Audit quality, accruals quality and the cost of equity in an emerging market: Evidence from Vietnam

2021 ◽  
pp. 101798
Author(s):  
Ha Thi Thu Le ◽  
Ha Giang Tran ◽  
Xuan Vinh Vo
Keyword(s):  
Audit Quality ◽  
Emerging Market ◽  
Cost Of Equity ◽  
Accruals Quality ◽  
The Cost

Comparative analyses of mean-variance and mean-semivariance approaches on global and local single factor market model for developed and emerging markets

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mehmet Emin Yildiz ◽  
Yaman Omer Erzurumlu ◽  
Bora Kurtulus
Keyword(s):  
Emerging Markets ◽  
Stock Returns ◽  
Risk Measures ◽  
Emerging Market ◽  
Cost Of Equity ◽  
Content Type ◽  
The Cost ◽  
Global And Local ◽  
Insight Into ◽  
Better Than

PurposeThe beta coefficient used for the cost of equity calculation is at the heart of the valuation process. This study conducts comparative analyses of the classical capital asset pricing model (CAPM) and downside CAPM risk parameters to gain further insight into which risk parameter leads to better performing risk measures at explaining stock returns.Design/methodology/approachThe study conducts a comparative analysis of 16 risk measures at explaining the stock returns of 4531 companies of 20 developed and 25 emerging market index for 2000–2018. The analyses are conducted using both the global and local indices and both USD and local currency returns. Calculated risk measures are analyzed in a panel data setup using a univariate model. Results are investigated in country-specific and model-specific subsets.FindingsThe results show that (1) downside betas are better than CAPM betas at explaining the stock returns, (2) both risk measure groups perform better for emerging markets, (3) global downside beta model performs better than global beta model, implying the existence of the contagion effect, (4) high significance levels of total risk and unsystematic risk measures further support the shortfall of CAPM betas and (5) higher correlation of markets after negative shocks such as pandemics puts global CAPM based downside beta to a more reliable position.Research limitations/implicationsThe data are limited to the index securities as beta could be time varying.Practical implicationsResults overall provide insight into the cost of equity calculation and emerging market assets valuation.Originality/valueThe framework and methodology enable us to compare and contrast CAPM and downside-CAPM risk measures at the firm level, at the global/local level and in terms of the level of market development.

scholarly journals Corporate Governance, Disclosure Quality, and Cost of Equity: Evidence from Pakistan

2018 ◽  
Vol 6 (2) ◽  
pp. 63-91 ◽  
Author(s):  
Safia Nosheen ◽  
Naveed-Ul-Haq Naveed-Ul-Haq ◽  
Muhammad Faisal Sajjad
Keyword(s):  
Corporate Governance ◽  
Audit Quality ◽  
Financial Statements ◽  
Ordinary Least Squares ◽  
Cost Of Equity ◽  
Disclosure Quality ◽  
Listed Firms ◽  
The Cost ◽  
Governance Disclosure

The link between disclosure of corporate information and the cost of equity in firms is one of the most important issues in finance. This paper aims to examine the connection between corporate governance, disclosure quality of information, and the cost of equity in Pakistani-listed (PSX-listed) firms. Using the Generalized Methods of Movements (Sys-GMM) model, a sample of 167 non-financial firms listed on Pakistan Stock Exchange (PSX) for the period of 2011-2015was analyzed. Sys-GMM estimation was applied to overcome the problem of endogeneity among corporate governance variables. To test the robustness of GMM estimations, we compared the results of pooled ordinary least squares (OLS) and fixed-effect estimations and found they did not overcome the problem of endogeneity, providing spurious results. We found a negative association between cost of equity and disclosure quality of financial statements. The findings suggested that the board size, concentrated ownership and CEO duality, are found as significant factors in reducing the cost of equity of PSX-listed firms. Audit committee independence and audit quality of the firm showed a positive relationship with the firm’s cost of equity. Our findings suggest that employing a high-quality auditor and independent director’s results in increased cost of equity for PSX-listed firms. Furthermore, no significant relationship between independence of the boards and duration of the authorizations of financial statements by the board of directors is found. The results also revealed the investors demand more return on their investments if inadequate and incomplete information is disclosed in the annual reports of the firms. This study provides useful insights for Pakistani corporate governance regulators, the executive management of Pakistani firms, and their investors.

Hotel Business Inn

2019 ◽  
Vol 9 (4) ◽  
pp. 1-15
Author(s):  
Eduardo Luis Montiel ◽  
Octavio Martinez
Keyword(s):  
Learning Outcomes ◽  
Discount Rate ◽  
Emerging Market ◽  
Weighted Average ◽  
Country Risk ◽  
Cost Of Equity ◽  
Content Type ◽  
Academic Level ◽  
The Cost

Learning outcomes These are the three most important learning outcomes: discuss the relevance of capital asset pricing model (CAPM) as the methodology to estimate the cost of equity for an investment in an emerging market; analyze the different alternatives to estimate country risk discussing the pros and cons of each. Consider the additional complexity in estimating the cost of equity, contrasting the perspective of a local, non-diversified investor with that of a multinational company operating in 39 countries. Case overview/synopsis The Chief Financial Officer of a business group has to determine the correct discount rate for an investment in a new hotel in Guayaquil, Ecuador. The group has traditionally used the same discount rate for all projects and is now presented with several alternatives by his team. Estimating the correct country risk adjustment for the project is an important challenge. He knows that there is no clear solution to this challenge that is accepted by all practitioners and academics, but he has to present a recommendation to the board. Complexity academic level The case study is designed for corporate finance, appraisal or international finance courses in both MBA and executive training programs. To discuss this case study, students are assumed to have been already exposed to the weighted average cost of capital and the CAPM. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes. Subject code CSS 1: Accounting and finance.

Audit Quality, Accounting Attributes and the Cost of Equity Capital

2009 ◽  
Author(s):  
Yang Li ◽  
Donald J. Stokes ◽  
Stephen L. Taylor ◽  
Leon Wong
Keyword(s):  
Audit Quality ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
The Cost

scholarly journals How Investors Perceive Mandatory Audit Firm Rotation in Korea

2019 ◽  
Vol 11 (4) ◽  
pp. 1089 ◽  
Author(s):  
Sook Kim ◽  
Seon Kim ◽  
Dong Lee ◽  
Seung Yoo
Keyword(s):  
Audit Quality ◽  
Indirect Evidence ◽  
Auditor Independence ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Audit Firm ◽  
The Cost ◽  
Mandatory Audit Firm Rotation ◽  
The Impact

Credible audit quality is a precondition for a firm’s sustainability. External auditors offer assurance with regard to the uncertain factors that can jeopardize a firm’s sustainability and provide audit opinions that help investors assess risk. After the global crisis and accounting scandals, mandatory audit firm rotation has been implemented globally. However, few studies have investigated either the cost or the benefit of mandatory audit firm rotation. Prior studies provide only indirect evidence on the effects of audit firm tenure on audit quality/perceived audit quality. By discussing prior arguments, we examine how investors perceive the implementation of mandatory audit firm rotation in Korea. Using a unique and direct setting to examine our research question, we analyze the relationship between firms with mandatorily switched audit firms and the cost of equity capital from 2006 to 2008. We find that the mandatory change in the auditors has a negative association with the cost of equity capital. The results are robust to using the arithmetic mean of the cost of equity capital, lagged control variables, and the manufacturing industry effect. The results indicate that investors perceive that mandatory audit firm rotation provides an environment for qualified audits by enhancing auditor independence and skepticism, and thus decreases the cost of equity capital. This study helps to improve our understanding of the impact of mandatory audit firm rotation the information risk evaluations and provides political implications for policy makers by showing the benefit of mandatory audit firm rotation.

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