All Research

Tanja Kuzman · Jelisaveta Lazarevic · Milan Nedeljkovic ·Economic Analysis and Policy ·2022

This paper studies the conditionality in the relationship between capital flows liberalisation, macroprudential policies, and credit cycles in emerging market (EM) economies. Using quarterly data for 16 EM economies, we document the effectiveness of broad macroprudential measures in containing credit cycles in the EM economies. More importantly and in line with theory, we find that the effect of liberalisation of capital inflows on the excessive credit dynamics is conditional on the stance of the macroprudential regulation. When the macroprudential framework is tight, the liberalisation of capital inflows does not have a statistically significant effect on the excessive credit dynamics. In contrast, in economies with a lax macroprudential framework, the liberalisation of capital inflows may amplify credit expansion. The results provide a rationale to explain often conflicting findings in the earlier empirical literature.

Farhad Taghizadeh-Hesary · Han-Phoumin · Ehsan Rasoulinezhad ·Economic Analysis and Policy ·2022 ·JEL: H81, G21

The main objective of this paper is to identify the determining factors of the optimal credit guarantee ratio in four members of the Association of Southeast Asian Nations (ASEAN), namely Indonesia, Singapore, the Philippines, and Malaysia, by employing statistical techniques and the Vector Autoregressive (VAR) approach. The empirical findings prove that the loan default ratio is the optimal credit guarantee ratio’s main determining factor. The empirical findings confirm that the credit guarantee ratio needs to be increased in the ASEAN region to help SMEs survive in the wake of the COVID-19 pandemic and for the post-COVID-19 economic recovery. The results show that the credit guarantee ratio should vary for different countries based on the macroeconomic climate and for each bank or, in other words, for groups of banks with similar financial soundness. The practical policy recommendations are establishing a regional credit guarantee scheme (RCGS) and evaluating banks’ soundness for setting the optimal credit guarantee ratio.

Sulistiyo K. Ardiyono ·Economic Analysis and Policy ·2022 ·JEL: D22, L2, L6, L8

Numerous studies have explored the impact of the Covid-19 pandemic on firms’ financial performance, but the link between such performance and employment has rarely been estimated rigorously. Using the ASEAN-5 firms’ data from Q1-2018 to Q3-2021, this study shows how the pandemic affects firms’ revenue, cost, profitability, and employment heterogeneously across countries. It is argued that while revenue losses are the main challenge, widespread and prolonged restrictions in some countries have created extra complications in idle inventories and labour. In response to the revenue shocks, firms reduce their employment with an elasticity of around 0.10, indicating that a 10 per cent revenue decline is associated with a 1 per cent headcount reduction in the short run. A further examination using event analyses reveals that the path of labour adjustment is diverse across countries and industries, reflecting the degree of pandemic severity and countries’ structural issues.

Evan Lau · Jaime Moll de Alba · Kim-Hing Liew ·Economic Analysis and Policy ·2022

External debt levels have increased dramatically over the past decades. Many Asian developing countries are trapped in unprecedented levels of indebtedness while utilizing a high level of external debt for fiscal activities. This study empirically investigates the impact of such debt levels by estimating the appropriate threshold of external debt to GDP on economic growth for a sample of 16 Asian countries during the years 1980 to 2016. The outcomes indicate that external debt negatively and significantly impacts growth in most of these countries. Debt to GDP threshold construction revealed ten countries with a threshold below 30%, three countries in the range between 30%–60%, two countries in the range between 60%–90%, with only Thailand exceeding a 90% threshold. The fiscal discipline of targeting an appropriate debt to GDP ratio can serve as a guide to optimizing sustainable economic growth for countries in the Asian region. That is, appropriate ratios would allow flexibility in the use of fiscal instruments to counter any future incoming economic shocks.

Chee Yoong Liew; YoungKyung Ko; Bee Lian Song; Saraniah Thechina Murthy ·Journal of Industrial Business and Economics ·2022

We examine the association between directors’ compensation and firm value and investigate whether ownership concentration moderates this relationship by utilising a sample of Malaysian public-listed firms for the period from 2004 to 2014. Using fixed effect regression, we find that the remuneration of executive and non-executive directors is positively related to firm value. However, there is no conclusive evidence on the moderating effect of ownership concentration on the relationship between executive directors’ and non-executive directors’ compensation and firm value. Our findings indicate that executive and non-executive directors’ compensation packages should be linked to firm performance. The implication of this research addresses one of the key issues in corporate finance i.e., whether it is worth compensating directors in emerging markets or not.

Ooi Kok Loang · Zamri Ahmad ·Millennial Asia ·2022

This study examines the existence, tendency and determinants of herding in the Malaysian stock market under market stress from 2016 to 2020. This study adopts ordinary least square and quantile regression models to estimate herding. Three types of measurements are used to capture volatility, which are realized volatility, Parkinson volatility and Garman and Klass volatility. The result shows that herding exists in the Malaysian stock market. Investors are observed to herd stronger in the bearish (down) market condition compared to bullish (up) market condition, especially in the upper quantile (τ > 50%). Realized volatility is found to be significant in every quantile except for the median quantile (τ = 50%) and Garman and Klass’s volatility is significant in the upper quantiles of 0.75 and 0.90. This study assists analysts and investors to formulate better investment strategies. Regulators and policymakers shall also control and regulate the herding behaviour of investors, which can deviate the stocks from their fundamentals. The existence of herding also violates the assumptions of EMH in assuming that investors are rational.

Chi Truong · Jeffrey Sheen · Stefan Truck · James Villafuarte ·Journal of Financial Stability ·2022 ·JEL: C33, E44, G01, G17

This study develops an early warning system for financial crises with a focus on small open economies. We contribute to the literature by developing macro-financial dynamic factor models that extract useful information from a rich but unbalanced mixed frequency data set that includes a range of global and domestic economic and financial indicators. The framework is applied to several Asian countries—Thailand, South Korea, Singapore, Malaysia, the Philippines and Indonesia. Logit regression models that use the extracted factors and other leading indicators have significant power in predicting systemic events. In-sample and out-of-sample test results indicate that the extracted factors help to improve the predictive power over a model that uses only sufficiently long history indicators. Importantly, models that include the dynamic factors yield consistently better out-of-sample crisis prediction results for key performance measures such as a usefulness index, the noise to signal ratio, and AUROC.

Chan Fatt Cheah · Abdul Samad Abdul-Rahim · Mohd Yusof Saari · Niaz Ahmad Mohd Naseem ·Journal of the Knowledge Economy ·2022

This paper aims to investigate the impact of the economic openness and institutional quality in explaining the environmental degradation in Malaysia that covers from 1980 to 2019. By using an innovative autoregressive distributed lag (ARDL) technique, the result indicates that economic openness that is measured through the trade and FDI are unequivocally environmental improving. Meanwhile, the institutional reforms also appeared to actualize the beneficial effect of environmental emission. The findings show that economic openness and institutional quality act as a key driving force to further curb the CO2 emission and in turn to reduce the environmental pollution. This suggests that countries with adequate trade, FDI, and institutional settings like Malaysia are on the right track to reinforce all efforts in bringing down pollution. Therefore, environmental quality can be improved through the greater ability and willingness to enforce environmental regulations and higher trade liberalization process, which is usually associated with higher income, more economic development, and better environment.

Joshua Aizenman · Gazi Salah. Uddin · Tianqi Luo · Ranadeva Jayasekera · Donghyun Park ·NBER Working Paper Series ·2022 ·JEL: E52,E58,F42

This paper examines whether prudential policies help to reduce sovereign bond vulnerability to global spillover risk in ASEAN-4 countries (Indonesia, Malaysia, the Philippines, and Thailand). We measure sovereign vulnerability within a risk connectedness network among sovereign bonds. The direct effect is that markets with tighter prudential policies have significantly smaller spillovers from the Treasury yield shocks of other regional and global economies. The sum of indirect and direct effects indicates that prudential policies reduce sovereign spillover risk in the long term. These findings suggest prudential policies have dual efficiency in sovereign risk regulation and Treasury internationalization.

Mohd Azlan Shah Zaidi · Zulkefly Abdul Karim · Noor Amirah Zaidon ·Economies ·2022

Movements in palm oil price give important signals to various stakeholders of the palm oil industry in Malaysia. Thus, understanding external and internal factors that may affect the palm oil price is vital to the industry players for sustainability of their activities. This study investigates relative importance of external and internal shocks on the movement of palm oil price in Malaysia. Employing a structural vector autoregressive (SVAR) model on quarterly data from 1990 to 2019, the findings reveal that external shocks are more dominant in affecting the palm oil price. Shocks to the crude oil price, the prices of substitution goods (soybeans oil, rapeseed oil, and sunflower oil), the world palm oil price, and foreign income significantly affect the palm oil price in the short and medium run. The results also indicate that a shock to soybean oil price has a more profound effect on the palm oil price than a shock to rapeseed oil or sunflower oil prices, respectively. Likewise, shocks to incomes from India as well as from Netherlands create greater impacts on the palm oil price than a shock to income from the other trading partners, respectively. The study has shown the importance of external factors in affecting the palm oil industry.

Chia-Guan Keh · Pei-Tha Gan · Yan-Teng Tan · Fatimah Salwa Binti Abd. Hadi · Norasibah Binti Abdul Jalil ·International Journal of Sustainable Economy ·2022

Determining the relationship between financial development and economic growth is important to make precise projections of economic growth. As most of these studies rely on a symmetric relationship, they can lead to misleading policy implications. To overcome this shortcoming, this paper uses a technique involving an asymmetric relationship. This paper examines the asymmetric relationship between financial development and economic growth in Malaysia from 1980 to 2017 using a nonlinear autoregressive distributed lags model. The banking sector and stock market development have been employed as indicators of financial development. The findings suggest that the asymmetric relationship between banking sector development and economic growth exists in the long-run. Banking sector development shows no asymmetric relationship with economic growth in the short-run, while stock market development does not present any asymmetric relationship with economic growth in the short and long-terms. The study infers that the banking sector development is an essential engine of growth promotion. Policymakers should consider banking and stock market development for better policy decision-making.

Leonard Fong Litt Lam (University Putra Malaysia)) · Siong Hook Law · W. N. W. Azman-Saini · Normaz Wana Ismail ·Millennial Asia ·2022

This article analyses the importance of high-technology trade as a channel of economic growth to ease Malaysia out of the middle-income trap. This study also wonders upon the missing absorptive capabilities that validate the likelihoods of dismal gross domestic product (GDP) growth since the 1990s. Using the autoregressive distributed lag (ARDL) approach and fully modified ordinary least squares (FMOLS) estimator as robustness checks, this study identifies the determinants of high-technology trade and the appropriate absorptive capability in enhancing economic growth. The empirical results from quarterly data from 1990 to 2015 proved that foreign direct investment, financial development and infrastructure are vital to develop a successful high-technology trade. Another important finding is that it validates the presence of trade openness (as absorptive capability) in order to magnify the benefits of research and development (R&D). This explains why, despite spending on R&D, these spending do not project to economic growth.

Sitara Karim · Farah Naz · Muhammad Abubakr Naeem (United Arab Emirates University, South Ural State University)) · Samuel A. Vigne ·Economic Analysis and Policy ·2022

With the continuous boom of FinTech, the similar features of different platforms provide effective solutions for small and medium enterprises. This study examines whether FinTech offers useful business mechanisms for SMEs in selected ASEAN countries. The ASEAN countries included in the study are Indonesia, Malaysia, Philippine, Singapore, and Thailand. The study employed factor analysis and segregated the FinTech-SME nexus into five factors. The responses of 300 SME owners were collected through interview questionnaires and surveys. We find that new FinTech and SMEs ‘collisions’ (our term for new utilization) during COVID-19 are the most important factors in the growth of FinTech and the strength of SMEs. Further, we utilized the Kruskal–Wallis test to validate our results and for ranking the factors alongside the ASEAN countries. We present useful implications for policymakers, regulatory bodies, ASEAN countries, and SMEs for welcoming FinTech solutions to facilitate digital transactions.

Basem Ertim · Tamat Sarmidi · Norlin Khalid · Mohd Helmi Ali ·Asian Economics Letters ·2022

In an attempt to mitigate the effects of COVID-19, the Malaysian government imposed the Movement Control Order (MCO). To address the adverse impacts of the MCO policy, the Malaysian government initiated a series of recovery plans for both fiscal and monetary measures. This study aims to assess the government’s various policy measures on Malaysia’s leading macroeconomic indicators. Regardless of the differences in the gross domestic product (GDP) components, the real impacts on GDP growth are almost identical between Malaysia and a control group. This result is partly explained by the increase in total and domestic investment and private consumption.

Muhammad Hafiz Abd Rashid · Muhammad Iskandar Hamzah · Amirul Afif Muhamat · Aida Azlina Mansor · Rahayu hasanordin ·Journal of Asian Finance, Economics and Business ·2022 ·JEL: M10, M30, M31

Studies examining the interplay between brand transgression and brand forgiveness is notably sparse especially in the context of Southeast Asian banking customers. The purpose of this research is to add to the existing literature by examining the impact of brand transgression, which is represented by negative past experience image incongruence, and corporate wrongdoing on brand forgiveness among Islamic banking customers in Malaysia. The increasing surge in interest in unfavorable brand relationships has sparked concerns about its impact on brand forgiveness. As a result, this theoretical argument, which lacks empirical proof, has to be statistically tested. The current study was conducted utilizing a non-probability purposive sampling technique among clients in the Klang Valley who had poor experiences with Islamic banking services. Data analysis included descriptive statistics, exploratory factor analysis, and multiple regression on a total of 211 valid replies. The findings show that two elements of brand transgression, image inconsistency, and corporate wrongdoing, have a major impact on brand forgiveness. However, the other dimension namely negative past experience was found to be non-significant to brand forgiveness. Research implications and directions for future studies are also discussed in this paper.