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UNIVERSITY OF ZIMBABWE
FACULTY OF COMMERCE
DEPARTMENT OF BUSINESS STUDIES
EVALUATION OF THE ROLES AND EFFECTIVENESS OF THE ZIMBABWE STOCK EXCHANGE (ZSE)
COMPILED BY:
JAMES VASHIRI
R101557A
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR BUSINESS STUDIES HONORS DEGREE IN MARKETING-HBBS 4
(MARKETING) BY THE UNIVERSITY OF ZIMBABWE
SUPERVISOR: MR. JD NHAVIRA
HARARE, ZIMBABWE
©2013
Evaluation of the roles and effectiveness of the Zimbabwe Stock Exchange (ZSE)
Dedications
I would like to dedicate this research work to my beloved mother, Vinah Mubasa; brothers and sisters, Lovemore, David, Partson,
Gibson, Ever and Ester.
I appreciate your unconditional love and support.
Proverbs 1 V 7
God bless you.
Vashiri James R101557A Page ii
Evaluation of the roles and effectiveness of the Zimbabwe Stock Exchange (ZSE)
Acknowledgements
I would like extend my sincere gratitude and appreciation to the following people
for the contributions that they have made to make this research possible:
This study could not have been completed without the generous support and
contribution of many individuals and institutions. My respect and gratitude will
go to Mr. Mutungwazi, my supervisor for his guidance throughout this project. I
would like to appreciate the support, commitment, dedication, determination and
patience that he demonstrated being my supervisor during my research process. I
am also thankful to my lecturers, fellow students and colleagues for their support
and ideas. Above all, glory be to God to whom I owe everything.
Vashiri James R101557A Page iii
Evaluation of the roles and effectiveness of the Zimbabwe Stock Exchange (ZSE)
Abstract
This study sought to evaluate the effectiveness of Zimbabwe Stock Exchange in
accomplishing its roles in Capital Markets in Zimbabwe, specifically in
supporting small business enterprises raising capital. Roles and functions of stock
exchanges around the world were explored (literature review) to use as
benchmark in appraising our own bourse (ZSE).
The research attempted to answer the following question: Does the ZSE
adequately support small business enterprises raise capital.
The research was motivated by the fact that small to medium enterprises are
having difficulties in raising capital through the ZSE despite the fact they are
major driver to economic growth constituting % of Zimbabwe GDP.
In gathering the necessary information to complete the report both primary data
and secondary data were employed. Primary data was gathered by means of the
questionnaire and personal interviews. Secondary data was gathered from
textbooks, various websites and reports from previous research on the topic. Desk
research was useful in building important issues concerning the Zimbabwean
capital market (ZSE) and its effectiveness in performing functions of capital
markets. Field research was used in in-depth analysis of the problem from experts
of the financial market from various financial institutions.
Major findings were that the ZSE is not effective with some of the functions of
capital markets not even performed. Recommendations on findings included
relaxing some regulations that govern the ZSE especially the indigenization Act,
adopting codes on corporate governance best practice as part of listing
requirements and setting up a central depository system that enables electronic
trading.
Table of Contents
Vashiri James R101557A Page iv
Evaluation of the roles and effectiveness of the Zimbabwe Stock Exchange (ZSE)
Dedications........................................................................................................................ ii
Acknowledgements...........................................................................................................iii
Abstract............................................................................................................................. iv
List of Abbreviations and Acronyms................................................................................vii
CHAPTER I.....................................................................................................................13
1.0 INTRODUCTION...........................................................................................13
1.1 Introduction........................................................................................................13
1.2 Background of the study....................................................................................13
2.2 Definition of Stock Exchanges...........................................................................13
2.3 History of Stock Exchanges...............................................................................13
2.3.1 History of the Zimbabwe Stock Exchange......................................................14
1.3 Statement of the Problem...................................................................................15
1.4 Research objectives............................................................................................16
1.5 Research Questions............................................................................................17
1.6 Statement of Hypotheses....................................................................................17
1.7 Importance of the study......................................................................................17
1.8 Assumptions of the study...................................................................................19
1.9 Scope of the Study.............................................................................................19
1.10 Time budget.....................................................................................................20
1.11 Monetary Budget.............................................................................................20
1.12 Limitations.......................................................................................................20
1.13 Summary..........................................................................................................21
CHAPTER II...................................................................................................................21
2.0 LITERATURE REVIEW......................................................................................21
2.1 Introduction........................................................................................................22
2.2 ZSE functions....................................................................................................22
2.2.1Raising capital for businesses:.........................................................................22
2.2.2 Mobilizing saving for investment....................................................................22
2.2.3 Creating investment opportunity for small investors.......................................22
2.2.4 Government capital- raising for development projects....................................23
Vashiri James R101557A Page v
Evaluation of the roles and effectiveness of the Zimbabwe Stock Exchange (ZSE)
2.6.8.1 Remark 2......................................................................................................23
CHAPTER III..................................................................................................................24
3.0 RESEARCH METHODOLOGY...........................................................................24
3.1 Introduction........................................................................................................25
3.2.1 Rationale for Case Study Approach................................................................25
3.2.1 Design of Case Study......................................................................................26
3.3 Data Collection..................................................................................................26
3.3.1 Primary Data...................................................................................................26
3.3.1.2 Telephone interviews:......................................................................................27
3.3.2 Secondary Data...............................................................................................27
3.4 Sampling............................................................................................................28
3.4.3 Sample Size.....................................................................................................29
3.5 Data Analysis Plan.............................................................................................29
3.6 Summary............................................................................................................30
CHAPTER IV..................................................................................................................31
4.0 DATA PRESENTATION AND ANALYSIS OF RESULTS................................31
4.1 Introduction........................................................................................................31
4.2 Response Rate....................................................................................................31
4.4 Comparison of Sample Percentage with Expected.............................................32
4.5 Data Presentation...............................................................................................32
4.5.1.0 Questionnaire Response Review..................................................................32
4.5.4 Does the ZSE promote investment for small investors?..................................32
4.5.5 Does the ZSE promote growth for small to medium enterprises?...................33
Source: Raw Data....................................................................................................33
4.5.6 Is the Zimbabwean Capital Markets properly regulated?................................33
Source: Raw Data....................................................................................................34
4.5.7 How significant is the capital raising ability of the ZSE?................................34
4.5.8 What do you think should be done for the ZSE to be more effective in accomplishing its roles?...........................................................................................35
4.5.9 What recommendations do you expect this study to provide for the benefit of stock market development in Zimbabwe?................................................................35
Vashiri James R101557A Page vi
Evaluation of the roles and effectiveness of the Zimbabwe Stock Exchange (ZSE)
4.5.10 How effective is the ZSE in promoting economic growth and development?.................................................................................................................................35
4.5.11 Can companies rely on the ZSE for capital raising for project development?.................................................................................................................................36
4.5.12 Has there been any change for the better in terms of the effectiveness of the ZSE since the introduction of the multicurrency regime?........................................36
4.6 Interviews..........................................................................................................36
4.7 Discussion and Interpretation of Findings..........................................................37
4.8 Data Presentation and Analysis Summary..........................................................38
CHAPTER V...................................................................................................................39
5.0 CONCLUSIONS AND RECOMMENDATIONS.................................................39
5.1 Introduction........................................................................................................39
5.2 Summary of Findings.........................................................................................39
5.3.2 Comparison of Sample Percentage with Expected..........................................40
5.3.3 Does the ZSE promote investment for small investors?..................................40
5.3.4 Does the ZSE promote growth for small to medium enterprises?...................40
5.3.5 Is the Zimbabwean Capital Markets properly regulated?................................41
5.3.6 How significant is the capital raising ability of the ZSE?................................41
5.4 Recommendations..............................................................................................41
5.4.2 Stock Market Computerisation........................................................................42
5.4.3 Regulation.......................................................................................................42
5.4.6 Demutualization..............................................................................................42
5.5 Suggestions for Further Research.......................................................................42
5.6 Summary of Conclusions and Recommendations..............................................43
List of Abbreviations and Acronyms
ZSE Zimbabwe Stock Exchange
RBZ Reserve Bank of Zimbabwe
JSE Johannesburg Stock Exchange
LSE London Stock Exchange
Vashiri James R101557A Page vii
Evaluation of the roles and effectiveness of the Zimbabwe Stock Exchange (ZSE)
King Report South African code of best practice on Corporate
Governance
GDP Gross Domestic Product
CEO Chief Executive Officer
SEC Securities Exchange Commission of Zimbabwe
IPO Initial public Offering
IPO Where a company issues shares to the public for the
very first time.
SMEs Small to Medium Business Enterprises
Vashiri James R101557A Page viii
CHAPTER I
1.0 INTRODUCTION
1.1 Introduction
As the activities on the stock exchanges tend to be specialized and not understood
by common people, this chapter gives some basic definitions and review stock
exchange history, participants, operations and importance, A brief background of
the Zimbabwe Stock Exchange was explored in this chapter
The chapter also highlights objectives, research questions limitations and
delimitations, hypothesis to be tested and the assumptions adopted in carrying out
the study.
1.2 Background of the study
2.2 Definition of Stock Exchanges
A Stock Exchange is a market where stocks and shares are purchased and sold
and capital is raised for the purposes of industry and both local and central
government.1
2.3 History of Stock Exchanges2
Markets for the trading of stocks and shares or securities have existed for
centuries all over the world. One of the earliest known markets was established in
Paris, France around 1138.3 However, the modern form of the Stock Exchange
can be traced to about 200 years ago.4 .
1F. E. Armstrong 1957 The Book of The Stock Excliange, London: Pitman: p 17.
2 Wikipedia, the free encyclopedia
3 E. H. H. Edwards 1963 "The Role of the Stock Exchange", in RSE, Financial and Economic Symposium, Record of Proceedings, Salisbury: p 3
4 W. T. C. King 1954 The Stock Exchange, London: Allen & Unwin: p 15
Vashiri James R101557A Page 13
2.3.1 History of the Zimbabwe Stock Exchange
Trading of stocks and shares in Zimbabwe can be traced back from1891, when the
first stock-broking firm was opened.5The first Stock Exchanges were set up a few
years later in 1894 in Salisbury and Bulawayo. Later, two other exchanges
emerged in Gwelo (now Gweru) and Umtali (now Mutare) around 1898. These
exchanges were intended to meet the capital needs of the gold mining industry,
whose rapid expansion was fuelled by rumors of a 'Second Rand' in Southern
Rhodesia. As the hope of the Second Rand faded the mining companies withdrew,
the local stock markets collapsed. By 1902, all the local Exchanges had ceased to
operate. The Rhodesian Stock Exchange (RSE) was re-established in Bulawayo in
1946.6 By 1980, the ZSE was a highly specialized market, however as a result of
global recession; there was a dramatic fall of the industrial and mining indices on
the Exchange. However, between 1984 and 1990, the ZSE's performance
improved considerably. The industrial index shot up from 150 in 1984 to 2 732 in
1991, while the mining index jumped from 28 to 500 between 1984 and 1990.
This was due to the restored confidence among the investors that colonial
property rights would be upheld. To date, the history of the Stock Exchange in
Zimbabwe has received little scholarly attention although some economic
analyses exist. However, their focus has been, invariably, on illustrating the
highly speculative character of the gold mining industry in the country and not on
the Exchanges themselves. There is, thus, need for a scholarly study of the history
of the Zimbabwe Stock Exchange, which has played a very important part in the
recent history of Zimbabwe.
1.3 Statement of the Problem
5 The Rhodesinn HeniUi, 29 October 1892
6 George Karekwaivenani, A History of the Rhodesian Stock Exchange, p 2
Vashiri James R101557A Page 14
Small business enterprises are having difficulties raising enough capital to finance
their operations. The most effective way to do so is by Initial Public Offerings yet
the ZSE requires specific levels of profitability and about three years of trading
history for a company to do so7. As much as this is meant to protect investors it is
compromising economic growth.
Zimbabwe is lagging behind on the disclosure of executive remuneration which is
a deficiency in corporate governance as witnessed by the United States of
America (USA) corporate scandals of 2000s and the Zimbabwean scandals of
2004 in the banking sector that saw not less than ten Banks placed under
curatorship and two under liquidation8. Board compositions of some listed
companies are not up to standards that good corporate governance practices
would want them to be. It is up to the ZSE to incorporate the practices in their
Listing Rules9
Indigenization laws of the ZSE is discouraging foreign investors. The Chief
Executive Officer (CEO) of the ZSE, Emmanuel Munyukwi believes that the
2010 financial year would have been a better year had it not been for the
indigenization regulations gazetted in March 2010. Munyukwi said:
“In April we raked in about US$5 million while months before that we were raking in more than US$20 million a month. Since the regulations were gazette, we have seen a negative impact on trade………..”“Last year our market was driven by foreigners, making up to about 45 -50% of the total turnover of about US$200 million on the ZSE,”10
7 Gilbert Muponda, 1 June 2008
8 Dr. Gono, Troubled Banking Institutions Handout, p 2
9 Willia Bonyongwe, August 2010
10 Zimbabwe Daily News, 29 December 2010
Vashiri James R101557A Page 15
The indigenization laws as observed by Munyukwi clearly negatively impacts the
growth of the economy by dispiriting profitable trading at the ZSE.
Foreign investors improve the inflow of foreign exchange, which is often greatly
needed in developing countries to finance imports and other foreign payments11.
However, whilst foreign investors are important for emerging markets, the
currency crises of East Asia (1990s) brought doubt that such investment flows
generate benefits for developing countries12.
1.4 Research objectives
The primary objective of the study was to assess the effectiveness of the
Zimbabwe Capital market (ZSE) in accomplishing its roles. In line with the major
objective, the project also attempted to pursue the following subtopics:
Assessment of the ZSE’s performance in ensuring good corporate
governance among Zimbabwean companies;
Analyzing the extent to which the ZSE assist small enterprises grow;
Assessing the effectiveness of the ZSE in promoting economic growth
and development;
Establishing whether companies can rely on the ZSE as a source of
financing operations;
1.5 Research Questions
The major question the researcher attempted to answer was whether the capital
market is effective in accomplishing the roles that it is supposed to? The
following questions were also asked:
What is the best strategy in addressing the shortcomings that the
Zimbabwean capital market (ZSE) has as a way of raising capital among
other roles?
11 Jefferis, 1995; Doidge et al., 2004
12 Bhagwati, 2001; Gabriele et al., 2001
Vashiri James R101557A Page 16
Has there been any change or improvement on the performance of the
Zimbabwean capital market in accomplishing its roles ever since the
introduction of the multi-currency regime in February 2009?
Is the capital market heavily regulated?
Does the capital market help firms to raise funds for new projects?
Does the capital market adequately support start-up firms?
1.6 Statement of Hypotheses
With respect to the research objective of determining whether the ZSE is effective
in accomplishing is roles, the hypotheses to be tested is as follows:
Ho: The Zimbabwe capital market (ZSE) is effective in accomplishing its roles.
H1: The Zimbabwe capital market is not efficient in performing its roles.
1.7 Importance of the study
The major significance of the research was to spell out the weaknesses and or
strengths of the Zimbabwe capital market and provide solutions thereto. The
research project shall enable companies to make an assessment of the method of
raising capital that they can use having evaluated the past, current and the
expected performance of the Zimbabwe Capital market, the Zimbabwe Stock
Exchange to be more precise. Small and medium enterprises will be able to resort
to some methods of raising finance for their demanding working capital needs and
also the ZSE if the recommendations of the study are adopted.
The project will enable the researcher to have a better understanding of the
Zimbabwe Capital market, ZSE. He will gain a thorough knowledge of how the
ZSE operates, its institutional weakness, current developments that are happening
to the capital market, the instruments traded through the capital market and be
able to identify gaps that need particular attention. Besides gaining knowledge
about the ZSE, the researcher also gain the necessary experience for research
projects in further studies.
Vashiri James R101557A Page 17
The country shall also benefit from the research project. This is because the
research is aimed at ensuring that the ZSE is functionally effective. If the capital
markets becomes effective it leads to improved economic growth and
development and ultimately improved standards of living which is perceived to
lead to political stability.
The research results are also expected to improve the spirit of enterprise and
better corporate governance that will improve the status of the ZSE in the world
of investment. This will see an improvement in capital inflows which had dropped
drastically over the last decades because of political insecurity and indigenization
laws.
Good governance is also expected to reduce regulatory expense on the part of the
government. As noted by Magayisa, the corporate scandals of 2004 cost the
Reserve Bank of Zimbabwe a lot in trying to rescue the Troubled Banking
Institutions. The results of the research, if implemented are expected to result in
self regulatory markets that are both efficient and effective and possibly dilute the
monopoly status of the ZSE.
1.8 Assumptions of the study
All the Zimbabwe capital market trading is done through the Zimbabwe
Stock exchange (ZSE) and therefore the phrase capital market and ZSE
shall be used interchangeably;
The sample used is a true representative of the population;
All questionnaires will be responded to;
All interviews will be successful;
All the seventy seven listed companies on the ZSE use the capital market
as the sole method of raising capital;
Any company can be listed easily on the ZSE;
Companies across all industries can switch from one method of raising
capital to another.
Vashiri James R101557A Page 18
1.9 Scope of the Study
In line with the research objectives, the scope of this study is restricted to the
following
areas:
Assessment of the ZSE’s performance in ensuring good corporate
governance among Zimbabwean companies;
Assessment of the extent to which the ZSE assist small enterprises grow;
Assessment of the effectiveness of the ZSE in promoting economic growth
and development;
Assessment of whether companies can rely on the ZSE as a source of
financing operations;
Assessment of the extent to which the ZSE facilitate raising of capital for
both the government and nongovernment corporate;
The research project will be confined to the roles and effectiveness of the
Zimbabwe capital market (ZSE) considering the currently listed companies. The
main focus of the research is on the effectiveness of the ZSE in accomplishing its
roles.
1.10 Time budget
Table 1: Time Budget
Chapter Allocated Time Due Date
Project proposal One week 13/12/2010
Chapter 1(Introduction) One month 21/01/2011
Chapter2(Literature review) Three weeks 15/02/2010
Chapter 3(Methodology) One month 14/03/2011
Chapter4(Research Findings) Two weeks 28/03/2011
Chapter 5(Conclusion ) One month 30/04/2011
1.11 Monetary Budget
The research will be carried out within the budget below:
Vashiri James R101557A Page 19
Table 2: Monetary Budget
Item of Expenditure Cost (USD)
Tuition fees $315.00
Internet $20.00
Printing $30.00
Transport $40.00
Accommodation for field research $50.00
Total cost $455.00
1.12 Limitations
The major limitations that the researcher encountered in the course of the research
are as follows:
Financial constraints for field research
Limited time within which the research was carried out
During field research some people were not willing to dedicate their selves
to supporting the project
However, to overcome such limitations and problems the researcher made the best
use of the available financial resources and time. The researcher prepared a
financial and time budget to ensure that the quality of the research outcomes was
not affected by such constraints.
Challenges in field research were overcome by making prior arrangements and
appointments with the people with whom interviews were going to be held. The
researcher also took his time explaining the benefits and importance of the
Vashiri James R101557A Page 20
research project to them. The researcher made it clear that the research is not to
his benefit only.
1.13 Summary
As the activities on the stock exchanges tend to be specialized and not understood by common people, this chapter gives some basic definitions and review stock exchange history, participants, operations and importance, so as to serve as the basis for understanding how the stock market can help promote investment and trade. A brief background of the Zimbabwe Stock Exchange was explored in this chapter.
CHAPTER II
2.0 LITERATURE REVIEW
2.1 Introduction
The chapter seeks to discuss theoretical and empirical literature concerning the
roles of stock exchange in relation to the ZSE. In line with the research questions
the chapter will explore the roles that Zimbabwe Stock Exchanges are expected to
perform. The ZSE’s performance would be compared with roles performed by
other stock exchanges around the world like the JSE.
2.2 ZSE functions13
The ZSE serves three critical functions:
mobilize and efficiently allocate resources for the country's economic
development
13 http://www.zse.co.zw/
Vashiri James R101557A Page 21
provide a fair, efficient, transparent and secure price discovery
mechanism in a well regulated environment
build liquidity through innovation
2.2.1Raising capital for businesses:
The Stock Exchange provides companies with the facility to raise capital for
expansion through selling shares to the investing public.
The Stock Exchange therefore is an organized financial platform that deals in
transactions involving the buying and selling of financial securities.
2.2.2 Mobilizing saving for investment:14
When people draw their savings and invest in shares, it leads to a more rational
allocation of resources because funds, which could have been consumed, or kept
in idle deposits with banks, are mobilized and redirected to promote business
activity.
2.2.3 Creating investment opportunity for small investors:
As opposed to other businesses that require huge capital outlay, investing in
shares is open to both the large and small stock investors because a person buys
the number of shares they can afford. Therefore the Stock Exchange provides the
opportunity for small investors to own shares of the same companies as large
investors.
2.2.4 Government capital- raising for development projects:15
Governments at various levels may decide to borrow money in order to finance
infrastructure projects such as sewage and water treatment works or housing
estates by selling another category of securities known as bonds. These bonds can
14R. R. West and S. M. Tinic 1971 The Economics of the Stock Market, New York: Praeger: D
15 George Karekwaivenani,Department of Economic History, University of Zimbabwe, P 8
Vashiri James R101557A Page 22
be raised through the Stock Exchange whereby members of the public buy them,
thus loaning money to the government.
2.6.8.1 Remark 2
The ZSE falls short of some of the functions that other stock exchanges around the
world do perform. Among the listing requirements of the ZSE should be the need
by companies to comply with international codes on corporate governance like
the King Report on corporate governance. The JSE adopted the King II guidelines
on corporate governance among its Listing requirements.
2.3 Performance Review of Zimbabwe Stock Exchange
Contrary to the noble purpose for which the ZSE was created, the ZSE has
literally galloped astray, in the process creating obscene paper wealth that is
causing havoc in the economy.16 By 2008 the Zimbabwe Stock Exchange had
become the most devastating vehicle of economic destruction, there was rogue
trading at the ZSE:
The ZSE allowed some stock brokers to falsely bid up share prices, when
in fact the same stock brokers had absolutely no money to pay for the
shares. The end result has been that some counters grew by as high as 2
million percent in a single day;
Where share prices were rising at the ridiculously bloated rates, what that
effectively meant was that someone could work up with no penny at the
bank, but end the day a multi-trillionnaire. The next morning, the false
wealth so created would show up as high demand for cash.
The Stock Exchange was deliberately indexing the entire stock market to
the spurious Old Mutual share prices. The whole economy was then being
priced via the Old Mutual rate whose share price movements had no
16 Press statement on the rampant fraudlent activities on the ZSE, Dr. G. Gono governor reserve bank of zimbabwe 20 november, 2008, pp 6-9
Vashiri James R101557A Page 23
relationship with economic fundamentals, let alone actual corporate
performance of Old Mutual itself.
The Zimbabwe Stock Exchange had been operating with no strict rules
and regulations that prohibit rogue behavior. On numerous occasions,
company share prices rose astronomically with absolutely no actual
volumes trading;
Some stock brokers were buying shares cheap in the morning call overs
then drive up prices before off-loading the same shares on the same day at
inflated prices;
CHAPTER III
3.0 RESEARCH METHODOLOGY
3.1 Introduction
Research methodology refers to the systematic, focused and orderly collection of
data for the purposes of obtaining information in order to solve research
questions. Data collection and analysis procedures are central to the validity of the
research findings in so much that it determines the success (or failure) of the
study. This chapter outlines the research design adopted, the research population
and sample, data collection method and instruments and the data presentation and
analysis plan. The chapter also explains the rationale for and shows why a case
study research methodology was deemed appropriate for this study.
3.2 Research Design Adopted
A case study research methodology was deemed appropriate for this study. A case
study is a detailed and thorough investigation of a few cases. “It is an intensive
description and analysis of a phenomenon or social limit such as an individual, a
group, an institution or community”.
Vashiri James R101557A Page 24
3.2.1 Rationale for Case Study Approach
A case study method can contain several case studies and could use multiple
sources of evidence17 including documents, interviews and observations. It also
allows for the utilization of both qualitative and quantitative approaches and is
thereby seen as being more advantageous. Moreover, since these study intents to
deal with a management and administration phenomenon, it became logical to
adopt a case study approach.
The other advantage of the method is that a case study approach is rich in details
and well defined. It therefore becomes immediately useful in gathering detail.
However, despite these advantages, case studies have received criticisms. Case
studies are often accused of lack of rigour. Too many times, the case study
investigator has been sloppy, and has allowed equivocal evidence or biased views
to influence the direction of the findings and conclusions.
3.2.1 Design of Case Study
Research design is the plan and structure of investigation so conceived as to
obtain answers to the research questions18. The researcher adopted a multiple-case
design because of the need to provide evidence in addressing the issue in
question. The research used a case study approach, which is exploratory, carried
out about the ZSE’s effectiveness in accomplishing its roles and functions.
Empirical data was obtained from different sources through sampling,
questionnaires, structured and unstructured interviews, and secondary data from
reports and recommendations derived from the various stock brokers, asset
management companies and the Zimbabwe Stock Exchange.
17 Yin, 1993, p3
18 Kerlinger, (1996) p 279
Vashiri James R101557A Page 25
3.3 Data Collection
Data collection is a term used to describe a process of preparing and collecting
data, for example as part of a process improvement or similar project. The
purpose of data collection is to obtain information to keep on record, to make
decisions about important issues, to pass information on to others.
In this research the researcher collected data from both primary and secondary
sources. Primary data can be defined as data which can be collected directly from
target respondents whereas secondary data can be collected from publications of
various institutions such as textbooks and newspapers.
3.3.1 Primary Data
Primary data is observed or collected directly from first-hand experience. It can
be defined as data which is collected directly from target respondents. In this
research primary data was gathered through questionnaires, face-to-face
interviews and telephone interviews.
3.3.1.2 Telephone interviews:
Telephone interviews allowed the researcher to cover a wide geographical area
within a short period of time. Instant responds to the questions were given. The
use of telephone interviews enabled the researcher to conduct unstructured
interviews which is critical as it gives the respondent chance to express their
opinion without the bias that is always associated with personal and face to face
interviews.
Telephone interviews had advantages as follows:
The researcher could cover a wide geographical area within a short space
of time
The costs were less than those of conducting personal interviews
Gives instant responses as opposed to questionnaires
Vashiri James R101557A Page 26
However, telephone interviews had the following drawbacks:
Time for detailed discussion was limited
More costly than questionnaires
3.3.2 Secondary Data
Secondary data is that which is already available prior to a study because it was
collected for some other purposes some other time, not for solving the current
problem. To gather the data, the researcher went through already existing records,
statistics and other publications. Other sources of secondary data included the
press, newsletters by investment companies and stock broking firms and the
Internet.
3.4 Sampling
Sampling is the way sample elements are to be selected from the entire population
to come up with ‘representative’ samples19. The need to sample arises when the
entire population cannot be surveyed because either of budget constraints,
practically impossible, or time constraints20..
There are two basic methods of sampling, namely21:
Probability or representative sampling
Non probability or judgmental sampling
Probability samples are so called because it is possible to express the
mathematical probability of sample characteristics being produced in all
population. Each element in the population of interest has an equal chance of
being part of the sample.
In non-probability sampling, the researcher uses his subjective judgment to come
up with sampling method that he feels will deliver results and enable him answer
19 Hill, et al., 2003
20Saunders et al. 2003
21 White ,2000 and Hill et al. 2003
Vashiri James R101557A Page 27
the research question. This is particularly so where the data to be collected is
qualitative22.
Because of the qualitative nature of this research, non-probability sampling
techniques were used to select the sample.
The selection of the researcher’s target population was on the basis of knowledge,
flexibility, availability and convenience. The targeted population included credit
analysts, dealers, and other ZSE personnel.
3.4.3 Sample Size
Deciding on a sample size for a qualitative enquiry can be more difficult than for
a quantitative one because there are no rules to be followed23. It all depends on
what will be useful, what will have credibility and what can be done within
available time and resources. There is always a difficulty in striking a
compromise between the accuracy of the findings and the amount of time and
money available for collecting, checking and analyzing the data24.
To validate meaningfulness of insights generated from qualitative enquiry, have
more to do with the information richness of the case selected and the analytical
capabilities of the researcher than with sample size.
This research study had two populations or sampling frames. One population was
ZSE personnel. The other population was that of dealers and other employees of
stock broking firms and investment banks.
3.5 Data Analysis Plan
Due to the inherent noisy nature of raw data, questionnaire entries have to be
processed before being applied into any analytical models. Data processing
involves coding responses using numeric symbols, classifying respondents into
22 Patton ,1990
23 According to Mugo, 2005
24 Saunders et al ,1997
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individual groups as well as adjusting for non-responses. To make a reasonable
conclusion about the topic, there is need to find systematic and justifiable ways to
analyze data and draw sound conclusions and recommendations. The data will be
analyzed by sorting it out into categories. Answers will be grouped by question in
order to draw numbers and percentages of the number of respondents whose
responses fall in a certain category.
3.6 Summary
In this chapter, the researcher identified the research methodology and outlined
the approaches used in carrying out the research, the sampling technique and the
data gathering instruments employed in making this research study a success. The
next chapter shall look at the data presentation and discussion or analysis.
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CHAPTER IV
4.0 DATA PRESENTATION AND ANALYSIS OF RESULTS
4.1 Introduction
The chapter focuses on presentation techniques, discussion and interpretation of
research findings. It presents the data obtained through primary and secondary
means, the analysis and discussion of such data is in line with the research
objectives outlined in Chapter I. Specifically it presents results and analysis of
questionnaires, sampled data and results from the print media. The researcher
present and analyze the data collected from field research carried out in an
attempt to determine whether Zimbabwean Stock Exchange is effective in
accomplishing the roles that capital markets are expected to perform. The results
of the analysis are presented diagrammatically and expressed in percentages for
ease of assessment. The hypothesis, “Zimbabwean Capital Markets is effective in
accomplishing its roles” is tested. The research conclusions shall be based on such
analysis.
4.2 Response Rate
From the thirty five questionnaires distributed, nineteen were received back to
give a response rate of 54.30 % but three of the questionnaires received were
incompletely filled to such an extent that they were deemed spoiled thus reducing
the effective response rate to 45.70%. The response rate would have been higher
had respondents been given additional time to submit their responses but however
due to time constraints the 45.70 % response rate is accepted as being adequate
Vashiri James R101557A Page 30
for this study. The response rate was also low due to the time and monetary
budget of the researcher.
4.4 Comparison of Sample Percentage with Expected
Seventy five percent of the respondents surveyed indicated that the ZSE is not
effective in accomplishing the roles of capital markets.
Figure 6: Comparison of sample percentage with expected
Yes (4)25%
No (12)75%
ZSE is effective in accomplishing its roles
Source: Raw Data
4.5 Data Presentation
The following analysis is based on questionnaires collected at the end of the
project. The questions asked are basically the same for all respondents.
4.5.1.0 Questionnaire Response Review
4.5.4 Does the ZSE promote investment for small investors?
About 100% of the respondents believed that the ZSE adequately promote
investment and growth of small investors arguing that shares can be transacted in
lots of 100 for all listed counters.
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4.5.5 Does the ZSE promote growth for small to medium enterprises?
40% responded to this question agreed that the ZSE promote growth for small to
medium enterprises. However 60% of the respondents belied that the ZSE does
not adequately support small entrepreneurs to grow. The majority argued that the
requirements for small entrepreneurs to be able to list and issue shares through
initial public offerings (IPOs) were too much. For a company to be able to do that
it is required to have a trading history of about three years and showing some
levels of profitability. Some small entrepreneurs with brilliant ideas therefore fail
before they even launch their ideas because of lack of funding.
Figure 11: Does the ZSE promote Growth
ZSE Promotes Growth; 30%
ZSE does not Promote growth; 70%
Does the ZSE promote small entrepreneurs' growth?
Source: Raw Data
4.5.6 Is the Zimbabwean Capital Markets properly regulated?
50% of the respondents believed that the ZSE is heavily regulated especially
concerning foreign investors and selected sectors like the mining counters. They
believe that the introduction of SEC would, in the long term, enhence the ZSE’s
performance in relation to regulation. 45% of the respondents believed that the
ZSE is properly regulated. 5% were indifferent as to whether the regulation
currently prevailing affect the ZSE’s effectiveness.
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Figure 12: Is the ZSE properly Regulated
45%
50%
5%
Is the ZSE properly regulated
Properly RegulatedHeavily RegulatedSomewhat properly
Source: Raw Data
4.5.7 How significant is the capital raising ability of the ZSE?
The majority of the respondents believed that the capital raising ability would be
very significant had it not been of the illiquid market. Capital flows from
international markets however seem to be affected more by regulation than
market liquidity. Currently the capital raising ability is not significant.
Figure 13: Significance of ZSE in raising Capital
Vashiri James R101557A Page 33
Very Significant(28%)
Insignificant(72%)
Source: Raw Data
4.5.8 What do you think should be done for the ZSE to be more effective in accomplishing its roles?
Respondents believed that regulators should enforce stringent insider trading and
market manipulation regulations to improve on corporate governance. They also
believe that the demutualisation process should be hastened. Demutualisation is
the process of converting a non-profit, mutually owned organization to a for-
profit, investor-owned corporation. Although, demutualized exchanges will
continue to provide many if not most of the services, they will have different
governance structures in which outside shareholders are represented by boards of
directors. There are two main forces driving stock exchanges to demutualize: 1)
increased global competition and 2) advances in technology.
Some respondents also believed that the ZSE should incorporate codes on good
corporate governance practices like the King Report so as to improve corporate
governance.
4.5.9 What recommendations do you expect this study to provide for the
benefit of stock market development in Zimbabwe?
Respondents believed that the stock market should be computerised through a
Central Depository and do away with physical trading. Investors should be able to
trade on the local bourse without the need to be physically present at the ZSE.
Some respondents also believe that overregulation of the stock market should be
avoided. They belived that the should be a clear relationship between capital
markets and the Securities Commission of Zimbabwe.
4.5.10 How effective is the ZSE in promoting economic growth and
development?
Respondents believe that the ZSE can play a leading and prominent role in
marketing Zimbabwe as a suitable and promising investment destination by
Vashiri James R101557A Page 34
attracting foreign and local investors who have an appetite for emerging market
growth prospects. There are several areas that the ZSE can deliberately promote
and encourage which will position Zimbabwe ahead of other countries on the
continent. The Financial sector is one such area due to the well developed
infrastructure and
highly experienced and educated professionals. The second area is the
information, communication and technology (ICT) sector which Africa is still
lagging behind. This presents an opportunity for Zimbabwe. Zimbabwe has
excellent infrastructure to build on a decent hub which can attract capital into the
country. This can be channeled through the ZSE.
4.5.11 Can companies rely on the ZSE for capital raising for project development?
The majority of respondents believe that companies cannot rely on the ZSE for
their capital needs due the liquidity constraints that the market is currently facing.
The current trading and settlement system is also too slow and poor. Therefore
companies should supplement their capital through retained earnings than relying
on the ZSE for their capital needs.
4.5.12 Has there been any change for the better in terms of the effectiveness of the ZSE since the introduction of the multicurrency regime?
Respondents noted that there was some remarkable improvement especially just
after the introduction of the multicurrency regime in February 2009. However
with the introduction of indigenization laws performance on the ZSE dampened
as it discouraged international investments because of the increased risk.
4.6 Interviews
Apart from questionnaires primary data was also collected through interviews. Of
the scheduled five interviews, three were successful making a response rate of
sixty percent.
The interview carried out at the ZSE proved that the major problem that the ZSE
is facing is liquidity challenges. The market condition is such that the ZSE cannot
Vashiri James R101557A Page 35
effectively perform its roles. Regulatory constraints also affect the ZSE
negatively.
The ZSE would do better if it is demutualised. However the process of
demutualization is being delayed by the fact that there are some members
resisting.
4.7 Discussion and Interpretation of Findings
There was a general consensus by respondents that the ZSE plays a critical role in
the economy with many respondents arguing that, “the level of economic growth
and development would improve should the ZSE be reformed and take a lead in
marketing the economy as a better investment environment.” Further analysis
depicts that, the ZSE is not doing enough to make sure that there is adequate
support to potential SMEs and to ensure that there is quality corporate governance
in the market.
The Zimbabwe stock exchange needs to be reformed and restructured to be more
effective in assisting both investors and entrepreneurs reach their respective goals.
Initial Public Offering (IPO), also referred to simply as a "public offering," is
when a company issues common stock to the public for the first time. They are
often issued by smaller, younger companies seeking capital to expand, but can
also be done by large privately-owned companies looking to become publicly
traded. The Zimbabwe Stock Exchange (ZSE) is the primary institution involved
in this and sets the various rules, requirements, terms and conditions of conduct of
IPO’s.
The ZSE needs to be reformed to be able to make it more effective and responsive
to the needs of entrepreneurs especially small and medium scale businesses who
struggle to raise capital even though they may have all the other ingredients for
success. The ZSE needs to the reformed from an exclusive club into a more
inclusive institution that transforms upcoming, promising ideas, ventures and
projects from dreams into reality. If it can’t be reformed and restructured to meet
those goals then there is an urgent need to set up a rival exchange to do that.
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The money paid by investors for the newly-issued shares goes directly to the
company (in contrast to a later trade of shares on the exchange, where the money
passes between investors). An IPO, therefore, allows a company to tap a wide
pool of stock market investors to provide it with large volumes of capital for
future growth. The company is never required to repay the capital, but instead the
new shareholders have a right to future profits distributed by the company and the
right to a capital distribution in case of dissolution.
Among the requirements of conducting an I.P.O in Zimbabwe is the need for the
company to be of a particular size and to have a trading record of a specified
period (minimum 3 years), and be showing certain level of profitability. These
requirements exist mainly to protect investors and also to make the ZSE’s life
easy and simple. The ZSE needs to actively encourage small to medium scale
businesses to pursue the possibility of IPOs as a way to raise capital for their
operations since the high level of inflation makes it almost impossible to keep
borrowing to keep pace with higher requirements of working capital.
4.8 Data Presentation and Analysis Summary
The response rate for the questionnaires distributed was 45.7%. The bulk of the
respondents were drawn from stock broking and asset management related
institutions due to their greater understating of the investment market in
Zimbabwe. From all the responses obtained from the field research, most were in
favor of implementation of proper regulatory framework that will ensure
transparency and reduce market manipulation. The study used both qualitative
and quantitative approaches to analyze the research findings. The primary data,
which was gathered through questionnaires and interviews was presented and
analyzed first, then secondary data, which was collected from related literature.
Tables, bar graphs and pie charts were used to present the findings. Logical
judgments were also used to come up with results as well as an analysis of
responses given by interviewees.
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CHAPTER V
5.0 CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
The chapter focuses on the summary, conclusions and recommendations of the
case study. Conclusions were be made from the data obtained as compared to
what is expected as highlighted in the literature review. In trying to gather
empirical data a sample of 15 respondents were used being selected from financial
institutions.
5.2 Summary of Findings
The major research problems that motivated the researcher included the fact that
small business enterprises are having difficulties raising enough capital to finance
their operations; Zimbabwe is lagging behind due to indigenization laws
discouraging foreign investor participation on the ZSE and the participation of the
Zimbabwean Capital Markets to contributing economic Growth and
Development.
The findings of the research as outlined in the previous chapter proved that indeed
experts on capital markets are in agreement that the ZSE is not effective when it
comes to roles and functions of stock exchanges that if performed well would
eliminate the current problems outlined above.
5.3.0 Conclusions
The conclusions made emanated from the research findings as presented in
chapter IV, hence they are research based conclusions. They are summed up
answers to research questions and sub problems and are drawn directly from data
reported in the previous chapter. The conclusions section shall demonstrate
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whether or not conclusions agree with the theory of previous researches. The
conclusions on the analysis are as follows:
5.3.2 Comparison of Sample Percentage with Expected
Seventy five percent of the respondents surveyed indicated that the ZSE is not
effective in accomplishing roles of Capital Markets in Zimbabwe.
The conclusion from the hypothesis testing is that “The Zimbabwe capital market
is not efficient in performing its roles”. (H1)
5.3.3 Does the ZSE promote investment for small investors?
About 100% of the respondents believed that the ZSE adequately promote
investment for small investors arguing that shares can be transacted in lots of 100
for all listed counters. The fact that shares are transacted in minimum lots of 100
shares means that even small investors that may want to participate on the market
can easily do so thereby contributing to economic growth and development
somehow.
The conclusion that can be drawn from the above observation is that the ZSE
adequately and effectively promotes investment to small investors.
5.3.4 Does the ZSE promote growth for small to medium enterprises?
The majority (60%) of the respondents argued that the requirements for small
entrepreneurs to be able to list and issue shares through initial public offerings
(IPOs) were too much. For a company to be able to do that it is required to have a
trading history of about three years and showing some levels of profitability.
Some small entrepreneurs with brilliant ideas therefore fail before they even
launch their ideas because of lack of funding.
The conclusion from the response frequency clearly demonstrate that the ZSE
does not adequately promote small to medium business enterprises because of the
heavy requirements for qualification for raise money through the ZSE.
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5.3.5 Is the Zimbabwean Capital Markets properly regulated?
50% of the respondents believed that the ZSE is heavily regulated especially
concerning foreign investors and selected sectors like the mining counters. They
believe that the introduction of SEC would, in the long term, enhence the ZSE’s
performance in relation to regulation. 45% of the respondents believed that the
ZSE is properly regulated. 5% were indifferent as to whether the regulation
currently prevailing affect the ZSE’s effectiveness.
The distribution of the response shows that the ZSE is heavily regulated. 50%
respondents believed that the ZSE is heavily regulated, 45% believed it was
properly regulated and 5% were indifferent. In conclusion therefore the
implication is that the ZSE is heavily regulated.
5.3.6 How significant is the capital raising ability of the ZSE?
The research has found out the strength of capital raising by listed companies
depends on the performance of the company. If the company is doing well it
would attract more investors and thus more capital is raised and the reverse is
true. This means to say that the significance of the capital raising ability of stock
exchange is a function of the individual stocks on the stock exchange.
The result from respondents shows that the ZSE is effective with respect to local
investors because the ability of a share to pool demand is a function of the
performance of the individual company. However, concerning foreign investors,
the significance is more dependent on regulation than the performance of the
company.
Hence, it can be safely concluded that the ZSE’s capital raising ability is
significant on the local arena but in terms of pooling from international stock
markets it is not that significant.
5.4 Recommendations
In the light of the conclusions drawn by the study, the researcher clearly stated
recommendations on actions that should be taken to solve problems identified. In
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addition, suggestions for future research on the study were made in the latter
section of the chapter.
5.4.2 Stock Market Computerisation
The stock market should be computerized through the central depository and do
away with physical trading. This is most likely to promote foreign participation
on the ZSE. Investors around the globe will be able to trade from their respective
locations.
5.4.3 Regulation
Overregulation of the ZSE should be avoided. There should be a clear relationship
between capital markets and the Securities Commission. Indigenization laws
clearly negatively impacts the growth of the economy by dispiriting profitable
trading at the ZSE. The ZSE should be moderately regulated in a way that does
not compromise the need for such regulation and at the same time in a way that
promotes trading and economic growth that will benefit the economy at large.
5.4.6 Demutualization
The process of demutualization should be hastened so as to improve on efficiency
and effectiveness of the Zimbabwe Stock Exchange. Demutualization enables the
ZSE to be run properly and converted from a club to a profit seeking organization
that should be listed also.
5.5 Suggestions for Further Research
Further research should be on evaluating the feasibility of establishing a rival
stock exchange in Zimbabwe. If efforts to reform the ZSE and possibly
demutualization fails, there is need to establish a rival stock exchange that will
dilute the monopoly status of the ZSE and improve the overall effectiveness of the
Zimbabwean Capital markets. Therefore further research on the topic of
effectiveness of Zimbabwean Capital markets should look into the feasibility of
the possibility of establishing a rival stock exchange.
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5.6 Summary of Conclusions and Recommendations
The chapter looked at conclusions drawn from each research question and made
recommendations thereto. The major recommendations included the
establishment of the central depository system that enables electronic trading,
reducing the level of regulation of the ZSE. Hastening the demutualization
process was also among the recommendations. The chapter drew conclusions to
problems of the ZSE making particular reference to the objectives of the study as
spelt out in every chapter of the research. The last part of the chapter provided
suggestions for further research. It is the researcher’s belief that the current
research and available literature is inadequate to address the identified pitfalls of
the local market. This is especially because of the dynamic nature of capital
markets around the globe. New recommendations should be drawn more often so
as to incorporate any of the vast changing features of stock markets hence further
research on the topic is indispensable.
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