Browsing by Author "Kwabi, Frank"

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    Biases in International Portfolio Allocation and Investor Protection Standards
    (Elsevier, 2017-09-09) Kwabi, Frank; Thapa, Chandra; Paudyal, Krishna; Adegbite, E.
    Economic reasoning suggests that financial globalization that encourages optimal international portfolio investments should improve investor protection standards (IPS) of a country. In practice, however, investors manifest varying degrees of suboptimal international portfolio allocations. Using a panel dataset covering 44 countries spanning over 15 years we examine whether suboptimal equity portfolio allocation in part is associated with the cross-country variations in IPS. Consistent with economic reasoning we find robust indications that international portfolio allocation may play an important role in the development of IPS. More specifically, the quality of IPS improves with higher degrees of optimal international equity portfolio allocation of domestic and foreign investors.
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    Board characteristics and corporate cash holding: evidence from the UK, France and Germany
    (Emerald, 2023-03-28) Ezeani, Ernest; Salem, Rami Ibrahim A.; Usman, Muhammad; Kwabi, Frank
    Purpose Prior studies suggest that corporate cash holding will reflect firms' corporate governance (CG) environment. Consistent with this prediction, this study aims to examine the impact of board characteristics on firms' cash holding in the UK, France and Germany. Design/methodology/approach Using 2,805 firm-year observations between 2009 and 2019, the authors examine the relationship between board characteristics and corporate cash holding. The authors used two measures of cash holdings as our dependent variables. As independent variables, the authors used CG characteristics relevant to effective board monitoring such as board meetings, outside directors, board size and board gender diversity. Findings The authors find that board characteristics influence firms' cash holdings of firms in the UK, France and Germany. However, this study documents evidence of varying impacts of board monitoring on the cash holding of the UK when compared to German and French firms, the countries that are classifiable as bank-based economies. The result of this study is robust to alternative cash-holding measures and endogeneity. Practical implications This study provides evidence supporting the board's impact in mitigating agency conflict in shareholder- and stakeholder-oriented CG environments. Originality/value This study contributes to previous works on firms’ financial orientation by showing that the impact of board characteristics on corporate cash holdings varies between bank- and market-based economies.
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    Board Effect and the Moderating Role of CEO/CFO on Corporate Governance Disclosure: Evidence from East Africa.
    (World Scientific, 2023-02-21) Fulgence, Samuel; Boateng, Agyenim; Wang, Yan; Kwabi, Frank
    This study examines the effects of board size, board independence, and the interaction effect between board independence and CEO/CFO on corporate governance disclosure practices. Using a large and hand-collected dataset comprising 1,000 firm-year observations from 2007 to 2017 in East Africa, this study develops a corporate governance disclosure index (CGDI) of East Africa consisting of 164 provisions. Adopting study three analytical approaches, namely OLS and fixed effect (FE) regressions and the two-stage system GMM, this study finds that large boards and independent directors are associated with greater disclosure of CG information. Different from environments with stronger institutions and corporate governance systems, our analysis suggests that the CEO/CFO power negatively moderates the link between board independence and corporate governance disclosure. Thus, firms whose CEO and CFO are involved in remuneration or nomination committees disclose less CG information. The combined effect of CEO and CFO on selection and remuneration committees and independent board in reducing corporate disclosure appears more pronounced for the post-financial crisis period compared to the crisis period. Our results remain the same after controlling for endogeneity concerns.
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    Board Monitoring and Capital Structure Dynamics: Evidence from Bank-Based Economies
    (Springer, 2021-07-04) Ezeani, Ernest; Salem, Rami; Kwabi, Frank; Boutaine, Khalid; Komal, Bushra
    We examine the impact of board characteristics on the speed of adjustment and the capital structure dynamics of firms in bank-based economies. Using 3927 firm-year observations over a 10-year (2009-2019), we find that board characteristic influences firms' speed of adjustment in a bank-based (stakeholder-oriented) system. We also find some evidence that board characteristics have varying impacts on the capital structure of Japanese, French and German firms. We conclude that firms' capital structure reflects the corporate governance environment they operate. Our results are robust to accounting for endogeneity and alternative leverage measure.
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    CEO hubris and corporate carbon footprint: The role of gender diversity
    (Wiley, 2024-08-12) Kwabi, Frank; Fulgence, Samuel; Adamolekun, Gbenga
    This paper investigates the effect of an overconfident CEO on firm greenhouse gas emissions. Using panel data of 160,115 firm‐year observations from 41 countries for 2000–2021, we find a negative relationship between CEO overconfidence and greenhouse gas emissions. Additionally, drawing on the theories of gender socialisation and diversity, we find that great representation of females on the board further compels overconfident CEOs to reduce firm carbon emissions. Our findings are robust to varying estimation techniques and identification strategies. These findings offer important insights to green investors, corporate boards, managers and policymakers on the role of overconfident CEOs and female leadership in the carbon abatement efforts of public companies.
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    CEO tenure and cost of debt
    (Springer, 2022-06-21) Owusu, Andrews; Kwabi, Frank; Ezeani, Ernest; Owusu-Mensah, Ruth
    In this study, we investigate the relationship between CEO tenure and cost of debt. Using a sample of the FTSE All-Share Index firms listed on the London Stock Exchange for the period 2009 to 2018 and the ordinary least squares regression (OLS) estimation method, we find that cost of debt is higher for firms with CEOs in their early tenure in office than those in their later tenure in office. Further analysis shows that board independence attributes including (1) the proportion of independent directors on the board, (2) full (100 per cent) independent audit committee members, and (3) a lead independent director representation on the board interact with CEO early tenure in office to reduce cost of debt due to the board’s effective monitoring ability when the CEO is new and risk-seeking. Our study extends CEO tenure and corporate outcomes in general and in particular CEO risk-taking incentives and cost of debt literature, and has important implications for firms seeking to raise finance from the debt market when their CEO is new as well as identifying the control mechanisms that they need to put in place to lower the cost of debt.
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    Corporate board and dynamics of capital structure: Evidence from UK, France and Germany
    (Wiley, 2022-02-27) Ezeani, Ernest; Kwabi, Frank; Salem, Rami; Usman, Muhammad; Mohammad, Rateb
    Theoretical arguments suggest that capital structure will adjust to the dynamics of the corporate governance environment. In line with this prediction, we examine the impact of board characteristics on capital structure dynamics and the speed of adjustment. Using 2690 firm-year observations for 2009-2018, we find that firms in a stakeholder-oriented corporate governance environment adjust their leverage faster than those in a shareholder-oriented environment. We also find that corporate board characteristics influence firms’ capital structure and speed of adjustment towards target leverage. Our findings are robust to alternative measures of leverage and endogeneity. The overall evidence supports the relevance of the corporate board's composition in both shareholder-oriented and stakeholder-oriented CG environments. We conclude that board composition mitigates agency conflict.
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    Cross-country analysis of the effects of political uncertainty on stock price informativeness
    (Elsevier, 2023-08-25) Fulgence, Samuel; Kwabi, Frank; Boateng, Agyenim; Hu, Wansu; Paudyal, Krishna
    We examine the effects of political uncertainty on the informativeness of stock prices. Using panel data from 49 countries and 441,882 firm-year observations from 2000 to 2020, our results evince several interesting aspects. First, we find that, whereas political uncertainty reduces stock price informativeness in the year prior to elections and during the elections, stock prices tend to be more informative in non-election years. Second, we find that the sensitivity of stock price informativeness to political uncertainty is reduced by the strength of institutional quality. Third, the effects of political uncertainty appear to be heterogeneous across less/unregulated and regulated industries. Lastly, our channel analysis indicates that during the year of elections, firms tend to disclosure less information thereby exerting a negative impact on stock price informativeness. Our results are robust to the system generalized method of moments (SGMM), difference-in-difference, and alternative specifications.
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    Do the educational profile, gender, and professional experience of audit committee financial experts improve financial reporting quality?
    (Elsevier, 2023-09-26) Komal, Bushra; Ezeani, Ernest; Usman, Muhammad; Kwabi, Frank; Ye, Chengang
    Going beyond the mere presence of the audit committee financial experts (ACFEs) within the audit committee, we examine whether the educational profile, gender, and professional experience of ACFEs reduces the extent of earnings management. Using a sample of Chinese listed companies, we find evidence suggesting that ACFEs with postgraduate qualifications and other professional certifications mitigate earnings management. Female ACFEs with postgraduate qualifications are more effective in mitigating earnings management than their male counterparts. Also, the professional experience of ACFEs helps them reduce the extent of earnings management. Results are more pronounced in the case of female ACFEs with more professional experience. In addition, we found that ACFEs working in privately-owned Chinese firms better mitigate earnings management compared to those in state-owned Chinese firms. Overall, our results remain robust after controlling for potential endogeneity problems and using alternative earnings management proxies. Our study provides implications for regulators about necessary policy reforms regarding audit committee composition and recommends that companies appoint female ACFEs in China.
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    Economic Policy Uncertainty and Cost of Capital: The Mediating Effects of Foreign Equity Portfolio Flow
    (Springer, 2022-03-12) Kwabi, Frank; Owusu-Manu, Samuel; Boateng, Agyenim; Ezeani, Ernest; Du, Min
    We investigate whether economic policy uncertainty and the interaction of foreign equity portfolio flow and economic policy uncertainty impact the cost of capital. Using panel data of 20 countries from 2001 to 2018, we find economic policy uncertainty to exert a positive effect on the cost of capital. However, the interaction between foreign equity portfolio flow and economic policy uncertainty has a negative effect on the cost of capital, demonstrating that, the combined effect of foreign equity portfolio flow and economic policy uncertainty has the opposite effect (i.e., reduces the cost of capital). Our results are robust to alternative specifications and endogeneity.
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    The effect of insider trading laws and enforcement on stock market transaction cost
    (Springer, 2020-07-27) Kwabi, Frank; Boateng, Agyenim
    Theoretical arguments suggest that as countries enact insider trading laws and complement them with enforcement, stock market information risk reduces and investor participation increases, and this will therefore have a negative effect on liquidity trading cost. Consistent with this expectation, based on panel data comprised of 32 countries for the period 2001-2015, we find that stringent insider trading laws and enforcement reduce stock market transaction cost. However, in countries where investor protection is poor, our results show that stringent insider trading laws have no effect on liquidity trading cost. We further find that stringent insider trading laws interact with institutional quality to reduce liquidity trading cost. Our findings are robust to difference-in-differences based on the 2008 global financial crises. The overall evidence implies that market participants will experience lower liquidity trading cost if insider trading laws are enforced.
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    Financial and corporate social performance in UK listed firms: The relevance of non-linearity and lag effects
    (Springer, 2018-02-19) Adegbite, E.; Guney, Y.; Kwabi, Frank; Tahir, S.
    Using environmental, social and governance (ESG) scores compiled by Reuters Datastream for each company’s corporate social performance (CSP), we examine the relationship between CSP and corporate financial performance (CFP) of 314 UK listed companies over the period 2002 to 2015. We further evaluate the relationship between prior and subsequent CFP and prior and subsequent CSP. Based on the system-GMM estimation method, we provide direct evidence that suggests that while CFP and CSP can be linked linearly; however, when we examine the impact of CSP on CFP, the association is more non-linear (cubic) than linear. Our results suggest that firms periodically adjust their level of commitment to society, in order to meet their target CSP. The primary contributions of this paper are testing i) the non-monotonous relationship between CSP and CFP, ii) the lagged relationship between the two and the optimality of CSP levels, and iii) the presence of a virtuous circle. Our results further suggest that CSP contributes to CFP better during post-crisis years. Our findings are robust to year-on-year changes in CFP and CSP, financial versus non-financial firms, and the intensity of corporate social responsibility (CSR) engagement across industries.
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    Foreign equity portfolio flow and corruption: A cross-country evidence
    (Wiley, 2020-07-24) Kwabi, Frank; Boateng, Agyenim; Fosu, Samuel; Zhu, Tingting; Chijoke-Mgbame, Aruoriwo Marian
    This study examines the impact of foreign equity portfolio investment on corruption. Employing a large dataset of 44 countries from 2001 to 2015 and three different measures of corruption, our results show that foreign investors from well-governed countries tend to foster public accountability, reduce asymmetry information and corruption. We find empirical evidence that foreign equity portfolio investment interacts with stock market development and central bank transparency to reduce corruption. Our results suggest that stock market development and central bank transparency are regarded as complementary by international portfolio investors. Further analysis indicates that corruption appears more prevalent in countries where domestic investors dominate the stock market. Our results are robust to endogeneity using dynamic generalized methods of moments (GMM). The findings suggest that attracting foreign equity investors reduces corruption, implying significant benefits for portfolio diversification.
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    High frequency trading, price discovery and market efficiency in the FTSE100
    (Elsevier, 2019-05-30) Leone, Vitor; Kwabi, Frank
    This study examines the role of high frequency trading in price discovery and efficiency in the FTSE100 index tick changes. Using a unique data set, we find that there is no random walk when investors extract information at a millisecond to a second. Further analysis provides evidence that the information cannot be extracted by investors at frequencies starting from 10 minutes. This is consistent with the view that the market already experiences a random walk, which contributes to the weak form of market efficiency.
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    Impact of central bank independence, transparency and institutional quality on foreign equity portfolio allocation: a cross-country analysis
    (Elsevier, 2020-02-27) Kwabi, Frank; Boateng, Agyenim; Du, Anna
    In this study, we analyse the effects of central bank independence (CBI) and central bank transparency (CBT) and their interactions with institutional quality on foreign equity portfolio inflows. Employing a dataset from 42 countries over the period from 2001-2014, we find strong evidence that independent and transparent central bank has a positive and significant influence on foreign equity investment inflows. Further analysis shows that institutional quality interacts with central bank independence and transparency in attracting foreign equity portfolio. Our results are robust to alternative specifications, endogeneity concerns and that economic policy uncertainty increases asymmetric information and deters foreign equity portfolio investment inflows.
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    The Impact of CEO Compensation and Excess Reserves on Bank Risk-taking: The Moderating Role of Monetary Policy
    (Springer, 2021-06-17) Boateng, Agyenim; Nguyen, Vu Hong Thai; Du, Min; Kwabi, Frank
    We examine the effects of CEO compensation, excess reserves, and role of monetary policy on bank risk-taking behaviour based on a sample of 88 Chinese commercial banks over the period of 2003-2014. We find evidence that suggests that incentives present in CEO compensation contracts and excess reserves exert a positive and significant impact on risk-taking and credit risk. However, we find that the positive effects of CEO compensation and excess reserves on risk-taking are cancelled out by the interaction of CEO compensation and excess reserves. Further analysis suggests that the central bank’s monetary policy serves to restrain the effects of an interaction between CEO compensation and excess reserves on bank risk-taking and credit risk. This study extends the theoretical model, which indicates that excess reserves are a major source of credit risk and notes that the effects of incentives inherent in CEO compensation contracts and excess reserves on bank risk policies are contingent on the monetary policy pursued by the central bank in China’s emerging economy
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    The impact of stringent insider trading laws and institutional quality on the cost of capital
    (Elsevier, 2018-07-20) Kwabi, Frank; Boateng, Agyenim; Adegbite, Emmanuel
    This paper examines the effects of interaction between stringent insider trading laws, institutional quality and equity portfolio allocation on the cost of capital. Using a dataset drawn from 44 countries over the period from 2001-2015, we find that stringent insider trading laws interact with institutional quality and foreign equity portfolio allocation to reduce the country-level cost of capital. Further analysis from a quasi-natural experiment based on the 2008-2009 global financial crisis suggests that the findings are robust to endogeneity. Our results imply that the enactment of stringent insider trading laws and their interplay with the quality of institutions are not only important to portfolio investment allocation decisions but reduce the country-level cost of capital.
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    The impact of the media on tourism development and income inequality
    (Taylor and Francis, 2023-01-20) Kwabi, Frank; Ezeani, Ernest; Owusu, Andrews; Chizindu, Wonu; Hu, Wansu
    This paper examines whether the relationship between tourism development and income inequality is sensitive to the media environment. Using panel data from 88 countries for the period 1996 to 2020, we find that countries with uncensored media environments experience lower income inequality as the tourism industry develops. We also find that a favourable media environment enhances tourism development. Further analysis shows that asymmetries in a hostile media environment; namely, media biasedness, media corruption, and harassment of journalists, inhibit tourism development, particularly in emerging countries. This paper calls for strong support for press freedom to develop the tourism industry as countries emerge from the adverse effects of the COVID-19 pandemic.
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    Impacts of cross-border equity portfolio flow and central bank transparency on financial development: the role of economic freedom and international bonds
    (Wiley, 2024-01-08) Kwabi, Frank; Chizindu, Wonu; Ezeani, Ernest; Owusu, Andrews; Leone, Vitor
    We investigate the effects of international equity portfolio diversification and central bank independence on financial development using panel data from 49 countries from 2001 to 2016. We find that international equity portfolio diversification improves financial development. We correspondingly examine potential factors through which international equity portfolio diversification may impact financial development and find that central bank transparency provides an important channel for improving financial development. We further find that the relationship between international equity portfolio diversification and financial development is sensitive to economic freedom. Concerning sequencing, we find that foreign equity and debt flow are complementary to financial system development. Our results are robust to endogeneity using the exogenous shock of the 2008 financial crisis. This study offers new empirical evidence on the relationship between international capital and financial development.
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    International equity portfolio investment and enforcement of insider trading laws: a cross-country analysis
    (Springer, 2018-08-17) Kwabi, Frank; Boateng, Agyenim; Adegbite, Emmanuel
    In this study, we examine the effects of stringent insider trading laws’ enforcement, institutions and stock market development on international equity portfolio allocation using data from 44 countries over the period 2001-2015. Our results suggest that stringent insider trading laws and their enforcement exert a positive and significant impact on international portfolio investment allocation. Further analysis indicates that the interaction between a country’s institutional quality, stock market development and enforcement of insider trading laws have a positive and significant effect on international equity portfolio allocation. The findings of this study have implications for the design of portfolio investment trading strategies and contribute to the literature on foreign equity investment decisions.