Abstract
The purpose of this study is to estimate the economic value of intra-industry information transfers within Ghana’s banking industry due to the collapse of seven banks. This is a short-term study with an event window [−10, +10] and an estimation period of 200 trading days. The event study methodology is adopted to estimate the cumulative abnormal return (CAR) gained by other rival industry banks as well as to calculate the cumulative average abnormal return (CAAR) for the entire Ghana Stock Exchange (GSE). The results of the study show that the collapse of the seven banks does convey information that the market uses in revising stock prices. However, most of the rival banks experienced an insignificant share price reaction. This insignificant reaction can be attributed to the fact that GSE is not efficient. The study recommended among others, for the GSE to be reformed to improve the efficiency of the market and secure the flow of information to market participants.
Highlights
A strong, well-functioning financial sector is crucial for any economy—be it industrial, emerging market, or even low income
The cumulative abnormal returns (CARs) earned by each of the other banks due to the two events are captured in the first part, whereas the second part presents the overall impact of each of the two events on the Ghana Stock Exchange (GSE) by estimating the cumulative average abnormal return (CAAR) within the event period [−10, 10]
We assessed the informational value conveyed by the collapse of these banks as perceived by investors and the general public, thereby triggering share price reaction for other listed banks or stock market reaction for the entire GSE
Summary
A strong, well-functioning financial sector is crucial for any economy—be it industrial, emerging market, or even low income. It is essential for healthy, sustained growth. According to Duisenberg (2001), the functioning of an economy depends on the financial system of a country. Haldane and Madouros (2011) provide evidence of the contribution of the financial sector to the U.S and U.K. economies. For the United States, the value-added of financial intermediaries was about US$1.2 trillion in 2010—equivalent to 8% of total GDP.
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