Risk Management Practices and Shareholders’ Return Using Evidence from Quoted Commercial Bank in Nigeria

This study examined the effect of risk management practices on shareholders’ return of quoted commercial banks in Nigeria. Cross sectional data were sourced from financial statements of commercial banks and Central Bank of Nigeria Statistical bulletin from various years. Shareholders return was proxied by return on equity and return on assets while risk management practices were modeled by bank risk diversification, Basel risk compliance, credit monitoring and credit appraisal. Panel data methodology was employed while the fixed effects model was used as an estimation technique at 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit of the regression model. Panel unit root and panel co-integration analysis were conducted on the study. The study found that 60 per cent variations in return on equity of the quoted commercial banks can be traced to variations in risk management practices as formulated in the regression model. The beta coefficient of the risk management practices proved that risk diversification, Basel compliance, credit monitoring and credit appraisal methods as formulated in the regression model have positive effect on return on equity of the commercial banks. In the model II, 47.6 percent variations in return on assets of the quoted commercial banks can be traced to variations in risk management practices as formulated in the regression model. The beta coefficient of the risk management practices proved that risk diversification, Basel compliance, credit monitoring and credit appraisal methods as formulated in the regression model have positive effect on return on equity of the commercial banks. The study concludes that risk management practices have a positive effect on shareholders’ return. The study recommends that commercial banks managements should ensure that all the board members and executive managements amongst other stakeholders are trained to appreciate the functions and responsibilities of credit risk management. The study recommends also that banks should ensure that their credit exposures are adequately secured through proper scrutiny of loan processing in order to identify viable projects so as to reduce loan defaults by bank customers.

Credit Risk Management and Sub-Standard Loans of Commercial Banks in Nigeria: A Panel Data Analysis

This study examined the effect of credit risk management on sub-standard loan portfolio of quoted commercial banks in Nigeria. Cross sectional data was sourced from financial statement of commercial banks and Central Bank of Nigeria Statistical bulletin from 2009-2018. Sub-standard portfolio was used as dependent variable while bank risk diversification, Basel risk compliance, risk transfer were used as independent variables. Panel data methodology was employed while the fixed effects model was used as estimation technique at 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. Panel unit roots and panel cointegration analysis were conducted on the study. The empirical results proved that 41.7 per cent variations in the sub-sub-standard loans’ portfolio was explained by credit risk management. From the random effect results, bank risk transfer and Basel compliance have positive relationship with sub-standard loan portfolio while risk bank risk diversification have negative relationship with sub-stand ad loan portfolio of the commercial banks. We recommend that management of the commercial banks should be pro-active and devise effective measures of managing credit risk to reduce the incidence of sub-standard loans. The monetary authority should monitor the Basel compliance rate and policies of the commercial banks to credit risk management

Welfare impacts of livelihood diversification strategies in response to rainfall variability - A case study of Northern Ghana

<p>More than 70 percent of West Africa’s (WA) poor live in rural areas and depend largely on rain fed agriculture for food production and income generation. The livelihoods of farmers are threatened not only by long-run climate variability but also by seasonal extreme weather events that can reduce yields and increase agricultural income uncertainties. Low adoption levels of improved agricultural technologies and poor soil qualities further increase farmer vulnerability to rainfall variability. Therefore, the impacts of changes in rainfall patterns and rainfall intensity are severe and can result in the loss of income sources poverty and even food insecurity.</p><p>To mitigate against losses from these events, farmers in the region engage in several risk diversification strategies. For rural areas where adoption options are limited, diversification of agricultural production or engagement in off-farm work are the most viable options. However, governments and donor agencies pursue other strategies such as agricultural intensification through irrigation development to prepare for increased impacts of climate change. Engagement in year around irrigated agriculture can however, potentially limit farmer’s ability to participate in further risk diversification strategies, especially if these involve off-farm strategies.</p><p>A considerable amount of literature has looked at how access to irrigation benefits farmer livelihoods. However, research on this subject has been mostly restricted to benefits of dry season irrigation and impacts of irrigation in overcoming dry spells. What is not yet clear is the benefit of irrigation to overcome effects of irregular rainfall, such as late onset of rainfall in the rainy season and implications for the agricultural income and further risk diversification strategies.<strong> </strong>This paper seeks to remedy these problems by analysing whether irrigation provides enough security and agricultural income to justify that farmers focus on agriculture as main economic activity and engage in year round farming.</p><p>We address this research question in three steps. First we ask how farmers in the region are impacted by rainfall variability. We combine household survey data (n=646) with information collected in focus group discussions and climate data from a case study from North Ghana. Second, we use a two-stage regression analysis to estimate what factors affect smallholder’s decisions to adopt different risk diversification strategies across different strata of irrigation access. In the second stage, we estimate the causal relationship between diversification strategies and household welfare as measured in crop income. This study offers some important insights into applied risk diversification strategies across heterogeneous farmer groups, potentially helping to understand why so many irrigation initiatives have not been successful in involving local farmers in extensive and all year round irrigated agriculture. The comparison of drivers and constraints of diversification strategies across irrigation typologies enables us to value the worth of irrigation for smallholder households in the context of on-farm and off-farm incomes. Additionally, the combination of climate data and targeted questions in the household survey enables us to understand what seasonal rainfall events pose a risk to livelihoods and how frequently they are encountered.</p>

Real options flexibility or risk diversification: risk management of US MNEs when facing risk of war

Purpose The purpose of this paper is to examine how the risk of war aroused by North Korea’s threatening actions trigger strategic responses from US multinational enterprises (MNEs) operating in South Korea. The authors compare two competing perspectives of real options and risk diversification to see which prevails when US MNEs are facing risk of war. Design/methodology/approach The authors hand collected news articles regarding North Korea’s threatening actions that may trigger strategic responses from MNEs operating in South Korea. The authors use archival data of US MNEs to verify our results. Findings Empirical tests of the two competing perspectives reveal that US MNEs adopt the risk diversification strategy when threatened by the risk of war. However, as MNEs have more available foreign markets outside the host country that is at risk of war, MNEs tend to take an operational flexibility approach more seriously and shift their productions to the remaining global operations. The ownership structure of the subsidiary does not appear to have significant effect on US MNEs’ strategic risk management. Originality/value This paper compares two perspectives, namely, real options and risk diversification, to observe how US MNEs treat their subsidiaries when facing risk of war in South Korea.

Geographic Diversification and Banks’ Funding Costs

We assess the impact of geographic diversification on a bank’s costs of interest-bearing liabilities. We employ a new identification strategy and discover that geographic expansion across U.S. states lowered funding costs. Consistent with expansion facilitating risk diversification, we find that (1) funding costs fall more when banks expand into states whose economies are less correlated with the banks’ state and (2) geographic diversification reduces the costs of uninsured, but not insured, deposits. Consistent with expansion intensifying agency frictions, which puts upward pressures on funding costs, we discover that geographic diversification reduces the costs of interest-bearing liabilities more in better-monitored and better-run banks. This paper was accepted by Tomasz Piskorski, finance.

Descriptive Analysis of Financial Literacy: Evidence from Public and Private University Students in Indonesia

Financial knowledge plays a pivotal role to survive in modern society. The study measures the financial literacy level of public and private university students in Indonesia by distributing an online questionnaire to 608 respondents. The questions of financial literacy refer to the Standard & Poor’s Rating Services, which covered three subjects, namely numeracy and compound interest, inflation, and risk diversification. For this purpose, the level of financial literacy was conducted using descriptive statistics (Eviews). The result shows that there is 12% of the respondents from public universities answered all questions correctly, which is relatively high compared to private university students are at 10%. In addition, more than half of respondents are able to answer the question about numeracy and compound interest correctly, and inflation is 39%. On the other hand, the score is only 27% for the correct answer related to risk diversification. Financial illiteracy consequences are poor financial decisions that can impact their future finance.