CPF stocks: Prices,returns and volatility

We identify a unique phenomenon in the Central Provident Fund (CPF) stocks where stock prices increase in the absence of fundamental changes in firm value. CPF stocks are stocks endorsed by the Central Provident Fund Board in Singapore as approved investment for its members. CPF stocks offer significant price appreciation and value preservation as well as abnormal returns in the bull market before the October 1987 market crash. We find evidence of noise trading in bull markets and price pressure effects that persist through bearish market conditions.The authors are from the Department of Finance and Banking, National University of Singapore.     

Do Asian stock market prices follow martingales? Evidence from spectral shape tests

This paper examines the martingale hypothesis for five Asian stock markets using the spectral shape tests of Durlauf (1991). Unlike the variance ratio test employed in previous studies (eg, Panet al, 1991), the spectral shape tests are consistent againstall stationary alternatives to the martingale null.The spectral shape tests were applied to daily and weekly returns on the stock indices of Thailand, Hong Kong, Korea, Malaysia and Taiwan over a period of 17 years. The results show that the martingale null is rejected for most markets. There is some evidence that the rejections may be due to low frequency or long memory influences.The authors are lecturers, Department of Finance and Banking, National University of Singapore. This paper was presented at the Third International Conference on Asian-Pacific Financial Markets, September 9–11, 1993 in Singapore. We have benefited greatly from the comments of Y K Tse and other conference participants.     

Capital investment practices: A survey of large corporations in Malaysia,Singapore and Hong Kong

This paper presents the results of a survey on the capital investment practices of large corporations in Malaysia, Singapore and Hong Kong. Our findings are fairly consistent with those from similar U.S. surveys. However, Malaysia, Singapore and Hong Kong companies seem to use multiple techniques, both simple and sophisticated, in evaluating investment projects, while U.S. companies appear to make great use of discounted cash-flow rate of return. Although Malaysia, Singapore and Hong Kong companies often make annual cash-flow forecasts over the life of a project, they do not undertake much analysis of risk involved in the project. Moreover, there is room for improving the practice of project implementation, the post-audit of implemented projects, and the use of post-audit data.Dr Wong Kie Ann is with the School of Management, National University of Singapore; Dr Edward J Farragner is with the Department of Finance, DePaul University, U.S.A.; and Mr Rupert K.C. Leung is with the Department of Business Management, Hong Kong Baptist College.     

International Diversification and Performance: Evidence from Singapore

This study focuses on how international diversification affects a firm in terms of multiple performance measures (accounting-based, market-based, and intangible value creation). The study is unique as it uses segment data made available only recently, which enables the examination of both product and international diversification with performance. The period studied coincided with Singapore firms performance during the Asian Financial Crisis. In contrast to previous studies on Singapore, our results show that product diversification is negatively correlated to all measures of performance, while international market diversification is positively correlated. We attribute the difference to the time period which covers both upswings and downturns of the economy, unlike previous studies which considered only the former. Other control measures were incorporated; firm size is highly significant in explaining all measures of performance but not so for firm age, leverage, risk and industry. For top managers, we suggest that regardless of economic climate, the dominant diversification strategy is to take a focused approach to product diversification, but a broad approach to international diversification.Dr. Er and Dr. Kwok are assistant professors in the Department of Finance & Accounting, National University of Singapore (NUS). Mr Lin recently graduated with a B.B.A. honours (1st class) degree from NUS.     

Participative management and its varying relevance in Hong Hong and Singapore

First, the process whereby developing countries become developed is discussed in terms of complexity, neutrality in social relations, and the achievement ethic. An examination of managerial attitudes in eight South-East Asian countries is followed by the results of a comparative study of manufacturing industry in Hong Kong and Singapore. It was concluded that in Singapore participation leads to higher productivity (r_s 0.71, p<0.05) but only because the context is mainly foreign. This relationship was not found in Hong Kong probably because Hong Kong enterprises remain non-bureaucratic, i.e. non-western. A more participative style of management requires radical changes in non-managers' expectations of their employers, as well as a significant increase in the extent to which superiors trust their subordinates. The evidence suggests that Asian managers (except those in Japan and, possibly, Singapore) favour an autocractic approach.Dr. S.G. Redding is Professor of Management Studies and Head of Department at the University of Hong Kong. Dr. S. Richardson formerly Head, Production & Industrial Engineering Department, Hong Kong Polytechnic is now in the School of Management, National University of Singapore.     

A multivariate statistical analysis of the characteristics of problem firms in Hong Kong

This paper presents a two-group discriminant analysis of the characteristics of problem firms in Hong Kong. The purpose of this study is to identify and describe the common financial characteristics which distinguish problem firms from nonproblem firms.Benjamin Y.K. Tai is a Professor at the Department of Accountancy, California State University, Fresno. Lawrence S.T. Tai is a Lecturer at the Department of Accounting & Finance, The Chinese University of Hong Kong.     

Cross-return predictability in Pacific Basin stock markets

In this article we examine the return transmission across the stock markets of the Pacific Basin. Using the multiple time-series approach we identify explicitly the interaction among national markets and investigate the predictability of return on a post-sample basis. The in-sample estimation results show that the markets do not generally follow a random walk and significant multivariate transmission structures are present. On the post-sample prediction basis, there is no evidence to suggest that using only a country's own past returns can outperform the naive forecast. Incorporating other countries' past returns can, however, improve the forecast performance, and this improvement is clearer in the post-crash period.The authors are Senior Lecturer and Associate Professor respectively at the Department of Economics & Statistics, National University of Singapore.     

Can antitakeover activity really create wealth? Evidence from Australia

This paper examines management-induced antitakeover activity which occurred in Australia in the late 1980s. The particular event studied is unique in Australia and requires shareholder approval to amend a company's Articles of Association to incorporate an antitakeover clause. The results show that there are strong positive wealth effects surrounding this management-initiated antitakeover activity, and that there is some evidence of a positive relationship between these abnormal returns and institutional holdings.Scott Armstrong is Investment Analyst, Bankers Trust Australia Limited, Sydney, Australia. Helen Lange is Senior Lecturer, Graduate School of Management, Macquarie University, Sydney, Australia. Li-Anne Woo is Lecturer, School of Banking and Finance, University of New South Wales, Sydney, Australia. We gratefully appreciate the comments on earlier drafts from Tim Brailsford, Malcolm Harris, Gary Twite, Greg Clinch, Julianne Wright, Roger Bowden, Robert Czernkowski, participants at the Inaugural International Conference on Financial Management, Suffolk University, Boston (November 1992), and participants at the Third International Conference on Asian-Pacific Financial Markets, Singapore (September 1993). This research benefited from the financial support provided by a Special Research Grant from the Faculty of Commerce and Economics, University of New South Wales.     

Pricing of new equity issues in Singapore

This paper analyzes the pricing performance of new equity issues by companies which came to the new issue market and sought a listing on the Stock Exchange of Singapore during the period 1975–84. We find that the new equity issues in Singapore are more underpriced than those in the U.S., the U.K. and Australia. It appears that the greater underpricing is due largely to more conservative pricing policies followed by underwriters in Singapore. This results in greater losses suffered by the existing shareholders of the issuing companies.Dr Kie A. Wong is Senior Lecturer in the School of Management at the National University of Singapore, and Mr H. L. Chiang is Bank Officer in the Citibank N.A., Singapore.     

Qualified audit reports and costly contracting

This paper investigates the financial characteristics of the population of listed Singaporean companies receiving first-time qualified audit reports. It develops and tests hypotheses which take into account the costly contracting implications of a qualification for both the auditor and client. A matched pair design is used as a control. Results show that firms receiving qualified reports are significantly less profitable and liquid and have significantly more debt than the control in the year of qualification. Profitability and liquidity are shown to have declined in the four-year period up to the qualification, while debt levels have increased. These results may partially explain why the general (overseas) no-effect result from share market announcement date studies exists; the qualification per se is a dated signal of financial deterioration that has existed for at least the previous four years. Qualification is also significantly associated with auditor type and ownership of the firm, and is also dependent upon whether or not the firm has revalued its assets or changed accounting methods. It is more likely that a qualified report will be issued by a non Big 8 auditor in Singapore to a firm which has a higher proportion of the equity owned by the management. Qualified firms are more likely to have revalued assets and changed accounting methods to increase income than the control group. The strength of the results is also shown to depend on the nature of the qualification. Companies receiving severe qualifications (ie going concern, not true and fair, and unable to form an opinion) have far more significant differences than their pairs compared with those firms receiving moderate or other qualifications.The authors are Senior Lecturer, School of Accountancy and Business, Nanyang Technological University and Professor, Department of Accounting, University of Sydney, respectively. All correspondence should be addressed to Yoke-Kai Chan, School of Accountancy and Business, Nayang Technological University, Nanyang Avenue, Singapore 639798.This paper has benefited from the comments of an anonymous referee, participants at the Australasian Banking and Finance Conference, the 15th Annual Congress of the European Accounting Association, and at workshops at the Australian Graduate School of Management, the Royal Melbourne Institute of Technology, the Nanyang Technological University and the University of Southern Queensland, and in particular those of Greg Whittred, Steve Taylor, Roger Simnett, Kim Sawyer and Don Stokes. Financial support from the National University of Singapore is gratefully acknowledge. The usual caveats apply.     

An empirical test of arbitrage equilibrium with skewed asset returns: Australian evidence

Barone-Adesi (1985) has formulated a multivariate test (likelihood ratio) of an arbitrage equilibrium model, based on a quadratic specification of the process generating returns, that can be related to a three-moment CAPM. Australian equity returns are used to replicate this approach over the period 1963 to 1987. Furthermore, a generalised method of moments test of the Barone-Adesi model is also conducted. The results are favourable with regard to the arbitrage model. In addition the quadratic market model performs well against its traditional counterpart. This latter conclusion is robust with respect to allowing for monthly seasonal regularities in Australian returns. However, evidence regarding the three-moment CAPM is largely inconclusive.The author is a senior lecturer in the Department of Accounting and Finance, Monash University, Clayton, Australia. The author is pleased to acknowledge the helpful comments of Tim Brailsford, two anonymous referees, the participants of the Seminar Series at Monash University, and participants of the Second International Conference on Asian-Pacific Financial Markets, Hong Kong, 1991, the 1992 Annual Conference of the Accounting Association of Australia and New Zealand and the Fifth Annual Australasian Finance and Banking Conference, Sydney, 1992.     

Time-based competition: Some empirical data from Singapore

The progressive edge of competition has moved from what was primarily a cost-based strategy through that which was quality-based, and then variety-based, and now, onto the time-based mode of competition. This paper presents a status report of the response of the Singapore manufacturing sector to such a progression in competitive paradigms. In particular, we will refer to empirical data from the latest Singapore Manufacturing Futures Survey to provide an update on the apparent status of the local manufacturing environment in terms of such current paradigms of competition. From these, we will draw some implications for operations management, that is, what should local producers and suppliers do in the light of such current modes of competition. Such implications may be of help to other manufacturing businesses operating in other countries.The author is with the Department of Decision Sciences, National University of Singapore, 10 Kent Ridge Crescent, Singapore 0511.     

An exploratory study of factors affecting the failure of local small and medium enterprises

There is increasing recognition of the potential contribution of local small and medium enterprises (SMEs) towards employment and economic growth in Singapore. Unfortunately, SMEs tend to have a high mortality rate. A survey was conducted among owners or managers of local SMEs to identify factors perceived as important in affecting business failures. The research results indicate that endogenous factors were viewed by respondents as more critical in causing SME failures than exogenous factors. Important exogenous and endogenous factors in specific areas were identified.Lau Geok Theng is Senior Lecturer, Department of Marketing, National University of Singapore, 10 Kent Ridge Crescent, Singapore 0511, tel: (65) 772-3179, fax: (65) 779-5941. Jasmine Lim Wang Boon is with the United Overseas Bank, Singapore.     

An empirical test of the Brennan-Schwartz bond pricing model in the Australian context

This paper presents an empirical test of some aspects of the Brennan and Schwartz arbitrage bond pricing model. Specifically it evaluates the assumed discrete version of the joint interest process for the short and long rates by estimating it for a series of sample periods under varying market conditions. The implications of the specified form of these two interest rates within the context of hypotheses of interest rate behaviour are also examined. The bond valuation model is tested for bond price index data. The model is found to have a consistent estimation error of 10% and predominantly overestimated the actual price index. The performance of the model is not found to be sensitive to the value of the utility dependent parameter.We thank seminar participants at the University of New South Wales, the Australian National University, and participants at the Inaugural International Conference on Asian-Pacific Financial Markets, November 16–18, 1989, the National University of Singapore for many helpful comments and suggestions. We are responsible for any remaining errors.     

Forecasting volatility in the Singapore stock market

Volatility forecasting is a major area in the pricing of derivative securities, such as stock and index options. In this paper, we compare three methods of forecasting volatility. These are the naive method based on historical sample variance, the exponentially weighted moving average (EWMA) method, and the generalised autoregressive conditional heteroscedasticity (GARCH) model. Out-of-sample forecasts of monthly return variances generated by these three methods are compared. The results strongly favour the EWMA method.The authors are from the Department of Economics and Statistics, National University of Singapore and the Government of Singapore Investment Corporation respectively. The views expressed in this paper are entirely personal, and do not represent those of any institution.     

Estimating and comparing learning curves in three Asian economies

This paper consists of two parts. In the first, a method is suggested to isolate the effects of scale economies on learning phenomena by integrating the conventionally specified learning curve with the production function in neoclassical economics. The problem of establishing the variable for measuring experience is dealt with in the estimation procedure. Using this method we estimated the learning curves of 20 industries in the manufacturing sector in Singapore using data taken from 1961 to 1991. More modern industries like electronics, precision instruments and pharmaceutics have steeper learning curves than older industries. Among traditional industries, the food and beverage industry has a greater learning potential than others. In the second part of the paper, the learning curves for 11 common industries in South Korea, Japan and Singapore were estimated and compared. The Japanese industries are found to have steeper learning curves compared to those in Singapore and South Korea.The authors are from the Department of Business Policy, Faculty of Business Administration, National University of Singapore. The authors would like to thank Ms Tan Mui Lee for her assistance in preparing the time series data used for this study.     

Linear programming for bank portfolio management in Singapore

James Tobin's portfolio theory can be applied to bank portfolio management in that a bank would maximise the rates of return of its portfolio of assets, subject to the expected degree of risk and liquidity. Chambers and Charnes (1961), Cohen and Hammer (1967), Booth and Dash (1979) and others apply the linear programming model to the management of bank funds. This paper carries out a linear programming analysis on the consolidated balance sheets of commercial banks in Singapore for the period 1978–1983. The results show that by and large banks do try to maximise the returns of their portfolio, subject to legal, policy, bounding and total asset constraints, which denote riskiness and liquidity of the portfolio of assets. In a direct way, banks conform to the portfolio choice theory; they have to balance yield and liquidity against security. Although the computer cannot replace a manager, linear programming can serve as a useful guide.Dr Lee Sheng-Yi is an Associate Professor (retired) in the National University of Singapore and a Visiting Senior Research Fellow in Chung Hua Institution for Economic Research, Taipei; and Dr Yeong Wee Yong is a Senior Lecturer, School of Management Faculty of Business Administration, National University of Singapore.     

Singapore-based subsidiaries of US multinationals and singaporean firms: A comparative management study

The objective of this exploratory study is to compare and contrast various aspects of US management with Singapore management. One hundred and four top managers, 99 middle managers and 780 operating employees from 20 manufacturing companies participated in the survey. The chief executive of each company was contacted by mail before the survey was begun.Hypotheses concerning the management philosophies, management practices and management effectiveness were tested for differences between US subsidiaries and Singaporean firms.The results of the research indicate significant statistical differences for the two groups of companies with respect to the management variables. Explanations regarding these differences are presented.A paper comprising a substantial portion of this article was presented by the author at the43rd National Academy of Management Conference held in Dallas, Texas between August 14 and 17, 1983.The author is grateful to Dr Bruce W. Stening, of the Department of Management at the University of Western Australia for his perceptive guidance during the study. The author is with the Department of Management, University of Western Australia.     

The effects of management policy on the performance of Islamic banks

This study examines the effects of management controlled variables on the performance of Islamic banks. Management controlled variables are related to assets, liabilities and expenses management. This study indicates that three major investment activities are revenue generating activities for Islamic banks, whereas savings and investment deposits are costs to the banks. As expected, total expenses are positively correlated with profitability.The author is Associate Professor of Banking and Finance at the School of Management, The Northern University of Malaysia, Malaysia. He wishes to thank an anonymous referee for providing helpful comments and suggestions.