The Impact of Stock Exchange Listing on Firm Performance in Ghana

Saint H. Doe-Tamakloe and Charles K.D Adjasi

ABSTRACT
Listing a company on a stock exchange opens a lot of opportunities for the business especially for financing for businesses in emerging markets. But does listing on a stock exchange in Ghana impact performance? The study documents the financial and operating performance for firms listed on the Ghana Stock Exchange (GSE), the immediate five years before listing and the subsequent five years after listing, using the MNR Methodology of Megginson, Nash and Radengborgh (1994). It further builds on this MNR Methodology by introducing a Differences in Difference (DID) analysis which matches these companies to other companies operating in the country during the period under study, are in the same sectors or industries and of relatively the same size but are not listed on the GSE. The DID analysis makes up for the deficiency in the MNR Methodology, as having a country specific sample the possibility of having other factors impacting performance other than listing on the GSE is possible. It is found that mean profitability, operating performance, leverage and efficiency measures for the sample firms improve considerably after listing on the GSE. To check the robustness of the MNR Methodology and DID analysis, a panel regression is run and it is found that listing has a strong and statistically significant positive relationship with the two fundamental performance measures used in the study, Return on Equity and Return on Assets at the 1% level.

1. INTRODUCTION AND RATIONALE FOR RESEARCH

Historically, stock exchanges are believed to help improve the performance of companies. With the key concept of opening up ownership of businesses to investors, stock exchanges have helped and continue to provide much needed financing for most businesses. In most advanced economies, they have become the yardstick with which the overall performance of an economy is evaluated. Stock exchanges provide a market where the shares and other securities of companies are sold and purchased. Listing a company on a stock exchange comes with benefits and challenges to companies. Listing makes it possible for companies to be able to access financing from the general investor public. In Ghana, financing from the Stock Exchange is an important source of long-term finance for listed Ghanaian firms (Yartey and Adjasi, 2006). Stock exchange listing also helps in streamlining the operations of listed companies, encouraging them to adhere to certain standards and establishing corporate governance structures that go a long way in improving their overall performance. Therefore, the problem of credit constraint and managerial incompetence in most companies are overcome with the establishment of good corporate governance structures which stock exchange listing provides (Abor and Adjasi, 2007). Other studies have confirmed the effectiveness of corporate governance at increasing the probability of managers investing in positive net present value projects and hence, increasing the performance of companies (Shliefer and Vishny, 1986). Empirical evidence also indicates that stock exchanges in Sub Saharan Africa, have contributed to the growth of large African corporations though there is little evidence of broader economic benefits (Yartey and Adjasi, 2007). In other emerging economies, stock markets have contributed to economic growth. Additionally, stock exchange listing makes companies attractive to short term financing from other financial institutions (Yartey and Adjasi, 2006), and enhances its public profile and reputation. The concept of financing through stock exchanges is therefore gradually becoming accepted as a viable alternative for funding businesses in Africa. There are currently 19 stock markets in Africa, most of which started operating in the early to mid 1990s. One of such exchanges which emerged as the best frontier market in Africa in 2003 is the Ghana Stock Exchange. The Ghana Stock Exchange (GSE), which was incorporated as a public company limited by guarantee in 1992 has since its establishment seen the number of companies listed on it grow to 31 in 2007. Irrespective of the benefits that might have accrued to the overall Ghanaian economy from the establishment of the GSE, however, the question is how listing on the GSE has impacted on their operating and financial performance. It is thus, important to find out the extent to which listing has impacted firm operating and financial performance. Overall, the rationale of this research is to look into how stock exchange listing impacts on the operational and financial performance of listed companies in Ghana.

Though stock exchange listing does not promise improved profitability as the law requires companies that seek to list to be profitable prior to listing (GSE Rule Book 2006), its plays a crucial role in determining other performance measures of companies that list on it and improvement in these other performance measures invariably lead to improved profitability.

2. RESEARCH PROBLEM
Listing a company on a stock exchange opens numerous opportunities for the firm as a business unit. However, entire economies can be major beneficiaries of well functioning stock exchanges and capital markets for that matter as it can spur economic growth (Padhan, 2007). In Sub Saharan Africa and Ghana for that matter, there is little evidence on the impact that capital markets have had on the general economy though it has helped in the growth of large companies (Yartey and Adjasi, 2007). This notwithstanding, very few companies have listed on the stock exchange. The research gap to be filled, is to provide empirical evidence on how listing impacts operating and financial performance of companies. If it is established that listing impacts the operating and financial performance of listed firms in Ghana, then the capital market can be expected to impact the Ghanaian economy when more companies in the economy list on the GSE. There is also very little empirical evidence on the impact of listing on firm performance in Ghana. Empirical evidence on the operational and financial benefits for listed companies through listing can provide the needed impetus for advocating for more companies to list. This would ensure that the capital market influences economic trends in the Ghanaian economy. .

3. OVERVIEW OF LITERATURE
3.1 MOTIVES FOR LISTING The motives for companies to list on a stock exchange are varied from one market to the other. However, empirical research brings forth the general benefits for companies to go public as key motivations for listing on stock exchanges. 3.1.2 Access to Financing In most developing economies as in most parts of the world, an important financial decision facing firms is the choice between debt and equity capital (Glen and Pinto, 1994). With knowledge of the fact that development in the financial markets and growth in financing options in most developing economies are inhibited when commercial banking systems dominate the market (Clarke, 1992) access to long term financing is always a challenge for emerging market businesses. The African market on the other hand, is considered to be highly risky. Bigsten et al., (1999); and Gunning and Mengistae, (1999) find that rates of return on capital in Africa, is high

notwithstanding the low levels of investment because of high risks and uncertainties facing African firms. This, coupled with the inhibition of financing options as indicated by Clarke (1992), makes access to long term financing in emerging African economies almost impossible. Financial pressure on the other hand, influences firm performance (Nickell and Nicolitsas, 1999; Nickel et al., 1997; Zingales, 1998). Therefore, for effective growth, emerging market companies require flexible financing opportunities. Stock market listing however, creates the opportunity for enhancing the future financing options and the marketability of a business (Baker and Pettit, 1982). Therefore, listing presents a strong opportunity for such businesses that have fewer financing options due to the dominance of commercial banking systems in their markets. The stock market also presents a viable alternative for developing country firms to access long term financing through the issuing of equity, as well as long term debts (Singh and Hamid, 1992). The Government of Ghana, also identifies the financing opportunities available on the capital market and thus, listed its 2-year and 3-year fixed rate bonds worth some 3,261 billion or USD347 million on the Ghana Stock Exchange in 2007. (GSE Fact Book, 2007). Therefore, the importance of the capital market as a financing option for developing markets now has become even more essential. Singh and Hamid (1992) find that corporations in developing countries finance their growth mainly through external finance and new issues of equity. This result has been used to argue in favor of investing heavily in stock market development in African countries by the International Finance Corporation (Yartey and Adjasi, 2006). In Ghana, Yartey and Adjasi (2006) replicating Singhs methodology, to investigate whether developing country firms make considerably more use of external finance and new equity issues than developed country firms to finance asset growth, found that the average listed Ghanaian firm finances its growth of total assets mainly from short-term debt. The stock market, however, represented the most important source of long-term finance for listed Ghanaian firms. What makes the stock market most appropriate and the most important source of long term financing for emerging market companies is that, consistent with Jensens (1986) free cash flow argument, if companies finance their operations with equity, instead of debt, as in the case of accessing financing through the stock market, debt service payments reduce. This increases the amount of free cash flow at the disposal of management for overinvestment resulting in firm performance improvement. In the absence of such equity financing and with companies stuck with debt financing, debt level increases and the probability of default mounts (Molina, 2005) increasing the riskiness of commercial banks in the country and the probability of bank failures. Additionally, the constant worry of meeting interest and principal repayments may force firms to pass up good investment opportunities (McConnell and Servaes, 1995). Accessing equity financing through the stock exchange, however, comes at a cost to companies. These costs come in the form of fees, generally categorized into IPO stage fees and Ongoing Listing costs. These comprise fees charged by investment banks (both as sponsor and in the

underwriting process), the fees paid to accountants and lawyers, the cost of conducting a marketing road show, the (opportunity) cost of management time, and listing fees (GSE Rule Book, 2006). In addition to these direct costs, there are indirect costs arising from IPO price discounts, measured by the difference between the first-day market closing price and the initial offer price. Figure 3.1 below, illustrates the various fees which contribute to the cost of raising equity capital from stock exchanges. Figure 3.1 The Costs of Listing and Raising Equity
Costs at IPO Stage Ongoing Costs

Direct Costs -Underwriting fees - Professional fees -Initial Listing Fees -Other Direct IPO costs Indirect Costs -IPO price discounts

Direct Costs -Regulation, Corporate Governance, -Professional fees -Annual Listing Fees Indirect Costs -IPO price discounts - Trading Costs

Cost of Equity Capital

Source: Oxera (June 2006)

Among the direct costs, the underwriting fees paid to investment banks typically represent the largest cost item of an IPO (Oxera, 2006). These are usually expressed in percentage terms as a gross spread charged by the underwriting syndicate, i.e., the syndicate receives a certain percentage of the issue price for each share sold. Torstila (2003) states that the gross spread level (in underwriting fees) in the US is easily the highest in the world, with an equally weighted average of 7.5%. Not only are 7% spreads prevalent (43% of all IPOs), but even 10% spreads are relatively common. In contrast, European IPOs have average spreads of 3.8%. In Ghana, the cost of raising capital from the Ghana Stock Exchange is regulated by the Securities and Exchange Commission, in a bid not to allow these costs to scare off companies from listing. Total costs of listings are not supposed to exceed 10% of amounts to be raised on the market (GSE Rule Book, 2006). These fees notwithstanding, access to financing by companies through the stock exchange, still represents a viable and sustainable medium of financing for emerging market companies compared to debt financing.

3.1.3 Cost of Capital Listing by itself, conveys information related to the riskiness of future cash flows (i.e. after listing, future cash flows may be perceived as less risky). In this case a positive reaction may arise because the expected return is reduced. Although stock exchange listing may result in added prestige, visibility, and marketability, the potential benefit of lowering a firm's cost of capital has been debated for many years (Baker and Spitzfaden, 1982). Dan S. Dhaliwal (1983) leads the research for the school that strongly believes that exchange listing has a strong influence on a firms cost of capital. Dhaliwal in his 1983 paper, Exchange listing effects on a firms cost of capital, matched pairs of a sample of exchange listed companies and Over-the-counter (OTC) traded companies based on asset size and industry to test for the existence of a statistically significant difference between them with respect to their cost of capital. He found that exchange-listed firm's cost of equity capital (alternatively measured by the systematic risk and the total risk associated with a firm's rate of return) is significantly less than that of comparable OTC firms. Dhaliwals study compared exchange listed firms to OTC firms and his findings, establish a basis to believe that in the case of non listed companies that do not also have shares trading on the OTC market, their cost of capital could be much higher than exchange listed companies. Denis and Kadlec (1994) also show that systematic risk estimates are affected by corporate events such as equity offerings and share repurchase, indicating that the perception of investors in respect of the riskiness of a company is influenced by the firms activities on the stock exchange. Other studies, have also sought to test the influence of key attributes of stock exchange listing, such as disclosure level with the cost of equity capital, in a bid to make a case for the effect of exchange listing on the cost of capital. Antoniou and Pescetto (1997), for example, examined the impact of regulatory announcements which affect competition, pricing policy and the supply of services in the telecommunications industry on British Telecom's (BT) systematic risk, as measured by the beta coefficient of a market model. On the other hand, some schools of thought also indicate that in a reasonably efficient market, the decision to list by itself should neither change the level of systematic risk nor lead to a lower cost of equity capital. Reints and Vandenberg (1975) studied the effect on systematic risk of a companys decision to list its common stock on the New York Stock Exchange. For the thirtytwo companies in their sample that moved to the NYSE between May 1, 1968, and August 31, 1968, they found no significant change in the systematic risk of the stock after listing. It must however be noted that these studies, have mostly focused on comparing stock exchange listed companies with companies with shares trading on the OTC market and hence, if the comparison had been for non listed companies and exchange listed companies, the changes in systematic risk could be very significant.

4. METHODOLOGY
The study utilizes the methodology popularized by Megginson, Nash and Radengborgh (1994) in their studies of the impact of privatization. Their study examined the impact of privatization on the financial and operating performance of firms by comparing pre- and post-privatization performance measures (Megginson et al., 1994, Boubakri and Cosset, 1998, Harper, 2002). Because the first study published using this methodology was Megginson, Nash and Randenborgh (1994), the methodology is usually referred to as the MNR methodology (Megginson and Netter, 2001). In addition, this study also uses the Differences In Difference (DID) Analysis as well as Panel Regression Analysis to account for multiple, systemic and multi-directional influences on firm performance and thus, avoids restricting itself to a model that would correlate only one element to the other. 4.1 MNR METHODOLOGY Following the MNR Methodology, this study computes performance measures for every company in the sample over a period of ten years, five years before listing on the Ghana Stock Exchange and five years after. The pre listing years were categorized as years -5 to -1 and the post listing years categorized as years +1 to +5. The specific performance measures used in evaluating the financial and operating performance of the listed companies and the expected results are indicated in Table 4.1 below. After the categorization, the mean and median of these performance variables for the companies were calculated for each firm in the sample over the pre listing and post listing period. For all the firms, the year of listing (year 0) is neglected from the calculations as it includes periods when the companies were unlisted and then listed. After computing the performance measures for the pre and post listing periods, the Wilcoxon Signed Rank Test is used to test for significant changes in these performance measures. It tests whether the median difference in the variable values between the pre and post listing samples is zero. 4.1 DIFFERENCES IN DIFFERENCE (DID) ANALYSIS The study, further builds on the pre and post listing analysis by introducing a Differences in Difference (DID) analysis of the sample so as to evaluate the drivers of firm performance devoid of general economic booms or downturns. Since the data collected for the study is a country specific sample, it is likely that other factors other than a company listing on the stock exchange might influence its performance. The DID analysis, is applied to overcome this major shortcoming of the pre and post listing analysis. It involves the observation of outcomes for two groups over two time periods. One of the groups is exposed to a treatment in the second period but not in the first. The second group is not exposed to the treatment during the first period and the second period. The group exposed to the treatment is referred to as the treatment group whilst the other group not exposed to the

treatment is the control group. The difference in performance between the two groups is measured over the two periods and compared. For this study, the group of companies that are listed on the Ghana Stock Exchange was the group exposed to a treatment, i.e. the treatment group, whilst a group of unlisted companies, who are not exposed to any treatment, was the control group. The treatment to which the first group is exposed to in this study, is listing on the Ghana Stock Exchange. Table 4.1 Performance Measures and Expected Results Performance Definition Measures/Proxies Profitability Return on Equity Net Profit after Tax/Total Equity Operating Performance Operating Return Assets- OROA on Operating Income before depreciation, interests, taxes and other extraordinary items / Total Assets Total Debt/ Total Equity Gross Revenue/ Total Assets Expected Results Increase

Increase

Leverage Debt to Equity- LEV Efficiency Asset Turnover- ASST Operating Ratio-OER

Decrease Increase Decrease

Expense Total Operating Expenses/ Gross Revenue

4.3 REGRESSION ANALYSIS To test the impact of listing on firm performance a regression analysis is undertaken. Due to the panel nature of the data, panel methodology was used. The advantage with the panel data is that because of the several data points, degrees of freedom are increased and collinearity among the explanatory variables is reduced, improving the efficiency of economic estimates. Also, panel data can control for individual heterogeneity due to hidden factors, which, if neglected in timeseries or cross section estimations leads to biased results (Wooldridge, 2002). Panel data involves the pooling of observations on a cross-section of units over several time periods and provides results that are simply not detectable in pure cross-sections or pure timeseries studies. The panel regression equation differs from a regular time-series or cross section regression by the double subscript.

4.3.1 Model Specification The model employed to achieve the objectives of evaluating the impact of listing on firm performance are developed based on empirical literature. There is consensus in literature with respect to Return on Equity (ROE) and Return on Assets (ROA) as measures of firm performance (Ross, Westerfield and Jordan, 1998; Daily and Dalton, 1998; and McConnell and Servaes, 1990) in instances where Tobins Q cannot be evaluated and these are the dependent variables in the model. The explanatory variables for the regression analysis are Capital Structure (CAP) a measure of the gearing of the companies, (Total Debt to Equity) consistent with Haniffa and Hudaib (2006) and Abor (2005), Operating Performance Measure (OPM) which is Operating Return to Total Assets (OROA) follows Mikkelson, Partch and Shah, (1997) and the Efficiency Measure, (EFF) which is a measure of Operating Expenses to Revenue. In addition, other control variables that influence performance as indicated in Truong, (2006), Megginson, Nash and Radengborgh, (1994) and Mikkelson, Partch and Shah, (1997), such as Size (Log of market capitalization), Sector, Ownership Structure, Mode of Listing, Age of the Firm, and whether the firm is a subsidiary of a multinational corporation (MNC) are included in the model. The LIST variable is a dummy variable introduced into the model, consistent with Truong (2006), which helps to measure the impact of listing. This model is a modification of the model used by Mikkelson et al. (1997). The specification of this model is as follows
ROEit = o + 1 LISTi + 2 CAP it + 3 OPMit + 4 EFF it + 5 SIZE it + 6 GOWN i + 7 SCT i + 8 MNC i + 9 AGE it + i

where Return on Equity (ROEit): This is ROE of firm i in time t and is the dependent variable, computed as Net Income divided by Total Equity. The study uses ROE as the ultimate measure of performance because for every business, benefiting shareholders is the ultimate goal and ROE is the true bottom-line measure of performance (Ross, Westerfield and Jordan, 1998). List (LISTi): This is a dummy variable equal to 1 if the company is listed on the GSE and 0 if not. A positive relationship between this variable and ROE is expected. Capital Structure (CAPit): This is the leverage of firm i in time t. It is computed as Total Debt divided by Total Equity. Capital Structure is expected to have a negative relationship with ROE consistent with Jensen and Meckling (1976), Abor (2005). Operating Performance (OPMit): This is the OROA of firm i in time t. As an operating performance measure, it is computed according to Mikkelson et al. (1997) as Operating Income before Depreciation, Interest, Taxes and Extraordinary Items divided by Total Assets. Simply put, it is Total Revenue less

the sum of Cost of Sales and Direct Operating Expenses, divided by Total Assets.A positive relationship to ROE is expected. Efficiency (EFFit): This is OER of firm i in time t. It is computed as Total Operating Expenses divided by Total Revenue. A negative relationship with ROE is expected. Size (SIZEit): This is the Size of firm i in time t. It is computed as a log of Inflation Adjusted Total Assets. Consistent with Harper (2002), a negative relation of size to ROE is expected. Government Ownership (GOWNi): This is a dummy variable equal to 1 if the firm has 33.7% (see appendix 4) or more Government ownership and 0 if it has no or less than 33.7% Government ownership. It is expected that increase in government ownership would have a negative relationship with performance as indicated in Truong (2006), Megginson et al. (1994) and Mikkelson et al. (1997). MNC Subsidiary (MNCi): This is a dummy variable equal to 1 if the firm is a subsidiary of a Multinational Company and 0 if it is not. A positive relationship with ROE is expected. Sector (SCTi): This is also a dummy variable equal to 1 if the firm is in the Trade or Service Sector and 0 if the firm is a Manufacturing or Mining Sector. A positive relationship with ROE is expected. (Truong, 2006). Years of Operation (AGEit): This is the number of years the business operated before listing on the GSE. This is expected to have a positive relationship with ROE, consistent with Mikkelson et al. (1997).

5. EMPIRICAL RESULTS
5.1 MNR METHODOLOGY-FULL SAMPLE The results for the full sample of listed companies used in the study are presented in Table 5.1. The table shows the mean (median) performance measures before listing and after listing for the full sample following Megginson, Nash and Radengborgh (1994). Changes in the means (medians) for the performance measures are also indicated. Additionally, the Z statistic for difference in medians from the nonparametric two-tailed Wilcoxon signed rank tests is used to test for significant changes in the median of performance measures after listing on the Ghana Stock Exchange (GSE). The Wilcoxon signed-rank method tests the null hypothesis that the median difference in measure values between the pre and post listing periods is zero. This test takes into account information about the magnitude of differences within pairs and gives more weight to pairs that show large differences than to pairs that show small differences. The test statistic is based on the ranks of the absolute values of the differences between the two measures (Berenson et al., 1988).

As is expected, the results of the study show that return on equity increased substantially after listing. Mean (median) ROE increased from 16.52 (18.15) percent in the pre listing period to 25.92 (22.3) percent in the post listing period. The change in ROE is statistically significant at the 5% level according to the Wilcoxon Sign Rank Test, with 68% of the sample firms recording an increase in Return on Equity (ROE). Additionally, the 3%-1% tax rebate available to companies that list, might have contributed to the statistically significant increase in ROE after listing on the Ghana Stock Exchange. This finding shows that listing does impact on performance as the performance of sampled firms in the study increased after listing. The operating performance measure, OROA, also records a slight improvement for sampled firms after listing, though not statistically significant. Operating Return on Assets increase from 7.59% (5.97) before listing to 10.88 %( 9.31) after listing, with 64% of the sampled firms, showing this expected increase in performance. This increase indicates that firms that listed became more productive at the operational level, recording an increase in operating performance. When companies raise funds after listing, most of these funds go to increase their assets through investments in equipment, machinery and general infrastructure. In evaluating leverage, the study used total debt to total equity, as against the widely used long term debt to total equity. This is because, Ghanas term structure for interest rates remained undefined for the larger part of the period being studied and during these times, access to long term funds by companies were practically nonexistent. To this end, companies resorted to short term borrowing for long term investments as well as exposure to huge trade credits. Therefore, the study adopted total debt so as to be able to accurately gauge the gearing of these companies.
Table 5.1 Analysis of Full Sample Measures Profitability ROE N 25 Mean (median) Before 0.1652 (0.1815) Mean (median) After 0.2592 (0.22304) Mean (median) Change 0.09402 (0.0415) Z-Statistic for difference in medians (After-Before) 2.139** Proportion (%) of Firms that Performed as Expected 0.68

Operating Performance Measure OROA 25 Leverage Debt to Equity Efficiency ASST OER 0.0759 (0.0597) 2.3634 (1.3222) 1.2444 (0.7895) 0.8661 (0.9305) 0.1088 (0.0931) 1.5142 (0.9966) 1.3982 (0.9426) 0.7629 (0.8806) 0.0328 (0.0334) -0.84915 (-0.32555) 0.1537 (0.1531) -0.10322 (-0.04986) 0.64 1.413 2.031** 0.64

25

24 23

1.429 0.700

0.67 0.74

** Significant at the 5% level

The results found that listing on the GSE, leads to a statistically significant reduction in leverage, reducing from a pre listing high of 2.36 (1.32) to a post listing figure of 1.51 (0.99). Some analysts indicate that leverage is reduced following listing due to a combination of greater retained earnings, new share offerings and new equity raised. Additionally, 64% of companies that listed on the Ghana Stock Exchange recorded this significant reduction in leverage in the first five years after listing. The study found that mean (median) Asset Turnover (ASST) increased marginally from the prelisting level of 1.24 (0.789) times to 1.398 (0.9426) times. Though 66.67% of companies that list recorded this increase in ASST, the increase is not statistically significant. On the other hand, Operating Expenses were reduced after listing from a prelisting mean (median) of 86.61% (93.05%) to 76.29% (88.06%). A significant 73.91% of all the listed companies in the sample also recorded this decrease in OER, though the margin of reduction was also not statistically significant at all levels of significance. 5.2 DIFFERENCES-IN-DIFFERENCE (DID) The findings of the DID analysis show some impact of stock exchange listing on firm performance in Ghana as listed companies in the treatment group performed better than the unlisted companies in the control group on four of the five performance measures. The results of the study show that OROA for listed companies grows by 8.17% against 2.11% by unlisted companies over the five year period before and the five year period after listing on the GSE, a difference which is statistically significant at the 10% level. This shows that listing on the GSE tends to encourage firms to improve their operational efficiency and profitability faster than they remaining unlisted. Other performance measures also show a faster rate of performance improvement for listed companies, though the change in the respective performance growth rates is not statistically significant. Mean (median) ROE for listed companies increased by 19.18% (11.78%) after listing, whereas that of unlisted companies increased by 3.39% (4.56%) a difference of 15.79% (7.22%). As an essential evidence of the importance of access to equity financing for companies that list and how it impacts on their capital structure, Table 5.2 shows that whilst over the same period, mean leverage for listed companies reduce from 304.83% to 226.62%, it increases in the case of unlisted companies, from 122.89% to 192.93%. Listed companies are also able to reduce operating expenses, OER more significantly than unlisted companies, with a difference in decrease of some 18.6%. Asset Turnover on its part reports a different outcome, with unlisted companies, efficiently turning over their assets more times than the listed companies. One possible explanation for this could be that listed companies raise funds during listing which are invested in new assets whose effects are not felt in the short term on productivity, thereby leading to the low asset turnover ratio.

Table 5.2 DID Analysis Performance Measures N ROE Listed Firms 7 Mean (median) before 0.1243 (0.171) 0.2643 (0.2792) 0.0127 (0.0532) 0.2065 (0.085) 3.0483 (1.5193) 1.2289 (1.2354) 2.1614 (0.4161) 0.8278 (0.4808) 0.9641 (0.9693) 0.7019 (0.7038) Mean (median) after 0.316131 (0.2888) 0.2982 (0.3248) 0.0944 (0.0889) 0.2276 (0.0874) 2.2662 (1.1287) 1.9293 (1.0243) 2.2568 (0.61961) 1.0808 (0.7929) 0.7821 (0.913) 0.7059 (0.6623) Mean (median) change 0.1918 (0.1178) 0.158 (0.0722) Unlisted Firms OROA Listed Firms Unlisted Firms Debt/Equity Listed Firms 7 0.0339 (0.0456) 0.0817 (0.0356) 0.0211 (0.0025) -0.782 (-0.3906) -1.483 (-0.1795) Unlisted Firms ASST Listed Firms 6 0.0954 (0.2035) -0.1576 (-0.109) Unlisted Firms OER 6 0.253 (0.3121) -0.182 (-0.0563) 0.004 (-0.0416) -0.186 (-0.0147) 1.121 0.320 7 0.7003 (-0.2111) 1.342 0.0606 (0.0332) 1.725*** 0.958 Mean (median) change in between groups Z statistic for difference in means between two groups

7 7

Listed Firms

6 6

Unlisted Firms
*** Significant at the 10% level

5.3 REGRESSION ANALYSIS The data set was run with various options of panel analysis, notably, the Fixed Effects and Random Effects Regressions. The Hausman Specification Test, was conducted from which, the Random Effects Regressions were observed to be the most appropriate panel data estimation method. The results of the Hausman Specification Tests are available upon request. The results for Return on Equity (ROE) used as the dependent variable are shown in Table 5.3, whilst that for Return on Asset (ROA) is shown in Table 5.4. The results of the regression show that the dummy variable, list, used in the model to evaluate the impact of listing on the performance measure, ROE has a positive relationship with ROE, indicating that listing impacts on ROE. The recorded positive relationship between listing and performance is also statistically significant at the 1% level. The coefficient for the variable, list, of 0.1516 indicates that listing on the stock exchange increases ROE growth by approximately 15.16% in comparison to not listing. Additionally, the strength of the significance of the entire regression (0.0000) means that the impact of listing on firm performance in Ghana is strong.

The results of the study as reported in Table 5.3 shows a negative relationship between increases in capital structure and ROE emphasizing that more debt tends to negatively affect ROE for the sampled firms. This finding is in line with those of Truong (2006). The study also showed a strong positive relation between increases in operating performance, opm, and ROE and this increase is statistically significant at the 1% level. The efficiency measure of the level of operating expenses to gross turnover shows a negative relation to ROE. Though not statistically significant, increases in operating expenses negatively impact on ROE, according to the findings of this study.
Table 5.3 Random Effects GLS Panel Regression Results with Return on Equity (ROE) as dependent variable.

Variable Constant list cap opm eff size sct gown smnc age

Coefficient -0. 4981 0.1516 -0.0053 1.0856 -0.0833 0.0446 0.1634 0.0645 0.1028 0.0022 0. 1936 0. 0562 0. 0092 0 .1588 0. 0668 0.0224 0.0483 0.0419 0.0429 0.0015

Std. Err. -2.57 2.70 -0.58 6.83 -1.25 1.99 3.38 1.54 2.39 1.49

Z-value 0.010

P >|Z|

0.007 0.565 0.000 0.212 0.047 0.001 0.124 0.017 0.136 141

R-Squared: within = 0.3759 between=0.7958 overall = 0.3885 Wald chi 2 (9) Prob > chi 2 = 83.22 = 0.0000

No. of Obs.

No. of Groups

Note: P-values are under the column titled P >|Z|.

Size, measured as the natural log of inflation adjusted total assets, shows a strong positive relationship to ROE. A 1% increase in total assets results in a significant 4.4% increase in ROE. This finding is not consistent with the Harper (2002) hypothesis that smaller firms tend to return more to shareholders than bigger firms in new environments as they are more flexible. The dummy variable, sct, which measured the impact of the sector of a sample firm on its ROE shows that service and merchandising firms have a positive relation to ROE, recording a statistically significant 16.34% change in ROE for service and merchandising firms as against Manufacturing and Mining firms. This finding is consistent with extant literature, notably, Megginson, Nash and Radengborgh (1994) and Truong (2006).

Contrary to expectations and extant literature, firms with residual government ownership showed a positive relationship to ROE after listing with a positive coefficient of 0.0645 though this relationship is not statistically significant. The results also show that firms that are subsidiaries of multinational corporations significantly have higher ROE, compared to indigenous Ghanaian firms. This is quite understandable as firms that are multinational subsidiaries are expected to have stronger internal structures for performance evaluation, monitoring and ensuring efficiency and hence, have a better tendency to show strong retuns.
Table 5.4 Random Effects GLS Panel Regression Results with Return on Assets (ROA) as dependent variable. Variable Constant list cap opm eff size sct gown smnc age Coefficient -.0884 0.0558 -0.0078 0.5088 0.0245 0.0028 0. 0134 0. 0256 0.0140 0.0004 Std. Err. 0.0485 0.0141 0.0023 0.0398 0.0167 0.0056 0.0120 0.0105 0.0108 0.0004 No. of Obs. Z-value -1.82 3.97 -3.39 12.79 1.47 0.50 1.10 2.43 1.30 0.96 141 P >|Z| 0.068 0.000 0.001 0.000 0.142 0.619 0.270 0.015 0.194 0.335

R-Squared: within= 0.6179 between= 0.9923 overall = 0.6343 Wald chi 2 (9) Prob > chi 2 = 227.21 = 0.0000

No. of Groups

Note: P-values are under the column titled P >|Z|.

The results from the second performance measure, Return on Assets (ROA), used as the dependent variable in the same model, is shown in table 5.4 above. The findings are consistent with those found for the Return on Equity (ROE) performance measure, indicating that, stock exchange listing does impact firm performance in Ghana.

6. CONCLUSION AND RECOMMENDATIONS The study examined the impact of stock exchange listing on firm performance in Ghana using financial data from twenty five (25) companies that listed on the GSE between 1990 and 2002, as well as seven (7) unlisted companies. The object of the paper is to provide empirical evidence on how listing impacts the operational and financial performance of companies that list. Using the pre listing-post listing analysis (based on the MNR Methodology) the study analyzed various performance measures of the listed companies and used the Wilcoxon Sign Rank Test and the Mann Whitney Test to test for significant changes in these performance measures. The paper then builds on the pre listing-post listing analysis by introducing the Differences In Difference (DID) Analysis and subsequently, tests for the robustness of the findings through Panel Regression Analysis. The major findings of this study are summarized as follows: Stock exchange listing has a strong and direct impact on the financial and operating performance of companies that list in Ghana. Return on Equity for companies that list on the GSE for instance improves by 9.42% percent after listing from pre listing ROE of 16.52% to 25.92% after listing. Similar improvements are recorded for leverage, reducing by 84.915% and the efficiency measure, Asset Turnover, which increases by 15.37%. Listing on the GSE improves performance as against those that do not list. Unlisted companies do not measure up to the growth of 19.18% and 8.17% recorded in key performance measures like ROE and OROA, and the reduction of 7.8% and 18.2% recorded for LEV and OER for companies that list on the GSE. The results from the regression analysis in this study also corroborates these findings as listing is shown to have a positive and statistically significant (at the 1% level) relationship with the performance measures, Return on Equity (ROE) and Return on Assets (ROA). 6.1 CONCLUSIONS Stock markets around the world impact economic growth in their economies and even economies of other countries. This has been possible because these markets impact the performance of companies that engage with it. The Ghana Stock Exchange represents the major institution of the Ghanaian capital market and its impact on the performance of companies that list on it can be seen as a sign of the capital market, having the potential of impacting economic trends in the Ghanaian economy. Using the MNR Methodology the study documents statistically significant improvements in the Profitability and Leverage of companies that list on the GSE. Additionally, the study finds an improvement in operating performance and efficiency measures for these companies. Furthermore, the study finds that factors like size, sector of operation, level of government ownership as well as whether the firm is a subsidiary of a multinational corporation all affect performance in different ways. Subsequent robust checks using DID Analysis and Panel Regression analysis all show a strong relationship between levels of all financial and operating performance measures and listing on the Ghana Stock Exchange.

The Panel regression actually shows a statistically significant (at the 1% level) positive relationship between listing on the GSE and Return on Equity and Return on Assets. These findings are consistent with the global trend of stock exchanges and allied institutions in the capital market, impacting corporate performance. 6.2 RECOMMENDATIONS The recommendations of this study are made based on the findings enumerated above. Government and Policy makers should invest more resources in the development of the capital market and its institutions as they can positively impact economic growth. This is evidenced in the impact the Ghana Stock Exchange has on companies that list on it in improving their financial and operating performance. The Ghana Stock Exchange and other players on the market like regulators, advisers and brokers, should focus their efforts at getting companies to list on the GSE on more small and medium sized firms as the GSE impacts effectively on small and medium sized firms in improving their efficiency and leverage, which are key fundamentals for sustainable growth. They should also focus on getting Multinational subsidiaries as well as Trade and Service firms to list as such companies show more improved performance after listing.

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