Research Articles (Financial Management)

Permanent URI for this collectionhttp://hdl.handle.net/2263/2226

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The red flags of financial statement fraud
(Emerald, 2024-03) Du Toit, Elda; elda.dutoit@up.ac.za
PURPOSE – According to the Association of Certified Fraud Examiners, financial statement fraud represents the smallest amount of fraud cases but results in the greatest monetary loss. The researcher previously investigated the characteristics of financial statement fraud and determined the presence of 16 fraud indicators. The purpose of this study is to establish whether investors and other stakeholders can detect and identify financial statement fraud using these characteristics in an analysis of a company’s annual report. DESIGN/METHODOLOGY/APPROACH – This study analyses a financial statement fraud case, using the same techniques that were previously applied, including horizontal, vertical and ratio analysis. These are preferred because stakeholders have relatively easy access to them. FINDINGS – The findings show several fraud characteristics, with a few additional ones not previously found prevalent. Financial statement fraud thus tends to differ between cases. It is also easier to detect and identify fraud indicators ex post facto. ORIGINALITY/VALUE – This study is a practical case showing that financial statement fraud can be detected and identified in the financial statements of companies that commit fraud.
Is sustainable banking initiative good business for the banks? A comparative pre and post adoption study
(Creative Publishing House, 2024) Nwaigwe, Nwakanma Godwin; Matemane, Matwale Reon
This paper contributes to the business case for sustainable development literature by examining whether sustainable banking (SB) initiatives translate to good business for the banks. To achieve this, we analyzed the link between SB and certain bank performance (BP) indicators, and examined if significant difference exists in BP between the pre and post-Nigeria sustainable banking principles (NSBP) adoption periods. The study was based on 12 deposit taking banks listed on the Nigerian Exchange Group (NGX) studied for18 years (2005 to 2022), divided into two equal periods of pre and post-NSBP adoption. The empirical results support the assertion that a positive difference exists in BP between the pre and post NSBP adoption periods, with the difference in profitability indicators increasing in significance over time. The findings have managerial implication for the banks, such that to chart a sustainable growth path for the banks, looking beyond short-term impact of sustainable actions is key.
The impact of news on South African sovereign bond yields
(NISC Pty (Ltd) and Informa Limited (trading as Taylor and Francis Group), 2024) Van der Westhuizen, Elizabeth-Ann; Brummer, L.M., 1940-; Van Schalkwyk, Cornelis Hendrik; ann.vanderwesthuizen@up.ac.za
A reverse event study approach was used to investigate how the South African sovereign bond yield curve reacts to headline news. The change in daily yields, calculated as the difference between the natural log of zero-coupon yields on consecutive business days, were used in the analysis. Dates of abnormal daily yield changes were identified using GARCH models. News items for the sample period were classified into categories using supervised machine learning. A regression model was fitted to determine the link between the abnormal yield changes and the news categories. The results indicated that, for abnormal increases in yield (negative news), political news had an impact on all nodes. For abnormal decreases in yield (positive news), economic news had the greatest impact on the 10-year and political news on the 15- and 20-year nodes of the yield curve.
Is financial anxiety gendered? A cross-sectional analysis during the COVID-19 pandemic
(Elsevier, 2025-03) Kadzima, Marvelous; Machokoto, Michael; Matemane, Matwale Reon; marvelous.kadzima@up.ac.za
Using data from 96,169 individuals across 114 countries, we find that women experience higher financial anxiety than men, especially in less-developed countries and civil-law nations, emphasizing the need for targeted policies to reduce gendered financial inequality.
Value relevance : a systematic literature review
(Inderscience, 2024-09) Haupt, Nicholas Daniel; Vermeulen, Katinka; Du Toit, Elda; elda.dutoit@up.ac.za
This research reviews value relevance studies (2000-2023) to understand how accounting information impacts firm value. A systematic literature review identified a rise in value relevance research, but a recent decline. It also revealed a concentration of publications in specific journals and by a limited number of authors. Thematic analysis suggests key areas like decision-making and market characteristics influence value relevance research. The research highlights the role of accounting information in investment decisions and emphasises the dynamic nature of the field due to evolving markets and information quality. Future research should explore non-financial factors for a more comprehensive understanding.
Do board characteristics affect the interplay between managerial ownership and firm performance? Evidence from South African banks
(Adonis and Abbey, 2024-09-01) Ojeyinka, Titus Ayobami; Matemane, Matwale Reon; titus.ojeyinka@up.ac.za
Managerial ownership has been identified as a mechanism to align the interests of the principal and agent and to guarantee superior returns to the principal. This study aims to explore the moderating role of board characteristics on the relationship between managerial ownership and the firm performance of the listed commercial banks in South Africa between 2017 and 2022. To ensure the consistency and robustness of the outcomes, the study applies the pool OLS, fixed effect, robust standard error approach, and fully modified OLS to control for serial correlation, cross-sectional dependence and endogeneity issues. The results show that managerial ownership has a significant and negative effect on the return of equity while its effect on Tobin’s Q is negative but not significant. This outcome supports the existence of the entrenchment hypothesis in the South African banking sector where the impact of managerial ownership is found to hurt firm performance. However, additional findings from the study reveal that board size, independence and diversity mitigate and reduce the detrimental effect of managerial ownership on firm performance. This study provides fresh insight into the importance of board characteristics as vital governance instruments that can be employed to align the interests of owners and managers toward optimal performance.
From words to finances : unraveling the negative net debt-languages nexus
(Elsevier, 2024-08) Kadzima, Marvelous; Machokoto, Michael; Lemma, Tesfaye T.; marvelous.kadzima@up.ac.za
Using an international dataset, we find that firms in countries with languages that lack a clear distinction between present and future tenses, leading to weaker future time references, are more likely to adopt negative net debt. This conservative and non-standard financing policy is notably pronounced among financially constrained firms, those with weaker governance, and those operating in highly competitive industries. Interestingly, this increase in negative net debt with weak-FTR is higher in countries with more established institutions, financial systems, and legal frameworks, which typically exhibit a lower prevalence of financial conservatism and a weaker influence of informal institutions on corporate decisions.
Enhancing critical thinking through collaborative learning : the impact of a partial pre-release assessment format
(Routledge, 2024) De Klerk, Charisa; Ker-Fox, Jason G.; Steenekamp, Laurika; charisa.deklerk@up.ac.za
Critical thinking has been identified as a very important skill by employers for the employment of graduates. A need exists to develop and assess critical thinking skills in tertiary institutions as employers have noted a gap in these skills among graduates. This skill can be developed, over time, by collaborative learning and given that student assessment, to a large extent, drives student learning this study proposed a revised assessment format: the ‘partial pre-release’ (PPR) assessment to attempt to cultivate critical thinking skills through collaboration. The PPR provided a pre-released case study where students had the opportunity to collaborate with peers before the assessment day. New information presented to students on the assessment day required increased depth in answering to showcase the cultivation of critical thinking skills. Quantitative data were collected over a period of two years using a survey. The PPR assessment format was found to show a statistically significant relationship between collaboration and the level of perceived depth when answering the required task. From these results, the study acknowledges the role that collaborative learning can play in cultivating a critical thinking mindset when an appropriate assessment tool is used.
Environmental, social and governance and financial performance nexus in South African listed firms
(AOSIS, 2024-04-30) Matemane, Matwale Reon; Msomi, Thabiso; Ngundu, Marvellous; reon.matemane@up.ac.za
BACKGROUND : Environmental, social and governance (ESG) factors have become topical in recent years because of climate change existential threat to humanity. There is, however, a limited understanding of how the firm’s ESG efforts affect firm outcomes. AIM : The aim of this study was to investigate the relationship between firm’s ESG indicators and the financial performance. SETTING : The sample is drawn from Johannesburg Stock Exchange (JSE) listed companies based on data availability. South Africa is not only plagued by social ills and governance failures, but it is also one of the world’s largest emitters of greenhouse gases, making it an ideal laboratory for studying the ESG and firm performance nexus. METHOD : We utilized a dataset spanning the years 2012–2022, covering 67 JSE-listed firms. These panel data were analyzed using the two-step system generalised method of moments (GMM). RESULTS : We found that the disaggregated ESG indexes have a positive, albeit insignificant impact on the financial performance. These findings hold even when financial and nonfinancial firms are examined separately. CONCLUSION : Policymakers, including standard setters and regulators, should encourage firms to be sincere on ESG efforts and avoid greenwashing. CONTRIBUTION : The study employs a relatively robust estimation technique (two-step system GMM) over a relatively long period (2012–2012). Furthermore, the sectoral analysis of financial and non-financial firms adds to the body of literature and policy development.
The derivatives debate : do derivatives disclosures add value during difficult times?
(Emerald, 2025) Toerien, Franz Eduard; Hall, J.H. (John Henry); Brummer, Leon Marx; eduard.toerien@up.ac.za
PURPOSE : This study investigates whether the disclosure of derivatives is value relevant in emerging markets and evaluates the effects of the 2008/2009 global financial crisis on the value relevance of derivative disclosures. DESIGN/METHODOLOGY/APPROACH : Panel regression models using sub-samples and a crisis interaction term were applied to a sample of the 200 largest non-financial firms by market capitalization listed on the Johannesburg Stock Exchange (JSE) from 2005 to 2017 to assess the consequences of the financial crisis. FINDINGS : The results suggest that the disclosure of derivatives is value relevant in the hitherto understudied context of emerging markets. The 2008/2009 financial crisis had a significant impact on derivatives use and the value relevance of derivatives disclosure by JSE-listed companies. PRACTICAL IMPLICATIONS : Companies should reconsider both how they employ derivatives as part of their risk management practices and how they communicate derivatives use to stakeholders in the financial statements. The findings facilitate a comparative analysis across various market contexts by researchers and assist investors in better decision-making. The findings can influence regulatory practices and can help standard setters to review disclosure requirements. ORIGINALITY/VALUE : The benefits of corporate hedging were studied from an emerging market perspective, using an original dataset and approach to investigate the effects of international financial volatility on emerging markets. The authors tested whether companies are valued differently, based on their disclosure of the use of derivatives in the financial statements, and the effect of the financial crisis on the value relevance derivatives disclosures.
The effect of psychological factors on financial behaviour among older Australians : evidence from the early stages of COVID-19 pandemic
(Public Library of Science, 2023-06-08) Arya, Vandana; Banerjee, Rajabrata; Lowies, G.A. (Gert Abraham); Viljoen, Christa; Lushington, Kurt
The current study investigated the association between psychological factors and financial behaviour during the COVID-19 pandemic in older people. Older people were chosen compared to other age groups because of the relatively greater impact in this age group of suboptimal financial decisions on future financial wellbeing. We hypothesised that the psychological factors facilitating general wellbeing during the COVID-I9 pandemic, i.e., positive mental wellbeing, hope, and positive coping, will have positive effects on financial behaviour. Based on telephone interviews, 1501 older Australians (Men = 750 and Women = 751; 55-64y = 630; > 65y = 871) completed an omnibus questionnaire examining coping, hope, mental wellbeing, and financial behaviour. Data was analysed using logistic regression and an ordinary and two-stage least square frameworks. Analyses revealed that the psychological factors identified as facilitating general wellbeing during the COVID-I9 pandemic also facilitated positive financial behaviour with hope and mental wellbeing emerging as significant determinants. Based on weightings from principal component analysis, one item each from the hope and mental wellbeing scale with eigenvalues > 1 were found to be robust predictors of positive financial behaviours. In conclusion, the findings support the assumption that the psychological factors associated with general wellbeing during the COVID-19 pandemic are also associated with positive financial behaviour. They further raise the possibility that single hope and positive mental well-being items can also be used to monitor psychological health and predict financial behaviour in older people and, in particular, at times of crisis. The latter may be useful measures for government to monitor psychological and financial wellbeing and inform policy for supporting older people at times of crisis.
Fighting through the flesch and fog : the readability of risk disclosures
(Emerald, 2024-02) Toerien, Franz Eduard; Du Toit, Elda; eduard.toerien@up.ac.za
PURPOSE : The purpose of this study is to evaluate whether the amendments to International Accounting Standard (IAS) 39 and the introduction of International Financial Reporting Standards (IFRS) 9 enhanced the readability, and thus the quality and usefulness of risk disclosure information. DESIGN/METHODOLOGY/APPROACH : Readability analyses are performed on companies listed on the Johannesburg Stock Exchange (JSE) from 2005 to 2021. The sample period includes the period when companies disclosed information according to IAS 39 (2005–2017) and IFRS 9 (2018–2021). FINDINGS : The results of the analyses show risk disclosures for JSE-listed companies to be complex and difficult to understand. Furthermore, risk disclosures have become longer and less readable with the introduction of amendments to IAS 39 and the introduction of IFRS 9. RESEARCH LIMITATIONS/IMPLICATIONS : This study uses readability measures as a proxy for the complexity and usefulness of risk disclosures. The amount of utility a user of financial statements derives could be dependent on other factors such as the quality of disclosure, individual user background and perceptions. PRACTICAL IMPLICATIONS : The results have valuable implications for the various stakeholders that make use of the information contained in financial statements. Stakeholders such as regulators and standard setters should carefully assess how accounting standards change to ensure that one of the key objectives of the IASB, namely, to provide information that is relevant, reliable and understandable, is met. ORIGINALITY/VALUE : The results of this study contribute to the discourse on the usefulness of companies’ risk disclosures. Though, to the best of the authors’ knowledge, this is the first study to compare the readability of risk disclosures from an emerging market perspective, the results can be applied to other countries using IFRS to assess the readability of risk disclosures.
Institutional quality, financial development and sustainable economic growth among lower income countries
(Wiley, 2023-08) Pradhan, Rudra Prakash; Nair, Mahendhiran Sanggaran; Arvin, Mak B.; Hall, J.H. (John Henry)
This article postulates strong endogenous relationships in lower income countries between institutional quality, financial development and sustained economic growth. These associations were investigated using the vector-error correction model (VECM) and Granger causality method for a sample of 79 countries from 2005 to 2022. The findings show that (1) these variables reinforce each other in the short run. (2) In the long run, both institutional quality and financial development can fuel economic growth. (3) The positive effect of institutional quality on economic growth is greater than that of financial development. Policy implications of these findings are that careful attention should be paid to co-development policies to enhance the institutional quality and the financial system in these economies. Policies should also consider economic growth strategies to enable sustainable economic growth rates.
Can artificial intelligence produce a convincing accounting research article?
(Emerald, 2024-08) Du Toit, Elda; elda.dutoit@up.ac.za
PURPOSE : This study aims to establish whether accounting research articles can be potentially generated by artificial intelligence. If artificial intelligence can produce quality work, the integrity of academic research may be compromised. DESIGN/METHODOLOGY/APPROACH : ChatGPT was used to create a paper on a meta-analysis of the relationship between sustainability reporting and value relevance. After the paper was generated, references had to be added by hand based on the citations created by ChatGPT. The paper was then presented as-is for review. FINDINGS : ChatGPT was able to create a relatively good-quality research paper that received two major revisions from independent specialists in the field of accounting and finance. Even though there is uncertainty regarding the appropriateness of all the references and the results cannot be confirmed, there is a risk that a reviewer may find the paper publishable because reviewers are not compelled to check references and the accuracy of results if proper methods were used that appear to be sufficient at face value. ORIGINALITY/VALUE : Artificial intelligence for academic writing is still relatively new, and there is still significant uncertainty as to the impact it may have on scholarly research. This is especially problematic because artificial intelligence applications improve by the second.
Capturing the timing of crisis evolution : a machine learning and directional wavelet coherence approach to isolating event-specific uncertainty using Google searches with an application to COVID-19
(Elsevier, 2024-08) Szczygielski, Jan Jakub; Charteris, Ailie; Obojska, Lidia; Brzeszczynski, Janusz; kuba.szczygielski@up.ac.za
The phases of a crisis are critical to understanding its evolution. We construct an economic agent-determined machine learning-based Google search index that associates search terms with uncertainty to isolate COVID-19-related uncertainty from overall uncertainty. Subsequently, we apply directional wavelet analysis that discriminates between positive and negative associations to study the evolving impact of the COVID-19 pandemic on financial market uncertainty and financial markets. Our approach permits us to delineate crisis phases with high precision according to information type. The analysis that follows suggests that policy responses impacted uncertainty and that the novelty of the COVID-19 outbreak had a significant impact on global stock markets. Regression analysis, wavelet entropy and partial wavelet coherence confirm the informational content of our uncertainty index. The approach presented in this study is applied to the COVID-19 crisis but is generalisable beyond the pandemic and can assist in decision-making during times of economic and financial market turmoil and should be of interest to policymakers, researchers and econometricians.
Gender diversity in corporate boards of companies listed on the Johannesburg Stock Exchange : a quantile regression approach
(Emerald, 2024-12) Mvita, Mpinda Freddy; Du Toit, Elda; elda.dutoit@up.ac.za
PURPOSE : This paper aims to explore the effect of female’s presence in corporate governance structures to reduce agency conflicts, using a quantile regression approach. DESIGN/METHODOLOGY/APPROACH : The research investigates the relationship between company performance and boardroom gender diversity using quantile regression methods. The study uses annual data of 111 companies listed on the Johannesburg Stock Exchange from 2010 to 2020. FINDINGS : The study reveals that women on the board impact firm return on assets and enterprise value, varying across performance distribution. This contrasts fixed effect findings but aligns with two-stage least squares. However, quantile regression indicates that female executives and independent non-executive directors have notably negative impacts in high and low-performing companies, highlighting non-uniformity in the board gender diversity effect compared with previous assumptions. PRACTICAL IMPLICATIONS : The empirical findings suggest that companies with no women directors on the board are generally more likely to experience a decrease in performance and enterprise value relative to companies with women directors on the board. As recommended through the King Code of Corporate Governance, it is thus valuable to companies to ensure gender diversity on the board of directors. ORIGINALITY/VALUE : The research confirms through rigorous statistical analyses that corporate governance policies, principles and guidelines should include gender diversity as a requirement for a board of directors.
Impact of firm-specific attributes on the shareholder value creation of listed South African companies
(Sage, 2024) Nieuwoudt, Rika; Hall, J.H. (John Henry)
This article identifies firm-specific attributes with a substantial impact on the capabilities of listed South African companies to create shareholder value. It shows that the firm-specific attributes that contribute to shareholder value creation differ when value is measured using economic-based shareholder value measures, such as Economic Value Added (EVA) and Market Value Added (MVA), versus using accounting-based shareholder value measures, such as earnings per share (EPS). Data cover financial years from 2000 to 2018 for 35 JSE-listed companies. Multiple regression analysis is employed to study the relationships. The study revealed different results on shareholder value creation utilizing accounting-based and economic-based performance measures. Shareholder value measured by EVA is created by larger companies with higher profitability, lower systematic risk and efficient asset management. MVA identifies increased shareholder value for larger firms and higher profitability. MVA also pinpoints enhanced investor value by firms with lower liquidity ratios which invest less in research and development (R&D). EPS achieved different results from EVA and MVA, indicating that according to accounting-based measures, companies add value through lower profitability (measured by return on investment), efficient asset management and a higher risk profile. Understanding the effect of firm-specific attributes on shareholder value creation can assist managers in developing strategies and decision-making.
Do remittances mitigate poverty? Evidence from selected countries in Africa, Asia and Latin America
(Springer, 2024-04) Ojeyinka, Titus Ayobami; Ibukun, Cleopatra Oluseye; titus.ojeyinka@up.ac.za
The overall objective of the Sustainable Development Goals is to end poverty in all its manifestations by 2030. To achieve this, international remittance inflows have been identified as crucial external financing, especially for developing countries, to secure the resources needed to improve the living conditions of the poor in these countries. It is on this premise that this study investigates the nexus between remittances and poverty in selected countries in Asia, Africa and Latin America, given that these regions receive the highest amount of remittances globally. The study uses annual data on 38 top recipients of remittances between 1990 and 2021. To ensure the robustness of the results, the study employs two indicators of poverty: household consumption expenditure and poverty headcount. On the methodological front, the study addresses the issue of cross-sectional dependence in a panel study and also corrects for endogeneity, using both static and dynamic methods of analysis, respectively. Empirical findings from the cross-sectional dependence test confirm the interdependence of countries in the study. Interestingly, the study confirms the optimistic view that remittance reduces poverty in the selected countries. This finding is consistent for the two poverty indicators regardless of the methodology adopted. The study concludes that remittance inflows play a pivotal role in alleviating poverty in the selected countries. Based on the findings, governments in the three regions are advised to devise appropriate policies and structures that can support and channel the proceeds from remittances to productive ventures to reduce the incidence of poverty in their respective countries.
Interface between energy consumption, CO2 emissions, economic growth, and macroeconomic openness in financial action task force countries through the lens of a causality approach
(Springer, 2023-02) Pradhan, Rudra Prakash; Arvin, Mak B.; Nair, Mahendhiran Sanggaran; Bennett, Sara E.; Hall, J.H. (John Henry); john.hall@up.ac.za
Please read abstract in the article.
The readability and narrative tone of risk and risk management disclosures for South African listed companies
(Emerald, 2025-01) Enslin, Zack; Du Toit, Elda; Puane, Mangwakong Faith; elda.dutoit@up.ac.za
PURPOSE : Risk information provides information to enable stakeholders to make informed decisions about a company. Corporate communications should be readable and unbiased so as not to hamper disclosure usefulness. This study assesses whether risk disclosures in the integrated reports are readable and unbiased. DESIGN/METHODOLOGY/APPROACH : The readability and narrative tone of South African listed companies' risk and risk management disclosures as disclosed in their integrated reports are analysed using automated software for the Top 40 JSE listed companies from 2015 to 2019. FINDINGS : The results show that risk and risk management disclosures are unreadable and lack any improvement in readability during the period. Additionally, these disclosures are biased toward narrative tones signalling communality and certainty. ORIGINALITY/VALUE : The study adds to the literature on the readability of corporate reports, by focussing on the readability and narrative tone of risk and risk management disclosures during a period of increased scrutiny over the content of such disclosures. Also, by analysing risk disclosure and risk management disclosure separately, and by performing trend analysis to determine whether requirement changes related to content (specifically King IV) affect readability and narrative tones.

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