Tanweer Hasan

An Application of Variance-Ratio Test of Five Asian Stock Markets

In the present study the variance-ratio test developed by Lo and MacKinlay (1988, and 1989) is applied to monthly stock index returns of five Asian markets that are in different stages of development. The markets examined are Bangladesh, Hong Kong, Malaysia, Sri Lanka and Taiwan. Although previous studies have examined the efficiency issues of the markets in Hong Kong, Malaysia, Sri Lanka and Taiwan, the empirical evidence is often contradictory. The current study looks at the efficiency issues of these markets over a sufficiently long period of time (November 1986 — December 1995) using more appropriate methodology and type of data. Also, this study is the first to provide new evidence on an emerging market in Asia — Bangladesh. Results reported in this study indicate that the index return series of all the sample markets except Sri Lanka do follow a random walk.

Regulatory Change and the Quality of Compliance to Mandatory Disclosure Requirements: Evidence from Bangladesh

This study investigates the effectiveness of changes in the regulatory environment on the quality of compliance to mandatory disclosure requirements in Bangladesh. Statistical analysis of the Mandatory Disclosure Index, as developed in this paper using annual reports of the exchange-listed firms pre and post changes in the regulatory environment, shows a significant improvement in the quality of compliance during the more regulated time period. The size of the firm, the qualification of its accounting staff that prepares financial statements and the reputation of its auditing firm have significant positive impact on the quality of compliance. The analysis points to two additional important findings: lack of a firms profitability does not seem to affect the quality of its compliance, and the performance of domestic firms are at par with foreign affiliated firms as far as the quality of the compliance is concerned. The findings reported in the present study lend support to the conventional notion that well packaged and timed regulations can foster sustainable development in the overall reporting environment of a country.

Financial disclosure and performance of microfinance institutions

Purpose – The purpose of this paper is to analyze the relationship between financial disclosure and the financial performance of microfinance institutions (MFIs). Design/methodology/approach – The paper utilizes ordinary least squares method to analyze the impact of disclosure on financial performance, an ordered probit model to investigate the possible effect of financial performance on disclosure and utilizes a three-stage least squares method to delineate the endogenous relationship between disclosure and financial performance of MFIs. Findings – The paper finds that better disclosure has a statistically significant positive impact on operational performance of MFIs; second, it also shows that improved financial performance results in better financial disclosure. Keeping the endogenous nature of the relationship between disclosure and performance, the paper uses a three-stage least squares method to show that disclosure and financial performance positively affect each other simultaneously. Research lim...

The market for audit services in Bangladesh

Purpose – The purpose of this paper is to provide a comprehensive analysis of the audit services market in Bangladesh. It explores the trend in audit fees over a period of 14 years and shows that in real terms audit fees have actually been declining although in nominal terms it appears otherwise. The study aims to expand the domain of audit fee literature by determining audit concentration in the market and thereby showing how the market is not dominated by the so‐called Big Four firms. The paper also examines the degree of inside ownership as a possible determinant of audit fees.Design/methodology/approach – The paper employs a multivariate analysis of estimating audit fees against mainly client‐specific attributes. It computes Helfindahl Index to measure audit concentration in the market.Findings – Results from the multivariate analysis show that the degree of inside ownership inversely affects audit fees. Client size and their multinational affiliation have a significant positive effect on audit fees. ...

Relative information content of proven reserves: The BOEs-revenue versus BOEs-energy

Abstract There are two methods to combine oil and gas reserve quantities and values, an energy-based conversion method and a revenue-based conversion method. Prior academic research on the valuation of reserve quantities has used the energy-based conversion method, but he validity of the energy-based conversion has been questioned in the accounting literature (Lys, 1986; Koester, 1993). The purpose of this study was to examine whether total proven reserves calculated using a revenue-based conversion method was more value-relevant than total proven reserves calculated using an energy-based conversion method. The research hypothesis was tested with two methods, each using a pooled, cross-sectional (panel data) sample of 399 film-years from the Arthur Andersen Oil and Gas Reserve Disclosure Database 1989–1993. The empirical results provided no support for the hypothesis that a revenue-based conversion method was superior to an evergy-based conversion method for valuation purposes.

Underpricing of initial public offerings in Bangladesh

The present study provides a comprehensive analysis of the short-run underpricing of initial public offerings (IPO) in Bangladesh and attempts to identify the factors which contribute to such underpricing in this heavily regulated underwriting market. Using a sample of 90 IPOs issued during the short-lived stock market boom in the mid-nineties, we show that increased ownership stake and foreign participation lowers the magnitude of underpricing.

Tests of Random Walk for Latin American Stock Markets: Additional Evidence

ABSTRACT This study examines the presence of random walk in stock returns in Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and Venezuela using variance-ratio tests as developed by Lo and MacKinlay (1988, 1989) and modified by Chow and Denning (1993). Daily, weekly and monthly index return series over a four- to eight-year sample period is used in the present study. Local currency rather than dollar denominated returns are used to avoid distortions caused by exchange rate behavior. The results indicate that while the return series for Argentina and Costa Rica follow random walk in a consistent manner, the return series for Peru does not, irrespective of the frequency of the data used. The results for the other sample markets vary as different frequency of data is used to estimate the variance-ratios. RESUMEN. Este estudio examina la presencia del trayecto aleatorio o random walk en el retorno de las inversiones bursátiles realizadas en Argentina, Brasil, Chile, Colombia, Costa Rica, México, Perú y Venezuela, usando la prueba de variación proporcional desarrollada por Lo y MacKinlay (1988, 1989), modificada por Chow y Denning (1993). En este estudio se usa una serie de índices de retorno diarios, semanales y mensuales a lo largo de un período muestra de cuatro a ocho años. También se utiliza como denominar la moneda local en vez del dólar, para evitar cualquier distorsión que pueda llegar a provocar el comportamiento de la tasa cambiaria. Los resultados indican que, mientras que la serie de retornos obtenidos en Argentina y Costa Rica siguen la norma del trayecto aleatorio, Perú no lo hace, independientemente de la frecuencia de los datos usados. Los resultados para otros mercados varían a medida que se utiliza una frecuencia de datos diferente para estimar la variación proporcional. RESUMO. Este estudo examina a existência de um passeio fortuito no lucro das ações na Argentina, no Brasil, no Chile, na Colômbia, na Costa Rica, no México, no Peru e na Venezuela, utilizando os testes de índice de variância, desenvolvidos por Lo e MacKinlay (1988, 1989) e modificados por Chow e Denning (1993). Séries diárias, semanais e mensais de índices de retorno foram utilizadas neste trabalho, durante um período de amostragem de quatro a oito anos. Foi utilizada a moeda local, em vez do dólar, como parâmetro de retorno, para evitar distorções causadas pelo comportamento das taxas de câmbio. Os resultados indicam que, enquanto as séries de retorno para a Argentina e para a Costa Rica seguem o passeio fortuito de forma consistente, para o Peru isto não procede, independente da freqüência dos dados utilizados. Os resultados dos outros mercados utilizados como amostra, variam, conforme a utilização da freqüência diversa de dados, para avaliar os índices de variância.

The accuracy of management profit forecasts in IPO prospectuses

Purpose – The purpose of this paper is to measure the accuracy of management profit forecast in initial public offerings (IPO) prospectuses and investigate the determinants of any observed forecast error in Indonesia. Design/methodology/approach – A sample of 105 Indonesian IPO firms over a ten-year period, 1999-2008, is used in the present study. The accuracy of management profit forecasts, or forecast errors, in IPO prospectuses is calculated, following Lee et al. (2006), over the ten-year sample period. Then, a multivariate model, following the extant literature, is used to identify the determinants of any observed forecast error in Indonesia. Findings – A mean (median) forecast error of 19 percent (9 percent) is reported over the entire sample period. Multivariate analysis shows that, among the explanatory variables used in the present study, forecast horizon and management optimism seem to be the most significant determinants of forecast error in Indonesia. Research limitations/implications – The ord...

Do Small Capital Markets Recognize Differentiated Corporate GovernanceStructure? Evidence from the Indonesian IPOs

The Capital Market Supervisory Agency in Indonesia and subsequently, the Indonesian Stock Exchange introduced the requirement of appointing at least 30% commissioners as independent, in the Board of Commissioners, in all public companies by December 31, 2001. The present study documents the extent of compliance of this new requirement and investigates whether the capital market can recognize the IPO firms that are in compliance from those that are not, using a sample of 72 IPO firms in Indonesia over the period 2002 through 2007. Results from the multivariate analysis indicate that IPO firms that are in compliance do experience significant less underpricing compared to those that are not. Furthermore, a positive, but insignificant, relationship between compliance and post- IPO firm valuation is reported in the present study. The results documented in this study should be comforting to the policy makers in Indonesia, as well as other developing countries, in that governance reform measures do work without necessarily having a pre-existing strong legal system.

The impact of foreign participation on stock prices in the United States

Using a standard demand–supply model, this study investigates the relationship between foreign participation in the equity market and stock prices, incorporating the effects of inflation and the demographic structure. The results show that while foreign participation in the equity market and the proportion of population in their prime earning age have a positive impact, inflation has a negative impact on stock prices.