Browsing by Subject "Corporate Finance and Valuations"

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    Comparison of Logistic Regression and Classification Trees to Forecast Short Term Defaults on Repeat Consumer Loans
    (2021) Naicker, Keeland; Rajaratnam, Kanshukan
    This dissertation highlights the performance comparison between two popular contemporary consumer loan credit scoring techniques, namely logistic regression and classification trees. Literature has shown logistic regression to perform better than classification trees in terms of predictiveness and robustness when forecasting consumer loan default events over standard twelve-month outcome periods. One of the major shortcomings with classification trees is its tendency to overfit data eroding its robustness, making it vulnerable to underlying population characteristic shifts. Classification trees remains a popular technique due to its ease of application (algorithm machine learning basis) and model interpretation. Past research has found classification trees to perform marginally better than logistic regression with respect to predictiveness and robustness when modelling short term consumer credit default outcomes related to previously unseen new customer credit loan applications. This dissertation independently tested this finding on reloan consumer loan data, repeat customers who renewed loan facilities at a significant South African micro lender. This dissertation tests the finding if the classification tree technique would outperform logistic regression when modelling this new type of loan data. Credit scoring models were built and tested for each respective technique across identical data sets with the intent to eliminate bias. Robustness tests were constructed via careful iterative data splits. Performance tests measuring predictiveness and robustness were conducted via the weighted sums of squared error evaluation approach. Results reveal logistic regression to outperform classification trees on predictiveness and robustness across the designed uniform iterative data splits, which suggests that logistic regression remains the superior technique when modelling short term credit default outcomes on reloan consumer loan data.
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    How IFRS 9 has impacted Deferred Tax Assets and Bank Regulatory Capital in South Africa
    (2023) Abuka, Kevin; de Jager, Phillip
    Gallemore (2012) empirically proved that banks with larger percentages of deferred tax assets in their regulatory capital are more likely to fail and have higher credit risk. However, following the application of IFRS 9 from January 2018, there arose an increasing likelihood that deferred tax assets included in bank regulatory capital would increase. This was due to the expected credit loss model utilised by IFRS 9 while provisioning for loan losses. The model means that credit impairments are larger and recognised earlier. As a result, deferred tax assets likely increase. This study sought to ascertain whether 1) the nature of the relationship between credit impairments due to loans and deferred tax assets has changed to a stronger positive corelation in the post IFRS 9 era and 2) deferred tax assets are displacing better forms of capital within banks' regulatory capital. The results of the study show that deferred tax assets are increasing in line with credit impairments due to loans in the post IFRS 9 era. Additionally, deferred tax assets arising due to temporary differences make up a larger component of regulatory capital in the post IFRS 9 era. Findings from the study can contribute to the reinforcement and revision of prudential policy set by regulators within the banking sector to ensure that banks maintain sufficient capital adequacy levels.
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    Mirror, Mirror, on the wall, will the market rise or will it fall? A study into the effectiveness of Japanese Candlestick Charting on the Johannesburg Stock Exchange from 2010 to 2019
    (2021) Mukansi, Tintswalo; Toerien, Francois
    Using the methodology developed by Caginalp and Laurent (1998), this study tests the predictive ability of eight three-day reversal candlestick patterns on a sample of sixty listed shares on the Johannesburg Stock Exchange (JSE) from 1 January 2010 to 31 December 2019. The study further investigates the predictability of the patterns on three sub-sectors of the JSE; this included the resource, financial and industrial sectors. As the final step, the study tests the use of the candlestick pattern as a trading strategy before and after costs. To the authors knowledge, it is the first study of candlestick patterns on South Africa's JSE. However, similar studies have been conducted in other emerging markets such as Thailand, Taiwan and Brazil. The study finds that only one of the candlestick patterns, the Three Outside Down pattern, has predictive ability on the JSE. However, when looking at the JSE sub-sectors, the results are more divergent. Candlestick patterns have no predictive ability on the resources and financial sector but on the industrial sector three patterns (Three Inside Up, Three Black Crows and Morning Star) were significant at the ten percent level of significance; and the Three Outside Up and Three Outside Down were at the five percent level of significance. The study finds that after fees the use of candlestick patterns is unable to outperform passive benchmarks. The evidence suggests some violations of the Random Walk Theory, but the study finds that the JSE and its sub-indices are weak-form efficient in terms of the Efficient Market Hypothesis. The Thai and Brazilian markets were also found to be weak-form efficient.
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    The relationship between foreign exchange reserves, Pula exchange rate and inflation in Botswana
    (2023) Israel, Bofelo; Majoni, Akios
    This 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.
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    The relationship between VAICTM, company performance and market value of companies on the Johannesburg Securities Exchange
    (2022) Dullabh, Hitesh; Pitt, Lucian
    Purpose - The purpose of this paper was to examine the impact of Intellectual Capital (IC), using the VAICTM approach, against certain company performance indicators as well as market value on listed companies in South Africa. Design/Methodology/Approach - The study used secondary data of 50 listed companies from the Johannesburg Securities Exchange (JSE) over a period of five years (2016-2020), obtained from the IRESS Expert Database, as a basis for its analysis of the relationship between VAICTM (IC), company performance and market value. IC and its components are calculated using Pulic's (2000) VAICTM approach. Company performance is measured by Return on Assets (ROA) and Asset Turnover (ATO). Market value is measured by the Tobin's Q calculated as market to book ratio (TQ). The two-way Fixed Effects regression model is applied to statistically test the relationship between IC and company performance indicators , as well as the relationship between IC and market value. Findings - The results indicate that VAICTM and capital employed efficiency (CEE), are positively and significantly associated with market value of listed companies in South Africa. The relationship between the remaining components of VAICTM, Human Capital Efficiency (HCE) and Structural Capital Efficiency (SCE), and company performance and market value was not found to be statistically significant. Practical Implications - Within the South African context, physical and financial capital (represented by CEE) plays a dominant role in how market participants value the company, whilst HCE and SCE seem to have less of an influence on the market's perception of value. The recognition value by market participant, albeit confined to just one of the components of VAICTM, may be indicative of the market pre-empting such value in company performance going forward. These findings provide insight into the role that investment in IC can play in supporting company performance and market value of the company. v Originality/Value - This study provides a more recent analysis of the original work performed by Firer & Williams (2003) and Firer & Stainbank (2003). It also provides insight into progression and recognition of IC in the South African Market. Finally, this study contributes to the still limited body of academic literature on the relationship between the company's IC, its performance and its market value. The significance of this contribution is its focus on companies in an emerging market and the focus on South African companies in particular, given the dearth of such studies with this particular focus.