Doctoral Degrees (Finance)

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Capital structure and financial performance of South African state-owned entities.
(2019) Marimuthu, Ferina.; Kwenda, Farai.
Abstract available on the PDF.
Competition, regulation and stability in Sub-Saharan Africa commercial banks.
(2017) Akande, Joseph Olorunfemi.; Kwenda, Farai.
Abstract available on the PDF.
Country risk components and financial asset markets interdependence: evidence from South Africa.
(2023) Nhlapho, Rethabile Nokulunga.; Muzindutsi, Paul-Francois.; Obalade, Adefemi Alamu.
Over the last few decades, financial markets have become more interlinked. As a result, there has been an increased demand for information across markets and thus, a need for country-specific risk ratings. Risk ratings are vital for attracting investments and capital inflows in financial markets by providing signals regarding a country’s economic, financial and political fundamentals. However, there remains a lack of consensus on the nature of the relationship between country risk and key asset markets, namely, the stock market, bond market, housing market, and gold and oil markets. This doctoral study evaluates the impact of country risk components on asset returns and their interlinkages for the period from February 2000 to December 2019 within the South African context. The first analytical paper (presented in Chapter 3) evaluates the dynamic relationship between South African asset markets using the Markov Switching Vector Autoregressive (MSVAR) model. The findings showed that the response of all asset returns to shocks in the economic system was regime-dependent. Moreover, shocks emanating from the exchange rate market and bond market explained most of the variation in the bull and bear regimes. The second paper (presented in Chapter 4) investigates the impact of country risk on various asset markets ing a Non-Linear Autoregressive Lag model (NARDL). This study fills the gap in understanding the reaction of stock, bond, housing, currency, gold and oil markets to positive and negative innovations in country risk components. The findings show evidence of long-run cointegrating relationships between asset returns and country risk components and indicate that country risk components are effective determinants of domestic asset market returns. The third paper (presented in Chapter 5) examines the effects of economic, financial and political risk on asset market linkages using a combination of the Dynamic Conditional Correlation Generalised Autoregressive Conditional Heteroscedasticity (DCC-GARCH) and NARDL models. The findings show that the correlation between asset markets was positive in stable market conditions and showed negative comovements during periods of market turmoil. Financial and political risk ratings were found to be the main drivers of asset market comovements in the short run. An increase in South African (domestic) political risk had a larger effect in the long run and was found to be an important determinant of asset return comovements. This result provides evidence suggesting that asset markets are informationally inefficient and changes in financial and political risk ratings can be used to predict price movements. Overall, this doctoral dissertation’s findings highlight the diversification benefits of domestic assets during periods of market uncertainty. Moreover, the results show that examining the different components of country risk provides better insight into the impact of country risk on asset markets. The results of this dissertation have significant implications for asset allocation decisions and risk management. From a policy perspective, it is crucial to formulate policies that address political instability as it plays a pivotal role in determining asset return behaviour, and consequently, the financial stability of the country. Furthermore, the results have implications for traditional asset pricing models that only capture the effects of market risk to predict future asset market behaviour. A more comprehensive understanding of the risks of specific markets is vital for more informed financial decision-making. Future research could extend the scope of the study to investigate the composite political risk factors that explain asset market behaviour.
Credit referencing, bank lending methodologies and SME access to finance in Ghana=Ukubheka izikweletu, Izindlela Zokuboleka ebhange, kanye Nokufinyelela Kwama-SME Kwezezimali eGhana.
(2021) Gyimah, Kofi Nyarko.; Muzindutsi, Paul-Francois.; Akande, Joseph Olorunfemi.
Academic as well as policymakers acknowledge the importance that access to credit to entrepreneurs plays in stirring the economic growth and development in both developed and developing countries. Despite the increasing use of use different lending methodologies in their dealings with Small and Medium Scale Enterprises (SMEs), a significant segment of SMEs are yet to benefit from these methodologies. This study examined the association between bank lending methodologies, Credit Reference Information (CRI), and SMEs ' access to credit in Ghana. This study adopted a mixed-methods research approach characterised by the quantitative (cross-sectional) approach and qualitative technique. The accessible population of SMEs was 2,354, out of which a sample of 1,061 SMEs was determined using the simple random sampling method. The sample applied to the qualitative aspect of the study was eight managers who were selected using the purposive sampling method. A survey questionnaire and interview were used to gather data. Quantitative data were analysed using Pearson’s correlation test, Exploratory Factor Analysis (EFA), and Ordinary Least Squares (OLS) regression analysis. Thematic analysis was employed to analyse qualitative data from interviews. Data analysis revealed that two domains of methodologies, namely Collateral Based Records (CBRs) and Personal Business Characteristics (PBCs), were applied to the participants to a great extent. The average scores associated with these dimensions were significantly higher than the median of the measurement scale. Furthermore, responses from the qualitative analysis suggest that CBRs as a methodology were more applied, but financial institutions also applied PBCs. Applying the two methodologies is necessary as they play unique roles in lending, though CBRs better cushions banks against default. This implies that both transaction-based and relationship-based lending methodologies are applied mainly by banks in Ghana though transaction-based lending is the most applied. The study contributed to the literature by proposing a framework of steps that SMEs in Ghana can take towards successful loan applications. Iqoqa Ucwaningo luhlole ukuhlobana phakathi kwezindlela zokuboleka amabhange, i-CRI, nama-SME ukuthola isikweletu e-Ghana. Nakuba izincwadi zangaphambili zenza ukungabaza emandleni alezi zindlela ezimbili zokubikezela ngempumelelo ukufinyelela kwezikweletu kumafemu ama-SME, lolu cwaningo lubonisa ukuthi i-CRI inyusa amandla alezi zindlela zokuboleka ukuze zisize ukuthuthukisa ukufinyelela kwesikweletu. Lolu cwaningo lwamukele indlela yocwaningo exubile ebonakala ngendlela yobuningi (i-cross-sectional) kanye nezindlela zekhwalithi. Inani labantu abafinyelelekayo lama-SME laliyizinkulungwane ezimbili amakhulu amathathu namashumi amahlanu nane (2,354) lapho isampula lama-SME liyinkulungwane eyodwa namashumi ayisithupha nanye (1,061) anqunywa kusetshenziswa indlela elula yokusampula engahleliwe. Isampula esetshenziswe esicini sekhwalithi yocwaningo bekungabaphathi abayisiyishiyagalombili (8) abakhethwe kusetshenziswa indlela yesampula eyinhloso. Imininingo yaqoqwa ngokusetshenziswa kwemibuzo yocwaningo kanye nezingxoxo. Imininingo yobuningi yahlaziywa ngokuhlolwa kokuhlobanisa kuka-Pearson, ukuhlaziya i-Exploratory Factor Analysis (EFA), kanye nokuhlaziywa kokuhlehla kwe-Ordinary Least Squares (OLS). Ukuhlaziywa ngokwengikimba kwasetshenziswa ukuze kuhlaziywe imininingo yekhwalithi evela ezingxoxweni. Ukuhlaziywa kwemininingo kuthole ukuthi izizinda ezimbili zezindlela, okuyi-Collateral Based Records (CBRs) kanye nezimo zebhizinisi lomuntu siqu, phecelezi, i-Personal Business Characteristics (PBC), zisetshenziswe kubahlanganyeli ngezinga eliphezulu. Okusho ukuthi, izikolo ezimaphakathi ezihlotshaniswa nalezi zilinganiso beziphezulu kakhulu kunemidiyeni yesikali sokulinganisa. Izimpendulo ezivela ekuhlaziyweni kwekhwalithi ziphakamisa ukuthi ama-CBR njengendlela yokusebenza asetshenziswa kakhulu kodwa ama-PBC nawo asetshenziswa izikhungo zezezimali. Ukusetshenziswa kwalezi zindlela ezimbili kuyadingeka njengoba zidlala indima eyingqayizivele ekubolekeni, nakuba ama-CBR evikela kangcono amabhange ngokuzenzakalelayo. Umthelela walokhu ukuthi amabhange womabili izindlela zokuboleka ezisekelwe ekwenziweni kanye nezisekelwe ebudlelwaneni zisetshenziswa kakhulu amabhange aseGhana nakuba imali ebolekiwe esekelwe entendeni isetshenziswa kakhulu. Ucwaningo lube negalelo ekubhalweni ngokuphakamisa uhlaka lwezinyathelo ama-SME aseGhana angazithatha ukuze afake isicelo semalimboleko esiyimpumelelo.
Credit risk modelling for private firms under distressed economic and financial conditions: evidence from Zimbabwe.
(2021) Matenda, Frank Ranganai.; Sibanda, Mabutho.; Chikodza, Eriyoti.; Gumbo, Victor.
Since the outburst of the recent 2007 - 2008 global financial and economic crisis, modelling of credit risk for private non-financial firms under economic and financial stress has been receiving a lot of regulatory and scientific attention the world over. Nevertheless, the quandary is that there seems to be no well-defined estimation procedures and industry consensus on how to incorporate economic downturn conditions in private firm credit risk models, which have led to the introduction of diverse default probability, exposure at default and rate of recovery prediction methodologies. Moreover, there is no consensus on which predictor variables have the most significant impact on private firm credit risk under downturn conditions. This study strives to design forecasting models in order to estimate key credit risk components (default probability, recovery rate and exposure at default) for private nonfinancial firms under downturn conditions in a developing economy. The main aim of the thesis is to identify and interpret the drivers of probability of default, recovery rate and credit conversion factor. In the first part, the study reviews literature using a scoping review framework in order to identify the reasons and motives for research, emerging trends and research gaps in modelling bankruptcy risk for private nonfinancial corporations in developing economies. The second part of the thesis creates stepwise logit models to detect the default probability for privately-owned non-financial corporates under downturn conditions in a developing country. In the third section of the study, stepwise logit models are designed to separately forecast probability of default for audited and unaudited privately-traded non-financial corporations under downturn conditions in a developing economy. The fourth part of the thesis develops stepwise Ordinary Least Squares regression models to predict workout recovery rates for defaulted bank loans for private non-financial corporates under downturn conditions in a developing market. In the fifth section of the study, stepwise Ordinary Least Squares regression models are developed to estimate the credit conversion factor to precisely predict, at the account level, the exposure at default for defaulted private nonfinancial corporations having credit lines under downturn conditions in a developing economy. To fit the models, the study adopts unique real-world data sets pooled from an anonymised major Zimbabwean commercial bank. This study finds that the forecasting of probability of bankruptcy for private non-financial corporates in developing economies is an appropriate discipline that has not been properly studied and has some distinctive and unexplored zones due to its complexity and the diverse business ethos of private firms. The thesis discovers that accounting information is imperative in predicting the default probability, rate of recovery and exposure at default for Zimbabwean private non-financial corporations under downturn conditions. Further, the study reveals evidence indicating that the forecasting results of the designed credit risk models are improved by incorporating macroeconomic variables. The incorporation of macroeconomic factors is vital since it enables stress testing and provides a way of modelling the default probability, recovery rate and exposure at default under downturn conditions. In light of these findings, it is recommended that firm and/or loan features, accounting information and macroeconomic factors should be adopted when predicting credit risk parameters for private non-financial corporates under downturn conditions in a developing country.
Effectiveness of credit risk management practices of Ghanaian commercial banks in agricultural finance.
(2021) Nyebar, Abraham.; Muzindutsi, Paul-Francois.; Obalade, Adefemi Alamu.
Lending to the agricultural sector by commercial banks in Ghana is characterised by high credit risk even though empirical evidence suggests that commercial banks can minimize this exposure by using appropriate practices to mitigate against adverse effects. This implies that the credit risk management practices adopted by Ghanaian commercial banks may be inadequate and ineffective due to credit risk identification challenges or problems in implementing credit risk management policies. The study investigated the methods adopted by commercial banks to identify credit risk, the effectiveness of the implementation of credit risk management policies, and the strategies used by Ghanaian commercial banks to mitigate credit risk in agricultural finance. The mixed methods approach, involving the use of quamtitative method using survey questionnaire and qualitative method through interviews and policy documents, was adopted. Data were analysed using Principal Components Analysis (PCA), ANOVA and MANOVA, documents, and thematic analysis. Findings indicated that some of the methods used by commercial banks to identify credit risk in agricultural finance do not meet commercial banks’ credit risk management needs. Also, some other methods that proved effective in minimising credit risk were not frequently used by commercial banks. Also, most Ghanaian commercial banks lacked technical units and technical employees with agricultural training backgrounds to manage the credit related to agricultural finance. Further, agricultural activities lacked insurance schemes to protect against credit risk. The ANOVA and MANOVA tests showed significant differences in credit risk management practices among Ghanaian commercial banks. The study recommeneded the need for a robust credit risk management strategies to mitigate credit risk in agricultural finance. The agricultural sector should be supported with refined policy and implementation documents informed by the reality of borrowers’ inability to honour loan contracts. The findings point to the needs to increase credit guarantee schemes and create incentive-based risk-sharing systems for small and medium agriculture enterprises; and establish more robust credit referencing bureau institutions to reduce credit risk.
Equity super sectors connectedness and its determinants: evidence from the Johannesburg Stock Exchange.
(2023) Babatunde, Samuel Lawrence.; Doorasamy, Mishelle.; Obalade, Adefemi A.
Everything depends on everything else. More importantly, macroeconomic and financial connections have proved to be more fundamental compared with others. The reality of dynamic connectedness and time varying correlation as precursors to contagion and systemic risk are proven through the super sectors, namely the Automobile and Parts, Chemical, Telecommunication, Technology, Energy, Health, Finance, Insurance and General Industrial super sectors of the Johannesburg Stock Exchange, with daily sample period from 1 January 2006 to 31 December 2021. The first objective is to determine the systematically important super sectors in the different extreme periods. The second objective is to determine the return linkages of the equity super sector, while the third objective is to examine the dynamic connectedness and the shock propagation among the super sectors during the extreme risk events. Finally, the fourth objective is to evaluate the determinants of volatility connectedness of the JSE equity super sectors. The different extreme events considered alongside the full sample periods for this study are the 2007/2008 Global financial crisis (GFC), the 2009-2011 European Debt Crisis (EDC), the 2017-2018 U.S-China trade war (U.S-China TWR) and the late 2019-2021 COVID-19 pandemic. This study employs the Page et al., (1999) model with the Granger causality model of Billio et al., (2012) to accomplish objective one. While in objective two, the DECO-GARCH model of Engle and Kelly (2012) was employed to establish the time varying equicorrelations status of the super sectors through the rolling window analysis. For objective three, the realised volatilities of the super sectors were obtained through the Garman and Klass (1980) model and thereafter, the dynamic connectedness and direction of propagation were determined through the Diebold and Yilmaz (2009, 2012 and 2014) model alongside the TVP-VAR of Antonakakis et al., (2020). The study further employed the nonlinear autoregressive distributed lag (NARDL) model to determine the asymmetrically significant determinants of total sectorial volatility connectedness of the JSE market in the fourth objective. Findings from this study revealed the Telecommunication super sector is the most systematically important super sector during the full sample size analysis. It was revealed that the equicorrelation of the super sectors is positive and high, this was also the case for the rolling window results except for the years not within the extreme period, yet the least equicorrelation was 0.1491 for the year 2012-2013, while the highest was 0.7022 for the COVID-19 pandemic period. It was also established that the total connectedness of the sample period and the different extreme periods were high, suggesting a high interconnectedness of the super sectors. Lastly, the determinant estimation results show LSAVI, LDMR and LEPU as the asymmetrically significant drivers of total sectorial volatility connectedness on the JSE market. This study is the first to investigate sectorial connectedness, equicorrelation and the determinants of volatility connectedness in South Africa and in Africa at large. This study contributes to the limited literature on systemically important equity super sectors and sectorial dynamic connectedness and dynamic equicorrelation in the emerging market. First the result shows that the Telecommunication sector is the most important node for the EDC, the U.SChina trade war and the COVID-19 pandemic periods. While the Insurance and the Energy are the highest ranked super sectors amongst the network of super sectors for the full sample period and for the GFC period, hence making these super sectors the most systemically important nodes during these selected periods. It also shows that the sectorial common equicorrelation on the JSE is high and time varying with higher values for the year where extreme events occurred such as the GFC, EDC, and the COVID-19 pandemic period. This result is also a revelation that during the period of financial or economic crisis correlation of sectors are high compared to non-crisis periods. Third, the dynamic connectedness results show that the sectors on the JSE are interconnected and a shock to one sector can have a spillover effect on another close sector in the value-chain. Fourth, the South African volatility index, the Economic Policy Uncertainty and the Domestic Market Return are symmetrically and asymmetrically significant determinants of the sectorial volatility connectedness of JSE market. These findings from this study have implications for economic policy makers, portfolio and fund managers, foreign and local investors, sector regulators and researchers/academics in the field of finance.
Financial sustainability, liquidity and outreach of deposit-taking microfinance institutions: evidence from low income Sub-Saharan Africa.
(2020) Moyo, Zibusiso.; Mukorera, Sophia Zivano Elixir.; Nyatanga, Phocenah.
The United Nations’ Sustainable Development Goals regard microfinance provision as a developmental tool in fighting poverty and financial exclusion which are particularly rife in Low-Income Sub-Saharan Africa (LISSA). Therefore, this study analysed the financial sustainability, liquidity and outreach of LISSA Deposit-taking Microfinance Institutions (DTMFIs) through three objectives. The first objective investigated why the LISSA DTMFIs fall short in achieving financial sustainability despite having commendable deposit volumes. Panel data spanning 2006 to 2017 obtained through desk research from the Microfinance Information Exchange of 64 DTMFIs sampled across 18 LISSA countries was utilized. Through probit regression, the study found that the likelihood of attaining financial sustainability is reduced by small scale deposits, loan loss provisions, deteriorating loan portfolio quality and costly branch coverage. The study recommends low cost, large scale deposit operations; efficiency in managing operating expenses; credit enhancements; and restrictive deposit-taking licencing. The second objective assessed the relationship between liquidity and deposit insurance as the LISSA DTMFIs default in meeting withdrawals on deposits. The fixed panel of 64 DTMFIs was utilized. The estimated random effects results showed that explicit deposit insurance is positive and significantly related to liquidity. The study concluded that designing and implementing explicit deposit insurance schemes mitigates liquidity risk in depository microfinance. Therefore, the LISSA regulators ought to include microfinance deposits in formulating deposit insurance policies. The third objective examined whether pursuing outreach and financial sustainability in depository microfinance exhibit a trade-off or mission drift, as this is not yet clear for deposits. The System Generalized Method of Moments was adopted, using the fixed panel of 64 DTMFIs. No significant relationship was found between financial sustainability and the average deposit balance (outreach depth); but financial sustainability was negative and significantly related to number of depositors (outreach breadth). The study concluded that in the LISSA’s depository microfinance sector, there is neither a mission drift nor trade-off in outreach depth, but a trade-off exists in outreach breadth. Therefore, it is recommended that the DTMFIs segment their markets and develop appropriate deposit products for each market segment and also leverage on cost-efficient deposit-taking methods such as the use of agents and mobile phones.
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.
The impact of exchange traded funds on the microstructure of their constituent shares: a South African case.
(2020) Peerbhai, Faeezah.; Muzindutsi, Paul-Francois.
The creation of the Exchange Traded Fund (ETF) has revolutionised the global asset management industry since its inception three decades ago, with the result that this investment product has propelled passively managed products to the forefront of the financial market. Whilst the superficial benefits and costs to this product are often debated, the potential impact of these investment assets on the microstructure elements of the financial market, and thus its overall impact on market stability, is less well known. The necessity for a greater understanding of the potential positive or detrimental impacts of this asset class on market operation has been the driving force in recent international developments in this field. This study therefore aims to fill this gap in the literature, by evaluating the impact of ETF-related market activities, on the microstructure elements of information efficiency, and liquidity of the South African equity market. The analysis of liquidity aims to evaluate the influence of ETF introduction on the relative liquidity of its underlying assets. The sample therefore consists of 147 JSE-listed firms which are the constituents to the 23 JSE-listed, domestic equity ETFs that were listed between 2006 and 2019. In contrast, the informational efficiency analysis attempted to examine the impact of ETF ownership and trade, on the efficiency of its underlying constituents, and this analysis therefore makes use of 94 underlying JSE-listed firms, which are included in a sample of both domestic and international ETF between the periods of 2009 to 2019. The research methods made use of the event study approach, fixed effect panel data estimations, and the Generalised Method of Moments (GMM) estimation method. The results produced largely find support for Merton’s (1987) hypothesis, that the inclusion of a company into the ETF, increases investor awareness, which thus facilitates further informed trading in the underlying asset. This is evidenced by findings of improved liquidity and information efficiency in the underlying constituents to the ETFs surveyed, with the smaller, less well-known companies in the analysis enjoying the benefits of ETF membership more. The study therefore concludes that the evidence of improved market function and stability due to ETFs, is beneficial for investors who usually face adverse portfolio effects due to the high concentration of large firms on the JSE. Therefore regulators should actively encourage growth in this market by relaxing current pension fund regulations, and revising the taxation environment for ETFs to allow this asset class to become more competitive relative to the actively managed fund industry in South Africa. Keywords: Exchange Traded Funds, South Africa, liquidity, information efficiency, synchronicity, JSE.
An investigation of financial management behaviour of administrators, budget slacks, and state-owned enterprises’ performance in Nigeria.
(2023) Kayode, Omolayo Sunday.; Sibanda, Mabutho.; Olarewaju, Odunayo Magret.
The study investigates the financial management behaviour of administrators, budget slack adoption and performance of the State-Owned Enterprises of the Federal Government of Nigeria. A sample of 385 top administrators from all the existing 202 State-Owned Enterprises in various sectors at the federal level in Nigeria were selected and structured questionnaire was used to harvest information from them. They were analysed using multiple quantitative techniques ranging from factor and principal component analysis to weighted least square regression analysis, ordinal regression analysis, and logistics regression analysis, among others. The results show that about 47.3% of the administrators showed responsible financial management behaviours scale while about 52.7% reflected irresponsible financial management behaviour scale. Furthermore, Cash Management Sub-scale with coefficient of 0.1571282 is statistically significant at 5% level and thus, plays the most crucial role in developing the financial management behaviours scale, this is followed by socio-cultural beliefs scale. In another result, income, family size, financial knowledge, and financial literacy account for the largest variation in financial management behaviour of the administrators. Moreover, the result shows that the adoption of budget slack to a large extent does not significantly impact the financial management behaviour of the administrators. Optimism with coefficient of 0.5605328 and deliberative thinking with coefficient of 0.0880613 are the two factors that significantly impact budget slack adoption. A significant relationship was established between the financial management behaviour of the administrators and the State-Owned Enterprises’ performance in the last objective. More importantly, it was revealed that the irresponsible financial management behaviours scale has a more significant adverse effect on the performance of State-Owned Enterprises. The general implication of the study is that the sociocultural beliefs sub-scale, which was not captured in any of the previous studies as a measure of financial management behaviour, proved to be a good measure in this part of the world. The study further shows that budget slack adoption effect on financial management behaviour is not significant. Finally, the implication from findings in the survey shows that irresponsible financial management behaviour of the administrators has a significant negative impact on the performance of the SOEs.
Investor overconfidence under the adaptive markets hypothesis in selected African stock markets.
(2023) Nyasha, Jameson.; Muzindutsi , Paul-Francois.; Olarewaju , Odunayo Magret.; Muguto, Lorraine.
Meticulous empirical research remains to determine whether the Adaptive Markets Hypothesis (AMH) or the more widely known Efficient Market Hypothesis (EMH) better explains investor overconfidence and stock return volatility behaviour. Investor overconfidence is vital in understanding why investment strategies are pursued so aggressively, leading to excessive market trading. It is often argued that the investor overconfidence bias makes markets less efficient because it creates pricing errors in extreme volatility and overestimates investors’ beliefs in the accuracy of their forecasts of their quotes on prices. This research analyses the effect of investor overconfidence on the volatility of stock market returns according to the AMH in seven African stock markets, including the Casablanca Stock Exchange, the Egyptian Exchange, the Johannesburg Stock Exchange, the Nigerian Stock Exchange, the Nairobi Stock Exchange, the Ghana Stock Exchange, and the Stock Exchange of Mauritius. The sample period includes secondary time series data from January 2005 to December 2019. The first goal was to develop and validate a measure of investor overconfidence. The second objective was to compare different levels of investor overconfidence in the selected African stock markets. The third objective was to evaluate the influence of investor overconfidence on the volatility of stock market return under changing market conditions, as described by the AMH. The estimation methods included the Generalised Methods of Moments dummy regression, regime-switching VAR models and rolling GARCH models, which are GARCH, EGARCH and TARCH. The results show that high investor overconfidence is more associated with bullish markets than periods of financial crises and bearish markets. The results also imply that it is not advisable to generalise the impact of market conditions on investor overconfidence across all the markets. Additionally, rolling GARCH estimates demonstrated that patterns of investor overconfidence evolve, consistent with the AMH. Assessing investor overconfidence under the AMH framework offers a stronger image of the adaptive behaviour of the African equity markets. This research adds to existing knowledge in numerous ways. Foremost, it provides a standard measure of investor overconfidence in Africa’s equity markets. A measure that combines multiple proxies into a single index and neutralizes the disadvantages of each proxy when used separately to estimate investor overconfidence. Second, it provides a timely contribution to the effect of investor overconfidence on stock return volatility in African equity markets under the AMH paradigm. Third, according to the AMH, investor confidence is not vi static and can appear under specific market conditions and disappear under others. This bias occurs and disappears as market conditions change in the chosen African equity exchanges. This also shows that investor overconfidence is normal, changes over time and is adaptable in the African stock markets. Consequently, this study brings a new perspective regarding investor overconfidence and market efficiency in the face of the AMH paradigm. The results also have important implications for investors and brokers wishing to develop appropriate trading strategies. This study is also helpful for policymakers as they need to be wary about investor overconfidence impact on market momentum in periods of market expansion. This study argues that investor overconfidence in African stock markets conforms to the AMH than the EMH and the BF.
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.
Macro-prudential tools, banking sector resilience and economic growth in Tanzania.
(2023) Kishimba, Khadijah.; Akande, Joseph Olorunfemi.; Muzindutsi, Paul-Francois.
This study assessed the relationship between macro credit risk stress tests, economic growth, and countercyclical buffers in Tanzania. The financial sector in Tanzania is predominantly dominated by banks with growing development in agent banking, digital platforms, and deposit mobilization. Credit risk is observed as the most significant risk in the banking sector, where various studies show that financial instability originates from exposure to this risk. Hence, in this growing interaction and integration between domestic and global activities, studies have shown that the potential risk of transmission may affect the domestic economy at large. This has called for a significant adoption of macroprudential policy tools that interact with other segments of the financial sector, due to the growing global integrations. The study aimed to establish the interlinkages between macro-prudential tools and economic growth from a balance sheet to a prudential perspective, to support policy objectives related to credit and capital in Tanzania. The study was implemented using three objectives, of which the first one was to assess the impact of the macro-credit risk stress test on banking sector resilience in Tanzania, using the Global Vector Autoregressive (GVAR) model and the Generalised Method of Moments (GMM) estimations. The second objective assessed the effect of bank credit risk to real economic growth by sector in Tanzania, using both a linear and non-linear Autoregressive Distributed Lag (ARDL) model. The third objective analysed the implication of the stress test results in influencing macro-prudential policy decisions in Tanzania, using the Hodrick Prescott (HP) filter to compute the credit-to-GDP gap indicator that represents a countercyclical buffer. The study covered a 15-year period from 2006 to 2020, with data from six major trading partners (USA, EU, India, China, South Africa, Kenya, and UAE), banking sector indicators from 15 banks, and credit composition data for six major economic sectors. The study revealed that foreign and global transmissions have an impact to the banking sector in addition to domestic factors. More specifically, the increase in the crude oil price index and domestic inflation rate, revealed a significant effect on the aggregate credit portfolio compared to the other macro-shocks applied in the study. Regarding individual vii bank analysis, banks are the most exposed to domestic GDP shocks, though generally the banking sector in Tanzania is still resilient and above the regulatory capital threshold. The study further revealed that there is a long-run and short-run effect of credit risk on the economic growth of most sectors; thus when this is amplified, the effect differs across various sectors of the economy. This study also drew findings that contribute to the existing literature by introducing a macro-credit risk stress testing work to Tanzania’s framework, and assessing the transmission with its major trading partners. Further, this study also contributed to the integration of banking sector specific factors, in addition to macro-economic variables, when assessing the exposure to credit risk. Therefore, this assessment broadens the literature on assessing the impact of credit risk on sectoral economic growth and sector impact. This study revealed a crucial finding, that even during the financial global crisis of 2007/2009 the Tanzanian economy was not very vulnerable to the potential of having negative recessions, as reflected by the magnitude of credit exposure in the country. The study recommends enhancing Tanzania’s banking sector’s resilience assessment and providing mitigation measures in advance, to contain the anticipated exposure to macroeconomic factors, both domestic and global, to ensure financial stability. The study also recommends that the Tanzanian economy adopt the countercyclical buffer, which can be relevant to cushion against potential credit risks in case they materialise. Further, the study recommends the need for policymakers to conduct sector-wise assessments rather than aggregate exposure, to come up with specific policies targeted to particular sectors, instead of generic policies.
Modelling export growth in South Africa with a focus on third-country effects and stock market liquidity.
(2020) Tsunga, Kudzanai Richard.; McCullough, Kerry-Ann Frances.; Moores-Pitt, Peter Brian Denton.
After considering the potential benefits of exports in ameliorating lacklustre economic growth, this thesis analyses South Africa’s exports to the world and to its trading partners. It notes that gaps in erstwhile studies on export behaviour were attributable to linear modelling, overlooking the role of the financial economy, and an overreliance on exchange rate volatility as an explanatory variable, which in part, resulted in the exchange disconnect puzzle. The gaps are addressed by employing non-linear models, consideration of financial economic variables, and third-country effects which collectively addressed the summary objective of establishing the existence of shortrun and long-run linear and asymmetric relationships of South Africa’s exports with real and financial economic variables. A unique exports dataset obtained from the South African Revenue Services (SARS), is used to undertake multivariate time-series and cross-sectional analysis beginning with the linear autoregressive distributed lag model (ARDL) and the pooled mean group (PMG) before progressing to consider non-linearity with the non-linear ARDL (NARDL), the quantile ARDL (QARDL), the Markov-switching model, the threshold autoregressive (TAR) model and the panel threshold model. The analysis is conducted in cognisance with the endogenous growth theory and the finance-led growth hypothesis which propose an interdependence between the real and financial economies. This thesis finds that stock market illiquidity and volatility possess both a linear and asymmetric negative relationship with exports in the short-run and long-run. Further, exports were consistently weaker at higher thresholds of the financial economic variables. Exchange rate relationships and third-country effects are not consistently significant; confirming the exchange disconnect puzzle. This thesis concludes that non-linear models and the financial economy must be considered when analysing South African export demand because they provide a nuanced analysis of export behaviour. The findings imply that future research in the subject area must consider the financial economy. In addition, policy makers should incentivise ease of capital flows to export growth projects because investors react to changing risk and liquidity costs induced by diminishing exports. This thesis recommends the accommodation of financial market stability and liquidity within the scope of South Africa’s trade policy to attain sustained exports contribution towards economic growth.
The national health insurance scheme in South Africa: a pre-implementation evaluation of systemic threats, financial affordability and stakeholders’ sentiments.
(2022) Muguto, Hilary Tinotenda.; Mbonigaba, Josue.; Muzindutsi, Paul-Francois.
The impending national health insurance scheme is intended to provide all South Africans with access to high-quality, affordable services, regardless of socioeconomic status. However, there are concerns that the scheme may face various challenges, including gross systemic threats, cost-revenue imbalances and antagonistic stakeholder sentiments, thus undermining its benefits. In this study, a range of pre-implementation evaluation methods were used to assess the scheme. This includes systematic document reviews to identify systemic threats, analyses of projected costs and revenues using nonparametric and Monte Carlo techniques to assess the affordability of the scheme, and the use of the Stanford CoreNLP natural language processing to evaluate stakeholders' sentiments towards the scheme. The findings indicate that the scheme may fail if introduced on a derelict foundation due to administrative, resources and structural inadequacies. These challenges were further exposed during the current Covid-19 pandemic, emphasizing the threat they pose to the scheme. In terms of affordability, the analysis suggests that the scheme may be unaffordable due to the failure to raise sufficient revenues to fund the expected expenditure while keeping costs in line with the fiscal purse. From the examination of stakeholder sentiments towards the scheme, findings suggests that there is support for the scheme proposal but concerns regarding its operational and technical aspects are leading to negative sentiment against the scheme. The handling of the pandemic has also entrenched these negative sentiments against the scheme. These findings have several policy implications. First, there is a need to reform the healthcare system to avoid introducing the scheme on a weak foundation. Secondly, to ensure affordability of the scheme, the government may need to scale down the scheme and focus on primary care and less comprehensive benefit packages. Effort should be made to align expenditure with available resources. Finally, improved communication and stakeholder engagement may improve sentiments towards the scheme and identify problem areas within the implementation framework. The use of a natural language processing technique, which is a novel approach to studying stakeholder sentiments in healthcare, constitute this study’s contribution to the literature of policy development and implementation.
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.
The potential impact of Basel IV requirements on performance and resilience of commercial banks in Africa.
(2020) Oyetade, Damilola Tope.; Muzindutsi, Paul-Francois.; Obalade, Adefemi Alamu.
Capital adequacy is considered an important determinant for the performance and resilience of banks because the banking sector plays a substantial role in the stability and growth of the economy. Literature shows that well-capitalised banks are associated with higher profits. Banks in Africa have revenue growth opportunities, but fragility and vulnerability to bank failures arising from capital inadequacy, non-performing loans and weak banking regulatory requirements restrict their lending capacities to support economic growth. The Basel Committee’s aim for introducing higher Basel capital requirements is to strengthen the resilience of the banking system; however, most of the African countries are slow in embracing changes in Basel regulatory requirements. Nevertheless, the implementation of higher Basel capital may affect the performance and lending ability of banks. This study examines the potential impact of Basel IV capital requirements on performance, lending, securitisation, and resilience of commercial banks from selected African countries. To achieve the set objectives, the study simulates Basel IV capital ratio using historical data from 2000 and 2018 because the implementation of Basel IV capital requirements has not commenced. In this context, the study created sample-representative banks and employed static and dynamic panel regression analyses as the estimation techniques. The results suggest that Basel IV capital requirements portend short-term negative impacts on bank performance and lending, while the long-term impact on bank performance is favourable. In addition, the findings show that higher capital requirements have a significant impact on the volume of securitisation and protect the banks from securitisation exposures; however, increasing volume of securitisation does not impact performance. Finally, capital adequacy positively impacts bank resilience and suggests that banks with a low level of capital are prone to banking distress, while banks with high capital improves resilience.
Significance of infrastructure investments in emerging markets to institutional investors.
(2020) Magweva, Rabson.; Sibanda, Mabutho.
The worldwide financial crisis of 2007/8 and the subsequent economic slump led to significant funding and solvency challenges for institutional investors as their financial positions were adversely affected. The former institutional investors’ investment ‘safe haven’, being real property/estate, was one of the catalysts for the 2007/8 crisis as the real estate market experienced substantial losses. These experiences altered institutional investors’ perceptions towards their traditional asset and portfolio allocation strategies. In an attempt to avoid poor returns and excessive volatility from real estate, bonds and money market instruments, institutional investors are now in a new drive to diversify and supplement their core assets. As a result, institutional (and individual) investors are on the hunt for better yields, diversified portfolios, and inflation hedged returns so that they can meet their long term inflation-indexed liabilities and remain afloat. Infrastructure sector investments, given their theoretical narratives and attractive investment characteristics qualify to be the new investment niche and appropriate for long term institutional investors. This claim to the attractiveness of infrastructure investments can be rejected or shelved if empirical analysis of infrastructure investment features yields contrary results as the attractive risk-return profile of infrastructure investments might be ‘illusory’. The illusion is amplified by the differences in infrastructure investments in developing and developed markets. This thesis evaluated the economic or financial intrinsic infrastructure investment features to ascertain if institutional investors (in their hunt for new investment avenues), can derive value from the same in emerging markets where the infrastructure gap is high and the infrastructure market still developing. Academic studies on infrastructure investments in emerging and developed markets are scant. The few available academic studies applied very basic statistical measures on the subject matter. The present study adopted, portfolio optimization approach, risk-adjusted return measures, linear and non-linear autoregressive distributed lag (ARDL) models, panel ARDL as well as EGARCH and GJR-GARCH models to achieve the set objectives. As such, the study makes notable contributions to the body of knowledge by applying appropriate econometric models using emerging nations as a case. The results indicated that unlisted or private infrastructure securities can amplify portfolio returns and dampen portfolio risk. The significance of infrastructure investment to institutional investors is thus limited to enhancing portfolio returns and reducing portfolio risk. The results showed that listed or exchange traded infrastructure’s risk-return profile is similar to that of real property and general emerging equity market returns in emerging markets. Private and listed infrastructure exhibited different stochastic and distributional features implying that they can play a complementary role in a portfolio. This implies that investors can hold listed and private infrastructure in the same portfolio without sacrificing portfolio performance. Listed infrastructure exhibited remote inflation hedging ability on short term basis. All other assets are poor inflation hedges in emerging markets implying that investors must consider other assets which can hedge inflation risk. All the assets under consideration exhibited significant volatility clustering, volatility persistence and leverage effects. GJR-GARCH specification under GED proved to be the optimal volatility model for all assets under study. This implies that corporates in the infrastructure sector (as well as real property and general equity) in developing economies should be prepared to absorb an additional risk premium as lenders are exposed to significant volatility persistence. On the same note, investors should also come up with other sources of liquidity as volatility persistence will increase the cost of providing liquidity in emerging markets. Investors are recommended to allocate a significant part of their capital to unlisted infrastructure so that they can enhance their portfolio performance and reduce portfolio diversifiable risk. In order to hedge inflation risk, investors are recommended to look beyond infrastructure, real property and the general equity market in emerging markets. Policy makers in emerging companies are recommended to design contracts and concessions which link returns from long term infrastructure returns to inflation rate. On the same note, regulators in emerging financial markets are recommended to come up with policies which dampen the volatility of asset prices which in turn restore investor confidence, thereby attracting long term capital. Investors are encouraged to consider leverage effects when computing their value-at-risk figures and when making investing decisions. Researchers are encouraged to unbundle the infrastructure sector, and emerging markets ‘groups’ when making future studies. On the same note, as data become available and the economic environment changes, inflation hedging capabilities of the assets covered in this study can be evaluated on a longer term basis in different inflation environments.
Value relevance of financial statements of non-financial firms listed on the Johannesburg Stock Exchange.
(2020) Sixpence, Atanas.; Adeyeye, Olufemi Patrick.; Rajaram, Rajendra.
The year 2010 marks a full calendar year after the 2007-2009 global financial crisis (GFC). The GFC was characterised by huge losses across all equity indices on the Johannesburg Stock Exchange (JSE). The losses were not entirely commensurate with the operating performance of listed companies, as reported in their financial statements. While general negative sentiment associated with the GFC was a major driver of the mismatch between firm performance and share price movements on the JSE during the GFC, continued mismatches witnessed in the post-crisis period (2010-2017) raise questions regarding the usefulness of financial statements in explaining share price movements. This research examines value relevance of tangible book value, EBIT from continuing operations, firm size, financial risk, cash dividends, and retained earnings, using a dynamic panel dataset. The population comprises of all non-financial firms listed on the JSE that were active for the entire 2010 to 2017 study period, excluding new listings and de-listings during the period. Purposive sampling from all eligible industry sectors of the JSE was used, where the number selected from each industry was based on the total number of eligible firms in that industry, the population size and the sample size. Based on a population size of 200 firms, 50 were sampled for this research. Value relevance was determined by statistical significance of each financial statement variable, where lack of statistical significance means a variable is not value relevant. Two-step System Generalised Method of Moments (System GMM) was used in this study’s regressions. The dependent variables are firm value and share prices, where firm value is measured by market capitalisation, enterprise value and Tobin’s Q. EBIT was found to be value relevant regardless of the measure of firm value used while, on the other hand, book value is not value relevant. Firm size was found to have no significant effect on share price movements. Influence of a small firm’s discount on share prices of small companies is one of the original contributions of this study. Total debt and debt/equity ratio are the two measures of financial risk used and the debt ratio was found to be value relevant regardless of a firm’s risk category. Value relevance of total debt is contingent upon a firm’s risk category, leading to a high debt illusion, which is another original contribution of this study. Cash dividends and retained earnings were found to have no impact on firm value, which was measured by market capitalisation and Tobin’s Q. Findings in this study inform the decisions of company executives, equity investors, investment analysts, accounting standards setters, and other policy makers.

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