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Item Open Access Basel III regulatory requirements and the performance efficiency and capital structure of selected listed African banks(2022-11-10) Obadire, Ayodeji Michael; Moyo. V.; Munzhelele, N. F.This study examined the impact of Basel III regulatory requirements on the financial performance, stability, efficiency, capital structure and risk-taking behaviour of selected listed African banks. The research hypotheses were formulated and tested using the Blundell and Bond system of Generalised Methods of Moment (GMM), pooled Ordinary Least Squares (OLS), Random Effects (RE), and Fixed Effects (FE) estimators. The study further used a panel data of 45 listed banks from six African countries that had adopted the Basel III Accord for the period 2010 to 2019. The system GMM estimator was used to estimate the impact of the Basel III regulatory requirements on the capital structure decisions of the selected African banks. Robustness tests were performed by using the two-step Blundell and Bond system GMM procedure. The robust results showed that the selected African banks were highly leveraged with a positive relationship between the Basel III minimum capital requirement, capital adequacy ratio, capital buffer premium and the bank leverage measured by the ratio of Tier 1 capital to total exposure. Furthermore, the study revealed that the bank specific capital structure determinant such as the bank size, asset tangibility and profitability had a significant and positive impact on African banks’ observed leverage and were important determinants of the discretionary capital. The trade-off, pecking order and agency cost theories were the three underpinning capital structure theories that complimentarily explained the financing behaviours of the selected African banks. Furthermore, the study used the pooled OLS, FE and RE estimators where appropriate to fit the models testing the impact of Basel III regulatory requirements on the financial performance, stability, efficiency and risk-taking behaviour of the selected African banks. Robustness tests were performed by conducting diagnostics tests such as the F- test, Breusch and Pagan test and the Hausman specification test. These tests were conducted to select the appropriate estimator amongst the pooled OLS, FE and RE estimators. To test the banks’ financial performance, the RE and FE estimators were used to fit the ROE and ROA models respectively whilst the pooled OLS estimator was used to fit the banks stability model. Moreover, to test the banks’ efficiency, vi the pooled OLS and RE estimators were used to fit the NIMR and OETA models respectively, whilst the RE estimator was used to fit the banks’ risk-taking behaviour models. Furthermore, the study showed that the capital adequacy ratio had a significant positive effect on the financial performance of the selected African banks, whilst the liquidity requirement was positively correlated to bank stability. In addition, the capital buffer premium had a significant positive impact on both measures of bank efficiency, whilst the liquidity requirements showed a more significant impact, and was consistent across all the three measures of the risk-taking behaviour of the selected African bank. The current study contributes to the body of knowledge in eight significant ways and most importantly proposes an optimum model and mix of regulatory capital requirements that can maximise the financial performance, stability and efficiency of the selected African banks.Item Open Access The determinants of financial flexibility and investment efficiency: some evidence from JSE - Listed and Non - Financial firms(2021-06-23) Kayiira, Joseph; Moyo, V.; Munzhelele, FreddyMaking and implementing financing decisions to achieve corporate objectives has been a challenging task for many corporate managers for decades. Achieving and maintaining financial flexibility, investment efficiency and ensuring the availability of funds for investment through payout policies are important financing decisions to maximise shareholder’s value. Financial flexibility is important as it determines the financing, investment and distribution policies of a firm and the firm’s payout policy determine the amount of capital available for investment. On the other hand, investment efficiency is fundamental in making strategic investment decisions as it requires that capital investment should only be allocated to profitable projects. Therefore, it is essential to understand the driving factors of these financial management aspects as there are no studies that have examined the impact of firm specific factors and payout policies on the firm’s financial flexibility and investment efficiency in Africa, including South Africa. To examine these financial management aspects, firstly, the study derived and tested estimation models of financial flexibility and investment efficiency in the context of the South African non-financial firms listed on the JSE Limited. Secondly, the study investigated the impact of selected firm-specific factors on the financial flexibility of the non-financial firms listed on the JSE Limited. It further analysed the impact of selected firm-specific factors on the investment efficiency of the non-financial firms listed on the JSE Limited. Lastly, the study examined the relationship between financial flexibility and investment efficiency of non-financial firms listed on the JSE Limited. A panel of 106 non-financial firms with complete data for periods from 2000 to 2019 was constructed and used in these tests. The research hypotheses were formulated and tested using the appropriate regression models selected from the Random Effect Model (REM), Fixed Effect Model (FEM) and System Generalized Method of Moments (GMM-SYS). The study shows that financial flexibility decreases with an increase in leverage, investment opportunities, payout and finance costs. However, it increases with profitability, cash and cash equivalents and asset tangibility. Based on the study, JSE-listed firms are financially flexible and the determinants of financial flexibility in these firms are leverage, Tobin’s Q, finance cost, dividends, profitability, tangibility and cash and cash equivalents. The significant factors that determine financial flexibility in the JSE-listed non-financial firms are Tobin’s Q and finance cost as they show a significant correlation with financial flexibility. On the v other hand, dividends, profitability, tangibility and cash and cash equivalents show an insignificant relationship. Also, the study shows that investment efficiency in the JSE-listed non-financial firms increases with leverage, payout, growth options, sales growth and cash flow. It, however, decreases with financial flexibility, firm age and size. The main determinants of investment efficiency in these firm are leverage, payout policy, growth options, sales growth, cash and cash equivalents, firm age and firm size.Item Open Access Testing the FAMA and French Five - Factor Model on the JSE - Listed firms(2021-06-23) Neluvhalani, Khathutshelo; Moyo, Vusani; Reynolds, ArthurThe Capital Asset Pricing Model (CAPM) has its fair share of weaknesses and problems such as its well documented series of unrealistic assumptions. As a response Fama and French (1992) introduced the Fama and French three-factor model (FF3FM), but it remains unpopular among investors, practitioners and academics compared to the CAPM because it is deemed not cost effective and thought of as not being better than the CAPM. In 2015, Fama and French introduced the Fama and French five-factor model (FF5FM) that augmented profitability and investment into their FF3FM. Cakici (2015), Jiao and Lilti (2017), Foye (2018) and others have tested the five-factor model using data from their respective stock markets. The findings of these studies may not necessarily apply to South Africa because of institutional differences between countries. However, South African studies used different testing methods compared to this study. Therefore, given this background, this study sought to test the effectiveness of the FF5FM against the CAPM and the FF3FM in estimating stock returns on the Johannesburg Securities Exchange Limited (JSE Ltd). This study tested the performance of the FF5FM against the CAPM and the FF3FM using data from the JSE-listed firms. The study sought to find out if the FF5FM performs better than the CAPM and the FF3FM when estimating stock returns of JSE-listed firms. Specifically, this study tested the CAPM, FF3FM and FF5FM using all the JSE-listed firms to determine which model explains better the common variation and the cross section of expected future stock returns. In addition, the study investigated whether the value factor became redundant when the additional factors, profitability and investment were added to the FF3FM as per Fama and French (2015). Using the bespoke Generalized Method of Moments (GMM) of Hansen (1982) to carry out the regressions with data from the JSE for the period 2003 – 2019, the results show that profitability is a more reliable factor than investment in explaining share returns. The results also show that the FF5FM performs better than the other two models in estimating returns based on the assumption that most holding periods are significantly shorter than 16 years. Furthermore, the test results rejected the hypothesis that the value factor becomes redundant in explaining stock returns when more factors are added to the FF5FM.Item Open Access The Impact and Determinants of the Qualitative Characteristics on the Usefulness of Financial Reporting: Some Evidence from Selected JSE-Listed Firms(2020-05-20) Sinthumule, Orifha; Moyo, V.The objective of financial reporting is to provide useful information about, the financial position, financial performance and cash-flow position of an entity, to the users of its financial statements. For countries that have adopted the International Financial Reporting Standards (IFRSs), the International Accounting Standard Board (IASB) has set out the basis on how the financial statements should be prepared and presented. The IASB’s Conceptual Framework provides the principles and guidelines for the developments of the IFRS standards. Through the years, there has been a number of revisions to the conceptual framework that sought to improve the quality of the accounting standards and usefulness of financial reporting. According to the IASB’s Conceptual Framework (2018), for financial statements to be useful, they must possess all the qualitative characteristics of financial reporting. These qualitative characteristics of financial reporting, as outlined in the conceptual framework (2018) are - reliability (faithful representation) and relevance, which are the fundamental qualitative characteristics and the enhancing qualitative characteristics which are - understandability, comparability, verifiability and timeliness. The improvements on the conceptual framework are aimed at improving the usefulness of financial reporting. In South Africa, there are limited studies that have investigated the impact of the qualitative characteristics of financial reporting on the usefulness of financial reporting. The study used data collected from a total of 52 JSE-listed companies operating in the mining, retail and industrial sectors which are listed on the JSE; focusing on the periods 2006, 2012 and 2018 to investigate the impact of the qualitative characteristics of financial reporting on the usefulness of financial reporting. The findings of the study show that all the qualitative characteristics of financial reporting have an impact on the usefulness of financial reporting. Furthermore, the firm size, industry where the firm operated and the leverage of the firm – have an impact on the FEQC of financial reporting.Item Open Access Corporate Social Responsibility in the Banking Industry: A Comparative Study of South African, Nigerian and the United Kingdom Banks(2020-02) Tshiololi, Mpho; Moyo, V.The Corporate Social Responsibility (CSR) concept emerged in the 1960s as an attempt to link businesses with their surrounding society and environment. Over recent years, CSR has been recognized as one of the significant concepts that are prioritized in both academic and professional practices, and this concept has also aided companies to achieve sustainable competitive advantages within their respective industries. This study is aimed at evaluating the nature and level of CSR disclosure in the South African banking institutions in comparison to Nigerian and United Kingdom banking institutions. Secondly, it aims to investigate the determinants of CSR disclosure of the South African, United Kingdom and Nigerian banking institutions. The study used data collected from the integrated reports of South African, Nigerian and the United Kingdom listed banks during the period from 2010 until 2018. In line with the Branco and Rodrigues’ (2006 and 2008) disclosure index, the study used 23 items of CSR disclosure to conduct the content analysis of the bank’s integrated reports to evaluate the nature and level of CSR disclosure. The study also made use of the regression analysis to identify the determinants of CSR disclosure used by South African, United Kingdom and Nigerian banks. The data collected for the regression analysis was split into three panels, namely, South African banks, Nigerian banks and the full sample. To identify these determinants, the study utilized STATA 15 and the fixed effects and random effects estimators to fit the regression models. The results of the content analysis show that South African and the United Kingdom banks mainly focused on the disclosure of CSR information relating to Human Resources while the Nigerian banks mainly focuses on the disclosure of CSR information relating to Product and Customers. The study also found that the overall level of CSR disclosure between the three countries does not differ significantly. With regard to the determinants of CSR disclosure, the banks’ leverage and the number of board members appear to be the main factors that have either a positive or negative impact, on the CSR disclosure in the South African banks. For Nigerian banks, the age of the banks is the only factor that appears to have an impact on the disclosure of CSR information. Furthermore, this study also found that the age of the bank is the main factor that has a positive impact on the disclosure of CSR information of the full sample (combined South African and Nigerian banks sample). Other factors including, bank size, return on equity, and ownership concentration were found to have no significant impact on the disclosure of CSR information of either South African or Nigerian banks. The study is subjected to the limitations of using manual content analysis and the use of integrated reports as the only source of data collected for the study. This study contributes to the limited literature on CSR disclosure within financial institutions.Item Open Access The impact of macroeconomic variables on the equity market risk premium in South Africa(2018-09-21) Obadire, Ayodeji Michael; Moyo, V.; Mache, F.The relationship between the Equity Market Risk Premium (MRP) and macroeconomic variables has been a subject of extensive discussion in the finance literature. The MRP is a central component of the main asset pricing models which are used to estimate the cost of equity which is mainly used in investment appraisal, performance measurement and valuation of equity assets. Past studies have identified inflation rate, interest rate, foreign exchange rate and political risk as the key macroeconomic variables that determine the size of the MRP. The test of the impact of these variables on the MRP have however been based mainly on data from developed countries and a few emerging countries. To the researcher’s knowledge, there are no studies that have investigated the impact of these macroeconomic variables on the MRP in South Africa. It is necessary to test the impact of these variables in the context of South Africa as these variables vary across countries. Using time series secondary data that was obtained from the SARB database, JSE database and World Bank database for the period 2002 to 2017, this study investigated the impact of these variables on the MRP in South Africa. A total of 192 observations per series of the inflation rate, interest rate, foreign exchange rate, political risk, JSE-ALSI and 91-days Treasury bill was used in the study. The data used were tested for possible misspecification errors that could arise from using a time series secondary data and the regression model was fitted using the Ordinary Least Square (OLS) estimator. The misspecification tests and models were both implemented on STATA 15 software. The results shows that inflation rate, interest rate and foreign exchange rate have a negative impact on the MRP whilst political risk has a positive impact on the MRP. Furthermore, the result shows that the inflation rate is the only variable amongst other variable tested that has a significant influence on the MRP for the study period. The study, therefore, concludes that inflation rate has the highest impact on the MRP in the context of South Africa. The study recommends that inflation rate should be monitored and kept within its target of 3-6% amongst other variables tested in order to increase investors’ confidence in the security market and also foster economic growth. The main limitations to the study were the limited data sources and insufficient funds.Item Open Access The impact of the global financial crisis on the cash flow sensitivity of investment: some evidence from the Johannesburg Stock Exchange listed non-financial firms(2018-05-18) Munthali, Ronald; Moyo, V.; Mache, F.The relationship between a firm’s investment behaviour, financial constraints and the level of internally generated cash flows has been a subject of extensive discussion in finance literature. The discussion revolves around the effectiveness of investment cash flow sensitivity (ICFS) as a measure of financial constraints with contradicting conclusions. Empirical literature is also not in agreement about the best firm-specific proxy to distinguish firms into financially-constrained versus financially-unconstrained ones and the effect of the 2007 to 2009 global financial crisis on the ICFS of South African firms is still to be determined. There are very limited studies that have investigated ICFS in developing economies. This is important as institutional differences and capital market developments between developed and developing economies justify a separate study of South Africa as a developing economy. This study used data drawn from 131 Johannesburg Stock Exchange listed non-financial firms for the period 2003 to 2016 to establish the most suitable criterion for distinguishing firms into financially constrained versus unconstrained, to determine the effect of the 2007 to 2009 global financial crisis on the ICFS and to determine if ICFS is a good measure of financial constraints. The data for the 131 sampled firms was obtained from the financial statements on the IRESS database. The dataset was split into constrained versus unconstrained firms using three firm specific splitting variables: firm size, cash flow holding and dividends pay-out. The data was further split into panel 1 (2003 to 2006 covering the period before the global crisis); panel 2 (2006 to 2010 covering the period including the global financial crisis period) and panel 3 (2010 to 2016 covering the post global financial crisis period). The study utilised the system generalized moments method (GMM) regression model that yields consistent estimates even with unbalanced panel data sets and the Fixed Effects estimator. The models were both implemented on STATA 15 software. Samples split based on the dividend pay-out showed the highest ICFS for financially-constrained firms before, during and after the global financial crisis period. ICFS is highest during the period including the global financial crisis years compared to samples split using firm size and cash flow holding. The study concludes that dividends pay-out is the best criterion to distinguish firms into financially-constrained versus unconstrained; the global financial crisis constrained all firms; and that ICFS can be a good measure of financial constraints. The main limitation to the study was that it used a small sample size in relation to other international studies.