Baah Aye Kusi, Agyapomaa Gyeke-Dako, Elikplimi Komla Agbloyor and Alexander Bilson Darku
The purpose of this paper is to explore the relationship between corporate governance structures and stakeholder and shareholder value maximization perspectives in 267 African…
Abstract
Purpose
The purpose of this paper is to explore the relationship between corporate governance structures and stakeholder and shareholder value maximization perspectives in 267 African banks from 2006 to 2011.
Design/methodology/approach
The authors used the Prais–Winsten ordinary least squares and random effect regression models to explore this relationship to ensure consistency and efficiency in results. The data for this study were collected from Bankscope.
Findings
The results of this study show that corporate governance structures such as CEO duality, nonexecutive members and extreme large board size lead to a reduction in both shareholder and stakeholder value maximization. However, audit independence and board size also promote both shareholder and stakeholder value maximization. Although gender diversity promotes profit maximization, it was not significant in any of the models estimated. The results further suggest that the same corporate governance structures promote and detract shareholder and stakeholder value maximization in Africa although the effect of corporate governance structures was weightier on shareholder value maximization confirming the agency theory.
Practical implications
From these findings, bank management must pursue the institution of good corporate governance structures and avoid weak corporate governance structures to promote shareholder and stakeholder value maximization. Also equity holders may have to pay particular attention to corporate governance structures because they benefit the most from the institution of good corporate governance structures.
Originality/value
This study explores and compares how corporate governance structures promote shareholder and stakeholder value maximization separately in African banks. To the best of the authors’ knowledge, this is the first of such studies.
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Elikplimi Komla Agbloyor, Frank Kwakutse Ametefe, Emmanuel Sarpong-Kumankoma and Vera Fiador
After completing this case, students should be able to: identify and compute relevant cash flows in relation to a real estate project and compute the net present value (NPV)…
Abstract
Learning outcomes
After completing this case, students should be able to: identify and compute relevant cash flows in relation to a real estate project and compute the net present value (NPV). Determine the target return or cost of capital (by looking at historical economic indicators). Design or formulate a sensitivity analysis to determine the drivers of the project value. Evaluate real estate and other investments taking qualitative and quantitative factors into consideration. Demonstrate the computation of a break-even rate to determine the minimum or maximum revenue or cost required for a project to be viable.
Case overview/synopsis
This case study is about the Golden Beak Securities Pension Fund that wanted to invest in a Hostel Project in one of the universities in Ghana. Most universities in Ghana faced an acute shortage of on-campus accommodation. Also, the Government of Ghana, in 2017, implemented a programme to make Senior High School in Ghana free. This was expected to increase the number of students who will enter the existing universities. The project was therefore seen as strategic, as it would help ease the pressure of on-campus accommodation while providing diversification for the pension fund. As part of the investment committee’s (IC) quest to improve the skill set available to it, especially in relation to real estate investments, Esi Abebrese was appointed as one of the members of the IC of GSB. Her main task was to collect information on key macroeconomic variables, as well as granular information on project costs and revenues and conduct investment appraisal. Esi was scheduled to make a presentation to the IC on the 15th of October 2019 following which the Committee will debate and make a decision. The project had an estimated cost of GH¢52m with a total number of 3,424 student beds and ancillary facilities. Undertaking the project required moving funds from investments in money market securities with one of the banks in Ghana. The investments in the money market securities were currently yielding about 16% a year. The determination of the cost of capital was critical and Esi and Nana eventually settled on a long-term weighted average cost of capital of 14%. This was after considering the trend of inflation, monetary policy rates, treasury rates, stock market returns and a report on returns on commercial real estate properties in Ghana. An exit capitalisation rate of 20% was also estimated for the purposes of determining the value of the property at the end of the investment horizon. Esi also obtained estimates of cost and revenue for the project and proceeded to carry out a feasibility analysis on the project. This consisted of an NPV analysis and sensitivity analysis on various factors to determine the drivers of the project value. The IC had to take several factors (both quantitative and qualitative) into consideration before making a decision. Esi believed that these factors included the diversification of the fund’s assets, the return on investment, potential oversupply of hostel accommodation, the social responsibility of providing student accommodation and the impact of any prolonged shutdown of the university.
Complexity academic level
Masters/advanced undergraduate.
Supplementary materials
Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.
Subject code
CSS 1: Accounting and Finance.
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Daniel Ofori-Sasu, Elikplimi Komla Agbloyor, Saint Kuttu and Joshua Yindenaba Abor
This study aims to investigate the coordinated impact of regulations on the predicted probability of a banking crisis in Africa.
Abstract
Purpose
This study aims to investigate the coordinated impact of regulations on the predicted probability of a banking crisis in Africa.
Design/methodology/approach
The study used the dynamic panel instrumental variable probit regression model of 52 African economies over the period 2006 to 2018.
Findings
The authors observe that banking crisis is persistent for few years but dissipates in the long run. The results show that board mechanism and ownership control are important in reducing the likelihood of banking crisis. The authors found a negative impact of regulatory capital and monetary policy on the predicted probability of a banking crisis while regulatory quality was not strong in reducing the likelihood of banking crisis. There was also evidence to support that regulatory capital and monetary policy augment the negative impact of board mechanism and ownership control on the predicted probability of a banking crisis.
Research limitations/implications
The limitation of the study is that it did not explore all measures of regulatory framework and how they impact banking crisis. However, it has an advantage of using alternative measures of regulations in a banking crisis probability model. Therefore, future studies should include other macro-prudential regulations, regulatory environments and supervision and observe how they are coordinated to reduce possible crisis in a robust methodological framework.
Practical implications
The research has policy implications for monetary authorities and policymakers to set coordinated regulations through internal banking mechanisms that are relevant in sustaining banking system stability goals. Countries in Africa should strengthen their quality of regulation in such a way that it can play a strong and complementary role to a robust internal control mechanisms, so as to maintain stability in the banking system. In general, regulators and policymakers should design greater coordination of external and internal regulations through a single regulatory framework and a common resolution mechanism that make the banking system more robust in curbing possible crisis.
Social implications
The policy implication of the study is to build banking confidence in the society.
Originality/value
This study analyses the interactions of different components of internal and external regulatory framework in helping to reduce the probability of a banking crisis in Africa.
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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.
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Richard Adjei Dwumfour, Elikplimi Komla Agbloyor and Joshua Yindenaba Abor
The purpose of this paper is to examine how remittances, financial development (FD), and natural resources and their different transmission channels can be used to reduce poverty…
Abstract
Purpose
The purpose of this paper is to examine how remittances, financial development (FD), and natural resources and their different transmission channels can be used to reduce poverty in Africa.
Design/methodology/approach
Using the Human Development Index (HDI) as the measure of welfare, the authors specify these relationships using the System GMM estimator approach.
Findings
The authors hypothesise that for remittance to effectively improve welfare, the recipient of remittances must have access to credit to profitably utilise the monies. Again, the authors assert that FD can be effective in improving welfare when development of the sector actually benefits the poor. The authors provide empirical support for these hypotheses using 54 African countries covering the period 1990-2012. The findings also show that the North African region has been able to utilise its oil rents in particular to improve welfare unlike the Sub-Saharan counterpart.
Originality/value
This paper is the first to jointly estimate the impact of remittances, FD, and natural resources on welfare using a comprehensive measure of poverty – HDI.