This section contains information about articles under review and waiting for publication in next issues of the journal.

Financing through waqf-shares: an Islamic perspective

Magda Ismail A. Mohsin, Economics and Governance Department, International Center for Education in Islamic Finance (INCEIF), The Global University of Islamic Finance, Kuala Lumpur, Malaysia

Abstract. Historically speaking the institution of waqf, which is a non-governmental organizations (NGOs), has played a significant role throughout Islamic history, from the time of the Prophet (pbuh) to the beginning of the 19th century. Although this institution existed before the coming of Islam, yet, Islam was the first religion to develop its legal framework and to regulate it. Thus, it became one of the devices created by the Muslims to fulfill many services that are today financed by the state or the government, such as education, health care, national security, transportation facilities, the basic infrastructure, food, shelter and jobs for many people. Its role was like a network, which penetrated many service sectors whenever it found a need to promote that sector. We cannot deny the role of this institution in the development of Islamic civilization before its destruction end of the 19th century. With the recent revival of some of the Islamic institutions in the 21st century, the revival of the institution of waqf took a different perspective by exploring its role towards solving the current financial crises in the different Muslim and Muslim-minority countries. The main objectives of this paper are to study the institution of waqf especially the recent creation of waqf-shares as fund raising institution; to provide a frame work of its structure which will be adapted easily in any financial institution, and, to examine to what extent this waqf-shares scheme help in providing services needed in Muslim and Muslim minority countries today.

Are defined contribution pension schemes socially sustainable? A conceptual map from a macro prudential perspective

Giuseppe Marotta, Università di Modena e Reggio Emilia and Cefin, Italy

Abstract. If the combined retirement income, provided by public and private defined contribution (DC) pension schemes,falls below socially acceptable standards, there is a political risk that consensus seeker policymakers could yield to pressures to commit future fiscal revenues. These contingent liabilities, when incorporated in markets' expectations, are bound to create spillovers on sovereign risk, with negative feedback loops on the capital adequacy of banks and of other intermediaries, owing to losses on their government paper. Among the causes of reduced annuities out of the final assets in DC pension funds is an equity risk premium much lower than the commonly values advertised by the industry and by policymakers. From a macroprudentialperspective,this political risk should be taken into account in stress testsassessing banks' resilienceto financial shocks.

The ground reality of microfinance customers-a study of satisfaction levels in Andhra, Pradesh and Orissa in India

Dr. Suresh Chandra Bihari, Professor (Banking& Finance), IBS, Hyderabad, a constituent of IFHE-Deemed University, India

Abstract. This study examines specific dimensions of the performance-only measurement of service quality (SERVPERF) as determinants of consumer satisfaction and subsequent behavioral outcomes in case of Micro Finance Institutions (MFI) in Andhra Pradesh and Orissa. The first objective of the study is to propose an integrated model of service performance for these MFIs who can be looked upon as service providers. The second objective is to perform a dimensions specific analysis of performance-only measurement of service quality and satisfaction in case of the MFIs. Next, the study also looks into the factors which may aid the service providers to trigger the positive word-of-mouth (customer advocacy) about them. The empirical study helps in clearly isolating the variables/factors that affect customer loyalty and attitude towards them which in turn affect customer advocacy. Finally, the study compares the above mentioned relationships across two selected MFIs. This will aid the MFIs in understanding their relative performance from the customers' point of view so as to maintain a long-term relationship with the customers and spread positive word-of-mouth.

Challenges of the national bank of Romania's monetary policy on the road to euro area

Monica Damian, Ph.D. candidate, Faculty of Economics and Business Administration, Department of Business Administration "Alexandru Ioan Cuza" University, Iasi, Romania

Abstract. Romania's accession to the European Union implies adopting the euro currency, which is conditioned by the participation in the Exchange Rate Mechanism II for at least two years.
The participation in the ERM II has implications upon the monetary policy: on the one hand, the exchange rate variation must fit the ± 15% fluctuation band around the central parity; while on the other hand, the fulfilment of the inflation criteria is necessary.
The first part of the paper focuses on the challenges of the National Bank of Romania's monetary policy which issue from the Maastricht convergence criteria.
The mandatory compliance of the fluctuation band at ± 15% implies the change of the monetary policy strategy during the ERM II participation period. Accordingly, it is necessary a more flexible direct inflation targeting strategy that will ensure the fulfilment of two criteria: price stability and exchange rate stability.
In the second part of the paper we highlighted the necessity of coordination of monetary and fiscal policy in the ERM II period, being essential for achieving inflation criteria and government deficit criteria. The fiscal policy must strive, simultaneously, the budget deficit and inflation decrease. In this sense, the fiscal policy must be based on the decrease of the share of budget expenditure in the GDP. But this reduction should aim the current expenditure, making possible the maintenance of an ascending trend of capital expenditure, necessary for the assurance of the economic growth. 

Modeling and forecasting debt market yields: evidence from India

Sanjay Sehgal, Professor of Finance, Department of financial studies, University of Delhi, India
Kumar Bijoy, Assistant Professor, SS College of Business, Studies- University of Delhi, India
Florent Deisting, Professor of Economics, Groupe ESC Pau - France, France

Abstract. In this paper, we attempt to evaluate the yield forecasting ability of alternative time series models using monthly data for debt securities in India with residual maturities ranging between 14days to 25years. The study period stretches from April 1996 to March 2010. Two univariate models namely Exponential Smoothing Method (ESM) and ARIMA as well as a multivariate VAR model are used for this purpose. We find that conventional method like ESM does a better job for both short (three months) as well as long range (twelve months) forecasting of yields compared to more complex and informationally expensive models like ARIMA and multivariate VAR. It is also observed that level of interest rate volatility impacts the yield forecast accuracy for a given period. Short term yields are more difficult to forecast than yields for securities with longer maturities. Short range forecasting is better than long range forecasting in high interest rate volatility period while there is no such clear pattern, using different time series model, for low interest rate volatility period. Our findings have strong implications for both policymakers and debt market players such as bankers, insurance companies and debt funds. The former use yield forecast information for developing policy formulation while the later employ it for their asset-liability management as well as portfolio management strategies. Our research contributes to financial econometrics as well as debt market literature for India which is a fast emerging economy.

Bank risk and effectiveness of insider ownership: The case of Korean banks

Seok Weon Lee, Associate Professor, Division of International Studies, Ewha Womans University, Korea

Abstract. This paper examines how the effectiveness of insider ownership in inducing the managers of the banks to take on riskier strategies, and therefore, aligning the interests of managers with those of outside stockholders is related to the degree of the firm's current exposure to risk. Using the panel regression analysis over the period 2000-2008 of Korean banking industry, we find very consistent and strong evidences that the effectiveness of insider ownership in inducing the managers of the banks to take on riskier strategies is stronger when the bank's current exposure to risk or risk characteristic is lower (the bank belongs to lower risk category groups). These finding are intuitively clear considering that for the managers of the banks in safer positions, the expected gain of increased risk taking from the insider ownership would be greater than the expected cost associated with it such as the loss of their jobs from failure and acquiring bad reputation for their incompetent management abilities, and the loss of perquisite consumption.
The findings in this paper suggest the effectiveness of insider ownership in aligning the interests of managers and outside stockholders could be understood in terms of cost-benefit relationship associated with insider ownership. This paper finds a very strong and consistent evidence that the greater the risk, the greater the cost relative to benefit will be. Not only the level of insider managerial ownership but also the level of current exposure to risk of the firm needs to be considered as another very important factor to reduce agency problem caused by the conflict of interest between stockholders and managers and to increase firm value. 

Roles of outside directors in cooperative financial institutions: the case of Japan

Nobuyoshi Yamori, Graduate School of Economics, Nagoya University, Japan
Kozo Harimaya, Faculty of Business Administration, Ritsumeikan University, Japan
Kei Tomimura, Faculty of Business Administration, Aichi University, Japan

Abstract. As the governance of financial institutions is becoming an important issue, there are many papers empirically investigating the governance issues of banks, which are stock companies. However, cooperative structured financial institutions (co-ops or Shinkin bank), which have a unique governance structure different from stock companies, play a substantial role in the Japanese banking markets. For example, cooperative banks hold as much as a 25% share of household deposits. Therefore, it is worth examining whether some governance schemes developed for stock companies are effective at cooperative financial institutions. Concretely, we investigate the role of outside directors. In many countries, listed companies including banks are required to appoint some outside directors, while Japanese banks are not required but only encouraged to do so.
In this paper, we first estimated the technical efficiency of Japanese mutual banks by using the stochastic frontier analysis. Then, based on the efficiency scores, we have found that the presence of outside directors significantly contributes to an improvement in efficiency at cooperative banks. This result supports that some of governance schemes developed for stock companies are effective at cooperative financial institutions as well. Additionally, this result implies that mandatory appointment of outside directors at cooperative banks recently considered by the government advisory committee is desirable.

The persistence of strong money supply growth in China: the forces of endogenous determinants

Cao Yong, School of Economics, Nanjing University, China

Abstract. The money supply in China has experienced a persistent strong growth in recent decade. This persistent strong long-term money supply growth has been determined by economic fundamentals through their impacts on the changing money multiplier and money base. The long-term money supply growth in China has thus been endogenous. Monetary authority through using conventional monetary policy instruments could hardly alter its growth path. Various monetary policy such as adjusting reserve requirement ratio and issuing central bank bill and notes have been short-term measures instead of long-term monetary targeting. The ability of using monetary policies by the Chinese monetary authority in achieving macroeconomic goals such as inflation targeting is limited.

Relationship between merger announcement and stock returns: evidence from Indian banking

Muneesh Kumar, Professor, Department of Financial Studies, University of Delhi, India
Shalini Kumar, Associate Professor, Department of Commerce, University of Delhi, India
Laurence Porteu de la Morandiere, Professor, Groupe ESC Pau, France

Abstract. This paper examines the relationship between merger announcements with the stock returns in the Indian Banking during the period 1999-2008. Using event study methodology, it attempts to ascertain whether the bidder banks experience significant abnormal returns during the post-announcement and pre-announcement periods. The results indicate that bidder banks may or may not experience any significant abnormal returns during the post -announcement period. No bank specific characteristics could explain the pattern of market reaction to merger announcements. However, significant abnormal returns were observed in daily share prices in majority of the cases, during the pre-announcement period, indicating possibility of leakage of information in the market. 

Mutual influence of the exchange assets: practical aspects

Serhiy Kozmenko, Dr., Professor, Vice-Rector for Research, Ukrainian Academy of Banking of the National Bank of Ukraine, Ukraine
Oleksiy Plastun, Ph.D. Student, Assistant Professor, the Department of Accounting and Audit, Ukrainian Academy of Banking of the National Bank of Ukraine, Ukraine

Abstract. The following article considers the practical use of temporary connections that arise between different exchange assets. The concrete recommendations to build a trading strategy based on the theory of market focuses are proposed.
Main idea in this case is that strong positive correlation between two exchange assets let us make a conclusion that in case of big movement in one asset we can wait for equivalent changes in other exchange asset.
In the paper proposes the use of two types of correlations between exchange assets: "slow" (used to determine the presence of relationship between exchange asset) and "fast" (used for the definition of divergence and convergence).
Basing on the values of "slow" and "fast" correlation decisions on entry and exit positions can be done. 

Behavior of lending and deposit rates in an economy where conventional and Islamic finance systems coexist: the case of Malaysia

Chu V. Nguyen, Ph.D., Assistant Professor of Economics, College of Business, University of Houston-Downtown, USA
Justo Manrique, Ph.D., Associate Professor of Economics, Department Chair, College of Business, University of Houston-Downtown, USA

Abstract. Nonparametric test statistics document the nonlinear cointegration between the Malaysian lending and deposit rates. Empirical investigation further reveals that their spread asymmetrically adjusted to the threshold faster when the deposit rate fell relative to the lending rate than when the deposit rate moved in the opposite direction. These findings may be attributable to robust Islamic and conventional financial systems that operate parallel to each other. These empirical findings also suggest that Malaysian lending institutions in the conventional segment of the economy do not exhibit predatory pricing behavior. Furthermore, empirical results indicated that the Malaysian lending rate and deposit rate adjustments affected each other's movements. As to the long-run behavior of lending and deposit rates, the empirical findings indicated that while the Malaysian lending rate responded to both, the deposit rate responded to neither the expansionary monetary policy, which widens the lending-deposit rate spread; nor the contractionary policy, which narrows the spread in the short run. 

Cambodian lending-deposit rate spread: the results of non-market influences

Chu V. Nguyen, Assistant Professor, College of Business, University of Houston-Downtown, USA
Anisul M. Islam, Professor of Economics, College of Business, University of Houston-Downtown, USA
Muhammad Mahboob Ali, Professor, Head of M.H. School of Business, Presidency University; Chairman of the Center for Breakthrough Thinking, Bangladesh

Abstract. Asymmetric adjustments in the Cambodian lending-deposit rate spread are documented. This article plans to apply Enders and Siklos (2001) procedure to test for the long-run asymmetric co-integrating relationship and Granger causality between the lending rate and the deposit rate for Cambodian, a poor developing country in Southeast Asia using monthly time series data over the period from 1994:05 to 2010:06. The deposit rates adjust faster when the spread is narrowing than when it is widening. These findings are consistent with the observed monopolistic/oligopolistic structure of the banking sector. The revealed predatory pricing behavior impedes Cambodian industrial developments and hence slows economic developments and social progresses. The root causes of the problems are excessive government intervention and political connections, management corruptions, inefficiency and ineffectiveness. Strong political will and commitment to implement would be needed to establish a more competitive market economy for further economic growth and social progress in Cambodia.