Volume 11, 2022


pdf Risk Factors in the German Stock Market: Can Sentiment Improve the Performance of Traditional Multifactor Models?

Emile David Hövel 1, Matthias Gehrke 2

1 Universidad Católica San Antonio de Murcia, Spain
2 FOM University of Applied Sciences, Germany

Capital market research usually focuses on the investment decision of a risk-averse investor, who determines the relationship between risky assets and risk-free investment. Furthermore, numerous capital market models assume normally distributed security returns and rational investors. In this framework, ex-ante investment decisions depend solely on the expected return, risk of investment opportunities, and investor risk affinity. For decades, empirical research findings have criticized this idealized framework. New risk factors were empirically confirmed and established. This study attempts to shed light on this issue. A comparative analysis considers the Fama-French and Carhart factors and a principal component analysis based sentiment-risk factor considering 76 sentiment indicators to examine the possible explanatory contribution to German stock market returns.

Keywords: Stock Market Returns, Risk Management, Behavioral Finance, Investor Sentiment, Germany

pdf Reconstruction of the Slippery Slope Framework Tax Compliance Model

I Nyoman Darmayasa*, I Made Marsa Arsana, I Made Agus Putrayasa

Politeknik Negeri Bali

This study attempts to reconstruct the Slippery Slope Framework (SSF) tax compliance model based on the values of Pancasila as the nation's ideology. This study is a conceptual paper through a literature review. The conceptual based on internalization of the value of Pancasila through historicity, rationality, and actuality. Historically, the SSF compliance model has not fully agreed with the values of Pancasila, which reflects the characteristics of taxpayers in Indonesia. Rationally, the SSF compliance model prioritizes the objective role of tax authorities in their primary task of collecting tax revenues. The reconstruction of the model through the actuality of the nation's ideological value occurs by balancing the role of the tax authority’s power with the taxpayers’ trust. The reconstruction propositions of the obedience model are based on humanist religious values at the conceptual level. The reconstruction of the SSF compliance model makes the humanist religious assumption the foundation of the tax authority's power as taxpayers’ trust increases. The reconstruction model is believed to be able to dynamically transform an antagonistic into a synergistic climate to increase voluntary compliance.

Keywords: Conceptual paper, Nation's ideological value, Reconstruction, Slippery slope framework, Tax compliance

pdf The Impact of Real Manipulation and Tax Management on Future Market Value: An Artificial Intelligence Simulation of High Earnings Quality

Muljanto Siladjaja 1, Yuli Anwar 2, Ismulyana Djan 2

1 IKPIA Perbanas
2 Universitas Binaniaga Indonesia

Providing empirical proof of the negative impact of manipulation activity pushed management to adhere to the available regulation by publishing high financial reporting quality. This one has a significant effect negatively on a volatile market price movement because of illustrates the actual earnings. It is not an obstacle for the investor in predicting the future return with high accuracy when there is a minimum chance for the opportunity behavior. This causal research has developed a new variable to measure the investor's perception, and it is the future market value as a proxy for future return. The observation data used the samples on the listed company in the industrial manufacturing sector from 2015 until 2020, which amounted to 384 observations. The management's effort to deduct the manipulation activity can be interpreted as the minimum level of misleading information. When the investor has no tolerance for manipulation activity, the management should be "prudent" in designing the accounting treatment policy to illustrate real earnings. It is a sign of high probability in reaching out to the better prospect, proving the interactive feedback between management and investor through the Decision Tree Model and Bayes Theorem. This research has adopted the maximum simplex models as an Artificial Intelligence simulation for maximizing each party's maximum utility as implication game theory, like investors and management in making their strategic decisions. Principally, the regulator should force management to level up the quality of financial reporting because of no tolerance for any infringement on the legal regulations.

Keywords: Real earnings quality, Tax management, Future market value

pdf Does transaction atmosphere influence the decision-making behaviour of investors?

Christa Hangl*, Matthias Ortner

University of Applied Sciences Upper Austria

The profitability of impact investments ranges from a return on investment to market returns. To accomplish social goals, certain investors forgo part of the financial return. This approach opposes the concepts of conventional finance theory, which see the individual as a rational profit-maximizing decision-maker. A quantitative experimental study was conducted with students from the Upper Austria University of Applied Sciences, Steyr Campus, whereby the subjects were divided into two groups. A social Transaction Atmosphere (TA) was created in one group through the targeted use of stimuli. Subsequently, both groups had to make an investment decision in an identical scenario. The aim of the study and point of intersection between transaction cost theory and the social finance (SF)/impact investing (II) area is to analyse the observable "irrationality" in SF/II with reference to the transaction atmosphere as the primary decision-making element. The underlying scientific question investigates the impact of a socially shaped TA on the decision-making of investors. Experiment results demonstrated that the use of stimuli significantly raised the proportion of impact investments to overall investments. This finding suggests that a socially moulded TA is essential for investors' decision-making, whereby receptivity to the stimuli depends on individual investor characteristics, such as moral standard, financial knowledge, and previous experience with investment decisions. The financial aspect continues to play an important role in the decision- making process of investors.

Keywords: Social finance, Social impact investing, Transaction cost theory, Transaction atmosphere

pdf A comparison of market risk measures from a twofold perspective: accurate and loss function

Sonia Benito Muela*, Carmen López-Martin, Raquel Arguedas-Sanz
National Distance Education University (UNED)

Under the new regulation based on Basel solvency framework, known as Basel III and Basel IV, financial institutions must calculate the market risk capital requirements based on the Expected Shortfall (ES) measure, replacing the Value at Risk (VaR) measure. In the financial literature, there are many papers dedicated to compare VaR approaches but there are few studies focusing in comparing ES approaches. To cover this gap, we have carried out a comprenhensive comparative of VaR and ES models applied to IBEX-35 stock index. The comparison has been carried out from a twofold perspective: accurate risk measure and loss functions. The results indicate that the method based on the conditional Extreme Value Theory (EVT) is the best in estimating market risk, outperforming Parametric method and Filter Historical Simulation.

Keywords: Expected shortfall, Value at Risk, APARCH model, Backtesting, Skewed distributions

pdf The role of forensic auditing techniques in preventing non-government organisations’ financial statement fraud in South Africa using a proactive approach

Jean Damascene Mvunabandi *1, Bomi Nomlala 2
1 Durban University of Technology
2 University of KwaZulu-Natal

This study is designed to investigate the role of proactive forensic auditing techniques in preventing fraudulent activities among NGOs in the eThekwini region. The population of this study comprised 87 knowledgeable staff in the field of fraud risk management and auditing selected from 30 NGOs. Primary data was gathered using an online questionnaire and semi-structured interviews. Quantitative data were analysed with the aid of SPSS version 27, while NVivo12 assisted in thematically analysing all interview questions. Analysis of movement Structures (AMOS version 27) was also used to estimate statistical models. Empirical findings proved that a proactive approach to forensic auditing techniques could hugely assist in preventing fraudulent activities among non-government organisations in the eThekwini region, South Africa. Relying on these empirical findings, this study proposes a model for proactively preventing financial and economic crimes in NGOs. This study contributes to the current body of knowledge and further contributes to fraud risk management in NGOs. This study has also provided a very robust plan for future researchers.

Keywords: Fraud risk management, Proactive forensic auditing techniques, Financial statement fraud, Non-Government Organisations, Financial statement fraud prevention

pdf Currency Momentum: An Emerging Market Issue?

Maik Schober* 1, Matthias Gehrke 2
1 Universidad Católica San Antonio de Murcia
2 FOM Hochschule fuer Oekonomie & Management

Three main currency strategies have been established in the literature: carry, value, and momentum. We investigate momentum using data on 27 currencies (10 developed countries and 17 emerging markets). We find that momentum returns are driven by emerging market currencies, while the currencies of developed countries have no impact. An emerging market- specific dollar risk factor can partly explain these momentum returns. We carry out permutation tests and find support for our hypothesis that momentum returns are driven by emerging markets. However, we show that transaction costs reduce momentum returns considerably. We also show that the returns are time-varying and have been unattractive recently. The implications of this study for financial practitioners are to focus on emerging market currencies and optimise transaction costs when executing momentum strategies.

Keywords: Currency Momentum Exchange Rates Emerging Markets

pdf Does ERM Sophistication Drive IPO Initial Performance in Emerging Market? Evidence from Malaysian Market

Norliza Che-Yahya* 1, Siti Sarah Alyasa-Gan 2, Rasidah Mohd-Rashid 3
1 Universiti Teknologi MARA, Malaysia
2 Management and Science University, Malaysia
3 Universiti Utara Malaysia

The escalation of complexity and multidimensional (internal and external) factors bring companies to a position where risk management should be of main concern. Enterprise Risk Management (ERM) adoption and the extent of ERM implementation is seen as a guaranteeing element to increase the value of the companies over the long term due to adequate risk awareness and risk management strategies in all relevant business functions. This study examines the extent of ERM implementation on the initial performance of companies in the Malaysian IPO market. Testing a sample of 105 Malaysian IPOs issued from January 2012 to December 2020 using a linear regression model, ERM sophistication is positively and significantly related to the initial performance of Malaysian IPOs, offering support to the proposition in this study. Equally important is the reciprocal of offer price, subscription ratio, and market condition, which are also significant factors in companies’ post-IPO performance. This study benefits the market regulators and investors on the importance of ERM sophistication to companies’ initial performance.

Keywords: Enterprise Risk Management Initial Return, Initial Public Offerings, Malaysian IPO Market

pdf Does IFRS 7 Disclosure Weaken Earnings Management? Evidence from Indonesian Conventional Commercial Banks

Riyan Harbi Valdiansyah, Etty Murwaningsari*, Sekar Mayangsari

Faculty of Economics and Business Universitas Trisakti Jakarta, Indonesia

This study examines the influence of derivative instruments, income diversification, and liquidity ratios on earnings management with IFRS 7 disclosure as a moderating variable. The sample used consists of 129 conventional commercial banks that are listed and 116 banks that are not listed on the Indonesia Stock Exchange (IDX). This study uses moderating regression analysis (MRA) with the Robustness Least Squares with S-Estimation method. This study also conducted a sensitivity analysis with previous earnings management measurements (Kanagaretnam et al., 2010) and an additional test by comparing listed and non-listed banks on the Indonesia Stock Exchange. The empirical results indicate that IFRS 7 disclosure weakens derivative instruments' negative effect and income diversification's positive effect on earnings management but does not provide a moderating effect on liquidity ratios. This study contributes to the bank management and Indonesian banks authority to provides another view of implementing IFRS 7 disclosure that have not been maximized in the Indonesian banking industry. In the future, the researchers expect the authorities to encourage all banks to disclose complete IFRS 7 disclosure to minimize information asymmetry. On the other hand, this study also contributes to the banking management to increase derivative instruments and to carry out more supervision on the provision of income diversification to minimize earnings management. Theoretically, this study contributes to the new earnings managemen t measurement by applying more prudential principles based on the IFRS framework, IFRS 9 and Basel III regulations.

Keywords: Derivative instruments Income Diversification Liquidity ratios Earnings Management IFRS 7 disclosure

pdf The Implication of Corporate Social Responsibility on the Strategic Risk of the Listed Firms in Nigeria

Stephanie M. Chondough
The University of Debrecen, Hungary

This study focuses on the implications of corporate social responsibility (CSR) on the strategic risk of the listed financial and non-financial firms in Nigeria. The population of the study consists of 154 firms, while the census sampling technique was adopted to arrive at an adjusted population of 133. The correlation research design was implored using a positivism approach. Descriptive statistics, correlation matrix, multiple regression, confirmatory analysis and T-test were used to analyze the data extracted from the annual report. Hence, the result of the study shows that corporate social responsibility has a negative impact on strategic risk. The confirmatory factor analysis found that CSR engagement influences strategic risk (SRK), but to varying degrees, contradicting findings from the Frontier Model, PCSE, and GLS that both sectors will have similar results if they engage in CSR effectively. It is therefore suggested that the management of strategic risks need to be more integrated in corporate strategy as the capacity to listen to business stakeholders' viewpoints on social and environmental issues becomes a competitive need.

Keywords: CSR, Strategic risk, Financial sector, Non-financial sector