Shumi M. Akhtar

The Determinants of Capital Structure for Australian Multinational and Domestic Corporations

This study considers the significance of the determinants of capital structure on a sample of Australian multinational and domestic corporations from 1992 to 2001. The results show that the level of leverage does not differ significantly between multinational and domestic corporations. Using cross-sectional Tobit regression analysis, the results show that, for both types of corporations, growth, profitability and size are significant determinants of leverage. Collateral value of assets is a significant determinant of leverage for domestic corporations. For multinationals, bankruptcy costs and the level of geographical diversification are significant. Surprisingly, bankruptcy costs are not significant for domestic corporations. In relation to interaction effects, bankruptcy costs and profitability are significant in explaining multinational leverage relative to domestic leverage. When industry effects are considered, the significance of the original determinants remains unchanged, but some industries became significant. Finally, the determinants of capital structure and leverage varied over the sample period for both multinational and domestic corporations.

Determinants of Capital Structure for Japanese Multinational and Domestic Corporations

Our study examines whether there are systematic differences in standard leverage determinants for a sample of Japanese multinational (MNCs) and domestic corporations (DCs). We find that on a univariate basis Japanese MNCs differ significantly on most variables relative to Japanese DCs. These variables include leverage, age, collateral value of assets, free cash flows, foreign exchange risks, growth, non-debt tax shields, political risks, profitability and size. Business risks are not found to be significantly different between the two groups of organizations. When modeling capital structure and the determinants of capital structure we find that Japanese multinationals have significantly less leverage than Japanese DCs, and that multinationality is an important aspect of leverage for Japanese firms. We find that business risks are not significant for modeling capital structure of domestic firms but they are for multinationals and foreign exchange risks are not significant for multinationals but are significant for domestic firms. Business risks are negatively related to leverage for multinationals and we document that significant positive leverage effects of foreign exchange risks and size are subsumed by the negative effect of business risks to explain the lower leverage experienced by Japanese multinationals relative to Japanese DCs. The lack of significance of foreign exchange risks for DCs can be explained by economies of scale in risk management, such as derivatives. Domestic firms seem to manage increased foreign exchange risks through lower leverage rather than derivative use. On the other hand, the larger multinationals can take advantage of economies of scale in risk management. Consequently, foreign exchange risks of multinationals can be managed through derivatives and other risk management operations and not reduced leverage.

Capital Structure and Business Cycles

This study investigates the relationship between business cycles and capital structure. Specifically, it extends the work of Lemmon et al. (2008), by incorporating the effect of four different stages of the business cycle – peak, contraction, trough and expansion – on the relative importance of the unobserved permanent component of the capital structure. Results indicate that business cycles play an important role in explaining the unobserved permanent component of leverage ratios after controlling for firm fixed effects. In particular, the model becomes much stronger in explaining the variation in leverage ratios after accounting for business cycle phases.

Intensity of Volatility Linkages in Islamic and Conventional Markets

Characteristics of Islamic finance, such as a smaller set of shared information and a lower degree of cross-market hedging, reduce volatility linkages (correlations) between Islamic and conventional stocks, bonds and bills. We use a stochastic volatility model in a Generalized Methods of Moments framework as well as other volatility proxies to estimate volatility linkages. We are the first to document that including at least one Islamic asset lowers volatility linkages by up to 7.17 percentage points, after controlling for country and asset-specific characteristics. Results are stronger during financial crises and are not driven by the oil sector.

Impact of the global financial crisis on Islamic and conventional stocks and bonds

This study explores the impact of the global financial crisis (GFC) on Islamic and conventional stock and bond indices in 11 Islamic and eight non-Islamic countries. We find that there are benefits of Islamic stocks during the GFC, particularly during the early stage of the crisis because Islamic institutions are prohibited from holding sub-prime mortgage securities and derivatives. The strongest benefits of Islamic stocks are in the UK and USA. We conclude that there are benefits of risk reduction and stability for Islamic stocks during a financial crisis, although not necessarily during a global recession.

Capital structure of multinational and domestic corporations – a cross-country comparison

This study investigates whether the determinants of capital structure between multinational corporations (MCs) and domestic corporations (DCs) vary across Australia, U.S., Japan, U.K. and Malaysia. Results show (i) the debt holding capacity and majority of the explanatory factors vary between DCs and MCs and also across countries; (ii) Australia, Japan, U.K. and Malaysian MCs hold significantly less long-term debt relative to U.S. firms; (iii) DCs and MCs that operate under an imputation tax system hold significantly less short- and long-term debt; and (iv) DCs and MCs operating under common law have significantly less short-term debt and significantly higher long-term debt.

The asymmetric impact of consumer sentiment announcements on Australian foreign exchange rates

We examine the effect of consumer sentiment announcements on changes in 13 of the more common foreign exchange rates against the Australian dollar using a consumer sentiment index (CSI). Generally, we find that the CSI possesses information that influences the foreign exchange market. However, we observe an asymmetric effect – when a lower than previous month CSI is announced, the Australian dollar experiences a significant depreciation on the announcement day, but there is no matching appreciation when positive CSI news occurs. This supports the negativity effect documented in the psychology literature and in the Australian stock market. There is no evidence that the effect is non-linear.

Dividend payout determinants for Australian Multinational and Domestic Corporations

I investigate the determinants of dividend payments for Australian Multinational Corporations (MCs) and Domestic Corporations (DCs). Six measures of dividend payout ratios are investigated, and five international factors are employed in addition to traditional factors. I find: MCs pay significantly less regular cash, special cash, total dividends and net dividends relative to DCs; the degree of foreign involvement is important in determining special cash and net dividend payments; MCs are more active than DCs in dividend increasing activities; and MCs are significantly less likely to be a dividend payer relative to DCs due to tax disadvantages coupled with unfavourable foreign risk exposures.

Decomposing the Effect of Consumer Sentiment News - Evidence from US Stock and Stock Index Futures Markets

We examine the announcement effects of consumer sentiment on US stock and stock futures markets. First, we find that the consumer sentiment announcement has valuable information content. Second, an asymmetric response is observed for “good” versus “bad” sentiment news. Specifically, when a lower (higher) than previous month consumer sentiment index is announced, equity and futures markets experience a significant negative announcement day (no) effect. This supports the “negativity effect” (identified from the psychology literature). Third, the effect of negative consumer sentiment announcements is evident in salient stocks rather than in sentiment prone stocks. This supports the availability heuristic.

Quantitative studies of Islamic and conventional assets

This chapter introduces three quantitative studies of Islamic and conventional stock and bond assets. These studies explore performance characteristics in addition to the impact of financial crises and macroeconomic news surprises. As of 2013, global Islamic financial assets were