Template-Type: ReDIF-Article 1.0 Author-Name: Hsiou-Wei Lin Author-Name: Wen-Chuan Miao Title: EXPLORING OPTIMISM IN RECOMMENDATIONS ACCOMPANYING ANALYST CONFLICT OF INTEREST RULES Abstract: This study examines bias in recommendations following the enactment of the research analyst conflict of interest rules introduced around 2002. We label analyst recommendations as being seemingly unaffiliated when contributors are not underwriters but an acquirer or target firm of underwriters. We find that after the introduction of the rules, bias in affiliated recommendations diminishes, whereas seemingly unaffiliated recommendations reveal no signs of difference in their level of optimism. Moreover, both affiliated and seemingly unaffiliated analysts disproportionately issue unfavorable recommendations for unaffiliated firms immediately before the effective date of the rules. Our empirical evidence indicates that seemingly unaffiliated recommendations are subject to conflicts of interest. During the process of mergers and acquisitions, analysts from target firms appear to issue more optimistic recommendations than unaffiliated analysts do on their acquirer firms’ clients. After the announcement date, recommendations issued by target analysts are more optimistic than those by unaffiliated analysts despite the fact that former recommendations are relatively pessimistic before the announcement date. Classification-JEL: G24; G28; G34; M41 Keywords: Analyst recommendation; Mergers and acquisitions; Conflicts of interest Journal: The International Journal of Business and Finance Research Pages: 1-15 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-1.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:1-15 Template-Type: ReDIF-Article 1.0 Author-Name: Devrim Yaman Title: CONVERTIBLE BOND DESIGN AND LONG-RUN OPERATING PERFORMANCE Abstract: This paper examines the influence of bond design on the long-run operating performance of convertible bond issuers and the determinants of this performance. Bonds are classified as equity-like and debt-like according to their probability of conversion at the time of the issue. The measure of long-run operating performance is the pre-tax cash flows of the firm. The results show that in the three years before the offering equity-like convertibles have better performance than debt-like convertibles while the performance in the three years after the offering is similar for the two groups of firms. The results also show that the factors that determine the long-run operating performance of equity-like and debt-like offerings are different. For example, the rating of the bond issued has a more positive influence on the performance of equity-like issues compared to debt-like issues. The level of information asymmetry, on the other hand, has a more negative influence on the performance of equity-like issues. The study contributes to the literature by incorporating convertible bond design into the study of the long-run operating performance of these bonds. Classification-JEL: G31, G32 Keywords: Convertible bonds, long-run performance; operating performance; bond design Journal: The International Journal of Business and Finance Research Pages: 17-30 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-2.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:17-30 Template-Type: ReDIF-Article 1.0 Author-Name: Hsin-Yu Liang Author-Name: Alan K. Reichert Title: ARE EMPIRICAL RESULTS IN ECONOMIC GROWTH MODELS BIASED BECAUSE OF OMITTED VARIABLES? CROSS-COUNTRY EVIDENCE Abstract: This study examines the impact of external factors, such as law, regulation, and technology on a country’s rate of economic growth. The results suggest that the technological, legal, and regulatory environment can play a major role towards enhancing the smooth functioning of the financial system and economic growth. While a growing body of evidence examines the individual impact of similar external factors, Demirguc-Kunt (2006) argues that it is crucial to consider all the relevant factors together in one model. Thus, this study first examines the individual impact of these external factors for both advanced and emerging countries. Next, we examine the joint impact of relevant factors selected by stepwise regression procedures. The findings provide evidence for both groups of countries that the best models for predicting economic growth are ones that do include all the relevant factors together in one model. Classification-JEL: K00; G28; G21; O16; O11 Keywords: Legal system, regulation, technology, financial development, economic growth. Journal: The International Journal of Business and Finance Research Pages: 31-42 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-3.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:31-42 Template-Type: ReDIF-Article 1.0 Author-Name: E. M. Ekanayake Author-Name: John R. Ledgerwood Title: HOW DOES FOREIGN DIRECT INVESTMENT AFFECT GROWTH IN DEVELOPING COUNTRIES? AN EMPIRICAL INVESTIGATION Abstract: This paper analyzes the effects of foreign direct investment on the economic growth of developing countries. The study uses annual data on a group of 85 developing countries covering Asia, Africa, and Latin America and the Caribbean for the period 1980-2007. We explore the hypothesis that foreign direct investment can promote growth in developing countries. We test this hypothesis using panel data series for foreign direct investment, while accounting for regional differences in Asian, African, Latin American, and the Caribbean countries as well as the differences in income levels. While the findings of previous studies are generally mixed, our results indicate that foreign direct investment has positive and significant effect on economic growth. Classification-JEL: F21, F43, O40 Keywords: Foreign direct investment, developing countries, economic growth Journal: The International Journal of Business and Finance Research Pages: 43-53 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-4.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:43-53 Template-Type: ReDIF-Article 1.0 Author-Name: Bienvenido S. Cortes Title: IMPACT OF SMALL BUSINESS ADMINISTRATION LENDING ON STATE-LEVEL ECONOMIC PERFORMANCE: A PANEL DATA ANALYSIS Abstract: Based on the few studies in their 2009 literature review, Craig, Jackson, and Thomson find that the economic impact of SBA loans on regional economic performance is positive, albeit small This study analyzes the relationships between economic performance and SBA lending using a panel of state-level data for the 1986-2008 period. It focuses primarily on the SBA 504-guaranteed lending program because this program’s objective is to provide long-term financing to small firms. Through its Certified Development Companies working with local banks, the SBA is able to provide long-term, fixed rate loans so that businesses can acquire physical assets such as land and buildings and help generate jobs. Thus, the main purpose of this paper is to analyze and measure the impact of SBA 504 loans on various indicators of small business activity such as employment rate and per capita income, while also controlling for other determinants of state economic growth. A preliminary test showed that SBA lending is not endogenous at the state-level. As a result, moderated regression analysis was applied to the state-level panel data set whereby the dependent variable is regressed sequentially on certain control variables, independent variables, and then an interaction term. A version of Craig’s model was estimated using three different dependent variables – income growth, small firm growth, and employee growth. The control variables of location quotient andNBER showed that local industrial composition and national business cycles are important determinants of state economic performance. The estimated coefficients for SBA lending were found to be small, insignificant, and had the unexpected negative signs with respect to its relationship with income. On the other hand, SBA loans had a positive and significant impact on the growth of small businesses and by consequence, the number of workers employed in small firms. The bank deposit variable had a positive and significant relation only with employee growth, albeit a very small effect. Finally, this study found that SBA lending was not biased in favor of lower income areas. Classification-JEL: R11; O16 Keywords: Small business lending, endogeneity, panel data Journal: The International Journal of Business and Finance Research Pages: 55-65 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-5.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:55-65 Template-Type: ReDIF-Article 1.0 Author-Name: Fitri Ismiyanti Title: EVIDENCE ON MARKET MICROSTRUCTURE IN INDONESIAN MARKETS Abstract: Divergence of opinion causes market prices to differ from intrinsic values. Greater divergence of opinion results in larger bid/ask spreads. This study utilizes Miller’s theory (Miller, 1977) which states that differences between bid and ask prices (price spread) is caused by divergence of opinion between buyers and sellers. This study tests a price spread condition that reflects the existence of agency conflict referred to as stock price premium (SPP) and stock price discount (SPD). The conditions relate to agency cost control mechanisms that result from foreign and domestic institutional ownership. This research employs Structural Equation Modeling (SEM) with multi-group structural equation modeling (MSEM). The results show SPD has lower agency conflict than SPP, and a negative effect of foreign and domestic institutional ownership to agency cost. Classification-JEL: G3; G30; G32; G38 Keywords: Stock price premium, stock price discount, agency cost, ownership Journal: The International Journal of Business and Finance Research Pages: 67-77 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-6.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:67-77 Template-Type: ReDIF-Article 1.0 Author-Name: Yin-Ching Jan Author-Name: Su-Ling Chiu Title: HOLDING PERIOD AND CROSS-SECTIONAL STOCK RETURNS: EVIDENCE FROM TAIWAN Abstract: This paper employs a hybrid approach that combines an adapted version of Fama-MacBeth two-pass regression with Engle-Granger cointegration test to characterize the relationship between expected stock returns and systematic risks with diverse investment horizons. We find no evidence supporting a positive relationship between the market beta and return for various investment horizons. The book-to-market effect is sensitive to the investment horizon. We find a size effect for diverse investment horizons in period from 1986 to 1993. However, the size effect disappears in the subsequent period. Classification-JEL: G11; G12 Keywords: Asset pricing model, cointegration, holding period Journal: The International Journal of Business and Finance Research Pages: 79-91 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-7.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:79-91 Template-Type: ReDIF-Article 1.0 Author-Name: Wen-Cheng Lu Author-Name: Fang-Jun Lin Title: AN EMPIRICAL STUDY OF VOLATILITY AND TRADING VOLUME DYNAMICS USING HIGH-FREQUENCY DATA Abstract: This paper examines the dynamic relationship of volatility and trading volume using a bivariate vector autoregressive methodology. This study found bidirectional causal relations between trading volume and volatility, which is in accordance with sequential information arrival hypothesis that suggests lagged values of trading volume provide the predictability component of current volatility. Findings also reveal that trading volume shocks significantly contribute to the variability of volatility and then volatility shocks partly account for the variability of trading volume. Classification-JEL: C01, G0, O16, O30 Keywords: Trading volume; Volatility; Sequential information arrival hypothesis; Mixture of distribution hypothesis Journal: The International Journal of Business and Finance Research Pages: 93-101 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-8.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:93-101 Template-Type: ReDIF-Article 1.0 Author-Name: Subrata Kumar Mitra Title: RELATIONSHIPS AMONG FOREIGN INSTITUTIONAL INVESTMENTS, STOCK RETURNS AND CURRENCY CHANGE-OVER RATES IN INDIA Abstract: India from a conservative macroeconomic policy has gradually shifted focus towards attracting foreign capital. From September 14, 1992, with suitable controls, it allowed foreign investors to invest in primary and secondary capital markets in India and foreign funds started flowing from the year 1993. Foreign Institutional Investments has steadily grown from $11,268 million in March 2000 to $62,464 million in July 2009. Foreign fund flow increases demand for good stocks causing upward movement in stock prices. Currency changeover rates also influence foreign investments as Foreign institutional investors calculate returns in foreign currencies. In this study, we explored relations between foreign investment in India with that of stock prices in the domestic market and domestic currency changeover rates. Using daily data for the period January 2000 to July 2009, the study examined cause-effect relations and long-term relations among the series. Most of the studies in Indian market reported that domestic stock returns attract foreign fund flows but foreign flows do not cause stock returns in India. The results of this study using data for past nine and half years however detected bidirectional causality. Classification-JEL: E44; G15 Keywords: Causality, Cointegration, Foreign Institutional Investment Journal: The International Journal of Business and Finance Research Pages: 103-112 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-9.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:103-112 Template-Type: ReDIF-Article 1.0 Author-Name: Shuzhang Sun Author-Name: Christopher Gan Author-Name: Baiding Hu Title: THE EFFECTS OF SHORT-TERM INTEREST RATES ON OUTPUT, PRICE AND EXCHANGE RATES: RECENT EVIDENCE FROM CHINA Abstract: lected macro-variables in China. Johansen’s cointegration tests fail to find a moving equilibrium among the related variables. Based on a VAR model in first differences, we find that an unexpected temporary one-off shock to the change in the seven-day money market interbank borrowing rate does not have significant influence on GDP changes but a significant influence on price level changes in a wrong direction. Empirical testing demonstrates that the seven-day Repo rate has an insignificant influence on both GDP changes and on the price level changes. Furthermore, the relationships between monetary aggregate (M2) and short-run money market interest rates suggest that the short-run interest rates do not have significant influence on the monetary aggregate. Therefore, we have determined that short-run money market interest rates are ineffective as a monetary policy-operating objective. Classification-JEL: E4, E5, E6 Keywords: monetary, money, macroeconomic policy Journal: The International Journal of Business and Finance Research Pages: 113-131 Volume:4 Issue: 3 Year: 2010 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v4n3-2010/IJBFR-V4N3-2010-10.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:113-131