Browsing by Author "Abor, J.Y."

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Agency Conflict and Bank Interest Spreads in Ghana
(African Development Review, 2014) Mensah, S.; Abor, J.Y.
This study examines the relationship between interest rate spreads in the Ghanaian banking industry and variables that reflect convergence/divergence between managerial goals and corporate goals of which the key variables are executive compensation and bank ownership structure. Using data covering the period 1999–2011, this study employs a panel regression to examine how agency factors affect interest rate spreads in Ghana. The results of the study indicate that executive compensation is associated with higher net interest margins, suggesting that managers operate on higher margins since they can extract excess rents. The findings of the study also show that asset size, the level of concentration in the banking industry, the level of capital held by banks, the reserve requirement, and the level of inflation all positively contribute to the observed high interest spreads. Our results are robust to the control of several bank‐specific, industry‐specific, regulatory and macroeconomic factors
Anti-money laundering regulations and financial sector development
(International Journal of Finance & Economics, 2020) Ofoeda, I.; Agbloyor, E.K.; Abor, J.Y.; Osei, K.A.
This paper is aimed at establishing the effect of anti-money laundering regulations on financial sector development across the globe. Using data from 2012 to 2018 across 165 economies across different continents, income levels and regulatory environments, we test a number of complex and related hypotheses. (a) We examine the effect of anti-money laundering regulations on financial sector development. (b) We examine if this effect differs across developing countries and developed economies. (c) We examine the nonlinearities in the anti-money laundering regulations-financial sector development nexus. We use the Prais-Winsten approach and the panel threshold estimation approaches to test our hypothesized relationships. We find evidence that anti-money laundering regulations generally promote financial sector development; however, this positive effect is concentrated in developing economies. We also find evidence of threshold effects of anti-money laundering regulations for our sample. Consistent with the earlier findings, the positive effect of anti-money laundering regulations on financial development is concentrated in countries below the threshold value of anti-money laundering regulations. These countries are mostly developing countries. Our findings suggest that strengthening anti-money laundering regulations will be beneficial to developing countries.
Bank lending behaviour and systemic banking crisis in Africa: The role of regulatory framework
(Journal of International Development, 2022) Ofori-Sasu, D.; Agbloyor, E.K.; Kuttu, S.; Abor, J.Y.
We examine how regulatory framework shapes the impact of bank lending behaviour on the probability of systemic banking crisis by using data from 52 African countries over the period 2006–2018. The study found that banks that lend beyond a certain level of threshold have the greater probability of causing a systemic banking crisis. The study provides empirical evidence in support of the argument that Above-average lending behaviour reduces the predicted probability of a systemic banking crisis in the presence of audit independence, stringent capital regulatory requirements, central bank independence and monetary policy framework.
Central Bank Policies and Market Power Over the Business Cycle in Africa
(Journal of Emerging Market Finance, 2022) Ofori-Sasu, D.; Agbloyor, E.K.; Kuttu, S.; Abor, J.Y.
This article empirically examines the impact of the business cycle on the relationship between individual central bank policies and market power. We present a representative sample of 52 African economies over the period 2006–2018. We find that monetary, macro-prudential and central bank independence policies increase market power. The study found that, in the long run, market power reacts positively to changes or adjustments made to a central bank policy framework. We show that the individual central bank’s policy framework increases market power. when interacted with business cycle
Central bank coordinated policies and bank market power: an insight from the African context
(Cogent Economics & Finance, 2023) Ofori-Sasu, D.; Agbloyor, E.K.; Sarpong-Kumankoma, E.; Abor, J.Y.
The paper examines the impact of central bank regulatory policies on market power in Africa. The study presents a representative sample of 52 African economies over the period 2006–2020. The study shows that the individual regulatory policies of the central bank (i.e. monetary and macro-prudential policies) enhance banks’ market power. Also, it reveals that central bank's regulatory policies are better coordinated, as complements, in achieving greater market power. banks in countries with strong central bank independence (CBI) framework. However, the coordinated policies are substitutes in determining bank’s market power in countries with weak CBI framework. The policy implication is that the right policy mix of coordinated central bank regulatory policy framework is important in determining an optimal outcome of bank’s market power in both an inclusive central bank (monetary-prudential) policy targeting economies and an independent policy targeting economies.
Central Bank Independence and Inflation in Africa: The Role of Financial Systems and Institutional Quality
(ELSEVIER, 2017-08) Agoba, A.; Abor, J.Y.; Acheampong, K.A.; Sa-Aadu, J.
The study examines the effects of financial systems and the quality of political institutions on the effectiveness of central bank independence in achieving lower inflation. Drawing from the fiscal theory of price level (FTPL) and political economy of macroeconomic policy (PEMP) literature; we estimate a panel regression model, using Two Stage Least Squares instrumental variables procedure, on a sample of 48 African countries over the period 1970–2012. The study finds that central bank independence-inflation nexus is dependent on the model, sample and estimation technique used. After accounting for various control variables and introducing inflation targeting as an additional explanatory variable, the study shows that, unlike in developed countries, CBI is not sufficient in achieving lower inflation in Africa and the developing world. However, common to developed, developing and African countries, is that, higher central bank independence is more effective in lowering inflation in the presence of high levels of banking sector development and institutional quality. The findings of the study also show that while stock market development enhances the effectiveness of CBI in developed and developing countries, it has no significant effect on CBI effectiveness in Africa.
Central bank independence, elections and fiscal policy in Africa: Examining the moderating role of political institutions
(International Journal of Emerging Markets, 2019-12-02) Agoba, A.M.; Abor, J.Y.; Osei, K.; Sa-Aadu, J.; Amoah, B.; Dzeha, G.C.O.
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 govern
Corporate governance mechanisms and accounting information quality of listed firms in Ghana
(Inderscience Enterprises Ltd., 2016) Kukah, M.A.; Amidu, M.; Abor, J.Y.
This paper analyses the implications of internal corporate governance mechanisms for accounting information quality which uses discretionary accrual as a proxy. The empirical research is based on a sample of 20 non-financial institutions listed on the Ghana stock exchange (GSE) for an 11-year period, 2003 to 2013. The results show that the operational earnings are more persistent than operational cash flow which suggests that in predicting future values from current ones, operational earnings gives a better output in looking at the long-term sustainability aim of a firm, than operational cash flows. The results also suggest that the board independence and foreign ownership constraint opportunistic managers to manipulate the earnings leading to a higher level of accounting information quality. By extension, these results have important policy implications for regulators in assessing the effectiveness of corporate governance on earnings quality.
Corporate Governance, Shareholder Activism and Firm Performance in Ghana
(University of Ghana, 2015-07) Abasi, A.K.; Abor, J.Y.; Agbloyor, E.K.; University of Ghana, College of Humanities, Business School, Department of Banking and Finance
This study reexamines the effect of shareholder activism, as a corporate governance mechanism, on firm performance. The owners of the firm (the shareholders) employ the managers (the agents) to manage the firm for them but this employment contract has the potential risk of adverse selection and moral hazard. Hence there is the need for the shareholders to be active and monitor the firm. This constitute shareholder activism. But the argument is whether shareholder activism improves firm performance? Previous studies have found divergent conclusions because they all used the traditional accounting performance measure (ROA) which is not comprehensive enough because it does not account for the cost of equity. This study adopts contemporary value based performance measure, which is Economic Value Added (E.V.A) and Market Value Added (M.V.A) to measure firm performance from 2007 to 2013. These performance measures captures both costs of debt and equity which is able to show the true value of the firm. The regression results show that shareholder activism actually improves firm performance (E.V.A). Implying that shareholders should be active investors and monitor their firms because monitoring improve shareholder wealth. Investor conference should also be encouraged to improve manager-shareholder relations so as to mitigate the agency problem.
Correlates of Poverty in Africa: Exploring the Roles of Remittances, Financial Development, and Natural Resources
(Emerald Publishing Limited, 2017) Dwumfour, R.A.; Agbloyor, E.; Abor, J.Y.
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.
Correlates of Poverty in Africa: Exploring the Roles of Remittances, Financial Development, and Natural Resources
(University of Ghana, 2016-06) Dwumfour, R.A.; Agbloyor, E.K.; Abor, J.Y.; University of Ghana, College of Humanities, Business School, Department of Banking and Finance
This study examined the correlates of poverty in Africa, exploring the roles of remittances, financial development and natural resources. Using the Human Development Index (HDI) as our measure of poverty and using 54 African countries, we specify these relationships using the System GMM estimator approach. The results show that in Africa as a whole, remittance reduce welfare directly. This supports arguments that, it is mostly the rich who can afford to migrate and thus remit more to their families than the poor and that, remittance received may be used in unproductive ventures. This was mostly seen in the North African (NA) region where remittance was consistently seen to reduce welfare. The direct impact of remittance in the Sub-Saharan (SSA) region was ambiguous depending on the specification of the model. However, remittance was seen to be effective in improving welfare when there is better or wider access to credit by the recipients of the remittances. The results for the continent also revealed that the impact of financial development on welfare was ambiguous. While M2 had no impact on welfare, credit to the private sector reduced welfare directly. This supports arguments that credit may tend to benefit the rich than the poor. This was especially so in SSA. Further analysis revealed that proper regulation of the financial sector that is inclusive of the poor could then lead to a positive impact of financial development on welfare. Further, credit was effective in improving welfare indirectly when it complements remittances. The continent as a whole has failed to utilise its natural resource wealth (minerals) to benefit the poor as it showed no impact on welfare. This supports arguments of African governments’ failure to harness their resource wealth to benefit the poor. This was particularly so for the SSA region while for the North African region, its oil rents was effective in improving the welfare of the people. On the controls, FDI was seen to improve welfare while foreign aid had no impact on welfare and even in some cases a negative impact. Stronger institutions were seen to consistently improve welfare. Development of infrastructure was seen to improve welfare. Our findings are robust in showing the application of our results to a variety of changes in specifications, definition of variable and data usage.
Debt Financing, Information Sharing, and Profitability: Evidence from Listed Firms from an Emerging Economy
(Journal of African Business, 2023) Osei, J.O.; Sarpong-Kumankoma, E.; Abor, J.Y.
This study investigates how credit information sharing conditions debt financing to boost the profitability of 20 listed enterprises on the Ghana Stock Exchange between 2003 and 2013. We employ robust least squares and simultaneous bootstrapping models in a panel setting. Our findings show that the impact of debt financing profitability increases when it is subject to information sharing and takes the shape of short, long, and total debts. In the worst-case situation, contingent debt financing reduces the negative impact of debt financing on profitability. Therefore, authorities must adopt laws and legislation that deepen, widen, and strengthen credit information sharing to offset the negative impact of information asymmetry on loan financing and business profitability.
Debt holdings and investment cash flow sensitivity of listed firms
(International Journal of Emerging Markets, 2018-10) Ahiadorme, J.W.; Gyeke-Dako, A.; Abor, J.Y.
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.
Determinant of Loan Portfolio at Risk in Microfinance Institutions: Evidence from Sub Saharan Africa
(University of Ghana, 2015-07) Obed, N.A.; Agbloyor, E.K.; Abor, J.Y.; University of Ghana, College of Humanities, Business School, Department of Banking and Finance
The aim of microfinance is to alleviate poverty through the delivery of financial support services such as microcredit facilities particularly to the poor entrepreneurs and micro enterprises. Extending microcredit is one of the core businesses of microfinance institutions. However not all the microcredit granted to the poor entrepreneurs perform well in addition of generating the expected returns. This adverse effect has a significant influence on the loan portfolio at risk. In reference to the major role the microfinance industry plays, the study was conducted to establish the determinants of loan portfolio at risk in the microfinance industry. The purpose of this study is to examine the determinants of loan portfolio at risk in the microfinance industry of sub Saharan Africa. The study used fixed and robust fixed effect regression empirical model to estimate the significant influence of each variable on loan portfolio at risk. Furthermore, dataset of 162 microfinance institutions from the MIX market within the sub region (SSA) was used for the empirical estimation. The results from the tested empirical estimation show that extent to saving, inefficiency and number of client outstanding has a strong influence on loan portfolio at risk (statistically significant at p< 0.05). Likewise leverage was statistically significant at p <0.1 level. The other remaining variables were not statistically significant. The findings suggest that lack of adequate information and monitoring are attributes of higher loan portfolio at risk. Hence it will be of importance that Microfinance adopts the following measures, capacity building programs, information sharing mechanisms and increase in monitoring activities. Understanding the factors that affect loan portfolio at risk is essential for portfolio risk management. This paper adds to empirical literature on the determinants of loan portfolio at risk in the microfinance industry of Sub-Saharan Africa.
Developments in the financial services sector in Africa
(ScienceDirect, 2014-04) Abor, J.Y.; Alagidede, P.; Ocran, M.K.; Adjasi, C.K.D.
Dividend Policy and Shareholders’ Value: Evidence from Listed Companies in Ghana
(2017) Odor-Sasu, D.; Abor, J.Y.; Osei, K.A.
Purpose – This paper seeks to investigate the relationship between capital structure and profitability of listed firms on the Ghana Stock Exchange (GSE) during a five-year period. Design/methodology/approach – Regression analysis is used in the estimation of functions relating the return on equity (ROE) with measures of capital structure. Findings – The results reveal a significantly positive relation between the ratio of short-term debt to total assets and ROE. However, a negative relationship between the ratio of long-term debt to total assets and ROE was found. With regard to the relationship between total debt and return rates, the results show a significantly positive association between the ratio of total debt to total assets and return on equity. Originality/value – The research suggests that profitable firms depend more on debt as their main financing option. In the Ghanaian case, a high proportion (85 percent) of the debt is represented in short-term debt.
Do Independent Central Banks Exhibit Varied Behaviour in Election and Non-Election Years?: The Case of Fiscal Policy in Africa
(Journal of African Business, 2019-03) Agoba, A.M.; Abor, J.Y.; Osei, K.A.; Sa-Aadu, J.
The study primarily investigates if the behavior and effectiveness of CBI on fiscal policy varies between non-election and election years. It also examines whether the effectiveness of CBI in improving fiscal performance is enhanced by higher institutional quality. Using recent CBI data f on 48 African countries, 90 other developing countries and 40 developed countries over the period 1970–2012, we apply a two-stage system GMM with Windmeijer small sample robust correction estimator and find that due to the strong incentives of political authorities to influence economic outcomes in election years, CBI has stronger effects on fiscal performance in election years compared to non-election years in developed countries only. However, given higher levels of institutional quality, CBI has stronger effects on fiscal performance in election years compared to non-election years in Africa and other developing countries also.
Do sustainability ethics explain the impact of country-level corporate governance on financial stability in developing economies?
(Journal of Sustainable Finance & Investment, 2023) Ofori-Sasu, D.; Donkor, G.N.A.; Abor, J.Y.
The study presents empirical evidence on how sustainability ethics affect the relationship between country-level corporate governance and financial stability in developing countries. Employing the dynamic system Generalized Method of Moments on a panel dataset of 137 developing countries over the period, 2006–2019, the study found that the positive effect of country-level corporate governance framework on financial stability is not instantaneous. We find that internal and external corporate governance frameworks have a strong positive synergistic effect on financial stability. We confirm that corporate governance measures substitute sustainability ethics to yield a desirable outcome of financial stability. Finally, the study finds evidence to support that sustainability ethics reduce the negative impact of country-level corporate governance on financial stability. The study recommends that the build-up of quality sustainability ethics can help tame the reductive effect of the country-level corporate governance framework on financial stability in developing countries.
Does China’s Flow of FDI and Institutional Quality Matter for Poverty? Evidence from Sub-Sahara Africa
(Journal of Asian and African Studies, 2023) Iddrisu, K.; Abor, J.Y.; Insaidoo, M.; Banyen, K.T.
The study adds to the discussion on the necessity for Sub-Saharan African (SSA) countries to eradicate poverty, as outlined in SDG 1 and Africa’s Agenda 2063. This contribution was successful in achieving some key objectives. First, we examine the impact of Chinese FDI and institutional quality on the eradication of poverty in SSA. Second, we test empirically whether institutional quality can help Chinese FDI to reduce poverty in SSA. Using an annual dataset for 36 SSA countries for a 20-year period ending in 2020, our pooled OLS results showed that Chinese FDI does not reduce poverty unless there are strong institutions and good governance. Also, the results showed that strong institutions and good governance reduce poverty in SSA. As a result, we recommend that governments establish policies to develop systems and structures that encourage industrialization and attract foreign investors for SSA to reap the full benefits of Chinese FDI.
Does development finance pose an additional risk to monetary policy?
(Elsevier ScienceDirect, 2016-08) Issahaku, H.; Harvey, K.S.; Abor, J.Y.
This study investigates whether remittances entail extra risk for macroeconomic policy management and examines the role (if any) that thefinancial system can play in the interaction between remittances and monetary policy. Employing panel data for 106 developing countries from1970 to 2013, the results from our panel vector autoregressive (PVAR) model reveal that remittance volatility reduces macroeconomic risk indeveloping countries while simultaneously stimulating a reduction in domestic interest rates. This finding remains robust to alternative specificationsof remittance volatility and monetary policy risk and to variations in the degree of financial development. The key lesson from this study is thatdeveloping countries can leverage the positive impact of remittances in reducing macroeconomic instability by implementing policies that induceremittances.