Finance Topics for Literature Review in

6AC008 Researching Topics in

Accounting and Finance

Dr Arsalan Khawaja; Dr Osagie Igbinigie; Dr Samia Mahmood, Anna

Korzhenitskaya
 Topics Available to Study
Topics in Corporate Finance –
Capital structure and its determinants;
Mergers & Acquisitions;
Efficient Market Hypothesis and its criticism;
Traditional and Behavioural Finance;
Dividend theories and determinants of dividend policy

Topics in Banking are related to banking risk: credit

risk, liquidity risk, market risk, operational risk and
banking regulations (Basel).
 What is a Literature Review
A literature review is a search and evaluation of the
available literature in your given subject or chosen topic
area. It documents the state of the art with respect to the
subject or topic you are writing about.
Literature Review
Surveys the literature in your chosen area of study
Synthesises the information in that literature into a
summary
Critically analyses the information gathered by identifying
gaps in current knowledge; by showing limitations of
theories and points of view; and by formulating areas for
further research and reviewing areas of controversy
Presents the literature in an organised way
 A literature review should
Demonstrate a familiarity with a body of knowledge
and establishes the credibility of your work;
Summarise prior research and identify how your
project is linked to it;
Integrate and summarise what is known about a
subject;
Demonstrate that you have learnt from others and that
your research is a starting point for new ideas.
 Structure of Literature Review in
Finance Topics
 Title
 1. Introduction (600-800 words) - introduce your research
topic/question; provide a background to the topic; aims of the
paper; outline the remainder of the paper (DO THIS AFTER
YOUR LITERATURE REVIEW)
 2. Theoretical/Conceptual Frameworks - in this section
provide a critical review of the theories/concepts used in your
chosen topic
 3. Empirical Studies - in this section provide a critical review
of the empirical studies in your chosen topic. Here you should
review and synthesis the methods employed, the results,
limitations of studies, implications of results for theories.
 4. Conclusion (500-700 words) - summarise the findings from
the literature, identify what we know about the topic, what we do
not know, identify the research gaps, identify areas for future
research
 Identifying a Topic
 Read the academic literature primarily academic journals.
 To access our databases go to:
https://www.wlv.ac.uk/lib/resources/databases-a-z/
 For finance topics these are available on the following databases available:
Business Source Complete; EBSCO Host Databases; Science Direct; Taylor &
Francis Online; Sage Journals; Wiley Online Library, Google Scholar

 Useful workshops are available via Skills for learning wlv:

https://www.wlv.ac.uk/lib/skills-for-learning/

 A list of good Journals is available here - Academic Journal Guide (2018) by

Chartered ABS – 3 and 4-star Journals are considered to be of a very good
quality:
https://facultystaff.richmond.edu/~tmattson/AJG%202018%20Journal%20Gui
de.pdf

 IMPORTANT: Read the most recent journal issues. You may find a topic of
 Capital structure and its determinants

Section 1 - Theoretical Section: Critical review of the

main Capital Structure
Theories: Modigliani and Miller Irrelevance theorem; the
trade-off theory (trade-off between benefits and costs of
debt) and pecking order theory (hierarchy of finance),
market timing theory.

Useful Articles
 Rajan and Zingales (1995) What do we know about capital structure, The Journal of Finance
 Harris and Raviv (1991) The theory of capital structure, The Journal of Finance
 Frydenberg (2004) Theory of Capital Structure - A Review. available at:
http://papers.ssrn.com/abstract_id=556631
 Frank and Goyal (2007) Capital Structure Decisions: Which Factors are Reliably
Important? Financial Management, 38(1), 1–37.
 Myers, S. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 575-592.
 Baker, M., & Wurgler, J. (2002). Market Timing and Capital Structure. The Journal of
Finance, 57(1), 1-32.
 Capital structure and its determinants
 Section 2 - Empirical Literature Section
 When reading articles and reviewing empirical work, look for the
• Author (year) and the aim/focus/research question of the study
• Their sample (country, firms) and time-period
• Methodology used and the main factors that determine capital
structure
• The main results/findings of the study

Capital structure literature – please update this list with the most recent articles.
 Acedo-Ramirez, M.A., & Ruiz-Cabestre, F.J. (2014) Determinants of capital structure: United Kingdom versus
continental Europe countries, Journal of International Financial Management & Accounting, 25(3), 237-270
 Antoniou, A., Guney, Y., & Paudyal, K. (2008). The Determinants of Capital Structure: Capital Market
Oriented versus Bank Oriented Institutions. Journal of Financial and Quantitative Analysis, 43(1), 59-92.
 Bancel, F., & Mittoo, U.R. (2004) Cross-country determinants of capital structure choice: a survey of European
firms, Financial Management, Winter 2004, 103-132
 Frank, M.Z., & Goyal, V.K. (2009) Capital structure decisions: which factors are reliably important, Financial
Management, 38(1), 1-37
 Kayhan, A., & Titman, S. (2007) Firms’ histories and their capital structures, Journal of Financial Economics,
83(1), 1-32
 Kayo, E.K., & Kimura, H. (2011) Hierarchical determinants of capital structure, Journal of Banking &
Finance, 35 (2), 358-371
 Mergers & Acquisitions
 Section 1 - Theories and Motives of M&As - Review the main theories and motives
related to M&As.
 It is possible to break them down into Value-increasing motives and
theories(synergy and its sources) and Value-decreasing motives and theories (agency
theory, managerial motives such as Empire Building, behavioural biases, e.g.
overconfidence and winner’s curse).
 Hillier, D., Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2013) Corporate Finance: 2nd European Edition, Maidenhead, Berkshire:
McGraw-Hill Education - chapter 28
 Arnold, M., & Parker, D. (2009) Stock market perceptions of the motives for mergers in cases reviewed by the UK competition
authorities: an empirical analysis, Managerial and Decision Economics, 30, 211-233
 Nguyen, H.T., Yung, K., & Sun, Q. (2012) Motives for mergers and acquisitions: ex-post market evidence from the US, Journal of
Business Finance & Accounting, 39(9&10), 1357-1375
 Martynova, M., & Renneboog, L. (2009) What determines the financing decision in corporate takeovers: Cost of capital, agency
problems, or the means of payment? Journal of Corporate Finance, 15 (3), 290-315
 Zhu, PC. (2011) Persistent performance and interaction effects in sequential cross-border mergers and acquisitions, Journal of
Multinational Financial Management, 21 (1), 18-39
 Akdogu, E. (2011) Value-maximising managers, value-increasing mergers and overbidding, Journal of Financial and Quantitative
Analysis, 46(1), 83-110

 Section 2 - Empirical Literature Review:

Author (year) and the aim/focus/research question of the study
Sample (countries) and time-period. You may wish to pay attention to whether the M&As
were cross-border or domestic.
Methodology and Main results
 Efficient Market Hypothesis and its criticism
 Different Forms of Efficiency and their criticism.
 For example, discussion of different anomalies (January effect, size effect, Days
of the week, momentum and other anomalies discussed in the literature)

Some Useful Sources and Articles

 Hillier, Ross, Westerfield, Jaffe, & Jordan, (2016) Corporate Finance, Chapter 13
 Chao, H-Y., Collver, C., & Limthanakom, N. (2012) Global style momentum, Journal of Empirical Finance, 19(3), 319-333
 Chen, T-C., & Chen, C-C. (2011) Size effect in January and cultural influences in an emerging stock market: The perspective of behavioural
finance, Pacific-Basin Finance, 19(2), 208-229
 Dichtl, H., & Drobetz, W. (2014) Are stock markets really so inefficient? The case of the “Halloween Indicator”, Finance Research Letters, 11(2),
112-121
 El-Galfy, A.M., & Forbes, W.P. (2004) Are forecasts of corporate profits rational? A note and further evidence, Journal of Empirical Finance,
11(4), 617-626
 Fama, E.F. (1998) Market efficiency, long-term returns, and behavioural finance, Journal of Financial Economics, 49, pp. 283-306
 Fung, A.K-W., Lam, K., & Lam, K-M. (2010) Do the prices of stock index futures in Asia overreact to U.S. market returns? Journal of Empirical
Finance, 17(3), 428-440
 Kim, J.H. & Shamsuddin, A. (2008) Are Asian stock markets efficient? Evidence from new multiple variance ratio tests, Journal of Empirical
Finance, 15(3), 518-532
 Lee, C-C, Lee, J-D, & Lee, C-C (2010) Stock prices and the efficient markets hypothesis: Evidence from a panel stationary test with structural
breaks, Japan and the World Economy, 22(10), 49-58
 Ma, J., & Wohar, M.E. (2014) Determining what drives stock returns: Proper inference is crucial: Evidence from the UK, International Review of
Economics and Finance, 33, 371-390
 Malkiel B. G. (2003) The Efficient Market Hypothesis and Its Critics. Journal of Economic Perspectives, 17 (1), pp. 59 – 82
 Malkiel B. G. (2012) The Efficient-Market Hypothesis and the Financial Crisis. Rethinking the financial crisis. New York, NY: Russell Sage
Foundation ISBN 0-87154-810-0. - 2012, pp. 75-98. Available at:
https://www.russellsage.org/sites/all/files/Rethinking-Finance/Malkiel.%20The%20Efficient-Market%20Hypothesis%20and%20the%20Financial
%20Crisis%20102611.pdf
 Narayan, P.K., Mishra, S., & Narayan, S. (2014) Spread determinants and the day of the week effect, The Quarterly Review of Economics and
Finance, 54(1), 51-60
 Traditional and Behavioural Finance
 Traditional Finance and its criticism from the Behavioural Finance
perspective.
 For example, rational behaviour and various biases (overconfidence,
confirmation bias, loss aversion, anchoring, herding behaviour).
Some Useful Sources and Articles
 Shefrin (2017) Behavioral Corporate Finance
 Muradoglu, Shefrin and Staikouras - Behavioral Finance; and Byrne and Brooks - Behavioral Finance.
 De Bondt, W., Palm, F., & Wolff, C. (2004) Introduction to the special issue on behavioural finance, Journal of Empirical Finance, 11(4),
423-427
 Cronqvist, H., Makhija, A.K., & Yonker, S.E. (2012) Behavioural consistency in corporate finance: CEO personal and corporate leverage,
Journal of Financial Economics, 103(1), 20-40
 Economou, F., Kostakis, A., & Philippas, N. (2011) Cross-country effects in herding behaviour: evidence from four south European
markets, Journal of International Financial Markets, Institutions and Markets, 21, 443-460
 Gwilym, R. (2010), Can behavioural finance models account for historical asset prices? Economic Letters, 108(2), 187-189
 Hsieh, S-F. (2013) Individual and institutional herding and impact on stock returns: Evidence from Taiwan stock market, International
Review of Financial Analysis, 29, 175-188
 Kourtidis, D., Sevic, Z., & Chatzouglou, P. (2011) Investors’ trading activity: A behavioural perspective and empirical results, Journal of
Socio-Economics, 40(5), 548-557
 Menkhoff, L., & Nikiforow, M. (2009) Professionals’ endorsement of behavioural finance: Does it impact on their perception of markets
and themselves? Journal of Economic Behaviour & Organisation, 71(2), 318-329
 Oechssler, J., Roider, A., & Schwitz, P.W. (2009) Cognitive abilities and behavioural biases, Journal of Economic Behaviour &
Organisation, 72(1), 147-152•Onali, E., & Goddard, J. (2011) Are European equity markets efficient? New evidence from fractal analysis,
International Review of Financial Analysis, 20(2), 59-67
 Philippas, N., Economou, F., Babalos, V., & Kostakis, A. (2013) Herding behaviour in REITs: Novel tests and the role of financial crisis,
International Review of Financial Analysis, 29, 166-174
 Shiller, R.J. (2003) From efficient markets theory to behavioural finance, Journal of Economic Perspectives, 17(1), 83-104
 Szyszka, A. (2011) The genesis of the 2008 global financial crisis and challenges to the neoclassical paradigm of finance, Global Finance
Journal, 22(3), 211-216
 Dividend theories and determinants of dividend
policy
Section 1 - Theoretical Part – discussion of the main theories
• Modigliani and Miller dividend irrelevance
• The Agency Theory: Dividends can act as an efficient monitoring mechanism. If firms have excess cash,
they may waste it on poor investments. By distributing the cash as dividends, they have to be more
disciplined in their decision-making.
• The Catering Theory of Dividends: predicts that firms will rationally respond to
changing market preferences and pay dividends when dividend paying firms are in demand and stop paying
dividends when low or non-dividend paying firms are in demand (Baker and Wurgler, 2004), Available at:
http://people.stern.nyu.edu/jwurgler/papers/wurgler_baker_dividends.pdf

• The Signaling Theory: High dividends can act as a signal to investors that the company is able to
maintain this high level of payment, which is good news because share price generally rises when a firm
announces a dividends increase and falls when a firm announces a dividend reduction. Dividends is a signal
to the market that the firm is expected to do well.
• The Bird-in-the-Hand Theory: According to Gordon (1963) and Lintner (1962) investors value a
dollar of expected dividend more highly than a dollar of expected capital gains.
• The Clientele Effect: Some participants in the financial markets prefer dividends (low-tax paying
institutions) and others prefer capital gains (high tax paying individuals).

Section 2 – Empirical Part – evaluation of the evidence on the main determinants of dividend
policy
• Jabbouri I. (2016) Determinants of corporate dividend policy in emerging markets:
Evidence from MENA stock markets. Research in International Business and Finance 37,
pp. 283–298
 Topics in Banking Risk and Regulation
Topics in Banking are related to banking risk and banking regulation.
 Specific risks: credit risk; liquidity risk; market risk (including interest rate, exchange rate risks)
and operational risk.
 Banking regulation (Basel) provides guidelines to manage these risks to preserve financial stability.
It has undergone significant changes since the financial crisis of 2008-09. Therefore, research in
banking has a great focus on the change in regulation and bank stability and profitability.
 Section 1 can focus on reviewing banking risks and regulation with the focus on the latest Basel III
framework.
 Section 2 can focus on reviewing empirical results in this area. One of the main focus is on credit
and liquidity risks as these played an important role during the financial crisis. Hence, a substantial
amount of research has been done in this area.

 Useful References:
 Farag M., Harland D. and Nixon D. (2013) Bank capital and liquidity. Quarterly Bulletin 2013 Q3. Available at:
https://www.bankofengland.co.uk/quarterly-bulletin/2013/q3/bank-capital-and-liquidity
 Kashyap A. K. (2010) Lessons from the Financial Crisis for Risk Management. University of Chicago, Booth School of Business and NBER. Available
at: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.722.5953&rep=rep1&type=pdf
 BIS, BCBS (2011) Basel III: A global regulatory framework for more resilient banks and banking systems. Available at:
https://www.bis.org/publ/bcbs189.pdf
 Berger, A.N. and Bouwman, C.H.S. (2013) How does capital affect bank performance during financial crises?. Journal of Financial Economics, 109(1),
pp.146–176.
 Lee, C.-C. and Ning, S.-L. (2015) How does bank capital affect bank profitability and risk? Evidence from china’s WTO Accession. China & World
Economy, 23(4), pp.19–39.
 Lee, T.-H. and Chih, S.-H. (2013) Does financial regulation affect the profit efficiency and risk of banks? Evidence from china’s commercial banks. The
North American Journal of Economics and Finance, 26, pp.705–724.
 Sufian, F. and Habibullah, M.S. (2012) Globalizations and bank performance in China. Research in International Business and Finance, 26(2), pp.221–
239.
 Tran, V.T., Lin, C.-T. and Nguyen, H. (2016) Liquidity creation, regulatory capital, and bank profitability. International Review of Financial Analysis,
48, pp.98–109.
Once you have chosen a topic you will
be allocated a supervisor.
You should then arrange a meeting
with your supervisor as soon as
possible to discuss your topic and to
help you identify a research
title/question for your literature review.

Good Luck on your

Project!