Size and liquidity effects in Nigeria: an industrial sector study

This study estimates liquidity premiums using the recently developed Liu (2006) measure within a multifactor capital asset pricing model (CAPM) including size premiums and a time varying parameter model for the West African emerging market of Nigeria. The evidence suggests that liquidity factors are relevant only for financial and basic materials sector stocks while size factor is more generally relevant in explaining the cross section of stock returns in the Nigerian domestic equity market. Costs of equity estimates are high further underlining the limitations of this market as a capital-raising venue in contrast to the dominant banking sector

The impact of board governance on director compensation in West African IPO firms

This paper undertakes a unique study of the determinants of corporate governance in the West African developing region and their impact on director compensation. A new measure of director total remuneration is constructed providing a conservative estimate of expropriation of private benefits of control. Using a hand-collected sample of 51 West African IPO firms from 2000 and 2011 we find evidence that increased presence of true independent nonexecutives that are unconnected to CEO or dominant insider groups within firm and nominally independent board level committees are highly associated with expropriation inferring that firm’s with directors engaging in this behavior are more likely to adopt measures indicative of governance best practic

Overcoming financing constraints to corporate expansion: evidence from a company in an emerging Islamic market

The sourcing of low-cost finance to facilitate corporate expansion on competitive terms is a major challenge to firms from emerging markets. There are additional constraints in Islamic markets as financial instruments must adhere to shari’ya law. This paper examines the approach taken by the Sudan Telecommunications Company (Sudatel) to obtain cost effective equity financing using secondary listings on multiple Middle East and North Africa (MENA) stock exchanges. We compare the costs of equity for Sudatel stock on the Sudan and Abu Dhabi Exchanges, and compare these figures with those for Sudatel’s two main regional competitors. Furthermore, we highlight the risk-return trade-off faced by investors in Sudatel stock on both Exchanges, and provide evidence of the potential benefits to investors from the overseas listin

The influence of business groups on board composition in offshore financial multinational enterprises

Based on resource dependence theory we argue for an influence of business groups (BGs) on the board composition of constituent offshore financial multinational enterprises (FMNEs). Using a unique sample of 171 Caribbean FMNEs in an inter-island BG setting, we find BGs’ control in constituent firms to be indicative of the importance of the internal financing and intermediation within the group network. This control leads to a higher proportion of lawyers hired to the boards of directors in BG-constituent firms and supports the argument that lawyers provide skills in complex offshore regulatory frameworks that facilitate BGs’ optimal tax management. Furthermore, we observe that an increased adoption of shareholder rights governance by BG-constituent firms is associated with increased engagement with outside resource providers, increased potential conflicts of interest and hence a need for hiring more lawyers. Our interpretation is that offshore FMNEs have a need for more lawyers, whose legal skill is critical to the competitive advantage of FMNEs.publishedVersio

The liquidity-cost implications from the attraction of regional primary listings: evidence from West Africa

This study reviews the liquidity costs for firms in outlying regions in primary listing on a centralized stock exchange. Using a unique hand-collected sample comprising all listed firms from across West Africa we find evidence that firms from outlying regions do have higher illiquidity costs although these can be mitigated from improvements in transparency that are associated with increasing familiarity amongst investment community of central exchange. This evidence has implications regarding the integration of stock exchanges in developing regions where this is likely to result in a greater concentration of liquidity mitigating intended optimal redistribution of capital and resource

Nonexecutive direct influence on informational asymmetries in offshore financial centres

Question/issue: this is a study of the relationship between nonexecutive director personal ownership and firm's bid ask spreads in listed firms from across the Caribbean offshore securities exchanges. Research findings/insights: we report that bid ask spreads increase with nonexecutive ownership. However, this result is reduced (negatively moderated) in the context of higher formal institutional quality and also if the territory has a fixed exchange rate regime but exacerbated (positively moderated) if the firm is located within an offshore jurisdiction. Theoretical/academic implications: the results regarding the influence of nonexecutive director ownership on firm liquidity-based transaction costs, namely, market estimates of bid ask spreads, are interpreted in terms of the contingency of this relationship on the wider institutional context. The effectiveness of nonexecutive directors is highly contingent upon the specific institutional context. Higher formal institutional quality and the presence of a strong macroeconomic tie between territory and Organisation for Economic Co-operation and Development (OECD) country lead to a reduction in these costs, while offshore financial centers lead to their increase. We argue that this highlights a shortcoming of agency theory's more limited view of institutions. Practitioner/policy implications: the results support regulator's focus on board of director composition and in particular nonexecutive remuneration in the form of ownership. Given the increasing dominance of Anglo-American governance, firms worldwide are increasing the proportions of nonexecutive directors on their boards. However, their role is acutely context specific which is reflected in the relationship between their personal ownership and the liquidity-borne transaction costs of the firm as a whole.</p

Sector level cost of equity in African financial markets

This paper assesses the effectiveness of Liu (2006) metrics in measuring illiquidity within a multifactor CAPM pricing model. Costs of equity are estimated using this model for the major sectors within Africa’s larger equity markets: Morocco, Tunisia, Egypt, Kenya, Nigeria, Zambia, Botswana and South Africa. In all countries, the cost of equity is found to be highest in the financial sector and lowest in the blue chip stocks of Tunisia, Morocco, Namibia and South Africa. At an aggregate level, Nigeria and Zambia have the highest cost of capital

Founder retention as CEO at IPO in emerging economies: The role of private equity owners and national institutions

YesWe integrate the institutional perspective with research on the governance role of private equity firms in an investigation of Founder-CEO successions in Initial Public Offerings (IPOs) in emerging markets. Using a unique, hand-collected and comprehensive sample of 191 firms having undertaken IPOs in 21 markets across the African continent between January 2000 and August 2016, we apply instrumental variable (IV) Probit methodology and find that higher levels of private equity ownership are positively associated with the probability of the founder's retention as CEO, especially in the context of low-quality formal institutions. Further, in societies with high tribalism, higher private equity ownership is associated with an increased likelihood of founder retention. Voids in the institutional architecture underscore the importance of the founder as a key organizational resource for the firm and a source of institutionalized legitimacy, which in turn confers on the firm an ability to access required resources

Firm level governance and institutional determinants of liquidity: evidence from Sub Saharan Africa

This study contrasts well established liquidity measures, namely volume-based turnover ratio, related price-impact Amihud (2002) construct and the multidimensional Liu (2006) indicator alongside the Lesmond, Ogden and Trzcinka (1999) proportion of zero daily returns metric in explaining bid-ask spread plus commissions costs. We control for six critical firm governance characteristics that impact liquidity alongside the market-based controls that are conventionally solely included in the literature. Using a unique sample of 12 Sub Saharan African (SSA) equity markets, namely Kenya, Mauritius, Zambia, Zimbabwe, Botswana, Malawi, Namibia, Nigeria, Ghana, BRVM (Cote d’Ivoire), and then South Africa’s ALT-x and Main boards we find evidence that state and foreign venture capitalist involvement in firms enhances liquidity while involvement of foreign partners, entrepreneurial founders, domestic venture capital and inclusion within an extended business or family network has opposite effect. The evidence supports the use of the proportion of daily zero returns measure in preference to other measures in capturing illiquidity. Furthermore we find that liquidity is closely associated with three of six World Bank Governance measures of institutional quality with these being government effectiveness, regulatory quality and rule of la