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Proceedings of the Finance and Economics Conference 2012 Proceedings of the Finance and Economics Conference 2012 Munich, Germany August 1-3, 2012 The Lupcon Center for Business Research www.lcbr-online.com ISSN 2190-7927 All rights reserved. No part of this publication may be reprinted in any form (including electronically) without the explicit permission of the publisher and/or the respective authors. The publisher (LCBR)is in no way liable for the content of the contributions. The author(s) of the abstracts and/or papers are solely responsible for the texts submitted. 1 Procedural Notes about the Conference Proceedings 1) Selecting Abstracts and Papers for the Conference The basis of the acceptance decisions for the conference is the evaluation of the abstracts submitted to us before the deadline of March 15, 2012. Upon an initial evaluation in terms of general quality and thematic fit, each abstract is sent to a reviewer who possesses competence in the field from which the abstract originates. The reviewers return their comments to the Lupcon Center for Business Research about the quality and relevance of the abstracts. The opinion of at least one peer reviewer per abstract is solicited. In some cases, the opinion of additional reviewers is necessary to make an adequate decision. If the peer reviewers disagree about an abstract, a final decision can be facilitated through an evaluation of the full paper, if it is already available at the time of the submission. If the reviewers determine that their comments are useful for the author to improve the quality of the paper, LCBR may forward the comments to the author. However, the review process remains completely anonymous at any given time. The reviewers will not be informed about the names or affiliations of the authors and vice versa. The pool of reviewers may include the LCBR Academic Advisory Board but also the larger pool of ad hoc reviewers because of a better match of appropriate reviewers. The pool of ad hoc reviewers includes mostly former conference presenters, with whom LCBR has had prior personal contact, essentially helping establish a pool of reviewers whose professionalism and trustworthiness has been ascertained by LCBR. 2) Submission Procedure to the Conference Proceedings Authors who present their work at the conference are invited to submit their full papers to the conference proceedings for publication. Authors may choose to submit only an abstract. This is especially the case when their work has already been accepted or is under consideration for acceptance with scholarly journals which discourage prior publications because of commercial copyright concerns. 2 Session A “Country Risk and Foreign Bank Entry: The Case of Turkey” Dervis Kirikkaleli (Stirling Management School, Division of Economics, University of Stirling, United Kingdom) In this paper, we purpose to examine two-way linkage between foreign bank penetration and country risk (namely, political risk, economic risk and financial risk) in Turkey using quarterly data from 1992Q4 to 2009Q4. Our finding indicates that one cointegrating vector is detected between foreign bank penetration and political risk in model 1 and between foreign bank penetration and economic risk in model 2 whereas we failed to find any long-run relationship between foreign bank penetration and financial risk using the Johansen co-integration test. We find one error correction term significant and positive in bivariate vector error correction in model 1 and 2, implying that in the long-run, foreign bank entry contributes to economic and political stability. Moreover, we investigate short-run causality based on VAR approach between foreign bank penetration and financial risk but we failed to find any significant causality in the bivariate VAR model, even at the 10% level. By analysing impulse response functions, our finding also reveals that; (i) there is no impact of foreign bank entry on political risk in Turkey at the end of 6 quarters while political risk has negative effect on foreign bank entry; (ii) in model 2, rising foreign bank penetration is associated with less economic risk and the reverse effect is close to zero throughout 12 quarters; (iii) finally, there is no relationship between foreign bank entry and financial risk is observed. The outcomes of Serial correlation LM, "portmanteau" test of Ljung and Box, VAR residual heteroskedasticity and the inverse roots of AR characteristic polynomial are found to be satisfactory for all models. Keywords: Foreign Bank Entry; Country Risk; VAR; VECM JEL Classification: F23, G21, C22 3 “Determination of Dividend Policy: The Evidence from Saudi Arabia” Turki Alzomaia (King Saudi University, Saudi-Arabia) Ahmed Al-Khadhiri (King Saudi University, Saudi-Arabia) Abstract The aim of this paper to examine the factors determining dividend represented by Dividends per share for companies in the Saudi Arabia stock exchanges (TASI). In this study we run a regression model and used a panel data covering the period from of 2004 to 2010 for 105 non- financial firms listed in the stock market. The model investigate the impact of Earnings per share (EPS), Previous Dividends represented by dividends per share for last year , Growth, Debt to Equity (D/E) ratio, Beta & Capital Size on Dividends per Share. The results consistently support that Saudi listed non-financial firms rely on current earnings per share and past dividend per share of the company to set their dividend payments. Keywords Dividends, Saudi Arabia, determinants, Previous dividends, Earning. Introduction Dividend policy has been one of the most significant topics in financial literature, which give it a considerable attention to solve the dividends vagueness. The decision of the firm regarding how much earnings could be paid out as dividend and how much could be retained, is the concern of dividend policy decision. This results a large number of conflicting theories. Starting from Dividends were irrelevant and had no influence on a firm’s share price Miller and Modigliani (1961) when they believed in the world of efficient market, dividends policy does not affect the shareholders wealth, then The bird in hand theory by Myron Gordon (1963) and John Lintner (1962). After that, The tax preference theory introduced by Summer (Brennan, 1970; Elton and Gruber, 1970, Later on dividends signaling initiated and arguing that dividends changes send a signal to investors about the firm future earning and management perception Miller (1980). Another research is based on transaction cost and residual theory. This theory indicates that the firm will pay high transaction cost if it needs external finance. So firms tend to reduce the dividends to avoid such cost (Mueller, 1967; Higgins, 1972). In addition to Agency cost theory, firms with high dividends pay out are more valuable than firms with low dividends pay out (Rozeff, 1982; Easterbrook, 1984; Lloyd, 1985 ;). This paper tend to examine determination of Dividend Policy for non-financial firms in the Saudi Arabia, the country with the economy with the largest proven crude oil reserves in the world at 266.7 billion barrels, representing 57% of the GCC reserves, almost 20% of the world total reserves. It ranks as the largest producer as well as exporter of petroleum in the world and plays a leading role in the OPEC, producing 28% of the total OPEC oil production. This paper is organized as follow: the introduction in part one, then the literature review in part two, then Saudi Stock market overview in part three, after that data source & Methodology of analysis in part four and finally the conclusion in part five. Literature Review: According to Miller and Modigliani (1961), dividends were irrelevant and had no influence on a firm’s share price, they believed in the world of efficient market, dividends policy does not affect the shareholders wealth. The original proponents of the Dividends policy since Miller and Modigliani is illustrated that dividends were irrelevant and had no influence on a firm’s share price (the firms value is determined only by its basic earning power and its business risk). Under very strict assumptions, especially the absence of taxes and transaction cost. Then financial researchers and practitioners have disagreed with Miller and Modigliani’s proposition and have argued that, they based their proposition on perfect capital market assumptions, assumptions that do not exist in the real world. Those in conflict with Miller and Modigliani’s ideas introduced competing theories and hypotheses to provide empirical evidence to illustrate that when the capital market is imperfect, dividends do matter. Miller and Modigliani (1961) The bird in the hand theory (Dividends Preference) criticized Miller and Modigliani’s paper, explains that investors prefer dividends (certain) to retained earnings since the stock price risk declines as dividends increased. A return in the form of dividends is a sure thing, but a return in the form of capital gains is risky, therefore, firms should set a large dividend payout ratio to maximize firm share price. Myron Gordon (1963) and John Lintner (1962). The tax preference theory introduced after that in 70th, this theory claims that investors prefer lower payout companies for tax reasons long-term capital gains allow the investor to defer tax payment until they decide to sell the stock. Because of time value effects, tax paid immediately has a higher effective capital cost than the same tax paid in the future. Summer (Brennan, 1970; Elton and Gruber, 1970; Litzenberger and Ramaswamy, 1979; Litzenberger
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