Applying the breaks to non-performing loans in Ghana

Abstract

PurposeThis paper acknowledges the rising levels of non-performing loans (NPLs) and the consequences associated with such patterns to an emerging economy like Ghana. In theory, one would expect rising NPLs to have a negative impact on an economy, especially regarding credit creation and private sector growth. This research, consistent with empirical literature, constructs a measure of financial market development to investigate its effect on Ghana's NPLs.Design/methodology/approachThe fully modified ordinary least squares (FMOLS) econometric technique is used as a way of addressing common time series identification issues such as endogeneity and serial correlation.FindingsThe study finds that the growth of the financial market has a negative and statistically significant relationship with NPLs in Ghana. Therefore, building a stable financial sector is key to addressing Ghana’s rising rates of NPLs.Practical implicationsApplying the breaks to Ghana's NPLs would involve deepening credit and improving efficiency through good governance. The study suggests that such a mechanism would increase financial sector performance and reduce the growth risks arising from the industry.Originality/valueThe study analyzes the influence of financial market development on the quarterly growth of NPLs in Ghana. Most studies only focus on annual growth of NPLs.

Achieving food security in Ghana: Does governance matter?

“…Premised on the governance theory (Stoker, 2018) and institutional theory (Zucker, 1977, 1987), we argue in line with the position of Rossignoli and Balestri (2018), that governance is associated with food security. To estimate this relationship, we follow Amoah and others (2021), Amoah and Asiama (2019), and Kwablah and others (2014) and apply the fully modified ordinary least squares (OLS) procedure. The choice of estimator depends on its robustness in small samples, as well as its inherent strength in addressing endogeneity and serial correlation identification issues.…”

“…The concern for addressing endogeneity issues in regression‐based research has been widely discussed in empirical literature (see, e.g., Amoah et al, 2021; Asongu & Nwachukwu, 2014; Korle et al, 2020). Three possible channels exist by which the problem of endogeneity occurs, and this includes missing variable bias, reverse causality, and measurement error (Amoah et al, 2021). Given that countries are endogenously endowed with quality institutions, we argue that our measure of institutional quality is endogenous.…”

“…This is a semi‐parametric dynamic estimation technique which exhibits good performance in the presence of endogeneity, serial correlation, small samples, and in the absence of co‐integration (Adom & Bekoe, 2013). In addition, Amoah and others (2021) recently observed that the FMOLS estimator provides optimal estimates in cointegrating regression and produces robust estimates given non‐stationary and endogenous regressors.…”

“…The concern for addressing endogeneity issues in regression-based research has been widely discussed in empirical literature (Amoah et al, 2021;Korle et al, 2020;Asongu and Nwachukwu, 2014). Three possible channels exist by which the problem of endogeneity occurs, and this includes missing variable bias, reverse causality and measurement error (Amoah et al, 2021).…”