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The Short- and Long-Term Value Gains to Acquirers of Emerging Market Targets in Mergers and Acquisition Deals
Emmanuel Okofo-Dartey and Lungile Ntsalaze
DOI: 10.15604/ejef.2021.09.01.001
Abstract
This study investigates whether the acquisition of targets from the emerging markets impacts the short-term and long-term value gains of these targets’ acquirers in terms of their profitability and growth opportunities. The study uses firm-level data of 93 listed acquirers of targets from the emerging markets sourced from the Bloomberg Terminal from 2003 to 2018. It employs the difference generalized method of moments (GMM) for analysis. This dynamic panel estimation method takes care of endogeneity problems, omitted variables, and error measurements. The study reveals that, broadly, the acquirers’ profitability levels improve in the short-term after merger and acquisition (M&A) deals. This improvement in the acquirers’ profitability levels occurs in the 1st, 4th and 5th year periods within the short-term after their M&A transactions are completed. Regarding growth opportunities, acquirers of targets from the emerging markets experience both negative and positive returns on their short-term growth opportunities. However, they experience significant positive returns on their growth opportunities in the long-term. Our paper complements and contributes to the body of knowledge on international market entry and have implication for potential acquirers interested in investment opportunities in the emerging markets.
Keywords: Short-term, Long-term, Acquirers, Targets, Profitability, Growth Opportunities
Was the Interest Rate Policy of the ECB Too Loose? Insight from a Simple Taylor Rule
Behailu Shiferaw Benti
DOI: 10.15604/ejef.2021.09.01.002
Abstract
The interest setting of a central bank can be explained using a rule-based monetary policy. A rule-based monetary policy framework considers major economic variables to make a recommended interest rate. In an economy, the fluctuations in major economic variables are vital indicators that signal an action from the central bank. In this paper, we scrutinize the short-term interest rate setting of the European Central Bank (ECB) based on the observed economic conditions. We have based our analysis on a simple Taylor rule. The investigation includes evidence and implication from a selected time period to reflect on the interest rate setting practice followed. For comparison purposes, the applicability and validity of a rule-based monetary policy are then analyzed for the US relying on the interest rate setting of the Federal Reserve. Our empirical findings confirm that the interest rate adjustments in the two central banks go along with the recommendations from a simple Taylor rule. Finally, taking the difference between the interest rate settings of the two banks, an empirical analysis is made to identify whether this difference can be attributed to the difference in simple Taylor rule recommendations.
Keywords: Monetary Policy, Interest Rate Setting, Simple Taylor Rule, Inflation, Unemployment Gap
Examining the Sources of Sovereign Risk for South Africa: A Time Varying Flexible Least Squares Approach
Sheunesu Zhou
DOI: 10.15604/ejef.2021.09.01.003
Abstract
This paper analyzes the determinants of the South African long-term sovereign bond yield spread using 10-year bond yield spread. We employ the Auto-Regressive Distributed Lag and Flexible Least Squares techniques to demonstrate the impact of macroeconomic and financial variables on the yield spread. Our results show that the short-term interest rate is positively related to the bond yield spread both in the short and long run. We also establish a long-run positive influence of government debt on the bond yield spread whilst on the other hand, economic growth, the nominal effective exchange rate, stock market returns and bank credit all have a negative impact on the bond yield spread in the long run. We examine the time varying coefficient of government debt and reveal that the long-run impact of government debt has varied over the period under analysis. Time varying coefficients capture some important periods in the history of the South African economy, indicating that underlying economic conditions and exogenous shocks influence the determination of sovereign risk. Our results imply the need for synchronization of fiscal and monetary policy. In addition, economic policy should address economic growth and macroeconomic instability to complement deleveraging efforts aimed at curbing sovereign credit risk.
Keywords: Bond Yield Spread, Government Debt, Auto-Regressive Distributed Lag, Flexible Least Squares, Sovereign Risk
The Relationship between Monetary Policy and Private Sector Credit in SADC Countries
Vikela Liso Sithole, Tembeka Ndlwana, and Kin Sibanda
DOI: 10.15604/ejef.2021.09.01.004
Abstract
This paper empirically examined the relationship between monetary policy and private sector credit in the Southern African Development Community (SADC) group of countries using a panel autoregressive distributed lag (ARDL) co-integration technique for the period from 2009 to 2018. The Hausman test result indicated that the null hypothesis of long-run homogeneity cannot be rejected and hence we accept the pooled mean group estimators (PMGE) as a consistent and efficient estimator. The PMGE results showed that credit to the private sector and gross domestic product have a positive and statistically significant long-run impact on money supply. The impact of credit to the private sector on money supply is shown by the results to be statistically significant and positive both in the short and long run. The impact of gross domestic product on money supply was found to be statistically significant positive in the long run while positive but insignificant in the short run. The study recommends policy attention that is directed towards the appetite for accelerated growth, investment, and employment in the SADC region but more importantly with more regard to the establishment of sustained macroeconomic stability as a precondition to sustainable growth and for the creation of monetary union in the region.
Keywords: Private Sector Credit, SADC, ARDL, PMG, Money Supply, Economic Growth
An Analysis of Personal Financial Literacy among Adults in Vhembe District, a Rural Municipality in South Africa
Adam Ndou and Sam Ngwenya
DOI: 10.15604/ejef.2021.09.01.005
Abstract
Consumers in rural and low-income areas are the most financially vulnerable and are facing challenges with their finances and depend mostly on unsecured loans to finance their daily expenses. This has been exacerbated by global financial crises, which left many consumers in financial strains. The purpose of this paper is to measure the level of financial literacy focusing on the areas of day-to-day money management, financial planning, choosing appropriate financial services and products, and financial knowledge and understanding. The quantitative research approach was used to collect primary data among adults in Vhembe District Municipality (VDM), a rural and low-income municipality in South Africa. Primary data were analyzed through descriptive statistics. The results indicate that the level of financial literacy among adults in VDM is low at 38.73%. The low levels of financial literacy have serious consequences for an adult’s personal financial management skills and lead to their inability to make correct financial decisions. It is apparent that an individual’s level of financial literacy has become important in how individuals manage their finances in today’s complicated financial world. The paper concludes by suggesting interventions that could help adults to improve their level of financial literacy, manage and sustain their financial well-being.
Keywords: Financial Literacy, Money Management, Financial Planning
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