Finance Publications

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Finance Publications

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    Impact of tangible book value and operating earnings on firm value variants in South Africa
    (AOSIS, 2021-01-29) Sixpence, A.; Adeyeye, O.P.; Rajaram, R.
    Orientation: Empirical knowledge regarding which financial statement variables are linked to firm value is critical for profitable equity investment. Research purpose: The study examines the impact of earnings before interest and taxes from continuing operations (EBITCOs) and tangible book value (TBV) on firm value variants (enterprise value and market capitalisation) in South Africa. Motivation for the study: The need to determine the impact of book value and operating income on firm value post-global financial crisis motivated this study. Furthermore, conflicting empirical results motivated this investigation to determine if value relevance depends on the measure of firm value used by employing two variants of firm value. Research approach/design and method: A dynamic panel of 50 firms was used, employing an autoregressive distributed lag model in two-step system generalised method of moments (GMM). Main findings: Results showed that EBITCO is value relevant regardless of the firm value variant used. Tangible book value lacks value relevance irrespective of the firm value measure used. Practical/managerial implications: During a takeover bid, investors should use EBITCO in valuing target firms and disregard TBV. New owners in an acquisition are guaranteed value for their money because of the link between EBITCO and enterprise value. Accounting standards setters should maintain the requirement that mandates companies to produce comprehensive financial statements. Company executives should implement strategies that boost EBITCO as a way of maximising shareholder value. Contribution/value-add: Conservative measures of variables were adopted, something rarely done by scholars. Thus, the study contributes to the scant body of knowledge on value relevance that utilises conservative financial statement variable measures.
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    Financing Structure and Financial Sustainability of Selected SADC Microfinance Institutions (MFIs)
    (2018) Bayai, I.; Ikhide, S.
    This study analyses selected Southern Africa Development Community (SADC) Microfinance Institutions (MFIs) in delineating how commercialized financing structure relates to financial sustainability given the need to control poverty through financially sustainable MFIs. The study takes from a recent SADC microfinance survey which recommended financial rescue packages for ailing MFIs to proffer financial sustainability. This survey failed to specify the form of financing which supports financial sustainability in addition to the inconclusive and little evidence in this regard. We note that though the financing structure and the level of financial sustainability varies with countries, MFIs are generally financially unsustainable. A robust probit model framework affirms the role of financing structure on financial sustainability. Portfolio at risk, cost efficiency and costs linked to deposit attraction explain financial sustainability. We suggest the availing of more donations, upgrading risk management and improving cost efficiency to induce financial sustainability.
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    Family Business Research through the Eyes of a Lender: A Cognitive Framework for Interpreting Research Findings on Family Firms
    (2014) Nyangara, D.
    Whereas most extant studies comparing the performance of family firms relative to non-family firms document contradicting results, only a rather limited number of recent studies have attempted to use family firm governance structures to reconcile the conflicting empirical findings. This paper fills this gap by developing a cognitive framework that connects family firm governance, resource endowment, and resource adaptation with a firm’s static default orientation. The cognitive framework is then used to propose lending criteria to a typical lender, and also to generate theoretical propositions regarding access to and cost of debt finance for different types of family firms. Apart from providing insights to lenders on the theoretical default characteristics of different types of family firms (and not family firms in general), the paper also presents a theoretical benchmark for the analysis of empirical findings on debt financing in family firms as well as observed default behavior among family firms.
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    An Empirical Test of the Validity of the Capital Asset Pricing Model on the Zimbabwe Stock Exchange
    (2016) Nyangara, Melody; Nyangara, Davies; Ndlovu, Godfrey; Tyavambiza, Takawira
    We test the empirical validity of the capital asset pricing model (CAPM) on the Zimbabwe Stock Exchange (ZSE) using cross-sectional stock returns on 31 stocks listed on the ZSE between March 2009 and February 2014. We conclude that, although the explanatory power of beta tends to fall rapidly for prediction horizons >6 months, beta significantly explains average monthly stock returns on the ZSE. Tests to validate the CAPM reject its validity for the ZSE however, primarily due to liquidity and skewness anomalies. We nevertheless fail to detect any size effects. There is encouraging evidence to suggest that the CAPM performs reasonably well in predicting average monthly returns over prediction horizons of between 3 and 6 months. We recommend that investors and analysts must exercise extreme caution in applying the CAPM. Furthermore, we discourage strategies based on the existence of a size premium on the ZSE. Instead, investors may consider neglected and negatively skewed stocks, albeit over appropriate horizons. Further research on other African Stock Markets will help verify if the optimal performance range of the CAPM is indeed 3-6 months. Development of standard continental proxy market portfolios will also improve the estimation of betas and enhance results of cross-country tests of the CAPM.
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    Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe
    (2018) Sixpence, A.; Adeyeye, O.P.
    This paper investigates the impact of negative earnings persistence on the value relevance of earnings before interest and taxes (EBIT) and book values for 27 non-financial firms listed on the Zimbabwe Stock Exchange (ZSE). Negative earnings are perceived to be persistent where firms reported losses in at least 25% of the time over the eight-year study period. Two-step System GMM was used, with the average debt-equity ratio and net asset value per share being additional regression instruments. The regressions were primarily done on the ZSE full sample, and then on a profit-reporting firms’ sample. The loss-reporting firms’ sample was too small for meaningful regressions. It was found that when loss-firms were removed from the sample, value relevance of EBIT and book value declined. This means that investors are very meticulous with firms they perceive to be persistent loss-makers but tend to be complacent with profit-firms.