Theses supervised by Cahit Adaoğlu
11 theses · Eastern Mediterranean University
Testing the Weak Form Market Efficiency: Evidence from the Casablanca Stock Exchange
In the three classifications of market efficiency, the weak form efficiency is the one that states past stock price movements cannot be used to forecast future prices and they follow a random walk. This study tests the weak form efficiency for the Casablanca Stock Exchange using parametric and non-parametric tests and studies the behavior of stock prices. Specifically, four parametric and non-parametric tests, namely the serial correlation test, the runs test, the unit root tests (i.e., the Augmented Dickey-Fuller (ADF) and Phillips Perron (PP) test), and the variance ratio test are used to test for the weak form market efficiency. The findings of all four empirical tests find that the Casablanca Stock Market is not weak form efficient and stocks prices follow a random walk. This finding implies that the technical analysis used for predicting the future stock prices is useless. Keywords: the weak from efficiency, the random walk, the Casablanca Stock
Dividend Payouts: Majority Control and Rent Extraction
In Eurasia, Turkey has a “crony” capitalist system with majority control and business groups (BGs) in the hands of a few families. These business groups are often organised around a holding company. Turkey has adapted French civil law which offers a good setting to understand the dividend policies of majority controlled companies dealing with the principal-principal conflict in a weak investor protection setting. We analyse the dividend payouts of family controlled Borsa Istanbul companies, which are affiliated to holding and non-holding BGs. We use a panel data random-effects Tobit estimation methodology for a period of eight years (2010- 2017). We investigate and quantify the effects of several control-enhancing mechanisms (CEMs) on dividend payouts. We use precise quantitative proxies for CEMs to measure the divergence between control and ownership rights. Supporting the rent extraction hypothesis, holding business group companies have lower dividend payouts as the divergence between control and ownership rights widens and the pyramid wedge increases. However, controlling foreign-family coalitions in holding business group companies curb the rent extraction problem by having a positive effect on the dividend payouts. Overall, for family controlled holding BG companies, the effects of company-specific financial control variables on dividend payouts are stronger than the effects of CEMs. For family controlled non-holding BG companies, there is no empirical support for either the rent extraction or the reputation building hypotheses. The company-specific financial control variables are the main determinants of dividend payouts for family controlled non-holding BG companies. The empirical findings of this study have implications such as higher expropriation risk for minority shareholders, portfolio managers and investors of family controlled holding BG companies in a low investor protection setting. The results show that there is a need for further policy actions to strengthen the rights of minority shareholders to limit rent extraction by the controlling families.
Exploring Dividend Stability for Travel and Leisure Companies in the United Kingdom
[Abstract Not Available]
An Overview of Capital Structure of Tourism Companies Listed in Borsa Istanbul (BIST)
The optimal mix of capital structure has been an important task of managers in all corporations. A wrong decision may result in financial distress or bankruptcy. This is why analysis of capital structure is an important topic. As tourism plays a critical role in the Turkish economy, we examine the capital structure of tourism sector corporations traded in the Borsa Istanbul (BIST). We examine a sample of 11 tourism corporations. Based on the extracted data from the annual reports of corporations and the relevant databases, capital structure analysis is conducted. In addition, a performance analysis of price indices is carried out as a complement to the capital structure analysis. The findings of capital structure analysis reveal that the corporations in our sample have been financed mainly by equity. In addition, median values of total debt to total asset ratio for corporations in the sample range from 0.2 to 0.6. Median values of short-term debt to total debt ratio analysis reveal that Turkish tourism corporations prefer short-term debt financing to long-term ones due to the seasonality of tourism industry and unstable macroeconomic environment. The median values of annual interest coverage ratio also show that our sample corporations do not perform well financially to cover their debt obligations with their earnings before interest and tax (EBIT). The market index (XU100) and the tourism index follow the same trends but the up and down swings in the tourism index are relatively higher. Consequently, the tourism index is relatively more sensitive to the market conditions. Abnormal monthly returns analysis shows that tourism index has outperformed the market index in some periods while it has underperformed the market index in some other periods.
The Short Run and the Long Run Performance of an IPO: A Case Analysis of Maroc Telecom in the Casablanca Stock Market
This study examines the short and long run performance of the IPO by Maroc Telecom listed on the Casablanca Stock Exchange during the period 2004-2019. The study uses the event study methodology to analyze the impact of the IPO announcement on the stock price for 180 days of short run period and for 5 years of long run period following the first trading day. The empirical results show that there is empirical evidence for underpricing, and short run and long run underperformance in line with the findings found in both developed and developing markets. Keywords: initial public offering, short run, long run, performance, event study
Impact of Dividend Stability on Car Manufacturers and Spare Part Manufacturers of Europe
Dividend policy is an important part of the financial policy of modern companies and is one of the tools that ensures the investment attractiveness of the company. The mechanism of distribution of net profit has a special influence on the value of the company. In practice, the adoption of management decisions are carried out within the framework of the dividend policy. The implementation of an optimal dividend policy is one of the important areas of activity of a financial manager and requires a deep understanding of the impact on its factors as well as its relationships with other management decisions. The question of how to have an optimal dividend policy is one of the most discursive topic for researchers. This research will show how stable the dividend policy is for European car manufacturing and spare part manufacturing companies. These countries include Austria, Finland, France, Germany, Italy, Netherlands, Portugal, Spain and Sweden. In this study, we examine the dividend policies of 24 European automotive industry companies from 1998 to 2018. To understand the dividend distribution policy, we used the prominent Lintner’s model in a panel data setting. The results showed that the auto industry has a stable dividend policy. This finding is in line with the findings in developed and developing countries that companies use dividend smoothing. The main factors influencing the changes in the payment of cash dividends are past dividends and current earnings, and the most influential determinant is the level of lagged dividends. Keywords: Dividend Policy, Dividend Stability, Lintner’s Model
Cash Management in the Travel and Leisure Sector: Evidence from the United Kingdom
This thesis investigates the determinants of cash holdings for companies operating in the travel and leisure sector of the United Kingdom (UK) between 2005 and 2016. Following the predictions of three prominent models, namely, the pecking order model, the trade-off model and the free cash flow model, the study tests the hypotheses for several firm-specific determinants of cash holdings. The study finds that size, growth opportunities and cash flow affect cash holdings positively, while leverage, capital expenditures, liquidity, cash flow volatility and dividend payments affect negatively. Consequently, it can be concluded that the pecking-order model receives strong empirical support followed by trade-off model to explain the variation in cash holdings among travel and leisure companies of UK. The free cash flow model receives only weak support. Moreover, at the sub-sector level, companies operating in the airlines sub-sector hold more cash than the reference sub-sector of travel and tourism.
Micro and Macro Determinants of Capital Structure and Economic Growth in Russia: The Case of Oil and Gas Companies
This thesis consists of two parts. The first part examines the micro and macro capital structure determinants of oil and gas companies in Russia, and the second part investigates the importance of energy sector to the Russian economic growth. In the first part, we examine the financing decisions of companies by taking into account the effects of two subsequent major tax reforms in 2001 and 2002. Within the framework of dynamic trade-off theory of capital structure, we find a low speed of adjustment indicating that attaining the target debt ratio is not the primary concern of Russian oil and gas companies. Our estimation results also support the importance of bankruptcy and agency costs as determinants of capital structure. We find that during the pre-tax reform period (1992-2000), the taxation settings encourage the use of debt financing. Our estimation results support the positive effect of the taxation settings (i.e., effective company tax rate and effective Miller tax rate) on the level of debt financing at company level. During the post-tax reform period (2002-2016), the tax incentives for debt financing decreased significantly due to the drastic decrease in company tax rate and the adaptation of flat tax system at the personal level. Our estimation results show that there is a negative effect on the level of debt financing at company level. However, the average debt ratios of Russian companies increased consistently during the post-tax reform period even though there is a lower tax advantage of debt financing during this period. Our estimations show that the macro financial setting of greater access to debt (i.e., volume of domestic credit provided by banks to private sector) is found to be the driving force behind this increase during this period. In the second part, we investigate the causal relationship between fossil energy sources, the production cost of oil and financial development on economic growth in Russia. The results show that Russian companies‟ oil production cost and oil prices cause economic growth and the one-way causality is negative. We also find that there is one-way positive causality from natural gas price, financial development, and education investments to economic growth. The negative oil price effect supports the resource curse hypothesis, whereas the positive natural gas price effect does not. Russian policies should focus on lowering companies‟ production cost of oil, improving financial development and investing in education.
The Effects of Financial and Operational Hedging on Company Value: The Case of Malaysian Multinationals
Fluctuations in foreign currency (FC) always have been a source of concern for multinational companies exoposed to higher FC risk compared to domestic companies. These companies employ different hedging strategies to reduce FC risk exposure. This study examines the value effects of financial hedging (i.e., derivatives and FC debt) and operational hedging in a managed floating exchange rate regime with strict limitations on the trading of Malaysian Ringgit and control for the value effects of non-operational income (loss) measured by foreign exchange profits (losses), and its two components: transaction and translation profits (losses). The results of two-step system generalized method of moments (GMM) estimation for a sample of 109 Malaysian multinationals over the 2004−2018 period show that, on average, derivatives hedging creates a value premium range of 7.88−8.21 % in the short-run, and 18.81−19.80 % in the long-run, with respect to company value approximated by Tobin’s Q. In contrast, foreign debt hedging, on average, creates a value discount range of 8.19−8.54 % in the short-run and 12.70−13.12 % in the long-run. Operational hedging strategies do not affect company value, though different proxies represented operational hedging. Although all the Malaysian multinationals in this study face significant FC risk exposure, less than half of Malaysian companies do not use any financial hedging strategies whereby hedgers reduce their FC risk exposure through forward contracts in the over-the-counter market and employ FC swaps occasionally. The positive value effect of derivatives hedging should motivate managers of Malaysian multinationals to involve in hedging more actively and encourage policymakers to take steps in developing derivatives market and products. However, the negative effect of foreign debt hedging on company value may stem from two potential causes; higher company risk due to FC borrowing, and improper hedging practices including high cost of hedging in the underdeveloped derivatives market. These potential causes need further empirical evaluations. Keywords: Financial hedging; operational hedging; company value; foreign currency derivatives; foreign currency debt; Malaysia.
Stock Repurchase in Turkey: Event Study Application
Share repurchases have become substitute for cash dividends. In a share repurchase program, a corporation buys back its own shares. It has been a common practice in the developed markets. However, the strict regulations in Turkey laws had not allowed the corporations to repurchase their shares until 2009. In 2011, the regulatory body in Turkey, Capital Markets Board has made it possible for all corporations listed on Borsa Istanbul Stock Market to carry out share repurchase programs. There are many motivations for share repurchases, but the undervaluation signaling is the driving motivation for managers to implement a share repurchase program. Signaling has two kinds of use by managers; it indicates an undervaluation for the current stock price in the market and sends a positive signal to correct for this undervaluation. The purpose of this thesis is to analyze whether share repurchase announcements has an effect on corporation’s stock prices and to test the semi-strong efficiency of Borsa Istanbul (BIST) by using the traditional event study methodology. The data contains 19 non-financial corporations and 27 observations. The results show that there is a positive market reaction to share repurchase announcements and the driving motivation is the undervaluation signal. However, the results also show that the BIST stock market is not semi-strong efficient and for the case of share repurchases, a market overreaction is observed. Keywords: Share repurchase, Borsa Istanbul, Event Study, Abnormal Return, Signaling, Undervaluation
Dividend Payouts of Travel and Leisure Companies in Western Europe: An Analysis of the Determinants
This study examines the dividend payout determinants of travel and leisure companies in five Western European countries that are ranked among the world’s top ten tourist destinations, namely, France, Spain, Italy, Germany, and the United Kingdom. The study analyzes the sector and carries out a comparative analysis of six sub-sectors: gambling, hotels, airlines, recreational services, restaurants and bars, and travel and tourism. Hypotheses are developed focusing on four main theories of dividend policy, namely “pecking order”, “free cash flow”, and “life-cycle” and “trade-off” theories. Panel data random-effects Tobit estimation methodology is used during a ten year period (2005- 2015). In addition to the traditional dividend determinants, sector and country specific determinants such as leverage, asset intangibility, capital intensity and effective dividend tax rate are used. The estimation results show that company size, profitability, investment opportunities and asset intangibility are positive drivers of dividend payout, whereas the leverage ratio and capital intensity deter dividend payout. The study provides international empirical evidence for the positive relationship between investment opportunities and dividend payout. This positive relationship, which is regarded as a puzzle, is unique for companies operating in the travel and leisure sector. The empirical findings of this study can provide financial managers and investors with a clear understanding of the determinants of dividend payouts for companies in the travel and leisure sector as well as for the companies that operate in the specific sub-sectors. The identification of unique dividend determinants and the recognition of differences among the sub-sectors help investors and managers to shape their investment and financial management decisions. Keywords: dividend determinants, capital intensity, asset intangibility, investment opportunities, tax, travel and leisure.