Islam Azzam

Disclosure, ownership structure, earnings announcement lag and cost of equity capital in emerging markets: The case of the Egyptian stock exchange

Purpose - – The purpose of this paper is to examine the effect of voluntary disclosure, ownership structure attributes and timely disclosure on cost of equity capital in the emerging Egyptian capital market. Design/methodology/approach - – A content analysis of annual reports is used to measure the extent of voluntary disclosure. Earnings announcement lag (EAL) is used to measure the quality of voluntary disclosure (i.e. timely disclosure). Finally, the Capital Asset Pricing Model (CAPM) framework is used to estimate cost of equity capital. Findings - – The authors find a negative relationship between the level of voluntary disclosure and cost of equity capital. More specifically, the authors document that this association is strongly significant under high ownership dispersion, low government ownership and shorter EAL. Finally, EAL is positively associated with cost of equity capital. Research limitations/implications - – The authors use the CAPM framework as a proxy for the cost of equity since forecasted earnings per share are not communicated by financial analysts in the Egyptian Stock Exchange. Practical implications - – The findings demonstrate for managers that the increased levels of voluntary and timely disclosure reduce the cost of external finance and improve the marketability of firms’ equities, which may directly impact growth opportunities especially when information is communicated to investors in a timely fashion. For regulators, it provides evidence that high government ownership reduces the value relevance of voluntary disclosure among investors, while free float as a proxy for high ownership dispersion improves it. Originality/value - – The findings show that corporate disclosure policy depends more on the managers’ incentives to provide informative annual reports than on standards and regulations. The study also represents a first attempt that demonstrates how ownership structure and timely disclosure influence the relationship between disclosure and cost of equity capital.

Determinants of Capital Adequacy Ratios Under Basel III: Stress Testing and Sensitivity Analysis on Egyptian Banks

The objective of this paper is to (a) present an empirical evidence that explains bank internal financial ratios that influence capital adequacy ratio, (b) stress testing the impact of Basel III capital adequacy requirements on Egyptian banks, and (c) offer a road map, through a sensitivity analysis, to bank management regarding the implementation of the stress tests results. The data covers the period from 2010 to 2014 on a quarterly basis. The discriminant analysis is used for testing the robustness of the estimation. Stress testing is utilized based on the estimates the variables that meet Basel III new requirements of Capital adequacy ratio.The results show that (a) return on assets, return on equity, and asset-based market share have significant effects on capital adequacy ratio, (b) the ratios of loans/deposits and non-performing loans have positive significant effects on capital adequacy ratio, (c) the liquidity ratio in US

An Empirical Assessment of the Reality of Pecking Order Theory

has trivial effect on capital adequacy ratio, (d) liquidity ratio in Egyptian pound has insignificant effect on capital adequacy ratio, (e) the ratios of loans/deposits, non-performing loans and liquidity in U.S.

The Impact of Institutional Ownership and Dividend Policy on Stock Returns and Volatility: Evidence from Egypt

are robust and significance determinants of capital adequacy ratio. In terms of stress testing, the results show that (a) the average optimal value for loans/deposit ratio is expected to increase to 0.7807 from the current level of 0.4663, (b) the average optimal value for non-performing loans is expected to increase to 0.2174 from the current level of 0.1010 and (c) the average optimal value for liquidity ratio in U.S

Stock exchange demutualization and performance

is expected to increase to 1.0 from its current level of 0.5383.

Foreign Ownership and Financial Performance: Evidence from Egypt

Abstract The main objective of this study is to examine whether firms follow the financing hierarchy as suggested by the Pecking Order Theory (POT). The External Funds Needed (EFN) model offers a financing hierarchy that can be used for examining the POT. As far as the EFN considers growth of sales as a driver for changing capital structure, it follows that shall firms plan for a sustainable growth of sales, a sustainable financing can be reached and maintained. This study uses data about the firms listed in two indexes: Dow Jones Industrial Average (DJIA30) and NASDAQ100. The data cover quarterly periods from June 30, 1999, to March 31, 2012. The methodology includes (a) cointegration analysis in order to test for model specification and (b) causality analysis in order to show the generic and mutual associations between the components of EFN. The results conclude that (a) in the majority of the cases, firms plan for an increase in growth sales but not necessarily to approach sustainable rate; (b) in cases of observed and sustainable growth of sales, firms reduce debt financing persistently; (c) firms use equity financing to finance sustainable growth of sales in the long run only, while in the short run, firms use internal financing, that is, retained earnings as a flexible source of financing; and (d) the EFN model is quite useful for examining the hierarchy of financing. This study contributes to the related literature in terms of utilizing the properties of the EFN model in order to examine the practical aspects of the POT. These practical considerations are extended to examine the use of the POT in cases of observed and sustainable growth rates. The findings contribute to the current literature that there is a need to offer an adjustment to the financing order suggested by the POT. Equity financing is the first source of financing current and sustainable growth of sales, followed by retained earnings, and debt financing is the last resort.