Mohamad Ali Abdul Hamid

Cost, Revenue and Profit Efficiency of Islamic and Conventional Banking Sector: Empirical Evidence from Gulf Cooperative Council Countries

This article examines the cost, revenue and profit efficiency levels of 74 banks (47 conventional and 27 Islamic banks) in Gulf Cooperative Council (GCC) countries over the periods 2007 to 2011. The level of efficiencies was measured using Data Envelopment Analysis (DEA) method which applied the intermediation approach. We find that, revenue efficiency seems to play the main factor leading to the lower or higher profit efficiency levels. In essence, the higher revenue efficiency only affects a higher profit efficiency levels in Islamic banks. However, the profit efficiency on conventional banks will not be affect by the higher revenue efficiency levels since the result shows the level of profit efficiency is lower than cost efficiency due to the higher revenue efficiency. In addition, the result of this study also shows that they are statistically significant difference on cost, revenue and profit efficiency between Islamic and conventional banks in GCC countries. The findings of this study are expected to contribute significantly to the existing knowledge on the operating performance of the GCC Islamic and conventional banking sector, bank’s specific management, policy makers and may also facilitate directions for sustainable competitiveness of the GCC Islamic and conventional banking sector operations in the future.

Some Basic Properties of Financial Ratios: Evidence from an Emerging Capital Market

This study investigates the distributional characteristics and appropriate remedial actions of selected financial ratios from failed and non-failed Malaysian listed firms. A total of 66 listed firms with 330 observations and 65 variables were examined for the period from 1980 to 1996. The samples were divided into three sectors named mixed industry, combination of industrial and property and industrial sectors. Normality test was carried out to the data using Kolgomorov-Smirnov test adjusted to Lilliefors test. The finding shows that in all instances, only one variable (i.e., current asset percent) conformed to normal distribution. However, when specific sector was tested, some improvement on normality was observed after trimming outliers and data transformations. Remedial actions were carried out using three-transformation techniques namely natural log, square root and square. The natural log transformation outperforms the other techniques and the square transformation was the least effective. The findings suggest that outlier trimming improves the normality of variable after the data transformation, and this technique is more effective on the specific industry compared to the mixed industry sector.

Forecasting Financial Problems in Emerging Capital Markets

The advent of the Asian Financial Crisis (AFC) in the Southeast Asia in 1997 is an appealing case for research work in assessing corporate financial distress. From international perspective, AFC is a product of contagion effect that spread from Thailand and consequently to the other Asian countries. Domestically, the AFC has resulted a sudden economic slump and corporate failures in these economies. This paper examines the corporate failure before the 1997 Asian Financial Crisis in three emerging capital markets namely Malaysia, Singapore and Thailand, and develops, tests, and analyses a model for classifying and predicting financial distress. A failure classification model based on multiple discriminant analysis was utilised to classify listed corporations from these countries for the 1980 to 1996 period. The model is tested on a sample of 33 Malaysian, 17 Singaporean and 52 Thailand failed firms and similar number of non-failed firms in the respective countries as a control sample. The failure prediction model developed successfully discriminates between failed and non-failed listed firms at the rate of 86%, 82% and 71% of Malaysian, Singaporean and Thailand firms respectively. Further validation of findings show that the predictive accuracy was significantly better than chance.

Efficiency of Gulf Cooperation Council Banks

Purpose – This paper aims to investigate the efficiency level of Gulf Cooperation Council (GCC) banks on technical efficiency (TE), pure technical efficiency (PTE) and scale efficiency (SE). Both PTE and SE represent the potential factors that influence the efficiency of the GCC banks. In total, 43 GCC banks were observed in this study over the period from 2007 until 2011. Design/methodology/approach – The Data Envelopment Analysis, a non-parametric method using variable returns to scale under Banker, Charnes and Cooper model, was used with assets and deposit (as input) and loan and income (as output). Findings – On average, the results show that many GCC banks are operating within an optimal scale of efficiency. Nevertheless, the results also show managerial inefficiency in the use of resources. Furthermore, the results indicate that, while the larger banks (the 22 largest) tend to operate at constant returns to scale (CRS) or decreasing returns to scale, the smaller banks (the 21 smallest) are susceptib...

Attributes of an Effective Audit Committee: Evidence from an Emerging Capital Market

Audit committee has been in existence for many decades. The establishment of audit committee aimed to mitigate corporate fraudulent or creative accounting practices through internal control initiated by independent and effectively functioning non-executive members of audit committee. An effectively functioning audit committee helps to improve corporate governance practice of firms. This study identifies the attributes of an effective audit committee from audit committee chairmans perspective. The study utilized questionnaire survey approach, where a total of 200 questionnaires were distributed to chairman of audit committee of companies that listed on the Main and Second Board of the Kuala Lumpur Stock Exchange. Seventy-two useable questionnaires were returned (or 36% response rate). Using factor analysis; the respondents rated highly the effectiveness attributes, which explained 72% of the variance in all of the variables. Three factors were extracted: overall features (54% variance), model to others (10% variance) and review and analysis of standards (8% variance). In general, the respondents believed that an effective audit committee should have the following attributes: sophisticated accounting knowledge, review of financial statements, traditional role in accounting and auditing to ensure auditor independence and good management, and internal control.

Audit Committee Resources, Appointment and Future Scope: Some Evidence from Malaysia

The aim of this study is to investigate the perceptions of senior managers of Malaysian publicly listed companies concerning audit committee resources, appointment, and the impact of audit committee establishment on company performance and future scope of audit committee. Questionnaire survey technique was employ to answer the research questions. It is found that members of the audit committee should serve the company for a period from 1 to 3 years, audit committee members should be entitled to unlimited access to company information and records, and the regulator should play a role in appointing and terminating members of the audit committee. Also, the results indicated that audit committee establishment has improved both company performance and corporate governance, and an improvement should be made to the scope of the audit committee of their organisation.

Perceived Failure Symptoms: Evidence from an Emerging Capital Market

This study uses questionnaire approach to identify: (i) corporate distress warning signals of listed firms in an emerging capital market, Malaysia, (ii) the importance of each warning signal in conveying information to stakeholders, and (iii) the timeliness of each signal in alerting the stakeholders that the company is financially distressed. One hundred fifty copies of questionnaire were mailed and seventy three percent responded. It is found that chief executive officers (CEO) and accountants are perceived as persons most qualified and able to identify failure symptoms relative to other stakeholders. However, shareholders were perceived as the least competent persons to identify warning signals of distressed firms. Both the qualitative and quantitative information was considered important in identifying financially distressed firms. The findings suggest that though the stakeholders perceived important distressed signals to identify potential failures, not all these perceived signals were considered timely enough for effective use.