The Journal of American Academy of Business, Cambridge

Vol.  22 * Num.. 1 * September 2016

 The Library of Congress, Washington, DC   *   ISSN: 1540 – 7780

 Online Computer Library Center   *   OCLC: 805078765 

National Library of Australia * NLA: 42709473

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Analytics for Investment Decision: An Empirical Study of Less Diversified Portfolios

Dr. Mohamad Sepehri, University of the District of Columbia, Washington, DC

Dr. Biqing Huang, Angelo State University, TX

 

ABSTRACT

The objective of this paper is to utilize maximization method to construct an optimal portfolio for small business investors who may be holding less-diversified portfolios due to high transaction costs.  The empirical results and the efficient frontier both show that the performance of the constructed portfolio outperforms the three major U.S. indices.  The traditional Capital Asset Pricing Model (CAPM) argues that only the systematic (market) risk, but not the total risk, should be incorporated into asset prices (Berk 1997). Accordingly, the firm specific risk or idiosyncratic risk would not be considered because it is presumed to be diversified once investors hold a large portfolio. Alternatively, Malkiel and Xu (2006) find that idiosyncratic risk will be priced, unless investors hold the market portfolio that has incorporated all stocks in the market and thereby it is the most diversified portfolio.  Figure 1 shows the relationships between the total number of assets in a portfolio and the total risk of the portfolio. As suggested in Figure 1, adding more stocks to a portfolio can help investors remove idiosyncratic risk.  Number of studies address the persistence of idiosyncratic risk and analyze its impact on asset prices (Lehmann (1990); Goyal and Santa-Clara (2003)). While some studies imply a positive relation between the idiosyncratic risk and the stock returns (Brown and Ferreira (2004), Malkiel and Xu (2006), and Fu (2009)), others point out a negative relation instead (Ang et al. (2006, 2009)). However, in contrast, several researches find no robust relation between the idiosyncratic risk and the returns (Wei and Zhang, 2005; Bali et al., 2005; Jiang and Lee, 2006; Guo et al., 2010; Fink et al., 2010).  In general, the literature reviews do not agree upon whether or not the investors should diversify in order to completely eliminate the unnecessary idiosyncratic risk. Indeed, some studies even suggest that investors should under-diversify. Stoddard (2012) finds that a big portfolio with 20 to 40 stocks brings low returns, suggesting that investor are better off with specially constructed portfolios that are consisted with less risky but better rewarding stocks. The strategy to focus on several stocks can generate higher returns than those emphasizing on diversification. Liu (2009) find that investors would under-diversify when their wealth level is low. However, a group of investors may under-diversify regardless of their holding of assets. Less wealthy investors are more likely to under-diversify, and a less diversified portfolio is less risky than the one that is more diversified. Sophisticated investors select stocks solely by expected returns and the pair-wise correlations among stocks. Uppal and Wang (2003) suggest that investors may under-diversify due to differential ambiguity aversion across stocks.  

 

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Adolf Berle and the New Modern Corporation

Dr. Donald G. Margotta, Northeastern University, Boston, MA

 

ABSTRACT

The formal study of corporate governance begins with the publication in 1932 of “The Modern Corporation and Private Property” by Adolf Berle and Gardiner Means. Berle’s work continues to be influential today but this paper suggests that he has been misunderstood on several key issues and that greater understanding of his work may provide better insight into the public corporation as it existed in 1930 and also as it exists today. Such understanding is critical since today’s public corporation is under intense scrutiny. That scrutiny is fueled by recent substantial changes in stock ownership and this paper examines new questions on corporate governance raised by these ownership changes.  The expression “The New Modern Corporation” in the title of this paper is used to describe today’s mature public corporation and to distinguish it from the “Modern Corporation” described by Berle and Means in their seminal book, “The Modern Corporation and Private Property," (Berle and Means, 1932), perhaps the most cited work in the economics and legal literature on corporate governance, and a book that has been called “the most important business book of all time” (Eccles and Youmans, 2015). One often cited phrase from the book, "the separation of ownership and control," describes a key change the authors observed in the modern corporation of the late 1920's, which was that ownership of large mature corporations had become so widely dispersed that owners of these corporations no longer controlled them and that managers who owned relatively little stock in the companies controlled them. The implications of that observation have influenced academic research on corporate governance for more than eight decades, and continue to do so.  As Berle’s work derived from his observation of the changed ownership of corporate stock in the early 1900’s, so too this paper derives from the observation today of another major change in stock ownership and motivates us here to reevaluate our views on this new modern corporation in light of these changes. The change Berle observed was from concentrated, powerful, founder-owners to dispersed, powerless, individual owners.1 Today the change in ownership is essentially opposite to that; i.e. from dispersed, powerless, individual owners back to concentrated ownership, but this time the concentrated ownership is by large financial institutions rather than founders. This reversal from what Berle observed in 1932 raises entirely new questions of governance in the new modern corporation. The paper begins with a brief description of the pre-Berle “old” corporation. Next, it reviews Berle’s original thinking on the modern corporation of the early to mid-20th century and shows how some of his views are misunderstood in current discourse. It then describes today’s new modern corporation and how it differs from the one Berle observed. Finally, it discusses how managements of the new modern corporation are being affected by the changes taking place within and around the corporation and how Berle can help us understand these changes.  Simply to establish a reference point, we start with brief comments about the “old corporation,” the type that was characteristic of many large corporations before the ownership changes described by Berle took place. It is important to emphasize here that Berle’s observations related to large mature corporations.

 

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 Cost Analysis – A Case Study of Participating in Groupon Sales

Dr. Frank Badua, Lamar University, TX

Dr. Bruce Dehning, Chapman University, CA

 

ABSTRACT

Daily deal websites such as Groupon have become ubiquitous in recent years. However, many companies using them to boost sales have discovered they are not a panacea. There are many factors related to marketing and competitive strategy to consider when assessing if a particular business will benefit from a Groupon promotion. But one crucial aspect of this decision, the company’s cost structure, is most familiar to CPAs and accounting professionals. Businesses with a high proportion of fixed costs to variable costs are more likely to profit from Groupon, especially if they can use it to attract new customers. One of the unique functions of managerial accounting is to gather and process data to provide frameworks for users to make good decisions. As business models evolve, new decision making frameworks must be developed. This paper analyzes the decision environment managers must confront when considering the use of collective buying contracts, such as those offered by the web-based deal-of-the-day company, Groupon, and most importantly, how managerial accounting can play an important role in that decision. Groupon provides retailers the opportunity to generate a high volume of sales by featuring deeply discounted gift certificates for those that shop on Groupon’s website. Initially, customers could avail of these discounts (which are usually for more than 50%) only if a minimum number of customers also accept the deal, hence the name Groupon (group + coupon), but this policy has been relaxed and there are no required minima. In return, Groupon typically takes half of the revenue for each customer transaction. While it is potentially a good deal for the customer because of large discounts available, the retailer for which Groupon facilitates the deal may not necessarily benefit from the arrangement. As we demonstrate, a retailer will maximize its profit from “doing a Groupon” if the sales generated by Groupon do not cannibalize regular sales and if a higher proportion of the retailer’s costs are fixed rather than variable. We also explain further the business model pioneered by Groupon, describe the advantages to customers and retailers participating in Groupon deals, analyze the risks and disadvantages to the retailer, discuss how accounting professionals can help businesses decide whether or not to do a Groupon, and demonstrate through a series of examples how Groupon may or may not benefit a hypothetical firm, depending on cost structure and the nature of Groupon generated customer traffic. Groupon was founded in 2008 and went public in 2011.

 

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The Road to Biculturalism within United States Businesses

Dr. Maja Zelihic, The Forbes School of Business at Ashford University, CA

Dr. Crystal Makowski, University of North Florida, FL

 

ABSTRACT

This study aims to explore how U.S. immigrant employees view their journey to biculturalism through employment. The literature does acknowledge that some immigrants may be innately resistant to biculturalism due to strongly being culturally independent; therefore, this research also investigates how being culturally independent within the U.S. workforce affects such individuals’ employment experiences and satisfaction. Study’s results provide researchers and organizational leaders preliminary insight in facilitating biculturalism within the workplace through diversity initiatives. Within the past 30 years, expanded international business ventures and increased number of multinational companies have led U.S. organizations to shift away from promoting a homogeneous workplace to one where multiculturalism and other workplace diversity factors are valued (e.g., age, gender, ethnicity, disability, etc.) (Cole & Salimath, 2013). According to the 2013 American Community Survey (ACS), individuals born in a foreign country that reside in the United States (U.S.) accounted for 13 percent of the U.S. population of 316.1 million (N=41.3 million), where a 1.3 percent increase in immigrants occurred between 2012 and 2013. The immigration demographics within the U.S. has an undeniably significant impact on U.S.’ educational system, politics, businesses, economy, and how the country adapts to increased cultural diversity. Just as businesses transform and adapt to organizational cultural changes due to influxes of foreign-born employees, immigrants undergo an inevitable transformative process of acculturation to their adopted country. Despite a wealth of literature dedicated to the benefits, desirability, and initial implementation plans to enhance diversity within the place, Cole and Salimath (2013) argue research has not adequately addressed diversity identity issues of an organization, such as the effects on the individual employee. It is suggested that diversity management programs and initiatives should strive to ensure employees have a confident sense of “inclusion, fairness, and equality” regarding their individual identities within the organization (p. 157).  However, the impact of one’s culture in the work environment is a powerful force to be considered, especially in light of the globalization of the majority of businesses. The concept of an immigrant employee’s acculturation is the main focus by organizations through initiatives to get any employee (regardless of country of origin) to acclimate and fully adopt the businesses’ organizational culture through policies, procedures, mission, vision, etc. rather than the holistic and internal adaptation of another culture. Although acculturation is inevitable for all immigrants regardless of their adopted country, research indicates that true functional biculturalism is a more desirable result for businesses with foreign-born employees. True biculturalism is defined as fully accepting and adopting a different culture, while the individual maintains their native culture.

 

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An Analysis on the Factors Affecting the World Gold Prices

Dr. Erisah Arıcan, Professor, Marmara University, Istanbul

Dr. Basak Tanınmıs Yucememiş, Associate Professor, Marmara University, Istanbul

Dr. Guclu Okay, Assistant Professor, Marmara University, Istanbul

 

ABSTRACT

Gold is known to enjoy increasingly growing demand and importance in global finance markets due to the roles it assumes as a precious metal and the multiplicity of its usage cases. This study aims to identify and analyze the factors that can make world gold prices change. To this end, the factors which are claimed in literature to have an effect on the change in gold prices were tested using the method of least squares for the period between January 1995 and June 2014. The independent factors studies include world Brent oil prices ($/bbl.), global monetary supply, the US inflation rate (%), the US dollar index, Dow Jones Industrial Average, the US Stock Market Index, and the US interest rate. The effects of these factors on gold prices were examined, bearing the global crisis environment in mind. The changes in these factors in recent years were taken into account and their current effectiveness was studied. Gold can be considered a medium of exchange as it is used raw material for a number of sectors, particularly including jewelry, and as a substitute for money in the past. As a reliable investment tool that preserves its value for extended periods and a store of value, gold has also become a globally traded commodity, and, most importantly, a reserve item in the balance sheets of central banks. Furthermore, gold has superior physical and chemical characteristics such as malleability, good electrical and thermal conductivity and acid resistance, and it still maintains its place and importance in the global financial system. Gold has been a precious mineral and medium of exchange despite changing economic system since the first ages. Gold served as the basis of the global monetary system, particularly between 1870 and 1930, and then, turned into a key reserve tool with full convertibility to the dollar in the Bretton Woods system. Over time, gold lost its quality as a medium of exchange, but emerged as a substitution tool for individual savings and currencies. Since then, it has become a major reserve item for a number of central banks. By 2000s, the lack of confidence, increased uncertainty and escalating risk perceptions which are attributable to worldwide financial crises have boosted the demand for gold, and, in this connection, researchers started to study the volatility in gold prices.

 

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 A Case Study: The Economy Index as a Metric of Success of Eighteen Arkansas Cities

Dr. Zhi Tao, Arkansas Tech University, AR

Dr. Marc Anthony Fusaro, Arkansas Tech University, AR

 

ABSTRACT

The economy is measured by a variety of economic indicators. These economic indicators may give mixed information at any given time.  In our study labor force, unemployment rate, home sales, home price, commercial construction, residential construction, and retail sales are selected as component level indices to construct sector indices.  Labor market, construction, housing, and retail sales are selected as sector indices to construct the Economy Index (EI). The proposed Economy Index (EI) is used to monitor the overall performance of eighteen cities across Arkansas on a monthly frequency.  Labor markets, construction, housing, and retail are commonly followed economic indicators. Together they show the performance of the economy, they are available at a city level, on a monthly frequency, and in a timely manner. At a particular time and city, different economic indicators may move in different directions sending mixed signals about the health of the economy. An overall economic index is needed to synthesize these disparate indicators and gauge the performance of the economy. Particularly we are interested in the case of the state of Arkansas economy. The Arkansas economy is behind, below, and more stable than the national economy.  Arkansas economy usually lags the nation in most trends.  For example, while the nation hit its unemployment rate peak in October 2009, Arkansas hit its peak in early 2011. Arkansas is more insulated from the large swings of the rest of the nation. For example, while the national unemployment rate peaked at 10%, Arkansas’s peak was 8.4%.   The economy relies heavily on Agriculture with rice and poultry being prevalent.  Logistics is also important with several large trucking companies and Wal-Mart.  The state consists of a strong economic engine in the northwest, an urban core with weak growth and white flight in the center, and many small cities around them.  Only one city (Little Rock) has a population above 100,000 people. This study uses Arkansas city level data to test the proposed economy index model, which is different from commercial models like those by HIS Global Insights or Moody’s Analytics in that the latter predict future economic growth.  Instead, our proposed model is used to monitor the current economic performance of eighteen cities across Arkansas and shed light on what drives or pulls economic performance for a particular city and particular month. The proposed Economy Index (EI) model consists of the four sector indices which are the Labor Market Index, the Housing Index, the Construction Index, and the Retail Sales Index. Each of the four sector indices are derived from the component indices of unemployment rate, labor force, home sales, home price, commercial construction permits, residential construction permits, and sales collections as described by Figure 1.

 

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An Evolutionary Game Theoretical Analysis of Trade Environmental Negotiations Among World Trade Organization

Dr. Chen-Kuo Lee, Ling Tung University, Taiwan, R.O.C.

Li-Ru Chen, Da-Yeh University, Taiwan, R.O.C.

 

ABSTRACT

WTO member nations were unable to make any concrete progress for the key topics, such as reduction of subsidy for agricultural products, reduction of tariffs for non-agricultural products, and liberation of service industries, since the inception of Doha Round in November 2010. Apparently, the negotiation procedures required by WTO are imposing more and more difficulties as time passed by. The impasse faced by Doha Round seems to be inevitable. All member nations need more time and patience in order to eliminate their differences and to adjust their standpoints before they can reach agreement. Therefore, this study adopts evolutionary games to analyze the benefit allocation between the developed nations and the developing nations under WTO framework and thereby presents the feasible solutions in this connection.  World Trade Organization (WTO), a multilateral trade mechanism, governs the multilateral trade negotiations among its member nations. As soon as its member nations conclude negotiations and sign on the agreements, their agreements are construed as legal documents with binding power. All member nations are obligated to enforce all stipulations stated in the agreements accordingly. Furthermore, all member nations are entitled to the rights and subject to the obligations stated in the articles set forth by their multilateral covenants and agreements. As time passed by, more and more nations have joined WTO. With more and more topics being included into agenda, the negotiation’s outcomes are virtually impossible to be accepted by all member nations. Consequently, the negotiations are rarely making any progress. This study has reviewed all literatures related to the negotiations presided over by WTO and its predecessor GATT (The General Agreement on Tariff and Trade) and has thereby concluded that the negotiations are hardly making any progress in the last few decades.  According to Table 1, the eight multilateral trade negotiations presided over by GATT had become time-consuming as more and more members were joining the negotiations and more and more topics were included into agenda. For example, the first six rounds of negotiations concentrated on the topics related to tariff reductions and had reach agreements efficiently. Each round lasted for a few months only. Kennedy Round only took three years to reach its agreement and was considered the most time-consuming round. In the seventh round, the Tokyo Round, a series of topics related to the elimination of non-tariff trade barrier and GATT legal framework revision were discussed; besides, a large number of complicated topics related to tariff reduction were argued over the negotiation tables. As a result, the negotiation lasted for nearly six years. In the eighth round, the Uruguay Round, 128 member nations/districts negotiated over 15 topics including tariff barriers, non-tariff barriers, intellectual properties related to trade, investment policies related to trade, and service trade.

 

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The Role of Intuition in Strategic Decision Making in Croatian Companies

Dr. Ivana Bulog, University of Split, Croatia

Elva Eglite, Riga Technical University, Latvia

 

ABSTRACT

Today’s companies operate in a complex and changing environment in which business conditions are changing very rapidly, preventing managers (decision makers) to properly estimate the probabilities the occurrence of certain situations in which they can make decisions through rational process of collecting data and their detailed analysis. Therefore, managers – decision makers - which have the ability to make effective decisions in an alternative way are of the greatest value. One alternative way of making decisions is the intuitive decision making approach which nowadays takes on an increasingly important role and is becoming more prevalent in the business world. Researchers agree that the intuitive way of decision making is critical for effective strategic decision making. This study examines the role of intuition in strategic decision making in Croatian companies, aiming to emphasize the importance of intuition in today’s business world. The use of intuition is found to be positively associated with strategic decision making outcomes. Moreover, results showed that the intuitive decision making approach is more effective in an unstable environment than in a stable environment.  When business related internet sites and magazines are opened, more often titles such as “How to improve your business intuition”, “How to use your gut to make better decisions” can be seen. The increasing popularity of using intuition in decision making can be confirmed by the fact that many of today’s successful individuals attribute their success just to their intuition. In that manner, La Pira (2011, p. 2) quotes Bill Gates, who says: "you cannot ignore your intuition.", Oprah, who states: "My business skills have come from being guided by my intuition." and Donald Trump, who admits, "I've built a multi-billion dollar empire by using my intuition”. For a long time many researchers have ignored the intuitive way of decision making approving only the existence of the analytical (rational) one, but nowadays the situation has changed. Namely, organizations and its management are faced with business environments that are increasingly complex and unpredictable which requires new ways and tools in decision making. One of these is the intuitive decision making approach. So, today, in a world which is changing so fast, decisions have to be made more quickly. The question that rises here is - how to make business decisions effectively? The aim of this paper is to get to know what exactly intuition is, how it is different from rationality, what its role is in managerial decision making and is intuitive decision making at strategic management level an effective decision making approach? The perception of the term "intuition" varies among individuals, so it is not surprising that it is possible to find numerous and distinct definitions.

 

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Family Business Definitions and Differentiation from Entrepreneurship

Markus Baur, University of Latvia, Riga

 

ABSTRACT

Literature on family businesses does not reveal a comprehensive and clear definition on what constitutes a family business. This paper provides a comprehensive list of definitions of the family business based on a literature research until 2011. With intention to advance the discussion about defining the family business, the collection is structured by indicating the focus (definitional dimensions) that each definition is providing. To further support the academic discussion of the family business definition, the work will explain how family business research can be differentiated from entrepreneurship research. Scholars have not been able to conclude on a consistent and accepted standard definition of family businesses (Litz, 1995; Lansberg, Perrow, & Rogolsky, 1988; Sharma, Chrisman, & Chua, 1996; Mandl, 2008). The term ‘family business’ is relatively new, as it was introduced in the 1940s.  Felden and Zumholz (2009) argued that this is understandable when considering that almost all companies were family businesses. A probable reason why the academic body has had such a slow pace may be due to the definitional problem in family business research.  Various definitional dimensions that attempt to categorize the definitional propositions are mentioned in the works of diverse authors (K. File, 1995; W. Handler, 1989; Flören, 2002). Handler for example has identified the following four dimensions: degree of ownership and management by family members, interdependent sub-systems, generational transfer, and multiple conditions. In their wide-ranging literature review, Sharma, Chrisman, & Chua (1996) have taken inventory of the work that has been done until 1995 on family business studies and have consolidated the knowledge in an attempt to provide directions for future research. Concerning the definition of a family business, the authors have found thirty-four different definitions. Flören (2002) provides an overview with over 40 definitions by the year of 2002. The following contribution tries to differentiate family business from entrepreneurship. Furthermore, a comprehensive list of structured definitions is provided. The table below is a summary of all definitions the author found in literature (until 2011) including the above mentioned contributions. This collection of definitions is further based on the previous highly valued work from various authors that have been greatly influencing the academic body of family business research. These are namely and amongst others: Astrachan, Klein, & Smyrnios, 2002; Beckhard & Dyer, 1983a, 1983b; Carlock & Ward, 2001; James J. Chrisman et al., 1998; Chua, Chrisman, & Sharma, 1999; K. M. File & Prince, 1996; Gersick, Davis, McCollom Hampton, & Lansberg, 1997; Gibb Dyer, 2006; W. C. Handler, 1991; Sharma, Chrisman, & Chua, 1996; Swagger, 1991; J. Ward, 1987; T. Zellweger & Fueglistaller, 2005.  The collection is structured by indicating the focus that each definition is providing.

 

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How to Developed Online Trust Relationships with Customers through Social Skill in Airline Service

Dr. Yi Ming Tseng, Tamkang University, Taiwan

 

ABSTRACT

Trust is the basic element in harmonious business relationship. This research explores the developing process and elements of trust between firms and customers in airline service. Five antecedents are proposed from literatures and include the contemporary social media application as a major variable. We hope these can help to explain the trust relationship of buyer-seller in transaction. Through the data collected from airline service users, research finding show that social media contact, direct favorable offering, exclusive treatment for membership, preferential service are effective tactics in developing trust and can become long term relationship. Nijssen et al.(2003) propose that relationship marketing has critical impact on modern industry including manufacturing and service industry. Since the technological development on internet, social media, and community website, marketing practitioners has changed their focus on how to establish mutual trust in cyber space. From marketing theory, retaining an existing customer is more efficient than attracting a new one especially in economic recession. The concept of “customer share” also support the possibility of retaining customer for creating further value fot the firms.  Berry and Parasuraman (1991) propose that the “relationship development” is to establish, maintain, and enhance customer relationships. Developing relationship is a complex process and not easy to be understood because of its implicit nature. Scholars have tried to find effective and definite methods for decades. These methods can be actually executed step by step and then developing deep relationship with customers. In this research, we propose and discuss some tactics for developing these relationships and try to construct a conceptual framework for clarifying the casualty between them. This framework also help practitioners to establish their ways for shorten the distance with customer. The objectives of this research are twofold.  First, exploring the social skills from literature and practitioners in service industry. Second, how significant are the effects of social skills on constructing trust relationship?  Trust and relationship theory has received much attention and is seen as a expanding area in academy and practice. In contrast to product market, the relationship between service providers and consumers are more closed than in product market, and the corporation is also obviously because of the characteristics of service. The most important issue the sellers face is no longer to provide excellent, good quality products or services, but also to keep loyal customers who will contribute long-term profit to organizations. Keeping sustainable relationship has been seen as the mainstream of thought in programming a marketing strategy both in service marketing and consumer product marketing.  Becerra and Korgaonkar (2011) examine the simultaneous effects of the product, brand, and vendor trust beliefs on consumers' online intentions.

 

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Housing Finance Based On Lease Certificates and The Case of Turkey

Dr. Feyzullah Yetgin, Associate Professor, Calık Emlak ve Gayrimenkul Yatırımları A.S., Istanbul

Dr. Guclu Okay, Assistant Professor, Marmara University, Istanbul

 

ABSTRACT

Real estate investments --which have recently enjoyed increased growth in our country-- particularly in housing projects-- have been financed using traditional build-and-sell method, but as this method had proved to be insufficient to provide for the necessary finance, housing loans from banks used to a certain extent. However, the ratio of housing loans to the GDP is still considerably below the EU average. In addition, Sukuk (lease certificates) has emerged as an important alternative for the financing of big projects recently launched or to be launched, and the use of the Sukuk instrument has enjoyed gradual increase, albeit lower levels compared to the world. This study furnishes a general discussion concerning Sukuk as well as details about how it is implemented. For further clarification on the matter, it examines in detail the Sukuk instrument issued by the Aktif Bank participation for the project the "Revenue Sharing with Land Sale for Istanbul International Finance Center Special Project and Recreation Area" as an example.  The increased product diversity of financial markets and emerging securities markets in recent years have brought to the agenda the need for interest-free bonds and bills known as "Sukuk" in Turkey as a new source of financing for many sectors, particularly including the housing sector. Investors willing to lend their savings, but opting for interest-free returns preferred such securitization and obtain profits from a method that is alternative to interest. The first part of this study offers a conceptual framework about lease certificates and their functioning. Then, we move on to the discussion of a proposed project which is likely to be implemented in Turkey and the contribution such projects may potentially make to the country's economy. Sukuk, etymologically derived from the Arabic word "Sak," is today used to refer to Islamic financing bills and it has various types (Khan, 2003, 129). Sukuk has emerged as a new investment alternative for investors on a global scale, including Arab markets in particular, and it is generally based on leasing. Such certificates, similar in nature to the asset backed securities (ABS), are generally defined as "lease certificates" and are basically issued based on a tangible asset (Durmuş, 2010, 143). Unlike the ABS-like securitizations, this system does not rely on deposits/loans. In this system, the portfolio from the source company (originator) is sold a special purpose vehicle (SPV), which, in turn, issues a security based on this portfolio. As noted above, the securities issues are sold to investors based on the cash inflow generally in connection with the financing of a physical investment project. In Turkey, a bill was passed to allow the issuance of lease certificates. Under this law, "asset lease companies" which are defined as special purpose vehicles (SPVs) may issue lease certificate mainly based on property, but also on management contracts, purchase and sale, partnership and  contracts of work (Gökyüz, 2012, 151). In terms of functioning, there are salient differences between lease certificates and interest-based bills (Büyükakın and Önyılmaz, 2012, 3). First of all, while classical bills have only interest-based or interest-sensitive cash flow, lease certificates have the property rights of the asset which forms the basis of securitization in question as well. Thus, investors have the right to benefit both from the balance from the sale of the asset and other revenues belong to that asset and, therefore, can enjoy completely interest-free income returns (Testa, 2008, 117).

 

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Momentum Strategy in Commodity Market

Dr. Han-Ching Huang, Chung Yuan Christian University, Taiwan R.O.C.

Yen-chih Lin, Fuji University, Taiwan R.O.C.

 

ABSTRACT

In this study, we use the raw material commodity to examine performance of various momentum investment strategies. We combine the price and trading volume to construct the momentum life cycle to explore the profit performance based on the early-stage and late-stage momentum strategy. In addition to aforementioned strategies, we also construct the two-dimensional momentum strategy. We find that 52-weeks high momentum strategy in the ranking period has the best performance. On the other hand, contrarian strategy in the holding period has the best performance. Moreover, the investment period should be as short as possible. In the two-dimensional momentum life cycle strategy, we argue that the profit performance of early-stage is smaller than the late-stage strategy. Nonetheless, regardless of the length of the period or the early and late-stage, this strategy does not suitable for raw material commodities. We show that adopting the early-stage strategy with longer ranking & holding period can obtain excess higher profit. In 52-weeks high momentum strategy & turnover momentum life cycle strategy, we should choose the ranking period with six months and adopt the late-stage strategy simultaneously to get the high profit. In sum, the performance evaluation of one-dimensional strategy is superior to that of the two-dimensional strategy.  Raw material commodity is the international high-profile topic in recently. International raw materials have been in a bull market since 2002. Although after the 2008 financial crisis, various financial asset values fall sharply, the gold is considered as a tool of natural hedge, making investors have more reliance on it. Moreover, oil prices are the main international economic variables which affect the overall economy. Due to the problem of abnormal climate, crop futures prices change significantly. Therefore, if we use the appropriate investment strategy in the raw materials portfolio, we can make considerable profits. Many researcher use different investment strategies to confirm that past stock price can predict future stock price movements. For example, DeBondt and Thaler (1985) point out that the market has overreaction for new information, and investors can use the contrarian strategy to get excess returns. Jegadeesh and Titman (1993) argue that the market exists in the inadequate response situation. Thus, investors may earn excess returns by momentum strategy. Lee and Swaminathan (2000) combine the previous research of momentum effects. They take into the volume factor (turnover) and put forward the momentum life cycle hypothesis. The empirical results show that stocks has underreaction in the mid-term and overreaction in the long period, and investors may carry out the early-stage or late-stage strategy to obtain abnormal returns. George and Hwang (2004) find that the 52-week high price–largely explains the profits from momentum investing. A stock whose price is at or near its 52-week high is a stock for which good news has recently arrived.

 

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The Association between Corporate Social Responsibilities Disclosure and Ownership Structure: An Empirical Study on Companies listed in ASE

Dr. Mahmoud Alkhalaileh, Professor, University of Jordan & Zarqa University, Jordan

Bisan Almasri, The Central Bank, Amman, Jordan

 

ABSTRACT

The study aims to examine the association between corporate social responsibility disclosures (CSRD) and ownership structure for 82 non-financial companies listed in ASE over the 5-years period (2008-2012). The study employed correlation and multiple regression analyses to test the study's predictions. Consistent with the study predictions, and most prior studies' findings, empirical results indicate that both foreign ownership and government ownership are significantly positively  associated with firm's CSR activities, while managerial ownership is negatively significantly associated firm's CSR activities. However, contrary to the study's predictions institutional holding is negatively associated with CSR disclosures. In addition, the study's results confirms prior studies' findings which report positive association between firm's age and size with CSR disclosures.  However, the study did not detect evidence in support of significant association of CSR disclosure with ownership concentration. The purpose of this study is to examine the association between corporate social responsibility disclosures and ownership structure for non-financial companies listed in ASE over the 5-years period (2008-2012). Five ownership structure variables (Institutional ownership, foreign ownership, Managerial ownership, Government ownership and Ownership concentration) are hypothesized to be associated with the level of corporate responsibility disclosures.  CSR disclosures have been the focus of substantial theoretical and empirical researches in developed and developing economies. The issues of social responsibility disclosures and factors affecting or associated with the corporate social responsibility practices have attracted the attention of accounting researchers since 1980's (Shoji Y. et al., 2011). Many empirical studies have examined the CSR disclosure and practices and how they are related to several firm specific variables. Early studies in this line of research focused on the impact of CSR practices and CSR disclosure on firm's financial performance (i.e. Waddock & Graves, 1997; Ehsan and Kaleem , 2012). Although the results of the prior studies were mixed, most of the prior studies findings are supporting positive association between CSR disclosures and firm's financial performance. Aguilera et al. (2007) contented that the evidences on the positive associations between the CSRD and corporate performance are overwhelming and call for closure of debate on this issue. In this line of research, little research has examined the association between CSR disclosure and ownership structure, and even most of them focused on developed economies, such as USA and Western Europe (Won et al., 2011). However, little attention has been given to this issue in emerging economies.

 

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Features and Impact of Foreign Demand on Real Estate Market: The Case of Croatia

Dr. Ana Rimac Smiljanic, University of Split

Katarina Matkovic, University of Split

 

ABSTRACT

The aim of this paper is to clarify the role of foreign demand on the specific, geographically limited real estate market of islands. Namely, in the last decade the Croatian islands have become extremely popular among foreigners and they have become an important factor in the creation of demand for real estate and consequently the market price. Their effects are manifested in two ways. After financial liberalization the number of foreign investors in second homes on Croatian islands increased rapidly. At the same time, the number of foreign tourist visits increased greatly and therefore profitability of investment in touristic real estate become high. All of that resulted in a rapid increase in real estate prices on islands. That changed traditional life on Croatian islands. Therefore, we conducted primary and secondary research with the aim of capturing the features and impacts on real estate markets that foreigners have brought to the island economy. The results show that foreigners have brought a positive effect on the local economy. However, indirectly these changes have brought negative effects on the traditional way of life on Croatian islands.  There is general acknowledgment that financial liberalization and EU accession increase real estate prices in a country (Kovačević, Čveljo, 2008). Further, the development of tourism increase earnings from real estate connected to this sector and therefore additionally puts up the pressure on the demand and rise of real estate prices. The majority of foreign interest in tourism visits and investments in real estate have been on Croatian islands in the Adriatic Sea. This assertion raises two questions. First, do foreign investors have an impact on island economy, both directly and indirectly? Second, have these changes brought positive or negative effects on life on Croatian islands? To answer these questions the research presented in this paper takes the case of the Croatian island of Hvar, the most popular touristic island in Croatia. In our analysis, we have concentrated on islands because by their nature the supply of real estate is limited and therefore the effects of foreigner demand presence is the most visible. Namely, in situations where the supply of real estate is limited, the major factor on market price formation is demand (Glickman, 2014). Additionally, increased earnings from the touristic sector have changed the domestic demand for real estate but have also changed the demand for labour forces, public and private services and products and the traditional way of living on islands. The literature about this problem is rare and mostly limited to the touristic sector (Družić, Čavrak, Tica, 2007, Datzira-Masip, J., Juliá-Eggert, M., 2008). The expansion of second homes on Croatian islands has been largely ignored by the scientific community which has left room for increasing xenophobia amongst the local population.

 

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