Browsing by Author "Kwenda, Farai."
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Item The board of directors as a governance mechanism in South Africa: an agency theory perspective.(2018) Steyn, Blanche.; Stainbank, Lesley June.; Kwenda, Farai.The changed legislative landscape of the 2008 Companies Act required a rebalancing of the agency relationship between the board of directors and shareholders given the more onerous statutory oversight and accountability requirements. This study investigates the relationship between the board and firm value of 84 companies on the SRI index between 2012 and 2014, separating the governance role of the board into their corporate control and managerial labour roles using uniquely constructed indexes. Fixed effects with generalised least squares estimations were used to assess the relationship between the corporate control and managerial labour of the board and various proxies for firm value. As board level controls need time to filter through to firm value the study also considered a negatively lagged relationship to firm value. The study expands on the practice of constructing indexes in governance studies by constructing two control indexes to measure quality assurance and company control indicators as well as the control index (CI) representing the corporate control role of the board and the managerial labour index (MLI) representing the managerial labour role of the board. The results show that both the CI and MLI indexes are positively associated to return on assets a performance measure controlled by the board but negatively related to next year’s return on assets, suggesting a short-term focus of the board’s governance role of a time-horizon problem. However, the CI and MLI indexes are positively associated to enterprise value and next year’s enterprise value indicating that the more dispersed shareholders in the market value the governance role the board as an alternative to shareholder monitoring. The association between MLI and Tobin’s Q and next year’s Tobin’s Q is small but negative. The latter can be attributed to the increased statutory responsibility of shareholders regarding board remuneration, and an upward pressure on director’s remuneration to compensate board members for their increased liability risk. A more in-depth study on the root cause of the changed association between return on assets and next year’s return on assets is an area of future research.Item Capital structure and financial performance of South African state-owned entities.(2019) Marimuthu, Ferina.; Kwenda, Farai.Abstract available on the PDF.Item Competition, regulation and stability in Sub-Saharan Africa commercial banks.(2017) Akande, Joseph Olorunfemi.; Kwenda, Farai.Abstract available on the PDF.Item Determinants of spending habits: a case study of University of KwaZulu-Natal students.(2017) Obagbuwa, Oloyede.; Kwenda, Farai.As the cost of university education continues to increase, university students’ spending habits have become topical. Good spending habits among students will guarantee their financial stability. Spending habits are an aspect of financial behaviour; a component of financial literacy. Financial literacy comprises three components: financial knowledge, financial attitudes, and financial behaviours. The relationship between these components has been examined, especially among university students. However, the relationship between financial knowledge, financial attitude together with demographic characteristics and spending habits have not been welladdressed in the extant literature, particularly among university student’s in South Africa. This study aims to fill the knowledge gap on students’ spending by examining the determinants of their (university student’s) spending habits. This study uses spending habits as the dependable variable, and financial knowledge, financial attitude, gender, age, family background, racial group, years in university, the course of study and financial aid as independent variables. The study employed quantitative research method; it used questionnaire adapted from previous studies. The reliability of the scales for the constructs was confirmed using Cronbach Alpha and the coefficient values more than 0.70. A total of 479 completed questionnaires were collected and used for the study. The study employed Statistical Packages for Social Sciences (SPSS 24) to analyse the data. Descriptive statistics were used to analyse the demographic characteristics and the results were presented in tables and charts. Binary Logistic Regression and ANOVA were used to examine the relationship between the explanatory variables and the dependable variable. The finding revealed that financial attitude can influence students’ spending habits while other explanatory variables did not have a significant influence on students’ spending habits. The study further sought to investigate the significant relationship between gender and spending habits, the course of study and spending habits, and racial groups and spending habits using Crosstabulation and Chi-Square analysis. The findings shows that there is no statistically significant relationship between gender and spending habits, the course of study and spending habits, and racial groups and spending habits of the respondents. These findings suggest that a financial literacy programme by the university authority with emphasis on financial attitudes will enhance the good spending habits of the students. However, the research findings only reflect the responses of the study population of the College of Law and Management as well as College of Humanities of the University of KwaZulu-Natal.Item Drivers of mergers and acquisitions and firm value growth in emerging markets.(2019) Okofo-Dartey, Emmanuel.; Kwenda, Farai.This study investigates drivers of mergers and acquisitions (M&As) and firm value growth in emerging markets. It was targeted at acquirer firms from emerging markets since there is a continuous surge in acquisition transactions both locally and internationally by firms from the emerging markets. These acquirer firms have been using domestic and cross-border M&As as growth strategies to establish their presence and dominance in local and foreign markets. The study was executed with three distinct objectives. First, whether working capital positions of emerging market acquirer firms drive their M&A transactions and influence their decisions regarding the type of mergers they pursue using probit regression analysis. The free cash flow hypothesis was also tested to determine whether free cash flow available to these acquirer firms motivate them to undertake M&A deals. Second, whether managerial share ownership in firms drive M&A transactions by acquirers from the emerging markets and influences the sizes of target firms they acquire during acquisitions, again using a probit regression technique. The study under this objective further investigated the relationship between managerial discretion and the acquirers’ profitability levels. As a third objective, the study explored whether M&As transactions undertaken by emerging market acquirers are value-adding or value-destroying to shareholders of these firms by applying the Generalised Method of Moments (GMM) methodology. The study covered a period of 10 years from 2004 to 2013 for 160 acquirer firms from ten (10) selected emerging market countries. Data were gleaned from the Bloomberg Terminal and DataStream. Results of this study suggest that, working capital positions of acquirer firms from the emerging markets are less likely to motivate them to undertake acquisition deals. However, the study reveals the marginal effect coefficient for the firms’ total assets to be positive and statistically significant at 1%, suggesting that, their total assets rather are more likely to influence them to execute acquisition transactions, all other things being equal. There is no evidence of the firms’ level of financial leverage, returns on assets (ROAs) and Tobin’s Q having the potential to influence these acquirers to pursue M&As. The study further concludes that, the firms’ free cash flows (FCFs) motivate them to execute M&As compared to their working capital positions. Regarding whether the acquirer firms’ working capital positions influence the type of M&As they pursue, the results indicate that, it is less likely to encourage them to undertake either a horizontal or vertical type of merger. Further, our results revealed that, managerial share ownership of emerging market acquirers is also less likely to drive them into acquisition transactions and influence them to pursue smaller-sized targets during M&As deals. Results from the study further suggest that, managerial discretion has a negative relationship on profitability levels of acquirer firms from the emerging market as far as their acquisition pursuits are concerned. Finally, results of the study show that, emerging market acquirers do not experience value growth in terms of profitability and growth opportunities in the first three years after M&As deals. A number of policy prescriptions arising from this thesis are presented to guide managers, practitioners and shareholders of firms in the emerging markets to shape their thoughts on M&As executions. Highlights of these policy prescriptions this study proffers include the following; managers should not ignore the efficient management of working capital. They should institute proper working capital management practices in their companies, in order not to experience liquidity challenges of either excess or shortages as any of them could impact adversely on the efficient running of their business activities particularly in the short-term period. An acquisition or a merger should be seen as a two-edged sword. When finally, firms take a decision to pursue M&As as an investment strategy option, they must fully take into account the issue of resources availability too. The target firm should be evaluated before an acquisition or a merger is performed. After an acquisition or merger, firms should restructure and integrate their resources. Also, for managers to have absolute control over firms and be able to influence investments decisions such as M&As especially in the emerging markets, their ownership percentage should be above the suggested significant level of 20%. Policy makers should also take a second look at their firms’ financial leverage positions and growth in total assets if they desire to improve on their profits levels because results of this study indicate that they have a significant impact on the firm’s ability to engage in M&As. Further, when firms from the emerging markets are planning or considering M&As for immediate value growth, they should recognise that M&A may not provide immediate growth in the first three years after M&A. Rather, the effects of M&A on firms’ value growth may be expected in the long-term period of five years and beyond. However, apart from using M&As for growth purposes, they may be used to create other types of value, such as market power enhancement, risk minimisation through market or product diversification or cost efficiency. Furthermore, since uncertainties exist in M&As, advance preparation is needed before an acquisition or a merger is executed, including a development of planning strategies and improvement of firm governance structure. It is, therefore, important for institutions and government to cooperate to come up with stronger systems to monitor corporate governance practices to bring some sanity to the business community. Lastly, diversifying internationally appears to be an important strategy for reducing risk after a successful merger. It is more likely for investors, all other things being equal, to reduce the levels of risks associated with their investment portfolio if they invest in internationally diversified merged firm.Item Firm investment behavior: the role of leverage, liquidity and cash flow volatility: African evidence.(2017) Edson, Vengesai.; Kwenda, Farai.The main corporate financial strategic pillars that drive a firm’s value are mainly financing and investment. Conventional finance theories hold that leverage is power that amplifies investment. Cash flows and liquidity are the lifeblood of any firm which gives life to and fuels higher investments. To this end, there is an indispensable interplay between financing, investment, cash flows and liquidity. Existing studies on investment decisions are largely centered on developed economies but no studies, to the best of my knowledge, have been done in developing economies like those in Africa. However, there is persistent behavioural and structural heterogeneity between firms in developing and developed economies, resulting in diverging economic implications for a firm’s behaviour. This study was motivated by the observation that leverage levels in African firms are generally low but now on the rise as compared to developed economies, investment levels are stagnant, low liquidity of stock markets coupled with cash flows that are too volatile. Given the progressively vital role developing economies have for global growth, this study sought to find how this trend in leverage levels is impacting on investment in Africa, a concern for the global economy. Given the inseparability of investment and leverage from liquidity and cash flow, the study also examines the role of liquidity and cash flows in investment decision making. This study extends the reduced form investment model to a dynamic panel data model estimated with a novel technique; the generalised method of moments (GMM) on the panel data of 815 listed African non-financial firms. The methodology controls for unobservable heterogeneity, endogeneity, autocorrelation, heteroscedasticity and probable bi-directional relationships. The study found evidence that leverage constrains investment and its impact is more pronounced in firms with low-growth opportunities. These results suggest that investment policy does not solely depend on the neoclassical fundamentals but also on financing strategy and are inclined to the hypothesis that leverage plays a disciplinary role to avoid over-investment. The study also found that stock market liquidity is associated with higher average capital expenditures. The effect of liquidity on investment was found to be heterogeneous with financial constraints and growth opportunities. The study reveals that cash flows are not only an important determinant of investment decisions, but the variability of the cash flows also has a significant bearing on the investment policy. The experimental analysis shows that an increase in debt may reduce the negative effect of leverage on investment. However, the shallow, illiquid debt markets of African firms would mean higher costs and this countermands any benefits from debt. Based on these, findings, the study recommends that African firms should consider relying more on internally generated funds and the stock markets so as not to suppress any available cash flows and improved liquidity. African firms should trade off the effects of managing volatility and the resulting negative impact of cash flow volatility on investment levels.Item Institutional shareholders' monitoring and control over corporate decisions: evidence from JSE listed companies.(2021) Obagbuwa, Oloyede.; Kwenda, Farai.This thesis seeks to intensify our understanding of the responsibility of the institutional shareholders in corporate governance. Whereas several studies have investigated the efficacy of institutional shareholders' monitoring and have considered the diversity of their investment, there is a dearth of research on the effect of limited attention caused by distraction on their monitoring intensity and particularly on the reaction of the corporate executives regarding corporate decisions to the temporarily relaxed monitoring intensity in emerging market space. As a result of a shift in institutional shareholders' attention occasioned by exogenous shocks to an unrelated firm in their portfolios, the intensity of their monitoring of corporate activities dropped. The executives make decisions beneficial to them and harmful to institutional shareholders' interest and the firm's value. The study considers corporate decisions on executive remuneration, earnings management, investment inefficiency and mergers and acquisitions (M&A). These decisions are crucial to the growth of firms and return to institutional shareholders. However, due to agency problems, corporate executives' decisions on these activities tend to be for personal interest at the detriment of institutional shareholders' interest and firm value. Effective institutional shareholders' monitoring seems to be the antidote against opportunistic executives. But the intensity of their monitoring is affected by distraction caused by the external shocks to another firm in their portfolios. When this distraction occurs, the executives maximise the space to make decisions on their remuneration, manipulate earnings, invest in the unprofitable venture, and uncontrolled acquisition sprees that is of private benefits. The first empirical analysis in this thesis examines the impact of institutional shareholders' distraction on executive remuneration. The study shows that when shareholders are distracted and their monitoring intensity drops, the executives are inclined to manipulate their remuneration without considering institutional shareholders' interest and firm performance. The second empirical analysis examines the relationship between the relaxed institutional shareholders' monitoring intensity and executive decision on earnings management. The study reveals that the executives tend to manipulate both the discretional accruals earnings and real activities earnings for personal interest. The third empirical analysis indicated that executives could invest in projects with negative net present value (NPV) when the institutional shareholders monitoring is not sufficient. The final empirical research relates to the intensity of institutional shareholders’ monitoring to M&A executive decisions. The finding reveals that the executives could engage in an uncontrolled acquisitions spree of personal interest, jeopardise institutional shareholder’s investment and fail to improve the firm's value. The overall findings indicated that when institutional shareholders' attention is shifted, their monitoring intensity drops. The executives engage in corporate decisions that will not be in the shareholders' best interest and promote the firm's growth. These findings support the hypothesis that institutional shareholders monitoring intensity has a positive influence on corporate decisions. This insight has an implication for stakeholders and value-creating corporate governance mechanism. The study employed the more robust Generalised Method of Moments (Sys-GMM) estimation approach to analyse the data collected for firms listed on the Johannesburg Stock Exchange (JSE) covering the period 2004-2019.Item Liquidity management practices of banks in emerging market economies under Basel III liquidity regulations.(2017) Mashamba, Tafirei.; Kwenda, Farai.During the 2007 to 2009 global financial crisis, several banks experienced liquidity problems, largely as a result of liquidity management practices they pursued prior to the crisis. In an effort to strengthen banks’ liquidity management practices, the Basel Committee on Banking Supervision announced harmonized and binding liquidity requirements for banks in December 2010 under the Basel III framework in the form of the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The LCR aims to enhance banks’ short term resilience to liquidity stress lasting 30 calendar days by requiring them to maintain sufficient stock of high quality liquid assets. The NSFR seeks to limit banks’ asset and liability mismatch by demanding them to maintain a balanced funding mix that is commensurate with their asset base and off-balance sheet activities. Thus, liquidity standards are deliberately aimed at affecting banks’ liquidity management practices. However, the new liquidity regulations introduced by the Basel Committee on Banking Supervision may bring a new source of intertemporal assets and liabilities choices that are currently absent in banks’ decision making processes. Moreover, as with all regulations, liquidity standards may or may not produce their expected goals. Accordingly, this study sought to examine the impact of the Basel III liquidity standards, in particular, the LCR which is now binding on liquidity management practices of banks operating in emerging market economies. Employing the two-step system Generalised Method of Moments estimation technique on a panel dataset of forty commercial banks operating in eleven emerging market economies over the period 1 January 2011 to 31 December 2016, the results obtained revealed that banks in emerging market economies have target liquidity ratios they pursue and partially adjust their liquidity due to financial frictions. Furthermore, the study established that the Basel III LCR liquidity regulation complemented liquidity management practices of banks in emerging markets. In terms of the behavioral response of banks in emerging markets to liquidity standards, the study found that, on the asset side, banks in emerging markets appear to have elevated their stock of high quality liquid assets and on the liability side, it seems banks in emerging markets increased retail deposits, equity and long term funding. Moreover, empirical results demonstrated that the LCR charge did not adversely affect the profitability of banks in emerging markets. Among other things, these findings suggest that the LCR liquidity regulation is less effective in jurisdictions with high liquidity reserves. In addition, changes in banks’ funding mix caused by regulatory pressure stemming from the LCR rule may lead to stiff competition for retail deposits among banks. The study therefore recommends that regulators and policy makers should monitor competition for retail deposits to prevent reversal of financial sector stability gains achieved by the liquidity regulations. The study also advocates for the adoption of the Basel III liquidity standards in jurisdictions with commercial banks that depend more on capital markets for funding.Item The nexus between mobile phones diffusion, financial inclusion and economic growth: evidence on African countries.(2018) Chinoda, Tough.; Kwenda, Farai.The following thesis comprises three discrete empirical essays on the interplay among mobile phones diffusion, financial inclusion and economic growth in Africa. The first essay examines the condition of financial inclusion and its determinants in Africa. Using the World Development Indicators and the Principal Component Analysis to compute the financial inclusion index for 49 African countries over the period 2004 to 2016, the study finds low levels of financial inclusion in Africa compared to other regions. The region is also characterised by large financial inclusion gaps as shown by the minimum and maximum financial inclusion levels of 0 percent and 82 percent respectively. Since policymakers have over the past decade embraced both financial inclusion and economic growth as key policy initiatives, the second essay examines the interplay between financial inclusion and economic growth in terms of the transmission effect and nature of causality. To the best of the researcher’s knowledge, this is the first study to explore the transmission effect between financial inclusion and economic growth using a unique and robust Cointegrated Panel Structural Vector Autoregressive model. The study finds the existence of a cointegrating relationship between financial inclusion and economic growth. It also provides evidence that the relationship between financial inclusion and economic growth in Africa is growth-led supporting the demand following hypothesis. The increased internet-enabled phones adoption in Africa has also caused much optimism and speculation regarding its effects on financial inclusion. Policymakers, various studies and the media have all vaunted the potentials of mobile phones for financial inclusion. Therefore, this study examines the interplay between mobile phones and financial inclusion in Africa for the 2004-2016 period using pairwise Granger causality test and found that mobile phones Granger cause financial inclusion. The literature on financial inclusion has identified high-quality institutions and governance as the determinants of financial inclusion. Lack of deeper understanding of these issues results in ill-informed policy designs. Despite the cascading literature on issues impacting financial inclusion, the empirical literature on the impact of institutional quality and governance on financial inclusion are rare. Therefore, the third essay evaluates the impacts of institutional quality and governance on financial inclusion in Africa. Applying the two-step system generalised method of moments model, the study finds a positive relationship between institutional quality, governance and financial inclusion, indicating that good governance and economic freedom can lead to increases in financial inclusion. The study concluded that African countries have low levels of financial inclusion with a strong relationship between financial inclusion and other variables such as mobile phones diffusion, bank competition, financial stability, institutional quality and governance. The study recommended institutions to make the most out of the high concentration of the rural population to rollout high-volume transactions, rather than clustering in areas with the high-value transaction and to craft policies that remove restrictions to entrance in the banking sector thereby enhancing bank competition. Policymakers should also not just focus on enhancing financial inclusion, without corresponding improvements in institutional quality, governance, financial sector size, financial stability and financial sector development as they positively contribute to financial inclusion. The study also recommended the implementation of pro-growth policies and a review of existing banking sector policies to eradicate unnecessary barriers to financial inclusion.Item The working capital management practices of JSE-listed companies.(2014) Kwenda, Farai.; Holden, Merle Gwendoline.Working capital management is a subject that was largely ignored in the theoretical and empirical literature until the 1980s, mainly because it was considered a non-value adding balance sheet item. It has gained pre-eminence, particularly among practitioners, in the wake of the recent global financial crises when access to short-term funds was difficult. The increased pressure on managers to achieve maximised market valuations and the quest for cheaper sources of funds, despite growing evidence of excessive investments in working capital, has made working capital management a key contemporary financial management issue. The main aim of this study was to analyse the working capital investment and financing practices of firms listed on the Johannesburg Stock Exchange (JSE) and investigate whether these practices play a role in alleviating financial constraints in an emerging market with a robust financial system. The study employed the Generalised Method of Moments (GMM) in order to overcome the problem of endogeneity, a major problem in working capital management estimations. It found that despite operating in an environment with a well-developed financial system, South African firms use trade credit as a key short-term financing instrument. These firms pursue target trade credit and short-term financial debt levels and they quickly adjust towards their target. Furthermore, these firms also have optimal working capital investment levels and they endeavour to adjust towards this optimal level. However, for these firms, the adjustment process was found to be relatively slow. The study found that the relationship between working capital investment and firm value is concave due to the benefits and costs associated with working capital investment. The study also found that working capital management plays an important role in alleviating the impact of financial constraints. In light of these findings, it is recommended that executives in South Africa embrace efficient working capital management as part of their overall corporate strategy as this can be a source of funds, competitive advantage and can help them cope with financial constraints; this strategy has enabled Chinese firms to register phenomenal growth. Managers should clearly understand the key drivers of their company’s working capital investment because deviating from the target level compromises the value maximisation goal. They should strive to maintain healthy relationships with suppliers as this ensures a continuous supply of goods and access to interest “free” finance. Poor relationships cause costly disruptions and loss of value through negative market perceptions.