Kwaku K. Opong

The behaviour of some UK equity indices: An application of Hurst and BDS tests1

The characterisation of equity market return series as random in nature has been questioned in recent times by the application of new statistical tools. This study uses recent advances in chaos theory to examine the behaviour of the London Financial Times Stock Exchange (FTSE) All Share, 100, 250 and 350 equity indices. The results reject the hypothesis that the index series examined in this study are random, independent and identically distributed. The results show that the FTSE stock index returns series is not truly random since some cycles or patterns show up more frequently than would be expected in a true random series. A Generalized Autoregressive Conditional Heteroskedasticity (GARCH(1,1)) process appears to explain the behaviour of the index series. The results may have implications for derivative instruments on the indices as well as for weak form market efficiency.

Voluntary corporate governance disclosures by post-Apartheid South African corporations

Purpose - The purpose of this paper is to investigate as to whether post-Apartheid South African (SA) listed corporations voluntarily comply with and disclose recommended good corporate governance (CG) practices and, if so, the major factors that influence such voluntary CG disclosure behaviour. Design/methodology/approach - The paper constructs a broad voluntary CG disclosure index containing 50 CG provisions from the 2002 King Report using a sample of 169 SA listed corporations from 2002 to 2006. The authors also conduct regression analysis to identify the main drivers of voluntary CG disclosure. Findings - The results suggest that while compliance with, and disclosure of, good CG practices varies substantially among the sampled companies, CG standards have generally improved over the five-year period examined. The authors also find that block ownership is negatively associated with voluntary CG disclosure, while board size, audit firm size, cross-listing, the presence of a CG committee, government ownership and institutional ownership are positively related to voluntary CG disclosure. Practical implications - These findings have important implications for policy-makers and regulators. Evidence of improving CG standards implies that efforts by various stakeholders at improving CG standards in SA companies have had some positive impact on CG practices of SA firms. However, the substantial variation in the levels of compliance implies that enforcement may need to be strengthened further. Originality/value - There is a dearth of evidence on the level of compliance with the King Report. This study fills this gap by providing evidence for the first time on the level of compliance achieved, as well as contributing generally to the literature on compliance with codes of good governance and voluntary disclosure.

Testing the weak-form efficiency in African stock markets

Purpose - The purpose of this paper is to investigate and compare the weak-form efficiency of a set of 24 African continent-wide stock price indices and those of eight individual African national stock price indices. Design/methodology/approach - Variance-ratio tests based on ranks and signs were used to examine the weak-form efficiency of the 32 stock price indices investigated. Findings - On average, it was found that irrespective of the test employed, the returns of all the 24 African continent-wide stock price indices examined in the study are less non-normally distributed compared to the eight individual national stock price indices examined. The authors also report evidence of the African continent-wide stock price indices having significantly better weak-form informational efficiency than their national counterparts. Practical implications - The policy implication of this evidence is that the African equity price discovery process can be significantly improved if African stock markets integrate their operations. Economically, this may contribute to improved liquidity and more efficient allocation of capital, which in turn can be expected to have a positive impact on economic growth. Originality/value - The paper makes two major contributions to the extant literature. First, it offers for the first time a comparative analysis of the informational efficiencies of a sample of national stock price indices as against African continent-wide stock price indices. Second, there is no prior evidence as to whether African stock markets can improve their informational efficiencies by integrating their operations. The paper fills this gap by demonstrating that the African equity price formation process can be improved if African stock markets integrate their operations.

Equity Option Listing in the UK:a comparison of market-based research methodologies

Abstract This study compares the results generated from a range of parametric models and two classes of non-parametric models used in event studies. The models are applied to test the information content of equity option listing in the UK. The results indicate that Corrados [Journal of Financial Economics 23 (1989) 385] rank test or bootstrapping the market model should be adopted in conjunction with parametric methodologies in the computation of mean abnormal returns. When computing cumulative abnormal returns, the ZD test is recommended. It would appear that the equity optioning effect in the UK has diminished over time. This result may be explained by the market completion hypothesis.

Board size, corporate regulations and firm valuation in an emerging market: a simultaneous equation approach

We investigate the association between board size and firm valuation for a sample of 169 firms from 2002 to 2011 in South Africa (SA). The SA corporate context is interestingly and uniquely characterised by an urgency to meet affirmative action regulations, such as black empowerment in board appointments, limited qualified and experienced directors, especially black directors, concentrated ownership, weak enforcement of corporate regulations and greater government ownership. These features make SA corporate boards perform a weaker agency (advisory, monitoring and disciplining) role than Western European and US boards, but a stronger resource dependence role, by providing access to resources, such as business contacts and contracts. This suggests that any positive impact of board size on firm valuation is likely to depend on the effective execution of the resource dependence role more than the agency role. Our results suggest that board size has a positive association with firm valuation, consistent with larger boards providing better access to resources. Overall, our results support the resource dependence role of boards more than their agency role. The results are robust across a raft of econometric models that control for different types of endogeneity, as well as different types of accounting and market-based firm valuation measures.

Corporate boards and ownership structure as antecedents of corporate governance disclosure in Saudi Arabian publicly listed corporations

This study investigates whether and to what extent publicly listed corporations voluntarily comply with and disclose recommended good corporate governance (CG) practices, and distinctively examines whether the observed cross-sectional differences in such CG disclosures can be explained by ownership and board mechanisms with specific focus on Saudi Arabia. The study’s results suggest that corporations with larger boards, a Big 4 auditor, higher government ownership, a CG committee, and higher institutional ownership disclose considerably more than those that are not. By contrast, the study finds that an increase in block ownership significantly reduces CG disclosure. The study’s results are generally robust to a number of econometric models that control for different types of disclosure indices, firm-specific characteristics, and firm-level fixed effects. The study’s results have important implications for policy makers, practitioners, and regulatory authorities, especially those in developing countries across the globe.

The Impact of Board Changes on Shareholder Wealth: some UK evidence

This paper examines the impact of the entry and exit of board of directors on the share price of United Kingdom listed firms. Unlike previous studies in the area, this study distinguishes between the different type of board changes. The results of the study suggest that changes in the composition of management boards affect shareholders wealth. Small but significant positive abnormal returns are experienced on the day of the announcement. The results also indicate that the informational effects of new appointments are perceived differently by the market from resignations from the management board.

The behaviour of Irish ISEQ index: some new empirical tests

This study applies statistical tools, derived from chaos theory, to examine the behaviour of the ISEQ equity index on the Dublin Stock Exchange. Evidence that the ISEQ index series does not behave as a realization of a sequence of independent, identically distributed random variables (IID) is provided.

Testing for random walk in euro exchange rates using the subsampling approach

This study utilizes variance ratio tests based on the subsampling approach to test the behaviour of euro-based exchange rates markets. Results are mixed, although the random walk behaviour is dominant among the three major currencies namely the Japanese yen, the US dollar and the British pound.

Corporate Governance, Islamic Governance and Earnings Management in Oman: A New Empirical Insights from a Behavioural Theoretical Framework

Purpose: This paper examines the impact of corporate (CG) and Islamic (IG) governance mechanisms on corporate earnings management (EM) behaviour in Oman. Design/Methodology/Approch: We employ one of the largest and extensive datasets to-date on CG, IG and EM in any developing country, consisting of a sample of 116 unique Omani listed corporations from 2001 to 2011 (i.e.,1,152 firm-year observations) and a broad CG index containing 72 CG provisions. We also employ a number of robust econometric models that sufficiently account for alternative CG/EM proxies and potential endogeneities.Findings: First, we find that, on average, better-governed corporations tend to engage significantly less in EM than their poorly-governed counterparts. Second, our evidence suggests that corporations that depict greater commitment towards incorporating Islamic religious beliefs and values into their operations through the establishment of an IG committee tend to engage significantly less in EM than their counterparts without such a committee. Finally and by contrast, we do not find any evidence that board size, audit firm size, the presence of a CG committee and board gender diversity have any significant relationship with the extent of EM. Originality: To the best of our knowledge, this is a first empirical attempt at examining the extent to which CG and IG structures may drive EM practices that explicitly seeks to draw new insights from a behavioural theoretical framework (i.e., behavioural theory of corporate boards and governance).