Effect of Financial Risk on the Earnings Response of Bank in Indonesisa, the Philippines, South Korea and Thailand
The East Asian Financial crisis started at the beginning of July 1997. The crisis had a major impact on the banking industries in East Asian resulting in significant structural changes taking place in the banking sectors of the crisis-affected countries. This paper expands on the ideas of an earl...
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| Format: | Thesis |
| Language: | English English |
| Published: |
2009
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| Subjects: | |
| Online Access: | http://psasir.upm.edu.my/id/eprint/9853/1/FEP_2009_6_A.pdf |
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| Summary: | The East Asian Financial crisis started at the beginning of July 1997. The crisis had a
major impact on the banking industries in East Asian resulting in significant structural
changes taking place in the banking sectors of the crisis-affected countries. This paper
expands on the ideas of an earlier paper titled “Abnormal Returns of Bank stocks and
their Factor-Analyzed Determinants” written by Cheng and Ariff (2007). This paper also
attempts to analyze the Earnings Response Coefficients (ERC) for four (4) selected East
Asian countries’ commercial banks and the effect of financial risks on the earnings
response after the crisis and bank restructuring.
This study uses the earnings response methodology and applies Sharpe’s Market Model,
naive expectation model and factored principal components analyses. The countries
selected are Thailand, Korea, Indonesia and Philippine and data resources are mainly
accessed from the monthly closing prices in Bankscope financial data, Company Annual Reports, and the annual earnings announcements obtained from various Stock Exchange
Central web-sites from 2000 to 2008.
The findings show that Korea and Indonesian’s credit risk factors are significantly
affecting their ERC and this is consistent with the results obtained for Malaysia by Cheng
and Ariff (2007). Whereas additional interest risk factor and solvency factor are also
significantly affecting Thailand’s ERC, surprisingly results from the Philippine’s show
that their risk factors are not significantly affected because they are closely linked with
the US and they are least affected by the financial crises. The findings provide new
evidences on the effect of financial risk on ERC in banks’ stocks of East Asian countries
with unique historical backgrounds and financial authorities’ policy decisions. |
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