Department of Business Management

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Browsing Department of Business Management by browse.metadata.advisor "Biekpe, Nicholas"

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    Capital structure and financing of SMEs : empirical evidence from Ghana and South Africa
    (Stellenbosch : Stellenbosch University, 2007-12) Abor, Joshua; Biekpe, Nicholas; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management.
    ENGLISH ABSTRACT: This thesis is made of stand-alone essays on the capital structure and financing of Small and Medium Enterprises (SMEs) in Ghana and South Africa. Chapter Two reviews issues on SME development in Ghana and South Africa. Chapter Three compares the capital structures of large, quoted firms and SMEs in Ghana. The results show that quoted firms exhibit higher debt ratios than those of SMEs. The results suggest that age, size, asset structure, and profitability of the firm affect the capital structures of quoted firms and SMEs. For the SME, it is evident that level of education and gender of the entrepreneur, industry, and location of the firm are also important in explaining their capital structure. Chapter Four examines the determinants of bank financing of SMEs in Ghana. The results reveal that bank financing accounts for less than a quarter of SMEs’ debt financing, with short-term bank credit representing the greater proportion of bank finance. The results show that age, size, asset tangibility, and growth of the firm have positive associations with long-term bank debt, while profitability is negatively related to long-term bank debt. The short-term debt indicates a positive relationship with size, but negative relationships with profitability, and growth. Chapter Four also investigates the awareness and use of various financing schemes available to the Ghanaian SME sector. The results reveal low awareness and usage levels of these financing initiatives. Chapter Five explores the determinants of Ghanaian small and medium sized non-traditional exporters’ (NTEs) choice of formal/informal finance. The results show that NTEs depend on formal financing sources with bank finance representing the greater percentage of NTEs’ financing. The results suggest that, newer firms depend more on formal finance and less on informal finance. The results show positive relationships between formal finance and size, and growth of the firm. Chapter Six assesses how corporate governance affects the performance of SMEs in Ghana and what the implications are for financing opportunities. The results reveal that better corporate governance structures lead to better performance of SMEs. The paper concludes that the adoption of good corporate governance structures could lead to better management decisions and enable SMEs to attract financing resources. Chapter Seven examines the relationship between agency factors and the capital structure of quoted SMEs in South Africa. The results indicate that firms with one institutional blockholder are able to monitor the opportunistic behaviour of management more effectively than those with more than one institutional blockholders. Chapter Eight looks at the financial market and financing choice of SMEs and large firms in South Africa. The results indicate that developments in the financial market affect both longterm debt/equity and short-term debt/equity decisions of large firms. However, for SMEs, it is the long-term debt/equity decision that is affected by the financial market. The final essay examines the effect of debt policy on the performance of SMEs in Ghana and South Africa. The results indicate that long-term debt and total debt ratios negatively affect performance of SMEs. These findings have important implications for policy-makers, entrepreneurs and managers of SMEs.
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    The critical success factors for commercialising microfinance instititions in Africa
    (Stellenbosch : University of Stellenbosch, 2010-03) Kiweu, Josephat Mboya; Biekpe, Nicholas; University of Stellenbosch. Faculty of Economic and Management Sciences. Dept. of Business Management.
    ENGLISH ABSTRACT: Uncertainty of continued donor funding poses a risk to microfinance operations worldwide, and this study explores the circumstances under which African microfinance institutions (MFIs) will consider commercial funding as a viable alternative source of funding. This research aims to identify the factors that are associated with successful access to private capital for pro-poor financial institutions. It examines the suitability of new opportunities for accessing fresh capital by MFIs for development and poverty reduction using commercialisation as an option. In a world awash in private capital, it is vital to harness the power of the private sector to solve key development challenges (World Bank, 2007). As microfinance institutions grow, they increasingly find themselves in need of additional capital to finance expansion of services to cover more poor communities. The study undertook a cross-country data analysis of 103 microfinance institutions to help provide understanding of the critical success factors that underpin successful access to commercial capital. The study also tested the hypothesis on the viability of commercial finances, and developed and tested a commercialisation success model for tapping commercial funds. The prediction model based on firm-level data from a sample of 21 African countries between 1998 and 2003, aims to minimise chances of failure and act as a screening system by investors as well as a selfassessment tool for MFIs intending to seek commercial capital. On examining the direct and indirect impact of firm-level success factors on commercialisation, the study identified key predictors of success and guidelines for MFI financing’s integration with the larger financial system. The study finds that certain critical success factors (CSFs) define minimum pre-conditions for microfinance institutions considering commercial funding as an alternative source of finance. There is evidence to suggest that the desire to tap into the capital markets and capacity to link with commercial investors is a realisable vision for African MFIs. The research evidence is instructive of widened financing options for MFIs and capacity to relax growth constraint in the industry. Based on the CSFs, the study suggests how MFIs can break free from 'captive' donor funding as a necessary platform for the switch to commercial finance in the industry. However, the findings also suggest the need for MFIs to satisfy the interests and requirements of prospective commercial investors to overcome new challenges. In particular, the results show that the extent of organisational formalisation and transparency in financial reporting are absolutely essential in drawing commercial lenders to invest in microfinance. In addition the study establishes the reasons why traditional approaches to financing microfinance cannot work any longer. There are some concerns on mission drift; in particular whether the poor gain from commercialisation, and under what circumstances their interests are taken care of in order to preserve the long-term social value of microfinance as a poverty reduction strategy. The study was carried out based on a rather limited time series data. However, the number of firms and the diversity is considered adequate for the study, as well as sample representation across Africa. The study also used views of 'thought leaders' as the source of information. Other personnel calibre may have had different suggestions. Perceptions were drawn from commercial lenders/investors of microfinance programmes based in Africa. Needless to say, any generalisation of CSFs beyond the African microfinance context should be made with caution. This study is probably one of the first attempts to explore the possibility of a linkage between microfinance and capital markets and it will be of interest to MFIs, commercial banks, international donors and investment funds with an interest in investing in the microfinance industry. The findings suggest that the speed of increase in financial leverage per country depends as much on the dynamism of the market, as it does on the level of development of the finance sector. The results indicate that commercial investors will be attracted by good financial returns and administrative efficiency (return on assets, cash-flow adequacy and operating expense ratio), transparent reporting and information disclosure and clarity, as well as low inflation levels. Investors will also be looking for larger, regulated and profitable MFIs with a low-risk profile for their investment portfolios. The study found strong support to the hypothesis that the commercialisation index (CI) is a better measure of successful commercialisation than the LMA (leverage multiplier added), given the variables used. In all cases, compelling evidence shows that the CI has more explanatory power and is an accurate predictor of two-year success in commercialisation as examined by logistic regression. These results suggest that the superior predictive abilities of the CI commercial rating rule could be explored to guide screening efforts for winners, investment decisions and other binary classification investigations. Specifically, the model can be useful in guiding successful commercialisation schemes in Africa because it provides MFIs with a structured approach for achieving sustainable commercial microfinance.
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    Links between stock market development and key economic growth variables : the case of selected African countries
    (Stellenbosch : Stellenbosch University, 2007-03) Adjasi, Charles Komla; Biekpe, Nicholas; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management.
    ENGLISH ABSTRACT: This thesis is a collection of eight essays on links between stock market development and economic growth in selected African countries. In the first essay an overall index of stock market development shows that South Africa, Mauritius, Zimbabwe, Morocco and the BRVM in Cote d’Ivoire have the most developed stock markets in terms of market size, liquidity and transactions cost indicators. However, Nigeria and Egypt also emerge when institutional development is considered. Ghana, Malawi and Namibia have the least developed stock markets. Results from the second essay on stock markets and growth show a positive relationship between stock market development and economic growth. This positive influence is significant for countries classified as upper-middleincome economies. On the basis of market capitalization groupings, stock market developments play a significant role in growth only for moderately capitalized markets. Form the third essay exchange rate depreciation in the long-run leads to increases in stock market returns in Tunisia. Exchange rate movement leads to stock market returns in Egypt, while stock market returns lead to exchange rate movement in Kenya and Mauritius. Shocks induced by either stock market returns or exchange rate changes are more protracted in Ghana, Kenya, Mauritius and Nigeria than in South Africa and Egypt. Cointegration analysis in the fourth essay reveals a negative relationship between inflation and stock market prices for three out of seven countries: Egypt, Mauritius and South Africa. Short-run models for these countries show a negative response of stock returns to instantaneous change in inflation. In Ghana, Kenya, Nigeria and Tunisia, where cointegration is absent, there is unidirectional causality from inflation to stock returns for Ghana, bidirectional causality between inflation and stock returns for Kenya, and no significant results for Nigeria and Tunisia. Results from the fifth essay show that investment in the selected countries grows significantly with an increase in stock market returns. Even without the inclusion of South Africa in the panel, stock market returns in the other relatively less developed African economies impact positively on investment growth. Cointegration tests from the sixth essay indicate a long-run relationship between interest rate and stock prices for Kenya and South Africa. In the short-run there is unidirectional causality from stock returns to interest rate in Kenya and bidirectional causality in South Africa. Responses to shocks have long-lasting effects in Egypt, Ghana, Nigeria and Tunisia and are short-lived in Mauritius. The seventh essay shows that countries with more developed stock markets (Cote d’Ivoire, South Africa, Mauritius, Tunisia and Morocco), have the most developed financial intermediation system. There is evidence from correlation analysis of complementarity between stock market development and bank developments in the selected countries. Finally from the eighth essay two long-run stable cointegration relations are found, one hinging on a larger market (South Africa) and the other on a smaller market (Ghana). The short-run error correction framework shows significant feedback and causal effects both ways from smaller to larger markets.
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    Relationship between corporate governance and firm performance : an African perspective
    (2007-12) Kyereboah-Coleman, Anthony; Biekpe, Nicholas; University of Stellenbosch. Faculty of Economic and Management Sciences. Dept. of Business Management.
    Corporate Governance has engaged the attention of academics and practitioners alike for some time now. It is sad to note, however, that most of the studies carried out in this area have been conducted in countries such as the USA and the UK. In recent times, interest in Corporate Governance on the African continent has assumed heightened proportions, probably as a result of the 1997 East Asian crisis and the relatively poor performance of Corporate Africa. Melvin Ayogu who researched into governance matters around the continent pointed out that corporate governance perhaps is nothing but a mirror image of political governance bridled with a lot of corruption. In spite of the recognition that corporate governance is critical for firm performance and for sustained macroeconomic growth coupled with the heightened interest in the area, research in corporate governance has not received the needed attention on the continent. This was the main motivation for the study. In carrying out this study we considered 103 listed companies drawn from Ghana, Nigeria, Kenya and South Africa and 52 Microfinance Institutions from Ghana. Data consisted primarily of governance and financial variables. Though, most of the financial data was obtnaied through secondary sources, the governance data was essentially obtianed through questionnaire administration. Analysis of the data was done primarily within the Panel Data Framework and various shades of panel data estimations were run. This dissertation presents the results of the research work underlying seven stand-alone but related essays that focus on the relationship between corporate governance and various aspects of firm behaviour. Whilst, five of the essays dwell on corporate governance and firm attributes, one considers determinants of board size and composition by using data from Ghana and the last essay explores how corporate governance and stock market development affect economic growth. The first essay looks at corporate governance and firm performance and the second focusses on the determinants of board size and composition. The third essay concentrates on corporate governance and shareholder value maximisation. The fourth essay considers how corporate governance affects the financing choices of firms. The link between firms’ investment opportunity set and corporate governance is the subject matter of the fifth essay. While, the sixth looks at how corporate board diversity through gender affect the performance of microfinance institutions in Ghana, the last and seventh essay is devoted to an exploration of the linkage between corporate governance, stock market development and economic growth using board independence as the main governance indicator. The findings of the study indicate that large and independent boards enhance firm value and that when a CEO serves as board chair, it has negative effect on performance and such firms employ less debt. We also found that a CEO’s tenure in office enhances firms’ profitability while board activity intensity has a negative effect on firm profitability. The study also revealed that while larger boards employ more debts, the independence of a board has a significant negative relationship with short-term debt. The size of audit committees and the frequency of their meetings have a positive influence on market-based performance measures and institutional shareholding essentially sends a positive signal to potential investors thereby enhancing market valuation of firms. The study also confirmed the widely-held view that board size and its composition are functions of firm and industrial characteristics. Thus, while firm level risk has a positive relationship with board size, CEO tenure correlates negatively with board size and that firms with larger institutional shareholding employ fewer outside directors. Firms in the finance sector were seen to employ smaller board sizes and fewer outside directors partly due to the existence of other regulatory mechanisms in these institutions. More so, it was found that large board sizes enhance shareholders wealth and that both sector and country specific effects impact on shareholders value. The mining sector was seen as dominant in maximising shareholder value in terms of dividend yield. The study once again showed that shareholder value maximisation is also dependent on the level of country specific risk. Our results also point to the fact that firms with investment or growth opportunities employ large boards (high board and auditor fees), have longer CEO tenure and are profitable, and that the extent of growth response to governance structures is influenced by both country and sector specific effects. Findings again, suggest that board diversity through the inclusion of women is important for enhanced performance of microfinance institutions and the independence of corporate boards in particular is important for firm performance. These findings have important policy implications.