OpenUCT :: Browsing by Author "De Jager, Phillip"

Browsing by Author "De Jager, Phillip"

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Open Access
An analysis of how the firm objective debate is reflected in financial textbooks and in the MVV statements of JSE TOP40 firms
(2016) Abdulrehman, Shayan Aslam; De Jager, Phillip
This study investigates whether the shareholder, stakeholder and customer-oriented theories on the objective of the firm are reflected in modern financial textbooks, and in the Mission, Vision, and Values statements of the JSE TOP40 firms. The literature review discusses the shareholder, stakeholder and customer-oriented theories of the firm, among others, and shows that there is no consensus between finance researchers on the objective of the firm, with opposing views presented. The research approach adopts qualitative analysis as the method for this study, as it is deemed to be suitable for pattern recognition in large sets of data. The data consisted of twenty financial textbooks, and the MVV statements of the JSE TOP40 firms. Both the data sets were analysed to identify the shareholder, stakeholder and customer-oriented objectives of the firm using the word frequency and coding queries in software NVivo. The finding in respect of financial textbooks indicates that seventeen textbooks advocated for a shareholder objective, two advocated for a stakeholder, and one for a customer-oriented objective of the firm. The JSE TOP40 firms' finding indicates that seventeen pursued a stakeholder objective, twelve pursued a customer-oriented objective, and eleven pursued a shareholder objective. The study establishes that the shareholder, stakeholder and customer-oriented theories of the firm's objective are reflected better in the MVV statements of JSE TOP40 firms, than in financial textbooks. This highlights a disconnection between financial textbooks, where the shareholder objective of the firm was found to be dominant, and the JSE TOP40 firms' findings where the debate concerning the three objectives was more evenly spread. This study recommends that South African academic authors should update their financial textbooks to reflect more emphasis on the stakeholder and customer-oriented theories of the firm's objectives, as being pursued by the JSE TOP40 firms.
Open Access
Are there benefits to diversification across the largest African stock markets?
(2016) De Jesus, Carlos; De Jager, Phillip
This study examines the co-movements of selected African stock exchanges, including Nigeria, Morocco, Egypt and South Africa, as well as the USA, in local currency and in USDt erms, for the period January 2004 to June 2014. The study sheds light on African market cointegration before, during, and post the financial crises of 2007/2008 to identify whether there are benefits to diversification in stock exchanges across Africa and how this has changed over time. Only the four biggest exchanges are examined, to eliminate the effects of illiquidity and ensuring the size of indices used result in conclusions that are practical to investors. This study looks at short and long term relationships using correlation, cointegration, and the direction of the relationships using causality tests. It finds low correlations between all African exchanges and the USA, with the exception of South Africa, which did show significant correlation with the USA. We find no consistent cointegration relationships over the periods tested. There are no consistent causality relationships between the various countries. The implication of these results are that there are likely benefits to diversification across the four African exchanges examined.
Open Access
Dividend tax changes and ex-dividend behaviour: the case of South Africa
(2015) Chinhema, Michelle; De Jager, Phillip
In April 2012, South Africa changed its tax system on dividends. South Africa switched from using Secondary Tax on Companies (STC) to Dividend Withholding Tax (DWT) in an effort to align with the international standards and eliminate the perception of a higher tax rate. This paper attempts to establish the role of taxes in determining the ex-dividend day share price movements by comparing the pre-tax change and post-tax change in price drop ratio (PDR). In this study, I compare the mean and median PDR before and after the April 2012 Act using a t-test and Wilcoxon Mann Whitney test respectively. Furthermore, this study employs a fixed effects regression model to analyse the PDR change on the ex-dividend day before and after the April 2012 Act. The advantage of using a fixed effects model is that it controls for omitted time-invariant predictors so that the model is not biased because of omitted characteristics. I find a significant difference in the mean and median PDR before and after the tax change. Furthermore, I find that ex-dividend prices vary systematically with taxes as predicted by Elton & Gruber (1970:68) hence supporting the tax-based explanation for ex-dividend day prices. This research is particularly interesting because this is the first tax clientele study in South Africa and the 2012 Act provides a natural experiment where the tax effect can be isolated more effectively compared with other studies that have been done before. Furthermore, this research spans over a narrow time frame thereby reducing the effect of other factors that may also drive ex-dividend day prices.
Open Access
Do fair adjustments influence dividend policy for South African firms?
(2016) Grimmer, Brian; De Jager, Phillip
This paper investigates the potential procyclical effects of fair value accounting (FVA). If FVA adjustments result in increased accounting profits with the recognition of transitory gains through a firm's profit and loss (P&L), and if management incorrectly assesses the persistence of the unrealised gains, these increased profits may be paid out as dividends. This has the potential to increase leverage and risk for these firms, thereby also possibly amplifying economic cycles. A study by Goncharov and Van Triest (2011:59) on Russian firms found that FVA adjustments are persistent in future earnings; however, no empirical evidence was found to support an increase in dividends in response to unrealised FVA gains. By contrast, when the setting is limited to South African banks only, De Jager (2015:157) found that South African banks have paid the full amount of any unrealised transitory gains as dividends. This study focuses on the effects of FVA adjustments on dividend policy for South African firms, as represented by the firms included in the FTSE/JSE Top 40 Index. This furthers De Jager's (2015) study by extending the investigation of the dividend relevance of FVA adjustments from the major South African banks, to South African large firms in general. The results of a panel regression of the net profit of these firms reveal that unrealised FVA adjustments do have a persistent influence on future earnings, indicating that these adjustments contain both transitory and persistent elements. A further panel regression of the annual dividends declared by these firms indicates that dividend payments do include a portion of unrealised FVA gains, as expected by the persistent nature of a portion of these unrealised FVA gains.
Open Access
Empirical evidence of aggregate credit supply by South African banks since the introduction of international risk based capital regulation
(2014) Neethling, Sean Brett; De Jager, Phillip
This paper reviews the empirical evidence of how South African banks have changed credit supply since the introduction of risk based capital regulation through the Basel Accords. The primary objective is to analyse empirical trends in on-balance sheet lending between 1994 and 2013 and to establish whether the propensity for banks to extend credit at the aggregate industry level can be partly attributed to the increased regulatory requirements of target capital adequacy ratios or is more dependent on other demand and supply side variables. The extent to which compliance with regulated capital reforms has been satisfied by contracting credit supply, increasing qualifying capital or changing the composition of on-balance sheet lending portfolios through substituting between risk weighted assets is analysed. Furthermore, the risk weighted assets component of capital adequacy is reviewed to more critically understand risk taking and arbitrage in both retail and commercial lending portfolios over the full observation period. A vector auto regression (VAR) model is used to test the dependency of bank lending on both bank specific and macroeconomic variables and to quantify their individual effects at the aggregate industry level.
Open Access
Fair value accounting in South African banks : financial stability implications
(2015) De Jager, Phillip; Holman, Glen
This article-based thesis consists of three main papers that examine the use of fair value accounting in banks and how it can influence behaviour with systemic effects; this helps in understanding the role of fair value accounting in the global financial crisis. The examination consisted of two parts. The first part was the investigation of how fair value accounting was actually used by South African banks. The second part was the development of an analytical model that links together fair value accounting, bank capital regulation and economic outcomes. The South African case study was further divided into two parts. In the first part, a comparative design was used to investigate in detail how fair value accounting was implemented by two South African banks and what their motivations were. The second part sought to answer the question: did South African banks pay out higher dividends based on risky fair value accounting gains? The South African evidence indicates that fair value accounting materially impacts the profit and loss and the regulatory capital of banks. This component of regulatory capital proved to be risky. Dangerous pay-outs resulted from the increase in profits and bank assets grew the most during the period of risky capital formation. It was found that the use of a stock-flow consistent model of the economy was a commonality amongst those that predicted the global financial crisis. A stock-flow consistent model was shown to be descriptive of the South African evidence. The model showed fair value accounting to be at the centre of feedback processes that can weaken the banking system during the economic upswing. The study concludes that fair value accounting is central in processes that weaken the banking system during an economic upswing and thus demonstrates why the current call for prudent accounting in banks is justified. The study expands on current literature in a number of ways. It adds to the literature that fair value accounting is procyclical by demonstrating that this effect is not constant throughout the cycle and is more problematic during the upswing; this differs from the usual argument that fair value accounting accelerates the downturn. The South African empirical evidence showed that fair value accounting for available-for-sale assets is not the only avenue for fair value accounting to be dangerous; fair value accounting adjustments through profit and loss should also be monitored. The analytical model as well as the South African empirical evidence contradicts the common argument that the fair value measurement of financial instruments must be pervasive in a bank and banking system to be dangerous. The South African empirical evidence shows that fair value accounting must be considered a possible avenue of earnings or capital management in banks.
Open Access
The impact of change in the definition of bank capital according to Basel 3
(2015) Odada, Lameck Onyango; De Jager, Phillip
The objective of this study is to analyse the impact of the change in the definition of bank capital according to Basel 3. The 2008 financial crisis exposed the flaws in the global regulatory and supervision framework and also showed that Basel 2 could not fully protect against bank failures. In order to address the gaps, loopholes and deficiencies of Basel 2 and to guard against any future crises, the Basel 3 accord was implemented in 2013. The key change introduced by Basel 3 is the requirement that banks hold more capital. However, the Basel 3 accord also changed the definition of bank capital and the definition of risk-weighted assets (RWAs). In comparing Basel 2 with Basel 3, several changes in the definition of capital appear. It is therefore important to analyse the impact of the capital definition change introduced in Basel 3 excluding the changes in the definition of RWAs. The study used a sample of the fifty largest commercial and investment banks by asset size from the USA and the Europe region. The study calculated the Basel 2 Tier 1 capital ratio and Basel 3 Tier 1 capital ratio at the same point in time by only changing the reported capital under Basel 2 and Basel 3 but keeping the RWAs the same at Basel 2 level. This is to isolate the capital definition change and exclude changes to the RWAs definition. The change in the regulatory Tier 1 capital ratio is the estimated impact of the change in the definition of bank capital according to Basel 3. The data sample shows that the banks in the Europe region are larger in size than the USA banks on average. The results show that the change in the Basel 3 capital definition had a positive impact on the European banks' capital ratios and in contrast there was a negative impact on the USA banks' capital ratios. The limitations of the study include the use of a small sample size of fifty banks, the omission of Asian banks from the sample size even though these include some of the largest banks in the world, and the selection of banks with December year ends only. This study contributes to the literature because it is the first study to examine the capital definition change in Basel 3.
Open Access
The impact of firm size and industry on capital structure decisions
(2015) Stallkamp, Philip Robert; De Jager, Phillip
This paper investigates the impact of firm size and industry on the capital structure of listed South African firms. It uses data obtained from firms listed on the Johannesburg Stock Exchange and tests trade-off theory and pecking order theory for firms of various sizes, firms in different industries and also tests for differences between debt maturities. Multiple fixed effect models are used to firstly test for the main factors that impact capital structure and secondly to test which sources of capital are preferred to finance a change in assets. The analysis shows that firms of different sizes and firms that operate in different industries choose their capital structure in various ways. Larger firms are more highly geared debt more than small firms and smaller firms prefer to use internally generated funds. The two main capital structure theories, trade-off and pecking order, do not explain the difference in behaviour adequately. The paper also finds that similar factors impact both long-term and short-term debt.
Open Access
Investigating Nigeria's asset management corporation : a case study of a bad banking solution to banking crises
(2015) Ajewole, Oluseyi Joseph; De Jager, Phillip
This paper provides an assessment of Africa's first "bad bank", the Asset Management Corporation of Nigeria (AMCON) and its role in resolving non-performing loans (NPLs) in the aftermath of the 2008 financial crisis. It is a case study that primarily investigates the effectiveness of AMCON in addressing the banking crisis in Nigeria based on evidence from different sources ranging from economic indicators to media reports and newspaper interviews. The establishment of AMCON in 2010 helped to resolve the non-performing loans crisis in Nigerian banks, through a transparent removal of toxic assets and by providing the affected banks with a fresh start, while eliciting a minimal moral hazard effect as far as financial institutions were concerned . Other African countries such as Ghana are now considering adopting a similar "bad bank" solution. However, the AMCON solution has been at a considerable cost to the Nigerian taxpayers as AMCON has been running at a huge loss, partly funded by the taxpayer through the government. Data analysed in the study cover the period from 2008 to 2013. The analysis showed that the AMCON solution was successful as the balance - sheet sanitization effort helped to neutralize many of the banking sector 's n on - performing loans, and spurred improvements in the sector's aggregate loan book quality with in its first two years . As at December 2012, AMCON had purchased more than 95% of the banking sector's NPLs, leaving the industry's NPLs at less than 5%. This offered banks a fresh start and the leeway to concentrate on building new and sustainable lending models. This outcome of this study supports prior empirical work which only examined bad banks in developed economies (the US A and Europe) and in the Asia Pacific. It should be noted that the "bad bank" concept is new to Africa and so there is very little empirical work on this topic. This study contributes to the discussion by its exposition on the overall positive trends in Nigeria's banking sector post - crisis and the impressive growth in bank credit , GDP and the equity market after the financial crisis.
Open Access
Poverty Reduction in Sub-Saharan Africa: A Call for Financial Inclusion
(University of Cape Town, 2020) Malekano, Shamiso; De Jager, Phillip
This dissertation proposes an Index of Financial Inclusion (IFI) for Sub-Saharan Africa and then uses the developed index to investigate the significance of the relationship between financial inclusion and economic development and growth. This is important because there is no consensus in the literature on how to measure financial inclusion or on the direction of the causal relationship between financial inclusion and economic development or growth. This dissertation aims to contribute to these two debates whilst focusing on Sub-Saharan Africa, where development (potentially encouraged by financial inclusion) is desperately needed. The IFI for Sub-Saharan Africa is arrived at by first determining those dimensions of financial inclusion that are important for the countries in the region. This was done through a text analysis of National Financial Inclusion Strategies (NFISs) of 13 Sub- Saharan African countries overlaid on a detailed literature review. Access, Usage and Quality are the key dimensions for measuring levels of financial inclusion in the region. Thereafter, appropriate variables for the measurement of those dimensions were identified and combined using different methodologies: the simple geometric mean method, the inverse Euclidean distance method and, lastly, the factor analysis method. The relationship between the developed index and economic development and growth is tested using correlations and regression analyses. It was demonstrated that the IFI fits the NFISs of Sub-Saharan African countries and is practically executable. This implies that the IFI is perhaps more appropriate to be used in the region than the global measures previously proposed. Weak correlations between the IFI and economic development or growth were found. These last tests were hampered by small sample sizes and thus the causation debate, mentioned in the motivation paragraph, could not be resolved. However, the proposed IFI for Sub- Saharan Africa shows potential.
Open Access
The relative value relevance of cash flow accounting disclosures by South African Banks
(2016) Trehaeven, Jake; De Jager, Phillip
During recent decades, researchers have developed the value relevance method of accounting based research. Value relevance, at its core, attempts to describe the information usefulness of a disclosure figure in relation to the impact it has on the market values of a given stock. Much of the focus of this research, both internationally and locally, has been based on earnings or balance sheet disclosures with little attention being paid to other sections of disclosure. This study takes the use of value relevance methods one step further and analyses the information usefulness of operating cash flow disclosures of financial firms versus non-financial firms in a South African context. The study proceeds to explain and then test the presumption that the nature of the banking business model makes operating cash flow disclosures irrelevant; some interesting and somewhat counter-intuitive results are obtained.
Open Access
What are the determinants of non-performing loans in Botswana?
(2016) Tsumake, Gertrude Kgalalelo; De Jager, Phillip
The maintenance of asset quality, efficiency and profitability is a vital requirement for the survival and development of banks. Loans are the main asset class from which banks generate their major portion of income and also signify the greatest risk to banks. There has been significant indication that the financial crises in the USA, Sub-Saharan Africa and East Asia were signalled by high levels of non-performing loans (NPLs). Due to the detrimental effect that these loans have on a bank's revenue and the economic welfare of a country, it is essential to examine and investigate the determinants of NPLs in the banking industry of any country. This study examines Botswana, a developing country in Southern-Africa and is stimulated by the assumption that both the industry level variables and macroeconomic variables have an effect on NPLs. Secondary data of the banking sector was obtained from Botswana's central bank, the Bank of Botswana. Correlation and regression analysis were carried out over a period of ten years (2005-2014), using quarterly data. It was found that the following industry level variables (i.e. credit growth, industry size and profitability) and macroeconomic variables (i.e. real gross domestic product (GDP) growth, inflation, real interest rates and the unemployment rate) have a statistically significant impact on the NPL rate. On the other hand, capitalization and diversification had a statistically insignificant relationship with NPLs. The banking industry in Botswana should carefully monitor the household loan portfolio as well as their credit advancement policies with regard to the aforementioned variables to help lower their NPL ratios. This study is the first of its kind in the Botswana banking industry and therefore will provide scholars with the opportunity to enrich their knowledge and serve as a reference for other researchers in the related area while also providing a foundation for further studies.

Browsing by Author "De Jager, Phillip"

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