Transcript Slide 1

OPERATIONS RESEARCH SOCIETY OF EASTERN AFRICA
Stock market participation: Is it really an issue
of information asymmetry?
A paper presented at the 10th ORSEA annual International
conference held at the University of Nairobi School of
Business, Lower Kabete Road, Nairobi
October 16-18, 2014
By
Zainabu Tumwebaze
Laura Orobia (PhD)
Assoc. Prof Nixon Kamukama (PhD)
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Structure of presentation
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Introduction
Methodology
Results
Discussion and conclusions
Implications
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Introduction
 The stock exchange markets are a vital source of
capital for organizations (Alam et al., 2011; Jaswani,
2008; Zuravicky, 2005).
 However, even as opportunities exist for accessing
cheap financial resources through the Uganda
Securities Exchange (USE), local firms in Uganda
face challenges in obtaining long-term finance
 Existing evidence indicates that the market size
and activity at USE is still low (Katto, 2013) –
untapped alternative
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Introduction Contd ...
 Only 14 companies are listed on the USE with
market capitalization of $5.18bn as compared to
Nairobi Securities Exchange (NSE) with 60 listed
companies with market capitalization of $ 13.15bn.
(Kato, 2013)
 Previous studies also report that private firms that
are privy to the benefits of stock exchanges seem to
have avoided the stock market as means of raising
capital (see Sejjaaka, 2011).
 The main question therefore is why the low stock
market participation on the USE?
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Methodology
 Quantitative and cross
sectional survey design
 Study population – 164
private firms with
chargeable incomes of above
50m shillings (business taxpayers, URA register, 2013)
 Sample – 118 (Krejcie &
Morgan, 1970); stratified
simple random sampling
 Data exploration - 107 usable
observations
7/18/2015
Sample characteristics
Unit of inquiry
 Gender – Males (58%),
Females (42%).
 Age – 31 – 40 years (37%)
 Education – Bachelors
degree (38%)
Unit of analysis
 Business age– over 10
years(75%), 5-10 years(25%)
 Business type – Service
(67%), Industry (30%),
Agriculture (3%)
 Annual income (U Shs) –
50m-100m(41%); 100m500m (27%).
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Methodology cont…
 Measurement of variables – scales developed by previous
scholars:
 Information asymmetry– item questions generated were to capture the
quality and quantity of information provided to enable accessing funds
through the stock market exchange, thus, information quality and
information quantity (Griffins, 2002; Nott, 2003; Afzal, Roland & AlSuqri, 2008).
 Stock market participation – item questions generated were to capture
firms ‘going public/ trading shares’, thus, market capitalization and
volume of trade (Dariusz, 2008)
 Data processing, presentation and analysis - Statistical
Package for Social Science (SPSS)
• Correlation analysis – to test associations between the study variables
• Regression analysis – test the contribution of the IVs to the DV.
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Correlation results
Variables
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Information quantity [1]
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Information quality [2]
.320** 1
Information asymmetry [3]
.780** .842** 1
Market capitalization [4]
.443** .580** .635** 1
Volume of trade [5]
.313**
.400**
Stock market participation [6] .475** .617**
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4
5
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.442** .279** 1
.677** .815** .784**
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**. Correlation is significant at the 0.01 level (2-tailed).
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Regression results _IA
Unstandardized
Coefficients
B
Std. Error
(Constant)
1.236
0.179
Information
asymmetry
0.573
0.061
Standardized
Coefficients
t
Sig.
6.901
0.000
9.437
0.000
Beta
0.677
R = .677; R2 = .459; Adj R2 = .454; F Stat= 89.01; Sig=.000, Durbin Watson = 1.943
Dependent variable_stockmarket participation
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Regression results_IQlty_IQty
Unstandardized
Coefficients
Standardized
Coefficients
t
Sig.
7.017
.000
B
Std. Error
Beta
(Constant)
1.273
.181
Information
quantity
.230
.056
.309
4.092
.000
Information
quality
.332
.048
.518
6.843
.000
R = .683; R2 = .466; Adj R2 = .456; F Stat= 45.42; Sig=.000, Durbin Watson = 1.925
Dependent variable _Stockmarket participation
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Discussion and conclusion
Relation between information asymmetry and
stock market participation (Afzal et al, 2008; Chemmanur et al.,
2010; Ekumah & Essel, 2003; Sejjaaka, 2011).
Information quality included items such as ‘companies
ensuring consistency in preparing financial statements’,
the firms’ financial information being neutral and free
from errors’ etc .
Information quantity included items such as availing
detailed information required to be listed on the USE,
companies having adequate information about the
opportunities at the USE etc.
Conclusion; information asymmetry cannot be ignored if we
are to see improvement in stock market participation.
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Study implications
 Theoretical – add to stock market literature that
information quality more than information quantity
is highly correlated with stock market participation.
 Practical – managers’ perspective - need to develop
capacity to provide clear information; CMA ’ s
perspective – increase awareness about its operation.
Study limitations and areas for further research
o Lacks cross-validation
o Cross-sectional survey
o Kampala specifics
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Thank you
for
Listening
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