Re-Examining the Finance-Growth Nexus
in Malaysia and Indonesia
-- M Shabri Abd. Majid and Said Musnadi
By employing a battery of time-series techniques, the paper empirically examines the short- and long-run
finance-growth nexus during the post-1997 financial turmoil in Malaysia and Indonesia. Based on the Autoregressive Distributed
Lag (ARDL) models, the study documents a long-run equilibrium between economic growth, finance depth and inflation. Granger causality
tests based on the Vector Error Correction Model (VECM) further reveal that there are: (1) No causality between finance and growth
in Indonesia, which accords with the independent hypothesis of Lucas (1988); and (2) A unidirectional causality running from finance
to growth in Malaysia, thus supporting the finance-growth led hypothesis or the supply-leading view. Based on the
Impulse-Response Functions (IRFs), the study discovers that the variations in the economic growth rely very much on economic innovations.
© 2010 IUP. All Rights Reserved.
Corporate Borrowing and Growth Opportunities: Evidence
from Indian Manufacturing Sector
-- Raju Majumdar
This paper analyzes the relation between growth opportunities and corporate borrowing using a panel data regression model, on
a sample of 317 Indian firms covering the period 2004-2008. Isolating the components of growth in terms of growth of assets
already-in-place and the present value of future growth opportunities has yielded statistically significant results that point to the possibility
of misspecification of independent variables as a possible reason behind the earlier findings. Study findings conform to the
theoretical explanation that firms with high market-to-book ratios have higher costs of financial distress and hence long-term borrowing
and growth opportunities are inversely related even in the Indian context as it is elsewhere.
© 2010 IUP. All Rights Reserved.
Semi-Strong Form Efficiency:
Market Reaction to Dividend and Earnings Announcements
in Malaysian Stock Exchange
-- Baharuddin M Hussin, Abdullahi D Ahmed and Teoh C Ying
This study focuses on the announcement effect of both dividend and corporate earnings on stock prices to examine evidence of
semi-strong form efficiency in Malaysian Stock Exchange. A sample of 120 companies listed on the Main Board of Bursa Malaysia that announced
the final dividends in their fourth financial quarter was selected covering a time period from January 1, 2006 to November 30, 2006. The
study results support the information content of dividend theory that increasing dividend announcements, on an average, earn positive
abnormal return, while decreasing dividend announcements are associated with negative abnormal return. Based on the market reaction to
both dividend and earnings announcements, this study concludes that both dividends and earnings play a significant role as signaling effects
of the future prospects of the firm, with the dividends effect proving to be significantly stronger than the earnings effect. The results
provide some evidence of semi-strong form efficiency in the Malaysian stock market, where stock prices adjust in an efficient manner to
dividend and earnings announcements.
© 2010 IUP. All Rights Reserved.
Who Moves BRIC Stock Markets: US or Japan?
-- B J Queensly Jeyanthi
This study examines the existence of cointegration and causality between the stock prices of BRIC countries and the US and Japan
to investigate which of the BRIC countries are moved by the US and Japan, using daily data spanning from April 2002 to March 2009.
Engle-Granger two-step procedure test provides evidence of a long-run relationship between the BRIC countries and the US and Japan.
The results indicate that potential long-run benefits exist from diversifying the investment portfolios internationally to reduce the
associated systematic risks across countries. However, in the short run, Indian stock market is dominated by the US market, Russia is dominated
by Japan, and the remaining countries are dominated by neither during the time period investigated.
© 2010 IUP. All Rights Reserved.
Profitability Analysis of Acquiring Companies
-- Fulbag Singh and Monika Mogla
This study examines the profitability of acquiring firms in the pre- and post-merger periods. The sample consists of 153 listed
merged companies. Five alternative measures of profitability were employed to study the impact of mergers on the profitability of acquiring
firms. The results reveal that profitability declined in 55% of companies, and only 29% of companies could improve their profitability.
DuPont analysis reveals that profitability declined due to poor asset utilization. It suggests that managers should give due attention to
proper utilization of newly acquired assets. Acquisition of neither healthy nor loss-incurring units contributed to the profitability of acquirers.
© 2010 IUP. All Rights Reserved.
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