Browsing by Author "Olarewaju, Odunayo Magret."

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Dividend policy, agency cost and bank performance in sub-Saharan Africa.
(2018) Olarewaju, Odunayo Magret.; Migiro, Stephen Oseko.; Sibanda, Mabutho.
This study explored the relationship between dividend policy, agency costs and bank performance among sub-Saharan African (SSA) commercial banks. More specifically, it examined the factors that determine the dividend payout ratio of commercial banks in this region; established the direction of causality between the dividend policy and financial performance of commercial banks in sub-Saharan Africa; determined the effects of operational diversification on these banks’ financial performance and evaluated the relationship among dividend policy, agency costs, market risk and performance in SSA commercial banks. The study was motivated by the desire to assist banks to formulate a balanced dividend policy that will enable them to contribute to economic growth and thus ameliorate the poverty, underdevelopment and poor financial depth that characterise the region. Data were collected from 250 commercial banks from 30 SSA countries using BankScope for the period 2006 to 2015. The data were analysed using descriptive statistics and inferential statistics with different econometric techniques, namely, static regression via pooled, fixed and random estimations and dynamic regression analysis via Panel Generalised Method of Moments (GMM), Panel Vector Error Correction Model (P-VECM), the Panel Granger Causality test, Impulse response function and Variable decomposition. Using both Differenced and System GMM, the study found that the lagged dividend payout ratio, after tax income, size and leverage are the key determinants of the dividend payout ratio in SSA commercial banks. The analysis of the causal relationship between dividend policy (dividend payout and retention ratio) and bank performance revealed unidirectional causality between the retention ratio and Return on Assets as well as between Return on Equity and the dividend payout ratio. The study also found that none of the dimensions of operational diversification have a significant effect on financial performance in the static regression analysis, while the GMM analysis (dynamic analysis) showed that, past year performance (lagged Return on Average Assets), asset diversification, deposit diversification, loan diversification and income diversification have a significant effect on banks’ financial performance (Return on Average Assets). In addition, a long-run relationship was identified between dividend policy, agency costs, and market risk and bank performance. The disequilibrium from the long run estimate will take about 39.5% annual speed of adjustment to return to a steady state. In terms of the two proxies of market risk, the interest rate risk has a negative effect, while the foreign exchange risk has a significant positive effect on variations in bank performance in sub-Saharan Africa. The evidence from the impulse response function and variable decomposition shows that all the variables in the series responded to shocks in performance (ROA) directly or indirectly during the investigated period, with dividend policy and agency costs the most significant. These findings imply that SSA banks should curtail payment of dividends as the current situation warrants re-investment of earnings to boost their assets and make a meaningful contribution to the region’s economic growth. Among others, this study recommends policies to improve dividend policy formulation in such a way that the agency costs of debt and equity will be minimised, and all the banks’ stakeholders’ interests will be protected to promote the future growth of the sector. It contributes to the extant literature by examining dividend policy with a regional focus using data from 30 SSA countries and identifying the major bank-specific determinants of the dividend payout ratio that can serve as a uniform formula for dividend payments across the region. Furthermore, this is the first study to establish that only dividend retention policy can cause bank performance in this region. Finally, the study used the Herfindahl-Hirschmann Index to measure the diversification of four major dimensions of banking operations and is the first of its kind in the SSA region to evaluate the relationship between dividend policy, agency costs, and market risk and bank performance using long-run analysis.
An investigation of financial management behaviour of administrators, budget slacks, and state-owned enterprises’ performance in Nigeria.
(2023) Kayode, Omolayo Sunday.; Sibanda, Mabutho.; Olarewaju, Odunayo Magret.
The study investigates the financial management behaviour of administrators, budget slack adoption and performance of the State-Owned Enterprises of the Federal Government of Nigeria. A sample of 385 top administrators from all the existing 202 State-Owned Enterprises in various sectors at the federal level in Nigeria were selected and structured questionnaire was used to harvest information from them. They were analysed using multiple quantitative techniques ranging from factor and principal component analysis to weighted least square regression analysis, ordinal regression analysis, and logistics regression analysis, among others. The results show that about 47.3% of the administrators showed responsible financial management behaviours scale while about 52.7% reflected irresponsible financial management behaviour scale. Furthermore, Cash Management Sub-scale with coefficient of 0.1571282 is statistically significant at 5% level and thus, plays the most crucial role in developing the financial management behaviours scale, this is followed by socio-cultural beliefs scale. In another result, income, family size, financial knowledge, and financial literacy account for the largest variation in financial management behaviour of the administrators. Moreover, the result shows that the adoption of budget slack to a large extent does not significantly impact the financial management behaviour of the administrators. Optimism with coefficient of 0.5605328 and deliberative thinking with coefficient of 0.0880613 are the two factors that significantly impact budget slack adoption. A significant relationship was established between the financial management behaviour of the administrators and the State-Owned Enterprises’ performance in the last objective. More importantly, it was revealed that the irresponsible financial management behaviours scale has a more significant adverse effect on the performance of State-Owned Enterprises. The general implication of the study is that the sociocultural beliefs sub-scale, which was not captured in any of the previous studies as a measure of financial management behaviour, proved to be a good measure in this part of the world. The study further shows that budget slack adoption effect on financial management behaviour is not significant. Finally, the implication from findings in the survey shows that irresponsible financial management behaviour of the administrators has a significant negative impact on the performance of the SOEs.
Investor overconfidence under the adaptive markets hypothesis in selected African stock markets.
(2023) Nyasha, Jameson.; Muzindutsi, Paul-Francois.; Olarewaju, Odunayo Magret.; Muguto, Lorraine.
Meticulous empirical research remains to determine whether the Adaptive Markets Hypothesis (AMH) or the more widely known Efficient Market Hypothesis (EMH) better explains investor overconfidence and stock return volatility behaviour. Investor overconfidence is vital in understanding why investment strategies are pursued so aggressively, leading to excessive market trading. It is often argued that the investor overconfidence bias makes markets less efficient because it creates pricing errors in extreme volatility and overestimates investors’ beliefs in the accuracy of their forecasts of their quotes on prices. This research analyses the effect of investor overconfidence on the volatility of stock market returns according to the AMH in seven African stock markets, including the Casablanca Stock Exchange, the Egyptian Exchange, the Johannesburg Stock Exchange, the Nigerian Stock Exchange, the Nairobi Stock Exchange, the Ghana Stock Exchange, and the Stock Exchange of Mauritius. The sample period includes secondary time series data from January 2005 to December 2019. The first goal was to develop and validate a measure of investor overconfidence. The second objective was to compare different levels of investor overconfidence in the selected African stock markets. The third objective was to evaluate the influence of investor overconfidence on the volatility of stock market return under changing market conditions, as described by the AMH. The estimation methods included the Generalised Methods of Moments dummy regression, regime-switching VAR models and rolling GARCH models, which are GARCH, EGARCH and TARCH. The results show that high investor overconfidence is more associated with bullish markets than periods of financial crises and bearish markets. The results also imply that it is not advisable to generalise the impact of market conditions on investor overconfidence across all the markets. Additionally, rolling GARCH estimates demonstrated that patterns of investor overconfidence evolve, consistent with the AMH. Assessing investor overconfidence under the AMH framework offers a stronger image of the adaptive behaviour of the Afri can equity markets. This research adds to existing knowledge in numerous ways. Foremost, it provides a standard measure of investor overconfidence in Africa’s equity markets. A measure that combines multiple proxies into a single index and neutralizes the disadvantages of each proxy when used separately to estimate investor overconfidence. Second, it provides a timely contribution to the effect of investor overconfidence on stock return volatility in African equity markets under the AMH paradigm. Third, according to the AMH, investor confidence is not vi static and can appear under specific market conditions and disappear under others. This bias occurs and disappears as market conditions change in the chosen African equity exchanges. This also shows that investor overconfidence is normal, changes over time and is adaptable in the African stock markets. Consequently, this study brings a new perspective regarding investor overconfidence and market efficiency in the face of the AMH paradigm. The results also have important implications for investors and brokers wishing to develop appropriate trading strategies. This study is also helpful for policymakers as they need to be wary about investor overconfidence impact on market momentum in periods of market expansion. This study argues that investor overconfidence in African stock markets conforms to the AMH than the EMH and the BF.