Browsing by Author "Majoni, Akios"
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- ItemOpen AccessDeterminants of divestiture choice in South Africa(2019) Siame, Davy; Majoni, AkiosThis research report investigates the determinants of divestiture choice in South Africa. In addition, it examines how the determinants are influenced by the period studied. There are three periods of interest, being the full sample period, the prefinancial crisis period and the post financial crisis period. The determinants of divestiture choice have not been investigated from a South African perspective by prior studies. This report therefore contributes to the literature by exploring a new context. The South African context is unique because of differing laws and regulations as well as socio-economic factors specific to countries in developing markets. This report makes a further contribution by updating the literature on determinants of divestiture choice as post financial crisis data is included in the data set. The research is based on a sample of 102 divestiture transactions (78 spin-offs and 24 sell-offs) over the period 1998 to 2017. Logistic regression is used to ascertain the determinants of divestiture choice using pre-divestiture data of the parent company. The results show that financial performance as measured by return on equity (ROE) and liquidity as measured by the current ratio are significant determinants of divestiture choice over the full sample period (1998 to 2017). The higher the firm’s financial performance, the higher the likelihood of divestiture through spin-off. Contrary to expectation, it was found that the higher the liquidity of the firm, the higher the likelihood of divestiture through sell-off. Financial distress, director ownership, Broad Based Black Economic Empowerment (BBBEE) and effective taxation rates are not found to be significant factors in determining divestiture choice over the entire period of study. Financial performance is found to be a significant determinant of divestiture choice over the pre-financial crisis period (1998 to 2006). The results for this period show that the higher the firm’s financial performance, the higher the likelihood of divestiture through spin-off. The remaining factors are not found to be significant for the prefinancial crisis period. No factors were found to be significant over the post financial crisis period (2009 to 2017). These findings imply that determinants of divestiture choice are not uniform for South Africa and the United States; nor for differing time periods in the South African context. This implies that divestiture determinants vary depending on the context and the economic cycle studied.
- ItemOpen AccessDiversification, ownership structure and firm performance: A South African case study(2021) Chitah, Musonda K; Majoni, AkiosThe purpose of this study is to examine the impact of diversification (both industrial and geographical) on the performance of non-financial South African firms listed on the Johannesburg Stock Exchange (JSE). The study goes further to examine the impact of ownership structure (managerial ownership and ownership concentration) in the context of diversification on firm performance. This is done in an effort to determine if diversification is an effective strategy in enhancing firm performance (which is measured by Tobin's Q) in South African firms. Fixed effect regression analysis is used on a sample of 164 firms during the period 2010 to 2019. For comparison purposes, the study also conducts; ordinary least squares (OLS) and random effect analyses. The study finds that industrial diversification has no significant effect on firm performance, geographical diversification reduces firm performance and overall specialized firms perform better than diversified firms do. These results support the argument that the costs of diversification surpass its benefits. The study also finds that managerial ownership reduces firm performance contradicting the agency theory. Furthermore, ownership concentration has no significant effect on performance of South African firms.
- ItemOpen AccessInvestigating the Impact of Liquidity on Profitability of Commercial Banks in Botswana(2023) Disele, Thapelo; Majoni, AkiosThis study empirically investigates the relationship between liquidity and profitability of commercial banks in Botswana, by adding to the sparse existing research from a developing country perspective. A random effects panel regression technique was adopted to evaluate monthly bank level data from 2012 – 2021. Liquid Asset Ratio was chosen as the key liquidity explanatory variable for the statistical models, whilst Return on Assets is the primary performance measure. For robustness check, Return on Equity is used as a supplementary financial performance measure. The empirical evidence concluded that there is a statistically significant negative relationship between liquidity and profitability. The research findings are particularly relevant for bank managers and supervisors to help enhance knowledge of liquidity risk management, strengthen effective liquidity supervision and help device new standards and measures that strengthen the resilience of the banking sector against any potential catastrophic liquidity related shocks. Additionally, the findings of this study provide pertinent and meaningful insights required for ensuring financial sector soundness and macroeconomic stability. Key words: Liquidity, profitability, performance.
- ItemOpen AccessAn investigation of empirical properties of South African bonds(2017) Mate, Janet; Rajaratnam, Kanshukan; Majoni, AkiosThis study investigates empirical properties of South African bonds over the period 2000 to 2016. In particular, it investigates i) mean reversion in bond returns; ii) the correlation between bond returns and the inflation rate; and, iii) the correlation between bond returns and equity returns. An understanding of bond return dynamics would allow bond investors to assess which bond properties work in their favour. Thus this study seeks to guide bond investors, and to add to the knowledge of the bond market concerning bond return dynamics in an emerging market economy. The study employs a quantitative research methodology, using a nonexperimental research design. The investigation is carried out at the macroeconomic level using the JSE All Bond Indices as the bond investment proxy, the FTSE/JSE All Share Total Return Index as the equity investment proxy, and the Consumer Price Index as the proxy used to measure the inflation rate. The sample autocorrelation function is used to test for mean reversion and the Kendall Tau-b correlation test is used for the correlation investigations. This study does not find statistically significant evidence of long term mean reversion but finds statistically significant evidence of short-term mean reverting behaviour in the period 2013-2016. Furthermore, this study reveals that short-term serial correlations vary and are sensitive to political developments in the economy. The correlation analysis between bond returns and the inflation rate and bond returns and stock returns did not return statistically significant correlation values. However, further analysis provided evidence against the use of bonds as an inflation hedge and of diversification benefits to be reaped from combining bonds and stocks together in a portfolio.
- ItemOpen AccessLong memory in bond market returns: a test of weak-form efficiency in Botswana's bond market(2021) Muzhoba, Gorata; Majoni, AkiosUsing the ARFIMA-FIGARCH model, this dissertation examines the efficiency of Botswana's bond market. It focuses on the properties of the return and volatility of the Fleming Asset Bond Index (the main aggregate fixed income benchmark index in Botswana) over the period September 2009 to May 2019. The weak-form version of efficient market hypothesis (EMH) is used as a criterion to investigate the existence of long memory in both bond returns and volatility. The results of our study indicate that the Botswana bond market data follow, to a great extent, the long-range dependence which negates the precepts of the efficient market hypothesis. Furthermore, policy reforms intended to stimulate bond market reform and related efficiency gains appear not to have produced the desired outcomes as the existence of long memory is found across all sample periods. Further remedial policies are suggested to enhance market dynamism.
- ItemOpen AccessMitigating secondary agency problems: examining the impact of share option compensation for non-executive directors on CEO pay incentives and earnings management(2019) Majoni, Akios; Rosenthal, Leonard; Uliana, EnricoThis thesis investigates the following objectives: first, it analyses trends in share option compensation for NEDs during the pre–King III period (before they were stopped). The idea is to determine whether the decision to stop them was triggered by a significant increase in their use. The trend analysis is extended to observe changes in the use of share options for NEDs over the full sample period. The intention of this sub–objective is to measure the extent of compliance to King III’s requirement to stop the use of share option compensation for NEDs. Second, the study exploits the natural experiment, presented by King III’s requirement to stop the use of share option compensation for NEDs, to investigate the impact of share option compensation for NEDs on monitoring executives. In addition, the study investigates how institutional and blockholder ownership affect the relationship between share option compensation for NEDs and monitoring (to see whether they are substitutes). Both institutional and blockholder owners consist of heterogeneous categories with different monitoring incentives; hence, a further analysis examines the moderating impact of these different categories of stakeholders. To measure the level of monitoring, the study focuses on two of the biggest agency problems in South Africa: design of CEO compensation and levels of earnings management. The study is based on a sample of 110 non–financial companies (55 in the treatment group and 55 in the control group) listed on the Johannesburg Stock Exchange (JSE), South Africa, over the period 2002–2016. The bulk of the data used was hand–collected from annual reports, the rest was sourced from financial databases such as Bloomberg, Iress and DataStream. The difference– in–difference regression analysis is the main methodology used but for comparison purposes, the study also applies the normal Ordinary Least Squares (OLS) regression and fixed effects model. To control for the endogeneity problem, the study is based on a natural experiment, which is dubbed the ‘gold standard’ for addressing endogeneity problems. Addressing the endogeneity problem is key to satisfactorily settling the debate on the effectiveness of equity–based compensation in mitigating secondary agency problems. The results of the trend analysis show that the growth in share option compensation for NEDs was not statistically significant during the pre–King III period. These results rule out the possibility that King III’s recommendation to stop the use of share option compensation for NEDs was driven by an explosion in their use. As expected, after the introduction of King III, the use of share options declined significantly – an indication that companies largely complied with the requirement to stop the use of share options as compensation for NEDs. However, not all companies are compliant; this is not surprising, as King III was based on the ‘apply or explain’ approach. Regarding the impact of share option compensation on monitoring, the results consistently show that removing share option compensation for NEDs does not weaken monitoring; it either improves monitoring, or it has no effect. Based on these findings, it is not worthwhile, for shareholders, to use share option compensation for NEDs. They come at a cost, they dilute the shareholding structure yet removing them does not weaken monitoring. Overall, the results support King III’s recommendation to stop the use of share option compensation for NEDs. The results also show that the presence of institutional and blockholder ownership does not improve monitoring after the removal of share option compensation. Hence, neither of these two stakeholders are a substitute monitoring mechanism for share option compensation for NEDs. This is inconsistent with the substitution-monitoring hypothesis. These findings persist, even after a sub–sample analysis of the two categories of institutional ownership (monitoring and non– monitoring institutional owners). A further analysis of different categories of blockholder ownership shows that family, pension and foreign blockholder are not a substitute monitoring mechanism for NEDs share option compensation. But the results for government blockholders contradict this; they are a substitute for share option compensation when analysing real–activities manipulation. However, for the rest of the settings they are not a substitute monitoring mechanism. This confirms the view that different blockholders have different incentives to monitor management, which affects organisational outcomes. The study makes the following contributions: (i) It contributes to the literature by addressing the endogeneity problem using a natural experiment. (ii) The study focuses on a unique institutional context, largely ignored by prior studies on this subject. (iii) The study contributes to the crafting of future corporate governance principles in South Africa and the rest of world, specifically on the design of incentive compensation for NEDs. (iv) By investigating the interaction effects of institutional/blockholder ownership and their different categories, the study provides evidence for the substitution-monitoring hypothesis in South Africa. (v) On the use of share option compensation for NEDs, this study contributes to the literature by showing its impact on mitigating agency problems specifically related to the design of CEO pay incentives.
- ItemOpen AccessPerformance of Socially Responsible Investment Funds in South Africa(2023) Dunton, Patrick; Majoni, AkiosThis thesis examines how the risk-adjusted performance of Socially Responsible Investment (“SRI”) funds are affected by key events in South Africa, namely, the introduction of King IV and the introduction of socially responsible indices in South Africa, events and their impact on socially responsible investing in South Africa which has not been previously addressed by other studies. This gap in research is what this thesis looks to address. The thesis also examines the risk-adjusted performance of a sample of SRI funds relative to conventional investment vehicles, using a matched sample of conventional funds and the South African equity market, using the JSE All Share Index as a proxy, as benchmarks, over a ten-year period ending the 31st of December 2018. Previous studies, both globally and locally, have either identified under-performance of socially responsible investment funds relative to conventional funds on a risk-adjusted basis or no statistically significant difference in risk-adjusted performance. The risk-adjusted performance metrics which were considered were the Sharpe, Treynor and Sortino ratio's as well as the Jensen's alpha measure. These performance metrics were applied to a sample size of 29 funds for the full research period. The findings were that there was a statistically significant difference in performance from sub-period to sub-period which indicates that risk-adjusted performance of the sample varied with key events in the SRI investment landscape. The direction of the impact was unexpected as risk-adjusted performance of the sample deteriorated with these events. It was also found that in most instances, the sample of SRI funds on average tended to underperform each of the two benchmarks, with the average underperformance being statistically significant for both benchmarks across the full research period, thus resulting in the conclusion that on a risk-adjusted basis, socially responsible investment funds tend to underperform conventional investment funds. The thesis raised concerns, stemming from the findings, for the future and viability of the socially responsible investing industry from both an asset manager and investor perspective due to the inferior risk-adjusted returns relative to conventional funds and detailed recommendations for further research into the topic. Key words: socially responsible investing, risk-adjusted performance, Sharpe ratio, Treynor ratio, Jensen's alpha, Sortino ratio, King IV, FTSE/JSE Responsible Investment indices
- ItemOpen AccessThe price differential between identical assets trading in different markets : a case study of Mondi Holdings(2010) Majoni, Akios; Gstraunthaler, ThomasThis study investigates the possible explanatory factors behind the mispricing in dual traded assets, using Mondi Holdings (the PLC listed on the London Stock Exchange and the LTD listed on the Johannesburg Stock Exchange) as a case study. The study documents the existence of substantial mispricing between the Mondi twins, with the LTD trading at an average premium of 9% over the sample period. However, the reclassification of the PLC shares on the JSE resulted in a significant and sharp decline in the LTD premium to an average of 3%, an indication that regulatory controls were significant in sustaining a larger part of the price deviations.
- ItemOpen AccessThe determinants of divestitures and divestiture returns in South Africa(2019) Leepile, Katlego Joseph; Majoni, AkiosThis study investigates the determinants of divestitures, the impact of divestitures on shortterm firm value and the determinants of divestiture returns in South Africa. The study is based on a sample of 46 non-financial firms listed on the Johannesburg Stock Exchange (JSE) between 2000 and 2014. Logit regressions found CEO Turnover, a measure of corporate focus and Return on Assets (ROA), a measure of corporate efficiency, to be the only statistically significant determinants of divestitures in South Africa. However, Sales growth, Return on Equity (ROE), Debt to Total Assets (D-t-A), Debt to Equity (D-t-E), the current ratio, and the interest coverage ratio did not possess statistical significance as determinants of divestitures in South Africa. The study also investigated the impact of divestitures on short-term shareholder wealth and found that divestitures have a statistically significant positive impact on short-term firm value in South Africa. Finally, the study also investigated the determinants of divestiture returns. Cross-sectional regressions conducted on the full sample of divesting firms found that leverage has a statistically significant effect on divestiture returns in South Africa; however, firm size and efficiency do not have a statistically significant effect on divestiture returns. In order to further understand the determinants of divestiture returns in South Africa the study also separated the portfolio of divesting firms into subsamples. The study found that larger firms report superior abnormal returns than smaller firms, firms with lower levels of efficiency report superior abnormal returns than firms with higher levels of efficiency, and highly-levered firms report superior abnormal returns than lower-levered firms in South Africa.
- ItemOpen AccessThe impact of derivative use on firm risk and firm value. Evidence from South African non-financial firms(2020) Mwangi, Edwin; Majoni, AkiosThis dissertation investigates the extent of derivatives use in South Africa. In addition, it examines the effect of derivatives use on firm risk and value. The dissertation is based on a sample of 91 South African non-financial firms listed on the FTSE/JSE Africa All Share Index on the JSE over the sample period 2012 to 2016. Firm risk is measured using total risk, systematic risk and unsystematic risk while the Tobin's Q is used as the proxy for firm value. The results of this dissertation show that 62% of firms included in this sample use derivatives. Foreign currency derivatives were the most commonly used as 80.3% of firms used them followed by interest rate derivatives at 46% and then commodity price derivatives at 21.8%. This dissertation provides evidence that the use of derivatives significantly reduces total risk and unsystematic risk. However, the use of derivative does not have an effect on systematic risk. The use of derivatives increases firm value although this increase is not statistically significant. Overall, this dissertation finds evidence of risk reduction related to derivative usage but fails to establish the value premium that is created by derivative use.
- ItemOpen AccessThe impact of institutional investors on dividend policy in South Africa(2020) Mvovo, Sinesipho; Majoni, AkiosAgency theory suggests that with enhanced monitoring, companies are more likely to pay out their free cash flow. Institutional investors may be great monitors given that they are professional investors with specialized expertise in evaluating firm's financial performance, management quality and governance. This study investigates the impact of institutional investors on dividend policy in South Africa, during the period from 2009 to 2018. Examining the effect of institutions as a whole can obscure the important variation in the subset of institutions, as they are not homogeneously incentivised to monitor firms. As a result, this paper segregates institutional investors into subcategories based on their monitoring abilities. Through the employment of a panel data regression model, this study finds a positive but statistically insignificant relation between institutional ownership and the dividend pay-out ratio; the positive relation is stronger in monitoring institutions. This paper used firm-fixed effect models to control for the possible endogeneity coming from unobserved firm-level, time invariant factors that determine both dividend policy and institutional ownership at the same time. The results of this paper do not support models that predict that institutional investors cause an increase in firm dividend pay-out ratio. Even though it is possible that firms pay dividends to reduce agency conflicts, this study did not find evidence that supports that the portion of shares held by institutional investors are related to the dividend pay-out policy. Secondly, although it is likely that institutions are more competent in monitoring management actions than individuals, there is no evidence to support that they use dividends as their monitoring device. The results of this study therefore caution those that invest in companies in South Africa and expect to receive more dividends by merely confirming the presence of institutional investors in their potential investee company.
- ItemOpen AccessThe relationship between foreign exchange reserves, Pula exchange rate and inflation in Botswana(2023) Israel, Bofelo; Majoni, AkiosThis study examines the relationship between foreign exchange reserve, Pula exchange rate and inflation in Botswana over the period 1995-2020. The period covered contains recent data on level of foreign exchange reserves through global events like Covid-19 pandemic in which significant drawdowns in foreign reserves were experienced and not covered in prior studies. Secondary time series data was sourced from Bank of Botswana financial statistics bulletin and a linear regression was run for two models using R studio statistical software. Unit root and correlation tests were run on the data to ensure the variables were stationery and error terms correlation was eliminated in the time series. Regression equation showed that the relationship between foreign exchange reserves and inflation was negative. Similarly, the second regression revealed that the correlation between foreign exchange reserves and foreign exchange rates was negative. Empirical results further revealed that foreign exchange reserves have no statistically significant impact on inflation and exchange rates in Botswana. The statistically insignificant relationship results between the variables implies that foreign exchange reserves have not significantly influenced exchange rate and inflation which may be due to sterilization by the central bank, therefore, other factors may be responsible for changes in exchange rate and inflation locally. This may indicate that the monetary policy framework which requires foreign exchange reserves have served the country well as it maintained a stable exchange rate and did not stir inflation. However, monetary authorities should note that the current framework may not be sustainable given the tremendous pressure that foreign reserved faced in recent years and a move to a floating exchange regime should be considered as a long-term policy goal. The negative correlation of foreign reserves with inflation and exchange rate further suggest to the monetary authorities that Botswana's economy may be influenced by endogenous monetary policies rather than external variables. The relationship between exchange rates and foreign reserves is consistent with elasticity approach and economic theory of modern mercantilism which predict a negative relationship between the two variables. This may provide monetary authorities and policy makers with a framework that explains the link of Botswana's foreign reserves and exchange rates.