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Article
Publication date: 3 December 2018

William Coffie, Ibrahim Bedi and Mohammed Amidu

This paper aims to investigate the effects of audit quality on the cost of capital in Ghana.

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Abstract

Purpose

This paper aims to investigate the effects of audit quality on the cost of capital in Ghana.

Design/methodology/approach

Non-financial firms listed on the Ghana Stock Exchange (GSE) as well as non-listed firms from the database of Ghana Club 100 were included in the sample. Series are yearly, covering a sample of 40 firms during the six-year period, 2008-2013. The study employed the positivist research paradigm to establish the relationship between audit quality and the cost of capital.

Findings

There is evidence to suggest that the cost of debt and the overall cost of capital of firms in Ghana can be explained by the quality of the external auditors. The results also show that the large size of the board is associated with low cost of debt.

Research limitations/implications

The fact that the choice of quality measure is based on firm size only and other measurements of audit quality could not be measured. Future research may examine how other approaches to measuring audit quality affect cost of capital.

Practical implications

The results significant for those charged with assurance and regulation, as well as lenders and managers of companies.

Originality/value

The authors investigate how external auditing quality affects the cost of capital of firms operating in Ghana.

Details

Journal of Financial Reporting and Accounting, vol. 16 no. 4
Type: Research Article
ISSN: 1985-2517

Keywords

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

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

Article
Publication date: 7 January 2019

Mohammed Amidu, William Coffie and Philomina Acquah

This paper aims to investigate how transfer pricing (TP) and earnings management affect tax avoidance of firms in Ghana.

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Abstract

Purpose

This paper aims to investigate how transfer pricing (TP) and earnings management affect tax avoidance of firms in Ghana.

Design/methodology/approach

The authors use a panel data set from 2008 to 2015 to further shed light on transfer pricing-tax avoidance nexus by examining the complex interaction of three key variables: transfer pricing, earnings management and tax avoidance.

Findings

The results show that almost all the sample firms have engaged in some form of transfer pricing strategies and the manipulation of earnings to avoid tax during 2008-2015. There is evidence to suggest that non-financial multinational corporations manipulate more earnings than the financial firms while financial firms also use more TP than non-financial firms. The overall results suggest that the sensitivity of tax avoidance to transfer pricing decreases as firms increase their earnings management. By extension, these results have important policy implication for policymakers in assessing the effectiveness of tax laws relating to transfer pricing.

Originality/value

The authors investigate how transfer pricing and earnings management affect the avoidance of firms operating in Ghana.

Details

Journal of Financial Crime, vol. 26 no. 1
Type: Research Article
ISSN: 1359-0790

Keywords

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

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

Article
Publication date: 9 July 2018

Thomas Anning-Dorson, Robert Ebo Hinson, Mohammed Amidu and Michael Boadi Nyamekye

Because of the paucity of empirical research on firm-level capabilities of firms for effective customer involvement, the purpose of this study is to evaluate service firms’…

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Abstract

Purpose

Because of the paucity of empirical research on firm-level capabilities of firms for effective customer involvement, the purpose of this study is to evaluate service firms’ capacity to coopt customers to enhance the innovativeness and firm performance relationship. This study conceptualizes involvement capabilities of service firms as a strategic driver that exploits their internal firm assets, which in turn facilitates the positive relationship between innovativeness and firm performance.

Design/methodology/approach

Data were collected from 344 managers of service firms across different sub-sectors in an emerging economy. The study first confirmed the constructs through confirmatory factor analysis before analyzing hypothesized relationships. Regression models were specified with robust standard errors to test the hypothesized relationships.

Findings

The study found that involvement capability of service firms helps them to exploit their relational assets and create and manage strong customer participation. Additionally, it was found that involvement capabilities enable service firms to capitalize on the competencies of customers, which in turn improves the outcomes of their innovativeness. The results showed that the interaction between involvement capability and innovativeness enhances firm performance significantly.

Practical implications

Service firms can enhance customer participation in the value creation process by increasing their involvement capabilities. The increase in such capabilities will enhance the innovativeness of service firms, thereby improving their financial and non-financial performance.

Originality/value

This study offers guidance on how a firm’s innovativeness and customer involvement work together within the service operation to enhance firm performance.

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

Article
Publication date: 24 June 2019

Mohammed Amidu and Haruna Issahaku

This paper aims to analyse the implications of globalisation and the adoption of international standards (International Financial Reporting Standards [IFRS]) for accounting…

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Abstract

Purpose

This paper aims to analyse the implications of globalisation and the adoption of international standards (International Financial Reporting Standards [IFRS]) for accounting information quality.

Design/methodology/approach

This paper uses a sample of 329 banks across 29 countries leading up to and beyond the implementation of IFRS to test for related hypotheses.

Findings

First, banks’ financial statements are prepared on the basis of international standards as national economies are integrated when social norms are diffused. Building on these results, the second test suggests that the relatively high-quality earnings among banks in Africa during the period is attributable to the adoption of and interaction of IFRS with globalisation and the strategy of banks to diversify within and across interest and non-interest income.

Originality/value

The authors investigate how globalisation and the adoption of IFRS affect accounting information quality.

Details

Journal of Financial Reporting and Accounting, vol. 17 no. 2
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 30 March 2020

Syed Moudud-Ul-Huq

This study examines the relationship between banks' competition performance and risk-taking behavior concerning the impacts of bank size and the recent global financial crisis…

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Abstract

Purpose

This study examines the relationship between banks' competition performance and risk-taking behavior concerning the impacts of bank size and the recent global financial crisis. The analysis empirically uses dynamic panel data from 1137 banks of the BRICS countries (i.e. Brazil Russia India China and South Africa) for the period 2000–2015.

Design/methodology/approach

Dynamic panel generalized method of moments (GMM) has been used primarily to examine the effect of bank competition on performance and risk-taking. Later the paper validates the core results by using three-stage least squares (3SLS) and incorporating alternative measure of competition in baseline equations.

Findings

This study confirms the significant impact of competition that complies with the structure-conduct-performance hypothesis quiet life hypothesis and “competition fragility” view. However, the key robust results are as follows: (1) in competitive markets large banks are more efficient than small banks; (2) there is a nonlinear relationship between competition performance and risk; (3) across bank size competition heterogeneously affects profitability efficiency risk and stability; (4) notably small banks are as efficient as large banks during crisis but shared with risk; and (5) small banks also stable during crisis in highly concentrated markets but less stable in competitive environments.

Practical implications

This study promotes higher market power for the bank's profitability and financial stability. More intently policymakers should nurture both cost and revenue efficiency for large banks as these are less efficient than small banks in concentrated markets though these banks produce risk. Hence those banks should be cautious to minimize non-performing loans and maximize stability regarding financial and efficiency. Based on the nonlinear pattern of competition the regulators should adopt different policies for short and long run. It also recommends encouraging commercial and cooperative banks in the BRICS region as these are more efficient risk-averse and better stabilized than other types of banks.

Originality/value

A good number of studies are available in the current literature which examines the impact of bank competition on either bank performance or risk-taking in a single country or cross country analysis. However, very few studies examine the relationship between bank performance and risk-taking behavior concerning the impacts of competition (non-linear and quadratic) size financial crisis and ownership structure together. Moreover, there is a dearth of literature on this topic that built on BRICS economies.

Details

International Journal of Emerging Markets, vol. 16 no. 3
Type: Research Article
ISSN: 1746-8809

Keywords

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