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Article
Publication date: 12 April 2019

Ebenezer Bugri Anarfo, Joshua Yindenaba Abor, Kofi Achampong Osei and Agyapomaa Gyeke-Dako

The purpose of this paper is to investigate the dynamic link between financial inclusion and financial sector development (FSD) in Sub-Saharan Africa.

Abstract

Purpose

The purpose of this paper is to investigate the dynamic link between financial inclusion and financial sector development (FSD) in Sub-Saharan Africa.

Design/methodology/approach

This paper employs a panel vector autoregressive framework to examine the dynamic link between financial inclusion and FSD in Sub-Saharan Africa.

Findings

The findings indicate that there is a reverse causality between FSD and financial inclusion in both the Sub-Saharan Africa countries sample and the full sample. It is evident that financial inclusion is a driver of FSD and vice versa.

Practical implications

The practical implication of this study is that financial inclusion should not only be pursued as a policy objective but it could also be an outcome variable of FSD and vice versa. This implies that African economies and governments in their effort to enhance financial inclusion, FSD can serve as a policy tool. This means that policies aimed at promoting financial inclusion will not impede FSD because the two are complementary. This suggests that we can achieve financial inclusion without sacrificing FSD and vice versa.

Originality/value

This paper provides first empirical evidence of the link between financial inclusion and FSD from the Sub-Saharan Africa perspective using data sourced from World Development Indicators spanning from 1990 to 2014 for 48 Sub-Saharan African economies and 217 economies in the world for the full sample.

Details

International Journal of Managerial Finance, vol. 15 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 15 March 2019

Daniel Ofori-Sasu, Joshua Yindenaba Abor and Lord Mensah

The purpose of this paper is to examine the effect of funding structure on technical efficiency of banks in Ghana, between 2011 and 2016.

Abstract

Purpose

The purpose of this paper is to examine the effect of funding structure on technical efficiency of banks in Ghana, between 2011 and 2016.

Design/methodology/approach

Employing the random-effect and the truncated panel data of 25 banks, the results present new evidence.

Findings

The findings reveal that Ghanaian banks are less technically efficient, as the average efficiency scores generated is below the threshold of 1. Furthermore, the results show that banks in Ghana finance their operations mainly with deposit source of funding. The results reveal a significantly positive relationship between funding structure and technical efficiency. However, internally generated source of funds was negatively linked with technical efficiency. This is not surprising because banks that rely on external funds attract higher costs than internally generated funds, and this puts pressure on managers to perform. The results are relevant to emerging economies when the authors use additional macroeconomic factors.

Research limitations/implications

Thus, a proportionally larger deposit base funding would typically lead to an overall increase in technical efficiency of banks in Ghana. Shareholders should put pressure on managers to plough back earnings in order to increase the use of internally generated funds, thus, increasing technical efficiency. Banks that are inefficient should make some adjustments to their weights of inputs and/or outputs combinations by following their benchmark banks (efficient banks) to improve their efficiency.

Practical implications

The results of this study have important implications for regulators, investors and policy makers, particularly an emerging economy. The implication of the study to investors is that investors should be able to identify an appropriate source of funds that can be used efficiently to maximize their wealth in emerging markets. It is important for regulators and managers of banks to improve technical efficiency by considering the role that macroeconomic and monetary environment play when identifying and using various sources of funds as a strategy to improve bank efficiency.

Social implications

Consequently, future research should investigate the impact of funding structure on technical efficiency for other regions and considering their interactions with institutional quality, macroeconomic factors and financial stability.

Originality/value

To the best of the authors’ knowledge, the study is the first to fulfill an urgent need to explore a robust approach of measuring technical efficiency and funding structure within the context of banks over six-year period, prompting insightful avenues to the survival, growth and performance of financiers in emerging economy.

Details

International Journal of Managerial Finance, vol. 15 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

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Article
Publication date: 1 October 2020

Emmanuel Sarpong-Kumankoma, Joshua Yindenaba Abor, Anthony Q. Q. Aboagye and Mohammed Amidu

This study aims to analyze the potential implications of economic freedom and competition for bank stability.

Abstract

Purpose

This study aims to analyze the potential implications of economic freedom and competition for bank stability.

Design/methodology/approach

Using system generalized method of moments and data from 139 banks across 11 Sub-Saharan African (SSA) countries during the period 2006–2012, this study considers whether the degree of economic freedom affects the relationship between competition and bank stability.

Findings

The results show evidence of the competition-fragility hypothesis in SSA banking, but suggests that beyond a setting threshold, increases in market power may also be damaging to bank stability. Financial freedom has a negative effect on bank stability, suggesting that banks operating in environments with greater financial freedom generally tend to be less stable or more risky. The authors also find evidence of a conditional effect of economic freedom on the competition–stability relationship, implying that bank failure is more likely to occur in countries with greater economic freedom, but with low competition in the banking sector.

Practical implications

The results suggests to policy makers that a moderate level of competition and economic freedom may be the appropriate policy to ensure the stability of banks.

Originality/value

The study provides insight on the competition–bank stability relationship, by providing new empirical evidence on the effect of economic freedom, which has not been previously considered.

Details

International Journal of Productivity and Performance Management, vol. 70 no. 7
Type: Research Article
ISSN: 1741-0401

Keywords

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Article
Publication date: 29 November 2018

Johnson Worlanyo Ahiadorme, Agyapomaa Gyeke-Dako and Joshua Yindenaba Abor

The purpose of this paper is to examine the effect of debt holdings on the sensitivity of firms’ investment to availability of internal funds.

Abstract

Purpose

The purpose of this paper is to examine the effect of debt holdings on the sensitivity of firms’ investment to availability of internal funds.

Design/methodology/approach

For a panel data set of 27 Ghanaian listed firms for the period 2007–2013, the paper applies the Euler equation approach to the empirical modeling of investment.

Findings

The study finds support for the assertion that listed firms face less severe corporate control problems and lower financing constraints, and thus, have lower investment cash flow sensitivities. The study also finds that a significant positive sensitivity of investment to internal funds is associated with firms that have high debt holdings.

Practical implications

An implication of this study is that firms with high debt holdings face greater challenges in accessing external finance. These firms are likely to experience under-investment which at a macro level would translate into lower investments and economic growth for the country.

Originality/value

Empirical literature document that in the presence of market imperfections, investments of financially constrained firms become sensitive to the availability of internal finance. There are also contradictory evidences regarding the pattern of the observed investment cash flow sensitivity. This study examines the effect of debt holdings on the sensitivity of firms’ investment to availability of cash flow. This is yet to be empirically tested despite some theoretical explanations.

Details

International Journal of Emerging Markets, vol. 13 no. 5
Type: Research Article
ISSN: 1746-8809

Keywords

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Article
Publication date: 28 June 2021

Baah Aye Kusi, Elikplimi Komla Agbloyor, Asongu Anutechia Simplice and Joshua Abor

The purpose of this paper is to examine the effect of foreign bank assets (FBA) and (FBP) presence is examined on banking stability in the economies with strong and weak…

Abstract

Purpose

The purpose of this paper is to examine the effect of foreign bank assets (FBA) and (FBP) presence is examined on banking stability in the economies with strong and weak country-level corporate governance (CLCG) in Africa between 2006 and 2015.

Design/methodology/approach

Using a Prais–Winsten panel data model of 86 banks in about 30 African economies, findings on how FBA and presence influence banking stability in strong and weak corporate governance economies under different regulatory regimes are reported for the first in Africa.

Findings

The findings show that foreign bank presence (FBP) and assets promote banking stability. However, the positive effect of FBA and presence is enhanced in economies with strong CLCG, whereas the positive effect of FBA and presence is weakened in economies with weak CLCG. After introducing different regulatory regimes, it is observed that the enhancing effect of FBP and assets on banking stability in the full sample and economies with strong and weak CLCG systems is deepened or improved under the loan loss provision regulation regime. However, under the private and public sector-led financial transparency regulations, the reducing effect of FBP and assets on banking stability in economies with weak corporate governance systems is further dampened.

Practical implications

These findings show that the relationship between FBP and assets is deeply shaped by corporate governance systems and regulatory regimes in Africa. Hence, policymakers must build strong corporate governance and sound regulatory regimes to enhance how foreign bank operations promote banking stability.

Originality/value

This study presents first-time evidence on how FBA and presence influence banking stability under strong and weak governance systems while considering different regulatory regimes.

Details

Journal of Financial Economic Policy, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1757-6385

Keywords

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Article
Publication date: 13 November 2018

Emmanuel Sarpong-Kumankoma, Joshua Abor, Anthony Quame Q. Aboagye and Mohammed Amidu

This paper aims to examine the effects of financial freedom and competition on bank profitability.

Abstract

Purpose

This paper aims to examine the effects of financial freedom and competition on bank profitability.

Design/methodology/approach

The study uses system generalized method of moments and data from 139 banks across 11 Sub-Saharan African countries during the period 2006-2012.

Findings

The results of the study show that higher market power (less competition) is positively related to bank profitability, but operating efficiency is a more important determinant of profitability than market power. Also, both financial freedom and economic freedom show a positive impact on bank profits. The authors find evidence that banks with higher market power operating in countries with higher freedom for banking activities are more profitable than their counterparts in countries with greater restrictions on banking activities.

Practical implications

The results have shown that allowing banks greater freedom to operate would enhance their performance, without necessarily damaging the economy, as operating efficiency appears to be a more important reason for the observed profitability than market power.

Originality/value

This study provides insight on the ambiguous relationship between competition and bank profitability by considering the moderating effect of financial freedom which has not been taken into account in previous studies.

Details

Journal of Financial Regulation and Compliance, vol. 26 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

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Article
Publication date: 20 August 2018

Emmanuel Sarpong-Kumankoma, Joshua Abor, Anthony Q.Q. Aboagye and Mohammed Amidu

The purpose of this paper is to examine differences in determinants of bank profit persistence among Sub-Saharan African (SSA) countries.

Abstract

Purpose

The purpose of this paper is to examine differences in determinants of bank profit persistence among Sub-Saharan African (SSA) countries.

Design/methodology/approach

Using system generalized method of moments and data from four SSA countries during the period 2006–2012, this study considers differences in determinants of bank profit persistence across countries.

Findings

Efficiency in cost management is a major determinant of profit persistence in all the countries. However, concentration is found to be insignificant in all the estimations, suggesting that efficiency may be a more important determinant of profit persistence than concentration. Economic freedom associates negatively with profit persistence in Ghana, but its effect is insignificant in Tanzania, Kenya and South Africa. Lending specialization translates into less profit persistence in South Africa, but greater persistence in Tanzania. Higher levels of financial development result in lower profit persistence in Kenya and Ghana, but does not matter in Tanzania and South Africa.

Practical implications

The level of profit persistence gives an indication of the effectiveness of competition policies, and the differences observed in their determinants in this study suggest the need for tailor-made policy responses in the different countries.

Originality/value

This study improves the understanding of why some banking market competition policies have not achieved the desired outcomes in some countries. It is evident that blanket rules or wholesale importation of policies from other countries may not work in different contexts.

Details

African Journal of Economic and Management Studies, vol. 9 no. 4
Type: Research Article
ISSN: 2040-0705

Keywords

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Article
Publication date: 27 November 2019

Emmanuel Sarpong-Kumankoma, Joshua Abor, Anthony Quame Q. Aboagye and Mohammed Amidu

This paper examines the effect of financial (banking) freedom and market power on bank net interest margins (NIM).

Abstract

Purpose

This paper examines the effect of financial (banking) freedom and market power on bank net interest margins (NIM).

Design/methodology/approach

The study uses data from 11 sub-Saharan African countries over the period, 2006-2012, and the system generalized method of moments to assess how financial freedom affects the relationship between market power and bank NIM.

Findings

The authors find that both financial freedom and market power have positive relationships with bank NIM. However, there is some indication that the impact of market power on bank margins is sensitive to the level of financial freedom prevailing in an economy. It appears that as competition intensifies, margins of banks in freer countries are likely to reduce faster than those in areas with more restrictions.

Practical implications

Competition policies could be guided by the insight on how financial freedom moderates the effect of market power on bank margins.

Originality/value

This study provides new empirical evidence on how the level of financial freedom affects bank margins and the market power-bank margins relationship.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

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Article
Publication date: 13 November 2017

Emmanuel Sarpong-Kumankoma, Joshua Abor, Anthony Q.Q. Aboagye and Mohammed Amidu

This study aims to consider the effect of financial (banking) freedom and competition on bank efficiency.

Abstract

Purpose

This study aims to consider the effect of financial (banking) freedom and competition on bank efficiency.

Design/methodology/approach

With data from 11 Sub-Saharan African countries over the period 2006-2012, the study estimates both competition (market power) and bank cost efficiency using the same stochastic frontier framework. Subsequently, Tobit models, including instrumental variable Tobit regression, are used to assess how financial freedom affects the relationship between competition and bank efficiency.

Findings

The results show that increase in market power (less competition) leads to greater bank cost efficiency, but the effect is weaker with higher levels of financial freedom. This is not consistent with the quiet life hypothesis.

Practical implications

Policymakers usually take the view that opening up banking markets to greater competition may lead to higher efficiency. However, the results have shown that allowing banks to maintain some level of market power may be necessary to ensure banking system efficiency.

Originality/value

This study deepens the understanding of the inconsistent relationship between competition and bank efficiency, by using the same framework to measure both competition and efficiency, and by providing new empirical evidence on how the level of financial freedom affects this relationship.

Details

International Journal of Law and Management, vol. 59 no. 6
Type: Research Article
ISSN: 1754-243X

Keywords

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Article
Publication date: 30 May 2019

Abel Mawuko Agoba, Joshua Yindenaba Abor, Kofi Osei, Jarjisu Sa-Aadu, Benjamin Amoah and Gloria Clarissa Odortor Dzeha

The purpose of this paper is to primarily investigate the ability of independent central banks (central bank independence (CBI)) to improve fiscal performances in Africa…

Abstract

Purpose

The purpose of this paper is to primarily investigate the ability of independent central banks (central bank independence (CBI)) to improve fiscal performances in Africa, accounting for election years, and also to examine whether the effectiveness of CBI in improving fiscal performance is enhanced by higher political institutional quality.

Design/methodology/approach

Using recent CBI data from Garriga (2016) on 48 African countries, 90 other developing countries and 40 developed countries over the period 1970–2012, the authors apply a two stage system GMM with Windmeijer (2005) small sample robust correction estimator to examine the impact of CBI and elections on fiscal policy in Africa, other developing countries and developed countries.

Findings

The authors provide evidence that unlike in other developing countries and developed countries, CBI does not significantly improve fiscal performance in Africa. However, the effectiveness of CBI in improving fiscal performance in Africa is enhanced by higher levels of institutional quality. Although elections directly worsen fiscal performance in Africa, institutional quality enhances CBI’s effect on improving fiscal performance in election years across Africa, other developing countries and developed countries.

Practical implications

The findings of the study are significant as they provide insight into the benefits of having strong institutions to complement independent central banks in order to control fiscal indiscipline in election years.

Originality/value

The study is the first among the studies of CBI-fiscal policy nexus, to measure fiscal policy using net central bank claims on government as a percentage of GDP. In addition to the use of fiscal balance, this study also uses cyclically adjusted fiscal balance as a measure of fiscal policy. This is a critical channel through which independent central banks can constrain government spending. It also compares findings in Africa to other developing countries, noting some differences.

Details

International Journal of Emerging Markets, vol. 14 no. 5
Type: Research Article
ISSN: 1746-8809

Keywords

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