The determinants of return on equity in emerging markets financial industry: evidence from Brics
Date
2018
Authors
Ndlovu, Chiedza
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Abstract
Return on equity is believed to be one of the most important financial metrics to measure how well shareholders’ investments into a profit-making organisation are profitably converted into positive and sustainable returns. Investigation into the determinants of return on equity in financial firms is important due to the role of financial system towards economic development.
Notwithstanding increased attention received in literature on the determinants of profitability, there still exist important research gaps on how industry structure, macroeconomic fundamentals, financial sector development, capital mobility, efficiency and funding drives return on equity.
Chapter 2 examined how return on equity reacts to variations in macroeconomic fundamentals given varying industry structures. The key observation from this chapter is that the influence of macroeconomic fundamentals on return on equity deteriorates as one moves from competitive industries to moderate and highly concentrated industries. In addition, return on equity is highly volatile in highly concentrated industries and less volatile in competitive markets.
Chapter 3 investigated the impact of financial sector development on the variations of return on equity using both Granger causality tests and the Generalised Method of Moments. Key findings from this chapter is that return on equity in BRICS financial firms is principally caused by financial sector development through financial integration, however, the impact of financial integration on return on equity is generally negative.
Chapter 4 analysed the combined effect of monetary policy regimes and various levels of capital mobility on return on equity. The main findings from this chapter is that return on equity of financial firms is negatively and significantly affected by growth in money supply where the monetary policy regime is expansionary and capital mobility is high or where monetary policy regime is expansionary and capital mobility is moderate or where both monetary policy regime and capital mobility are moderate.
Finally, chapter 5 analysed efficiency theories and funding structures as determinants of return on equity. Pioneering evidence from this study reveals that relative measures of funding are highly sensitive to investment companies only while the results from absolute levels of funding are mostly sensitive to banking only.
Description
Doctoral thesis submitted in fulfilment of the requirements for the award of Doctor of Philosophy. The Graduate School of Business Administration, Wits Business School, University of the Witwatersrand, October 2018
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Citation
Ndlovu, Chiedza, The determinants of return on equity in emerging markets financial industry :evidence from BRICS, University of the Witwatersrand, https://hdl.handle.net/10539/28638