Modern Finance
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External debt, corruption control, and economic prosperity in the SADC region
Get PDFThis study investigates the impact of external debt and corruption control on the economic prosperity of Southern African Development Community (SADC) countries, using the Legatum Prosperity Index as a comprehensive measure encompassing nine dimensions. The study employs various estimation techniques, including Driscoll-Kraay, instrumental variables, quantile-on-quantile regressions, and the Granger causality test. The findings indicate that external debt positively influences economic prosperity in the SADC region. Additionally, effective corruption control enhances this prosperity. Causality tests reveal a bidirectional relationship between external debt, economic prosperity, and corruption control. The study recommends strengthening anti-corruption agencies, initiating open data policies, implementing market reforms, and pursuing fiscal consolidation to promote debt sustainability and foster prosperity within the SADC region
The influence of Fintech innovations on bank competition and performance in South Africa
Get PDFIn recent years, the South African banking sector has undergone rapid transformations due to innovations in financial technology (Fintech). Regulated by the South African Reserve Bank (SARB), banks are essential for economic growth through capital provision, risk management, and transaction facilitation. Recent Fintech advancements offer more efficient, personalised, and cost-effective solutions, challenging traditional banking models. Against this background, the current study explores the impact of Fintech innovations on banking sector competition and performance, focusing on banks listed on the Johannesburg Stock Exchange (JSE) from 2000 to 2023. Using a panel regression approach, the findings reveal that Fintech enhances competition, particularly through mobile transactions. However, Fintech does not significantly improve bank performance indicators, suggesting traditional structures remain at play. These findings have significant implications for stakeholders in the South African banking sector
Financial inclusion in banking: A literature review and future research directions
Get PDFThis article presents a synopsis of financial inclusion research in banking. Complementing the existing reviews of the financial inclusion literature, I offer my thoughts on the role of financial inclusion in banking and the role of banks in financial inclusion. I focus my discussion on the effect of bank managerial discretion and regulation on financial inclusion outcomes, as well as the effect of financial inclusion on the banking business. I show that bank managerial discretion and regulation affect financial inclusion through bank cost optimization decisions and regulatory changes that may have unintended consequences. In contrast, financial inclusion affects banks by increasing the deposit base of banks, improving bank profitability, improving banks’ resilience to shocks, improving bank stability, and reducing bank risk. I also offer suggestions for future research directions
Economic development, corporate governance, and firm performance in Sub-Saharan Africa
Get PDFhe study examines the impact of corporate governance on firm performance in five Sub-Saharan African countries, focusing on the role of economic development. The research uses a two-stage least squares (2SLS) regression approach to examine data from 309 publicly traded companies spanning the years 2016–2022. The study found that firms in upper-middle-income (UMI) countries outperform those in lower-middle-income (LMI) countries. Corporate governance positively influences firm performance in LMI countries but negatively affects it in UMI countries. The study further observed that economic development significantly impacts corporate governance-performance relationships in LMI countries compared to UMI countries. Policymakers, especially in UMI countries, are urged to re-assess their current institutional frameworks and consider reforms aimed at alleviating bureaucratic obstacles that impact businesses
Both, either, or neither? Taste-based and statistical discrimination in personal loan applications
Get PDFUsing cross-sectional data on over 51,000 individuals from a large public sector bank in India, we examine the determinants of loan rejection. The findings indicate that females with high credit scores are less likely to be rejected, suggesting evidence of favourable treatment. Additionally, applicants with higher incomes are less likely to face rejection, highlighting the presence of statistical discrimination. Various robustness checks support these conclusions. The paper concludes with policy implications drawn from the analysis
How bank recapitalization and ownership shape agricultural finance in Ghana: A note
Get PDFThis study examines the heterogeneous effects of recapitalization and the origin of banks on agricultural finance in Ghana, using panel data from 2015–2018 (pre-recapitalization) and 2019–2022 (post-recapitalization). Fixed effects regression with robust standard errors was employed, incorporating macroeconomic indicators (interest rate, inflation) and bank-specific variables (capital adequacy ratio, non-performing loans). Results show that recapitalization improved agricultural financing. Regional banks increased lending compared to foreign banks, while indigenous banks reduced lending. Macroeconomic and bank-specific factors also influenced agricultural finance differently. Policies should incentivize domestic banks to support the agricultural sector in enhancing food security and reducing dependence on foreign aid
On the connectedness between climate policy uncertainty, green bonds, and equity
Get PDFThis paper presents a first connectedness analysis using the novel Climate Policy Uncertainty Index (CUI) proposed by Gavriilidis (2021), Green equity and bonds (GE and GB – Green investments), and Dirty equity and bonds (DE and DB – dirty investments). Using data covering the years from 2007 to 2021, we show that the effect of climate policy uncertainty as measured by the CUI is far from constant through time. While static analysis indicates that green investments are isolated from fluctuations in the CUI, an inspection from a dynamic perspective shows that CUI is mostly a transmitter of shocks. This role as a transmitter is evident primarily in two crises since 2008: the subprime crisis and the European debt crisis. Interestingly, during recent years, the influence of climate change policy uncertainty as measured by the CUI has weakened, and it has even become a net recipient of shocks
Sustainable development in emerging economies: Comparing the impacts of green finance and financial inclusion
Get PDFThe study compares four independent estimation techniques, the panel ARDL, FMOLS, DOLS (non-distributional), and quantile regression (distributional), examining the comparative impacts of green finance and financial inclusion in twelve emerging economies of the world based on data from 2014 to 2023. The estimates were unanimously used to justify the undeniable influences of green finance and financial inclusion on sustainable development. The results from the non-distributional techniques revealed that green finance and financial inclusion significantly positively impacted sustainable development in emerging economies. The quantile regression results showed that financial inclusion was more beneficial to sustainable development than green finance, although it was around the middle of the distribution. The quantile regression output further proved that the relationship between sustainable development and green finance in emerging economies is weaker than that between financial inclusion. According to these findings, green financial inclusion holds the potential to advance the achievements of sustainable development in emerging economies
Modelling volatility spillovers between prices of petroleum and stock sector indices: A multivariate GARCH comparison
Get PDFThis study compares four multivariate GARCH approaches in modelling bilateral return and volatility spillovers between petroleum prices and self-constructed stock sector indices of net petroleum exporters (Canada and Saudi Arabia) and net petroleum importers (the United States and China). The estimates are subsequently used to quantify optimal portfolio weights and hedge ratios and to evaluate the effectiveness of the resulting hedging strategies. The outputs point to the presence of heterogeneous volatility interdependencies, which are more evident for Canada and the United States. The optimal weight of petroleum is greater in portfolios comprising stock sector indices of Saudi Arabia and China, which also provide lower hedging costs. Time-varying conditional correlations, portfolio weights, and hedge ratios exhibit considerable variations, particularly during turbulent periods. Finally, the hedging strategies generated from the VAR-DCC-GARCH specification result in the greatest reduction, although not substantial, of risks for portfolios involving stock sector indices of all countries
The nexus of blue economy, green finance, and energy commodities: A quantile VAR approach
Get PDFThe post-COVID era highlights the need for sustainable, resilient economies. This study investigates the interconnectedness between green finance, blue economy indices, clean energy assets, and energy commodities using a TVP-VAR and quantile VAR model from October 2021 to January 2024. Results show high connectedness (90–100%), with clean energy indices (OCEN, GNR) as key transmitters and oil/gas as net receivers, especially during stress periods. Spillover asymmetries across quantiles confirm non-linear risk transmission. Findings inform investors and policymakers on aligning green finance with energy policy, enhancing risk management tools, and promoting global cooperation for a just transition. This framework supports forward-looking, sustainable financial and energy strategies