African Firms Research Articles

Perception of political instability in election periods: Evidence from African firms

Political instability is a major obstacle to firms' investment and development. This article investigates how elections affect the perception of political instability of African firms. We use a survey-based dataset of approximately 21,500 firms in 33 African countries which we cross with 237 elections between 2004 and 2020. Our econometric strategy allows a detailed identification of election periods and the associated effects. We provide robust evidence of a pre-election increase in the perception of political instability by firms, but no, or limited post-election effects. The perception of political instability by firms is stronger for firms oriented towards foreign markets, in countries with non-democratic institutions or a high risk of conflict.

Informal Legacy and Exporting Among Sub-Saharan African Firms

Around the world and especially in areas of widespread poverty, firms start their operations without registering with relevant authorities (i.e., in the informal economy). We explore whether firms that initiated their operations in the informal economy but later register have a higher propensity to export than firms that register at the time of their foundation. We reason that the experience of having operated informally provides formally registered firms with the advantage of low-cost and flexible exploration but also a domestic legitimacy liability. We suggest that these factors likely contribute to making foreign export markets more attractive after registration. Based on a comprehensive sample of sub-Saharan African firms, we find that, conditional on registration, firms with an informal legacy have a higher propensity to initiate exporting than firms that started their operations formally. We contribute with theoretical and policy-oriented insights on the dynamics of informality and exporting.Funding: The work of M. M. Larsen was supported by the Carlsbergfondet [Grant CF17_0384].

A financial straitjacket? Côte d’Ivoire’s National Development Banks

AbstractThe lack of financing options for African firms has led to a reappraisal of the role National Development Banks (NDBs) can play in promoting structural transformation the region. Through an analysis of bank data and policy reports, I argue that the focus on corruption by the mainstream to explain the lacklustre performance of NDBs in developing and emerging economies is overemphasised. Specifically, such arguments fail to account for underlying structural and relational asymmetries between financial sector participants, which make it difficult for NDBs to accomplish their mission. In Côte d’Ivoire, these constraints are characterised by a monetary system inherited from the colonial period that prioritises exchange rate stability over credit creation. The increasing push by International Financial Institutions to commercialise state banking is also causing the main Ivorian NDB (the Banque Nationale d’Investissement) to prioritise financial intermediation over the provision of credit to enterprises in productive sectors.

Tougher than the rest? The impact of COVID-19 on South African exporters

Background: This article examined the performance of South African export-oriented firms during the coronavirus disease 2019 (COVID-19) pandemic. The study is conducted against the backdrop of an export sector which has grown in importance since South Africa came out of economic isolation in the early 1990s, an effect which has been amplified in the last decade given that the world economy has grown meaningfully faster than the domestic sector of the South African economy.Objectives: Given the importance of the rising importance of the export sector, the performance of South African exporting firms is considered, given the observed resilience of export-oriented firms in developed and developing markets. Notably, the impacts of the COVID-19 pandemic challenged this resilience by disrupting export-oriented firms on the demand side and supply side in their home and foreign markets, potentially threatening network effects and diversification benefits, which have been traditional sources of resilience.Method: Drawing on data for 1023 South African firms, regression analysis was used to assess the impacts of the pandemic on exporting firms relative to non-exporting firms. The study also considered various heterogeneous aspects of exporting firms to provide further insight on their resilience, including firm size, firm age, industry of operation and the nature of export relationships.Results: Incorporating the above various factors, the study results show that export-oriented firms were significantly more vulnerable than non-exporting firms to the impacts of the COVID-19 pandemic.Conclusion: The findings have important implications for policy. First, export-oriented firms are found to be more vulnerable to disruption than non-exporting firms. This is contrary to expectations and different to experiences in other markets. This finding highlights the importance of policy support to the export sector during periods of uncertainty. Second, the export sector’s contribution to the South African economy has grown meaningfully over the past three decades, underlining the importance of supporting a sector that experiences heightened vulnerability when crises strike.

The impact of financial constraints on investment efficiency in South Africa

Shifts from firm-level investment efficiency occur due to market imperfections and informationasymmetry. This translates to an increased cost of capital, which leads to over or under-investments. This study demonstrates the absence of a direct association between investmentefficiency and financial constraints in African firms, complementing the efficient markethypothesis. We observed firms across different industries listed on the JSE from 2009 to 2019.Empirical results from panel data analysis reveal that financial constraints drive improvedinvestment levels and firms in this region depend on external funds – specifically credits – toinvest.

Determinants of sustainability reporting: Empirical evidence from East African Countries

Sustainability reporting is gaining attention among industry professionals and academics. However, it has been criticized since it fails to represent the proper reporting practices of firms, with this being described as symbolic in form. Regardless of this criticism, management of firms in East Africa is increasingly adopting sustainability reporting, despite being voluntary. Therefore, the paper analyzed the determinants of sustainability reporting of East African firms. Eight years of annual reports of 74 listed firms in Kenya, Tanzania, and Uganda were used. Random and fixed effect regression techniques were employed for the estimates. The study found that firms’ specific characteristics such as size, Tobin’s Q, industry affiliation, and ownership structure have a positive and significant influence on firms’ management to adopt sustainability reporting practices. In addition, it was suggested that firms with a more considerable asset and Tobin’s Q provide more sustainability reporting than those with smaller assets and Tobin’s Q. The results further showed that firms’ age and return on assets do not influence sustainability reporting. The evidence further demonstrated that firms with foreign parent companies significantly disclosed more sustainability information than local firms. The paper concludes that the firm-specific characteristics influence their sustainability reporting practice. The study provides policy implications because it can assist the governments and regulators in these countries in guiding the firms’ reporting practices.

The Participation Status of Historically Black Colleges and Universities and Small African American-Owned Technology Firms in the Federal Assistive Technology-Research and Development Enterprise through STEM Pathways

PurposeThis article provided a comprehensive overview of the available peer-reviewed and grey literature on the current status of historically Black colleges and universities (HBCUs) and small African American-owned technology firms participation in the federal assistive technology research and development (AT-R&D) enterprise.Method Authors completed a historical review of the existing literature on HBCUs' participation in STEM academic pathways to AT-R&D; the contextual framework for HBCUs federal R&D barriers; STEM pathways to small African American Technology Entrepreneurship; and small African American-owned technology firms AT-R&D participation barriers.ResultsOverall, the review illuminated participation barriers experienced; exacerbated in part by narrow STEM pathways designed to help African American students successfully matriculate in related disciplines, institutional systematic barriers, a lack of funding priorities within federal research agencies, and the oversight of African American entrepreneurs in AT.ConclusionsThe authors presented recommendations that might be useful for developing proactive academic pipelines to AT-R&D. The literature review is among the first to examine HBCUs' participation in STEM pathways to federally-funded AT-R&D.

Does sustainable corporate governance have an impact on materiality disclosure quality in integrated reporting? International evidence

AbstractThis study examines the influence of sustainable corporate governance on the materiality disclosure quality (MDQ) in integrated reporting in an international setting. Referring to stakeholder theory, we focus on gender diversity, sustainability committees, and sustainability‐related executive compensation. Based on European and South African firms (672 firm‐year observations) between 2014 and 2019, we found that board gender diversity and sustainability‐related executive compensation were significantly positively linked to MDQ. However, the implementation of sustainability committees does not affect the MDQ. Thus, only specific sustainable corporate governance variables in concrete contexts may be related to integrated reporting decisions. We also included Chief Executive Officer (CEO) power (pay slice, ownership, and tenure) as a moderator variable due to the strategic impact of CEOs, based on upper echelons theory, and found that the link between our included sustainable corporate governance variables and MDQ was weakened. Our results are robust to several variations and provide valuable insights for research, business practice and future regulations on integrated reporting. In view of massive regulatory reform initiatives on sustainable corporate governance and integrated reporting, sustainability expertise (also with regard to CEOs) should be better addressed in boards of directors during the next years to come.

Formal Versus Informal Finance: Evidence from Selected African Firms

Formal Versus Informal Finance: Evidence from Selected African Firms

Formal Versus Informal Finance: Evidence from Selected African Firms

One important factor in firm growth and performance is the availability of financing. Firm financing sources can be either formal or informal. Formal financing sources comprise those institutions regulated both by the government and the central bank, while the informal markets operate beyond the regulatory framework on the financial system. Using the World Bank Enterprise Survey dataset for 13 African countries, this study employs the Relative Distribution methods by Handcock and Morris (1998) and Recentered Influence Function techniques by Firpo et al. (2009), to evaluate whether there exists a growth differential among firms that source their working capital through formal finance relative to those using informal financing sources, and investigate which financing source is more growth enhancing. The study finds formal financing sources to be more growth enhancing than informal financing. The growth differential is however different at different levels of labor productivity and sales growth outcome distributions. It is therefore advisable for the stakeholders to target financing to the right segment of firms, to ensure growth is sustained.

The innovation and exports interplay across Africa: Does business environment matter?

The paper investigates the relationship between innovation and export behaviour across manufacturing and services firms in Africa. The study is based on the general premise that innovation has a positive effect on firm’s exports (self-selection hypothesis) and the complementary assumption that internationalisation drives firms to innovate (learning-by-exporting hypothesis). To test this complex, two-way link between innovation and exports, the study contributes to the existing literature by analysing the complementarity effects between product and process innovation in their relationship with exports. A combination of process and product innovation is expected to have a greater impact on the likelihood of firms entering the foreign market and on their export performance. Using data from 45 African countries, from 2006 to 2020, the multinomial probit and two-stage least squares models are estimated. There is support for the learning by exporting and the self-selection hypotheses for African firms. The findings also reveal the need to improve the business environment across African economies to foster greater exports and innovation.

Corporate Social Responsibility Preferences in South Africa

What leads firms in South Africa (SA) to prefer specific CSR initiatives over others? The researchers analyzed secondary data from publicly available information of 231 listed firms on the Johannesburg Stock Exchange. To determine national/institutional level preferences, ten CSR activities were identified among all firms and ranked in terms of their mean score of whether each firm participated in an activity or not. To determine industry/stakeholder influence, CSR activities were regressed against the firms’ industry. The preference for two CSR activities, education and training and enterprise development, are common across industries. This demonstrates the institutional effect of SA’s national Black economic empowerment (BEE) policy, which promotes such activities. Charitable donations, infrastructure provision, employee voluntarism and efforts in arts, culture and sports prevail in certain industries. The preferences of firms in the mining and construction industries stand out relative to other industries. Managers have to carefully select CSR activities that respond to various societal pressures. We show an example of management responses to pressures arising from both the national and industry level context. The study is the first to rank CSR activities of South African firms. We also reveal the promise of institutional theory to examine the phenomenon of CSR in the South African context.

Does Cryptocurrency Hurt African Firms?

This paper aimed to assess the effect of the cryptocurrency market on firms’ market value, especially on the sectoral level, in Africa. To reach the study’s main goal, the authors adopted the Panel-Corrected Standard Errors (PCSEs) and Panel Double-Clustered Standard Errors (PDCSEs). Using firm-level data, the results of this study can be summarized as follows: (a) The cryptocurrency market hurts the firm market value in Africa. (b) The firms operating across different sectors respond disproportionally to the cryptocurrency market. For instance, the sectors that offer low returns in Africa (industrial, energy, financial) negatively respond to the cryptocurrency market, while the sectors that offer high returns (real estate and information technology) are not significantly affected. (c) The cryptocurrency market has a perverse effect on less experienced and highly indebted firms. (d) The consistent policies of governments to ban cryptocurrency do not work efficiently.

Determinants of internationalisation by firms from Sub-Saharan Africa

• Comparative case-study analysis of primary evidence of push and pull factors driving internationalisation by five African firms using a blended research approach. • The study tests for the conformity of the principal push and pull factors to established theory. • Push factors conform to theory, the most important being competitive advantage, stagnant home markets and firm growth. • New pull factors – network links and diaspora demand – are important along with host market growth and strategic asset acquisition. • No significant statistical differences are found between push and pull factors by firm, home country and sector.

Understanding internationalisation of informal African firms through a network perspective

Studies of internationalisation have largely overlooked developing countries with high levels of legitimate informal entrepreneurship. Consequently, this article analyses the internationalisation of Informal African Firms (IAFs) from a network perspective. We undertook in-depth case studies of 14 informal smaller firms in two major enterprise clusters in Ghana. Our findings show that half transacted business in five to seven foreign markets, and more than half sold abroad within three years of inception. The study illustrates the different network ties that influence passive and active internationalisation strategies with evidence that these IAFs developed buyer networks through customer referrals and foreign customer walk-ins to the firm. Overall, we provide a comprehensive understanding of the triggers that initiate international business activities by IAFs so contribute to current theorising noting implications for management practices and policymaking on this important but hitherto, under-explored issue.

Accounting Information and Value Relevance: A Quinquennial Comparison of Pre- and Post-IFRS Adoption of Listed Firms in Nigeria and South Africa

This study examined accounting information and value relevance: A quinquennial comparison of pre- and post-IFRS adoption of listed firms in Nigeria and South Africa. Panel data were collected from listed Non-financial firms in Nigeria (from 2007-2016) and South Africa (2000-2009). The Ex-Post facto research design was adopted for the study. In line with the objectives set for the study, 6 research questions and hypotheses were formulated and tested using pooled OLS methodology. The independent variable is accounting information proxied by Book value per share (BVPS), Earning per share (EPS), Firm size (FS), Leverage (LEV), Cash flow (CF) and Current ratio (CURR), while the dependent variable is value relevance proxied by the share price. Findings for Nigeria firms suggest that Book value per share, earnings per share, Firm size, leverage and cash flow are positively significant to share price and has higher value relevance in the post-IFRS periods than the pre-IFRS periods whereas the current ratio has an negative insignificant effect on share price and has no value relevance in both pre and post-IFRS periods. The findings for South African firms suggest that Book value per share, earnings per share and Firm size have a significant positive effect on share price and have higher value relevance in post-IFRS periods than in pre-IFRS periods, but leverage and cash flow have an insignificant positive effect on share price while current ratio has an insignificant negative effect on share price and do not have value relevance in pre and post-IFRS periods. The study concludes that there is a higher value relevance of accounting information in post-IFRS periods than in the pre-IFRS periods in Nigeria and South African firms. Overall, by comparison, accounting information was more value relevance amongst Nigerian firms than South African firms. Consequently, the study recommends that for Nigerian firms, investors and the financial analyst should consider Book value, Earnings per share, Firm size, Leverage and Cash flow as the relevant variables that determine share price, whereas for South African firms, Book value per share, Earnings per share and Firm size are the main variables that determine share price.

EVIDENCE FROM SOUTH AFRICAN CONSTRUCTION AND INDUSTRIAL TRANSPORTATION BUSINESSES ON ASSET REVALUATION

This study examines the relationship between asset revaluation and accounting and economic factors among firms listed on the Johannesburg Stock Exchange (JSE). It employs a quantitative model using seven explanatory variables, namely, leverage, operating cash flow, firm size, return on equity, return on assets, Tobin’s q, and common share ownership. The study covers South African companies listed on the Johannesburg Stock Exchange (JSE) that applied asset revaluation at least once during the period 2006 to 2017. The findings of the study reveal that: (1) leverage does not have a significant impact on the revaluation decisions of the sampled firms, (2) macro-economic policy environment could significantly influence revaluation decisions, (3) the size of firms is one of the most important factors that have a significant effect on firm performance, (4) leverage has a significant impact on firm performance, while the other variables show a negative or inverse relationship with the revalued asset. The results of this study will fill a gap in understanding the variables identified by this research study which has justified with most relevant literature that motivates management of South African firms to choose the revaluation model to measure fixed assets. This study contributes to the current body of knowledge and further offers insight into the effect of the revaluation of fixed assets on firm performance, the characteristics of firms that revalue their fixed assets, and whether or not fixed asset revaluation decisions are influenced by the firm’s leverage. This study has also provided a very robust plan for future researchers.

Creating value for whom? Digitization and governance practices of nontraditional export firms in Africa

AbstractThe nontraditional export (NTE) sector promises to be the antidote to Africa's economic woes in the face of dwindling traditional exports. Adopting the Porter's Value Chain Framework and a case study design, we explore how alcoholic beverage companies in the African NTE sector could create value in their upstream, midstream, and downstream value chain activities through effective governance and digitization. In exploring these intricacies of governance and digitization within African global value chains (GVCs), we draw on two major case studies, Diageo South Africa and Kasapreko Ghana Limited. Our study shows that the NTE sector can contribute to both economic and social upgrading activities, contribute to industrialization and create international competitiveness for African firms. Second, GVC governance and digitization, even though still at its infant stages in Africa, has the potential in propelling economic value through the NTE sector.

Does Cryptocurrency Hurt African Firms?

Does Cryptocurrency Hurt African Firms?

Substance and Form Adoption of International Financial Reporting Standards and Financial Statement Comparability: Evidence from South Africa

We investigate whether the comparability of financial statements changes after a switch from International Financial Reporting Standards (IFRS) in substance (i.e., content of IFRS) to IFRS in both substance and form (i.e., IFRS as issued by the IASB). While the substance of the accounting standards remains the same, form is added to the adoption in that it is now formally referred to as “IFRS as issued by the IASB.” We use data from South Africa, a country whose local generally accepted accounting practices (GAAP) was the same, word-for-word, as IFRS prior to the adoption of IFRS as issued by the IASB in 2005. We compare South African firms with firms in other countries, divided into two groups: mandatory IFRS adopters and non-adopters. We find evidence of increased comparability of financial statements of South African firms with both adopters and non-adopters. Furthermore, we find a global increase in the comparability of firms’ financial statements, consistent with market changes unrelated to IFRS adoption. However, an incremental increase in the comparability of financial statements of South African firms with the adoption of IFRS relative to non-adopting firms is consistent with benefits from South Africa’s addition of form to its existing in-substance adoption of IFRS. This increased comparability is also consistent with the benefits observed in the accounting amounts of firms from other adopting countries becoming more comparable with those of South African firms.