Zimbabwe Stock Exchange Research Articles

Corporate Probability of Default (PD) Modelling for Banks in Emerging Economies: A Case Study of Zimbabwe Stock Exchange (ZSE) Listed Counters

Corporate Probability of Default (PD) Modelling for Banks in Emerging Economies: A Case Study of Zimbabwe Stock Exchange (ZSE) Listed Counters

Determinants of Investment Decisions: A Study of Individual Investors on the Zimbabwe Stock Exchange

This study investigated factors that inform individual investors in their decision-making on the Zimbabwe Stock Exchange. The main objective was to identify and assess the effect of the behavioural factors on investment decisions of individual investors. A quantitative survey of 291 randomly selected individual Zimbabwe Stock Exchange investors was conducted. Multiple regression analysis was used to calculate the correlation coefficient of behavioural factors and investment decision while correlation analysis was used to measure the strength of the relationship between the independent variables. The findings of the study established that the predictor variables had a strong positive association between them and individual investor decision at a significant level of 0.01 and 0.005. The findings of the study revealed that individual investor decisions are influenced by the behavioural factors which are; anchoring, availability, gambler’s fallacy, overconfidence, herding, loss aversion, mental accounting, regret aversion and representativeness. The study recommends the need for improved information on the stock markets dynamics as well as training on investor awareness programmes to support the decision-making abilities of the individual investors on the ZSE to fully play its rightful role in the development of the economy.

Reexamination of Parallel Foreign Exchange and Real Estate Markets, Inflation and Monetary Policy Nexus in Zimbabwe 1998-2007

History that is ignored is very vengeful. The paper tests the claim by the central bank governor, who presided over hyperinflation in 2004-2008, that inflation was mainly driven by speculation and shadow printing of money in the financial system. Mutually reinforcing corporate incest manifesting in the real estate sector, banking sector, parallel foreign exchange market and the Zimbabwe stock exchange underpinned hyperinflation dynamics before and during his term of office. Speculative activities in these sectors drove money supply growth, parallel exchange rate premium and so, inflation. Existing studies have not tested his hypothesis and summarily have dismissed it arguing that hyperinflation was a doing of the central bank’s monetary indiscipline. Using ARDL models we establish long run relationships amongst the building materials price index, consumer price index, parallel exchange rate and broad money supply. We also find bidirectional causality between money supply and the consumer price index as well as between the building materials price index and money supply. We find causation running from building materials index to consumer price index; from parallel exchange rate to consumer price index; and from broad money to parallel exchange rate. Our findings, to a considerable extent, not only confirm the governor’s argument, but also confirm existing narratives of monetary indiscipline in explaining hyperinflation. Keywords: Reserve Bank of Zimbabwe, Gideon Gono, Inflation, Building Materials Index, CPI, Parallel Exchange rate, ARDL DOI: 10.7176/JESD/11-10-14 Publication date: May 31 st 2020

Corporate Governance and Forward-Looking Information Disclosure: Evidence from a Developing Country

ABSTRACT The study examines the effect of corporate governance mechanisms on the disclosure of forward-looking information by firms listed on the Zimbabwe Stock Exchange (ZSE). The study covers the year 2013, a period of economic turmoil and a high level of market speculation. The governance mechanisms considered are board size, board independence, and institutional ownership. Multiple regression analysis is used in the study in estimating the relationship between corporate governance variables and forward-looking information disclosure. The empirical results show a statistically significant and positive relationship between the proportion of independent directors on a corporate board and firms’ disclosure of forward-looking information. The result suggests that the inclusion of more independent directors on corporate boards could improve information disclosure and enhance transparency. Board size and institutional ownership, however, do not have any significant relationship with forward-looking information disclosure. The study contributes to the literature on corporate governance and forward-looking information. Specifically, it contributes to the literature by demonstrating that forward-looking information disclosure in Zimbabwe is associated with board independence. The finding will serve as a reference for the many stakeholders who are advocating for the inclusion of more independent directors on corporate boards. Also, it is expected that the result would engender discussions on forward-looking information disclosure among market participants and regulators in a bid to enhance transparency in the market.

Impact of relative and absolute financial risks on share prices: a Zimbabwe Stock Exchange perspective

The impact of financial risks on share prices concerns investors, company executives and accounting standards developers. Investors need this information in delineating their equity valuation models while company executives need the information to make appropriate capital structure decisions. Accounting standards developers use this information in their policy to make accounting standards contemporary. The authors examine the link between relative and absolute financial risks and share prices using a dynamic panel of non-financial listed companies on the Zimbabwe Stock Exchange after dollarization. Equity investors incurred losses before dollarization, which prompted this investigation into the sphere of financial risks in order to explain share price movements so that investors can use it to minimize losses in the future. Absolute financial risk is measured by the total debt, while debt/equity ratio measures relative financial risk. Market capitalization as a proxy for equity and debt is measured by total liabilities. An average debt/equity ratio greater or equal to one qualifies a firm into the high-risk category while ratios below one imply low-risk firms. Results from two-step System Generalised Method of Moments (GMM) show negative and significant connection between relative risk and share prices across risk categories. The impact of absolute risk on share prices differs by risk category. Firm managers are advised to keep total liabilities below market capitalization in order to enjoy the benefits of low-risk categorization. Debt ratio is a reasonable indicator of value and investors can use it in equity valuation. Mandatory reporting of debt ratios should be considered by accounting standards developers.

Dynamics of Corporate Dividend Policy under Hyperinflation and Dollarization: A Quantile Regression Approach

Purpose: Zimbabwe experienced hyperinflation (2000-2008) followed by dollarization from 2009 onwards which had implications on dividend policy. In this context, this study isolates the main determinants and examines their behaviour across the distribution of dividend policy. Design/methodology/approach: The study employs quantile regression analysis and a sample of 30 firms listed on the Zimbabwe Stock Exchange (ZSE), covering the period 2000 to 2016. The fixed effects (FE) analysis is applied as a base model. Finding(s): The most robust determinants are ownership structure, earnings per share (EPS) and taxation. In our context, results are more informative, than those based on FE analysis by showing the change in the impact of each explanatory variable across the distribution. EPS has a positive and significant impact on dividend policy throughout the distribution in both sample periods. Its effect increases in magnitude as firms move from low to high quantiles. The other variables are useful in explaining dividend policy at selected points of the distribution. Thus, there is clear heterogeneity in the determinants of dividend policy. Research limitations/implications: The study shows the importance of developing dividend policy by focusing on the position of the firm on the distribution. Dividend policy should be developed in view of the earnings potential of the firm, ownership concentration and perceived changes in fiscal policy. A well-designed policy should have a differentiated approach to influencing corporate dividends. Originality/value: This study enhances our understanding of dividend policy in unique markets. It confirms the applicability of dividend relevance theories. Furthermore, It shows that quantile analysis provides more reliable estimates than those obtained using standard panel data models.

Determinants of Executive Compensation in Zimbabwe: Evidence from Zimbabwe Stock Exchange Listed Companies (2009 To 2016)

Determinants of Executive Compensation in Zimbabwe: Evidence from Zimbabwe Stock Exchange Listed Companies (2009 To 2016)

Financial reporting in hyperinflationary economies and the value relevance of accounting amounts: hard evidence from Zimbabwe

We examine the value relevance of inflation-adjusted (IA) and historical cost (HC) amounts in a hyperinflationary economy. Using a unique dataset drawn from annual reports of firms listed on the Zimbabwe Stock Exchange from 2000 to 2005, we find that both sets of amounts are value relevant but HC amounts are superior to IA amounts. We also show that inflation gains and losses provide incremental information content beyond that provided by the HC amounts and that the power of this incremental content model is equivalent to that of the HC model but superior to that of the IA model. Further analyses indicate that, in periods of relatively low inflation, HC amounts are more value relevant, while in periods of relatively high inflation, the two sets of amounts are equally value relevant. Finally, we show that HC amounts have a greater ability to predict future cash flows than IA amounts, which suggests that the superiority of their value relevance stems from this.

Zimbabwean Manufacturing Firms’ Propensity and Intensity to Export in the Post Zimbabwean Dollar Era

After the adoption of the multicurrency system in 2009 Zimbabwe’s macroeconomic environment stabilized but the new economic order exposed the economy to a crippling liquidity crisis. Exports remain the only sustainable solution to Zimbabwe’s liquidity crisis in the short to medium term given the current sanctions that limits other international capital flows. This study sort to understand the factors that determine Zimbabwean manufacturing firms’ likelihood and intensity to export. The study a was based on panel data from a 19 manufacturing firms listed on the Zimbabwe Stock Exchange over the period 2009 to 2017. The propensity and intensity to export was estimated using the logit and Tobit regression models respectively. Bigger firms and firms that engage in research and development had a high propensity to export. Foreign owned firms and firms that engage in research and development had a high intensity to export, while those with high domestic turnover tended to export less. The appreciation of the USD increased Zimbabwean manufacturing firms’ propensity and intensity to export. We urge the policy makers to design investment laws that attract foreign investors, and managers to prioritize research and development. We also recommend firm managers to take advantage of periods of currency appreciation to recapitalize at a cheaper cost and export more goods since Zimbabwe’s manufacturing production is highly import dependent.

Zimbabwean Manufacturing Firms' Propensity and Intensity to Export in the Post Zimbabwean Dollar Era

After the adoption of the multicurrency system in 2009 Zimbabwe’s macroeconomic environment stabilized but the new economic order exposed the economy to a crippling liquidity crisis. Exports remain the only sustainable solution to Zimbabwe’s liquidity crisis in the short to medium term given the current sanctions that limits other international capital flows. This study sort to understand the factors that determine Zimbabwean manufacturing firms’ likelihood and intensity to export. The study a was based on panel data from a 19 manufacturing firms listed on the Zimbabwe Stock Exchange over the period 2009 to 2017. The propensity and intensity to export was estimated using the logit and Tobit regression models respectively. Bigger firms and firms that engage in research and development had a high propensity to export. Foreign owned firms and firms that engage in research and development had a high intensity to export, while those with high domestic turnover tended to export less. The appreciation of the USD increased Zimbabwean manufacturing firms’ propensity and intensity to export. We urge the policy makers to design investment laws that attract foreign investors, and managers to prioritize research and development. We also recommend firm managers to take advantage of periods of currency appreciation to recapitalize at a cheaper cost and export more goods since Zimbabwe’s manufacturing production is highly import dependent.

Financial Reporting in Hyperinflationary Economies and the Value Relevance of Accounting Amounts: Hard Evidence From Zimbabwe

We examine the value relevance of inflation-adjusted (IA) and historical cost (HC) amounts in a hyperinflationary economy. Using a unique dataset drawn from annual reports of firms listed on the Zimbabwe Stock Exchange from 2000–2005, we find that both sets of amounts are value relevant but HC amounts are superior to IA amounts. We also show that inflation gains and losses provide incremental information content beyond that provided by the HC amounts and that the power of this incremental content model is equivalent to that of the HC model but superior to that of the IA model. Further analyses indicate that, in periods of relatively low inflation, HC amounts are more value relevant, while in periods of relatively high inflation, the two sets of amounts are equally value relevant. Finally, we show that HC amounts have a greater ability to predict future cash flows than IA amounts, which suggests that the superiority of their value relevance stems from this.

CEO Characteristics and Timeliness of Financial Reporting of Vietnamese Listed Companies

CEO Characteristics and Timeliness of Financial Reporting of Vietnamese Listed Companies

A Neural Networks Adoption Framework for Predicting Stock Market Trends: Case of the Zimbabwe Stock Exchange

A Neural Networks Adoption Framework for Predicting Stock Market Trends: Case of the Zimbabwe Stock Exchange

A Comparative Analysis of Stock Return Behavior Using a Markov Switching Model (Case Study: Zimbabwe Stock Exchange)

This research involved developing an optimal stock investment decision strategy which offers minimum risk to the potential investor for counters listed on the Zimbabwe Stock Exchange. Three counters were compared namely Econet Wireless, Delta and Old Mutual. The first phase of the project involved understanding how stock returns behaved by examining the transition matrices of the counters. The second phase of the project involved determining how much time it took for a counter to be in a positive return state. The final phase involved determining the long run probability of an investor being able to get any positive returns from a specific counter. From the three counters, Old Mutual had the highest long run probability 96.1% of being in the bull market, followed by Delta which had a 49.6% chance and lastly Econet which had a 47.1% probability of being in the bull market in the long run. Hence, Old Mutual was found to be the most preferred counter since it had a greater chance of providing the potential investor with positive returns in the future.

Stock Market Development and Economic Growth: An Empirical Analysis of Zimbabwe (1989-2014)

The relationship between stock market development and economic growth varies across nations and regions. This relationship is of significance to regulatory authorities, investors and portfolio managers in their operations aimed at enhancing the welfare of the citizens and clients at large. The purpose of this study is to examine the relationship between these two variables in Zimbabwe for the period 1989 to 2014. The paper employed the Vector Error Correction Model approach after establishing the order of integration (unit root tests) and cointegration between variables. All the variables were found to be stationary at 1% level after first differencing using the Phillips-Peron tests. The long run relationship was negative, whereas the short run coefficients were insignificant. Though contrary to financial theory, the results, to a large extent, testify to what happened during the period. Based on these findings, the Zimbabwe Stock Exchange and Securities and Exchanges Commission are urged to come up with alternative products to lure new listings from the small to medium enterprises. It is also recommended that all the stakeholders focus beyond the Zimbabwe Stock Exchange to promote economic growth as the firms seem to raise funds from other sources.

The influence of corporate social responsibility on corporate competitive advantage: a case of Zimbabwean stock exchange listed companies

The study investigated the impact of Corporate Social Responsibility on Corporate Competitive Advantage on Zimbabwean listed companies. A stratified sample of 10 participants from 10 companies listed on Zimbabwe Stock Exchange was utilised to examine the influence of corporate social responsibility on competitive advantage during a period from 1 July 2012 to 30 June 2013. The study utilised a mixed method approach and data was analysed in the form of descriptive statistics. The results show a significant influence of corporate social responsibility on competitive edge on Zimbabwe stock exchange listed companies. Results also reveal that the degree to which social responsibility is emphasized can impact a firm’s credibility, ultimately influencing the ability to raise capital, retain effective and productive staff, bid for quality raw materials from reputable suppliers and even manage to secure relatively lucrative growth opportunities. All these collectively help entities build and sustain strong competitive edges against their fellow competitors

Zimbabwe Stock Exchange (“ZSE”)’s Exposure to Global Crude Oil Price Volatility

The major aim of this paper is to investigate Zimbabwe’s Stock Exchange indices’ exposure to global oil price volatility for the period 2009-2012.To determine the relationship between volatility of crude oil returns and volatility of stock returns of the ZSE indices using econometric GARCH models. Also to investigate the correlation of the global oil price in the form of Brent Crude oil prices index and Western Texas Intermediate (WTI) oil prices index with ZSE Industrial Index and the ZSE Mining index between 2009 and 2012. A GARCH approach is employed to analyse data from ZSE and Chicago Mercantile Exchange, OPEC and Datastream® Data. Daily data for crude oil prices and Zimbabwe stock exchange indices were collected for the period 2009-2012 and analysed. The variables of the Zimbabwe stock exchange are ZSE Industrial Index; and ZSE Mining index. Variables on Crude oil prices comprised of Western Texas Intermediate (“WTI”) spot prices index; Original Research Article Chiwanza et al.; BJEMT, 6(1): 22-37, 2015; Article no.BJEMT.2015.040 23 and Brent Crude oil spot prices index. Returns of stock on all the four indices were calculated. It was assumed that returns on stocks would mirror stock price movements. Volatility of returns on ZSE industrial index was very low with standard deviations ranging between -.01 to +.01. Volatility of returns on the ZSE Mining index was significant relative to the industrial index with standard between-0.1 to -0.1. Volatility of stock returns on Brent Crude spot price index was very high with standard deviations ranging between -0.6 to +0.6, while stock returns on Western Texas Intermediate (“WTI”) spot prices index displayed high volatility, standard deviations ranged from 0.1 to +0.1. Standard deviation indicates the level of dispersion from the the mean. GARCH coefficients indicated that the mean of stock returns as represented by were generally negative for the two domestic stock indices while the means of global oil stock returns were positive. Parameters ∝ and of the four indices were statistically significant. The coefficients of all the indices were highly significant ranging between 0.6300 to 0.9300 indicating that volatility was persistent in the period under investigation and that volatility was to a large extend driven by the prices and values of the previous time period (past performance).There was a positive correlation between industrial index and Brent crude with a correlation coefficient of 0.505 as well as a positive correlation between the ZSE Industrial index and the WTI oil price index with a coefficient of 0.520. There was a negative correlation coefficient of -0.332 between the Mining index and the global Brent crude oil prices as well as a negative correlation coefficient of -0.201 between Mining index and WTI Crude. The results of the study confirmed the hypothesis that the ZSE stock markets are indeed exposed to significant exogenous risks emanating from rising global crude oil price movements. There are however, moderating factors as the standard deviations on ZSE stock returns are much lower compared to standard deviations of stock returns on the global oil indices. Also the correlation coefficients are on the low side. Increases in crude oil prices have the potential to subdue any favourable factors to share price increases.

Corporate financing strategies employed by Zimbabwean listed firms in the multiple currency era

The aim of this study is to review the corporate financing strategies employed by Zimbabwean listed firms since the adoption of the multiple currency system which set the country on a recovery path after the decade-long political, social and economic crises. The adoption of the multiple currency system necessitated recapitalization and retooling because most firms’ balance sheets were wiped away during the hyperinflation era. The study is based on secondary data of 80 firms listed on the Zimbabwe Stock Exchange. The study found that rights issues and high retention ratios were the main strategies used by firms to recapitalize their operations. The recapitalization efforts have been by liquidity challenges that have characterised the multiple currency era

Measuring Investor Sentiment on the Zimbabwe Stock Exchange

Investor sentiment is belief about future cash flows and investment risks not justified by current relevant information. Additionally, investment decisions made without support from information. In classical finance theory, investor sentiment does not play any role in the cross-section of stock prices, realized returns, or expected returns. But inexplicable events such as the crash of October, 1987, The Great Crash of 1929, the Tonics Boom and Go-Go Years of the 1960s, the Nifty Fifty bubble of the 1970s have cast doubt on the standard finance model in which stock prices equal the rational expectations of unemotional investors. Behavioural finance attempts to explain these disparities using investor sentiment. The aims of the study are to document market measures of investor sentiment and to demonstrate whether investor sentiment exerts an influence on the Zimbabwe Stock Exchange. Daily return and trading volume data of 66 stocks, excluding delisted and suspended stocks, for the period from 19 February 2009 to 31 December 2012 were considered. A high-low volume sentiment indicator variable is introduced to distinguish when the market has higher or lower sentiment. An ordinary linear regression was used to show the evidence of the effect of investor sentiment indicator on stock returns. The researcher found that approximately 40% of the market moved contrary to the market sentiment indicator. The remaining 60% co-moved with the sentiment indicator, with the level of effect differing in magnitude, indicating that the sentiment indicator had a positive effect on the indicator. However, these results though are not statistically robust using the binomial test as only five out of the sixty-six stocks (approximately 7%) were significant at a 5% interval. This is less than the number of significant results expected under the null hypothesis. Hence, the null hypothesis cannot conclusively be accepted or rejected, and the effect of the sentiment indicator on returns could not be completely ruled out or established.

Corporate Governance in Zimbabwe: An Overview of Its Current State

This article aims to provide an overview of the current state of corporate governance in Zimbabwe. Corporate governance has gained relevance and prominence in the global society since the big corporate scandals such as Enron and Worldcom. This article is qualitative in nature. Document analysis of relevant literature formulated the discussions. The findings show that Zimbabwe remains amongst a few countries that do not have a national code of corporate governance. However, corporate governance practice in Zimbabwe is regulated by the Companies Act, Zimbabwe Stock Exchange Act as well as rules of various other professional bodies. This article provides an insight into the current practice of corporate governance in Zimbabwe and will help to assist in determining future initiatives.