A theory and contractual framework of Islamic micro-financial institutions’ operations

Microfinance is seen as a ‘new paradigm’ for bringing about development and eradicating poverty. Many studies prove that the provision of small amounts of credit to the poor is crucial in this new paradigm. However, these studies mainly focus on the conventional microfinance institutions (MFIs) which have already existed for a couple of decades. Their role in helping the poor to achieve higher income and higher standards of living has been well recognized. Currently, there are quite a few MFIs that are operating based on Islamic principles. Although a few studies have been conducted on this subject, the literature lacks a comprehensive theoretical framework to describe the Islamic microfinance institutions (IMFIs). This article explores the contractual framework in modelling the IMFIs, on the one hand, and discusses the role of IMFIs via various modes of financing in providing capital to micro-enterprises, on the other.     

Comment on ‘earnings management around UK open offers’

This note discusses the result of Iqbal, A., S. Espenlaub, and N. Strong. 2008 Iqbal, A., Espenlaub, S. and Strong, N. 2008. Earnings management around UK open offers. European Journal of Finance, this issue [Google Scholar]. Earnings management around UK open offers. European Journal of Finance, this issue, regarding long-run abnormal returns following open offers and announcement abnormal returns, compared with differing results in two previous studies based on similar samples. A survivorship bias explains some of the differences in the reported long-run abnormal returns. The difference in the announcement abnormal returns could be due to use of different data sources.     

Do core and non-core cash flows from operations persist differentially in predicting future cash flows?

This study investigates the persistence of cash flow components (core and non-core cash flows) using a cash flow prediction model. By extending the Barth, Cram, and Nelson (Account Rev 76(January):27–58, 2001) model, we examine the role of cash flow components in predicting future cash flows beyond that of accrual components. We propose a cash flow prediction model that decomposes cash flows from operations into core and non-core cash flow components that parallel the presentation and format of operating income from the income statement. Consistent with the AICPA and financial analysts’ recommendations, and as predicted, we find that core and non-core cash flows defined in our paper are differentially persistent in predicting future cash flows; and these cash flow components enhance the in-sample predictive ability of cash flow prediction models. We also analyze the association of in-sample prediction errors with earnings, cash flow and accruals variability. We find that disaggregating cash flows improve in-sample prediction, especially for large firms with high cash flows and earnings variability.

Quantitative easing in an open economy—Not a liquidity but a reserve trap

Expansionary monetary policy is ineffective in a liquidity trap. In another case, which we call a “reserve trap,” money supply increase is trapped in bank reserves; there is no credit expansion through the banking system. In such case, quantitative easing (QE) will not boost credit to the real sector and revitalize the economy. To analyze a reserve trap, we modify the open economy model to include multiple interest rates. Trade is included since exports can be financed externally even during domestic credit constriction. We show the conditions under which QE can lead to currency depreciation and trigger an export-led recovery.     

Is the market underreacting or overreacting to open market share repurchases? A UK perspective

Using UK open market repurchases, we reject the market underreaction hypothesis and the market overreaction hypothesis proposed by Ikenberry et al. (1995) and Peyer and Vermaelen (2009), respectively. The evidence suggests that the UK market reacts slowly to actual repurchases made by value firms. UK repurchases on average do not suffer from share undervaluation prior to the announcement. Value firms perform just as well as glamour firms during the authorisation period but outperform glamour firms significantly 2 years following the announcement. It turns out that value firms repurchase over 6% more shares than glamour firms during the authorisation period.     

Efficiency of capital taxation in an open economy: tax competition versus tax exportation

Tax competition and tax exportation have contrary implications for the efficiency of capital taxation. We provide a simple condition for the dominance of either force, which depends on the mobility of foreign investment. We use this condition to evaluate the relative importance of both forces in the US and in the EU. This paper has benefitted substantially from the comments of the editor, Jay Wilson, and three anonymous referees.     

How to identify targets in the M&A banking operations? Case of cross-border strategies in Europe by line of activity

During the last decades, the European banking system has known some deep changes. They have led to mergers and acquisitions (M&As). The available studies show that the failure rate of theses M&As is relatively high. Cross-border operations are more exposed to this risk. The high failure rate is due to the cultural and contextual differences between the M&A participants, differences which make the process of integration particularly difficult. Thus, the success of M&As depends on the choice of adequate M&A targets. This choice constitutes the main challenge for company leadership. The aim of this paper is therefore to determine the factors which permit to identify the M&A targets. Our contribution compared to that of previous research is that we study M&As and the identification of targets by line of bank activities. On the basis of a sample made up of 1071 European banks, between 2000 and 2006, we use a Logit Multinomial Model. Our main results show that the target banks tend to be specialized in investment and market activities while the acquiring banks tend to approach themselves to the universal bank model.     

The relative importance of foreign and domestic disturbances for aggregate fluctuations in the open economy: Switzerland, 1964–1981

This paper studies whether the advent of floating exchange rates served to insulate Switzerland from economic shocks of foreign origin. It estimates a vector autoregression comprising four Swiss and three world aggregate time series and interprets the results in terms of the properties of the vector moving average representation implied by the estimates. The chief finding is that foreign shocks explain most of the systematic variation of the Swiss variables in both regimes.     

The macroeconomic effects of monetary and fiscal policy in a small open economy: Does the exchange rate regime matter?

This paper develops a small open economy model in the spirit of Obstfeld and Rogoff (1995). The introduction of endogenous traded sector output unlocks current account and real exchange rate effects. Within this framework where specific consideration is given to the case with fixed but adjustable parities, exchange rate devaluation generates similar qualitative effects as a money supply expansion under floating rates. Output and external effects of government spending shocks are broadly consistent with the adjusted basic non-micro founded Mundell and Fleming (MF) framework, but differ in significant ways from the baseline MF model. Contrary to the textbook MF model a government expenditure shock depreciates the nominal exchange rate and generates real effects under the fixed rate system.