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Purpose – This study seeks to examine the relationship between macroeconomic shock indicators, namely geopolitical risk (GPR), global economic policy uncertainty (GEPU) and financial stress (FS), and returns as well as volatilities on seven carefully selected stock markets in Africa. Specifically, the study intends to unravel the co-movement and interdependence between the respective macroeconomic shock indicators and each of the stock markets under consideration across time and frequency. Design/methodology/approach – This study employed wavelet coherence approach to examine the strength and stability of the relationships across different time scales and frequency components, thereby providing valuable insights into specific periods and frequency ranges where the relationships are particularly pronounced. Findings – The study found that GEPU, Financial Stress (FS) and GPR failed to induce significant influence on African stock market returns in the short term (0–4 months band), but tend to intensify in the long-term band (after 6th month). On the contrary, stock market volatilities exhibited strong coherence and interdependence with GEPU, FSI and GPR in the short-term band. Originality/value – This study happens to be the first of its kind to comprehensively consider how the aforementioned macro-economic shock indicators impact stock markets returns and volatilities over time and frequency. Further, none of the earlier studies has attempted to examine the relationship between macro-economic shocks, stock returns and volatilities in different crisis periods. This study is the first of its kind in to employ data spanning from May 2007 to April 2023, thereby covering notable crisis periods such as global financial crisis (GFC) and the COVID-19 pandemic episodes.

The spot of frontier market economies in the global financial arena continues to be significant for many market participants because of their size, diversification advantage, and interconnectedness. Financial market innovations, globalization and pandemics have made it even more urgent to explore their dynamics. This paper focuses on analysing the risks associated with investing in frontier West African monetary zone bonds by appropriately modelling them in relation to cultural, administrative/political, geographic, economic and financial indicators that are specific to these countries, primarily due to their locations and interlinkages. This study employed the nonlinear autoregressive distributed lag model to investigate the asymmetric effects of different economic factors on sovereign bond yields in Ghana and Nigeria from July 2014 to September 2022 with 99 observations. Period selection allows researchers to unravel the complexities of market behaviour, investor sentiment, and policy effectiveness in the face of economic turmoil and uncertainty. The results provide valuable insights into how these factors affect bond yields differently in the two countries.

This study examines the co-movement and time-varying integration between equity, exchange rate, and international market volatility indices across different time–frequency domains using - bi-partial wavelet, - supplemented by dynamic conditional correlation-generalised autoregressive conditional heteroskedasticity (DCC-GARCH), - and BEKK GARCH model for selected African countries. First, the findings indicate that the co-movement between equity and exchange rates during the pandemic was exacerbated by global COVID-19 media coverage. The findings indicate that there has been a substantial risk transfer between exchange rates and stock returns during the COVID-19 pandemic, resulting in a decline in domestic stock returns and subsequent capital outflows, which in turn increased the exchange rate. Given the growing difficulties in diversification, specific information on the volatility of financial market connectedness is required to plan hedging strategies. To explore the influence of global market volatility on Africa’s equity and currency markets, it is crucial to analyse the relationship between regional and global market fluctuations, especially given the negative impact of the COVID-19 pandemic. Our empirical research demonstrates that the VIX and OVXCL indices play a significant role in transmitting spillovers to currency and equity markets in Africa. This suggests that the sentiment indicators provided by the VIX and OVXCL can be useful in predicting the behaviour of Africa’s currency and equity markets.

It has repeatedly been claimed that institutions play an important, and decisive role in economic development. Many studies have analyzed the effect of formal institution on financial development while informal institutions have received less attention. With this paper, we contribute to the effect of personal freedom as a measure for informal institutions on financial development using annual data from 40 African countries spanning 2000 to 2020. We employ the novel fixed effect panel quantile regression technique. The study documents that, in the upper quantile, personal freedom negatively and significantly affects financial development. This finding explicates that, a low level of personal freedom restricts human choices, limiting personal participation in the development of the financial system in Africa. Thus, personal freedom is important for Africa’s financial development. The study recommends that policymakers rally resolute support to defend and protect human rights and personal liberties that encourage human choices. Additionally, the findings intuitively reinforce the prerequisite for African governments regularly evaluate policies that promote financial sector development, particularly economic freedom and government expenditures.

AbstractAs secularism is increasing and religious diversity is regaining momentum worldwide, it is important to understand how systemic religious differences have influenced financial development in Africa. To this end, this study seeks to investigate the impact of religiosity on financial development in Africa by using freedom of religion to proxy religiosity and domestic credit to the private sector to proxy financial development covered from 2000 to 2020. The results from the panel quantile regression show that religiosity is negatively associated with the use of financial services across the quantile, whereas freedom of association, assembly, and civil society, and security and safety are marginally stronger within the lower, middle, and upper quantiles. The findings underscore that, fundamental human rights exert significant influence on financial development in Africa. Our findings contribute to literature by expanding knowledge on the role of personal freedom on economic activities hence, African governments and policymakers constitutionalize freedom as a fundamental human right, as freedom matters for financial development in Africa.

Rising income inequality has recently garnered intensive attention owing to its significance in theory and practice. This has rendered the mechanism through which inequality can be understood, even from a microscopic perspective, to institute proper policies that curtail it important. We contribute to the literature by examining the effect of freedom on income inequality using data from 34 least-free and 18 most-free countries from 2000 to 2020 in Sub-Saharan Africa and Western Europe, respectively. A novel fixed-effects panel quantile regression econometric estimator was employed, and the findings showed a non-linear relationship between personal freedom and income inequality for both regions. Again, both regions reported an inverse relationship between personal freedom and income inequality within the medium-run quantiles. However, a positive relationship was reported in the short-run and long-run quantiles of Sub-Saharan Africa and Western Europe, respectively, whereas the inverse was the same. Finally, the significant adverse relationship was more dominant in Western Europe, implying that high levels of personal freedom in the region explain the low levels of income inequality compared to Sub-Saharan Africa, which has lower levels of personal freedom and higher income inequality. Concerning the findings, it is recommended that policymakers and governments of least- and most-free regions institutionalise personal liberties that support human capital development and establish mechanisms to implement enacted freedoms.

AbstractThis study compares the quality of Corporate Social Responsibility (CSR) practices and reporting of firms operating in Africa listed in Western economies and firms exclusively listed on the African stock exchange, using the Global Reporting Initiative (GRI) CSR checklist. Interpretive content analysis was conducted on the website publications and relevant reports of 135 firms listed on African stock exchanges. Non-parametric(Mann-Whitney U and Cohen d test) analyses were applied to check for significant differences between the mean scores of Western-listed firms and locally listed firms operating in African countries. The study’s findings indicate (1) a Low CSR disclosure rate and (2) no significant CSR disclosure difference between exclusively African market-listed firms and multinationals. Multinationals do not lead in sustainability reporting. The finding of this study is a proposal for emerging economies to strengthen institutions and make them independent. The findings further encourage regulators and policymakers to question, with utmost importance, why the sophisticated propitious sustainability initiatives and reporting of Western economies are not practised in the developing world. Unlike previous studies, the current research uses Institutional Theory to compare CSR disclosure tendencies of environmentally Sensitive Industries (ESI) in which environmental policies seemingly make sustainability reporting quasi-mandatory.

AbstractWe use a survey approach to investigate how managers in a frontier market apply financing and dividend decision techniques in practice. 15 firm characteristics were grouped into paired subgroups for a two-sample t-test analysis that generated statistical differences, economic significance levels and ranking for each technique investigated. The Ghanaian listed firm’s sample choice was due to the country’s persistent volatile macroeconomic environment. In managing the capital structure, managers consider most relevant issuing of stock to give investors a better impression of their firms’ prospects (signalling). In choosing between short and long-term debt techniques, the most applied technique is matching the firm’s debt maturity with the assets’ useful life span. Managers are most concerned about the volatility of their earnings and cash flows on the appropriate amount of debt to use. A probe into debt policy indicates that the most valuable technique is issuing debt when the firm’s internal funds are inadequate. Under dividend policy, the most treasured technique is ensuring cash availability which deviated from existing literature. These results show that managers in frontier markets are cash-focused, which may lead to short-termism, which may be non-value-adding but important for survival in their persistent liquidity crunch markets.

AbstractThis study uses a survey approach to investigate how managers associated with thirty (30) firm characteristics subgroups apply thirty-seven (37) investment decision techniques in practice in a frontier market covering: capital budgeting, cost of equity, cost of capital, and adjustments for other types of systemic risk. The results show that 27 out of 30 firm subgroups significantly apply a payback period, and 0 out of 30 firm subgroups significantly apply any of the cost of equity estimation techniques investigated, deviating from the current literature. Nineteen out of 30 firm subgroups significantly apply a single common firm-wide discount rate for all projects, which is in line with global trends but inappropriate. It seems that frontier market managers are leaning toward simplicity as payback period, no cost of equity estimation and using a single common firm-wide discount rate do not properly account for time and risk. This may lead to less optimal investment decisions: resulting in firm value degradation. Promoting policies that reduce uncertainties in frontier markets may encourage the dominant use of net present value, cost of equity estimation and opportunity risk-adjusted cost of capital techniques to support firm value maximisation.

AbstractThe wide interest rate spread has been a matter of concern for many developing economies. In Ghana, the perception is that the interest rate spread is too wide and that banks have linked it to various variables affecting them. This study examines the effect of banking sector reforms on bank interest rate spread in Ghana over the period 2008–2020, using an unbalanced panel-data dynamic-equation regression model. The findings reveal that bank size, profitability, gross domestic product, and inflation rate significantly influence Ghana’s bank interest rate spread. Results also suggest that these factors account for determining the interest rate spread in the universal banking industry in Ghana. The industry needs to mitigate the interest rate spread by improving the macroeconomic environment, address industry-specific issues, strengthen institutional systems, such as governance and supervision, and also continue to ensure stability in the political environment. The study provides valuable insights regarding the design and formulation of competitive policies and regulatory changes on interest rate regimes, to help promote the competitiveness of the universal banking industry in the country. Policymakers and regulators should emphasize enterprise risk management practices in Ghana’s universal banking industry to check credit risk and other risk forms.

Purpose – This study aimed to explore the effect of Financial Innovation (FI) on economic growth in Ghana, with a dataset spanning 1960–2019, adopting a broader conceptualization of FI as the ratio of broad money to narrow money. Design/methodology/approach – The study employs a non-linear autoregressive distributed lag (ARDL) time series econometric model to estimate data from the World Bank (1960–2019). Findings – There is no evidence that FI significantly impacts economic growth. This could be due to the early and strict regulation of the financial technology (FIN-TECH) sector and the general inconclusiveness of the impact of financial development on economic growth. Practical implications – Policymakers must empirically explore the impact of early and strict regulation on the transformational impact of FI. Originality/value – The paper is among the first to apply a broader conceptualization of FI in estimating the impact of FI on economic growth.

The flow of information between markets is important to guide investors and policymakers in the effective allocation of assets and proactive market regulation, respectively. This study examines the impact of information flow from global financial market stress on the African stock markets using the daily US financial stress index (USFSI) and other advanced economies' financial stress index (OAEFSI) to proxy the global financial stress index. To understand the information flow dynamics across various investment horizons, the ensemble empirical mode decomposition (EEMD)-based transfer entropy is employed. Our findings reveal that African equity markets are highly risky for information flow from global financial market stress. However, we identify diversification prospects based on market conditions for Ghana and Egypt in the short term and Tanzania, Cote D'Ivoire, and Egypt in the medium term. Empirical results also show that the information flow from global financial stress to African stock markets depends on time scales, economic relations, and the state of global financial markets. The findings are important for investors, portfolio managers, practitioners, and policymakers.

We examine the time-frequency lead–lag relationships and the degree of integration between the US financial stress index and global commodity prices (i.e., oil, gold, silver, and cocoa) with data covering over 47 decades (January 1975 to December 2021). For this purpose, we resort to the bi- and multiple wavelet econometric approaches. Findings from the bivariate wavelet analysis evidence the significant influence of the US financial stress in driving the price-generating process in commodities markets. Our findings support the hedging abilities of commodities across the time-frequency space. Findings from the multiple correlations explicate that the interrelation between the commodities and financial stress is attributable to their interdependence in the long term during financial market meltdowns. The dynamic and nonhomogeneous lead/lag relations underscored by our findings highlight the importance of cross-commodity investments. As such, by acknowledging the response of different commodities to financial stress, asset allocation should factor in commodities that offer opposing responses to a financial stress to hedge downside risks associated with portfolios. Our findings are of interest to regulators, risk managers, investors, and commodities producers.

This paper measures and evaluates the relative pure technical efficiency and cost-efficiency of Ghanaian banks over the period 2008–2019 using a nonparametric DEA technique. The study also examines the factors that determines bank efficiency in Ghana using both static panel and dynamic panel regression estimators. The results show that the overall average bank efficiency (pure-technical and cost) levels in Ghana are relatively low compared to the benchmark “best-practice” efficiency level of 1. However, the results indicate that there are remarkable improvements in both the pure technical efficiency and cost-efficiency levels since the coming into effect of the new banking Act in 2016. Further, the study depicts bank size, GDP growth rate and inflation to be the most important factors that must be considered in the determination of bank efficiency in Ghana. Also, bank capitalization is depicted to have a significant impact on bank cost-efficiency. In contrast, the findings reveal that return on assets (ROA), liquidity and loan loss provision are, however, not important factors in the determination of both banks pure technical and cost-efficiency. Bank capital is further depicted to have insignificant impact in the determination of bank pure technical efficiency in Ghana.

This paper probes deeper into the co-movement of Ghana's equity index and exchange rate with international equity markets and further determine whether these co-movements are driven by global uncertainties. Also, we sought to determine how the COVID-19 pandemic alters the dynamics of these relationships. We employ the wavelet technique to data from January 19, 2012 to March 1, 2021 to the split between pre-COVID-19 and COVID-19 periods. The results reveal that the dynamics of co-movement or interconnectedness of exchange rate and Ghana Stock Exchange composite index has evolved over time and across frequencies. Besides, the cone of influence, as shown by the wavelet spectrum, does not cover the entire data frequency which suggests that long-term forecast of exchange rate and equity index in Ghana beyond four years could be misleading since significant levels of interdependences are concentrated around the mid-team scales. In addition, we found evidence to support low-medium term lead-lag connections between exchange rate and Ghana Stock Exchange Composite Index in 2013 to 2014 and 2016. Further, the co-movement between exchange rate or Ghana Stock Exchange Composite Index and international equity markets show similarly weak association at all scales. A closer scan of the interdependencies among these variables are more intense during COVID-19 than during the pre-COVID-19 period. Finally, we observe a strong co-movement between the rise in COVID-19 cases and exchange rate at higher frequency scales where exchange rate lags Ghana's equity index and they are out-of-phase.