K and DEF 13A. The second measure concerns audit committee activity, as it measures the number of times the term ‘audit committee’ is mentioned in these documents. Both measures were obtained for U.S. pharmaceutical companies and energy companies from 2010 to 2022. The audit oversight quality measures were regressed in regard to profitability (measured by return on assets and return on equity), debt capacity (measured by equity multiplier), and firm value (measured by Tobin’s q and economic value added). Audit oversight quality, using both measures, reduces the return on equity. Audit oversight quality, using both measures, had a disciplining effect on debt. Increases in the oversight of increasing debt discourage the propensity to increase borrowing using collateral (debt capacity), and reduce investor returns through investment in debt-financed projects (return on equity). Audit oversight quality, using both measures, exhibited a size effect on the firm’s value, in that an increase in the firm size with high audit oversight quality increases the firm’s value. However, it is possible that only the first measure of audit oversight quality significantly increased the firm’s value, as only the first measure exhibited robustness to the endogeneity effect of size. Full article

(This article belongs to the Special Issue Sustainable Tax and Accounting Reporting in Building a New Tax Culture)

16 pages, 739 KiB

Open AccessArticle

Perceived Risk and External Finance Usage in Small- and Medium-Sized Enterprises: Unveiling the Moderating Influence of Business Age

by Nawal Abdalla Adam

J. Risk Financial Manag. 2024, 17(4), 150; https://doi.org/10.3390/jrfm17040150 - 09 Apr 2024

Viewed by 508

Abstract

The attainment of adequate finance remains a substantial hindrance for small- and medium-sized enterprises (SMEs) across many countries. This study aim to investigate the association between SMEs’ external finance utilization and perceived risk (PR). Additionally, it intends to explore the moderating role of [...] Read more.

The attainment of adequate finance remains a substantial hindrance for small- and medium-sized enterprises (SMEs) across many countries. This study aim to investigate the association between SMEs’ external finance utilization and perceived risk (PR). Additionally, it intends to explore the moderating role of business age (BAge) in the relationship between SMEs’ external finance utilization and PR. The study employed a structured online questionnaire to gather data from 711 SME owners/managers in Saudi Arabia. SmartPLS 4 software was utilized to analyze the research data. The results of the partial least squares structural equation modeling confirmed that the decision of SMEs to use external financing is significantly and negatively impacted by the PRs associated with external finance. Furthermore, BAge moderates the relationship between PR and SMEs’ external finance usage (EFU). However, the study found that BAge does not significantly affect both the PRs and the SMEs’ EFU. This study highlights the intricate dynamics of PR, BAge, and an SME’s decision to employ external finance. The practical and theoretical implications of the study findings are thoroughly discussed. Full article

(This article belongs to the Section Business and Entrepreneurship)

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28 pages, 9591 KiB

Open AccessArticle

Persistence in the Realized Betas: Some Evidence from the Stock Market

by Guglielmo Maria Caporale, Luis A. Gil-Alana and Miguel Martin-Valmayor

J. Risk Financial Manag. 2024, 17(4), 149; https://doi.org/10.3390/jrfm17040149 - 07 Apr 2024

Viewed by 501

Abstract

This paper examines the stochastic behaviour of the realized betas in the CAPM model for the ten largest companies in terms of market capitalisation included in the U.S. Dow Jones stock market index. Fractional integration methods are applied to estimate their degree of [...] Read more.

This paper examines the stochastic behaviour of the realized betas in the CAPM model for the ten largest companies in terms of market capitalisation included in the U.S. Dow Jones stock market index. Fractional integration methods are applied to estimate their degree of persistence at daily, weekly, and monthly frequencies over the period July 2000–July 2020 over time spans of 1, 3, and 5 years. On the whole, the results indicate that the realized betas are highly persistent and do not exhibit weak mean-reverting behaviour at the weekly and daily frequencies, whilst there is some evidence of weak mean reversion at the monthly frequency. Our findings confirm the sensitivity of beta calculations to the choice of frequency and time span (the number of observations). Full article

(This article belongs to the Section Economics and Finance)

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34 pages, 6169 KiB

Open AccessArticle

A Solvency II Partial Internal Model Considering Reinsurance and Counterparty Default Risk

by Matteo Crisafulli

J. Risk Financial Manag. 2024, 17(4), 148; https://doi.org/10.3390/jrfm17040148 - 06 Apr 2024

Viewed by 524

Abstract

Estimating the expected capital and its variability is a crucial objective for a non-life insurance company, which enables the firm to develop effective management strategies. Many studies have been devoted to this topic, with simulative approaches being especially employed for solving the complexity [...] Read more.

Estimating the expected capital and its variability is a crucial objective for a non-life insurance company, which enables the firm to develop effective management strategies. Many studies have been devoted to this topic, with simulative approaches being especially employed for solving the complexity of the interacting risks, not manageable through closed-form solutions. In this paper, we present a realistic framework based on Solvency II for the definition of next-year capital of a non-life insurer, including reinsurance treaties and counterparty default risk, in a multi-line of business setting. We determine the mean and variance of the stochastic capital considering both quota share and excess-of-loss reinsurance. We show how these closed-form results enable the analysis of many different real-world strategies, granting the insurer the possibility of choosing the optimal policy without the computational resources and time constraints required by simulative approaches. Full article

(This article belongs to the Special Issue Big Data and Complex Networks in Finance and Insurance)

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29 pages, 3280 KiB

Open AccessArticle

Modeling the Nexus between European Carbon Emission Trading and Financial Market Returns: Practical Implications for Carbon Risk Reduction and Hedging

by Mosab I. Tabash, Mujeeb Saif Mohsen Al-Absy and Azzam Hannoon

J. Risk Financial Manag. 2024, 17(4), 147; https://doi.org/10.3390/jrfm17040147 - 05 Apr 2024

Viewed by 616

Abstract

The carbon–financial nexus helps firms evaluate susceptibility to carbon risk more effectively. This is the first research article to model the short- and long-run co-integrating association between European financial markets, the CBOE oil price volatility index (OVZ) and the European carbon emission trading [...] Read more.

The carbon–financial nexus helps firms evaluate susceptibility to carbon risk more effectively. This is the first research article to model the short- and long-run co-integrating association between European financial markets, the CBOE oil price volatility index (OVZ) and the European carbon emission trading system (EU-ETS) by using the daily returns from 1 October 2013 to 1 October 2023. We utilize co-integration test followed by the ARDL framework with an error correction mechanism (ECM). Moreover, we utilize the DCC-GARCH-t copula framework to estimate the hedge ratio and to select an optimal portfolio weight for carbon risk hedging. Overall, the findings suggested that EU-ETS (OVZ) has a consistent positive (negative) short-term influence on all the equity returns of Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Spain and the stock indices of the whole Eurozone. However, in the long term, EU-ETS has a positive (negative) effect on the stock returns of France and the Eurozone (Belgium and Spain). Belgian and Spanish companies could implement long-term carbon reduction policies. Belgian and Spanish firms should focus on the utilization of green energy resources and the internalization of carbon emission-free mechanical processes as this may offer a safeguard against the additional pressure arising from escalating carbon prices. Finally, an optimal portfolio weight selection strategy based upon the DCC-GARCH-t copula approach aims for higher hedging effectiveness (HE) than the hedge ratio strategy when adopting short-term positions in Italian and Danish equity markets to reduce the risk of long-term EU-ETS volatility. Full article

(This article belongs to the Section Financial Markets)

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21 pages, 432 KiB

Open AccessArticle

The Influence of Financial Indicators on Vietnamese Enterprise’s Sustainability Reports Disclosing Process

by Nguyen Thi Mai Anh, Nguyen Thanh An, Nguyen Thi Minh Ngoc and Vu Ngoc Xuan

J. Risk Financial Manag. 2024, 17(4), 146; https://doi.org/10.3390/jrfm17040146 - 04 Apr 2024

Viewed by 930

Abstract

Sustainability reporting has become increasingly crucial for businesses worldwide, communicating environmental, social, and governance (ESG) performance to stakeholders. Despite the growing importance of sustainability reporting, there remains a gap in understanding how financial indicators influence the disclosure process, particularly in Vietnamese enterprises. This [...] Read more.

Sustainability reporting has become increasingly crucial for businesses worldwide, communicating environmental, social, and governance (ESG) performance to stakeholders. Despite the growing importance of sustainability reporting, there remains a gap in understanding how financial indicators influence the disclosure process, particularly in Vietnamese enterprises. This paper aims to address this gap by investigating the influence of financial indicators on the sustainability reporting practices of Vietnamese companies. Employing a mixed-methods approach, combining a quantitative analysis of financial data with a qualitative assessment of sustainability reports, the research seeks to uncover the nuanced relationship between financial performance metrics and the quality and extent of sustainability disclosures. The research was conducted to identify, evaluate, and measure financial factors affecting the quality of companies’ sustainability reports in Vietnam. The research is based on scoring the sustainable development reports of the top 100 listed joint stock companies on the HOSE—Ho Chi Minh City Stock Exchange. Based on the research model of Dissanayake, in the case of Vietnam, we build a scoring model for the sustainable development report based on GRI standards and add additional criteria appropriate to the situation of each listed company on the Vietnam stock exchange. Based on the research overview, our team tested hypotheses related to the short-term current ratio, total asset turnover ratio (AT), return on equity ratio (ROE), and debt-to-equity ratio (DE). The empirical results show that the AT and ROE significantly positively affect the sustainability reports; the DE hurts the sustainability reports. The findings are expected to provide valuable insights into the factors shaping sustainability reporting practices in Vietnam and contribute to the existing literature on corporate disclosure and sustainability. Full article

(This article belongs to the Special Issue Featured Papers in Corporate Finance and Governance)

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25 pages, 3780 KiB

Open AccessReview

Analyzing Trends in Green Financial Instrument Issuance for Climate Finance in Capital Markets

by Purity Maina, Balázs Gyenge, Mária Fekete-Farkas and Anett Parádi-Dolgos

J. Risk Financial Manag. 2024, 17(4), 145; https://doi.org/10.3390/jrfm17040145 - 04 Apr 2024

Viewed by 669

Abstract

Numerous stakeholders concur that tackling the climate change effect requires massive financial mobilization from the public and private sectors to reduce the climate financing gap. Capital markets are among the key players fostering this mobilization by issuing green financial instruments and facilitating capital [...] Read more.

Numerous stakeholders concur that tackling the climate change effect requires massive financial mobilization from the public and private sectors to reduce the climate financing gap. Capital markets are among the key players fostering this mobilization by issuing green financial instruments and facilitating capital flows to green investments. The study aimed to conduct a bibliometric analysis to fill a knowledge gap by evaluating the status and linkages in the literature on capital markets’ green financial instrument issuances. We utilized the Bibliometrix R package and VOS viewer to analyze 314 relevant publications from the Web of Science in 2017–2023 following the Sustainable Stock Exchanges’ green finance voluntary action plan. The analysis entailed mapping the scientific production trends, journal significance, author productivity, keyword linkages, emerging and trending topics, and collaborations within social structures. Further, the study assessed the applicability of Bradford’s, Zipf’s, and Lotka’s bibliometric laws. We highlight six conclusions based on the analysis, their relevance to various stakeholders, and future research directions. The findings are essential in enhancing the decision-making process of policymakers, corporations, responsible investors, and researchers interested in understanding the effectiveness and impact of green financial instruments. Full article

(This article belongs to the Special Issue Research on Financial and Commodity Markets: Emerging Trends and Challenges)

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25 pages, 381 KiB

Open AccessArticle

Strategic Deviation and Corporate Tax Avoidance: A Risk Management Perspective

by Ahsan Habib, Dinithi Ranasinghe and Ahesha Perera

J. Risk Financial Manag. 2024, 17(4), 144; https://doi.org/10.3390/jrfm17040144 - 04 Apr 2024

Viewed by 554

Abstract

We examine the association between strategic deviation—defined as the deviation of firms’ resource allocation from that of industry peers—and corporate tax avoidance. By combining the agency perspective with the risk aspect, we argue that managers of firms with high strategic deviation avoid tax [...] Read more.

We examine the association between strategic deviation—defined as the deviation of firms’ resource allocation from that of industry peers—and corporate tax avoidance. By combining the agency perspective with the risk aspect, we argue that managers of firms with high strategic deviation avoid tax compared with those of firms with low strategic deviation. High-strategic-deviant firms who avoid tax are likely to face the risk of compromising firm value. Based on a large sample of 40,168 US firm-year observations for the period 1987–2020, we find evidence supporting our hypothesis. A series of robustness tests validates our main finding. We further provide evidence to suggest that the positive association between strategic deviation and tax avoidance is stronger for deviant firms with high financial constraints, low institutional ownership, firms operating in more competitive markets, and procuring higher auditor provided tax services from incumbent auditors. Importantly, we show that the capital market penalises tax avoidance strategies undertaken by the deviant firms. Full article

(This article belongs to the Special Issue Credit Markets & Credit Risk Management)

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J. Risk Financial Manag., Volume 17, Issue 4 (April 2024) – 43 articles

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