Browsing by Author "Mukuddem-Petersen, Janine"

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    Open Access
    Are solar home systems a more financially viable method of electrifying Ghana households?
    (2020) Radebe, Thandwefika; Mukuddem-Petersen, Janine
    Africa still has the lowest electrification rates in the world with over 600 million people estimated to be living without access to electricity. What makes the challenge even greater for Africa is that the continent is so sparsely populated that building grid infrastructure is not viable in many cases. However, “pay-as-you-go” solar home systems have provided the continent with the opportunity to correct its electrification deficit. These innovations are not new and many of the costs of operating these systems have reached grid parity when one considers the Levelized Cost of Energy Model. However, these projects still fail to meet institutional investors' bankability criteria. The aim of this study is to try and understand whether solar home systems provide the investor with an opportunity to make a larger risk-adjusted return versus existing grid-based power station projects being considered on the continent. This study uses Ghana's recently built Kpone power station as a case study to complete this analysis. The study also seeks to assess what viability criteria is employed by a broad base of investors if they were to consider funding off-grid power. The study makes use of the Net Present Value model to compare the returns for Kpone and Zola Electric's Infinity solar home system. The study also conducts inductive qualitative analysis to try and ascertain what criteria is assessed for project viability and then builds a conceptual framework for assessing future projects. The study found that Kpone provided a better risk-adjusted return to that of Zola Electric's solar home system, largely because of Kpone's project finance structure reducing the risk of the investment. Our findings also show that investment ticket size, company track record and management track record are among the most highly considered criteria for investments into off-grid companies.
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    Foreign exchange risk exposure, hedging behaviour, and corporate valuations: Evidence from South Africa
    (2018) Molele, Mashukudu Hartley; Mukuddem-Petersen, Janine
    The international business and finance literature documents a so-called exchange rate exposure puzzle. The exchange rate exposure puzzle refers to the apparent lack of empirical support for theories posited in the finance literature which predict that in the advent of an increasingly globalising world economy, nonfinancial firms should report high levels of foreign exchange risk exposure. The majority of the studies are based on the developed market context and the emerging markets of the ASEAN region. However, there is scant literature in the context of the emerging markets of the African continent. Considering that the estimation of foreign exchange risk exposure is based on the application of asset pricing models, and the fact that emerging markets are generally found to be partially segmented, the so-called exchange rate exposure puzzle cannot be generalised to the emerging markets of Africa. The general aim of the study was to examine the level of foreign exchange exposure of nonfinancial firms in South Africa, hedging behaviour and their effect on corporate value, taking into account idiosyncratic factors. Foreign exchange risk exposure were estimated at more than 40% for all for proxy currencies on the basis of the standard augmented market model. However, after controlling for idiosyncratic factors exposure levels were found to range between 6.5% and 12%. These results indicate the importance of controlling for the effects of idiosyncratic factors in the estimation of foreign exchange risk exposure in the context of emerging markets. Furthermore, the study found exposure levels to be time-varying with respect to the trade-weighted exchange rate. An indirect test of asymmetric exposure revealed results that are similar to those estimated on the basis of a more direct test in the form of a Nonlinear ARDL model and these were found to be higher than those estimated on the basis of the standard model. iii The study established that South African nonfinancial firms are likely to hedge using foreign currency derivatives when they have foreign sales, have lower interest coverage, have access to capital markets, are highly liquid, have higher gearing, and whose management have equity stakes in the firm. In contrast, South African nonfinancial firms were found to be more likely to hedge using foreign currency denominated debt when they are small in size, have foreign sales, are highly leveraged, have less growth opportunities, are highly liquidy. The magnitude of the marginal effects show that foreign sales is the single most important determinant of the decision to hedge using foreign currency denominated debt. In contrast, managerial incentives play no role in the decision to hedge using foreign currency denominated debt. Corporate currency risk management using foreign currency derivatives and foreign currency denominated debt was found to have no beneficial effects on corporate value. However, foreign currency denominated debt use was found to be much more effective than the use of foreign currency derivatives. The study identified the need for South African firms to adopt a more strategic approach in the management of economic foreign exchange risk exposure.
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    Impact of the global financial crisis and its implications for the Zambian banking sector: an econometric study
    (2018) Sichula, Mwembe; Mukuddem-Petersen, Janine
    The research examines how the banking sector in Zambia faired in the wake of the global financial crisis, and the ensuing global recession that followed. Even prior to the crisis, weaknesses within the Zambian Banking sector were already identified by a World Bank/IMF financial sector assessment. The research therefore aims to gain a better understanding of the potential destabilizing factors to the Zambia Banking sector, and provide key players (Policymakers, Regulators and Banks) with knowledge on how best to manage and overcome these adverse effects, in times of a financial crisis. A Vector Error Correction Model (VECM) is estimated using commonly identified macroeconomic and banking sector indicators from selected Anglophonic African countries that were affected by the crisis at the time. The selected variables include, Return on Assets (ROA); Non-Performing Loans (NPL); Foreign Assets (FA); Interbank Lending Rate (IBLR); Liquidity (LQD); Credit to Private Sector (PRV); Foreign Exchange Rate (FOREX); Inflation (INFL); Copper Price (CU); and a ‘dummy’ variable (CRISIS). The direction of causality between the variables is further established using the VAR Granger Causality Test. Results of the model suggests that although the CRISIS was found to cause the ROA, it had no significant effect on its outcome, implying that overall the crisis had very little effect on the Zambian banking sector’s profitability. It was the liquidity (LQD) variable instead which was found to have a significant effect on the ROA. In times of a financial crisis, it is therefore recommended that policy makers and regulators apply more stringent regulatory and monetary policy instruments. This would counter the adverse effects on the liquidity and profitability of the Banking sector, and thus ensure its stability.
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    Industrial policy, economic growth and unemployment in the wake of the 2008-2009 global financial crisis: The Zambian perspective
    (2017) M'Shanga, Mayase Chituwa Simone; Mukuddem-Petersen, Janine
    This paper investigates the extent to which the 2008 - 2009 financial crisis impacted economic growth and employment in developing countries, with Zambia as the entity of focus. It further examines the industrial policy strategies employed by the country before, during and after the crisis and whether they have been effective in shielding the country from exogenous shocks and creating sustainable employment opportunities. This provides a unique perspective by evaluating policy responses to external shocks while monitoring the key economic variables highlighted. It draws from conceptual ideas and previous research around the evolution of financial crises and industrial policy, evaluating the manner in which the effects of the former, originating from financial markets in developed economies, trickle down to developing nations with no solid roots in international financial markets. Furthermore, it assesses the application of the latter concept and its ability to preserve and support sustainable economic development. The paper presents an exploratory case study analysis of Zambia which has been negatively affected by the financial crisis to a large extent due to number of vulnerabilities that leave the country exposed. The findings suggest that industrial policy in itself cannot fully insulate developing countries from the dynamic and unpredictable external environment. However, there are a number of policy considerations that can be made, highlighted as concluding recommendations, to support the growth of the economy and mitigate against the impact of inevitable external shocks. It is important to note that each developing country case is unique to itself but generalised findings can still be comparable to other countries that share some fundamental demographic similarities.
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    Investigating the significance of reputational risk In banks' financial performance
    (2025) Zinzindohoue, Senan Joseph Fitzgerald; Mukuddem-Petersen, Janine
    The field of organizational studies, particularly in the financial sector, has increasingly acknowledged the importance of effective risk management. This consensus is pivotal for the stability and health of the global financial system and is supported by studies showing the positive impact of managing key risks like credit, market, operational, and liquidity on a bank's overall performance. Despite these advancements, gaps remain, especially concerning nonfinancial risks like reputational risk. Reputational risk in banking is complex, with current research offering fragmented insights, particularly regarding its impact on financial outcomes. Many studies have focused on short- term market reactions, neglecting the long-term financial impact on banks, and often overlooking key financial metrics like Return on Assets (RoA) (Cummins et al., 2006; Eckert & Gatzert, 2017; Fiordelisi et al., 2013; Gillet et al., 2010; Perry & de Fontnouvelle, 2005). Heidinger & Gatzert (2018) and Gillet et al. (2010) contributed significantly to understanding the dynamics between reputational risk and RoA, but their research did not explore the direct impact of reputational events on RoA, leaving a crucial aspect unexplored. Furthermore, there's a notable lack of research directly linking the severe reputational damage stemming from operational risks, and especially internal frauds to a bank's financial well-being, specifically in terms of deviations in returns (mainly RoA). Also, most reputational research is confined to U.S. and European regions, lacking a global perspective. The aim of the research was to address these shortcomings by examining the diverse effects of reputational risk resulting from internal fraud on the financial performance of banks, with a particular emphasis on deviations in RoA. The study employed a comprehensive theoretical framework combining the Resource-Based Theory (RBT) and the Unified Theory of Reaction in Assets Market to analyze the dynamics of reputational risk in banking. In order to align with the aforementioned theoretical foundations, the study employs a positivist research paradigm, emphasizing empirical evidence and logical reasoning for the objective validation and generalization of the relationship between reputational risk and the financial performance of banks. The utilization of quantitative methodologies within this paradigm guarantees the requisite methodological rigor and objectivity for a comprehensive and detailed examination. By leveraging reputable data sources like the Global Operational Loss Database (GOLD) by Riskbusiness (UK) for operational loss details, the Bloomberg databases for essential financial metrics, and the World Bank databases for critical macroeconomic indicators, the study ensures it is built upon a foundation of accurate, reliable, and globally recognized data points. Consistent with previous studies, the research used a longitudinal dataset spanning ten years,focusing on commercial and retail banks with operational losses exceeding USD 100,000. The comprehensive and systematic process of identifying operational losses resulted in the selection of 61 instances of internal fraud. These losses are distributed across 18 different currencies, implicating 53 banks situated in 23 countries and 10 distinct geographical regions globally. Considering that the ultimate goal of managing reputational risk, much like the broader risk management framework within a bank, is to continually minimize its influence on pivotal financial indicators like RoA (Coskun et al., 2019; Wanjohi et al., 2017), this research considered adjusting the traditional "event study" methodology and the "market reaction" paradigm commonly employed in reputational research (Cummins et al., 2006b; Eckert & Gatzert, 2017; Fiordelisi et al., 2013b; Gillet et al., 2010b). Instead of focusing on market reactions within an "event window," the study used a panel longitudinal analysis. The estimation of reputational loss was based on the analysis of trends in RoA for a period of three years prior to and following each operational loss event. This was conducted using the Generalized Least Square (GLS) Random Effects model. The rigorous application of multicollinearity, heteroskedasticity, and autocorrelation tests ensures the validity of the random effects model employed. Additionally, the study utilized the Boehmer et al. (1991) test statistic Z, originally developed to detect event-induced volatility in stock returns, to assess the statistical significance of the mean abnormal returns (AR) associated with reputational loss. The collective results of these tests provide substantial evidence that the findings derived from the model are robust and reinforce the credibility of the conclusions drawn from the analysis. The study's findings revealed a substantial negative impact of internal fraud disclosures on banks' RoA, with an average reputational loss of around $54 million. The finding challenges the RBT, which suggests that larger banks (tangible and intangible assets) are better equipped to mitigate reputational crises. Instead, the study found a high positive correlation between the size of the bank and the intensity of the operational loss. Moreover, the research highlighted the importance of a global perspective, revealing significant regional variations in the impact of reputational losses. The study's conclusions contribute significantly to the understanding of reputational risk in the banking sector, offering both theoretical and practical insights. The rejection of the null hypothesis (H01) for banks with at least one negative AR post-event confirmed the critical impact of reputational events on financial outcomes. The study also challenged the assumption that the size of operational losses predicts the extent of reputational damage. Smaller banks were found to be more susceptible to reputational damage, supporting the alternative hypothesis (H3). Additionally, significant regional variations in the impact of reputational losses were confirmed, emphasizing the need for region-specific risk management strategies. This research not only advances academic discourse but also has substantial implications for real-world banking practices. It contributes to a deeper understanding of reputational risk dynamics, challenging existing theories, and offers banks crucial insights for tailoring their risk management strategies based on size and regional factors. Future research should focus on expanding the sample size for a more comprehensive analysis and investigate the integration of a capital charge for reputational risk in banking regulations.
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    Product Market Competition, Corporate Investment, and Firm Value: Scrutinizing the Role of Economic Policy Uncertainty
    (Multidisciplinary Digital Publishing Institute, 2023-06-14) Olalere, Oluwaseyi Ebenezer; Mukuddem-Petersen, Janine
    This study examines the effects of product market competition on corporate investment and firm value and the moderating role of economic policy uncertainty on this relationship. The firm-level data of 1971 listed corporate firms for BRIC (Brazil, Russia, India, China) countries during 2009–2020 were used, totaling 23,652 observations. Using the GMM estimates, our results depict that product market competition significantly influences corporate investment and firm value in BRIC countries. The result also reveals that economic policy uncertainty plays a significant role in the impact of product market competition on corporate investment and firm value at Brazilian, Russian, Indian, and Chinese firms. The study’s findings contribute to the body of knowledge by providing new evidence on the relationship between PMC, corporate investment, and firm value. These findings are vital for policymakers and regulatory bodies to focus on economic uncertainty in a competitive environment without jeopardizing investment returns in emerging markets.
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    Public spending and economic growth in Zambia - an econometric analysis
    (2017) Muyaba, Andrew Munsaka; Mukuddem-Petersen, Janine
    The importance of understanding the relationship between fiscal policies and economic growth has inspired many scholars to investigate the underlying relationship between these variables. In Zambia the growth in public expenditure has become a topical issue in the light of escalating debt levels and widening budget deficit; as a result, the government is constantly under pressure to borrow to cover the deficit. The aim of this study was to analyze the effect of government expenditure on economic growth in Zambia. The study used secondary data which was sourced from the Zambian Ministry of Finance and World Bank websites for the period from 1991 to 2015. The data was analyzed using E-Views 9.5 student version. The econometric tools used to analyze the data are the Autoregressive Distribution Lag (ARDL) and the Pairwise Granger Causality Test. The variables included in the research are public expenditure and economic growth. Both variables were stationary at first difference. Empirical finding from the study indicates that there is a positive and significant relationship between public expenditure and economic growth in Zambia both in the short-run and the long-run. Further, Granger causality test demonstrated a unidirectional causality from public expenditure to economic growth. This finding validated the fact that the Zambian fiscal environment is aligned to the Keynesian theory as opposed to Wagner's Law. In essence, the study recommended more allocation of resources towards public expenditure, including exploiting public-private partnerships as a way of increasing expenditure towards social sectors and infrastructure without necessarily increasing the strain on government resources.
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    Securitisation of mortgage loans, regulatory capital arbitrage and bank stability in South Africa: Econometric and theoretic analyses
    (2018) Kasse-Kengne, Sophie Claude Annick; Mukuddem-Petersen, Janine
    Mortgage loans are the major assets securitised by South African banks. Arguments from the literature indicate that the use of securitisation as an instrument for regulatory arbitrage weakened banks’ soundness and caused, at least partially, the 2007-2008 Global Financial Crisis. In this regard, financial institutions continually took advantage of the loopholes in the Basel regulation, principally that of Basel I. Undertaken from both the empirical and theoretical angles, this thesis investigated whether regulatory capital arbitrage under Basel II and III regulations, was a driver of mortgage loans securitisation by South African banks. Additionally, the effect of mortgage loans securitisation on the South African banks’ stability was analysed. Furthermore, the project built upon the case of mortgage loans securitisation to deepen the insight on banks’ behaviour towards risk, by considering a rare contractual relationship where banks are regarded as agents acting on behalf of regulators. The theoretical examination was carried out by means of perspectives from Agency and Institutional Theories. The South African banking system is essentially monopolistic with five banks holding more than 90% of total assets, out of which four, with 70% of the assets, consistently report outstanding volume of mortgage loans securitised. Based on the data collected from these four major banks, this research project is the first in many regards. It involves an emerging economy, considers the influence of both Basel II and III regulations, covers the period 2008 to 2015, and focuses on well-capitalised banks exclusively. Moreover, it extends regulatory capital arbitrage analysis to the evidence of loans expansion, includes CAMELS as bank stability proxy and brings in Agency Theory and Institutional Theory to explain banks’ behaviour with regards to risk in this particular context. In contrast, other studies were concentrated on Europe and America, mostly under Basel I, limited to one or two baseline models for regulatory capital arbitrage and often only the Z-score measure was used for bank stability. In three major steps, this study first employed the Ordinary Least Squares statistical methodology to test the capital arbitrage theory of securitisation and other of its features whereby it causes the decrease of capital with little or no reduction of risk. The estimation results indicated that securitisation of mortgage loans lessened South African banks’ regulatory capital, increased their overall risk level and moreover, suggested that the proceeds from securitisation were used to expand their loans portfolios. These outcomes tentatively imply that South African banks securitise mortgage loans for regulatory capital arbitrage. The second step explored the impact of securitisation of mortgage loans on South African banks’ stability. Two different measures of bank stability were involved: the CAMELS and the Z-score. CAMELS stands for C: capital (leverage ratio and not the regulatory capital); A: assets quality; M: management efficiency; E: earning; L: liquidity; and S: sensitivity to market risk (interest risk). The Two Stage Least Squares and the Ordinary Least Squares statistical methods were used respectively for the analysis of the relationship between the two bank stability indicators and the outstanding volume of mortgage securitised. The empirical results from CAMELS showed that mortgage loans securitised negatively affected the level of capital proxied by the leverage ratio, eroded assets quality and increased South African banks’ overall costs. However, they had a positive effect on South African banks’ profit, they seemed to be an additional source of liquidity and represented a useful tool to curtail market risk sensitivity, especially the interest risk as they increased net interest income. With regards to the analysis with the Z-score, the results indicated a negative impact of mortgage securitised on South African banks’ stability. The outcome remained unchanged when retained interests in the form of subordinated loans were included in the analysis, but retained interest had a positive influence on the Z-score. The last step of this study pertained to the theoretical analysis based on the concepts of Agency Theory and Institutional Theory. Acting as regulators’ agents in an agency relationship, the simple model of Agency Theory in its extended form explained that South African banks were first and foremost risk-taking players. They were more interested in the risk/reward trade-off in their decision-making attitude towards risk than pursuing the regulators’ goal of the stability of the banking system. In that sense, it was not a surprise that they engaged in regulatory capital arbitrage despite knowing that it was risky but could provide gains in liquidity and profit. In addition to goals conflict, Agency Theory indicated asymmetry of information between banks and regulators as the indirect origin of regulatory capital arbitrage, where the opacity of banks’ activities, such as securitisation, rendered regulations ineffective and thus easy to shirk. Furthermore, it was found that the essentials of the behaviour-oriented contract suggested by the theory as the optimal contract, were already included in the formulation of the latest Basel Accords. However, the researcher believes that one key element, which is the reward or compensation that should benefit the banks (the agent) when they abide by the terms of the contract, is missing. Regulators should therefore include incentives in the regulations and combine the behaviour and outcome-oriented contracts to optimize their relationship with banks even though, as explained by the theory, the outcome of bank stability will remain partially uncertain due to uncontrollable factors such as the economic conditions. The concept of legitimacy, from Institutional Theory, explicated that banks’ legitimacy came from their ability to comply with the regulations. From this stance, the results suggested that regulatory capital arbitrage seemed instead to undermine the legitimacy of South Africa banks well-capitalised position.
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    The nexus between growth of Micro, Small and Medium Enterprises (MSMEs) and youth employment in Eritrea
    (2019) Malamulo,Terence Crayl; Mukuddem-Petersen, Janine
    Economic growth and development are strategic for the overall development of a country. Micro, small and medium enterprises play a surmountable role in economic growth and development. Among other contributions, they provide jobs in an economy. Several developing countries, such as Eritrea, face limited private sector growth, yet also have the need to invest in the creation of enough and decent job for youths. Hence, this study intended to identify the prominent factors that deter the growth of micro, small and medium enterprises as well as the connection between their growth and youth employment, using a case study of Eritrea. The study used econometric research method. Through stratified sampling and a questionnaire, it collected data from 76 micro, small and medium enterprises. In the analysis, it used ordinal and binary logistic regressions, chi-square and correlation tests. The study concludes that there is no sufficient evidence that the growth of micro, small and medium enterprises influences youth employment. It finds that the growth of micro, small and medium enterprises is deterred by obstructive access to raw materials, obstructive banking regulations and obstructive general business regulations and policies. The study recommends improvement of the macro-economic conditions for pro-business sector growth, establishment of a policy on development of micro, small and medium enterprises, and a gradual liberalization of the private economy. Further, it proposes an impact investing based growth model of micro, small and medium enterprises to increase certainty on employment creation contribution. It suggests that an investment in micro, small and medium enterprises for youth employment creation that does not address the identified deterrents faces a significant impact risk.