International Journal of Applied Economics, Finance and Accounting

The influence of bank-specific variables on banks’ stability: Evidence from Saudi Arabia

Abdullah Ewayed Twairesh — 2025-01-13

The goal of this study is to find out what makes Saudi Arabian banks unstable by using a panel data analysis with ten banks’ carefully chosen annual data from 2009 to 2022. Based on the fixed effect model, this study indicates that Saudi Arabian bank stability is unaffected by liquidity risk but is statistically and negatively impacted by credit risk and bank size. Conversely, capital adequacy and funding risk positively and statistically impact bank stability in Saudi Arabia. In light of these findings, we strongly recommend making capital adequacy requirements obligatory for bank management, given their beneficial effect on bank stability. This study recommended that bank management adopt practices such as safe loan provision and prompt customer repayment to mitigate credit risk. Bank managers have to guarantee liquidity adequacy in their banks and improve credit standards by increasing client supplemental requirements. While our study found that liquidity risk does not directly affect banks' financial stability, we propose that bank management should also focus on finding effective ways to generate client deposits to enhance financial stability further.

Extending the economic framework to model correlations between PD, LGD, and EAD

LJ Basson — 2025-01-13

This study examines the extension of the economic framework to correlations between PD, LGD, and EAD. We build on a framework that has already been used to figure out and adjust the relationships between loan portfolios’ Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD). Our analysis explores the implications of incorporating these correlations in portfolio losses, arguing that this structure enables institutions to apply forward-looking correlation models to assess the likelihood of obligor credit quality deterioration, commonly referred to as a significant increase in credit risk (SICR). According to International Financial Reporting Standards (IFRS)-9 regulations, the estimation of SICR and forward-looking information should not entail excessive cost or effort. In line with this principle, we contend that only a limited number of inputs are necessary to implement this robust framework, which allows users to evaluate meaningful forward-looking correlations, identify obligors likely to experience SICR, and ultimately measure a more accurate Expected Credit Loss (ECL). The adoption of this approach will allow institutions to better understand their credit risk and better assess their credit risk practices while adhering to regulatory requirements.

How funding liquidity influences bank lending: Empirical evidence from Vietnam

Minh Nhat Nguyen — 2025-01-13

This paper investigates the impact of funding liquidity on bank lending at 26 Vietnamese commercial banks in the period 2003–2023. Our paper uses panel data regression methods combined with endogeneity tests and robustness tests to produce consistent research results. The econometric methods used in the paper include multiple fixed-effects regression, the generalized method of moments (GMM), Prais-Winsten regression, Newey-West regression, and two-way clustering regression. Accordingly, the empirical results indicate that funding liquidity has a negative impact on Vietnamese commercial banks' loan growth. In particular, the results from the quantile regression model show that the negative impact of funding liquidity on bank lending becomes stronger for banks with higher loan growth. Furthermore, factors such as bank size, capitalization, and the cost-to-income ratio also have a negative impact on bank lending, whereas income diversification enhances banks' capacity to provide loans. Based on empirical research, this article also proposes some solutions to help Vietnamese commercial banks lend more safely and effectively, including: (i) improving funding liquidity management strategies to minimize negative impacts on lending activities; (ii) encouraging banks to diversify their income rather than relying solely on credit activities; (iii) enhancing banks' ability to manage costs and control their size. Investors, managers, and policymakers can all benefit from our conclusions and ramifications.

Macroeconomic effects of quantitative easing in the United States: New evidence between the global financial crisis and the COVID-19 periods

Ichraf Ben Flah — 2025-01-21

This paper examines the impact of unconventional monetary policies, such as quantitative easing, on the U.S. unemployment rate during the financial crises and the Covid-19 pandemic. Most studies focus on the factors and monetary policies affecting unemployment during financial crises. Nevertheless, these policies may vary during health and social crises. In order to conduct our study, we used the ARDL (Autoregressive Distributed Lag) model, covering two distinct periods: from January 2007 to December 2018 for the first and from January 2019 to December 2022 for the second. The ARDL model is best suited for this study since it allows testing cointegration and estimating short- and long-term relationships when the series are not integrated of the same order. The study reveals that, during the Covid-19 period, the unemployment rate increases in the short and long term due to expansionary monetary policy. However, during financial crises, quantitative easing leads to a decrease in the unemployment rate over the same time horizons. The findings provide valuable insights into the effects of unconventional monetary policies and their influence on labour market reforms depending on the nature of the crisis.

Comparative analysis of stock valuation models: The case of the Indonesian banking sector

Alvin Pratama — 2025-02-21

This study evaluates the accuracy and explanatory power of price-earnings, price-to-book, and price-to-sales models. Most research focused on developed countries, while only limited studies compared equity valuation models in developing countries. Those studies show mixed and inconclusive results. Moreover, most studies on stock valuation models are primarily concerned with the model's accuracy but not their explanatory performance. Therefore, this study aims to determine the most suitable stock valuation models for accuracy and explanatory performance using data from medium and large banks in Indonesia. This is the first study to examine both stock valuation models’ accuracy and explanatory performance in Indonesia. The data employed in this study are from 13 medium and large banks listed on the Indonesia Stock Exchange from 2012 to 2021. This study compares the models based on absolute prediction error and root mean square error to determine accuracy. It also evaluates the models using panel data regressions to determine the explanatory performance of each model. The findings reveal that the price-earnings model is superior to the accuracy and explanatory power of price-to-book and price-to-sales models. The price-earnings model has the lowest prediction errors, and it has the highest R-square compared to the other models. Based on the empirical findings of this study, the price-earnings model outperforms price-to-book and price-to-sales models in terms of accuracy and explanatory power. This suggests that the price-earnings model is the most suitable for conducting a stock valuation analysis of the banking sector in Indonesia.

Dividend policy’s determinants: The case of Jordanian banks

Abdullah Ewayed Twairesh — 2025-02-21

Examining the factors unique to the bank that impact dividend policy is the primary objective of this research. Dividend yield serves as the independent variable. The factors used to explain the relationship are ROA, MBV, LQ, and BS which stand for risk, liquidity and bank size. Annual data acquired from the financial reports of Jordanian banks from 2006–2023 together with a fixed effect model were used to conduct this study. There are twelve banks with two hundred and sixteen observations in this research. The study found that dividend policy in Jordanian banks is favourably impacted by ROA and LQ and the bank size (BS) variable is adversely affected by the market-to-book (MBV) variable. Banks in Jordan are unaffected by the risk (price per share/earnings per share) variable. The mentioned variables influence the factors that investors in Jordanian banks consider when making investment or dividend policy choices.

Bank management in a changing world: An empirical examination from an emerging economy

Ba-Tam Le — 2025-02-21

This research examines bank management in a changing world based on an emerging economy. The COVID-19 pandemic has significantly impacted global economies, highlighting the need for effective monitoring of inputs and costs in the banking sector, crucial for economic stability. In Vietnam, the government has prioritized oversight and implemented strategic policies to restructure the banking system, addressing issues like nonperforming loans and the inefficiency of bank management. This study employed Data Envelopment Analysis (DEA) to assess the technical efficiency of 29 Vietnamese banks in 2023 and, more importantly, focused on the input-saving solution for bank management. We found that the average efficiency score of the banks was moderate at 73.24%, with CTG emerging as the best state-owned commercial bank and SHB being considered the top joint-stock commercial bank. Importantly, the study suggested big cuts in inputs, like letting go of 97,625 employees (30.6% of original value) and closing 2,233 branches (24.1%). This could save 48 trillion Vietnamese Dong (VND) in operating costs. Input savings are crucial for improving banking efficiency in the post-pandemic landscape in Vietnam and for other emerging economies.

Fraud detection mediation: Personality auditor and forensic accounting on audit quality

Viola Syukrina E Janrosl — 2025-02-21

This research aims to examine the influence of forensic accounting understanding and auditor personality type on audit quality through fraud detection with the support of the auditee organization as a moderating variable. The object of this research is the Indonesian Supreme Audit Agency, with research subjects being auditors at the head office and representatives of the Indonesian Financial Audit Agency, totaling 4,416 auditors. This research employs the Sequential Explanatory Mixed Method methodology, which integrates elements of both qualitative and quantitative research approaches into a single study. The results of this research indicate that the auditor's personality (agreeableness and conscientiousness) and fraud detection have a significant effect on audit quality. Fraud detection is able to mediate the influence of the auditor's personality, openness to experience, and understanding of forensic accounting on audit quality. The auditor's openness to experience significantly influences audit quality through fraud detection. Understanding forensic accounting has a significant effect on audit quality through fraud detection. Organizational support enhances the impact of auditor agreement and conscientiousness on audit quality. The impact of auditors' forensic accounting knowledge on audit quality is not heightened by the auditee's organizational support. The practical implications of this research offer valuable insights and contributions to auditors at Badan Pemeriksa Keuangan (BPK), aiming to enhance the personality traits of extraversion, agreeableness, conscientiousness, and openness to experience, thereby enhancing audit quality. Conscientiousness, openness to experience, and extraversion personality types can detect fraud.