Re-examining Causal Relationship between Dividend Policies and Commercial Bank Performance: Evidence from 30 Sub-Saharan African Countries

Objective: This paper re-establishes the causality between two dividend policies (dividend payoutand dividend reinvestment plans) and financial performance (Return on Equity). Prior Work:Dividend policies issues have been continually debated around the world with mixed results, and yetto date, no definite conclusions have been reached. Approach: The study conveniently andpurposively used 250 commercial banks from 30 SSA countries over the period between 2006 and2015 to run long-run causality tests. Results: The results from the block exogeneity Wald test fromthe panel vector error correction model, and the pairwise Granger causality test shows that there is aunidirectional causality between return on equity and dividend payout ratio. Implications: Thisimplies no causality between dividend payout ratio/ retention ratio and banks’ return on equity overthe study period. Value: Hence, we conclude that the widely adopted model for the payment ofdividends in the SSA banking market is a win-lose game, as there is no causality between dividendpayment and bank performance. As such, we recommend that other dividend policies that canminimize future financing costs, increase bank assets, and improve the future growth prospects of theregion be explored

Re-examining Causal Relationship between Dividend Policies and Commercial Bank Performance: Evidence from 30 Sub-Saharan Africa Countries

This paper aims to test for causality between two dividend policies (dividend payout and dividend reinvestment plans) and return on equity as a measure of financial performance. Dividend policies issues have been continually debated around the world with mixed results, and yet to date, no definite conclusions have been reached. The study used 250 commercial banks from 30 SSA countries over the period between 2006 and 2015 to run long-run causality tests. The results from the block exogeneity Wald test from the panel vector error correction model, and the pairwise Granger causality test shows that there is a unidirectional causality between return on equity and dividend payout ratio. This implies no causality between dividend payout ratio and banks’ return on equity over the study period. Hence, we conclude that the widely adopted model for the payment of dividends in the SSA banking market is a win-lose game, as there is no causality between dividend payment and bank performance. As such, we recommend that other dividend policies that can minimize future financing costs, increase bank assets, and improve the future growth prospects of the region be explored

Dividend policy, agency cost and bank performance in sub-Saharan Africa.

Doctoral Degree. University of KwaZulu-Natal, Durban.This study explored the relationship between dividend policy, agency costs and bank performance among sub-Saharan African (SSA) commercial banks. More specifically, it examined the factors that determine the dividend payout ratio of commercial banks in this region; established the direction of causality between the dividend policy and financial performance of commercial banks in sub-Saharan Africa; determined the effects of operational diversification on these banks’ financial performance and evaluated the relationship among dividend policy, agency costs, market risk and performance in SSA commercial banks. The study was motivated by the desire to assist banks to formulate a balanced dividend policy that will enable them to contribute to economic growth and thus ameliorate the poverty, underdevelopment and poor financial depth that characterise the region. Data were collected from 250 commercial banks from 30 SSA countries using BankScope for the period 2006 to 2015. The data were analysed using descriptive statistics and inferential statistics with different econometric techniques, namely, static regression via pooled, fixed and random estimations and dynamic regression analysis via Panel Generalised Method of Moments (GMM), Panel Vector Error Correction Model (P-VECM), the Panel Granger Causality test, Impulse response function and Variable decomposition. Using both Differenced and System GMM, the study found that the lagged dividend payout ratio, after tax income, size and leverage are the key determinants of the dividend payout ratio in SSA commercial banks. The analysis of the causal relationship between dividend policy (dividend payout and retention ratio) and bank performance revealed unidirectional causality between the retention ratio and Return on Assets as well as between Return on Equity and the dividend payout ratio. The study also found that none of the dimensions of operational diversification have a significant effect on financial performance in the static regression analysis, while the GMM analysis (dynamic analysis) showed that, past year performance (lagged Return on Average Assets), asset diversification, deposit diversification, loan diversification and income diversification have a significant effect on banks’ financial performance (Return on Average Assets). In addition, a long-run relationship was identified between dividend policy, agency costs, and market risk and bank performance. The disequilibrium from the long run estimate will take about 39.5% annual speed of adjustment to return to a steady state. In terms of the two proxies of market risk, the interest rate risk has a negative effect, while the foreign exchange risk has a significant positive effect on variations in bank performance in sub-Saharan Africa. The evidence from the impulse response function and variable decomposition shows that all the variables in the series responded to shocks in performance (ROA) directly or indirectly during the investigated period, with dividend policy and agency costs the most significant. These findings imply that SSA banks should curtail payment of dividends as the current situation warrants re-investment of earnings to boost their assets and make a meaningful contribution to the region’s economic growth. Among others, this study recommends policies to improve dividend policy formulation in such a way that the agency costs of debt and equity will be minimised, and all the banks’ stakeholders’ interests will be protected to promote the future growth of the sector. It contributes to the extant literature by examining dividend policy with a regional focus using data from 30 SSA countries and identifying the major bank-specific determinants of the dividend payout ratio that can serve as a uniform formula for dividend payments across the region. Furthermore, this is the first study to establish that only dividend retention policy can cause bank performance in this region. Finally, the study used the Herfindahl-Hirschmann Index to measure the diversification of four major dimensions of banking operations and is the first of its kind in the SSA region to evaluate the relationship between dividend policy, agency costs, and market risk and bank performance using long-run analysis

Internal Control System And Financial Accountability : An Investigation Of Nigerian South-Western Public Sector

This study examines the effect of internal control system on financial accountability in terms of effective and efficient financial operation, compliance with applicable laws and regulations, reliable financial reporting, transparency and flow of information were obtained primarily from a random sample of 354 Heads of Units in the Account and Audit Departments in 65 Ministries of the Southwestern Nigeria who are directly involved in the management, financial planning and controls with a well-structured questionnaire. The 222 fully completed and returned questionnaires were coded and analysed using descriptive analysis and regression technique. The result reveals that internal control system had positive effect on financial accountability in terms of effective and efficient financial operation, compliance with applicable laws and regulations, reliable financial reporting, transparency and flow of information with the mean scores of 4.22, 3.91, 3.86, 3.81 and 3.47 respectively. The regression result shows that control environment, control activities, risk assessment, information and communication and monitoring and evaluation are significantly impacting financial accountability in public sector. The ANOVA with the F = 16.995, p < 0.05 shows that all the components of internal control system had significant effect on financial accountability in public sector. Therefore, the study concludes that internal control system put in place in the public sector is well established and adequate for effective and efficient financial accountability. There is a need for the internal control system in the public sector to ensure adequate use of all channels of communication and information flow for proper financial accountability. This study recommends that the internal control unit should be encouraged to maintain their independence role such that, the internal auditor should be adequately independent from those responsible for the financial operation so as to be able to provide additional assurance on cost efficiency and effectiveness of the internal control system

Naira-Dollar Exchange Rate Volatility Modeling Using Quadratic Moving Average Conditional Heteroscedasticity (QMACH)

This study investigates possible alternative modeling of Naira-Dollar exchange rate volatility in Nigeria. The paper makes use of the monthly data on Naira-Dollar exchange rates from 1991 to 2016 which was sourced from the Central Bank of Nigeria statistical bulletin. In order to realize the aim of this study, a newly proposed Quadratic Moving Average Conditional Heteroscedasticity (QMACH) model was employed to investigate the volatility of Naira-Dollar exchange rate. The ADF unit root test reveals that the Naira-Dollar exchange rate return is stationary and this permits the usage of Quadratic Moving Average Conditional Heteroscedasticity (QMACH) methodology. The empirical analysis indicates that Naira-Dollar exchange rate volatility indeed follows the QMACH movement just like it follows both ARCH and GARCH movement .In comparison with ARCH and GARCH modeling, QMACH outperforms both as shown through the log likelihood statistics and the information criteria

Effect of Agency Costs on Executive Compensation in South African Commercial Banks

This study examines the roles of agency cost (monitoring and bonding cost) on compensation of managers with a view from the managerial-power approach to agency cost. We modelled managers’ compensation and agency cost of banks to emphasise the potential influence of agency cost on managers’ compensation. A Panel Generalised Least Square model was estimated on four largely-controlled commercial banks in South Africa over the period 2010-2015. The result shows that shareholders’ fund, management share option, monitoring and bonding cost were strongly significant in explaining the managers’ compensation in the banks. Therefore, in the South African banking sector, compensation of managers should be based on their managerial power and not only on the principle of optimal-contracting. It is recommended, among others, that monitoring and bonding costs in the South African banks should be re-emphasised and strictly committed to. This should be so because there are direct effects of these costs on managers’ compensation which might be the reason for the persistent agency problem in the banks

Blended Learning Challenges During COVID-19: A Case of Cost Accounting 2 Students at a Selected South African Higher Education Institution

Every sector in the twenty-first century makes use of technology for its activities, especially during the COVID-19 pandemic and higher education institutions are not exceptional. However, the cohorts enrolled in the selected higher education institution are from technologically challenged backgrounds. This suggests that in their previous schooling, technology was unemployed as a learning aid. As this may present some challenges for such students, this study aims to investigate challenges experienced by Cost Accounting 2 students who are from a technologically disadvantaged  background. To accomplish that, a quantitative approach was used since it permits surveys to be delivered to the entire impacted population while also reducing sampling error. Because of the Coronavirus, online questionnaires were sent to 400 students, but only 119 (n=119) responded. Blended learning was found to be an effective technique for learning Cost Accounting 2 since the university provided sufficient information on how to use the system. However, there was a lot of discussion about internet access, learning materials access, and library resource access. Based on the findings, blended learning is excellent for studying Cost Accounting 2 as long as the learning management system is customised such that students can navigate it effortlessly. Management must work with internet service providers to try stabilise internet connectivity in the students’ neighbourhoods. The additional study can be done using a variety of research methods and target other groups of students

Nexus of Working Capital Management and Firm Performance in Nigerian Food and Beverages Industries: A Link with Risk-Return Theory

This paper examines the nexus of working capital management and financial performance of selected multinational food and beverages industries in Nigeria for the period between 2006 and 2014 and establishes its linkage with risk-return theory. An explanatory research design is adopted and the secondary data used were gathered from 5 purposively selected quoted food and beverages companies using GLS panel regression analysis. The pooled regression shows that account receivable ratio (ARR) and debt ratio (DER) have negative effect but significant at 1%, working capital (WCA) is also significant at 5% but had positive effect, however, sales growth (SGR) was insignificant. It is also discovered from the Fixed Effect Estimation that working capital management variables such as account receivable ratio (ARR) and debt ratio (DER) have negative effect but significant at 1%, working capital (WCA) is also significant at 5% but has positive effect, while sales growth (SGR) has negative effect but insignificant to the performance of the companies. This signifies reduction in the performances of food and beverages industries which calls for urgent attention since they are posting inverse effect. The unison in both estimations shows that those variables are the major factors influencing the performance of food and beverages industries in Nigeria and thus, it is concluded that the management board of these industries should restructure their working capital management policy as it has the tendency of affecting the dividend policy and firms’ liquidity, which invariably affects the maximization of shareholders’ wealth. This can only be done when managers reduce account receivable days; ensure proper debt management technique, improve sales strategies to enhance sales growth as well as maintain optimal working capital level to reflect the risk-return theory of firms