Financial Economics

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ACCESS TO FINANCE AND FINANCING PATTERNS OF FIRMS IN GHANA
(University of Ghana, Legon, 2011-06-22) AMAKYE, KWAKU
Access to external sources of financing for firms has been and continues to be an obstacle to the operations and growth of firms. Firms have used diverse means to finance their operations, especially internally generated funds. The purpose of the study was to investigate the determinants of the key external sources of financing working capital and new fixed investments by firms in Ghana. The main source of data for this study is the World Bank Enterprise Survey on Ghana; a firm level survey conducted in the year 2007. The Tobit estimation technique was used to investigate the determinants of the external sources of financing whiles analysis of variance was used to determine the variability in sources of finance according to firm size. The results of the study show that access to finance is perceived by firms as the second most serious obstacle to their operations. Secondly firms tend to rely more on internal sources of financing than external sources of financing. In the use of external sources of financing working capital, trade credit is more important than bank financing. However, firms finance a higher proportion of their new fixed investments from banks as compared to other sources of financing. The factors which influence the use of external sources of financing are firm size, audited financial statements, sector, educational level of the manager, ownership and location. The study recommends that firms, especially small firms, keep quality financial information on their operations. As firms put in place measures to improve on the needed financial information to external finance providers, financial intermediaries should also be encouraged to introduce more relationship lending products, if they are to meet the financing needs of Small and Medium Enterprises.
TESTING PECKING ORDER THEORY ON DIVIDEND PAYOUT RATIO IN GHANA
(University of Ghana , Legon, 2012-07-10) DOKU, ISAAC
The Pecking Order Theory (POT) suggests that firms prefer internal over external sources of financing investment. For external sources of finance, firms prefer the use of debt before equity to finance investment. However, the POT did not show how the capital structure decision of firms influences their dividend decision. POT can be combined with Lintner’s dividend model to generate some predictions for financial leverage. This leads to the conclusion that when firms are faced with earnings shortage, firms will borrow to pay dividend at the expense of profitable investment. This means there will be a positive interaction between financial leverage and dividend payout ratio, and a negative interaction between financial leverage and investment. The theory further predicts that as firms make more profit, they would demand less debt representing a reduction in financial leverage. The predictions of the POT where made based on data from developing countries. However, due to differences in accounting and auditing practices between developed and developing countries, these predictions might not hold in developing economies. A cross sectional analysis was implemented on 33 out of the 34 listed firms on the GSE for the period 2004-2009, employing both the 3SLS and OLS technique to test the predictions in Ghana. The findings indicate that there is a positive significant interaction between financial leverage and dividend payout ratio among listed firms in Ghana. The results further indicate that profitability has the predicted negative influence on financial leverage, indicating that the POT explains dividend payout ratio in Ghana. The results did not show any significant interrelationship between financial leverage and investment, and between investment and dividend payout ratio among listed Ghanaian firms. The results also show that dividend payout ratio in Ghana is very low, therefore, policymakers should strengthen and enforce laws on dividend payment in Ghana
THE EFFICIENCY OF UGANDA’S STOCK MARKET
(Makerere University, 2012-09-22) SSEMUYAGA, EMMANUEL
This study explored the efficiency of Uganda’s stock market and under this; the study focused on determining the degree of efficiency and estimation of the liquidity level and derived implications towards market efficiency. This was due to high volatility and puzzle in the debate of efficient market hypothesis. Finding the nature of stock market efficiency is important for investors who seek to find out whether they can get an opportunity of making excess returns from the market. The study used the GARCH model to determine the randomness of the distribution of the stock returns with a combination of tools that were used to analyze the results. Secondary data were obtained from Uganda securities exchange and Uganda bureau of statistics from the year 2006 to 2010. For determination of the degree of efficiency, the study used daily observations and for liquidity the study used annual data. Among the tools that were used for analysis include the Auto correlation test, Runs test, Kolmogrov – Smirnov (K – S) goodness of fit test and JarqueBera test. The results from the GARCH Model rejected the randomness of the distribution and indicated high volatility in the expected returns and this was again confirmed by low levels of liquidity. These indicated inefficiency of the market at weak form. This was also again confirmed by other tests mentioned above. Much as ALSI and NIC results were randomly distributed, the USE was still inefficient at weak form and thus the EMH was rejected. It was noted that New Vision printing company limited was weak form efficient. This study calls for use of modern technology like instant sending of SMS to market participants, increasing trading sessions and general awareness to improve on the flow of information.
MICRO ANALYSIS OF THE DETERMINANTS OF HOUSEHOLD SAVINGS: EMPIRICAL EVIDENCE FROM UGANDA
(MAKERERE UNIVERSITY, 2014-10-01) SAWUYA, Nakijoba
The aim of this study was to examine the micro level determinants of household saving in Uganda. This study used household level data obtained from Uganda National Household Survey (2009/2010) conducted by Uganda Bureau of Statistics. Household saving function was estimated using Ordinary Least Squares technique. Prior to the Ordinary Least Squares estimation, the study conducted preliminary analysis which involved presentation of descriptive statistics and a correlation matrix. The results from the OLS estimation reveal that, Income was the main determinant explaining the cross sectional variation of household savings in Uganda. The results show that household income, education of household head, spouse education, gender, age, and household location (living in urban areas) are factors positively and significantly influencing household saving. On the other hand, household size, marital status age square of household head and regional differences negatively and significantly influence household saving. The outcome of the study has various policy implications. Considering the income factor, one way to improve the saving level is by implementing policies that improve productivity and income of households. Institutions that are involved in development projects need to increase their support to improve the business environment of the rural and urban populations. Such decisions include improvement in the transport and communication infrastructure. Also of importance is increased involvement of the government in services that support economic activities in the rural areas such as, electricity, water, extension services and marketing channels. These will motivate households to increase their production, income and hence saving. The government should also increase its funding of the education sector not only to primary (UPE) and secondary (USE) but also tertiary institutions but also to the adult education program that has been running for decades.
STOCK MARKET PERFORMANCE AND ECONOMIC GROWTH: EVIDENCE FROM GHANA
(University of Cape Coast, 2014-10-12) APIO, ALFRED TUNYIRE
This study empirically examines the relationship between stock market performance and economic growth in Ghana using quarterly time series data from 1991 to 2012 for four stock market performance indicators, namely; stock market capitalization ratio, stock market turnover ratio, total value traded ratio and the Ghana Stock Exchange market index with three other control variables. The study employed the Johansen and Juselius (1990) multivariate cointegration technique and vector error correction model to investigate the long and short-run relationships amongst the variables. The standard Granger causality test is performed to establish the direction of causality. The impulse response functions (IRFs) and forecast error variance decomposition (FEVD) are used to assess shocks and the relative importance of each variable in the system. The results indicate a positive and significant relationship between stock market performance and economic growth. The Granger causality results suggest a unidirectional causality in general from stock market performance to economic growth. This substantiates the supply leading finance hypothesis. The IRFs and the FEVD results reinforce the positive link between stock market performance and economic growth. The study concludes that to tap into the growth enhancing capacity of the Ghana Stock Exchange, the government should initiate policies to promote the supply (tax incentives to companies to list on the GSE) of and demand (using the GSE as a source of finance for all government projects) of securities. This would ensure continuous and sustained economic growth in Ghana.
DETERMINANTS OF PRIVATE SAVINGS IN LESOTHO
(university of Lesotho, 2015-03-22) KALEBE, KALEBE M.
Savings are necessary if investment, and hence economic growth and development are to be stimulated. The paper looks at the broad set of possible determinants of private savings in Lesotho using annual time series data for the period 1980-2010. The paper estimates the saving rate function and Error-Correction modelling is used to avoid spurious results. The results indicate that public savings are important in explaining changes in private savings, both in the short-run and long-run and that the terms of trade negatively influence private savings in Lesotho in the long-run.
DETERMINANTS OF SAVINGS IN LESOTHO
(University Of Bostwana, 2017-05-10) TS’EPISO, CHRISTINA KHALECHANE
This study examined the determinants of savings in Lesotho during the period 1982-2014. Though similar studies have been done in other countries, few have been done in Lesotho. The objectives of the study were to estimate the short-run and long-run determinants of savings in Lesotho and to propose policies to guide future decision making of government. To achieve these objectives, the study adopted the Auto Regressive Distributed Lag bounds approach in analysing the determinants of savings in Lesotho. The empirical results indicate that in the long run, Budget deficit, money supply and terms of trade were found to have a significant positive effect on national savings in Lesotho. On the other hand, deposit rate and GDP per capita income had a significant negative effect on national savings in the long run. The results for short run indicate that budget deficit, deposit rate and GDP per capita income have a positive effect on national savings. On the other hand, terms of trade was found to have a negative effect on national savings in short run. Policy implications emerging from the empirical results were that the government should expand their fiscal policy, reduce unemployment rate by proving new opportunities for employment, resort to diversification and also it should align its policies to those of South Africa since Lesotho’s economy is influenced mostly by South African economy
STOCK MARKET ANOMALIES AND MOMENTUM STRATEGIES ON THE MALAWI STOCK EXCHANGE
(university of Malawi, 2017-10-06) SAULOSI, THOKOZANI MAXIN
This paper uses asset pricing models to analyze whether the nascent Malawi stock exchange exhibits calendar anomalies and whether returns are influenced by factors investigated in mature and more sophisticated markets. The findings are that there exist a positive Tuesday and Thursday, day of the week effect on returns at the market level but with the lowest risks. However, when controlled for the size effect and the value premium as per the Fama and French (1993) three-factor model, it was found that the day of the week effect disappears. Rather than the usual January effect, May has a stronger effect in terms of month of the year effect. The possible profit opportunities on the SEM in terms of both economic and statistical significance are also investigated and how robust these strategies are after controlling for size and value.Strong momentum profits were found to be associated with small market capitalization portfolios as well as high book equity to market equity. The momentum factor was also statistically significant when considering momentum portfolios, in addition to the size effect and value premium. However, the explanatory power of the momentum factor does not dominate that of size and value.
EFFECTS OF REMITTANCES AND INFRASTRUCTURE ON PRIVATE INVESTMENT: EVIDENCE FROM GHANA
(UNIVERSITY OF CAPE COAST, 2018-11-01) MENSAH, Samuel
This thesis examined the effects of remittances and infrastructure on private investment in Ghana. Specifically, the study investigated the combined effects of remittances and infrastructure on private investment as well as the causal relationship between remittances and private investment and between infrastructure and private investment. The Autoregressive Distributed Lag (ARDL) approach to cointegration was used with annual data from WDI, IMF, BOG and ISSER for the period of 1984 to 2017. The research finds that remittances alone does not influence private investment in Ghana. However, given the existence of infrastructure, remittances can simulate private investment in Ghana. The results indicate that existence of infrastructure might be a significant channel through which remittances affect private investment in Ghana. Thus, the net effect of remittances and infrastructure on private investment is empirically higher in promoting private investment in Ghana. The Granger Causality test reveals that there is bidirectional causality between remittances and private investment but unidirectional causality between infrastructure and private investment. Based on the findings, it is recommended that the Ministry of Finance should allocate more funds to the Ministry of Roads and Ministry of Power and Energy to boost infrastructural development such as road construction and electricity generation. This will create and ensure favorable investment climate for remittances to be invested.
DETERMINANTS OF MARKET PARTICIPATION AMONG SMALLHOLDER RICE FARMERS IN TANZANIA
(University of Dar es Salaam, 2018-11-03) MPOMBO, Lucy Bosco
Market participation among smallholder farmers in developing countries is a crucial economic venture since it elevates their poverty status and ensures food security. The study aims to determine the factors that affect the smallholder rice farmers’ market orientation tendencies, market participation decision and finally the extent of market sales in Tanzania. A total sample of 352 rice growing households is drawn from the National Panel Survey Data of 2014/2015. The study uses the household as a unit of analysis since it is assumed that he represents the entire households’ decisions. The study uses 2 models: the first is a Tobit model that seeks to determine the factors that influence market orientation tendencies. Later a double hurdle model which seeks to analyze the determinants of the two sequential hurdles (participation and intensity) to be crossed by the smallholder rice farmer. The study finds out that the age of the household head, secondary level of education and receiving inputs on voucher system negatively affects market orientation while access to market extension, use of inorganic fertilizers, use of animal traction, hiring labor, land fragmentation and wealth of the household positively influence market orientation inclinations among smallholder farmers. For the second model, the harvest quantity and wealth of the individual were found to positively influence both decision and extent of market participation. Furthermore, the age of the head, family size and access to extension services influenced the decision to participate in the market while market distance and market orientation highly influenced the extent of market participation among smallholder rice farmers in Tanzania. The results imply that interventions to enhance market orientation would highly increase quantity sold, while improving access to marketing information through extension agents could improve both market orientation and decision to participate among smallholder rice farmers in Tanzania.
DETERMINANTS OF NON-PERFORMING LOANS IN UGANDA’S COMMERCIAL BANKING INDUSTRY 2002:1 – 2017:2
(MAKERERE UNIVERSITY, 2018-12-01) NATHAN, Sunday
Over the past decade, non-performing loans in Uganda’s commercial banking industry have continued to show a positive trend. The continued increase in NPLs has not only affected credit growth, but has also resulted in the collapse and closure of some commercial banks such as Crane Bank (in 2017), Global Trust Bank (in 2014). It’s against this background, that the study examined the determinants of NPLs in Uganda’s commercial banking industry. The study used secondary data on quarterly basis for the period 2002 quarter one to 2017 quarter two. Data on bank-specific factors was obtained from bank of Uganda while that for macroeconomic factors was obtained from IMF and World Development Indicators (World Bank) Secondary data Empirical analysis was carried out on both bank specific and macroeconomic factors using bounds test and ARDL technique. The findings of the study suggest that non-performing loans increase with increase in lending rates, real effective exchange rate and unemployment rate. Whereas increase in returns on assets and GDP growth are associated with a decreasing effect on non-performing loans. Based on the findings, the study recommends that commercial banks should consider the international competitiveness of the domestic economy before extending loans so as to minimize the effect of real exchange rate appreciation. Efforts to lower lending rates (for example, by reducing operating costs of the banks and increasing liquidity of the banks) are of paramount importance in this regard. Furthermore, there is need to promote GDP growth for example, by creating a conducive business atmosphere and promoting high productivity industries. There is also need to reduce unemployment rate by developing labour market information system and supporting labour intensive industries. Promoting stock markets would also enable banks diversify their portfolio and therefore spread their risk.
FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: EVIDENCE FROM LIBERIA
(MAKERERE UNIVERSITY, 2018-12-01) PROWD, Roosevelt S.
The relationship between financial development and economic growth is a contentious issue. For developing countries, empirical studies have provided conflicting results. This study seeks to empirically explore the relationship between financial development and economic growth in Liberia over the period 1960-2016. Consequently, the study employs the bounds testing approach to co-integration and error correction models developed within the Autoregressive Distributed Lag (ARDL) framework to explore the long-run and short-run effects of financial development on economic growth in Liberia. The empirical results indicate the existence of a long run relationship between economic growth and financial development in Liberia. The result of the error correcting term (ECM) indicates an adjustment to the equilibrium state after a shock. The lagged error term coefficient has the correct sign and is significant at 1% test level. This suggests that about 92% of distortions created by shocks in the preceding year can be restored in the current year. This serves to further affirm the presence of long-run financial development and economic growth nexus in Liberia. In the short run, however, the results showed that financial development and economic growth are insignificantly related. Consistent with the findings, it is recommended that processes and institutions that facilitate a sound and competitive financial market must be improved for efficient allocation of credit and insurance, collection of loans, and secure and efficient payment services based on transaction accounts, as well as the protection of depositors and safety of the financial system. These reforms would contribute to improving the quality and affordability of financial services available to consumers and business of all sizes, particularly SMEs and to low-income households and thus spur growth.
EFFECT OF CORPORATE INCOME TAX RATE ON GREENFIELD INVESTMENT: EVIDENCE FROM SELECTED AFRICAN COUNTRIES
(UNIVERSITY OF CAPE COAST, 2019-02-02) ANSONG, Joseph Danquah
The competition to attract greenfield foreign direct investment (FDI) among countries, due to its benefits, has taken the form of a reduction in the corporate tax rate globally over the decade. Aiming to determine the tax effect in attracting new investment into a country, the study focused on three objectives: the trend of corporate income tax and greenfield FDI, the effect of corporate tax rate on greenfield investment and the determinants of greenfield investment. In estimating the objectives of the study, the fixed effect, random effect and system GMM estimation techniques were employed on annual panel data of 19 selected African countries from 2007 to 2016. The results of the study found that corporate income tax rate had a declining trend over the past decade whiles greenfield FDI had a fluctuating trend. Also, a reduction in corporate income tax rate attracts the inflow of greenfield FDI. The last objective showed that market size, purchasing power, inflation, country risk and agglomeration effect were important determinants of greenfield investment. Based on the findings of the study, it is recommended that there is the need for the governments of African countries to reduce corporate income tax rate, institute policies to reduce inflation and promote a sound, violence-free and friendly environment that would attract greenfield investment inflows.
Analysis of Firm Capital Structure Decisions: The Case of Non-Banking Firms in Botswana
(University Of Bostwana, 2019-09-02) Ntongana, Epiphany Linden
This study seeks to bridge the knowledge gap by analyzing capital structure decisions of non-banking firms in Botswana. The study also investigates the effects of macroeconomic conditions on firms’ investment behavior as measured through their capital structure decisions, with a specific focus on Botswana non-banking firms. This study’s focus on non-banking sectors is based on the difficulty in comparing firms in banking sector and those who are not, mainly due to the regulations firms face regarding capital structure. Moreover, since Botswana’s diversification efforts are targeted at expanding the economy’s productive sectors in order to reduce dependence on the mining sector, the study seeks to focus on the capital structure of the firms in these other sectors. As a consequence, the study looks at the banking sector as part of the sources of capital structure which they provide to firms in the country, hence the exclusion of the commercial banks and the Botswana Stock Exchange as firms in the study. The capital structure decisions of non-banking firms in Botswana are examined using a Two-step Generalized Method of Moments (GMM) which takes into account simultaneity issues in the dataset, as well as through Quantile regression in order to examine the sectors in depth."
DETERMINANTS OF THE INFORMAL SECTOR PARTICIPATION: A CASE OF GLENVIEW SUBURB, HARARE METROPOLITAN PROVINCE, ZIMBABWE.
(University of Zimbabwe, 2020-06-22) BHANYA, TARIRO COLLINS
The objective of this study is to identify the determinants of the informal sector participation in Zimbabwe using Glenview Suburb, Harare as a case study. Cross-sectional primary data is collected from 379 household heads proportionally distributed basing on number of households in each ward. Households heads in each ward are randomly selected. The logistic regression model is used to analyse the factors determining participation in the informal sector. 73.09 percent of the respondents are found to be participating in the informal sector. From the regression results, the coefficients of gender, household income, household size, formal sector employment history (retrenched and never employed), linkages, taxation and government regulations are the significant. However, coefficients of age of the household head, marital status of the household head, education level of the household head, vocational training of the household head, formal sector employment status of the household head (retired) are the insignificant variables. It is recommended that government should implement policies directed at stimulating male participation in the informal sector. In addition, the government should strengthen its social welfare and income redistribution and equality policies. Moreover, to cut household head burden, it is recommended to use health policies (such as birth controls) to control fertility. On the other hand government was recommended to revisit its legislation and policies to make sure that they are friendly to the formal business environment. After policy recommendation, suggestions for further studies are made.
THE IMPACT OF TRADE CREDIT USE ON CORPORATE PROFITABILITY: THE CASE OF MANUFACTURING FIRMS LISTED ON THE ZIMBABWE STOCK EXCHANGE (2009-2017)
(UNIVERSITY OF ZIMBABWE, 2020-08-25) GUMBO, NOEL
The purpose of this study was to examine the impact of trade credit as a source of funding among manufacturing firms listed on the Zimbabwe Stock Exchange (ZSE) for the period 2009 to 2017. In doing so, panel data collected from financial statements of fifteen manufacturing firms listed on the ZSE for the period 2009 to 2017 were used. As suggested by the Hausman Specification Test and Breusch-Pagan Lagrangian Multiplier Test, the study adopted the Random Effects Model. The study found that trade credit negatively affects firm profitability. Furthermore, firm size and liquidity were found to have positive impact on firm profitability while leverage was found to be irrelevant as predicted by the Modigliani-Miller Proposition 1. Basing on these findings, the study advises manufacturing firms to reduce the use of trade credit as a financing source by making early payments to their suppliers and opt for the issuance of debt and equity since leverage had no impact on firm profitability. Apart from that, manufacturing firms should strive to increase their size by investing in assets with positive Net Present Value (NPV). Manufacturing firms need to engage in intensive cash management techniques in order to increase and preserve their liquidity levels.
THE IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF BANKS IN MALAWI
(UNIVERSITY OF MALAWI, 2020-09-30) SADDICK, LOUISS MCMILLAN CHIDA
The relationship between capital structure and firm profitability is under researched in Malawi and most African countries. The theoretical explanation of the subject dates back to the Modigliani and Miller capital structure irrelevance theory of 1958 which states that the capital structure decision of a firm has no impact on profitability and firm value. Most recent theories suggest an existence of an optimal combination of debt and equity that maximises profits. Literature from different countries has produced mixed results on the subject. Using data of six banks from 2005 to 2016, this study examines the impact of capital structure on bank profitability in Malawi. Specifically, it examines the impact of debt equity ratio on profitability of banks in Malawi. We use the Arellano and Bover General Method of Moments estimator to estimate a dynamic panel model of the relationship between capital structure and bank profitability. Evidence shows that debt equity ratio has no impact on profitability measured by return on assets but has positive impacts on return on equity. The square of debt equity ratio is positive and significant on return on assets but insignificant on return on equity. The findings reject the existence of an optimal debt equity ratio in the Malawi banking sector. This study concludes that debt in Malawi has a positive impact on bank profitability. As debt increases, bank profitability measured by return on equity also increases. Banks should therefore focus on financing assets through debt than equity as it positively affects return on equity.
EFFECTS OF FINANCIAL INCLUSION ON POVERTY REDUCTION AND INCOME INEQUALITY IN BOTSWANA
(UNIVERSITY OF BOSTWANA, 2021-01-08) LECHANI, KGANGYAME
The study examines the effect of financial inclusion on poverty reduction and income inequality in Botswana using quarterly time series data for the period 2004-2017. The Autoregressive Distributed Lag (ARDL) model is used to establish the effect of financial inclusion on poverty reduction and income inequality. The ARDL approach integrates both the short-run relationship and long-run relationship. The results showed that financial inclusion significantly reduces poverty and income inequality, both in the short run and in the long run. Moreover, other socio-economic variables, per capita income, education, population growth, and age dependency ratio have a negative relationship with poverty rates, suggesting that an increase in these variables would promote a reduction in poverty rates in Botswana. Similarly, the age dependency ratio and per capita have a negative effect on income inequality in the long run. These results suggest that, policies that promote financial inclusiveness are imperative for reducing the high rates of poverty and income inequality in Botswana.
FINANCIAL DEVELOPMENT, INSTITUTIONS AND ECONOMIC GROWTH IN SUB-SAHARAN AFRICA
(University of Cape Coast, 2021-05-10) ASAFO, JOSEPH KWASI
This study analyses the effect of financial development on economic growth in SSA and the moderating role played by institutions. The study employed system General Methods of Moments (GMM) approach on 36 SSA countries over 18-year period. The study revealed that using narrow-based financial development indicators as a proxy for financial development may lead to underestimation of the effect of financial development on economic growth. Financial market development is the aspect of financial development that is found to be efficient and effective in affecting economic growth. Again, all the institutional variables are effective in playing the moderating role of institutions on financial development to affect growth but political stability appeared to be the driving force among the institutional variables in SSA. Based on the results, the study recommends that researchers must consider the multidimensional measures for financial development when analysing the effect of financial development on any macroeconomic or policy variable. Also, resources and policies must be directed towards financial market development by various governments and their central banks anytime they desired to stimulate the financial development to affect growth. In addition, the study recommends that, attention should be given to all the institutional variables but political institutions need to be given more priority within the SSA region by various governments.

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