Razali Haron

Capital structure inconclusiveness: evidence from Malaysia, Thailand and Singapore

Purpose - – The purpose of this paper of this study is to examine the possible factors contributing to the issue of inconclusiveness in capital structure studies. This study also attempts to provide logical explanations to the unresolved issue of inconsistencies in the relationship between factors identified and leverage in capital structure studies. Comparisons are also made between the emerging market and the developed market to see whether the findings are consistent with both market landscapes. Design/methodology/approach - – This study employs two models in its methodology which are static and dynamic models to examine the effects of using different models in the study. The fixed effect model and partial adjustment model represent the static and dynamic models, respectively. The dynamic model is estimated using generalized method of moments. This study also uses six definitions of leverage to examine the impact of using different leverage definition in capital structure studies. To test the robustness of the findings comparison were made with past studies done by other researchers on developed markets. Findings - – This study found that the use of different models (with the same leverage definition) and different leverage definitions (using the same model) give different results including signs. Inconsistencies were more obvious in the different leverage definitions (using the same model) compared to the use of different models (with the same leverage definition). There was also evidence that the findings were consistent with both the emerging and the developed markets as other studies on developed markets also report inconsistent results when using different models and different leverage definitions. Research limitations/implications - – The sample chosen focussed only on firms in three emerging markets (Malaysia, Thailand and Singapore) thus it may not be sufficient for generalization. Originality/value - – The issue of inconclusive results and findings in capital structure studies keeps recurring but no study has been done to further understand the issue. Using data from the selected countries, this paper attempts to fill this gap in the literature.

Factors Affecting Speed of Adjustment to Target Leverage: Malaysia Evidence

This study focuses on the dynamic aspect of capital structure which is a relatively new area in the finance literature. By employing panel data, 790 of non-financial listed firms in Malaysia are examined for the period 2000–2009. Conducted using the dynamic Partial Adjustment Model and estimated based on the Generalized Method of Moment, this study investigates the existence of target capital structure, speed of adjustment and factors affecting speed of adjustment. There are evidences of target capital structure and firms do adjust to be at their target from time to time with a considerably rapid speed of adjustment, in line with dynamic trade-off theory. Firms in Malaysia are found to be under-adjusted, being below the required adjustment to be at the target within a year. Study on factors affecting speed of adjustment is a new contribution to the literature as no work has been done regarding this issue in Malaysia. This study also analyzes firm-specific factors affecting speed of adjustment. There is strong evidence on the negative relationship between the speed of adjustment and distance from target leverage suggesting fast adjustment if not being far from target. Firm size and profitability significantly influence speed of adjustment for firms in Malaysia.

A qualitative inquiry into the investment decision behaviour of the Malaysian stock market investors

Purpose - The main purpose of this study was to examine the investment decision behaviour of retail investors in Malaysia. Design/methodology/approach - The study adopted semi-structured interviews to solicit an understanding of six retail investors on investment decision behaviour in Malaysia. Content analysis technique was used to analyze the data and verbatim texts were applied in discussing the emergent themes. Findings - The findings indicate that retail investors in Malaysia are patriotic in nature and their investment decisions are based on feeling of comfort or convention rather than quantitative analysis. They rely so much on their findings rather than third party’s views for making investment decisions. They were influenced by the psychological biases as they herd on the information. Challenges are solved through experience and they believe that proper understanding of the financial and economic settings of the country can enhance better investment decision making. Research limitations/implications - A more detailed investigation on the investors’ behaviour with more samples may expand our understanding of this issue. Future studies need to examine the investment decision behaviour with more samples. Practical implications - Firstly, it will prepare hit and run investors to be more ready to remain in the market and improve their skills on how to make sound investment decisions. Secondly, it helps the investors to know that knowledge of traditional finance theory is not sufficient to excel in stock market and hence, they need to know more about behavioural finance. Thirdly, investors are exposed to various reasons why investment decisions deviate from expected and different means of solving the challenges faced in making investment decision within the Malaysian context. Fourthly, investors are reminded that understanding the financial settings before investing is essential. Finally, policy makers in stock market are able to understand the retail investors’ behaviour. Originality/value - This study examines the experience and prospect to remain as stock market investors, their priorities in selecting the right company for investment purposes, the kind of information seeking from third parties, the challenges faced by them and other important considerations in investment decisions. These have never been examined together in this way in investigation of retail investors’ investment behaviour.

On the efficiency of the Malaysian banking sector: a risk‐return perspective

Purpose – The purpose of this paper is to examine the efficiency of the Malaysian banking sector. The technique used by Oliveira and Tabak is extended by employing market data as input and output variables to individual bank stocks, which are listed on the Kuala Lumpur Stock Exchange (KLSE). By doing this, the paper aims to broaden the scope of the existing studies by employing individual bank market data to measure their efficiency levels.Design/methodology/approach – The paper utilizes the non‐parametric data envelopment analysis methodology to measure the efficiency of banks which are listed on the KLSE. While previous bank efficiency studies have used balance sheet and income statements data, this paper uses individual banks market data as the input and output variables to construct the efficiency frontier.Findings – The main conclusion of this paper is that the most efficient bank is also highly ranked in terms of returns with relatively low standard deviation and beta. The results also suggest that...

Efficiency of Qatari banking industry: an empirical investigation

Purpose The purpose of this paper is to examine the efficiency of the banking sector in Qatar. The paper utilizes 15 banks comprising Islamic, conventional and foreign banks for the duration of 2007 to 2011. Design/methodology/approach Data envelopment analysis (DEA) technique is applied to compute technical efficiency, pure technical efficiency and scale efficiency. Also, Malmquist productivity index (MPI) is used to identify the sources of productive efficiencies of the banks. Findings The results suggest that Qatari banks are operating below optimum performance and thus there is still room for improvement. While conventional banks are the most efficient in Qatar in terms of technical and pure technical efficiencies, Islamic banks are most efficient in terms of scale efficiency. Besides, pure technical inefficiency dominated scale inefficiency in the Qatari banking sector. Moreover, as compared to the Islamic banks, conventional and foreign banks recorded a reduction in average technical efficiency during the duration of the 2008/2009 global financial crisis. In terms of productivity progress, all the Qatari banks were experiencing a decline in productivity mainly attributed to less technological innovation in the banking sector of Qatar. Research limitations/implications Most of the banks in Qatar do not have published data before 2007 and after 2011. Practical implications There is less technological innovation in the banking sector of Qatar. Hence, bank managers in Qatar should focus on educating customers about modern banking technologies and other innovative banking services in Qatar. Originality/value This study is a pioneering effort in the application of DEA and MPI to study about the banking sector in Qatar.

Do Indonesian firms practice target capital structure? A dynamic approach

Purpose This study aims to investigate the dynamic aspects in the capital structure decisions of firms in Indonesia, offering an extension to the existing literature on Indonesia via a dynamic model, including the existence of target capital structure, the influencing factors, the speed of adjustments and the supporting theories to explain the findings. Design/methodology/approach This study uses a dynamic partial adjustment model estimated based on a generalized method of moments. Findings Indonesian firms do practice target capital structure and are influenced by firm-specific factors like profitability, business risk, firm size, liquidity and share price performance due to time-varying factors. A rapid adjustment toward target leverage is detected, thus supporting the existence of the dynamic trade-off theory (TOT). The pecking order theory (POT) also has significant influence, particularly after the new reformation of financing policy, where retained earnings are also preferred as a source of financing apart from merely external financing through bank loans. There are also traces of market timing influences where firms also seem to time their equity issuance. Research limitations/implications Despite relatively utilizing recent data and bigger sample firms compared to the previous limited studies on Indonesia, the results of this study, however, need to be cautiously interpreted. First, the sample chosen focused on listed firms, hence may not be generalized to all Indonesian firms, listed and unlisted. Second, the study does not separate firms by sectors and their leverage positions, that is under-levered and over-levered, so as to note that financial decisions may also be affected by the sector in which the firms operate and their leverage positions. These are to be considered in future research. Practical implications There is strong evidence that the corporate financing behavior of Indonesian firms is governed by the POT and TOT. Both are dealing with the function of debt. The financial sector reformation does have a positive impact on the banking sector, but not the local corporate bond market. Therefore, regulators and policymakers should bear in mind that banking as well as private bond market in Indonesia must be tailored in such a way that both could act as intermediaries of debt financing, as bond market represents an important component of a diversified financial sector. Originality/value This study fills the gap by providing an extension to the existing literature and a deeper insight of the capital structure of Indonesian firms using a more robust dynamic model.

Derivatives, Pricing Efficiency and Gharar: Evidence on Embedded Options in Malaysia

Derivatives, despites their extensive usage as risk management tools, receive differing arguments among the Muslim scholars. Focusing on embedded option contracts, the resolution of Islamic Fiqh Academy, Jeddah No (63/1/7) under the financial markets considers the currently applied option contracts as different from the Shariah nominated contracts and being neither a sum of money nor a utility or a financial right which may be waived, makes it forbidden in Shariah. Most Islamic scholars accuse option contracts of containing gharar and are transacted for speculative gains thus, prohibited in fiqh muamalat. Therefore, this study intends to investigate the accusation of the gharar elements in the option contracts. The Black Scholes Option Pricing Model (BSOPM) is used to examine the pricing of 183 outstanding embedded options (equity warrants) from January 2006 to December 2012. Cases of mispricing were detected in reference with their theoretical values indicating inefficiency in the Malaysian market and speculative activities taken place which are prohibited in Islam. Speculation contains gharar (uncertainty) and leads to maysir (gambling) and may result in wealth accumulation at the expense of other parties’ jahl (ignorance). Violating the concept of adl (justice), not serving the concept of maslahah (public interest) and not complying with the Maqasid al Shariah make speculation forbidden. The existence of gharar is empirically and statistically evidenced in the speculation activities indicated by the excessive mispricing detected in this study. This study contributes significantly in the literature by providing empirical evidence which is very much lacking in the study of options in Islamic Finance.

Shari’ah supervisory board characteristics effects on Islamic banks’ performance: Evidence from Malaysia

Purpose Islamic banks (IBs) must stay Shari’ah compliant to enhance their customer loyalty and obtain a competitive edge. Given the performance of Shari’ah supervisory board (SSB) continues to be a matter of concern especially for IBs across countries that have a different regulatory environment, the purpose of this paper is to examine the effects of SSB characteristics on IBs’ performance in Malaysia being a country that applies the most extreme intervention of regulatory agencies (pro-active model). Design/methodology/approach A sample of 15 Malaysian IBs is used to test the study hypotheses for the period from 2008 to 2015 using the Generalized Method of Moments estimator. Findings The results reveal strong support for a significant association between SSB size, doctoral qualification, change in the SSB composition and performance. In addition, the study supports the view that SSB with cross-membership and reputation is very important in improving the performance of IBs. Research limitations/implications First, the paper focused only on Malaysia which adopts a pro-active model, and therefore, extending the investigation to include countries that adopt the different models may provide a better view of the best Shari’ah governance (SG) practices for IBs. Second, there is a need for more empirical analysis regarding the optimal SSB size of IBs. Practical implications This paper provides empirical evidence for regulators and policy makers in Malaysia, to understand how to enhance the performance of IBs using SG. Furthermore, marketers of Malaysian IBs should focus on SG practices as an important element for attracting Muslim customers, especially as there is a lack in this aspect. Originality/value To date, it seems there is no empirical study that has examined to what extent the impact of SSB characteristics on IBs performance can be affected by the degree of agencies intervention, whether extreme or slight. Malaysia has been chosen as the only country that adopts the most extreme model.

Determinants of working capital management before, during, and after the global financial crisis of 2008: Evidence from Malaysia

ABSTRACT:Financial crisis that hit the economic standing in 2008 has put the blame on the mismanagement of the working capital of firms. Empirical evidences highlight the importance of efficient and sound working capital management thus managers should therefore be alert and sensitive on the factors affecting working capital management to improve firm’s performance in order to stay resilient. Nevertheless, limited studies have been done on this matter and is very much pronounced in the East Asian countries, despites the fact that these countries are the worst affected by the crisis. Malaysia is no exception in suffering from the turmoil thus it is paramount to examine the influencing factors of working capital management especially before, during and after a financial crisis in Malaysia. A panel regression is employed on a financial data of 57 Malaysian listed firms from 2002-2012. The study period is divided into three different scenarios, 2002-2006 (before the crisis), 2007-2008 (during the crisis) and 2009-2012 (after crisis). The cash conversion cycle is employed as a measurement of working capital management. The independent variables and their measurements are chosen based on previous studies, which are, profitability (net profit/total asset), debt (total debt/total asset), sales growth (salest–salest-1)/salest-1), free Cash flow (free cash flow/total asset), firm size (natural logarithm of sales) and liquidity (current asset/current liabilities). Several tests are carried out and the statistical procedure showed that the Random Effect model is the best model to explain the relationship between working capital management and its explanatory variables. A constant negative relationship is spotted between profitability and firm size with working capital management for all the three periods. The negative relationship between profitability and firm size with working capital management provide strong evidence on pecking order theory. Sales growth is negatively related to working capital management before and after the crisis periods. Debt appears to be mixed, with positive sign before the crisis but negative after the crisis. Free cash flow is positively related during the crisis period. No significant relationship however is detected on liquidity. The same variables (profitability, debt, sales growth and firm size) have significant relationships with working capital management before and after the crisis. This study has policy implication where managers can be sensitive on factors affecting working capital management and give particular attention on profitability, debt, sales growth and firm size in the management of their working capital regardless of the economic scenarios.

Investment decision behaviour of the Malaysian retail investors and fund managers: A qualitative inquiry

This study aims to investigate the Malaysian retail investors and fund managers’ investment decision behaviours. The study offers an important opportunity for understanding the investors’ experiences, how they understand the Malaysian economy and their priorities for company selection. Other main aspects of this study are how investors mitigate the influence of emotions and psychological biases and challenges faced during investment decisions.,The researchers have mainly adopted an interpretivist approach for the present study. Qualitative data elicited through semi-structured interviews conducted with four retail investors and four fund managers were subjected to qualitative thematic analysis.,The results reveal that the investment decision processes of fund managers are more comprehensive than those of retail investors. Although both fund managers and retail investors acknowledge the influence of psychological biases on their investment decisions, the former use different and comprehensive approaches to mitigate such influences during investment decisions compared with the latter. Other important findings are how investors understand the Malaysian economy, their priorities for company selection and challenges faced during investment decisions.,The researchers have interviewed eight carefully selected interviewees across retail investors and fund managers divide. Adopting other grouping criteria, focus group discussion with more respondents or adopting a mixed-methods approach may increase our understanding of the investment decision behaviours of Malaysian retail investors and fund managers.,This study could be used as a guide by both retail investors and fund managers when making investment decisions.,This research has included both retail investors and fund managers; it has also increased literature on investment decision and behavioural finance, particularly in the context of Malaysian investors and managers.