Use of information sources, annual reports and other corporate announcements: the case of large and small investors of India

Use of information sources, annual reports and other corporate announcements: the case of large and small investors of India
Meena Bhatia
Afro-Asian J. of Finance and Accounting, Vol. 13, No. 6 (2023) pp. 714 - 734
This study investigates the perceptions towards corporate annual reports, its sections, information sources, and other announcements used for equity investing by large and small individual investors; and studies differences in perceptions between the two groups. The data gathered from 276 completed surveys is analysed using descriptive statistics and Mann Whitney tests. The findings show that, in comparison to developed markets and other developing markets, Indian investors (both large and small) rely more on personal knowledge of the firm and analysis of the company in relation to annual reports. Investors find annual reports too long, and large investors reported that there is delay in publishing it. The financial statements are the most important and understandable section. Announcements on stock exchanges are deemed the most crucial since they are related to their choices. There is no prior research on this feature of Indian investors in the literature.

Predictive ability of operating cash flow and earnings on future cash flow of NSE-listed firms

Predictive ability of operating cash flow and earnings on future cash flow of NSE-listed firms
Mwila J. Mulenga; Meena Bhatia
Afro-Asian J. of Finance and Accounting, Vol. 13, No. 6 (2023) pp. 693 - 713
The study examines the predictive ability of current operating cash flow and earnings on the future operating cash flow of the National Stock Exchange-100 listed firms in India. It is a 15 years (2001 to 2015) study and has 1,120 firm-year observations. The ordinary least squares method is used to improve the accuracy fixed effect model and a Random effect model are used. Evidence suggests that the current operating cash flows explain future cash flow better than current earnings, which contrasts with the Financial Accounting Standards Board assertion (FASB, Statement of Financial Accounting Concepts No. 1, 1978) and International Accounting Standards Board (IASB, 1989). Current operating cash flow's predictive ability on future cash flow is more powerful in profit-making firms than the loss-making firms and for all industries. Further, the disaggregated earnings model significantly enhances predictive ability. These findings will enable the users of financial statements to understand the role of current operating cash flow and earnings in predicting future operating cash flows.

Extending theory of planned behaviour for predicting investment intention of millennials by including risk-taking propensity

Extending theory of planned behaviour for predicting investment intention of millennials by including risk-taking propensity
Shikha Bhatia; Nidhi Singh
Afro-Asian J. of Finance and Accounting, Vol. 13, No. 5 (2023) pp. 551 - 573
The study aims to review the theory of planned behaviour (TPB) and extend it with a risk-taking propensity to examine the influence on investors' behavioural intention to invest in the stock market in the context of a developing nation. The study uses a cross-sectional sampling process and a quantitative approach. PLS-SEM approach was applied to determine the suggested relationship between the constructs. The study's findings suggest that TPB variables are highly significant to measure the behavioural intention of an individual. The study helps to identify the factors which predict the intention to invest. The findings point towards the need for improving financial attitude, financial self-efficacy, subjective norms, and the risk-taking propensity of millennials to increase their investment intention in the long run. The financial institutions, policymakers, and other related agencies must take concrete steps to enhance individuals' awareness and risk ability towards financial products and investment options.

Investigating accrual and real earnings management of financially troubled Indian firms

Investigating accrual and real earnings management of financially troubled Indian firms
Sweta Tiwari; Chanchal Chatterjee
Afro-Asian J. of Finance and Accounting, Vol. 13, No. 5 (2023) pp. 592 - 611
This paper examines whether financially troubled Indian firms manage earnings (both accrual and real activity-based) in the light of newly adopted financial reporting practices (IND-AS) by considering 208 financially distressed non-financial firms from 2017 to 2021. The study uses multiple regression for analysis. The study reveals a significant linkage between financial distress and earnings management and this association varies across accounting and market-based measures of financial distress. Also, the intensity of financial distress influences the direction (upward or downward) of earnings management. Interestingly, we find a stronger association of financial distress with accrual-based earnings management than real activity-based earnings management. Results also exhibit that the earnings management of financially troubled Indian firms is higher during the COVID-19 pandemic period. The findings can help regulators and policymakers to design suitable policies to improve the quality of earnings reporting and constrain the possibility of earnings management.

Mean reversals and stock market overreactions: further evidence from India

Mean reversals and stock market overreactions: further evidence from India
T.G. Saji
Afro-Asian J. of Finance and Accounting, Vol. 13, No. 4 (2023) pp. 467 - 477
'Overreaction hypothesis' of De Bondt and Thaler (1985, 1987) asserts that prior period losers outperform prior period winners in stock markets. In this paper, we test this price reversal behaviour of stock markets in Indian context. The data used comprises monthly prices of Nifty included stocks of National Stock Exchange between January 2008 and December 2016. Consistent with the previous evidence on market overreactions, the study finds losers outperform prior winners over a one to two-year period of portfolio formation. The research observes persistence in investor overreactions to price trends both in upside and downside price movements of Indian stock market during the post financial crisis period.

The effect of credit rating announcements on stock returns of banks in India

The effect of credit rating announcements on stock returns of banks in India
Silky Vigg Kushwah; C.A. Manav Vigg
Afro-Asian J. of Finance and Accounting, Vol. 13, No. 1 (2023) pp. 41 - 53
This study investigates the impact of credit rating changes on the stock returns of the commercial banks of India. The study reports that the bank returns are significantly negative during the pre-downgrade announcement period. Interestingly, the returns are negative again on the downgrade announcement day. Conversely, the bank returns turn insignificantly positive during the post downgrade announcement period. The study concludes that downgrades do not have a negative wealth impact on banks' stock returns after the announcement by credit rating agencies. Eventually, it results in early awareness of investors regarding the financial position of the banks, and it does not come as a shock to them. The study has a direct implication on short-term investors who rely highly on the announcements by rating agencies to make buy/sell decisions. Moreover, the study will also help the regulators and banks better understand the impact of such rating changes on stock returns.

Financial reporting quality of private and public banks in India

Financial reporting quality of private and public banks in India
Vijyapu Prasanna Kumar; Sujata Kar
Afro-Asian J. of Finance and Accounting, Vol. 12, No. 6 (2022) pp. 712 - 729
The present study compares the earnings management practices amongst the Indian private and public sector banks using the second digit test, one of the primary Benford law tests. The sample consists of data on five variables: interest income, other income, interest expenses, deposits, and loans and advances from 14 private and 17 public sector banks for Q1 2005-Q4 2018. Deposit turns out to be the most misreported financial figure for the private banks while public sector banks misrepresented loans and advances the most. Overall, the public sector banks seem to be more into rounding up behaviour as compared to the private banks. We also explored possible linkages between financial manipulations and a CEO's tenure approaching its completion and observed evidence in support of this argument.

Cointegration of ‘MIBOR’ with rupee-dollar and rupee-yen exchange rates: estimating volatility spill-overs and asymmetry

Cointegration of 'MIBOR' with rupee-dollar and rupee-yen exchange rates: estimating volatility spill-overs and asymmetry
Upendra Nath Shukla; Neelam Tandon; Deepak Tandon; Hemendra Gupta
Afro-Asian J. of Finance and Accounting, Vol. 12, No. 6 (2022) pp. 691 - 711
Mumbai Interbank Offer Rate (MIBOR) plays a significant role in the Indian interbank market and its role would be more imperative in India as LIBOR is expected to be ceased by 2021. This paper has a purpose to understand the movement and volatility of MIBOR by exploring any cointegration of MIBOR with exchange rates of major currencies like - US dollar, Japanese yen, euro and pound sterling, to derive a model gauging volatility spill-overs and asymmetry of MIBOR. Based on the daily data from 01.01.19 to 21.01.21 VECM and E-Garch model is applied. MIBOR is found to be cointegrated with exchange rates of dollar and yen with error correction being done by the rupee-yen exchange rates. Volatility spill-overs were significant with previous error lag with no asymmetry due to any negative news. Findings have great implications to manage interest rates and liquidity in Indian interbank and money markets.

Causal relation and dynamic volatility spillover between commodity market and stock market: empirical evidence from India

Causal relation and dynamic volatility spillover between commodity market and stock market: empirical evidence from India
Ruchika Kaura; Nawal Kishor; Namita Rajput
Afro-Asian J. of Finance and Accounting, Vol. 12, No. 2 (2022) pp. 232 - 253
The study aims to investigate the causal relationship and dynamic volatility spillover across commodity market and stock market in India. The study is based on Nifty index of NSE and commodity market indices of MCX. The findings highlight the existence of strong linkages between commodity market indices and stock market index, Nifty. Results of VAR model indicate that causal relationship is present from commodity market indices towards Nifty. The results of DCC-GARCH model show that dynamic volatility spillover between the conditional variances of all commodity market indices and Nifty is significant implying that any disturbance in one market leads the other market to become more volatile. The findings of this study can be useful for portfolio managers, policy makers and regulators to devise substitution and risk management strategies and to understand the macroeconomic implications of one market shocks on the other market.

Indian government bonds sensitivity to macroeconomic and non-macroeconomic factors: a quantile regression approach

Indian government bonds sensitivity to macroeconomic and non-macroeconomic factors: a quantile regression approach
Muhammadriyaj Faniband
Afro-Asian J. of Finance and Accounting, Vol. 11, No. 5 (2021) pp. 772 - 786
This paper introduces a new dataset of Clearing Corporation of India Limited's broad total return index (BTRI) and liquid total return index (LTRI). The paper examines the impact of macroeconomic and non-macroeconomic factors on BTRI and LTRI during monthly periods from January 2010 to December 2018 using quantile regression methodology. This paper finds that the GDP has positive and significant impact on BTRI and LTRI for the upper quantiles. Further, CPI shows positive impact on both BTRI and LTRI. Moreover, both the indices are influenced by IR and there is an inverse relationship between them. ER also significantly affects both the indices. The EPUI has negative and significant impact on BTRI and LTRI for the intermediate and upper quantiles. No clear relationship is found between BTRI and Nifty, whereas Nifty has significant impact on LTRI. BTRI is not affected by VIX but LTRI is affected for the intermediate quantiles.