Business cycles,financial cycles and capital structure

We perform peridogram based cycle analysis of firm capital structure and find evidence that firms’ leverage is both persistent and cyclical. The cyclicality of leverage is supported by the trade-off, pecking order and market timing capital structure theories (Korajczyk and Levy in J Financ Econ 68:75–109, 2003; Bhamra et al. in Rev Financ Stud 23:645–703, 2010). Although market timing theory research supports persistence, previous literature dictates that the trade-off and pecking order theories may predict either persistent or mean reverting leverage. Our tests reject mean reversion in favor of persistent and cyclical leverage. We corroborate pecking order theory literature that predicts leverage is persistent. In these models, when firms’ investment spending is below earnings, leverage decreases. In addition, we examine whether firms change their capital structure as a result of business and financial cycles. Since financial cycles last longer than business cycles, financial cycles should have a long term effect on leverage. Our findings confirm the persistent leverage business cycle models that suggest firms change their capital structure due to financial and credit cycles (Jermann and Quadrini in Am Econ Rev 102:238–271, 2012; Azariadis et al. in Rev Econ Stud 83:1364–1405, 2016). We conclude that leverage is persistent due to the cyclicality of the financing decision.     

The market under-and-overreaction story

Using non-overlapping historical monthly returns from 1963 to 2007, this study shows that a trading portfolio that goes long on past winning stocks and short on prior losing stocks earns an average monthly return of 0.88 percent over the ensuing 12 months. However, this momentum profit is entirely wiped out by subsequent return reversals, particularly in the second and third post-formation years. A result of the three-factor Fama and French regression extended by the market momentum effect shows that the Year 1 return and the long-term price reversal （returns in Year 2 through Year 5） move in diametrically opposing directions. This evidence indicates that the market under-and-overreaction anomalies are a manifestation of a market overreaction.     

The effect of board composition and managerial pay on Saudi firm performance

Review of Quantitative Finance and Accounting - Using five empirical methodologies to account for endogeneity issues, this study investigates the effects of board independence and managerial pay on...     

Factors attracting online consumers to choose e-Malls for e-procurement in Saudi Arabia

ABSTRACT

A large segment of consumers prefer e-procurement because it provides several advantages such as a variety of options and lower prices. The business-to-consumer approach is spreading on a global scale, but its role is limited in countries such as Saudi Arabia due to the size and strength of the economy. Saudi Arabia has the fourth highest level of economic growth in the Middle East and ranks 38th globally in terms of Internet infrastructure. Its rate of Internet growth is 12% yearly, and 40% of the population has access to the Internet. The volume of online trade in Saudi Arabia was USD 800 million in 2012, and 56% of this amount was for purchases through foreign websites.The end consumers are one of the most important target segments of small- and medium-sized enterprises (SMEs), which constitute 90% of Saudi Arabian companies. These companies face limitations in establishing e-procurement channels because these channels require financial support beyond their funding capabilities. Therefore, one of the best low-cost solutions is the adoption of e-Malls, which provide various benefits to consumers and are a suitable environment for SMEs to present and sell their products. The e-Mall is a modern idea in Saudi Arabia; thus, it could be beneficial to adopt the diffusion of an innovative approach to the spread of e-Malls. This article focuses on determining the requirements and obstacles facing consumers who make purchases through e-Malls. A quantitative survey was conducted on a random sample of 381 residents of all ages in Saudi Arabia who had made online purchases. The main factors influencing the adoption of e-Malls were organisational, technical and cultural elements.     

Source Country Characteristics and the Inflow of Foreign Direct Investment into Saudi Arabia

The paper examines the impact of source country characteristics on the inflow of FDI into Saudi Arabia using a gravity‐type model including economic, distance and socio‐political variables. A unique database listing all new investments involving foreign ownership is used to construct a panel of 33 countries in the period 1980–2005. To account for many country–year observations with zero FDI, the negative binomial regression, the Tobit regression and the Heckman selection procedure are used. The conclusions drawn from the analysis employing panel‐based techniques differ from the results obtained from pooled regression models. Also, the determinants of FDI differ depending on whether foreign investment is measured in terms of investment expenditure or the number of individual foreign projects. The Heckman selection results reveal that there are a large number of factors affecting the decision to invest in Saudi Arabia, compared with relatively few determinants of the actual size of investment. Traditional size and distance characteristics hold to a great extent but the relationship between FDI and bilateral trade is unclear and there is some evidence that the countries that export to Saudi Arabia do not invest there. In terms of scope for possible spillovers, there is mixed evidence on whether the investment comes from more technologically advanced economies but volume‐wise important investments originate from countries characterised by high income per capita.     

Testing for efficiency in the Saudi stock market: does corporate governance change matter?

Review of Quantitative Finance and Accounting - We study the informational efficiency of the Saudi stock market (SSM), while accounting for corporate governance change, based on single, multiple,...     

Consistency of firms' past financial performance measures and future returns

In this study, I show that growth consistency in firms' past financial performance measures is useful in predicting future stock returns. Firms consistently ranking in the lowest 30 percent of past financial growth measures have greater rates of returns relative to their inconsistent low-growth firm counterparts. The return differential between these two groups increases uniformly with the length of estimation intervals of past performance data. Firms consistently ranking in the top 30 percent of growth rates earn slightly lower returns than inconsistent high-growth firms. These findings indicate that investors overreact to consistency in financial metrics, but this overreaction is more pronounced and persistent for consistent low-growth firms than that for consistent high-performing firms. Regression analyses reveal that consistency of firms' past financial performance predicts subsequent price movement. This association between past growth consistency and future returns is stronger for consistent low-growth firms relative to consistent high-growth firms.     

Factor-product markets and firm's capital structure: A literature review

We present an overview of the literature that links capital structure and factor-product markets. These studies relate some elements of the modern financial theory to the stakeholder theory, industrial organization, and firms' strategic management. Three main points are highlighted. First, the relevant role of non-financial stakeholders in capital structure design. Second, the interactions between capital structure and market structure. Third, the two-direction effect between the firm's capital structure and its strategic behavior in product markets. Our study aims to build an index for the existing works to guide researchers for new ideas and possible advances.