Preface

One of the main reasons to name this book as *Financial Management from an Emerging Market Perspective* is to show the main differences of financial theory and practice in emerging mar‐ kets other than the developed ones. Our many years of learning, teaching, and consulting experience have taught us that the theory of finance differs in developed and emerging mar‐ kets. It is a well-known fact that emerging markets do not always share the same financial management problems with the developed ones. This book intends to show these differen‐ ces, which could be traced to several characteristics unique to emerging markets, and these unique characteristics could generate a different view of finance theory in a different man‐ ner. As a consequence, different financial decisions, arrangements, institutions, and practi‐ ces may evolve in emerging markets over time.

The purpose of this book is to provide practitioners and academicians with a working knowledge of the different financial management applications and their use in an emerging market setting. Six main topics regarding the financial management applications in emerg‐ ing markets are covered, and the context of these topics are "Capital Structure," "Market Efficiency and Market Models," "Merger and Acquisitions and Corporate Governance," "Working Capital Management," "Financial Economics and Digital Currency," and "Real Estate Finance and Health Finance."

Under the "Capital Structure" topic, Razali Haron examines the ownership concentration and its influences on debt financing in Indonesia.Haron offers insights into how ownership concentration and family-owned firms decide on their capital structure and how certain dis‐ tinctive characteristics of the firms influence the financing decision in an emerging market setting. Tomas Kliestik and Lucia Michalkova focus on the identification and analysis of se‐ lected methods for measuring the value of tax shield with an emphasis on the interest tax shield. As addressed by the authors, theories are based on the premise of the perfect capital market and a clearly defined corporate debt policy. However, both assumptions cannot be met in the realistic conditions of emerging markets; many businesses in emerging markets are not listed, and debt policy is determined based on the book value of debt and not on the basis of a fixed market value of debt or market leverage.

Under the "Market Efficiency and Market Models" topic, Ceyda Aktan, Eyyüp Ensari Şahin, and İlhan Küçükkaplan discuss the implications of market information efficiency on devel‐ oped and emerging market economies. As majority of the studies about informational effi‐ ciency are conducted on developed markets and the interest in emerging economies began to arise, the authors try to solve the market information efficiency phenomena by analyzing the stock prices of 24 emerging economies. Yaşar Erdinç tests the CAPM and Fama-French three-factor and five-factor model with an emerging market data and shows that the five-

factor model explains better the common variation in stock returns than the three-factor model and capital asset pricing model. Beáta Gavurová, Viliam Kováč, Wladimir Schubert, and Martin Užík compare the selected market indicators from North America, Europe, and Asia during the dot-com bubble. Even though the study finds similarities in developed and emerging market data, the rise in indices in both markets does not qualify for an asset price bubble. Mária Kováčová and Boris Kollár, with a goal of adjusting credit risk model to real market data, focus on the structural models of credit risk as well as models and different options for credit risk quantification. Furthermore, they tested selected structural models, namely Merton model, KMV model, Black-Cox model, and CreditGrades model, under the conditions of an emerging market.

Under the "Merger and Acquisitions and Corporate Governance" topic, İrem Sevindik and Fazıl Gökgöz analyze the M&A activities in BRICS-T countries (namely, Brazil, Russia, In‐ dia, China, South Africa, and Turkey) to capture the effect of financial crises in banking sec‐ tor of M&As. Their results show that Brazil, India, and Russia yield negative mean cumulative abnormal returns, and China, South Africa, and Turkey yield positive mean cu‐ mulative abnormal returns in precrisis period. In addition, South Africa, Brazil, and China yield negative mean cumulative abnormal returns, and Russia, Turkey, and India yield posi‐ tive mean cumulative abnormal returns in postcrisis period. Naz Sayari and Bill Marcum's chapter is on "Corporate Governance and Financial Performance in the Emerging Markets"; they ask whether American depositary receipts (ADRs) perform any better than non–crosslisted emerging market firms. Authors examine the performance of non–cross-listed emerg‐ ing market firms that implement corporate governance standards similar to those mandated of firms listed in US exchanges. Their main finding is cross-listed firms, whose common stock trades as American depositary receipts (ADRs) and who are subject to the same listing requirements as domestic US firms exhibit no evidence of improved performance.

"Working Capital Management" topic has three chapters. Burcu Dinçergök investigates the relationship between the maturity of debt used to finance working capital requirement and profitability and shows that working capital management financed with short-term financial debt has a positive effect on profitability up to a breakpoint. Above this point, the effect on profitability is found to be negative.Mutlu Başaran Öztürk and Gizem Vergili examine the relation between the components of working capital and profitability under a panel data analysis. The empirical findings of the study show that growth in sales and inventory period has a positive effect on return on assets; however, leverage, cash conversion cycle, and ac‐ count receivables period have no statistically significant effects on firm profitability. Samet Evci and Nazan Şak's approach to the same topic is from a trade-off point. The authors aim to reveal the trade-off between working capital components and firm's profitability. The working capital component-firm's profitability trade-off was examined via the fixed-effects panel regression model. Findings show the existence of trade-off working capital manage‐ ment-profitability. A negative relationship exists between the return on assets and payables deferral period, the cash conversion cycle, the ratio of short-term financial debts to shortterm debts, and the ratio of fixed assets to total assets, while return on assets is positively related to inventory conversion period and sales growth.

"Financial Economics and Digital Currency" topic covers four chapters. Bilge Canbaloglu and Gozde Gurgun study the impact of exchange rate uncertainty on the domestic invest‐ ment for 25 emerging and developing economies. The empirical results show that the im‐ pact of exchange rate uncertainty on domestic investment for emerging markets and

developing economies is found to be positive and significant, which may indicate the exis‐ tence of risk-neutral or insensitive domestic investors to exchange rate uncertainty in these countries. Mehmet Kenan Terzioğlu discusses the importance of inflation from an emerging market perspective. Within the scope of the study, the effect of inflation uncertainty on infla‐ tion, economic growth, and selected monetary-fiscal policy variables was examined using multivariate generalized autoregressive conditional heteroscedasticity models. The dynamic conditional covariance model is designed to reflect the strong time-dependent correlation structure. While the inflation-targeting regime studies in developing countries focus on ei‐ ther the adoption or nonadoption of such a regime and its feasibility, this study evaluates the success of the regime in Turkey as an emerging economy. Okyay Ucan and Nizamettin Basaran suggest new policy tools for emerging countries about exchange rate management and exchange rate regimes. The authors discuss the concept and measurement of real ex‐ change rates as well as exchange rate misalignment and its impact upon economic growth. They explain the factors that are important on the selection of an exchange rate regime and the exchange rate determinants for an emerging market and, finally, show the dilemma problem of policy, in the face of sustained capital inflows. Asma Salman and Muthanna G. Abdul Razzaq analyze the historical data of cryptocurrency Bitcoin to understand the mar‐ ket size, market capitalization, and price volatility of the digital currency. Time series data and financial model are applied to realize the shocks, and Monte Carlo simulation is applied to assess the dynamic structure of Bitcoin. As pointed out by the authors, with greater vol‐ ume and activity, the banks and financial intermediaries may become a history of the past, and the middle man will have no place. It seems like a distant thought, but the facts are pointing toward its reality.

factor model explains better the common variation in stock returns than the three-factor model and capital asset pricing model. Beáta Gavurová, Viliam Kováč, Wladimir Schubert, and Martin Užík compare the selected market indicators from North America, Europe, and Asia during the dot-com bubble. Even though the study finds similarities in developed and emerging market data, the rise in indices in both markets does not qualify for an asset price bubble. Mária Kováčová and Boris Kollár, with a goal of adjusting credit risk model to real market data, focus on the structural models of credit risk as well as models and different options for credit risk quantification. Furthermore, they tested selected structural models, namely Merton model, KMV model, Black-Cox model, and CreditGrades model, under the

Under the "Merger and Acquisitions and Corporate Governance" topic, İrem Sevindik and Fazıl Gökgöz analyze the M&A activities in BRICS-T countries (namely, Brazil, Russia, In‐ dia, China, South Africa, and Turkey) to capture the effect of financial crises in banking sec‐ tor of M&As. Their results show that Brazil, India, and Russia yield negative mean cumulative abnormal returns, and China, South Africa, and Turkey yield positive mean cu‐ mulative abnormal returns in precrisis period. In addition, South Africa, Brazil, and China yield negative mean cumulative abnormal returns, and Russia, Turkey, and India yield posi‐ tive mean cumulative abnormal returns in postcrisis period. Naz Sayari and Bill Marcum's chapter is on "Corporate Governance and Financial Performance in the Emerging Markets"; they ask whether American depositary receipts (ADRs) perform any better than non–crosslisted emerging market firms. Authors examine the performance of non–cross-listed emerg‐ ing market firms that implement corporate governance standards similar to those mandated of firms listed in US exchanges. Their main finding is cross-listed firms, whose common stock trades as American depositary receipts (ADRs) and who are subject to the same listing

requirements as domestic US firms exhibit no evidence of improved performance.

related to inventory conversion period and sales growth.

"Working Capital Management" topic has three chapters. Burcu Dinçergök investigates the relationship between the maturity of debt used to finance working capital requirement and profitability and shows that working capital management financed with short-term financial debt has a positive effect on profitability up to a breakpoint. Above this point, the effect on profitability is found to be negative.Mutlu Başaran Öztürk and Gizem Vergili examine the relation between the components of working capital and profitability under a panel data analysis. The empirical findings of the study show that growth in sales and inventory period has a positive effect on return on assets; however, leverage, cash conversion cycle, and ac‐ count receivables period have no statistically significant effects on firm profitability. Samet Evci and Nazan Şak's approach to the same topic is from a trade-off point. The authors aim to reveal the trade-off between working capital components and firm's profitability. The working capital component-firm's profitability trade-off was examined via the fixed-effects panel regression model. Findings show the existence of trade-off working capital manage‐ ment-profitability. A negative relationship exists between the return on assets and payables deferral period, the cash conversion cycle, the ratio of short-term financial debts to shortterm debts, and the ratio of fixed assets to total assets, while return on assets is positively

"Financial Economics and Digital Currency" topic covers four chapters. Bilge Canbaloglu and Gozde Gurgun study the impact of exchange rate uncertainty on the domestic invest‐ ment for 25 emerging and developing economies. The empirical results show that the im‐ pact of exchange rate uncertainty on domestic investment for emerging markets and

conditions of an emerging market.

X Preface

"Real Estate Finance and Health Finance" topic has two chapters; one of which analyses the performance stability of REIT Index and individual REITs over different subperiods and the other one analyses the impact of financial losses due to poor adherence of patients with chronic diseases on health economics. Sema Bayraktar uses three different risk adjusted measures, namely, Sharpe ratio, Treynor ratio, and Jensen's alpha, to analyze the perform‐ ance stability of REITs under important regulatory changes. The results show that Treynor and Sharpe ratios rank the REITs consistently for the high growth periods. The results also show us that regulatory changes almost have no impact on the performances of the REITs. Adina Turcu-Stiolica, Mihaela-Simona Subtirelu, Adriana-Elena Taerel, Anamaria Boboia, and Anca Berbecaru-Iovan's chapter is about financial economics of health care. Authors state that financial losses due to poor adherence are the result of unnecessary time-consum‐ ing work and costs for potential harm to patients. Hospitalization rates are reduced at high‐ er levels of medication adherence. There are two types of financial losses due to poor treatment adherence: medical costs (measured by hospitalization risk) and drug costs (with‐ out patient copayments). This financial loss analysis is an underlining to promote medica‐ tion adherence by patients. National programs combining patient education with behavioral intervention strategies could decrease the financial losses due to poor adherence. To ascer‐ tain the true extent of financial losses due to low adherence in emerging countries, more studies are urgently required. The absence of national policies in these countries makes the financial losses grow due to poor adherence.

Academicians in emerging markets have been testing the field of financial management theo‐ ry by adapting but mostly modifying it to the basic needs of managers, and financial manag‐ ers have been applying these modified theories and sometimes developing new approaches to the discipline of finance. This book borrows from both academic and professional views of different financial management applications to provide readers with the best possible knowl‐ edge about the different applications of financial management in emerging markets.

We would like to express our sincere gratitude to all the authors for their high-quality con‐ tributions. The successful completion of this book has been the result of the cooperation of many people. In the end, we would like to thank the Publishing Process Manager Ms. Daja‐ na Pemac for her support during the publishing process as well as the Commissioning Edi‐ tor Ms. Ana Pantar for inviting us to be the editors of this book.

#### **Professor Guray Kucukkocaoglu**

Chairman, Department of Management, Faculty of Economics and Administrative Sciences, Başkent University, Turkey

#### **Assistant Professor Soner Gokten**

Department of Management, Faculty of Economics and Administrative Sciences, Başkent University, Turkey

**Section 1**

**Capital Structure**

the discipline of finance. This book borrows from both academic and professional views of different financial management applications to provide readers with the best possible knowl‐

We would like to express our sincere gratitude to all the authors for their high-quality con‐ tributions. The successful completion of this book has been the result of the cooperation of many people. In the end, we would like to thank the Publishing Process Manager Ms. Daja‐ na Pemac for her support during the publishing process as well as the Commissioning Edi‐

> **Professor Guray Kucukkocaoglu** Chairman, Department of Management,

> > **Assistant Professor Soner Gokten** Department of Management,

Başkent University,

Başkent University,

Turkey

Turkey

Faculty of Economics and Administrative Sciences,

Faculty of Economics and Administrative Sciences,

edge about the different applications of financial management in emerging markets.

tor Ms. Ana Pantar for inviting us to be the editors of this book.

XII Preface

Provisional chapter
