Template-Type: ReDIF-Article 1.0 Author-Name: Chun-Pin Hsu Title: The Influence of Foreign Portfolio Investment on Domestic Stock Returns: Evidence from Taiwan Abstract: Foreign investors have played an increasingly important role in the stock markets of emerging host countries. Although foreign investors bring large amounts of capital, due to asymmetric information and home bias, they tend to invest only in certain stocks, rather than in the market as a whole. Therefore, the benefits of foreign investment may be limited and stock price dispersion may exist between foreign favored stocks and foreign un-favored stocks. We analyze how foreign investment portfolios affect the domestic stock market of host countries by comparing the performance of favored and un-favored stocks of foreign investors. Specifically, we empirically tested whether investors herded into each group and whether the favored group outperforms the un-favored group during both expansion and recession periods. The findings show that market participants did herd in the foreign investor favored stock group, but herded in the un-favored group only in bear markets. The foreign investor favored group outperformed the other only during economic expansion. During recession, the foreign investor unfavored group performed better. Classification-JEL: G11, G15 Keywords: Financial Liberalization, Foreign Investment, CAPM-GARCH Journal: The International Journal of Business and Finance Research Pages: 1-11 Volume: 7 Issue: 3 Year: 2013 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v7n3-2013/IJBFR-V7N3-2013-1.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:1-11 Template-Type: ReDIF-Article 1.0 Author-Name: Guangdi Chang Author-Name: Fulwood Chen Title: CEO Behavior and Subprime Mortgage Crisis Abstract: The paper addresses the subprime mortgage crisis from the perspective of the CEO of a financial firm. We integrate agency theory with the asset-pricing model to explore factors affecting CEO risk aversion. Apart from wealth and effort, the two main factors in influencing the agent’s risk preference, we also add a measure of CEO career concern to the model. Increasing peer pressure, high-incentive compensation structure, and declining market power diminish CEOs’ alertness to risk, resulting in a departure of CEO actions from firm value. For reining in CEOs’ excessive risk taking and aligning both interests of firms and CEOs, we suggest that the emphasis of the pay schedule should be adjusted according to market conditions, the relative performance evaluation be embedded into executive compensation, and the time span for performance evaluation be lengthened. The role of the board of directors and the function of risk management units should also be intensified. Classification-JEL: D01, G21, M52 Keywords: Subprime Mortgage, Financial Crisis, Incentive Structures, Peer Performance Index, Market Power Journal: The International Journal of Business and Finance Research Pages: 13-25 Volume: 7 Issue: 3 Year: 2013 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v7n3-2013/IJBFR-V7N3-2013-2.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:13-25 Template-Type: ReDIF-Article 1.0 Author-Name: Shahriar Hasan Author-Name: Mohammad Mahbobi Title: The Increasing Influence of Oil Prices on the Canadian Stock Market Abstract: This paper examines the influence of oil prices on Canadian stock market using the cause-effect relationship between oil prices and the TSX index. Additionally, the relationship between the Canadian to US Dollar exchange rate and the TSX index was investigated. Results show that in the last three years, the impact of oil prices on the TSX index has become much stronger than that of the preceding 18 years. Additionally, the importance of the exchange rate compared to oil market in predicting the TSX index seems to be declining. In particular, this decrease is more noticeable after the recent North American financial markets slump in late 2008. Classification-JEL: G15, F31, E44 Keywords: Oil Price, TSX Index, Foreign Exchange, International Financial Markets Journal: The International Journal of Business and Finance Research Pages: 27-39 Volume: 7 Issue: 3 Year: 2013 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v7n3-2013/IJBFR-V7N3-2013-3.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:27-39 Template-Type: ReDIF-Article 1.0 Author-Name: Steve Fan Title: Corporate Governance and Information Content of Stock Trades: Evidence from S&P 100 Companies Abstract: This paper studies the relationship between firms' corporate governance quality and information content of stock trades. Following Hasbrouck (1991) method, a trade's information content is defined as persistent impact of trade innovation on stock price. Using firm-level governance data, we show that the information content is negatively correlated with firms' corporate governance quality for the S&P 100 companies. Further analysis shows that board of directors is the main governance mechanism contributing to the negative correlation, while audit, anti-takeover, and compensation do not play a significant role. Our results provide empirical evidence to support the theory that corporate governance improves firms' information environment. It provides guidance on governance system design to reduce information asymmetry. Classification-JEL: G30, G34 Keywords: Information Content, Corporate Governance, Governance Mechanisms, Vector Autoregression (VAR) Journal: The International Journal of Business and Finance Research Pages: 41-56 Volume: 7 Issue: 3 Year: 2013 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v7n3-2013/IJBFR-V7N3-2013-4.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:41-56 Template-Type: ReDIF-Article 1.0 Author-Name: Sanjay Sehgal Author-Name: Namita Rajput Author-Name: Florent Deisting Title: Price Discovery and Volatility Spillover: Evidence from Indian Commodity Markets Abstract: This paper examines the price discovery and volatility spill-over relationship for Indian commodity markets. We cover twelve actively traded commodities including agriculture, metal and energy and four commodity indices. Price discovery is confirmed for eight commodities and three indices with a greater role for futures markets in the price discovery process. Price discovery results are encouraging given the nascent character of commodity markets in India. However the market does not seem to be competitive. Volatility spill-over is confirmed for only three commodities and none of the indices. This implies the Indian Commodity Market is yet to evolve an efficient risk transfer system for most commodities. The findings have implications for policy makers, hedgers and investors. The research contributes to alternative investment literature for emerging markets such as India. Classification-JEL: G13, G14, G15, G18, G32 Keywords: Price Discovery, Granger Causality, VECM, EGARCH, Volatility, Spillover Journal: The International Journal of Business and Finance Research Pages: 57-75 Volume: 7 Issue: 3 Year: 2013 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v7n3-2013/IJBFR-V7N3-2013-5.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:57-75 Template-Type: ReDIF-Article 1.0 Author-Name: Charles M. Rambo Title: Influence of the Capital Markets Authority's Corporate Governance Guidelines on Financial Performance of Commercial Banks in Kenya Abstract: Good corporate governance is indispensable for the survival and performance of corporate entities. The purpose of the Capital Markets Authority’s (CMA) Guidelines on good corporate governance was to improve governance practices in the corporate sector, as well as attract and retain investors for sustained economic growth. A rampant trend of commercial banks placed under receivership between 1990 and 2005 inspired this study. As at the time of the study, the Guidelines had been operational for about eight years. Although statistics at that time suggested that the banking sector had improved by reducing the proportion of non-performing loans, there was no documentation linking the Guidelines to this achievement. I sourced primary data from 16 commercial banks, seven of which traded at the Nairobi Stock Exchange (NSE). I applied one-way Analysis of Variance (ANOVA), Pearson’s Correlation Coefficient and multiple regression models to analyze the data. The results show that listed and unlisted commercial banks were significantly different in terms of board size, proportion of executive and non-executive directors, gender composition, cost of board maintenance, composition of audit committees, frequency of financial disclosures and more importantly, financial performance. The study emphasizes the need for a legal framework to enforce alignment with CMA Guidelines to safeguard members of the public from losing their savings and also ensure stability of the financial sector to enable the country attain targeted economic growth at 10 percent per annum. Classification-JEL: O16 Keywords: Capital Markets, Corporate Governance, Financial Performance, Listed Banks, Unlisted Banks Journal: The International Journal of Business and Finance Research Pages: 77-92 Volume: 7 Issue: 3 Year: 2013 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v7n3-2013/IJBFR-V7N3-2013-6.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:77-92 Template-Type: ReDIF-Article 1.0 Author-Name: Nsiah K. Acheampong Title: The Effects of Foreign Bank Entry on Financial Performance of Domestic-Owned Banks in Ghana Abstract: This article empirically examines the effects of foreign bank entry on the financial performance of Merchant Bank Ghana Limited (MBG) and Ghana Commercial Bank Limited (GCB) in Ghana from 1975 to 2008. The most consistent result from the pooled regression was that foreign bank entry increased domestic banks’ return on assets for the period 1992-2008; a period with a high influx of foreign banks into Ghana. This result supports studies by Beck, Demirgüç-Kunt, and Levine (2006) and Boldrin and Levine (2009) that found foreign bank entry improved domestic banks’ profitability margins. In addition, liquidity had a relatively larger multiplier effect on domestic banks’ return on assets for the period 1975- 1991 than any other independent variables in the study. The presence of foreign-owned banks was not detrimental to the financial performance of domestic-owned banks in Ghana. Classification-JEL: E4, F2, G28 Keywords: Capital Adequacy Ratio, Emerging Market Economies, Foreign Bank Entry, Domestic-owned Banks, Liquidity, Pooled Regression Analysis, Return on Assets Journal: The International Journal of Business and Finance Research Pages: 93-104 Volume: 7 Issue: 3 Year: 2013 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v7n3-2013/IJBFR-V7N3-2013-7.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:93-104 Template-Type: ReDIF-Article 1.0 Author-Name: Myrna R. Berrios Title: The Relationship between Bank Credit Risk and Profitability and Liquidity Abstract: This paper’s objective is to study the relationship between bank credit risk and financial performance and the contribution of risky lending to lower bank profitability and liquidity. The sample data comes from the Mergent Online database, which stores ownership, executive, and financial information about public and private companies. This study focuses on the concept of prudent lending by public state commercial banks, insider ownership, and chief executive officer compensation and tenure, which are governance related bank characteristics. Performance variables in analysis of covariance models include net interest margin, return on assets, return on equity, and cash flow to assets. Preliminary results show a negative relationship between less prudent lending (which may be interpreted as a positive effect of more prudent lending) and net interest margin. However, findings were only statistically significant when the normality assumption was relaxed through the robust regression method. Insider holdings and longer chief executive officer tenure were negatively related to bank performance. This may be a consequence of an adverse effect of the agency problem. Further research should focus on obtaining a deeper understanding of these results and of the underlying causes of the most recent financial crisis, from the viewpoint of different market participants. Classification-JEL: F34, G01, G21, G30, M41 Keywords: International Lending Problems, Financial Crises, Banks, Corporate Governance, Accounting Journal: The International Journal of Business and Finance Research Pages: 105-118 Volume: 7 Issue: 3 Year: 2013 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v7n3-2013/IJBFR-V7N3-2013-8.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:105-118 Template-Type: ReDIF-Article 1.0 Author-Name: Tao Qu Author-Name: Jun-cai Chen Author-Name: Shan-min Li Author-Name: Hang Xiang Title: Impact of Inward FDI, Import on Domestic Innovation: Evidence from China Abstract: Hastened by triangle trade patterns, exchange of immediate goods and inward foreign direct investment have become the main channels to achieve technical spillover. Based on regional inward capital data and classified traded goods, we examine causes of innovation in the context of inward foreign direct investment. We find that local absorptive capacity critically affects creative power. Economies transfer techniques using various approaches, impacting local innovation in diversity. A low degree of industrial-correlation hampers knowledge spillage through foreign direct investment in high-tech industries. Existing technology stocks satisfy technical wants for imported parts rather than imported capital goods. This makes it difficult to digest or absorb spillovers from the latter. China benefits substantially from technical spillovers of imported parts mostly from Asian economies. Governments should support research and develop machinery and equipment industries to accumulate know-how. China should proportionately import parts from European countries and USA to realize trade balance and reduce trade conflicts. Classification-JEL: D24, F14, F23, O22 Keywords: New Triangle Trade Pattern, Knowledge Spillover, Absorptive Capacity Journal: The International Journal of Business and Finance Research Pages: 119-136 Volume: 7 Issue: 3 Year: 2013 File-URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v7n3-2013/IJBFR-V7N3-2013-9.pdf File-Format: Application/pdf Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:119-136