Convertible Bonds and the Price Discriminating Monopolist Firm

This paper examines whether a price discriminating monopolist will issue convertible bonds with similar features as a perfectly competitive firm. The paper finds that, ceteris paribus, the discriminating monopolist uses relatively more convertible bonds. Also, it designs its convertibles differently with a relatively lower conversion ratio and conversion value as well as neutral hedge ratio. On the other hand, it has a higher breakeven yield and conversion premium. At conversion, the discriminating monopolist has a higher dilution factor. However, after complete market adjustment following conversion, the discriminating monopolist has less outstanding shares. Keywords: Convertible bonds; Price discriminating monopolist; Market structure

Interest Rate and Its Volatility Threshold on Stock Market Returns: Evidence from Ghana and South Africa

This study argues that macroeconomic theory, which espouses a threshold, best explains the interest rate-return relation in emerging economies. Consequently, it develops a quantile regression model with nonlinear variables to examine this, with a focus on Ghana and South Africa. The threshold interest rate for the former country, 25.7 percent, significantly exceeds that of the latter, 6.84 percent. Furthermore, the nonlinear interest rate component raises returns in Ghana. In South Africa, interest rate volatility increases returns. Also, there is a direct interest rate-return interaction in Ghana. At lower quantiles, however, the interest rate volatility-return interaction erodes returns in both countries. Keywords: interest rate-return threshold, interest rate volatility, quantile regressions, nonlinear model. JEL classification: C31, E44, G12

Does the Structure of SSA Economies Explain Their Low Stock Market Capitalization and Small Number of Listed Companies? A Dynamic Panel Analysis

Excluding South Africa, the number of listed firms and stock market capitalization in Sub-Saharan Africa (SSA) has remained relatively low and practically static. This study develops and tests a theoretical model using a dynamic panel analysis. Increases in the agricultural and service sectors have slight adverse effects on the number of listed companies. Industry and services are found to have a positive influence on market capitalization. In contrast, the externality and network effects of the service sector negatively influences capitalization. Both capitalization and number of listed firms have a dynamic relation with their past values. The results suggest that number of listed firms may be less sensitive to market variables. Keywords: Stock market, Sub-Saharan Africa, Structure of the economy. JEL: E44, G10, O16

Sub-Saharan Africa’s Infrastructure Gap: A Failure of Financial Markets?

This research examines the role of financial market failure in explaining Sub-Saharan Africa’s (SSA) infrastructure gap. The core infrastructure examined are energy, telecommunication and transport. The model includes a nonlinear interaction variable as well as elements of expectation models. The study finds that fixed effects are dominant for all infrastructure except mobile telecommunication facilities in SSA. The dynamic panel regression results indicate that for most of the considered infrastructure, financial sector intermediation to the private sector is most critical. Banking and stock market development are, generally, less important. There is evidence that there is an interaction between most considered infrastructure and financial sector intermediation. JEL Classification: G2, O1, G10. Keywords: Financial markets, Infrastructure gap, Sub-Saharan Africa