How Islamic banks deal with problem business situations: Islamic banking as a potential model for emerging markets

Models of emerging markets often ignore corporate crises and business failure and are based on research in western economic situations, assuming western institutional patterns and attitudes. This study is based on an empirical analysis of companies in the GCC region of companies within the Islamic Banking System. A “sharp‐bending” orientation model is used to review the role of banks and their methods of managing difficult client situations, triggering early problem‐recognition, and the sequence of recovery. As many emerging markets have large Moslem populations and as Islamic banking continues to be a vibrant growth sector, these findings have wider implications. © 2005 Wiley Periodicals, Inc.     

Corporate social responsibility performance,financial distress and firm life cycle: evidence from Australia

This study examines the association between corporate social responsibility (CSR) performance and financial distress and additionally the moderating impact of firm life cycle stages on that association. Based on a sample of 651 publicly listed Australian firm‐years’ data covering the 2007–2013 period, our regression results show that positive CSR activity significantly reduces financial distress of the firm. In addition, the negative association between positive CSR performance and financial distress is more pronounced for firms in mature life cycle stages. Our results are robust to alternative proxy measures of financial distress, CSR performance and life cycle stages.     

Market forces meet behavioral biases: cost misallocation and irrational pricing

Psychological and experimental evidence, as well as a wealth of anecdotal examples, suggests that firms may confound fixed, sunk, and variable costs, leading to distorted pricing decisions. This article investigates the extent to which market forces and learning eventually eliminate these distortions. We envision firms that experiment with cost methodologies that are consistent with real‐world accounting practices, including ones that confuse the relevance of variable, fixed, and sunk costs to pricing decisions. Firms follow “naive” adaptive learning to adjust prices and reinforcement learning to modify their costing methodologies. Costing and pricing practices that increase profits are reinforced. In some market structures, but not in others, this process of reinforcement causes pricing practices of all firms to systematically depart from standard equilibrium predictions.     

Estimating the Impact of Covid-19 on Poverty in Indonesia

Covid-19 has infected and will continue to infect millions of people all over the world. The economic impact is predicted to be large and millions of people will be pushed into poverty. In this paper, we estimate the impact of Covid-19 on poverty in Indonesia. The economic impact is expected to be severe, reducing the economic growth rate projected for 2020 from about 5% to between 4.2% and –3.5%. We find that under the best-case scenario, the poverty rate will increase from 9.2% in September 2019 to 9.7% by the end of 2020, pushing 1.3 million more people into poverty. Under the worst-case scenario, the poverty rate will increase to 16.6%, close to the level seen in 2004 when the poverty rate was 16.7%. This means that 19.7 million more people will become poor, substantially reversing Indonesia’s progress in reducing poverty. The implication is that Indonesia will need to expand its social protection programs to assist the new poor as well as the existing poor.     

BEHAVIOURAL COMPLEXITY

Abstract The paper compares and contrasts complexity economics and neoclassical economics. It proposes a framework for modelling complex systems and, accordingly, utilizes agent‐based simulation to examine consumption behaviour in a complex model and in a neoclassical model. Results suggest that complex behaviour leads to higher accumulation of wealth, better efficiency and greater stability. These results are consistent with the nature of complex systems whereby ‘the whole is greater than the sum’, and where unexpected system properties emerge from simple local interactions.     

Large extensive form games

This paper provides a self-contained definition and a characterization of the class of extensive form games that are adequate for applications, but still do not employ any finiteness assumptions. In spite of its simplicity, the resulting definition is more general than the classical ones. Moreover, we show that this class satisfies the basic desiderata that strategies induce outcomes and do so uniquely. Within the class of playable extensive forms, the characterization is by the existence of an immediate predecessor function on the set of moves.     

The inter‐relationship between capital structure and dividend policy: empirical evidence from Jordanian data

The study investigates the under‐researched relationship between capital structure and dividend policy in emerging markets with regard to the Jordanian market. The empirical analysis focuses on the estimation of both single equation models and structure equation models using the reduced form equations to examine the joint determinants of capital structure and dividend policy. The study investigates whether capital structure and dividend policy theories can explain the financial decisions in emerging market such as the Jordanian market. Namely, the study examines agency theory, signalling theory, pecking order theory and bankruptcy theory. The results indicate that there is a positive relationship between debt‐to‐asset ratio on the one hand, and asset tangibility, profitability, market‐to‐book, liquidity, firm size, and industry classification on the other hand. Also, there is a negative relationship between debt‐to‐asset ratio and profitability. In addition, there is a positive relationship between dividend payout ratio on the one hand, and profitability, asset tangibility, market‐to‐book and industry classification on the other hand. Finally, the results of the reduced form equations show that capital structure and dividend policy have the following common factors: profitability; asset tangibility; market‐to‐book; industry classification; and limited evidence of institutional ownership. Therefore, the determinants of capital structure and dividend policy in emerging markets such as the Jordanian market share the same set of suggested factors with the developed markets.     

Diffusion of organisational innovations: an empirical test of an analytical framework

Alänge, Jacobsson, and Jarnehammar (1998) presented an analytical framework for studying the diffusion of organisational innovations, based on the developments in literature on technical innovations and their diffusion. The aim of this paper is to examine the validity of the framework. Two exploratory case studies were carried out on the diffusion of the organisational innovation TQM. The case studies showed that the framework is a useful tool for studying the diffusion of organisational innovations. However, factors such as learning processes on a national and international level and the role of fads need further consideration. In addition, factors needed for a long-term commitment such as boards and owners and internal political and cultural systems need to be further investigated. The paper also presents a model for analysing the different phases in a diffusion process.     

Financial market development and trade openness: evidence from emerging economies

International trade is said to be the engine of economic growth. Despite an enormous effort to explain this phenomenon, the relationship between financial market development and trade openness and integration into the world economy is still an enigma. This article investigates the relationship between financial market development and trade openness. To do this, we develop a long-run and short-run model (a bounds testing approach to cointegration) for 18 emerging economies over the period 1980 to 2011. Estimates from all models show that financial market development, including both the stock market and the banking sector, has significant effect on trade openness in both short-run and long-run phenomena in the majority of countries. Despite many similarities among emerging economies, additional evidence suggests that the link between either stock market development or banking sector development with trade openness works via each country’s specific structure.     

Alcohol use and wages of young men: whites vs nonwhites

According to the medical community a host of ills accompanies prolonged alcohol use including memory loss, motor dysfunction, and impaired judgement. While deduction suggests alcohol use would reduce wages, past empirical studies find differently. For example, Berger and Leigh (1988) find a 32% wage premium for drinkers. Our study differs in two ways. First, self-selection is corrected using observed variables and secondly, an adjustment for the income effect is incorporated. Our results suggest drinkers receive a wage penalty the size of which differs across races. Nonwhite drinkers (blacks and hispanics) face a 7.3% penalty while white drinkers receive a 3.2% penalty.