Abdullah Iqbal

Earnings management around UK open offers

We examine the long run operating and stock price performance of UK open offer firms in the context of the earnings management hypothesis. We find that in the pre-offer period offer firms report significant improvements in their operating performance unrelated to cash flow performance. Results on return performance show that offer firms outperform various benchmarks in the pre-offer year but underperform up to four years after the offer. Regression results show that pre-offer discretionary current accruals predict the long-run post-offer return underperformance but do not predict the short-run reaction to SEO announcements. Our findings are more consistent with the earnings management hypothesis than with either the timing hypothesis or the managerial response hypothesis and suggest that investors do not take full account of the information available at the time of open offers.

The effect of corporate governance on earnings management around UK rights issues

Purpose - This paper aims to investigate the relation between corporate governance and earnings management around UK rights issues. Design/methodology/approach - The paper examines the effect of board structure, ownership structure, adviser structure, and capital structure on discretionary current accruals – a proxy for earnings management – for a sample of size-controlled rights issuers. Rights issues are chosen as a context in which firms have particular incentives to manage earnings. Findings - The results suggest that firms with higher debt to equity ratios, with lower proportions of non-executive directors, or with no large block owner, are more likely to use discretionary current accruals to manipulate earnings around rights issues. Research limitations/implications - Similar research can be conducted around other equity issuing methods such as open offers and around other major corporate events such as initial public offerings. Practical implications - The papers evidence contributes to an understanding of corporate governance and has practical implications for stakeholders. It suggests that investors can rely more on the financial disclosures of firms with lower debt to equity ratios, higher proportions of outside directors, and with a large blockholder. Regulators may propose that firms undertaking corporate events such as equity offerings should follow best corporate governance practices to enhance investor confidence. Originality/value - This study is the first to investigate the corporate governance mechanisms in place to check opportunistic earnings management around specific corporate events for the UK market.

Datastream Returns and UK Open Offers

We report a fundamental error in Datastream equity data for share prices and return indices relating to a failure to make any capital adjustments for UK open offers before February 2002. We re-examine the findings of Iqbal, Espenlaub, and Strong (2008), correcting for this error. We find that the short-run market reaction to open offers is now significantly positive. However, we confirm that long-run post-offer returns continue to be significantly negative up to a four-year horizon and, most importantly, that pre-issue discretionary current accruals predict the long-run underperformance, in support of the earnings management hypothesis. We continue to find no support for the timing hypothesis or the managerial response hypothesis.

Investors’ Power and the Dividend Cost Minimization Model: Which One Better Explains the Dividend Policy in Pakistan?

This paper posits that the relevance and indeed the assumptions of the dividends cost minimization model are restricted to those countries where shareholders rights are well protected. Alternatively, we propose an “investor power” hypothesis, which is closely akin to the La Porta et al. (2000) “outcome hypothesis”. Our hypothesis states that the determining factor of dividends payout in a weak legal system is not the minimization of agency costs, instead it is the presence of certain powerful outside investors who can force firms to pay dividends. Using two variants of the dividends cost minimization model and a modified version of the dividends partial adjustment model on a data set for 183 Pakistani listed firms, our results partially support the investor power hypothesis. Results of the mean-comparison tests as well as the regression models show that dividend-payout ratio decreases with the ownership percentage of individual shareholders and the incumbent managers. Our empirical results indicate that there is only weak evidence that institutional investors can force managers to pay dividends. Among the other variables, dividend payout ratio increases with the size of a firm and ownership percentage of associated companies, and decreases with financial leverage, coefficient of variation of net income, and growth opportunities.

The dynamics of workplace relationships in a diverse internationally staffed organisation: a qualitative ethnographic assessment

Abstract The primary aim of this article is to explore and analyse the experiences of foreign Muslim workers in a diverse internationally staffed organisation. The specific objectives are threefold: (i) to understand the major triggers and consequences of negative stereotypical views towards Muslim workers, (ii) to identify institutional and external forces that shape Muslim workers’ experiences at work and (iii) to uncover the ways in which Muslim workers respond to the existing multi-level organisational challenges faced at work. It adopts a qualitative ethnographic methodology to examine the dynamics of workplace relationships in a large diverse internationally staffed organisation with operations in recruitment services for both individual (private) and commercial clients. The inductive analysis of the qualitative data suggests that negative stereotypical views of religious minority results in both implicit and explicit forms of job discrimination against ethnic minorities and that the latter is largely perceived to cause their undesirable experiences and economic disadvantages. One concrete outcome of undesirable experiences of Muslim minority workers is reported to be their definite willingness and strong inclination towards ‘silence’ and ‘inward integration’. The article concludes with several working propositions and discusses the practical implications of the findings for HR diversity management.

Saying it without words: a qualitative study of employee voice in the Iranian building sector

Abstract The primary aim of this study is to examine the nature, extent and workplace experiences of voice in an industry characterized by vulnerable workers with precarious term of employment. Using qualitative data on the practice of voice and participation among a sample of construction and building materials & products manufacturing firms, we found that the motivation of workers to fulfil their basic human needs take precedence over other needs such as voice and participation intention. The extent to which employee voice was embedded in the organizational policies was found to rely primarily upon the need for compliance with minimum labor legislation and ISO quality management factory regime. Our findings also suggest that voice and participation beyond regulatory and ISO quality compliance remain at the sole discretion of the management that advocated a carrot and stick orientation. The article concludes with the discussion of theoretical and practical implications of the findings and identification of a number of new avenues for future research.

The role of financial constraints on precautionary cash holdings: evidence from Pakistan

Abstract This study aims to investigate the direct relationship between precautionary cash holdings, cash flow volatility and the financial constraints of Pakistani firms for the period 2003–2013.The study also takes into account the 2008 financial crisis. This study seeks to discover that if a firm is financially constrained and its cash flows are highly volatile then it will increase its cash holdings and voluntarily reduce its current investment level due to the intertemporal trade-off between current and future investments. Thus, a positive relationship between cash holdings and future cash flow volatility and a negative relationship between current investments and future cash flow volatility is expected. In order to test the impact of cash flow volatility firms are classified in to constrained and unconstrained groups on the basis of four criteria, i.e., firm size, dividend payment, Kaplan-Zingales (KZ) index and group affiliation. For each criterion estimation is done by using two steps Generalised Method of Moments (GMM) estimator. Results show that financially constrained firms increase their cash holdings when cash flow volatility increases while financially unconstrained firms do not, except for KZ index criteria. It is also found that during the 2008 financial crisis constrained firms were more prone to saving cash than unconstrained ones. The study provides important insights into understanding the behaviour of Pakistani firms relating to cash holdings when they are financially constrained and cash flows are highly volatile. This is the first study of its kind that establishes a conclusive relationship between precautionary cash holdings, cash flow volatility and financial constraints in a Pakistani context.

Risk and Returns in Shari’a Compliant Cross-Section Stocks: Evidence from an Emerging Market

Islamic banking and finance industry is expanding world-over with an unprecedented growth. The global volume of Shari’a compliant assets crossed US

Dispelling the Myth of a Value Premium: Contrary Evidence of Malaysian Crony Capitalism

1,700 billion by the end of 2013, displaying an annual growth of 21% from 2007-13 (Ernst & Young 2014). This study is intended to understand and document the impact of market-based (market index and momentum) and firm-specific (size, book to market, price to earnings and cash flow yield) factors on pricing of Shari’a compliant securities and explain variations in stock returns in an emerging market, Karachi Stock Exchange (KSE), over a ten year period (2001 to 2010) Initially, we tested FF three factors and then modified FF by including PER (price to earnings), CFY (cash flow yield) and momentum factors. Based on modified FF model, we proposed a stock valuation model for Shari’a compliant securities consisting of three factors: market index, size, and PER, which explained 76% variations in cross section stock returns. In our study B/M, CFY, and momentum remained insignificant.

The Importance of the Sequence in UK Rights Issues

This paper contradicts the existence of a universal value anomaly by studying Malaysia, a country with a unique institutional setting. We investigate this counter-example to attribute the anomaly to: 1) the leverage effect of value firms; 2) the investment pattern of growth firms; 3) the economic environment. We find that the value premium cannot be ascribed solely to risk as it is time varying and dependent on the attributes of the companies. Our results illustrate that small cap value firms perform relatively well during favourable economic conditions. In contrast, large cap growth firms perform better than their counterparts (i.e., large cap value firms) in economic upturns as they are preferentially awarded projects to revive the nations growth.