Country Risk, Corporate Strategy and Performance of Multinational Banks in Sub-Saharan Africa

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Kampala International University
Within in Sub-Saharan Africa (SSA), bank profits have notably been generally high compared to other regions despite of the marked high banking competition and diverse levels of country risk. Despite of many studies investigating the determinants of bank profitability, very few, if any, have linked profitability to corporate strategy and country risk. Some multinational banks (MNBs) are rapidly increasing their footprint within SSA region, yet, others are closing down. How country risk and corporate strategy relate to the successful multinational banks is the subject of this research. Given the ontology of MNBs, informed by the strategic management’s co-alignment theory, this study’s set epistemological questions are answered using panel data (2007-2017) of Sub-Saharan Africa’s best performing multinational banks in 2016. Hinging on the cost efficiency’s stochastic frontier approach, estimations are done using Systems Generalized Moments Methods (S-GMM). Results indicate: first, country risk negatively affects the banks’ long run profitability (ROA). Second, corporate strategies: geographic diversification and equity financing, positively effect on ROA; but debt financing strategy negatively affect long run profits (though the magnitude is small). Third, the effect of country risk on ROA is seen reduced by geographic diversification strategy. Fourth, bank competition in the region is found to have a long run positive effect on ROA. Fifth, there is no significant difference in performance between the indigenous pan-African banks and overseas multinational banks. Finally, for control variables, the response of ROA is found to be elastic with respect to bank size but inelastic for country size. Therefore, there is often a need to always survey and analyze the level of country risk, and make appropriate strategies if multinational investors are to survive. When resources allow, expand into any country, irrespective of country size for geographic diversification shields a multinational bank from the effects of country risk.
A Dissertation Submitted To The College Of Higher Degrees And Research In Partial Fulfillment Of The Requirements For The Award Of The Degree In Doctor Of Philosophy In International Business Management Of Kampala International University Kampala Uganda
Country Risk, Corporate Strategy, Performance, Multinational Banks, Sub-Saharan, Africa