Ghana Stock Exchange Research Articles

Hurst Exponent Analysis on the Ghana Stock Exchange

This paper talks about the application of Hurst Index on the Ghana Stock Exchange (GSE). The aim of the paper was to find out, whether GSE daily returns have some autocorrelation (long-term dependency) and multifractality using the Hurst Index analysis. Hurst Index of daily returns of some selected stocks in the period of January 2018 to December 2018 constituting 247 trading days were computed using Rescale Range Method and the Periodogram Method. The findings show that, 91.7% of the stocks considered possess long-term dependency and only 8.3% shows multifractality. Besides, the average percentage error of the geometric fractional Brownian motion (GFBM) model was 16.68% with an efficiency accuracy of 83.32% whilst that of the geometric Brownian motion (GBM) model percentage error is 20.90% with an accuracy of 79.10%. This indicates that, the GFBM model yielded better predicting accuracy than GBM in the long-run and par predicting accuracy in the short-run.

IFRS compliance, corporate governance and financial reporting quality of GSE-listed non-financial firms

The adoption of International financial reporting standards (IFRS) has been presented in several empirical literature as a factor that could improve the quality of financial reports. However, Ghana has not attained the desired levels of financial reporting quality after the adoption of IFRS. Literature reveals that lack of proper enforcement of these high-quality standards may result in limited compliance and will undermine the effectiveness of these standards in terms of attaining high-quality financial reports. This study therefore argues that the relationship between IFRS compliance and reporting quality revolves around some enforcement mechanisms like corporate governance structures. In view of that, by using random effect estimation technique, this study examined the role of corporate governance in the relationship between IFRS compliance and the reporting quality of firms listed on the Ghana Stock Exchange (GSE). The study found that the right corporate governance mechanisms will enhance the positive effect of IFRS compliance on reporting quality. This study further recommends that to gain an appreciable level of public confidence in the annual reports of firms listed on the GSE, the audit committee’s independence and the board’s independence should be strengthened to ensure that management does not only adopt IFRS, but that the standards are actually complied with.

Examining the factors that influence firm performance in Ghana: a GMM and OLS approach

This research aims to establish the determinants of firm performance in 15 non-financial Ghanaian companies listed on the Ghana Stock Exchange, over a period of 10 years (2008–2017). The analysis is based on two methods of estimation; two-step system generalized method of moments (GMM) and ordinary least square (OLS) method. The new empirical evidence derived from the results of the analysis reveals that firm size (SIZE), growth (GR) and cash flow ratio (CFR), significantly and positively determines firm's performance whereas debt to equity (DE) exerted negative influence on firm performance. Robustness test conducted using the three-stage least-squares regression, indicates similar results with the main findings of the study. These results imply that, firms that rely on debt to execute its operations run at a higher risk of insolvency.

DOES CORPORATE GOVERNANCE STRUCTURES PREDICT FIRM’S MARKET VALUE? EMPIRICAL EVIDENCE FROM GHANA

This paper examined the effect of corporate governance structures on the market value of firms in Ghana. Quantitative data was collected on thirty-one firms listed on the Ghana Stock Exchange from 2009 to 2018 to predict the effect of corporate governance structures on the firm's market value. Panel data regression analysis revealed that corporate governance structures accounted for 84.9% of the variation of a firm's market value for the period. Furthermore, the study revealed a significant relationship between CEO duality, Non-executive director, board size and firm's profitability and value. The study concludes that firms should separate CEO position from board chairman position to enhance a firm's profitability and value.

Intellectual Capital and Firm Performance in the Ghana Stock Exchange

Intellectual Capital and Firm Performance in the Ghana Stock Exchange

A Short-Term Stock Exchange Prediction Model Using Box-Jenkins Approach

This paper developed a short-term stock exchange prediction model using the Box-Jenkins approach. In this study, monthly data from Ghana Stock Exchange market report that spans from March 2013 to February 2018 were used to develop the model. ARIMA (0, 2, 1) model was fitted to the data based on the Bayesian Information Criterion (BIC) for model selection. Diagnostic checks showed that the residuals of the fitted model were uncorrelated. The developed model was used for forecasting for a period of six months. The trend of the forecasted values showed a significant increase in the Ghana Stock Exchange performance for the next six months.

Jump Diffusion Modeling of Stock Prices on Ghana Stock Exchange

The behaviour of stocks on the Ghana stock exchange is examined to show that stock prices on the exchange are subject to sudden price changes. It is shown that such unexpected events and uncertainties affecting trading on the exchange cannot be modeled solely by the conventional geometric Brownian motion outlined in the Black-Scholes model. A new concise and simpler approach is developed to derive the Jump diffusion model and consequently, its suitability to model stocks on the exchange is emphasized and given rigorous treatment. The model is subsequently used to predict the behaviour of stocks using historical stock prices as input parameters. The simulated stock returns are compared to actual returns to determine the model’s suitability to predict the market. The results show that the jump diffusion model is appropriate in predicting the behaviour of approximately 25% percent of stocks listed on the exchange.

Enterprise risk management and firm performance: Empirical evidence from Ghana equity market

This paper examines the linear and non-linear relationship between Enterprise Risk Management (ERM) and firm performance while focusing on how operational status (financial and non-financial listed firms’ status) affects this relationship in Ghana. Analysis of 30 listed firms on Ghana Stock Exchange between 2010 and 2016 in a robust fixed effect and random effect estimation techniques, presented new insights into ERM literature. We showed that ERM propels firm performance at both the firm level (return on assets and equity) and market level (Tobin Q) performance of listed firms in Ghana. A non-linear inverted U-shape is observed when return on equity is employed as a performance indicator while a non-linear direct U-shape is observed when return on assets and Tobin Q are employed as performance indicators. A non-linear relationship exists between ERM and performance of listed firms in Ghana whether the non-linearity is an inverted U shape or direct U shape depends on the firm performance. This paper recommends that firms should implement fundamental robust measures and dynamic risk management techniques to get better ERM outcome. Enterprise Risk Management should be implemented in both financial firms and non-financial firms because firms which practice ERM are more likely to perform better than Non-ERM counterparts.

The Threshold Effect of Inflation on Capital Market Performance: A Case of Ghana Stock Exchange

The purpose of this study is to investigate the threshold effect of inflation on capital market performance. The study employed a Threshold Autoregressive model introduced by Tong (1978) and Hansen (1996). The study used secondary quarter-time series data for thirty-years from 1990 to 2019. The capital market performance was measured by the value of shares traded; market turnover; market capitalization and all-shares index. However, the results revealed the following estimated threshold level of inflation for each performance indicator: 3.77%; 4.12%; 4.15%, and 4.22% respectively. In all, the threshold level of inflation estimated was between 3 to 4%. The findings suggest that low inflation is performance-enhancing. Besides, inflation above the threshold level is detrimental to the capital market performance. The study further concluded that the exchange rate equally affects the performance of the capital market. The findings of this investigation might be helpful to the government of Ghana and policymakers as they settle on an inflation target to adopt to avoid the detrimental effects of high inflation while obtaining the growth benefits of low inflation.

Stock Returns and Long-range Dependence

This article studies the long memory behaviour of stock returns on the Ghana Stock Exchange. The estimates employed are based on the daily closing prices of seven stocks on the Ghana Stock Exchange. The results of the autoregressive fractionally integrated moving average-fractionally integrated generalized autoregressive conditional heteroskedasticity (ARFIMA-FIGARCH) model suggest that the stock returns are characterized by a predictable component; this demonstrates a complete departure from the efficient market hypothesis suggesting that relevant market information was only partially reflected in the changes in stock prices. This pattern of time dependence in stock returns may allow for past information to be used to improve the predictability of future returns.

CREDIT RISK AND BANK PROFITABILITY OF COMMERCIAL BANKS IN GHANA

This study attempted to explore the connection between credit risk management and the profitability of the Ghana Stock Exchange (GSE) listed commercial banks. The study specifically sought to examine the relationship between credit risk and the profitability of the firms as measured by ROA. The study adopted these variables to measure credit risk (non-performing loan ratio, cost per loan asset, capital reserved 0.1ratio and asset growth ratio) and return on asset (ROA) as a profitability estimator. Following some diagnostic and specification studies to address the fundamental assumptions of the Classical Linear Regression Model (CLRM). The study uncovered that NPLR had a significantly negative effect on the firms’ profitability as measured by ROA [β=-0.1671, (p=0.1360)>0.05]. Also, the cost per loan asset (CPLA) had a positive influence on the firms’ profitability as measured by ROA [β= 0.0249, (p=0.8252)>0.05]. For the other variables of credit risk measurements, capital reserved ratio, and assets growth ratio. The capital reserve ratio had a significant positive association with ROA [β=0.2867, (p=0.0095) <0.05. Similarly, asset growth ratio had a statistically significant negative connection with firm’s profitability measured by ROA [β=-0.3835, (p=0.0004) <0.05. Based on the results, the study suggested that since credit risk had a negative association with the firm’s profitability, the companies should adopt efficient credit risk management methods to assist guide their profitability. This point is raised because, as demonstrated by the results of the study, an increase in credit risk led to a decrease in the profitability of the companies. KEYWORDS: Credit risk, Commercial banks, Loans, Profitability, Ghana Stock Exchange.

Exploring the Factors Perceived to be Inhibiting the Realisation of the Objectives of the Ghana Alternative Market (GAX)

The Ghana Alternative Market (GAX) was established in 2013 to provide equity financing avenue for the development of SMEs and startups in Ghana. However, after six years of its establishment, the market is still unable to attract adequate listing of SMEs and startups. This study explored the factors perceived to be inhibiting the realisation of the objectives of the GAX, and its target of listing fifty firms by the end of 2020. Frequency distribution, bivariate correlations and multiple regression techniques were explored in this study. The correlation analysis shows that “extent of objective realisation” is significantly associated with “achievement of target by the end of 2020”, “perceived importance” of GAX, and “inadequate information” on GAX, but is not correlated significantly with the other variables at 5% level of significance. The regression analysis revealed that fear of failure of small and medium businesses and startups and the low-income situation of prospective investors make negative influences on the degree to which the objective of GAX could be met. Thus, the degree to which the objective of GAX is met decreases as investors’ fear of failure and low-income situations increase. Taken into consideration the fact that only five (5) companies have been listed on the GAX since its inception, and the fact that only a few months remain till the end of 2020, it seems very difficult for the authorities of GAX to attain its target of listing 50 firms by the end of 2020. It is recommended that more time and efforts are needed for the realisation of its objectives. The officials of Ghana Stock Exchange (GSE) and GAX must intensify education on the sector to boost the confidence of owners of SMEs and startups in the operations of the sector. Again, the government of Ghana must improve economic conditions in Ghana to increase the real incomes of workers in Ghana so as to help more people buy securities of listed SMEs and startups. The costs and requirements for listing on the GAX must be scaled down further. The government of Ghana must find the possibility of synchronising the activities of National Entrepreneurship and Innovation Plan (NEIP), Microfinance and Small Loans Centre (MASLOC) and GAX to reduce duplication of efforts and to ensure efficient allocation of financial resources to SMEs and startups in Ghana.

Relationship between Real Earnings Management and Cost Behavior

Purpose- This research aims to examine the relationship between real earnings management (REM) and sticky Selling General and Administrative (SG&A) costs in the case of a developing economy.
 Design/Methodology- The study employed a purposive sampling method. Fifteen firms listed on Ghana stock exchange were selected for the study. Data from the period of 2005 to 20014 were collected.
 Findings- The study finds Ghanaian listed firm's SG&A cost to be sticky and also see these firms to manipulate earnings through REM. This study finds that REM through discretionary expenses and production cost increases sticky SG&A cost, whereas REM through cash flow reduces sticky SG&A cost. Overall, the results imply that REM exhibit sticky cost.
 Practical Implications- The study informs managers that cost is not only fixed or variable but also behaves asymmetrically. The understanding of this concept could help managers to implement strategies that will lower the cost of doing business. Also, since some managers deliberately make decisions that lead to real earnings management and sticky cost, we, therefore, believe that this research will be of importance to regulatory bodies, policymakers, investors, and other stakeholders.

Effect of Psychological Contract Fulfillment, Employee’s Job Satisfaction on Organizational Performance: Evidence from Ghana

This paper aimed at examining the effects of employees’ psychological contract fulfillment, employees’ job satisfaction on organizational performance from some selected companies on the Ghana Stock Exchange (GSE). Many Companies today have invested more into their organization to achieve Psychological Contract between them and their employees, and other important stakeholders of the company. Random sampling was used to select top employees from selected companies on the Ghana Stock Exchange. Structured questionnaires were used for the collection of data. Based on the analysis, the researcher realized that there is a significant positive relationship between psychological contract fulfillment and employee’s job satisfaction. It also revealed that there is a significant positive relationship between psychological contract fulfillment and organizational performance. Finally, the research revealed that, there is a significant positive relationship between employee’s job satisfaction and organizational performance.

Prediction of the Volatility of Ghana Stock Exchange Main Index by Using the Generalised Autoregressive Conditional Heteroskedasticity Model

Since 2014, the Ghana Stock Exchange (GSE) main index has experienced turbulent stock market volatility and its overall performance continues to follow a downward trend. Consequently, this has awakened unprecedented interest in key stakeholders in order to halt the downward performance of the index. The call for further investigations and research into the stock market volatility put this study in the forefront. The first objective of this research was to analyse the statistical properties of GSE main index. The second objective was the determination of relation between stock price movement and volatility. Finally, the study also sought to find out the extent to which the prediction of volatility and returns of GSE main index could minimise the risk incurred by investors. The most empirically proven model called the Generalised Autoregressive Conditional Heteroskedasticity (GARCH), which takes care of all the statistical properties and stochastic dynamics of asset returns was used in capturing the stylish features of GSE main index: volatility clustering, excess kurtosis, leverage effects and unit roots. The distribution innovations of the residuals term considered in the application of the GARCH model were normal, Student't' and Generalised Error Distribution (GED). The result from the study indicated that EGARCH (1, 1) model with GED was the best model fitted for the GSE main index series during the in-sample period estimation. It is also observed surprisingly that higher GARCH orders could not out-perform lower GARCH orders. The prediction of volatility and returns on assets of GSE main index was good. The results of the prediction were validated by tools like Root Mean Square Error, Theil Inequality coefficient and simple regression line. On the whole, investors can possibly rely on the findings of this study to make further financial decisions regarding stock market volatility.

Corporate Social Responsibility and Access to Finance A Study of Firms on the Ghana Stock Exchange

This study investigates the relationship between corporate social responsibility (CSR) and access to finance, using data from companies listed on the Ghana Stock Exchange (GSE). The study adopted multiple regression in investigating the relationship between corporate social responsibility (CSR) in terms of profitability (measured by return on equity – ROE) and philanthropy (measured by corporate social responsibility disclosures – CSRED), and access to finance (measured by growth in equity, retained earnings, debt and working capital). Economic responsibility and access to finance measured by growth in retain earnings are negatively and insignificantly associated. Discretionary responsibility has positive and significantly relationship with growth in equity capital. Again, economic responsibility is negatively and insignificantly related to growth in debt stock, while discretionary responsibility is positively and significantly associated with growth in debt stock. Finally, economic responsibility is negatively related to growth in working capital, while discretionary responsibility is positively related to growth in working capital, but both cases are significant. The study encourages firms to embark on higher-level social responsibility since that can alleviate access to finance challenges faced by firms.

Does Capital Structure Affects Firms’ Performance in Ghana? Panel Data Analysis

This paper examines the effect of capital structure on the firms’ performance. The study collected data from seventeen firms listed on the Ghana Stock Exchange from 2009 to 2018. A quantitative research technique is used to collect data to test two hypotheses. Panel data regression is employed to determine the effect of capital structure on firms’ performance. The study revealed that short-term debt and total debt accounted for 67% and 76.3% respectively of capital used to finance the operations for the period. Furthermore, the study revealed that there is significant and negative relationship between capital structures and firms’ performance. The study concludes that firms should minimise the use of debt capital and rather concentrate on equity capital to finance their operations. The study recommends that firms should increase sales and invest in tangible assets to maximise the firms’ performance.

Does Capital Structure Affects Firms’ Performance in Ghana? Panel Data Analysis

This paper examines the effect of capital structure on the firms’ performance. The study collected data from seventeen firms listed on the Ghana Stock Exchange from 2009 to 2018. A quantitative research technique is used to collect data to test two hypotheses. Panel data regression is employed to determine the effect of capital structure on firms’ performance. The study revealed that short-term debt and total debt accounted for 67% and 76.3% respectively of capital used to finance the operations for the period. Furthermore, the study revealed that there is significant and negative relationship between capital structures and firms’ performance. The study concludes that firms should minimise the use of debt capital and rather concentrate on equity capital to finance their operations. The study recommends that firms should increase sales and invest in tangible assets to maximise the firms’ performance.

DOES CAPITAL ASSET PRICING MODEL APPLY IN A VARYING MARKET CONDITIONS?

Purpose: Capital asset pricing model (CAPM) has been one of the major asset pricing tools applied on the capital market to price listed securities. Several researchers have challenged the overall efficiency and validity of the model in terms of its ability to explain the behavior of the average returns on the basis of a single variable. The debate is now taking a new trend which aimed at assessing the robustness of the model in varying market conditions and this has been the main focus of the study; that is to determine whether or not CAPM applies to securities on Ghana Stock Exchange at different market conditions.Methodology: Data on monthly returns of 29 shares were selected from the Ghana Stock Exchange spanning from 2010 to 2018 and analyzed using regression analysis on the assumption of constant risk and varying risk situations.Findings: The study evidenced that the systematic risks differ between bulls, tranquil and bear periods. Market conditions therefore have impact on the CAPM model. CAPM is not robust with changes in market conditions after all especially in an emerging market such as the Ghana Stock Exchange.Contribution to theory, practice and policy: The result of this study implies that, the widely accepted CAPM for asset pricing model is not robust to changes in market conditions. It is therefore essential to predict future market conditions when formulating investment strategy as an investor. Again, investors should vary their risk premium depending on their expectation of the market conditions at the time of investment.

Time Series Analysis of Interest Rates Volatility and Stock Returns in Ghana

The study utilized time series analysis models and employed the Johansen’s cointegration procedure and the vector error correction model to examine the short-run and long-run dynamics of the relationship between interest rates and stock market returns. The results of this study show that contrary to popular evidence from extant research, interest rate changes positively and significantly affect stock market returns in the long run and the deviation from the long-run equilibrium is corrected each period following a shock to the stock market in the short run. The positive linkages between interest rate changes and stock market outturns may be explained by the relative strength of banking stocks on the Ghana Stock Exchange. The analysis shows that as the long-run equilibrium is approached, the deviations in the short term decrease significantly.