Asian Economic and Financial Review

Investigating the effect of the shadow economy on Malaysia’s economic growth: Insight from a nonlinear perspective

Tue, 28 Jan 2025 00:00:00 -0600

Utilizing a nonlinear autoregressive distributed lag (NARDL) model, the goal of this study is to find out if the shadow economy's (SE) effect on Malaysia's economic growth is not linear from 1970 to 2022. This model uniquely identifies potential nonlinearities or asymmetries in the relationship between SE and growth. The results of the bounds tests show that there is a strong long-term link between economic growth and both good and bad changes in the SE, as well as variables like inflation, urban population growth in cities, financial development, and economic uncertainty. Furthermore, the results indicate that the SE’s influence on growth is nonlinear, both in the short and long term. In particular, both growing and shrinking the SE have positive effects on growth, but growing the SE has a bigger long-term effect than shrinking it. Conversely, in the short term, reductions in the SE’s size have a greater impact. Additionally, inflation, urban population growth, financial development, and economic uncertainties emerge as key determinants of growth across both time horizons. These findings suggest the need for policies that reduce the size of the shadow economy and encourage the shift from informal to formal economic activities to foster sustained economic growth.

Stock market reaction to wrongdoing by business leaders: Empirical study in Vietnam

Nguyen Thi Thanh Loan, Dang Ngoc Hung, Vu Thi Thuy Van, Hoang Thi Viet Ha — Tue, 28 Jan 2025 00:00:00 -0600

This article presents a comprehensive study that explores the effects of misconduct disclosure by business leaders on the stock prices of companies listed on the Vietnamese stock market. The focus of the research is on cases of corporate misconduct involving leaders who faced prosecution and detention between the years 2012 and 2022. To conduct this study, the authors meticulously gathered data from a variety of reliable media sources, such as Tuoi Tre newspaper, Tien Phong newspaper, and Urban Economic newspaper. Through this research, they identified nine business leaders whose alleged misconduct resulted in legal actions, directly linking them to a total of 24 publicly traded companies on the Vietnamese stock exchange. The findings of the study indicate a significant correlation between the disclosure of misconduct and stock price fluctuations. Specifically, the shares of the relevant companies experienced an abnormal return decrease of 4.5% on the day of the misconduct disclosure. Furthermore, when examining a broader event window ranging from five days before to five days after the announcement (denoted as [-5, +5]), the study recorded a statistically significant reduction in stock prices of 22%. These results highlight the detrimental impact that misconduct by business leaders has on investor confidence and decision-making processes. The study underscores the importance of ethical leadership in maintaining investor trust and the stability of stock markets. It serves as a reminder of how corporate governance and transparency play crucial roles in influencing market dynamics.

The spillover effects of financial system and tourism on the informal economies: Evidence from Turkey

Hatice Imamoglu — Tue, 28 Jan 2025 00:00:00 -0600

This article examines the impact of the financial system and tourism on the informal economy in Turkey, a country known for its emerging economy, its status as a sun-sea-culture destination, and its substantial informal sector. Time series data from 1960 to 2019 will be used to provide real-world evidence. Both dynamic and fully modified ordinary least squares estimations will be used, in line with second-generation econometric techniques that take into account structural breaks in the series for unit root and cointegration tests. The results highlighted an inverted U-shaped relationship between the financial system and the informal economy, in contrast to a U-shaped relationship between tourism volume and the informal economy. These outcomes imply the necessity of financial inclusion and the establishment of efficient mechanisms to minimize informality. Moreover, policymakers in Turkey should prioritize bolstering the number of firms in the sector, enhancing sustainability, and promoting local sourcing and certification systems. Additionally, policymakers should prioritize enhancing affordable financing sources for small-to-medium-sized enterprises, particularly those in the tourism sector, to facilitate their transition into the formal economy.

Remittances and domestic investment in BRICS: Does financial development matter?

Kunofiwa Tsaurai — Tue, 28 Jan 2025 00:00:00 -0600

The study investigated the impact of remittances on domestic investment within the BRICS region. It also explored the complementarity effect (remittance and financial development) on domestic investment using the same data set. The existing literature shows a lack of consensus; hence, their findings are mixed, inconsistent, and divergent, and they show an absence of consensus. The study employed fixed effects, fully modified ordinary least squares (FMOS), and pooled ordinary squares (OS). Panel data used ranged from 1989 to 2020. Using personal remittance inflow per capita as a proxy, remittance’s influence on domestic investment was positive and significant across all three panel methods. When personal remittances received were employed as a proxy, remittance’s impact on domestic investment was significantly deleterious under the pooled OS. Financial development significantly improved domestic investment, as observed by Pooled OS (all three models) and FMOS (model 3). Pooled OS (model 1) and FMOS (model 2) produced results that show that financial development improved remittances’ ability to significantly improve domestic investment. The study shows that remittances are a critical element in enhancing domestic investment in BRICS. BRICS nations are urged to develop policies that enhance financial development and remittance inflow to improve domestic investment.

Investigating spending behaviour using a mental accounting approach

Sellywati Mohd Faizal, Nahariah Jaffar, Nor Aishah Muyop — Tue, 04 Mar 2025 00:00:00 -0600

Overspending is a serious issue that causes high indebtedness and financial instability, especially among Muslims. One way to control this undesirable behaviour is through a mental accounting approach by grouping financial activities into different accounts. The wasatiyyah trait can strengthen this relationship. Finding out how Muslim demographic factors affect overspending, how mental accounts help control overspending, and how wasatiyyah affects the link between mental accounts and overspending are the main goals of this study. This study uses primary data collection through survey questions. We selected 500 Muslims, and 201 of them participated in the survey. This study uses SMARTPLS 3 to analyse the data. The contribution of this study comes from exploring how overspending behaviours are affected by mental accounting and wasatiyyah traits; to our knowledge, no previous studies have investigated these relationships. The findings confirmed the significant impact of age, income level, and mental accounting on certain overspending behaviours but not for a wasatiyyah. This study recommended that future research contemplate wasatiyyah as a direct indicator of spending behaviour. Understanding overspending behaviour provides an insightful approach to controlling the bad behaviour among Muslims.

The impact of cash holdings on financial performance: Evidence from Iraq

Tue, 04 Mar 2025 00:00:00 -0600

The research paper aims to identify the effect of cash holdings on the financial performance of companies on the Iraqi Stock Exchange over a five-year period (2019–2023), as well as the correlation between cash holdings and financial performance. To achieve the research’s objectives, an applied approach was adopted to evaluate the variables and analyze them using statistical tools on data collected from the Iraqi Stock Exchange for (16) companies using the program (E-views12). Through multiple linear regression equation coefficients, we test the main hypothesis of the study. The main conclusion of the study was that holding cash has a positive effect on the financial performance of companies listed on the Iraqi Stock Exchange. It also shows that holding a lot of cash in Iraq helps companies take advantage of profitable investment opportunities that may come up in the future, which also improves their financial performance. This suggests that maintaining high levels of cash holding helps companies in the Iraqi context to capitalize on profitable investment opportunities that may arise in the future, thereby improving their financial performance.

Empirical analysis of the effect of the establishment of pilot free trade zone on regional innovation development

Xinhong Liu, Norliza Hamir Basah — Tue, 11 Mar 2025 00:00:00 -0500

In order to positively meet new international trade rules, China has put forward the strategy to implement Pilot Free Trade Zones (PFTZs). The extensive establishment of PFTZs has offered a good innovation environment for regional economic development. Consequently, based on data from 30 provinces from 2007 to 2022 as research samples, this study discusses the impact of establishing PFTZs on regional innovation development and examines the policy effect heterogeneities. In addition, digital finance (DF) and the digital economy (DE) are introduced as mediating variables to verify whether DF and DE play a mediating role between building PFTZs and regional innovation. Empirical results show that building PFTZs is beneficial for boosting the regional innovation level. The heterogeneity analysis indicates that the effect of PFTZs policies on the regional innovation level is more pronounced in provinces and cities with higher economic development levels, coastal provinces and cities, and provinces with larger population scales. Furthermore, according to the mediating effect test, it can be found that PFTZs will enhance the regional innovation level through DF and DE. Therefore, it is suggested to continuously promote the strategy of building PFTZs, pay full attention to the deep integration of DF, DE, and regional innovation, and generally improve the regional innovation level.