EFFECTS OF TREASURY SINGLE ACCOUNT IMPLEMENTATION ANNOUNCEMENT ON SHARE PRICES OF LISTED DEPOSIT MONEY BANKS

EFFECTS OF TREASURY SINGLE ACCOUNT IMPLEMENTATION ANNOUNCEMENT ON SHARE PRICES OF LISTED DEPOSIT MONEY BANKS

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Deposit Money Banks are the key players in the intermediation of funds from the surplus economic units to the deficit units for investment and development purposes. Thus, the significance of Deposit Money Banks (DMBs) in the Nigerian financial sector cannot be over emphasized. This underscores the need to have a strong and vibrant banking sector, which can assure the sustainability of the financial sector. The market price of share is one of the most vital performance indicators which influences investment decision of investors not only in banks but all kinds of listed organizations. This informs the need to understand its behaviour in response to events and certain announcements. The extant literature is replete with studies (such as:Maku & Atanda 2010, Osisanwo Atanda, 2012, Malhotra & Tandon, 2013, Wiredu, Suleman & Adjartey, 2013,Uddin, Rahman & Hossain, 2013,Almumani, 2014among others.) which show that the market value of firms is linked to many factors, such as earning per share, dividend per share, dividend pay-out ratio and major policy pronouncements such as the treasury single account among others that could affect the fortunes of listed firms. The share price of any firm is often of significant importance to the firm and shareholders because it is what signals the worth of the firm in the eyes of various stockholders. Additionally, appreciation in share price overtime ultimately determines the gains/loss or returns on investment which shareholders enjoy (Almumani, 2014). This implies that one of thecardinal goals of the firm is to maximise shareholders‟ wealth, therefore returns on the price of stock remains of constant significant interest to the firms, shareholders and even regulators. In this regard, Mbutor (2010) posited that the stock market tends to signal the level of confidence in the economy in general and the financial system in particular. It mirrors the strength of the productive sector and anticipations about the stability of the financial system. Persistent increase in the stock indices would encourage banks to increase advances, both for direct investment in the stock market and other productive sectors of the economy.

Higher returns on the stock market motivate foreign investors and direct the inflow of foreign portfolio investment to that economy. This on the other hand, will further enhance the capital base of banks and induces additional increases in their intermediation activities which will result to efficient and effective management of the nation‟s economy (Mbutor ,2010). Efficient and effective management of a nation‟s economy as well as federal government banking structure through an arrangement such as the Treasury Single Account (TSA) are vital preconditions for proper control of Government‟s receipts and payments. This is more so, in most emerging markets and developing nations that lack unified systems for handling government receipts and payments (Akande, 2015). This implies that the absence of unified structure might deprive the Government vis-à-vis the apex monetary authority of a single and consolidated structure/system for effective and efficient control of government revenues and disbursements in various Ministries, Departments and Agencies (MDAs). In this regard, it was argued that absence of effective cash control system such as the Treasury Single Account (TSA) by a federal government may lead to institutional deficiencies /challenges with its associated cost in several dimensions. Firstly, in most instances, bank accounts with unused cash balances fail to gain market-related compensation. Also, avoidable borrowing costs are incur by the government being uninformed of the unused resources so as to raise funds to cater for the professed cash deficiency. Thirdly, the government unused cash balances may also be utilized by the bank to extend credit since the cash are not idle in the banks. In fact, costs are also imposed on the apex bank by exhausting the extra liquidity via open market operations activities by the DMBs (Pattanayak &Fainboim, 2010).

On the contrary, Pattanayak and Fainboim (2010) further noted that instituting a consolidated/unified system of government bank account through a Treasury Single Account (TSA) will resolve the aforementioned challenges. Thus, TSA establishment should be given topmost priority in any government financial control/management reform as it will assist in enhancing cash management and control. Existence of TSA will also ease superior fiscal and monetary synchronization in addition to improved reconciliation of fiscal banking data which will considerably decrease service cost of debt by the federal government (Pattanayak andFainboim2010). In relation to this, Igbekoyi and Agbaje (2017) noted that it is based on the above motives that the present global revolution in government accounting became vital. More so,the desire to benefit from the global best practices made Nigerian government introduced and implemented the Treasury Single Account (TSA) so as to help in the optimum management of her economy. Previous studies such as Fama (1970, 1991), Malkiel (2005) and Yalcin (2010) have shown that the extent of responsiveness of stock market to immediately incorporate new information / policy announcement into stock prices determines its efficiency.

1.2 Statement of the Problem

Stock prices are among the most closely monitored asset prices in the economy and are commonly regarded as being highly sensitive to economic conditions and major policy pronouncement. In the context of the transmission mechanism through the stock market, monetary policy actions in form of major policy shift such as the TSA implementation announcement affect stock prices, which themselves are linked to the real economy through 17 their influence on consumption spending; wealth effect channel, investment spending and balance sheet channel (Goodhart & Hofmann, 2000 and Amihud & Mendelson, 1986). As posited by Bernanke and Kuttner (2005), stock market is viewed as an independent source of macroeconomic volatility to which policy makers may wish to respond. Stock prices often exhibit pronounced volatility leading to concerns about sustained deviations from their „fundamental‟ values that, once not corrected, may have significant adverse consequences for the broader economy.

Thus, this implies that establishing quantitatively the link between major policy pronouncement such as the Treasury Single Account (TSA) Implementation announcement and stock market prices in Nigeria will not only be suitable to the study of stock market returns but will also contribute to a deeper understanding of the conduct of monetary policy pronouncement and of the potential economic impact of policy actions or inactions on the economy at large. In addition, prior to the TSA implementation announcement of 9th August, 2015, there was a prevailing market price of DMBs shares in the stock market. However, the announcement might have altered the prevailing market price of the shares either positively or negatively depending on the investors‟ response to the announcement. In each case, giving rise to abnormal return or the market price of the shares remain the same despite the implementation announcement. Hence, the need to investigate investors‟ response and the extent to which it impacted on the share prices of the DMBs necessitate this study.

Format: MS Word

Chapters: 1 - 5, Preliminary Pages, Abstract, References
Delivery: Email

No. of Pages: 120

NB: The Complete Thesis is well written and ready to use. 

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Masters Project Topics in Accounting and Finance

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