African Development Finance Journal

A Financial Health Measurement Framework for South African Municipal Governments

Xavier Yolande Zane Mac Master — 2024-10-31

Purpose: This study aims to create a conceptual framework for a methodical assessment of the financial health of South African municipal governments.

Methodology: Conceptualization and literature study research methods are employed to explore the meaning and measurement of local fiscal health in South Africa.

Findings: In order to thoroughly evaluate the financial health of South African local governments, the study created a four-dimensional framework consisting of cash solvency, budget solvency, long-run solvency, and service-level solvency. This framework was supported by 14 financial indicators.

Conclusions: The fiscal health measurement framework developed in this paper with its attendant dimensions and indicators, can potentially provide a fairly comprehensive indication of the prudence with which municipalities manage their short-term liquidity, budgets, long-term debt, own revenue sources and expenditure commitments to essentially support their critical developmental role in the country..

Keywords: Municipal government, Public Financial Management, Financial health

Corporate Social Capital and Performance of Certified Small Tea Producer Organizations in Kenya

Fredrick M. Mutea — 2024-10-31

The aim of this study was to investigate the relationship among fairtrade practices, corporate social capital, market innovation, and the financial performance of certified small producer organizations in emerging economies, with a focus on data from Kenya in East Africa. Specifically, the study aimed to explore how corporate social capital affects the financial performance of FT-certified small tea producer organizations. The research employed a descriptive cross-sectional design, gathering primary data through semi-structured questionnaires from 67 small tea producer organizations affiliated with the Kenya Tea Development Agency (KTDA). These organizations operate in 17 counties where tea cultivation occurs; collectively serving 560,000 smallholders in Kenya. Data analysis encompassed both descriptive and inferential statistics. The findings indicated a significant influence of corporate social capital on the financial performance of certified tea producer organizations, highlighting a notable association between these variables. This study contributes to theory, policy, and practice by enhancing our understanding of the relationship between performance and corporate social capital in the context of small tea producer organizations.

Keywords: corporate social capital, organization performance, Kenya

Effect of Capital Structure on Financial Performance of Agriultural Firms in Kenya

Betty Musyoka — 2024-10-31

As corporate entities expand and evolve, fresh possibilities emerge that present an opportunity and a potential of economic expansion and enhanced financial outcomes for companies. Consequently, the financial framework of a company plays a pivotal role in determining how it secures the necessary funds to sustain its operations and investments. The objective of the study was to determine effect of Capital Structure on Financial Performance of Agricultural Firms in Kenya. The period of the study takes a timespan of five years, ranging from 2018 to 2022, which encompasses the pre- and post-global pandemic crisis period, facilitating an investigation into how agricultural firms have adjusted and navigated economic conditions following the worldwide COVID 19 Pandemic. The research initially aimed to obtain data from 32 agricultural enterprises that were shortlisted by KEPSA and NSE. However, data was collected from 30 businesses in the sector. The data collected underwent a systematic and consistent examination, encoding, and summarization process driven by SPSS computation. The researcher employed the non-standardized coefficients in column B to formulate the mathematical model. Subsequently, the data underscores that, while maintaining all other variables constant, the influence of the predictor variables on financial performance totals 0.299. Furthermore, the discoveries disclose that liquidity has a positive yet statistically non-significant impact on agricultural financial performance (β=0.003; p=0.562> 0.05). In addition, a thorough investigation exposes the intricate effect of the capital structure on agricultural firm’s financial performance, unveiling a substantial positive connection (β=0.086; p=0.000< 0.05). Furthermore, as the analysis progressed, the focus shifted to the impact of asset growth on business performance. The outcomes solidly ascertain an unfavorable yet noteworthy relationship (β=-0.135; p=0.000< 0.05). The association between agricultural firm’s size and financial performance was scrutinized, revealing an unfavorable yet statistically substantial relationship (β=-0.001; p=0.000<0.05). The researchers recommend that agricultural firms should optimize their financial performance for comprehensive stability. The research advocates for continual surveillance and assessment of financial factors, in conjunction with judicious financial structure management, liquidity oversight, and growth strategy appraisal, as being imperative for their financial triumph. Policymakers and financial specialists should also heed these findings when formulating policies and offering counsel to the agricultural sector.

Keywords: Capital Structure, Financial framework, financial performance, Agricultural Firms in Kenya

Quality of Corporate Social Responsibility disclosure: Does Diversity in Boardroom Really Matter?

Erick Lusekelo Mwambuli — 2024-10-31

The main objective of the study was to examine the relationship that exists between board diversity and quality of corporate social responsibility disclosure (QCSRD) of listed firms in Tanzania. Specifically, the study was set to identify the effects of board’s gender diversity, educational background as well as nationality diversity has on QCSRD of listed firms in Tanzania. The study adopted a descriptive research design. Comprised of thirteen (13) listed financial institutions in the Dar Es Salaam Stock Exchange (DSE). The study used secondary data and study variables were collected from audited financial reports and websites. The secondary data obtained in this study was analyzed using both descriptive and inferential analysis using Stata 15 software. The findings indicate that gender diversity and nationality diversity have no statistical significance toward QCSRD while education background diversity has statistical significance to the QCSRD. The study recommends promotion of educational background diversity in Corporate Governance (CG) framework and guidelines to enhance QCSRD. Educational diversity likely contributes a range of perspectives and expertise, leading to more comprehensive decision-making and enhanced ability to address various aspects of CSR. Moreover, recognizing the possibility of sample size limitations, the researcher conducted robustness checks through sensitivity analyses. Nevertheless, comparative studies between firms in various sectors and countries can help identify context-specific factors that influence the relationship between board diversity and QCSRD.

Keywords: QCSRD, Gender diversity, Education background diversity, Nationality diversity, Tanzania

Relevance of the Stochastic Dominance in selecting Optimal Portfolio in the Nigerian Oil and Gas Industry

Joel OBAYAGBONA — 2024-10-31

The study examined the relevance of the stochastic dominance in selecting optimal portfolio of eight (8) listed companies in the Nigerian oil and gas industry for the period 2012 to 2021. The Vose Model Risk Software was used to analyze the stochastic dominance of the portfolio assets of the sectors. From the stochastic dominance result obtained, it was observed that, Japaul Gold & Ventures Plc is first order stochastic dominance over all other companies in the oil and gas industry. By implication, the portfolio of Japaul Gold & Ventures Plc significantly dominates Ardova Plc, Conoil Plc, Oando Plc, Total Nigeria Plc, Seplat Petroleum Development Company Plc, 11 Plc, and MRS Oil Nigeria Plc in terms of investment options (choices), informed by the returns. Hence, the study concludes that, investors can only achieve optimal portfolio, only if they invest in the stocks of Japaul Gold & Ventures Plc and Ardova Plc, Conoil Plc and pairing them with stocks from less dominant companies in the oil and gas industry. The study therefore recommends that, in order to effectively optimize returns on portfolio in the market, investors must assign more weight/funds (asset allocation) to Japaul Gold & Ventures Plc stocks followed by the Ardova Plc, Conoil Plc, Oando Plc, Total Nigeria Plc, Seplat Petroleum Development Company Plc, 11 Plc, and MRS Oil Nigeria Plc stocks respectively.

Keywords: Stochastic Dominance, Optimal Portfolio Selection, First Order, Second Order, Investors’ Preference

The Impact of Capital Investment Decisions on the Growth of Small and Medium Enterprises: A Case Study of Nairobi City County's Central Business District, Kenya

Grace Wangui Gichuru — 2024-10-31

Small and Medium Enterprises (SMEs) play a pivotal role in Kenya’s economic growth, driving job creation and development as envisioned in Vision 2030. Despite their importance, many SMEs in Nairobi County's Central Business District face challenges due to limited capital, hindering their growth and economic potential. This study aimed to examine the effect of capital investment decisions on SME growth in this region. Specifically, it assessed the impact of expansion, replacement, modernization, contingency, and diversification investment decisions. The research was anchored on contingency theory, cash flow theory, and acceleration theory, using a descriptive research design. Out of 1,367 registered SMEs, 310 were sampled using the Yamane technique, with data collected through questionnaires. Findings indicated that expansion, replacement, modernization, and contingency decisions significantly influenced SME growth, while diversification had an insignificant impact. Overall, these factors explained 85.7% of the variance in SME growth. The study recommended that SMEs adopt strategic investment decisions and urged the Kenyan government, along with the Micro and Small Enterprises Authority, to establish venture capital exit policies and a comprehensive regulatory framework to address venture capital challenges in Kenya.

Keywords: Capital, Contingency, Diversification, Expansion, Investment decisions, Modernization, Replacement

The influence of Fundamental Indicators on Stock Prices: Evidence from Listed Manufacturing Firms in East Africa

John John — 2024-10-31

This study aims to determine the influence of fundamental indicators on the stock prices of listed East African manufacturing companies. Specifically, the study investigates the extent to which profitability, leverage, and market fundamentals affect the stock prices of manufacturing companies in East African exchanges. To achieve this, the study used fixed-effect regression with Driscoll and Kraay standard errors on an unbalanced panel dataset comprising 26 companies over 13 years, from 2010 to 2022. The results of the study revealed that the stock prices of the targeted industry are sensitive to the Book to Market ratio, Debt-to-Equity ratio, Price to Earnings Ratio, and Growth of Earnings per share and Return on Assets, while Return on Capital Employed lack statistical significance. Furthermore, while stock prices are positively influenced by EPS growth and Book to Market ratio, a negative influence is observed from Debt to Equity and Price to Earnings ratio.

Keywords: Fundamental analysis; Stock Prices; Manufacturing firms; East Africa