Sabur Mollah

Shari’ah supervision, corporate governance and performance : conventional vs. Islamic banks

The performance and accountability of boards of directors and effectiveness of governance mechanisms continue to be a matter of concern. Focusing on differences between conventional banks and Islamic banks, we examine the effect of (i) Shari’ah supervision boards, (ii) board structure and (iii) CEO-power on performance during the period 2005–2011. We find Shari’ah supervision boards positively impact on Islamic banks’ performance when they perform a supervisory role, but the impact is negligible when they have only an advisory role. The effect of board structure (board size and board independence) and CEO power (CEO-chair duality and internally recruited CEO) on the performance of Islamic banks is overall negative. Our findings provide support for the positive contribution of Shari’ah supervision boards but also emphasize the need for enforcement and regulatory mechanism for them to be more effective.

Ownership structure, corporate governance and firm performance : evidence from an African emerging market

Purpose - In spite of an abundance of corporate governance literature across the world, the Botswana corporate sector is lacking. The purpose of this study is to investigate the relationship among the ownership structure, board characteristics and financial performance to determine the role of corporate governance in the performance behavior of companies listed in such an emerging market in Africa as Botswana. Design/methodology/approach - Ordinary least square (OLS) models are applied to Botswana Stock Exchange listed firms over the period 2000-2007 to determine the role of corporate governance in the performance behavior of companies listed in an emerging market. Findings - The empirical evidence shows distinct nature of corporate governance behavior among alternative performance measures used, in particular, between accounting-based/hybrid and market-based measures. Practical implications - Such diversified findings provide the policy-makers with insights to take appropriate measures on corporate governance and stock market development in order to ensure their efficiency. Originality/value - The approach of this study is different from the other available literature as it captures all types of shareholdings together in addition to other corporate governance and firm-specific predictable variables.

Impact of board ownership, CEO-Chair duality and foreign equity participation on auditor quality choice of IPO companies: Evidence from an emerging market

Purpose - The purpose of this paper is to examine the impact of corporate governance on auditor quality choice by IPO companies in an emerging market setting. It seeks to identify whether efficiency or opportunism is the driving force behind the choice of auditors in Bangladeshi firms going public. We try to see whether ownership concentration in the hands of a owner-CEO wins over foreign shareholders in the contest of ensuring financial reporting quality. Design/methodology/approach - Multivariate analysis has been carried out on all IPOs made during 1990 to 2005 whose financial statements were available. Logistic regression tool has been used to identify clients corporate governance attributes affect their choice of auditors. In total, three corporate governance attributes – CEO-Chair duality, retained ownership, and foreign equity participation – were used to test the impact of ownership structure on auditor choice. Findings - Our findings from logistic regression suggest that CEO-Chair duality and the degree of foreign equity participation are significant determinants of auditor choice while proportion of board ownership is not. In addition, issuer size and whether the issuer is a green field operation also influence auditor choice while the length of a firms operating history does not seem to matter. The findings support agency theory prediction that (at least one category of) principals (foreign shareholders in this case), are likely to trade-off higher monitoring costs (of hiring a higher quality auditor) with agency costs arising from asymmetric information, primarily borne by absentee owners. Originality/value - The work is based on empirical data directly from company financial statements. It uses audited financial statements and makes objective analysis of auditor choice dynamics in a frontier market that demonstrated significant growth of IPO activity in recent years.

Governance and Bank Characteristics in the Credit and Sovereign Debt Crises – The Impact of CEO Power

The global financial sector recently suffered from two interrelated crises: the credit crisis and the sovereign debt crisis. A common question is whether the recent experience with the credit crisis has helped in dealing with the sovereign debt crisis. We study more specifically whether banks with powerful CEOs perform better or worse than other banks, and if there is any difference in this relationship between the two crises. Using unique hand-collected data for 378 large global banks, we find that CEO power has a significant positive relation to bank profitability and asset quality, but also to insolvency risk, during the sovereign debt crisis. Thus, strong CEOs do not appear to be detrimental to bank performance. Our results also support the idea that deposit insurance may have contributed to the credit crisis.

Market volatility across countries – evidence from international markets

Purpose - The purpose of this paper is to investigate the time-varying risk return relationship and the persistence of shocks to volatility within GARCH framework both in developed and emerging markets. Design/methodology/approach - This paper uses nonlinear ARCH and GARCH-family models for testing the volatility both in developed and emerging markets. Findings - The findings of the paper suggest that there is a long-term persistence shock in emerging markets compared to developed markets. Research limitations/implications - The data set used for the developed and emerging markets is not consistent in terms of sample period. However, this paper explores the venues for further research on the global diversification. Practical implications - The implication of volatility measurement is vital in determining the cost of capital for investment and portfolio management, option pricing and for market regulations. Originality/value - The unique features of the paper include large sample size with updated data set that reveals the nature of world economy and empirical evidence on volatility testing that reports the risk return characteristics of both developed and emerging markets.

Religiosity and Bank Asset Securitization

The global financial turmoil of 2007–2008 underlines the importance of understanding asset securitization, a process that allows banks to shed credit risk, fund their credit growth, and arbitrage capital requirements. Examining this ethically questionable activity has become crucial given its perceived long-term social impact. This paper examines the factors that motivate banks’ decisions to enter into asset securitization. In particular, we examine the influence of both organizational and geographic religiosity as important ethical parameters of economic choices on banks’ decisions to securitize their assets. We employ propensity scores using a unique database on asset securitization of banks in 22 countries during the period of 2003–2012. We find that both types of religiosity indicators are significantly associated with banks’ decisions to securitize. Banks located in countries with high religious importance scores show a lower likelihood to securitize. We also find that religiously adhered banks are likely to embark on a constrained model of securitization, which involves a high level of monitoring. In addition, our analysis suggests that religiously adhered banks are less likely to engage in asset securitization to reduce credit risk by shifting it to new investors. This conclusion is supported by their lower credit risk in the years before securitization. Alternatively, our results suggest that these banks embark on asset securitization to improve their financial and regulatory performance. Our study emphasizes the importance of considering religiosity as an important institutional factor and a monitoring mechanism in future global banking studies. Findings in this study are of importance to researchers, to local and international regulators, and to different stakeholders in the international banking sector.

Political Connection and Bank In(Efficiency)

Does political connection affect bank efficiency during both financial and political crises? This study addresses this question by adopting a two-stage approach that uses a quantile regression analysis of a unique dataset of listed banks in the Middle East and North Africa region. Our results show that political connection is a driving force behind bank inefficiency in the region. We find that the least efficient banks have the most significant association with political connections, thus supporting the bailout theory. We also find that political connections influenced the efficiency of banks during the 2008-9 global financial crisis but not during the 2011-13 regional political crisis. Our results provide new evidence on the applicability of established political connection theories in developing countries during political regime turmoil. We therefore recommend that global banking regulators and market participants scrutinize the political connections of banks more thoroughly.

Determinants of Market Co-Movement in Developed and Emerging Markets

Stock market integration is a research area that attempts to identify and explain the formation of price co-movement between stock markets on an international level. Efficient and integrated stock markets are said to have the ability to unfold and incorporate information flows deriving from national as well as global economic events on a timely manner. The movement toward a synchronized stock market landscape has gained momentum, especially during the past two decades, where tighter economical and financial linkages among developed economies have grown stronger. However, the rise of many important emerging markets, which have been a major driver of global growth in the past decades, has opened up additional channels for cross-border relations. Other causes behind the rapid increase in world trade, capital movements, and foreign investments between world economies are market liberalization/deregulation, technological advances, and removals of statutory controls. Many of these factors have contributed to more interlinked economies, which, in turn, are said to have given rise to a higher degree of stock market synchronization, especially in volatile time periods, for example, eruption of a financial crisis, war, or political instability.

Bank Corporate Governance and Future Earnings Predictability

This study examines the impact of corporate governance on earnings predictability in large banks from 35 countries over the period 2004-2010. We find that board structure and CEO power have a significant positive influence on earnings predictability of future cash flows although these findings vary for emerging markets and between common and civil law countries. Board structure and CEO power are more effective in predicting future cash flows in civil law countries whereas in common law countries risk governance is a more accurate predictor of earnings. Similarly, we find differences between developed and emerging countries. While in both domains there is no qualitative difference in CEO power to predict future cash flows, board structure and risk governance are less effective in emerging countries.

Impact of Retained Ownership, CEO-Chair Duality, and Foreign Equity Participation on Auditor Choice of IPO Firms: Evidence from an Emerging Market

In this paper we study the impact of corporate governance characteristics on IPO firms’ auditor choice in an emerging market setting. We use three corporate governance attributes – CEO-Chair duality, retained ownership, and foreign equity participation to test the impact of ownership structure on auditor choice of 129 Bangladeshi firms that went public during the period 1990 to 2005. Our findings from logistic regression suggest that CEO-Chair duality and the degree of foreign equity participation are significant determinants of auditor choice while proportion of board ownership is not. In addition, issuer size and whether the issuer is a green field operation also influence auditor choice while the length of a firm’s operating history does not seem to matter. Our findings support agency theory prediction that (at least one category of) principals (foreign shareholders in this case), are likely to trade-off higher monitoring costs (of hiring a higher quality auditor) with agency costs arising from asymmetric information, primarily borne by absentee owners. It also supports the signaling role managers of green field operations play by hiring higher quality auditors to mitigate the uncertainties associated with their offerings.