Strategic Management of Risk by Multinational Banks in Sub Saharan Africa
Issue:
Volume 8, Issue 6, December 2022
Pages:
136-142
Received:
6 November 2022
Accepted:
21 November 2022
Published:
13 January 2023
Abstract: In their search for profit maximization, multinational enterprises should adopt strategies that neutralize country risk effects. This paper seeks to establish whether country risk affects profitability of multinational banks in sub-Saharan Africa, and whether strategic decisions regarding ‘where to go’ for investment in terms of geographic diversification, and the ‘source of capital’ in terms of debt or equity financing, help mitigate country risk effects. Using panel data (2006-2020) of multinational banks in sub-Saharan Africa, and a two-step Systems Generalized Method of Moments (S-GMM) estimation technique, results find both short run and long run negative effect of country risk on profitability. Augmenting country risk with the two corporate strategy constructs, results show: first, a positive long run hedging effect of geographic diversification on country risk implying that increased geographic diversification strategy maximizes the bank’s long run profits irrespective of the level of country risk confronted. Second, on the source of funds strategy, augmenting country risk with equity financing raises profitability of banks than debt financing. This is so probably because equity finances hedge banks from risks from nationalization and expropriation. For multinational banks to guard from country risk, their geographic expansion should be financed using equity funds than debt.
Abstract: In their search for profit maximization, multinational enterprises should adopt strategies that neutralize country risk effects. This paper seeks to establish whether country risk affects profitability of multinational banks in sub-Saharan Africa, and whether strategic decisions regarding ‘where to go’ for investment in terms of geographic diversif...
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