European Journal of Economics, Finance and Administrative Sciences

Issue 59
Aug, 2013

Examining the Relationship between Corporate Governance and Banks' Performance, and Risk in Saudi Arabia
Mohammad O. Al-Smadi

Corporate Governance has become one of the most important concerns in the business world. Although the corporate governance topic has been studied recently, the impact of corporate governance on banks' performance and risk is not clear yet, especially in developing countries. Using a panel data regression model on a sample of 11 banks listed in Saudi Stock Exchange for the fiscal year 2008 to 2013, this study examines the relationship between corporate governance and banks' performance and risk in Saudi Arabia. This study employed seven independent variables, which cover four conventional measures of corporate governance, and three measures of ownership structure. The main findings from the study are: board's size, ownership concentration and institutional ownership have a significant impact on bank's performance and risk, but committees of the board of directors have a significant impact only on bank's performance. The outcome of this study offers empirical evidence on the impact of corporate governance on banks' performance and risk. This evidence provides beneficial information for supervising authorities, stakeholders and academics.
Keywords: Corporate governance, banking performance, banking risk, Saudi Arabia.

Nexus between Economic Growth and Governmetn Expenditure
Mwafaq M. Dandan and Wasiq Nawab

This research paper is an attempt to the empirical investigation of Wagner law in case for Pakistan based on the data for the time period from 1979 to 2010. To test the unit root of the series the Granger and PP test are utilized all the variables are found to be I(1). To test the cointegration among variables the Johansen test of cointegration is applied. Moreover the Todo Yamamoto approach is used to check the direction of causal relationship of the variables. The results of the study shows that relationship between Economic growth and Government expenditure do not follow Wagner law in case of Pakistan and also there is no long run cointegration among variables. Further the results of Todo Yamamoto test shows neither causality flowing from Government Expenditures to Economic Growth nor from Economic Growth to Government Expenditures. The current study is improved in the sense that it also includes Government Revenue in the model as an independent variable.
Keywords: Wagner law; Government expenditures; Granger causality and cointegration.

The Effects of Sustainability Reporting on the Growth of Corporate Organizations in Nigeria
P.V.C.Okoye, Azubuike Oraka and Raymond Ezejiofor

Social sustainability reporting, also known as corporate environmental responsibility or even reports on integrated environmental issues has gain ground and even plays major roles in the growth and efficient performance of corporate relationship and reflect the priority in which companies have given in the measurement and management 0f the impact of their operations. Meanwhile global standards have played active role in the development of sustainability reporting and management performance in Nigerian corporate organizations. However these standards make reporting more open and accountable, and provide a universal framework for disclosure. This paper aims at assess whether on social sustainability reporting has effected any changes on internal and external perceptions of corporate organization and to determine the extent at which pressure from external factors has contributed in the needed social sustainability reporting in Nigeria. Survey research method was adopted and questionnaire was administered on a random selected sample of eighty (80) employees, customers and investors in manufacturing organizations in Onitsha, Anambra state. Judgmental sampling technique was used in selecting the three quoted companies used for the study. Using five point likert scale analysis and z-test statistical tool to test the two hypotheses, the study found out that Social sustainability reporting has effect on the changes of internal and external perceptions of corporate organization and that Pressures from external factors have contributed to social sustainability reporting of corporate organization. Based on this, the paper recommends that the context-specific that factors influence the impacts of reporting should be identifies which includes an analysis of the differences across geographical regions, sectors, and types of organization.
Keywords: Social Responsibility Reporting, Corporate Organizations, Growth and efficient Performance.

Detection of Earnings Management by Applying Benford's Law in Selected Accounts: Evidence from Quarterly Financial Statements of Turkish Public Companies
Çigdem Özari and Murat Ocak

This paper investigates the occurence of earnings management by applying Benford's Law in selected accounts. We find that some numbers are manipulated in third and fourth digits of the selected accounts. However, we find no evidence that managers engaged to manage earnings upward (downward); because, we did not observe high (low) significance freguency of number zero and low (high) significance of number nine in second, third, fourth digits of net profit, sales revenues and we did not observe high (low) significance freguency of number nine and low (high) significance of number zero in second, third, fourth digits of cost of goods sold and operating expenses.
Keywords: Benford's Law, Earnings Management.

Challenges Faced by the Small Scale Industries in Tamil Nadu (India)
B. Adhinarayanan and K.Balanaga Gurunathan

The study conducted to investigate the challenges faced by the small scale industrial promoters while managing the business. Ascertaining the first hand opinion on various challenges faced by the Small Scale Industries (SSI) was the major focus of the study. The study was carried out in ten selected districts in Tamil Nadu. In the study opinion from 500 small scale producers were taken by using structured questionnaire and unstructured interview for analysis. The results received from chi-square and ANNOVA tests reveals that challenges faced by the SSI vary with the type of the industry and comparatively the newly started organizations facing more challenges. Factors affecting marketing performance are same for SSIs in different geographical area with respect to Pricing Strategy and Competitiveness. Agricultural and textile industries suffer more due to financial issues, capital, and space are the major challenges faced during expansion. Because of wide-spread electricity cut through the State SSIs suffered. The study recommends that the government should urgently address the electricity issue, as well as consider other suggestions also to rejuvenate SSI development and sustainability. This has become critical in view of the potentials of the SSI sector in entrepreneurship development, employment generation.
Keywords: SSI, Challenges, Rejuvenate, Entrepreneurship, Employment.

An Empirical Study on Effectiveness of Training in Manufacturing Companies at Tamilnadu- India
V.M.Anitha Rajathi and A.Mustafa

Employee training is becoming a necessity to every organization now-a day. Employees are entrusted different roles and responsibilities. Training enables them to carryout these roles and responsibilities efficiently and also learn new things, which will prepare them to take up higher responsibilities in the future. In this study the researcher studies the factor that influences the effectiveness of training in boiler manufacturing companies. This is mainly to assess the present status of the employee effectiveness in discharging the roles and responsibilities in tune with the objectives of the organization. The study is a descriptive one. Primary data was collected by the researcher with the help of structured questionnaire administered to the middle level employees of two leading boiler manufacturing organizations in Tiruchirappalli - Tamilnadu. Totally there were 426 middle level employees from that 250 respondents were selected as sample using simple random sampling method (lottery method). Due to various reasons the company name is not being disclosed in this study. Using Statistical Package for Social Sciences (SPSS) the following tools were administered in this study 1) Factor Analysis 2) Multiple Regression and 3)Reliability Test. Based on the test results some of the relevant findings were derived that will be significant and relevant to present Indian scenario.
Keywords: Training Program, Training Input, Methodology, Training Effectiveness, Quality of the training material

The Use of Accounting Variables for the Construction of Logit and Probit Estimates of Financial Risk in Italian Local Governments: An Empirical Application
Puntillo Pina

Introduction; 1. Financial Distress in Italian Local Governments; 2. Literature Review; 3 Research Methodology; 3.1 The explanatory variables; 3.2 Dataset;3.3 Hypothesis; 3.4 Logit regression model; 3.5Probit regression model; 4 Results; Conclusions.
Keywords: Financial risk, local bodies, logit, probit. With the activation of fiscal federalism in Italy it has become an urgent matter to assess the risks of local authority insolvency and to find the appropriate tools to do this. In other word the fiscal federalism has led to a growing interest in local government bankruptcy prediction models. In this context the present research proposes to model the risk of local authorities’ insolvency on the basis of accounting variables. The purpose of this research is to test the usefulness of financial data for predicting local government failure in Italy. After a brief literature review on predictive model of failure the study will then go on to focus on the main drivers of fiscal risk and their effects in accounting terms. The aim of this phase of the research is to identify the variables to be then used as explanatory variables in the quantitative models for estimating or predicting insolvency. The predictive models are an application of regression models that assess the likelihood of the occurrence of an event. From the various models in the literature identifying financial crises, type of regression model with a binary dependent variable: it includes the logit and probit regression model. These are non linear models that use standard or logistic distribution functions. The explanatory variables of the model are the accounting variables identified in the first phase of the work. Once constructed on a theoretical basis, the model will then be tested empirically on a sample of local bodies in Italy.

Bank Profitability by Region and Banking Systems

James Nguyen

This paper examines the bank-specific factors that influence two popular bank performance measures: return on assets (ROAA) and return on equity (ROAE). The analysis is based on bank-level data collected for 28 financially liberalized countries. The panel regression results generally suggest that both ROAE and ROAA are strongly related to the levels of capital adequacy, expense ratio, credit risk, net interest income, noninterest income. Capital adequacy, noninterest income, management efficiency and noninterest income are positively associated with ROAA and ROAE. Bank profits are adversely affected by expenses and credit risk. Liquidity and deposit growth exert no significant impact on profitability. With a few exceptions, there are remarkable similarities among effects of bank characteristics on ROAA and ROAE. Further, banks in bank-based markets perform similarly to those in market-based economies. The study also finds that bank concentration has no significant impact on profits.
Keywords: Commercial Banking Profitability, Market Structure, Banking Systems, Panel Data
JEL Classification Codes: D4, G21, G17, O16

The Impact of Capital Flows on Developing Countries: Empirical Exploration and Research Methodology
Mozammel Huq, Michael Tribe and Khine S. Kyaw

This paper aims to explore the various conceptual and methodological challenges pertaining to the study of the impact of capital flows on the economic growth of developing countries from the research process standpoint rather than on the actual content and results of the research. Essential dimensions examined concentrate on various elements of the research process such as redefinition of research problem, specification of research questions, data issues, methodological assumptions and approaches, and analytical reconsiderations. Our analysis highlights the importance of continuous re-consideration of research methodologies.
Keywords: Financial Capital Flows, Developing Countries, Research Methodology

The Relationship between Executive Compensation, Employee Compensation, and Firm Value
Ravi Lonkani and Duangnapa Sukhahuta

This paper proposes that not just the executive compensation affects firm value as predicted by the agency theory but the compensation paid to employees is also an important factor associated to firm value since employees are one of the key stakeholders in a firm and are regarded as a ‘human asset’ according to the stakeholder theory. We examine the payment to executives and employees and ask whether they have partial affect on firm’s value. According to stakeholders’ theory, partial effect should be positively related to firms’ value. On the contrary, if executive’s higher compensation cannot bring executives to align with stakeholders’ theory (i.e., they uses their higher payment to entertain the worker union), we should observe the results of negative interaction between executives and employees’ compensation with firm value. Our results find that both executive compensation and employee compensation are main components to firm value. And the results suggest that just because executives are paid more does not mean that they increase their motivational impact on employees in getting them to work harder to maximize firm value.
Keywords: Executive Compensation, Agency problem, Firm value.

Sustainable Development of the Pharmaceutical Industry in Russia: What should be done to make it Possible?
Aleksei Balashov

The functioning specifics of modern Russian pharmaceutical industry causes counteraction between the main goals of its development: the accessibility of medicines for the population; the product supply of pharmaceutical sector; saving government expenses for purposes of public health and medicament supply; insuring the medicament independence of the national public health systems from multi-national pharmaceutical corporations. This paper examines the formation of organizational and economic mechanism for sustainable development of pharmaceutical industry in Russia. On the base of analyzing regulatory documents of the governing institutions; data collected by Russian analytical and marketing agencies in 2010-2012; and also on the expert estimation method, prioritised directions that facilitate the Russian pharmaceutical industry were developed. We conclude that the organisational-economic mechanism of administrating of the Russian pharmaceutical industry includes (1) the stimulation of the production cycle of medicines; (2) the improvement of pricing system for the medicines by introducing the reference price system; (3) introducing the model of Compulsory Medical Substance Insurance of the population based upon the flexible payment scheme; (4) upgrading the regulatory system of the Russian pharmaceutical industry. The sustainable development of the pharmaceutical sector is mostly depended on the activity of the government.
Keywords: Sustainable development, pharmaceutical industry, Russian economy

Employees Job Satisfaction in IT/ ITES Industry in India - An Empirical Study
D. C. Ebinezar and P.Vikkraman

This research seeks to analyze the job satisfaction of employees of IT/ITES companies located at Chennai in India. The primary data and secondary data have been used in the study. The primary data were collected from professional working in IT/ITES industry in Chennai district through structured questionnaire. The sample size was fixed as 500. Due to high employee turnover in the IT/ITES industry in India, it is difficult to define the population of the study. Hence, it is decided to adopt the convenience sampling technique for selection of the sample respondents. The secondary data were collected from various websites, journals and NASSCOM reports. The statistical tools like descriptive statistics, ANOVA were used to analyze the data. The study results indicated that there is a relationship between qualification, experience, income of the employees and level of job satisfaction of the employees. The findings of this study lead to a conclusion that it is imperative for IT and ITES companies to address the needs of their employees to strengthen their job satisfaction through motivation. The job satisfaction will help to minimize employee turnover in IT/ITES industry in India.

Impact of Economic Globalization on Income Distribution in Iran’s National and Rural Economies
Seyed Abdolmajid Jalaee, Sina Zeynali and Maoone Farokh Nezhad

Economic globalization is an evolving process in the scope of economics and could differently affect macroeconomic variables of countries depending on their development levels. Income distribution is among the important economic parameters that might be influenced by globalization. Accordingly, effect of globalization on income distribution of families in national and rural economies is one of the critical economic issues all around the world, highly debated by globalization proponents and opponents. The current paper attempts to investigate impact of economic globalization on income distribution of families in two scales i.e. families in the whole country (national economy) and villages (rural economy). Therefore, the model commensurate with Iran’s economy is specified using vector auto-regressive or VAR method. Also, VECM technique is applied for identifying the long-term relationships. Results indicate that economic globalization in the short term positively affect the income distribution in the national and rural economies, and in the long term, leaves a negative impact on the income distribution in the national and rural economies. As other variables in two economic models (national and rural economies) are different in the short and long terms, despite the fact that effects of globalization on income distribution differ in these two models, it seems that different policies must be applied for compensating impacts of globalization in national and rural economies.
Keywords: Globalization of Economy, Gini Coefficient, National and Rural Economies, VAR and VCEM.

The Role of the External Auditor in Increasing the Informational Content of the Published Financial Statements in Jordanian Industrial Companies from the Perspective of Investors and Lenders
Ahmad Adel Jamil Abdallah

This study aimed to clarify the limits and the nature of the informational content of the published financial statements and define its role in the decision-making support and investment lending, where the study sought the views of investors and lenders about the relative importance of these data in making decisions. In order to achieve the objectives of the study, a questionnaire was designed and its paragraphs were extracted from International Accounting Standards items no. (1) for the disclosure of private information and is titled: Presentation of Financial Statements, the questionnaire was distributed on a sample amounted to 200 respondents. The study has revealed a set of results, the most important were: the answers of the respondents toward the relative importance of the content of all published informational financial statements as a single unit by the degree of their relative importance as follows: that the informational content of the income statement represents the highest degree of relative importance and then the informational content of the rights property statement and then the informational content of disclosures and notes to the financial statements, then the informational content of the cash flows statement and then the informational content of the financial position statement. The study has concluded that the published financial statements are an important source to extract the appropriate information to make financial decisions, either in the field of investment or in the area of lending.
Keywords: External Auditor, Informational Content, the Perspective of Investors and Lenders.

Product Diversification in Selected Money Deposit Banks in Nigeria
Olabisi Jayeola, Olunuga A. O and Sokefun A.O

The study examined the relationship that existed between product diversifications and profit margin and survival of money deposit banks in Nigeria. It also assessed the relationship that existed between customers’ patronage with increased deposit base. The study reviewed banks products in existence and how they could be judiciously diversified in order to improve earnings capacity of Nigerian Money Deposit banks. The study was undertaken using a total of one hundred and thirty (n=130) bank managers of the three selected banks from Ecobank Plc, GT Bank and Access Bank, out of which one hundred and twenty (120) were properly filled, returned and accordingly analyzed using regression analysis. The result of the study showed that there was a statistical relationship between product diversification and survival of Nigerian Money Deposit banks. The second hypothesis revealed that there was a statistically significant relationship between product diversification and customers’ patronage with increased deposit base. The study concluded that profits should not only be seen as an overriding motive in formulating product diversification strategy but based on customers’ satisfaction with potential long run profitability and survival.
Keywords: Product Diversification, Profitability, Survival and Customers’ Patronage