African
Journals Online
African Journal of Finance and Management
Volume 7 Number 2
January 1999
AN ANALYSIS OF A FREE
CASHFLOW PORTFOLIO INVESTMENT STRATEGY
Charles C. Okeahalam
ABSTRACT
Many investment strategies are based on information
derived from, or expectations related to, information in
financial statements. Generally Accepted Accounting
Practice (GAAP) are interpreted differently in various
countries and this reduces the reliability of financial
statements for international investors. This paper uses a
market-based accounting research (MBAR) framework to
examine an investment strategy for portfolio selection in
domestic (South African) and foreign (African) equities.
The strategy is based primarily on free cash flow and
reduces reliance on the varied conventions of preparation
of financial statements. The investment strategy selects
firms that consistently generate free cash flows, have
low free cash flow multiples, and low financial leverage.
On average the selected equities in the domestic and
foreign portfolios have systematic risks that are less
than one, so without additional risk, the investment
strategy yields higher returns than an international
investment index. Further findings are that a domestic
portfolio of Johannesburg Stock Exchange (JSE) listed
equities designed with the same criteria as the foreign
portfolio also earns returns that exceed the JSE
Actuaries Overall Index (JSEAOI).
THE FOREIGN EXCHANGE
EXPOSURE OF JAPANESE MULTINATIONAL CORPORATIONS
Jia He and Lilian K. NG
ABSTRACT
In this paper, we find that about 25 per cent of our
sample of 171 Japanese multinationals stock returns
experienced economically significant positive exposure
effects for the period January 1979 to December 1993. The
extent to which a firm is exposed to exchange rate
fluctuations can be explained by the level of its export
ratio and by variables that are proxies for its hedging
needs. Highly leveraged firms, or firms with low
liquidity, tend to have smaller exposures. Foreign
exposure is found to increase with firm size. We also
find that keiretsu multinationals are more exposed to
exchange rate risk that non-keiretsu firms.
INTEREST RATE RISH OF
AUSTRALIAN FINANCIAL SECTOR COMPANIES IN A PERIOD OF
REGULATORY CHANGE
R. W. Faff
ABSTRACT
In a recent study, Madura and Zarruk (1995) provide
evidence that interest rate risk is greater for non-US
banks (British, Canadian, German and Japan) than for US
Banks. The primary contribution of this paper is to
extend the Madura and Zarruk analysis to the financial
institutions of Australia over a period of extreme
regulatory change, namely, 1978 to 1992. The full sample
period is partitioned into three subperiods of analysis,
namely, January 1978 to November 1983
("pre-deregulation" period): February l984 to
September 1987 ("deregulation" period); and
November 1987 to December 1992
("post-deregulation" period) and the potential
sensitivity to short, medium and long-term interest rate
movements is examined in each sub-period. Our major
findings are that (1) while there is some general
evidence of interest rate sensitivity in the first two
sub-periods, no such evidence is forthcoming in the final
sub-period. (2) while the evidence of sensitivity at the
long-term end is relatively strong, the short-term
results are far less convincing; (3) there seems to be
some degree of instability of interest rate sensitivity
across sub-periods, particularly for long-term rates; (4)
while significant interest rate sensitivity of a large
banks portfolio and a finance companies portfolio is
found, no such evidence is apparent in any subperiod for
a small banks portfolio; and (5) there is a negligible
role for a "shape of the term structure"
effect.
CREDIT CONTROL PRACTICES IN
SELECTED BOTSWANA ENTERPRISES: AN EMPIRICAL STUDY
Magembe, B. A. S.
ABSTRACT
Credit control is an important aspect of Working
Capital Management. A firm that fails to give proper
attention to its credit control practices will soon find
itself in serious liquidity problems. It is worth noting
that liquidity problems have been identified as the major
factor contributing, towards corporate failure. The high
level of inflation in Botswana calls for immediate
attention to be given to this vital area of Working
Capital Management. This paper reports on the results of
an empirical study on Credit Control Practices of
selected business enterprises in Botswana for the period
1991-1995.
MEASURING THE COMPLIANCE COSTS OF
EXCISE DUTIES 1995-96
Christine M. S. Shekidele
ABSTRACT
The study analyses the nature and type of compliance
costs of excise duties in Tanzania. Data provided by the
respondents in the questionnaire to measure the
compliance costs incurred by firms producing traditional
excise goods in 1995-96 is used. The study concludes that
compliance costs in less developed countries are
relatively high compared to those in developed countries.
Moreover, that compliance costs are regressive in nature
falling more heavily on small firms. The findings suggest
that the rate structure and the literature which is
supplied to taxpayers are complex and difficult for an
average taxpayer to understand, resulting in high
compliance costs. As such the government should take
remedial measures in order to minimize compliance costs
without reducing revenue.
BRIDGING THE LIVELIHOOD
INSECURITY GAP: THE ROLE OF INFORMAL CREDIT IN TANZANIA
Suma C. M. Kaare
ABSTRACT
Informal credit arrangements have been perceived as
being exploitative because they charge high interest
rates thus subjecting the poor to perpetual situation of
indebtedness. Notwithstanding such perceptions, empirical
evidence from selected low income settlements of urban
Tanzania shows that informal credit arrangements provide
insurance against livelihood insecurity to the urban
poor. This article makes a case about how informal credit
arrangements are able to provide the urban poor with
livelihood security.
LIBERALISATION OF THE
BANKING INDUSTRY IN TANZANIA: ISSUES AND PROSPECT
Mutaitina, Oswald. R.
ABSTRACT
In Tanzania, as in many other developing countries,
banks play a predominant role in the financial sector of
the country as far as mobilisation and allocation of
financial resources is concerned. The question that
deserves attention however, is whether and to what extent
foreign banks have been playing a positive role in the
promotion of the country's economy. Looking at this
concern the paper notes that after the enactment of the
Banking and Financial Institutions Act, 1991 the Banking
industry has undergone a dramatic change allowing the
establishment of private banks in the country.
On the one hand the liberalisation of this sector has
made it possible for over 800 Tanzanians to get employed
in sixteen projects which were approved up to 1998 by the
government authorities to carry on financial business,
mainly in the banking sector. On the other hand the Bank
of Tanzania reveals that the sector has contributed to
the country's GDP by an average of 4.0 percent between
1990 and 1996. This paper discusses the role that has
been played by the banking system especially after the
arrival of private investors in the sector. Various
issues and prospects in the industry are examined.
THE ROLE OF VALUES IN
ECONOMIC DEVELOPMENT: WHY TANZANIA IS NOT DEVELOPING
(RAPIDLY)
Lenny Kasoga
ABSTRACT
Economic performance depends on people and their
values, which involves questions about the nature of
virtue, goodness, and duty. The law of supply and demand
encompasses production and consumer preference based on
rational behaviour in order to maximize utility. Enabling
one to obtain what one wants with regard to choice of
goods and services in the operation of market mechanisms
which involve technology, institutional and educational
changes generated inside and outside the market. This
paper attempts to examine the role of values in economic
development and discusses the reasons why Tanzania is not
developing rapidly.
FINANCIAL SECTOR REFORMS AND
THE DEVELOPMENT OF FINANCIAL INTERMEDIARIES IN TANZANIA:
1985-1997
Satta, T. A.
ABSTRACT
In Africa financial systems have been shackled with
extensive, imprudent regulations operated on inefficient
grounds and dominated by few institutions, mainly state
commercial banks. Common among most of these systems have
been controls on interest rates; extensive government
borrowing; directed lending and restriction on domestic
and foreign owned private banks. The generally
restrictive financial systems are known to have hindered
efficient mobilization and allocation of financial
resources and impeded monetary control and policy. The
introduction of financial sector reforms in Tanzania,
aims at, among other things, gradually establishing more
open credit markets, achieving flexible and eventually,
liberal interest rates and enhancing financial
intermediation.
This study analyses the impact of financial sector
reforms on the development of financial intermediaries in
Tanzania by comparing a list of selected indicators of
financial intermediary development using data covering
both the period of financial repression as well as after
the introduction of the financial sector reforms. The
paper attempts a time series analysis to evaluate the
impact of the reforms. It also examines the correlation
between the various collected indicators of financial
intermediary development. The empirical results suggest
that there have been some positive changes regarding the
formal size of the financial system. The results also
indicate that there have been insignificant changes
regarding the banking system efficiency.
EFFECTIVE
VAT RATES ON SELECTED SECTORS IN TANZANIA: AN
INPUT-OUTPUT APPROACH
Patrick K. D. Mugoya
ABSTRACT
One of the key issues in designing a VAT system is the
desirability or otherwise of a uniform rate structure.
From an economic efficiency point of view, as well as
distributional considerations, non-uniformity is deemed
more attractive than uniformity. Administrative
feasibility, on the other hand, usually poses a strong
case in favour of uniformity. In Tanzania VAT is imposed
at a uniform rate of 20 percent on all taxable supplies
of goods or services, except exports, which are
zero-rated. This study estimates, by the use of an
Input-Output approach, the extent of variation in the
effective VAT burden falling on different sub-sectors of
the Tanzanian economy. Since optimal taxation theory
implies the superiority of rate differentiation over rate
uniformity it is important to establish empirically the
extent of effective non-uniformity in a tax system that
is mainly statutorily uniform like the Tanzanian VAT. In
the final analysis, indeed, what actually matters to
economic entities is not the rate of tax specified in the
legislation (i.e. statutory rate), but rather the burden
borne by the entities in different sectors or sub-sectors
of the economy.
ROLE OF
FINANCIAL INFORMATION IN EMERGING CAPITAL MARKETS
Adam M. Mwandenga
ABSTRACT
This paper adopts a conventional premise that
financial information such as contained in audited
financial statements and interim financial statements
play a significant role in capital markets. However, for
utility in capital markets, the paper further suggests
that forward looking in addition to historical
information seem to be more appropriate, not only in
developed countries but also in emerging capital markets
of less developed countries like Tanzania. A deliberate
emphasis needs to be placed on provision of variance data
to enable securities brokers, investment advisors and
investors make a "discriminate" analysis
between good and bad performance companies. In a world of
advance information technology (IT), use of electronic
data processing naturally provides a competitive niche in
the instantaneous business decision making process in
stock markets.
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