Dr Anup Chowdhury

Behavioral finance claims that investment attitude in the capital market is a function of investors’ psychology, sentiment and approach towards risk. To fulfill this thirst, many experiential studies like Gruber (1996), Piana (2001), Pindyck (1986), Hallahan et al. (2004), have found that there are numerous determinants at the macro and individual level, both measurable and non-measurable in numerical values, on which investment behavior of investors depends. Attitude towards risk, degree of risk tolerance or aversion and other risk characteristics largely influence the investment decision which is empirically observed by Deck et al. (2008). Alongside, investor sentiment regarding the prospect and sustainability of the capital market also controls the choice of investment size, tenure, horizon and timing. This study, in line with those efforts, tries to assess the principal determinants of investment, general and risk characteristics, and overall confidence on the stock market, on the part of the individual investors in Dhaka Stock Exchange (DSE) of Bangladesh. The results suggest that investment horizon, age, current profit, savings and income of investors and no. of family members significantly affect the investment size.

Investors’ psychology, sentiment, attitude towards risk, degree of risk tolerance or aversion andother risk characteristics largely influence the investment decision which is empirically observed by Deck etal. (2008). Lashgari (2000), Dennis and Mayhew (2002), Suk and Tully (2003), and Wurgler (2006) haveused general and risk characteristics of investors to developed models on confidence index on stock markets.This study, in line with those efforts, tries to measure the individual investors’ level of confidence on theDhaka Stock Exchange (DSE) of Bangladesh as a determinant of investment. The Investor Confidence Indexindicates a large portion of these individual investors have low confidence on the stock market of Bangladeshwith none found to be positive in favor of a better immediate future.

Emerging markets have received considerable attention for foreign investment and international diversification due to the possibility of higher earnings and a low level of integration with global equity markets. These high returns often need to be balanced by the high liquidity costs of trading in illiquid emerging markets. Several studies have shown that central bank and government policies are significant determinants of market liquidity. We investigate the influence of monetary and fiscal policy variables on the market and firm level liquidity of eight emerging stock markets of Asia. Using four different (il)liquidity measures and nine macroeconomic variables, we find that changes in the money supply, government expenditure and private borrowing significantly affect stock market liquidity. Illiquidity is also strongly affected by the bank rate, short-term interest rate and government borrowing. We demonstrate that ‘crowding out’ and ‘cost of funds’ effects exist in these markets. Other major findings are that some markets are more sensitive to local macroeconomic news than world factors, the impact on size based portfolios largely depends on the instruments used by the central banks and government, the liquidity of the manufacturing sector is affected by changes in any policy variables, financial institutions are only influenced by monetary policy variables, and the service sector is least affected.

Managerial ownership and firm performance are endogenously determined by exogenous (and only partly observed) changes in the firm’s contracting environment. To develop the testable hypothesis the extension of the cross-sectional results runed by Demesetz and Lehn (1985) (Journal of Political Economy, 93, 1155-1177) has been used and the panel data been used to show that managerial ownership is explained by key variables in the contracting environment in a way consistent with the predictions of principal-agent models. A large fraction of the cross-sectional variation in managerial ownership is explained by unobserved firm heterogeneity. Moreover, after controlling both for observed firm characteristics and firm fixed effects; it cannot be concluded (econometrically) that changes in managerial ownership agent firm performance.

The growth of regional economic cooperation arrangement is one of the major developments in the post World War II period. The formation of regional integration has been greatly successful in bringing historically hostile countries together. The classic example is the state in the European Union and the South East Asia where economic dimensions have brought long time foes in the same dais. The basic premise on which SAARC was founded was that by activating cooperative cultural identities and economic interests, political conflicts and tensions in South Asia could be moderated, if not completely eliminated. It looks advantageous if SAARC countries could adopt a single currency-substantially enhancing their bargaining power together in the world market. In this paper drive has been made to analyze the possibilities and benefits of a single currency in SAARC countries. A common currency’s attraction is that it doesn’t represent the currency of any single country. It’s advantageous to deal with a lesser number of currencies since each time one converts a currency there is a huge loss. The common currency regime, when achieved, can present substantial benefits to the region. With uncertainty about exchange rates removed, and transaction costs reduce trade and investment in the region can get a big boost. Also with money creation under regional guidelines, there would be better prospects of synchronization of inflation, interest rate and GDP growth, all of which can contribute to accelerated growth and poverty reduction.

In October 1996, The Dhaka Stock Exchange (DSE) adopted trading halts for individual stocks, collectively known as “circuit breakers”, to reduce the stock market volatility. This paper reviews the existing circuit breakers literature and developed five hypothesis—“Magnet Effect”, “Cool off-Heating (C-H) Effect”, “Information Hypothesis”, “Volatility Spillover Hypothesis” and “Trading Interferences Hypothesis”—which could be tested empirically not only in the Dhaka Stock Exchange but any stock exchanges around the world. This paper also suggests most appropriate econometric models for empirical testing. GARCH for inter day data and Event Study methodology for intra day data. Moreover, to test the robustness non-parametric tests need to use along with parametric one. Considering the stock market bubbles in 1996, it has been found that it was optimal for the regulators to adopt this trading halt, but not for the market. It failed to protect the market. However, this might be the consequences of misconceptions about the purpose and effectiveness of circuit breakers. Despite many arguments contrary to this mechanism and absence of any conclusive empirical evidence for a fragile stock exchange like DSE, it may be useful sometimes to replace the “invisible hand of the marketplace” with the “visible hand of the market regulators”.

This is a study of the volume flexibility of the British and European goods industry, and its relative ability to cope with exogenous shocks, using the case of the Brexit process in a comparative context. It is located within the literature on comparative capitalism, and what it tells us in terms of how different institutional orders may be equipped to deal with such events. Using data for goods firms across 27 EU countries and the UK, we find that the UK goods industry has coped poorly with the shocks related to the Brexit process: its volume flexibility has declined. Brexit also has had an, albeit lesser, impact on the volume flexibility of their European firms counterparts. In particular, smaller firms in the EU coped better, a possible reflection of stronger institutional supports. However, firms that investing more in R&D, provide training to improve management efficiency, and apply innovation to improve asset efficiency, seem to be coping better. This study illustrates how the withdrawal of Britain from supra-national European institutions seems to have accentuated any negative effects of domestic institutions on firms, and, indeed, has had even worse consequences than the 2008 economic crisis for the British goods industry. The latter would suggest it is ill equipped to cope with further shocks, such as the 2020 pandemic. We draw out the implications for theorizing, policy and future research.

Private Equity (PE) exit strategy is important for investors as a planned and effective exit strategy improves the chance of realising higher profit. In this paper, we examine how PE exit strategies are being affected by the ongoing global pandemic. The current COVID-19 pandemic has created unprecedented exogenous shock to nearly every economy and it is important to see how this uncertainty affects economic activities such as the PE exit decision. Using 20 years of PE fund data from across 79 countries, we find that the current COVID-19 global pandemic has significantly affected the PE exit decision and the effect is stronger than that of the recent financial crisis. Out of all the exit strategies, acquisition is the most popular, and COVID-19 exerts a significant negative impact on the others. We also find that COVID-19 has negatively affected deal values across all the exit strategies, limiting the profit potential for investors. Moreover, the paper provides evidence that PE investors tend to wait for a good time to exit rather than rushing to exit during an uncertain time such as this global pandemic. Our results are robust for various alternative econometric specifications.

We provide firm-level evidence from an emerging Islamic market that individual investors' trading behaviour causes weekend sentiment. Using data for 285 companies listed on the Dhaka Stock Exchange (DSE) for the period from 2002 to 2019 and applying appropriate econometric techniques, the paper has found evidence of weekend effect both on return and volatility. The results confirm that individual investors' sentiment drives the weekend effect in DSE. ‘Information content theory’ and ‘information processing hypothesis’ work for investors so that the market return and volatility become significantly different on Sunday. The market sentiment effect is significant for smaller firms and low dividend yield firms where individual investors are prevalent, suggesting that trading behaviour of individual investors determines weekend sentiment. A positive feedback relationship exists between returns on Sunday and the previous Thursday for both institutions and individuals. Our results are robust in various alternative specifications.

Emerging markets have received considerable attention for foreign investment and international diversification due to the possibility of higher earnings and a low level of integration with global equity markets. These high returns often need to be balanced by the high liquidity costs of trading in illiquid emerging markets. Several studies have shown that central bank and government policies are significant determinants of market liquidity. We investigate the influence of monetary and fiscal policy variables on the market and firm level liquidity of eight emerging stock markets of Asia. Using four different (il)liquidity measures and nine macroeconomic variables, we find that changes in the money supply, government expenditure and private borrowing significantly affect stock market liquidity. Illiquidity is also strongly affected by the bank rate, short-term interest rate and government borrowing. We demonstrate that ‘crowding out’ and ‘cost of funds’ effects exist in these markets. Other major findings are that some markets are more sensitive to local macroeconomic news than world factors, the impact on size based portfolios largely depends on the instruments used by the central banks and government, the liquidity of the manufacturing sector is affected by changes in any policy variables, financial institutions are only influenced by monetary policy variables, and the service sector is least affected.

Among all the problems of financial management, the problems of working capital management have probably been recognized as the most crucial one. It is because of the fact that working capital always helps a business concern to gain vitality and life strength. The objective of this study is to critically evaluate working capital management as practiced in the selected firms of the Pharmaceutical industry. To achieve this goal the study also examines the policy and practices of cash management, evaluate the principles, procedures and techniques of inventory management, receivable management and payable management. But the study does not examine the political and economic impacts on the working capital management. From the analysis we can conclude that pharmaceutical firms operated in Bangladesh are efficiently deal with their liquidity preferences and investment criteria and this is due to the competitive nature of this industry.

Financial distress is a situation where a firm’s operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective actions, and a firm in financial distress may also face bankruptcy or liquidation to meet its liabilities. Financial distress can be caused by losses, dividend reduction or bankruptcy. A good way to measure the possibility of bankruptcy is to use Z score model (Altman, 1968). This paper uses the Z score model to predict risk of financial distress of Z category companies listed in Dhaka Stock Exchange (DSE). Results suggest that five of fifty three companies are out of danger while seven of those are in the gray area. Evidently, forty one of the companies are operating with high distress risk as suggested by the model result. Therefore ninety percent of the companies are suffering from financial distress risk due to very poor management capability and operating inefficiency although its reflection to the stock price is absent from the market in many instances. The Altman’s Z score, model though may not be fully applicable for companies in Bangladesh, yet proves its strong validity and correctness in predicting distressful status of the Z category companies.

Modigliani & Miller (1958) show the impact of debt-equity ratio on firm value in their capital structure theory. Economist and financial researchers have spent time to develop new thoughts around this theory. Despite their effort the Modigliani & Miller (MM) model is still in vague. In this paper attempt has been made to empirically support the argument of MM. The paper tests the influence of debt-equity structure on the value of shares given different sizes, industries and growth opportunities with the companies incorporated in Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) of Bangladesh. For the robustness of the analysis samples are drawn from the four most dominant sectors of industry i.e. engineering, food & allied, fuel & power, and chemical & pharmaceutical to provide a comparative analysis. A strong positively correlated association is evident from the empirical findings when stratified by industry.

Piotroski’s Fscore has become increasingly important to investment managers and analysts as a simple measure of a company’s financial strength. However, how it changes over time, and in particular how it reacts under different economic conditions, has not been considered until now. Macroeconomic conditions and the business cycle affect corporate valuations via stock prices. They also affect corporate liquidity, cash flow, profitability, efficiency, financing, capital structure, and thus Fscores. The Fscore is currently used as if it gives similar results in all economic states, but this is not the case. While macroeconomic conditions strongly affect the aggregate Fscore, the effect of particular variables changes greatly depending on the stage of the economic cycle. During contractionary episodes, monetary and macro-economic factors become much more critical and outweigh firm-level factors in determining Fscore values. Investors should, therefore, be particularly cautious in applying the Fscore equally during contractions as during expansionary periods.

Stock markets across the world have exhibited varying degrees of volatility following the recent COVID-19 pandemic. We have examined the effect of this pandemic on stock market volatility and whether economic strength, measured by a set of selected country-level economic characteristics and factors such as economic resilience, intensity of capitalism, level of corporate governance, financial development, monetary policy rate and quality of health system, can potentially mitigate the possible detrimental effect of the global pandemic on stock market volatility. Using data from 34 developed and emerging markets, we have found that these country-level economic characteristics and factors do help to reduce the volatility arising due to the virus pandemic. The results of this paper are important as policymakers can use these economic factors to set policy responses to tackle extraordinary heat in the global stock market in order to avoid any possible future financial crisis.

FDI has been growing at a spectacular pace all over the world and emerging countries have been successful in attracting more FDI compared to developed countries. Institutional factors are becoming more important as determinants of inward FDI for emerging markets. However, research in this area is inadequate and also incosnsistent in terms of findings. In this paper, we have examined the institutional determinants of Pakistani FDI inflows and also examined the relative importance of those factors. The paper has found that certain institutional determinants such as size of the government, legal structure and strong property rights, freedom to trade and civil liberty have strong positive effect on FDI inflows. Among the institutional variables, regulation has been found to be most important to influence inward FDI flow to Pakistan. The paper has also found evidence that there was a structural break in FDI flows in Pakistan which coincides with market liberalization programme in early 1990s. This confirms the effectiveness of conducive institutional environment to attract foreign investment. Moreover, we have found that military government is more successful in attracting FDI compared to democratic government in Pakistan.

This thesis consists of a systematic literature review and three related empirical studies that examine the key implications of environmental risk management performance, specifically pollutant emissions, on the cost of capital and capital structure, as well as its causality direction with financial performance, using an international dataset of companies from 45 countries from 2002 to 2020. In all three empirical studies, environmental risk management performance is evaluated in terms of environmental risk exposure in the form of pollutant emission intensity, with the Refinitiv environmental pillar score used to assess the overall quality of an organisation's environmental risk management performance or environmental profile.It is motivated by the recognition that climate-related risks can have a catastrophic effect on business sustainability and by how organisations are now actively incorporating corporate environmental responsibility as an important component of their corporate sustainability strategy, thereby changing the way they conduct and operate their businesses. Furthermore, organisations are finding it increasingly difficult to make funding and investment decisions because of the trade-offs necessary to fulfil the expectations of many stakeholders for environmental action while maintaining profitability or firm value maximisation.According to the results of a systematic literature review covering 25 years (1995–2020), the relationship between environmental performance and financial performance continues to be varied (negative, neutral, and positive) due to the causal impact and effect environmental performance can have on an organisation's strategic, operational, economic, and compliance processes. Overall, most evidence points to a positive and perhaps synergistic (simultaneous and interactive) connection, with environmental performance leading to improved financial performance, allowing for reinvestment in environmental risk management and other operational activities. While the literature on the relationship between corporate environmental responsibilities and cost of capital indicates that when implemented strategically, corporate environmental responsibility may improve an organisation's overall financial and operational performance, reduce capital market sensitivity to its risk profile, and ultimately lead to a lower cost of capital and higher firm value. On the other hand, the presence of a U-shaped or non-linear relationship between environmental performance and financial performance suggests that the benefits of responsible corporate environmental actions diminish beyond an optimal level, inferring that corporate environmental responsibility investments and financing decisions must be well-balanced to avoid compromising the organisation's long-term value.The first empirical study in this thesis examines the effect of pollutant emissions on the cost of capital using a model that integrates the “win-win” and “win-lose” effects of corporate environmental responsibility activities to formulate environmental risk management strategy based on the theoretical underpinnings of stakeholder theory, resource-based view, and organisational institutional theories. The resulting relationship is an N-shaped curve, which first shows the cost of equity and debt increasing with initial environmental risk management activities to address the environmental risk (reactive strategy), then a negative relationship between increasing or moderate environmental risk management activities and the cost of both sources of capital, then positive at higher levels of environmental risk management pursuits. The first empirical study in this thesis examines the effect of pollutant emissions on the cost of capital using a model that integrates the “win-win” and “win-lose” effects of corporate environmental responsibility activities to formulate environmental risk management strategy based on the theoretical underpinnings of stakeholder theory, resource-based view, and organisational institutional theories. The resulting relationship is an N-shaped curve, which first shows the cost of equity and debt increasing with initial environmental risk management activities to address the environmental risk (reactive strategy), then a negative relationship between increasing or moderate environmental risk management activities and the cost of both sources of capital, then positive at higher levels of environmental risk management pursuits. Additionally, improvements in the overall quality of their environmental risk management profile also help to moderate the effects of the N-curve. Furthermore, the disparity in inflection points between investors and debt holders reflects differences in the payoff function as well as the relative weight they place on environmental risk and environmental risk management performance. These findings provide useful information for organisations in determining the levels at which environmental risk management initiatives will be advantageous before they become a disbenefit.The second empirical study in this thesis assessed the effect of environmental risk on capital structure. The results show that environmental risk has a differential impact on capital structure decisions, i.e., on average, high environmental risk exposure leads to lower utilisation of debt and long-term debt but increases short-term debt utilisation. Furthermore, consistent with the observation in the first study, organisations with quality environmental risk management profiles are better able to control the impact of environmental risk. Overall, the findings highlight environmental risk as a key predictor/determinant of capital structure, and a quality environmental risk management profile should assist organisations in securing access to the credit market with better borrowing terms and conditions.The last empirical study in this thesis used the panel vector autoregression framework based on the generalised method of moments and the Granger causality Wald test to investigate the existence of bi-directional causation between environmental performance and financial performance. The findings indicated that reducing pollution emission intensity can enhance subsequent financial performance, but better financial performance need not necessarily lead to subsequent emission intensity reduction. This bi-directional causality, however, occurs only when a market-based financial performance measure (Tobin's Q ratio) is utilised in the equation. Furthermore, the variance decomposition results imply that environmental performance is critical for long-term market value generation. Overall, the findings are more consistent with the enlightened stakeholder theory (Jensen, 2002) and general business practise, where strategic environmental risk management involves executive decisions on stakeholder compromises to maximise long-run firm value.In conclusion, the studies show that overall, environmental performance has a significant positive effect on an organisation's strategic, financing, and operational activities, ranging from the premium it pays for equity and debt capital, which influences the choice of debt and its utilisation, to its impact on the bottom line, implying that a proactive environmental risk management strategy is beneficial in improving future firm value. However, they also emphasise the importance of organisations’ assessing and prioritising their corporate environmental responsibility investments and/or expenditures in order to maintain long-term business sustainability.

This study explores the impact of the Paris Agreement on the determinants of firm-level capital structure decisions of listed contractor-owned Floating Production Storage and Offloading (FPSO) companies in the oil and gas (O&G) industry from 2000-2019. The study identified various financing structures between contractor-owned FPSO companies due to their individual and institutional characteristics. Tangibility, profitability, market-to-book (growth), size and effective tax rates are critical determinants of capital structure. Overall, the results support applying the pecking-order theory (PoT) from a firm-level and macro-economic context. The 2015 Paris Agreement ratification significantly impacted the capital structure determinants; the dynamic association has changed in the post-Paris period. Besides, the impact of the global financial crisis on leverage ratios was potentially mitigated by the upward trend in Brent crude oil price between 2007-2013. Keywords: Capital structure, climate change, financial crisis, floating production storage and offloading, FPSO, oil & gas