Emerald | Journal of Economic and Administrative Sciences | Table of Contents

Efficiency analysis of UAE banks using data envelopment analysis

Fri, 10 May 2013 00:00:00 +0100

Abstract

Purpose – The current study aims to explore and measure the profitability, marketability, and social disclosure efficiency of UAE banks using a nonparametric frontier method – data envelopment analysis (DEA). Design/methodology/approach – In order to estimate the relative efficiency of the Emirati banks based on three different dimensions: profitability, marketability and social disclosure, a sample of 20 listed Emirati banks in 2009 is first selected. Second, a disclosure index to measure the extent of their social disclosure is developed and utilized. Third, the input-oriented version of DEA model is deployed to estimate their technical and scale efficiency. Findings – Based on nonparametric Wilcoxon signed rank test, paired-difference t test and sign test, this study reports significant evidence that the UAE banks are performing much better in profitability and social disclosure activities than marketability activities. The results also provide additional evidence regarding the positive relation observed between the performance of social disclosure and profitability performance. Research limitations/implications – The sample is small, although it includes all relevant Emirati banks. Moreover, follow-up research using panel data derived from the UAE banking sector are required to test and generalize the current results. Originality/value – The paper is original in its approach by introducing social disclosure as a new empirical dimension to the literatures of banking efficiency analysis using DEA.

An investigation of voluntary disclosure by Kuwaiti Shariah-compliant companies

literatinetwork@emeraldinsight.com (Bader Al-Shammari) — Fri, 10 May 2013 00:00:00 +0100

Abstract

Purpose – The purpose of this study is to measure the extent of voluntary disclosure in the 2009 annual reports of 108 Shariah-compliant companies listed on the Kuwait Stock Exchange. The study aims to investigate three categories of voluntary disclosure: overall, conventional and Islamic disclosure. Design/methodology/approach – Voluntary disclosure was measured using a self-constructed index consisting of 132 items overall, 86 for conventional and 46 for Islamic information items. Annual reports were analyzed using descriptive statistics and t-tests. Findings – Results suggest that the mean overall voluntary disclosure by Shariah-compliant companies is 15 percent, but 17 percent and 13 percent for the conventional and Islamic items, respectively. Voluntary disclosure of conventional items is comparable to extant studies, and higher than Islamic items. Research limitation/implications – The study uses annual reports from 2009 because they were the most recent data available on the listed companies at the beginning of the study. Since this study was undertaken before the Shariah Advisory Council of the Capital Market Authority was established on January 1, 2012, this imposes a limitation. Future study should replicate this study to assess differences with the existence of the Council. Practical implications – The findings provide evidence that Shariah-complaint companies lack voluntary disclosure, especially Islamic disclosure information. As a result, the findings should be useful to lawmakers in Kuwait for improving overall disclosure practices by Shariah-compliant companies. Preparers may use the findings to match the amount of information in their annual reports with other companies to ensure capital sourcing. Investors may use the findings for understanding disclosure behavior of Shariah-compliant companies in Kuwait. Such findings may assist them to diversify investment portfolios. Originality/value – This study contributes to extending the Kuwaiti literature on disclosure, and fills a gap in empirical studies on Shariah-compliant disclosure practices.

Cash-flows, earnings, and time-varying expected stock returns

literatinetwork@emeraldinsight.com (Prodosh Eugene Simlai) — Fri, 10 May 2013 00:00:00 +0100

Abstract

Purpose – The objective of this paper is to empirically evaluate alternative multifactor explanations of cash-flows and earnings momentum portfolios. It aims to examine whether the common risk factors, which are related to firm level accounting characteristics, can reflect the behavior of average portfolio returns based on such measures as cash-flows and earnings momentum in the presence of each other's systematic components and time-varying measures of volatility. Design/methodology/approach – The paper uses monthly stock returns for all NYSE firms on CRSP database and constructs average portfolio returns between July 1951 and June 2008. It investigates the interdependence of stock returns for cash-flows and earnings momentum portfolios using their systematic components. The methodology is implemented by extending various characteristic-based factor models of returns. Findings – The main finding of the study suggests that there is strong information transmission – both in the temporal variation and risk sensitivities of the average returns of cash-flows and earnings momentum portfolios. Also, there is compelling empirical evidence that the associated systematic components well complement the ability of common risk factors to explain the temporal behavior of all NYSE stocks. Research limitations/implications – While the results are statistically significant, the effect of aggregate risk in factor model is dubious. An integration of other accruals based accounting characteristics would be an interesting issue to explore. Practical implications – The goal of the paper is to examine how different combinations of empirically determined variables that are instrumental in the creation of style-specific benchmarks can capture the time-series variation of average portfolio returns. It will provide added value to scholars and investment professionals in making effective portfolio management decisions. Originality/value – Compared to the existing literature, in the evaluation of earnings and cash-flows based measures, the paper focuses on the predictive power of the systematic components. It shows that paying close attention to the systematic components clearly provides additional information about the time-varying behavior of average stock returns. The findings that the economic characteristics of the firm can complement the comparative role of the systematic components of cash-flows and earnings add significantly to the literature.

The Islamic gracious monetary instruments: a theoretical approach

literatinetwork@emeraldinsight.com (Rifki Ismal) — Fri, 10 May 2013 00:00:00 +0100

Abstract

Purpose – This paper attempts to construct Islamic gracious monetary instruments namely Qardh hassan, Waqf and Gift central bank certificates. The certificates do not only function as monetary instruments per se, but also give economic and social benefit for the public such as the needy. However, the central bank and its counterparts still need to manage the funds professionally to produce profit, maintain the values of the funds and prevent business losses. As such, this theoretical study aims to offer alternative Islamic monetary instruments for the central bank to manage liquidity and especially to improve the welfare of the people. Design/methodology/approach – The paper exercises three Islamic gracious monetary instruments (Qardh hassan, Waqf and Gift central bank certificates) for both investment based (Mudarabah and Musharakah) financing and trading based (Ijarah and Murabahah) financing. Every instrument is elaborated mathematically to analyze its economic impact, treatment of profit and loss coming from the business and status of the funds. Finally, the paper compares every gracious certificate and explains the terms and conditions to use them optimally. Findings – The exercises find unique characteristics, operations and contribution of every Islamic gracious monetary instrument to the economy. Based on economic impact, nature of the contracts and management of the funds, the central bank can now have alternative Islamic monetary instruments to be offered to the generous depositors to improve the welfare of the people particularly the needy. Research limitations/implications – The paper only assesses the feasibility of three Islamic gracious monetary instruments. There might be more alternatives of Islamic gracious monetary instruments to be considered and elaborated. Originality/value – To the best of author's knowledge, this is the first paper to try to exercise the alternative of the Islamic gracious monetary instruments.