international journal of commerce and finance, vol. 5, issue 2, 2019, 206-210 206 future of the crypto currencies mustafa özyeşi̇l i̇stanbul aydın university, turkey abstract the main purpose of this study is to contribute to the literature by performing an original research. the main subject of the study is to investigate the future position of cryptocurrencies included in the sample. in this study, we tried to predict the future expected the popularity of 6 cryptocurrencies. for this purpose, we collect internet search data of each cryptocurrency included in the sample. popularity variable is determined by the frequency of searched numbers of crypto coins on the internet. we created graphs in the form of scatter plots by using ms excel 2016. in order to determine the ideal curve that provides the highest specificity coefficients (r2) of related to equations was preferred. according to the results of the analysis, it was determined that ripple-xrp may be taken out of the circulation in the market by november 2020. keywords: crypto currency, internet search numbers, popularity, ms excel, scatter plots graphs, google trends jel classification: c13, c20 1. introduction nowadays, crypto currencies have been grabbing more attention. they are gaining more importance day by day thanks to their price movements particularly bitcoin’s price performance. the crypto currency is a money concept that differs from conventional money term is subject to physical circulation. unlike usual money term, the attractive side of crypto currency is that they are traded, issued and circulated in the digital platforms. however the most important feature of crypto currencies is that they are not governed or regulated by a central authority. bitcoin, the first example of crypto currencies and others that followed bitcoin are totally are peer to peer electronic cash system and in this system online payments will be sent directly from a party to another without requirement of financial institutions (nakamato, 2008 : 1-2) in this study, in order to contribute to the literature, we tried to determine which crypto money could be removed from the circulation by using the number of searches on internet of each crypto money. 2. literature review darlington (2014), analyzed bitcoin’s both strong and weak sides and make conclusion about bitcoin’s future. firstly the main issue is described as infrastructure of bitcoin’s system. it is emphasized that this is hindering bitcoin adoption. it is noted that 2014 a flaw was detected in bitcoin’s transactions and this raised concerns about fraud in bitcoin. despite of this disadvantages, many type of benefits that bitcoin provide are mentioned such as leading economic change, having remarkable potential to help some countries and providing a chance to reduce transaction costs etc. luther (2016), underlines competition between crypto currencies and existing government based money concepts and shows possible ways for crypto currencies to win this competition. according to his study, the crypto currencies should reduce costs of consumers related to switching to new payments. he found out that the most important problem that crypto currencies should solve is incumbent-monies problem. devries (2016), claims that crypto currencies are not replace conventional money term but they can change the way of interaction of internet based global markets and clear the way for national currencies and exchange rates. the author conducted a swot analysis to see bitcoin’s role in shifting in economic paradigms. according to results of the analysis, author claims that crypto currencies are still in infancy period and it will take a time to see that they can find sustainable place in world markets. in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e future of the crypto currencies 207 3. data and sample structure main aim of this study to estimate future positions of each crypto currencies included in the sample. for the purpose of obtaining internet search numbers, index data indicating the degree of importance (popularity) generated by google's google.trends.com (google, 2019) based on the number of monthly searches of the crypto currencies were used. this index gets values in the range of [0-100] and the increase in the index value indicates that the relevant crypto money is very searched on the internet. crypto currencies analyzed and the data periods available for these moneys are shown in table 1. table 1: crypto currencies used in analysis no crypto money analysis period 1 bitcoin 2010:m07-2019:m05 2 ripple-xrp 2015:m01-2019:m05 3 ethereum 2016:m03-2019:m05 4 ethereum classic 2016:m06-2019:m05 5 litecoin 2016:m08-2019:m05 6 zcash 2016:m10-2019:m05 note: the data in the table are organized in the order in which the relevant currency is traded on the market. as it can be observed in table 1, since the initial date of trading of crypto currency is different, a separate time series analysis will be made for each crypto money and the findings will be compared. although there are 13 crypto currencies in the first form of the sample, crypto coins with less than 30 observations were excluded from the analysis in order to perform a reliable time series analysis. 3. method in this study, we perform analysis to find out changes observed in search numbers of crypto currencies over the time. based on our findings on change of number of searches, we tried to figure popularity of currencies out for the next future. 3.1. analysis to determine the future of crypto coins here, the graphs related to the search numbers of the each cryptocurrency will be plotted, and based on these graphs it will be inferred that the crypto money from may become more popular over time or taken out of circulation over time. the graphs were created as scatter plots by using ms office excel and different experiments were performed to determine the ideal curve between these lines and the curve with the highest specificity coefficients (r2) of related to equations was preferred. in this context, the graph obtained for bitcoin and the equation of this graph are provided in figure 1 as follows. mustafa özyeşi̇l 208 figure 1. number of searches for bitcoin note : although r2 responses in a increasing way when degree of the function is increased, since parabolic graph (quadratic) represents most recent periods best, this graph type was chosen. according to figure 1, the number of searches for bitcoin reached its highest value in december 2017, after this point although it fell for a while, it started to increase again since april 2019. therefore, we don't foreseen that bitcoin will be out of circulation in the short term. ripple-xrp graph and the related equation of this graph are provided in figure 2 below: figure 2. number of searches for ripple-xrp note: although r2 responses in a increasing way when degree of the function is increased, in order to determine the cut-off point of the horizontal axis (x axis), parabolic (quadratic) graph was preferred. as it can be seen in figure 2, ripple-xrp, which started to be traded in january 2015, reached the highest number of searches in january 2018 and then it started to decrease. when the quadratic equation is solved, it can be expected that number of searches of the ripple-xrp will decrease to zero by november 2020 and it may be out of the market after that date. ethereum graph and the related equation of this graph are provided in figure 3 below. figure 3. number of searches for ethereum according to figure 3, ethereum has reached the highest number of searches in december 2017, then downward movement was seen in the number of searches, but it achieved a stability in 8-9 index level monthly basis. as a result, it is considered that ethereum will not be out of circulation in the near term. ethereum classic graph and the related equation of this graph are provided in figure 4 below. future of the crypto currencies 209 figure 4. number of searches for ethereum classic according to figure 4, similar to ethereum, ethereum classic also has reached the highest number of searches in december 2017, after that it started to decline but achieved a stability in 15-20 index level monthly basis. therefore, ethereum classic also will not be subject to be out of circulation in the short term. litecoin graph and the related equation of this graph are provided in figure 5 below. figure 5. number of searches for litecoin according to figure 5, litecoin reached the highest level of internet searches in december 2017, after that it started to decrease but achieved a stability in 5-6 index level monthly basis. therefore, litecoin is not expected to be out of circulation in the short term. zcash graph and the related equation of this graph are provided in figure 6 below. figure 6. number of searches for zcash mustafa özyeşi̇l 210 according to figure 6, zcash reached the highest number of internet searches in december 2017, after that it started to decrease but achieved a stability in 5-10 index level monthly basis. therefore, similarly zcash is not expected to be out of circulation in the short term. 4. conclusion in this study, trend analysis was performed to determine future movement of search numbers of the crypto currencies. we aimed to foreseen each crypto currency’s future position. therefore, we used monthly internet searches of 6 crypto currencies with the longest data period. since crypto currencies have different trading dates, the largest data period available for each currency is included in the analysis. in this study, firstly scatter distribution graphs are drawn by using index data of monthly search numbers of each crypto currency. the functions that best represent the points in the graph have been tried to be determined and by using these functions, we tried to predict the date of being out of the market of relevant crypto money. as a result of these analyzes; it is determined that ripple-xrp may be out of the market by november 2020 but such a situation does not seen the case for other currencies. these graphs also showed that the highest number of searches for all crypto coins was reached in december 2017, and based on this observation it may be concluded that there was a speculative attack on crypto coins on this date. references darlington, j.k.(2014). the future of bitcoin: mapping the global adoption of world’s largest cryptocurrency through benefit analysis, university of tennessee honors thesis projects. devries, p.d. (2016). an analysis of cryptocurrency, bitcoin and the future, international journal of business management and commerce, 1(2),1-9. dikmen, n. (2012). ekonometri temel kavramlar ve uygulamalar. dora yayınevi, bursa. google (2019). google.trends.com, (erişim tarihi: 25.05.2019). göçer, i̇. (2016). lisans ve lisansüstü i̇çin ekonometri. lider yayınları, i̇zmir. granger, c.w.j. (1969). investigating causal relations by econometric models and cross spectral methods. econometrica, 37, 424-438. gujarati, n. g. ve porter, d. c. (2012). temel ekonometri, çev. ümit şenesen ve gülay günlük şenesen, (orijinali: 5. basım), literatür yayıncılık, i̇stanbul. luther, w. j. (2016). bitcoin and the future of digital payments. independent review, 20(3), 397-404. nakamoto, s.(2008). bitcoin: a peer-to-peer electronic cash system, n.p.: bitcoin.org, nov. pdf. tarı, r. (2012). ekonometri. umuttepe yayınları, kocaeli. international journal of commerce and finance, vol. 5, issue 2, 2019, 140-146 140 the recent evolution of ghana’s financial system: the ‘‘momo’’ effect shafiq abass istanbul commerce university, turkey abstract this study analyses how the widely use of telephone and similar electronic gadgets has reshaped transactions and the payment system in ghana. the not very long ago introduced mobile money system widely known in the country as momo, tends to have astounding effects on the banking sector that has been in existence since time immemorial. this research focuses on the impact the mobile money industry has had on the lives of the average citizen and also on communities where banks are inaccessible in relation to banking and financial inclusion in general.data from the bank of ghana, world remit, survey on social media platforms and other sources show that the mobile money sub industry of the fintech industry has made and achieved significant performancesand milestones within the past decade or so. the numbers infer that patrons tend to rely more upon the newly born mobile money system and continue to show reluctance in patronising the orthodox system of banking. we look at the changes in the amount of banking transactions as well as mobile money transactions within specific periods. from statistical data and individual opinions accumulated it is clearly a wake up call for banks.based on data evidence the possible reasons which might have been the causes of the situation at hand are as well discussed and recommend possible s olutions are arrived at. keywords: fintech, mobile money, financial inclusion, orthodox banking, financial institutions jel classification code no: g14, g21, g23, g32 1. introduction since 1957 when ghana gained her independece and after the establishment of the bank of ghana, ghanaians have been accustomed to more or less just one institution or medium for money transaction; the banks. years later, the inventon of the mobile phone device and subsequently the birth of fintechs have lead to the introduction of the mobile money payment (momo) and other payment systems like e-zwich, point of sale (pos) devices and ghana instant pay (gip). the orthodox banks seem to have lost the pole position in the financial market with the introduction of these new technologically innovaative products. fintechs through digital finances since the beginning of the decade have locked horns with existing and well established players in the sector and in parallel have increased the opportunities available in the system. global investments in fintechs have spiralled from just usd 4.05 billion in 2013 to usd 12.21 billion in 2014 (gomber, koch and siering, 2017, p. 2). this escalation is noticeably due to the ease fintechs and mobile money in particular have brought to the average ghanaian. previousely it took hours the least, to make a transaction of as low as ghs 500 but with momo it is possible to make purchases and payments, such as flight tickets, medical and utility bills in the worst, minutes. all of these transactions do not involve the hustle and bustle of going to banks and joining long and frusrating queues but rather in the comfort of one’s workplace, home or even while at recreational locations. for an economy to be fully operational and functional it needs a well-functioning payment system that is capable of ensuring the safety and stability of its financial system. the quickness by which money flows in and out of the system plays a significant role in determining the speed at which a country develops or grows. (chakravorti, 2016, p. 4) lists eight attributes or conditions that payment innovations like the momo system should possess in order to be successful. they are as follows: increase benefits to end-users, penetrate a niche market, change end-user behavior, provide incentives for adoption and usage, offer profit opportunities for payment providers, forge partnerships between new and existing payment providers, provide necessary security and adopt or create industry standards. from the discusions presented the momo clearly falls within the innovative payment category. in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e the recent evolution of ghana’s financial system: the ‘‘momo’’ effect 141 the clear or direct effects of a quick payment system may be undermined because it is not as conspicuous as other elements within the economy, but it should be understood that economic growth and improved living standards are made evident in the unemployment rate of a country. countries with very low unemployment rate tend to create adequate jobs which are made possible by timely and secure completions of financial transacions due to efficient payment systems available. in summary a very reliable payment system leads to economic prosperity and higher living standards. the inter-industrial linkages within an economy the payment system has make it one of the most important players if not the most important.(bank of ghana, 2017a, p. 1). in ghana money transactions between two or more economic bodies is facilated by various institutional arrangements that make up the payment systems. some of these instituions include but not limited to ghana automated clearing house (gach), mobile money, ezwich, direct credit and direct debit and many other payment service providers. however of the afore mentioned service providers mobile money tends to have outdone its competitors over the last decade (bank of ghana, 2017a, p. 2). 2. background and terminology for a clear and conceptual grasp of the discussions we shall have the following key terms: fintech, momo, financial inclusion and orthodox banking are described and analysed within the contect of this research paper. 2.1. fintech fintech is a portmanteau of financial technology which literally refers to the technological advancements evident in the fast, innovative and transformative changes happening in the financial services sector. (gomber, koch and siering, 2017, p.3) relate fintech generally with the connection between internet related technologies such as cloud computing and mobile internet, and established business activities of the financial services sector. fintechs focus mainly on business modelinnovations and new solutions for existing challenges in the financial sector. financial innovations resulting from fintech include devices like the e-zwich, atm, qr codes as well as our topic for the day, momo. these innovations have been major game changers in the financial services industry and have played a huge role in terms of financial inclusion in ghana. between 2010 and 2018 the number of e-zwich cards issued have increased by more than 550%, with the total volume of transanctions from e-zwich cards increasing from 460 746 in 2010 to 7 759 354 in 2018 (bank of ghana, 2017b, p. 2). this in a way paints a general picture on the impact fintech has made in the financial services industry in the country. 2.2. financial inclusion according to approximations by the world bank group, just about a third of the population within sub-sahara africa of which ghana is part has accessto formal financial services, according to the world bank group (ky, rugemintwari and sauviat, 2019a, p. 2). however the rapid growth of technology-driven financial innovation i.e fintech is gradually changing these underwhelming statistics in the positive direction. more and more people are being included in formal, semi formal and informal banking service. the ease by which individuals from underdeveloped and remote areas access formal services is generally what is termed as financial services. serrao, (2013) describe financial inclusion as the timely delivery of financial services to the disadvantaged and low income group at an affordable cost. it is term used to refer to the delibrate attempt to make the poor, margi nalised people and those vulnerable to low economic power to engage in formal economic process through ownership and usage of formal financial service at regular interval (aina and oluyombo, 2014, p. 2). in ghana particularly, mobile money has caused the number of people who own and participate in formal financial transactions and services to double (bank of ghana, 2017b, p. 4). and this is also evident in the recent reduction in the length of queues at the banks during prime banking hours of the day. its simplicity and ease (no paperworks needed) has come in handy for senior citizens most of which are either semi literate or completely illiterate. shafiq abass 142 2.3. orthodox banking before fintech and momo in particular took over the country’s financial market sector the banks and insurance companies, established under government permits after rigorous paper works and various procedures, were the big sharks in the markets. most of such banks are usually run in high rise intimidating structures which just by the look at them sometimes scares away the less previlleged in the our societies. these are the banks i refer to as the orthodox banks. hence orhodox banking is simply the process of conducting banking transactions and delivering banking and other financial service through engaging in the ‘ancient’ ways of banking. these pld ways include the issuance of large bank account books, banking halls being the only access points, internet banking being a hoax, etc. in general, orthodox banking is the kind of banking operations and service with minimal use of fintech. 2.4. mobile money (momo) mobile money is the general term used to refer to banking or other financial transactions made using the mobile phone. these transactions are generally made via mobile wallets in the sim cards issued by mobile service providers in the country. these bank-like services are not delivered in conjuction with the orthodox banks but rather it is betwee the sim card owner and his or her telecommunication network. mobile money may be described as electronic cash backed by equivalent amount of the bank of ghana notes and coins stored using the subscriber identification module (sim) in a mobile phone as an identifier (bank of ghana, 2017a, p. 1). the introduction of momo into the country has resulted in a massive financial inclusion within almost every demographic categorisation. 2.4.1. momo’s gradual dominance the mobile money service is gradually taking over the mantle from the orthodox ways. a large percentage of ghana’s rural population is unbanked mostly due to the lack of bank branches in the regions as well as the excessive bureaucratic work involved in opening bank accounts. another reason is that the banks generally consider these remote areas to be less profitable because of insufficient businesses and large scale production firms. hence they decide not to establish branches at those locations. so most rural settlers find solace in the simple-touse, reliable, affordable and convenient mobile money service. the presence of momo has uplifted and caused a high influx in the level of financial inclusion among adults and young individuals alike not forgetting the less educated senior citizens who are one of the prime beneficiaries. however, the ‘love’ for momo is also aparent in the country’s urba n regions. most of the urban dwellers in the country have momo accounts besides their already active bank accounts. this increased use of the service is hugely due to the inundation of mobile phone devices in the country, particularly in the rural areas in the last couple of years. improvement in mobile network functionality and little capital needed in building and upgrading a mobile money point-of-sale infastructure have also serve as significant rationale for the service’s increased patronage. as compared to the orthodox banking method mobile money has proven to be faster convenient flexible and affordable (gsma 2013, p. 3). mobile money is a transformational service that uses ict and non-bank retail channels to extend the delivery of financial services to clients who cannot easily be reached profitably with traditional branch-based financial services. examples of mobile money services include electronic wallets used for two or multiple party transactions either between two parties or between a party or parties and the government through salary payment. globally daily average mobile money transactions between parties is estimated at usd35.00 (gsma, 2013, p. 3). there are two main ways the mobile money payment service is used; either to make or receive payme nt between peers (p2p) or between a government and a person (g2p). in ghana mobile money services are mainly required in the payment of utility bills such as television bills(dstv), taxi and uber fares, money transfer to friends and family, payment for the purchase of airtime and internet bundles, etc. all these generally fall under the p2p kind of service. the g2p usage method is not very often implemented since government generally prefers the traditional payment method of sending through registerred bank accounts (bank of ghana, 2017a, p. 2). just like fiat money mobile money also possesses the store of value function of money and as such, quarterly payments of interest are made on mobile money floats. compared to banks it is faster, convenient, flexible, affordable and now just like normally banks it pays interests. what more is in store for users? the recent evolution of ghana’s financial system: the ‘‘momo’’ effect 143 2.4.2. momo operating companies and their role in the economy there are currently four mobile network companies that are engaged in the mobile money busines namely; mtn (mtn mobile money), tigo (ti̇go cash), airtel (airtel money) and vodafone (vodafone cash). the industry has created various jobs to ghanaians as mobile money agents, service providers, merchants, retailers and aggregators. before january 2016 the number of mobile money agents under these four companies was 107415. the chart below shows the contributions from the various nertwork service companies. from 2013 to 2016 as the number of bank customers increased steadily mobile money customers rather went exponential, growing by more than four times. as reporeted by the bank of ghana in 2016, mobile money volume of transactions multiplied by over seven times (737%). for a concise depiction of the figures in chart 2 below s how the number of mobile money customers as compared to orthodox bank customers. (the numbers 1-4 depict years december 2013december 2016). chart 2. momo customers as compared to bank customers it is clear that in less than a decade the mobile money industry has been able to attract much more customers than the traditional banking sector. these are due to the numerous benefits the sector has delivered to both the ghanaian shafiq abass 144 residing in very remote communities and the urban ghanaian, which the orthodox banks have failed somewhat drastically in the past decade. 3. discussions looking at developing trends it can be infered that mobile money is definitely here to stay for the foreseeable future. the industry has cemented its position in the country’s staple payment system in enhancing huge economic growth through the provision of hundreds of thousands of jobs, enhancement of faster, much secure and affordable medium of monetary transaction and in addition paying quarterly interests on mobile money accounts. furthermore the number of banked persons in the country has spiralled and continues to improve. most ghanaians have lost trust in the orthodox banks and its processes. a recent incident incolving a chief executive officer of one of the local banks and its customers has landed a major and possibly industry-sinking blow to the banking sector. the said bank ceo is said to have absconded with the hard earned savings and investments of customers leaving them stranded with nothing. if instant action is not taken by various stakeholders within the banking sector, the industry might not withstand the pressure exerted on it by the momo sector and this could cause its collapse by the next half century. plans for the long run should also be in place. for the banks and other financial services providers to keep up the pace with the rapid insurgence momo seems to be making, there is the need for major collaborations with fintech companies and the principal momo service providers in the country. as well as large investments in the research and development departments within banks, insurance companies and other financial services providers. in short technological knowhow should be incorporated into the systems within banks if any luck of catching up with momo is hoped for. to see how overwhelmingly impactful momo has been on ghana’s financial market the table below demonstrates just that. the recent evolution of ghana’s financial system: the ‘‘momo’’ effect 145 4. suggestions and conclusions the alarming figures show that since 2012, the mobile money industry continues to grow in every aspect of the overall payment system industry from number of mobile money payment system accounts available to the number of agents operating to total annual transaction volumes to total balance on floats. it has outgrown the traditional banks in these areas too within a short period of time. with its beneficial attributes this service has well and truly taken the payment system in ghana to a whole new phase. for the traditional banks to keep operating and not run out of business within the foreseable future important mearsures should be put in place. collaborating with telecom operators in providing the mobile money service could be one of such mearsures. bank accessibility in the rural community and reduced banking time plus cheaper bank transactional fares may help play roles in keeping banks alive. in this era of technological advancements in every aspect of life it should not come as a surprise that the mobile money system is surging far ahead of its competitors since it is a kind of technological application itself. hence banks should definitely make a technological as well as human capital overhaul in order to serve consumers appropriately. shafiq abass 146 references aina, s. & oluyombo, o (2014), the economy of financial inclusion in nigeria: theory, practice, and policy. cibn occasional paper series. vol. 1. no. 1, pp. i̇32… bank of ghana, payment systems department, (2017), impact of mobile money on the payment system in ghana: an econometric analysis, pp. 18 bank of ghana, payment systems department, (2017), payment system statistics, pp. 14 chakravorti, s. , new payment technologies: back to basics (2016). http://dx.doi.org/10.2139/ssrn.2781264 gomber, p. , koch, j-a. & siering, m. digital finance and fintech: current research and future research directions (2017). journal of business and economics, fourthcoming. gsma (2013): mobile banking. www.gsma.com ky, s. , rugemintwari, c. & sauviat, a. (2016). does mobile money affect saving behavior? evidence from a developing country. http://dx.doi.org/10.2139/ssrn.2815090 ky, s. , rugemintwari, c. & sauviat, a.(2019). is fintech good for bank performance? the case of mobile money in the east african community. http://dx.doi.org/10.2139/ssrn.3401930 ky, s. , rugemintwari, c. & sauviat, a. (2018). friends or foe? mobile money interaction with formal and informal finance. http://dx.doi.org/10.2139/ssrn.3324718 international journal of commerce and finance, vol. 2, issue 1, 2016, 25-35 cost of poor quality in energy sector özlem aras, (msc) kocaeli university industrial engineering programme burcu özcan, (ph.d.) kocaeli university industrial engineering programme abstract: companies need to produce their product and services with lower cost in order to survive in the competitive global market. that is why; firstly they need to define the visible and invisible cost of poor quality factors and then need to eliminate these poor quality costs by utilizing the various improvement methodologies. in order to define the poor quality, firstly the project team members need to be assigned between the cross functional departments. then, the current status needs to be defined step by step by utilizing the various methodologies such as pareto analyze etc. as a second step, root cause analyze is performed, and lastly the actions and action plan are defined. all these steps are systematized with some methodologies such as pdac, practical problem solving (pps), six sigma dmaic & 8d. in this study, it is aimed to decrease the warranty cost which is a factor of the cost of poor quality in a factory in the energy sector. at the same time, it is aimed to decrease the customer complaints as well as to increase the customer satisfaction. the factors that cause the warranty cost have been defined in the current status analyze. pareto analyze, brainstorming, fish bone analyze, process mapping, 5 why analyze etc. methodologies have been utilized in this study. key words: key performance index (kpi), pareto analysis, cost of poor quality (copq), fish bone, 5 why 1. introduction at the present century, companies strive to continuously develop and expand their actuality. consequently, they try to define what their customers expect and how they can meet the customer expectations with a minimum cost. (anderson,1993) to achieve this; they need to understand their customers properly; need to produce or service in a high quality on time with a low cost (karaulova et al., 2008). a company that succeeds these requirements have loyal customer who make repeat orders (jones and sasser, 1995). thus, the company guarantees to have great return on investment ( roi ) (karaulova and shevtshenko, 2009). today companies need to be reliable and stable at their processes so that they can pr oduce the quality with lower costs. the reliability and stability affect the performance of the company in its sector. for that reason each company needs to describe some metrics; key performance index (kpi) to measure their performance. thus, these kpi metrics measure the real status of the company at the certain time (kaganski, 2013). for example cost of poor quality / revenue which is a kpi metric of a company. this kpi metric includes; scrap cost, rework cost, warranty cost which consumes recourses, time and money (karaulova et al.,2012). therefore, in order to survive in the market, companies should increase the product and service quality as well as decrease the cost by utilizing various quality improvement methodologies. particularly, in the today’s competitive market, cost of poor quality cannot be disregarded within the cost management. however, in the classical system, it was assumed that high quality was met with high cost. however, at the present day, it was understood that this approach was not true. it was accepted that the highest cost of a company is not to produce high quality product or service, it is to produce lower quality product and service ( karabınar and geyik, 2001). efil stated in his book that "the cheapest way of doing a work is to do it true for the first time” (efil, 1990). the influence of the poor quality production can be handled in two ways; losses for the companies and also for the customers. companies are faced with decreasing of the sales, loss of image, decreasing of the competitiveness and loss of the productivity. in point of customers ; the health and safety run a risk, the customers do not satisfy with the product, the customer dissatisfaction is increased, the trust of the customer is decreased, customer complaint and returns are increased (sale, 2001). as a result, both companies and customers suffer with the poor quality of design, production and sales. in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e 126 özlem aras & burcu özcan http://ijcf.ticaret.edu.tr there are two kind of aims of the quality systems and improvement processes; to increase the customer satisfaction and to decrease the costs which are occurred because of non-conformities. companies want to increase the customer satisfaction in order to sell more products. this means that they make more profit. the best way of decreasing the costs which are occurred because of non-conformities is to prevent before the cost occurs. if it is not possible, the companies need to define and solve the non-conformities in the sub-process of the production as soon as possible. the cost of the non-conformities increases when the defining of the non-conformities is late. this point of view should not be forgotten; the additional cost of the non-conformed product is because of the poor quality not because of the quality (özkan, 2001). in the recent years, while the customer expectations and production systems are continuously changed, the description of the quality costs are same in the last 50 years (moen,1998). in the past, companies were thinking differently regarding how their product specifications should be. product specifications were being designed based on designer's desire or based on how company wants to provide the product to their customers. henry ford’s quotation is an example for this way of thinking ‘customers can choose a car which color they want with black being conditions’. as can be seen, at the beginning of the 1900, the products were produced just in defined specific conditions, the customer expectation was not being considered. in the other word, companies focused on just conformity of the standards (hitcher,1993). at the present, this way of thinking was changed as ‘conformity to the requirements’. companies started to produce product or service based on the customer requirements with this new approach. at the recent years, big companies started to respond the latent requirements of their customers. these latent requirements are the requirements that the customers have not thought over it or haven’t realized it so far. according to bland; the cost of poor quality is equal to the variation between the actual operational cost and operational cost standard (bland, 1998). besides, customer dissatisfaction which is occurred due to this poor quality and also the cost which the customer has to bear should be added into the company copq. according to the sörqvist; the non value added cost should be called as copq and copq is the best way to increase the profitability and competitive capacity of a company. in summary; poor quality firstly causes customer dissatisfaction then, loss of sale and loss of image. in actual fact, this is the main difference between the quality cost and cost of poor quality. even though the customer dissatisfaction cost and loss of company image cost called as latent cost are disregarded in the classical quality cost system, they are very important in the copq system. because recent studies showed that these latent costs are very important that they can’t be ignored. the aim of the copq is to provide required data to the management and the employees in order to define the improvement opportunities and to measure the continuous improvements in a company. copq system also helps a company to control itself in its own process. 2. cost of poor quality there are numerous ways to define and measure the cost of quality, in this study we use asq cost of quality definition. there are two different variables in the cost of quality equation: cost of good quality ( cogq) and cost of poor quality ( copq). essentially, the cogq relates to costs incurred to assure the quality in products and prevent poor quality. the copq is a measurement of the non–conformities (failure) costs incurred in producing the product. this can be understood in the following formula: coq = cogq + copq (1) each of these variables has more specific dimensions. the copq accounts for internal and external failure costs, while the cogq encompasses appraisal and prevention costs. the copq quantifies the traditional quality costs companies measure. these include scrap, rework, and returned materials. as these costs emerge from production line issues as well as external services employed by companies, such as the use of the supply-chain, it is important to identify their origin in the calculation. the copq formula can be extended to show internal failure costs (ifc) and external failure costs (efc), giving us the following equation: copq = ifc + exc, where: (2) cost of poor quality in energy sector 27 http://ijcf.ticaret.edu.tr ifc = scrap costs + rework costs (3) efc = returned product costs + warranty costs + product recall costs (4) costs incurred internally and externally are caused not only by defects in products, but also by inefficiencies in production and processes. a more in-depth list of factors affecting ifc and efc is below: factors affecting ifc factors affecting efc · weaknesses in quality resolution (capa/fmea) · delayed work schedules · poor materials planning · materials shortages · equipment downtime · materials review · reengineering/redesigning products · poor service management · unresolved customer complaints · weak enterprise communication · environmental/sustainability nonconformance · adverse reputation events 3. application this study is carried out in a factory which trades in energy sector and has 662k$ cost of poor quality. this amount of copq was occurred in 2015 which is shown on the below table 1. in this analyze, copq/revenue which is the non-financial key performance index of the company has been analyzed and targeted to decrease copq/revenue from 1, 25% to 0, 68% until the end of the 2016 and to decrease the copq in the ratio of 45%, and additionally to decrease the customer complaint quantity in the ratio of 83%. table 1. total copq, warranty cost, copq/revenue, targets total copq 662k$ warranty cost 300k$ target decreasing ratio from copq 45% revenue 52.920k$ copq/revenue 1,25% target copq/revenue 0,68% in this study, team members are gathered from design department, planning & purchasing department, and dispatching department based on the cross functional team requirement. a cross functional team should have members from all the functions needed to diagnose the root cause, develop and implement solutions. the methodologies used in this study are process mapping, pareto analyze, brainstorming, fish bone, 5why. in order to analyze the copq / revenue; the analyze steps were divided into four steps which are modeled from deming’s pdca cycle. analyze steps are defined as below: define & measure: any process, sub process or financial performance metric that is measured and planned for improvement. 128 özlem aras & burcu özcan http://ijcf.ticaret.edu.tr analyze: this is a step where, the performance metric that needs to be improved is analyzed. improve : actions that are necessary to create the change as per analysis completed in the earlier step. sustain: this is where process changes are effected and standardized to create a sustained performance after confirmation of achievement of the goal. the analyze steps; define & measure, analyze, improve & sustain are determined in table 2 as project plan. table 2. project plan define & measure: project set up ( team members), data collection: define opportunity. investigate to understand the current state in detail. action target date 1 analyze current warranty cost q1/2016 classification of the cost type & customer complaints pareto analyses; define the highest costs & customer complaints 2 process mapping: review the process flow to see the nonconformities occurred in the flow. q1/2016 analyze : analyzing the data: identify and confirm root causes of the problem & develop, pilot, and implement solutions that eliminate root causes. action target date 1 brainstorming methodology q2/2016 fish bone (ishkawa ) methodology 5 why methodology for defining the root cause 2 solutions defined in order to eliminate the root causes. q2/2016 improve: developing & implementing long term solutions action target date 1 actions planned with smart targets: when & who? q2/2016 sustain: new work methods and processes standardized. issue closed action target date 1 checking & standardization of the actions taken. q4/2016 cost of poor quality in energy sector 29 http://ijcf.ticaret.edu.tr 3.1. define & measure: first of all, warranty cost has been calculated within the cost of poor quality. afterwards, warranty cost has been classified based on the complaint type and thus, customer return quantity and customer return cost which come from the field have been obtained. analyze has been resulted as below: there has been 662,47k$ cost of poor quality which was occurred because of the non-conformity activities in the company during 2015. 45% of this cost is because of the warranty complaints came from the customer return from the field as shown in the table 1. the warranty cost classified based on complaint type has been analyzed by utilizing pareto analyze given in figure 1. as can be seen from the below graphic, the most important problem is the missing delivery to the latest customers which is occurred 83% of the customer complaints. then technical failure comes from behind, service support problems and damage. figure 1. pareto analyze for the customer complaint quantity when the analysis is proceeded based on the cost, as can be seen from the figure 2, missing part/delivery to customers has been occurred the 67% of the warranty cost. figure 2. pareto analyze for the warranty cost distribution secondly, in order to define the current status of the issue, an as-is flowchart has been utilized to understand how the process currently flows. it will be helpful to compare this as-is flowchart with a diagram. in the as-is flowchart diagram, the process steps of the design and dispatching department were reviewed because these departments are directly responsible from the missing delivery complaints. in figure 3, process flow has been analyzed step by step. all the traces which can cause the missing delivery were noted down on the 130 özlem aras & burcu özcan http://ijcf.ticaret.edu.tr process flow in order not to overlook the details. this will help the team members to find the root cause. this method should not be omitted during current status analyze. based on above explanation, all the steps summarized and charted as below: design department prepares the bill of material (bom). after preparing bom, material resource planning (mrp) is run. then, purchase order is released to the planning department and project data table is prepared by design engineer. after the preparation of the project data table, accessory packing list is determined by the design engineer. accessory packing list cannot be transferred automatically from sap bom so it is prepared manually. then, packing list is sent to dispatching department just before the shipment and accordingly accessories are prepared by dispatching department. finally packing and loading steps are completed. figure 3. process flow chart for missing delivery issue 3.2. analyze at the analyze stage of this study, fish bone diagram has been utilized. fish bone diagram is a tool that helps to identify, sort, and display possible causes of a specific problem or quality characteristic. it graphically illustrates the relationship between a given outcome and all the factors that influence the outcome. this type of diagram is sometimes called an "ishikawa diagram" because it was invented by kaoru ishikawa, or a "fishbone diagram" because of the way it looks or cause & effect diagram. a cause-and-effect diagram is a tool that is useful for identifying and organizing the known or possible causes of quality, or the lack of it. the structure provided by the diagram helps team members think in a very systematic way. in this analyze, as defined above in figure 4, all possible main causes of the issue have been determined by the cross functional team by utilizing brainstorming methodology and possible causes were placed into fish bone diagram. the main causes which affect the missing delivery issue; policies, design, procedures, people, cost of poor quality in energy sector 31 http://ijcf.ticaret.edu.tr production&planning ve plant have been determined and all the possible sub-causes have been defined and have been placed under the main causes. figure 4. cause-and-effect diagram after placing the all possible sub-causes, most likely root causes of the issue should be found by the team members by utilizing the process flow chart and their experiences. for the root causes of the issue, 5 why analyse has been used in this study. 5 why analyze is a method in order to reach the root cause of the issue. in this method, the team members always ask ‘why this happens? ‘until they can’t reply the question ‘why’. when they cannot proceed with the question why, that means they reach the root cause of the issue. the team members of the study have reached root causes of the missing delivery to customers as shown in the table 3. table 3. five why analyze 132 özlem aras & burcu özcan http://ijcf.ticaret.edu.tr 3.3. improve after defining of the root causes, the team members should define actions to eliminate the root causes. these actions need to be planned by smart targets such as ‘what’s the target, who is the responsible and when will it be completed ‘. based on the above explanation, the countermeasures have been defined for the each root causes and shown in the table 4. the actions for first root cause are that the packing list of the project will be determined in design meetings and the preparation of the packing list will be reminded by mail to the related design engineer by the dispatching engineer when the project work order released and project starts to be produced. the actions for second root cause are the accessories which can be assembled during production will be assembled at the assembly line and these accessories will be removed from accessory list and the accessories will be obtained automatically from sap bom, it will not be prepared manually. the actions for the third root cause are mrp system will be used for the accessories and canban system will not be used. table 4. root causes and actions cost of poor quality in energy sector 33 http://ijcf.ticaret.edu.tr root cause and actions r o o t c a u s e 1. it is not the first priority of the work order for design engineer. a c ti o n s 1. the packing list of the project will be determined in design meeting. who : design engineer / when : in the first coming project. 2. the preparation of the packing list will be reminded by mail to the related design engineer by the dispatching engineer when the project work order released and project starts to be produced in the production. who : dispatching engineer / when : in the first coming project r o o t c a u s e 2. the draft packing list cannot be transferred automatically from sap bom. a c ti o n s 1. the accessories which can be assembled during production will be assembled at the assembly line and these accessories will be removed from accessory list. for instance: bars, screws, washers, gas ducts will be assembled during the production. these parts will not be considered as accessories. who : production department & design department / when : q3 /2016 2. the accessories will be obtained automatically from sap bom, it will not be prepared manually. who : design department with it department / when : q3/2016 r o o t c a u s e production planning method ( canban system) is not suitable for the planning of the accessories. a c ti o n s mrp system will be used for the accessories and canban system will not be used. who : design department & dispatching department / when : q3 /2016 3.4. standardization when all actions are taken, it should be concluded as dramatic improvement in the customer complaints and warranty cost. this can be observed by measuring the kpi. if the improvement is clearly related to the actions, we need to sustain the gains by standardization of these actions taken. it shall be done by changing work instructions, method provisions, check lists, sigma cards etc. this is very critical step and if not done immediately then the problems will keep repeating. this shall be supported by appropriate training as necessary. 134 özlem aras & burcu özcan http://ijcf.ticaret.edu.tr as can be seen from below actions, some standardization has been applied in this study in order to keep the latest status. sap system was revised & accessories are planned in the system automatically. accessory list was revised & some parts; bars, screws, washers, gas ducts are assembled in the production line, not in the dispatching area. mrp system is used for the planning of the accessories. at the beginning of the following year (2017), the kpi metric ; copq / revenue, customer complaint rate, warranty cost will be measured and the achievement of the study will be observed by the company management. 4. conclusion: in recent days, with regard to the companies, while the quality is a strategical concept, it is one of the main factors which defines the choices with regard to the consumers. when the quality is defined with the traditional approaches, it is handled as conformity of the standards or conformity of the purpose. however, today the quality concept has gained a new dimension which does not fit into these definitions. quality concept has been rescued from the narrow definition case and has been placed into the flexible and dynamic case. based on this flexibility and multidimensionality of the quality, numerous quality definitions have been defined related to the quality concept and each definition has been used in different places. as a result, with the most common definition, quality can be defined as a strategic management tool which is used for satisfaction of the customer expectation, improvement of the operational performances, decreasing the costs. productivity is an indispensable item for the companies. the companies which work efficiently, achieve minimization of the costs and accordingly get profitable results. the companies which apply the six sigma approach, define the non-value added actions, remove the unnecessary actions from the company processes and thus, they provide profitable works with the minimization of the costs. in this paper, warranty cost which is the factor of the copq, has been analyzed by utilizing some methodologies such as; pareto analyze, process mapping, brainstorming, fishbone analyze and 5 why analyze. then it has been targeted decreasing of the warranty costs with the actions taken for the warranty root causes. in the current status analyze stage, copq / revenue which is the non-financial key performance index (kpi) is determined as 1,25% . then this kpi has been targeted to decrease until the 0,68%. during the current status analyze stage, missing delivery to customer issue which is the 67% of the warranty cost has been emphasized by utilizing the pareto analysis methodology. at the same time, it is aimed to decrease the customer complaint in ratio of 83% and accordingly to increase the customer satisfaction. after the current status analyze, root cause analyze has been performed. in the root cause analyze stage, the main causes which affect the missing delivery issue; policies, design, procedures, people, production & planning and plant have been determined and all the possible sub-causes have been defined by utilizing the brainstorming methodology and these sub-causes have been placed under the main causes. the direct causes which were chosen by the team members within the possible causes are determined as mistakes & missings in the packing list, insufficient canban system at the dispatching department, late releasing of the packing list. then, the root causes of the missing delivery have been determined as priority of the design engineer, poor sap system for the bill of material, insufficient planning by utilizing the 5 why analyze methodology. based on the root causes defined some actions have been taken such as; packing list needs to be defined in the design meeting and when the work order of the project released and the project is started to be produced in production line, design engineers should be informed regarding the packing list of the project, accessory packing list has been revised and some accessory parts have been removed from the accessory packing list, accessory parts needs to be taken from sap bom module automatically and utilizing from mrp system instead of canban system for the planning. references anderson, e. w. and mary w. s. the antecedents and consequences of customer satisfaction for firms. marketing science, 1993, 125-143. cost of poor quality in energy sector 35 http://ijcf.ticaret.edu.tr bland, f. merle, john maynard and david w. herbert. “quality costing of an administrative process”, the tqm magazine. vol.10, no.5, 1998, p.367. efil, i̇smail. toplam kalite yönetimi ve toplam kaliteye ulasmada önemli bir araç-iso 9000 kalite güvencesi sistemi. bursa:uludag üniversitesi basımevi, 1990. harrington, h. james. “performance improvement: a total poor-quality cost system”, the tqm magazine. vol.11, iss. 4, 1999, p.221-230. hitchner, earle, “quality works”, national productivity review. vol.12, iss.2, 1993, p.285-290. jones, t. o. and sasser, w. e. why satisfied customers defect. harvard business review, 1995, 88. kaganski, t., snatkin, a., paavel, m. and karjust, k. selecting the right kpis for smes production with the support of pms and plm. international journal of research in social sciences, 2013, 69 76. kangilaski, t. challenges for smes partner network. proceedings of the 7th international conference of daaam baltic industrial engineering, 2010. karabınar, selahattin ve faruk geyik, “toplam kalite yönetiminde parayla ifade edilemeyen maliyet kalemleri üzerine öneriler”, üretim sempozyumu,gaziantep üniversitesi, 2001, http://www.lnsresearch.com/ accessed 12.03.2016 karaulova, t. and shevtshenko, e. reorganisation of production system on sme enterprises. annals of daaam & proceedings, 2009. karaulova, t., kostina, m. and sahno, j. framework of reliability estimation for manufacturing processes. mechanika 2012, 18.6. karaulova, t., kramarenko, s. and shevtshenko, e. risk factors in project management life cycle. 6th international conference of daaam baltic industrial engineering, tallinn, estonia, 24-26, 2008. moen, m. rune. “new quality cost model used as a top management tool”, the tqm magazine. vol.10, no.5, 1998, p.334-341. özkan, yılmaz. toplam kalite. birinci basım, sakarya: sakarya kitapevi, 2001. sale, i̇smail. adım adım toplam kalite uygulamaları. birinci basım, ankara: seçkin yayıncılık, 2001. torbica, z. m. and robert c. s. customer satisfaction in home building. journal of construction engineering and management, 2001, 82-86. http://www.lnsresearch.com/ international journal of commerce and finance, vol. 5, issue 2, 2019, 187-194 187 antecedents and consequences of green innovation prof. dr. ahu tuğba karabulut istanbul commerce university, turkey abstract the purpose of this study is to shed light to antecedents and consequences of green innovation. antecedents and consequences are important to understand why companies decide to proceed green innovation and what are their benefits to the companies and their stakeholders. antecedents are motivations of companies to conduct green innovation whereas consequences are contributions of them to the world. keywords: green innovation, antecedent, consequence 1. introduction green innovation has been a popular concept in the management literature which reflects sensitivity of companies to environmental management for sustainability. antecedents and consequences need to be reviewed to understand the importance and feasibility of the concept. green innovation is the development of software and hardware solutions related to green products and processes. it involves problem-solving related to pollution-prevention, energy-saving, green product design, waste recycling, and corporate environmental management (chen et al., 2006) (song and yu, 2018, p. 139). green innovation is concerned with the environmental issues such as eco-design, energy saving, waste recycling, and pollution prevention (chang, 2011; chiou et al., 2011; bocken et al., 2014; cai and zhou, 2014) (huang and li, 2017, p. 309). green innovation is the enhancement of products and processes to reach targets of sustainability and reduce environmental burden (rennings, 2000). green product and process innovation are the most widely accepted green innovation types (chen et al., 2006; chang, 2011; amoressalvado´ et al., 2014; lin et al., 2014). green product innovation is efforts to enhance product quality and safety for product differentiation and environmental issues by promoting sustainability, which in turn it increases profits and competitve advantages (chen, 2008). testa et al. (2011) reveal that companies want to increase their investments in green innovation to enhance energy efficiency and decrease environmental impact due to regulatory pressure. yalabik and fairchild (2011) show that companies make more green product investments to have competitive advantages. companies will be forced to make more green product innovation investment and develop more green products to meet regulatory requirements and have competitive advantages due to social expectations for environmental legitimacy for climate change and environmental regulatory pressures. green process innovation is modifications for manufacturing processes and systems to save energy, prevent pollution, and recycle waste (kammerer, 2009). the implementation of green process innovation lets companies recycle wastes, reduce usage of resources, raw materials and costs, and increase resource productivity (porter and van der linde, 1995; chen, 2008). environmental legitimacy pressure encourages companies use their resources completely, minimize usage of energy, recycle wastes, and improve production processes continously (li et al., 2018, p. 1092). green process innovation is related to saving energy, preventing pollution, recycling waste, and reducing manufacturing toxicity (zhu and sarkis, 2004; chiou et al., 2011). green process innovation shows organizational ability to improve current processes and develop new ones to prevent pollution, recycle waste, save energy, and leave less toxicity in innovation processes (chen et al., 2006; chen, 2008) (huang and li, 2017, pp. 311-316). companies practice green innovation to satisfy goals related to environmental protection (chen et al., 2006). green organizational identity helps this process by combining different skills and expertise for facilitating innovation (benet-martínez et al., 2002; chang and chen, 2013). companies can stimulate innovation by using their knowledge in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e prof. dr. ahu tuğba karabulut 188 to generate ideas appealing and useful to their stakeholders (ancona and caldwell, 1987; chang and chen, 2013). green organizational identity can motivate employees for discovering new customer needs and technologies. this effort leads companies to use of their resources to improve green innovation (dougherty, 1990; chang and chen, 2013) (song and yu, 2018, p. 139). trend toward environmentalism leads companies face customer consciousness for environmental issues, regulatory pressures and practice environmental management (huang and wu, 2010; cai and zhou, 2014). green innovation describes organzational contributions to sustainable development to enhance competitiveness (oecd 2010; zhu et al. 2012; bocken et al. 2014). green innovation is an innovation which decreases environmental impact (oecd, 2010; cai and zhou, 2014). green innovation leads industries conduct sustainable production and facilitates evolution of sustainable production initiatives. companies can control their environmental impacts if they comply with international environmental conventions and apply technological breakthroughs which strengthen green innovation (chen, 2008; chiou et al., 2011). many green innovation researches focus on incremental innovations such as products, processes, organizations, institutions, and marketing methods (oecd, 2010; oecd, 2012). products’ energy consumption and production processes’ redesign lead industry efforts to enhance recycling possibilities. the main concern of green innovation efforts is technological advances of products and processes (chen et al., 2006; chen, 2008; chiou et al., 2011). green innovation is development of green products and processes to modify a current product design to decrease negative effect on the environment during a product life cycle (chen et al., 2006; chen, 2008; chiou et al., 2011). green product innovation focuses on innovation of products for recovery and recycling, environmentally friendly material and packaging, and eco-labeling (chen et al., 2006; chen, 2008) (huang and li, 2017, p. 311). 2. antecedents of green innovation antecedents of green innovation lead companies feel more responsible and make efforts for green practices. also, they reflect expectations of their stakeholders. when companies want to survive longer, they have to adopt themselves for requirements of their stakeholders and perform green innovation practices. adopting green practices is a major concern for companies nowadays (shu et al., 2016). societal pressures, resource limitations, regulatory policies, and customer preferences lead countries to a more balanced approach to environmental sustainability and economic growth (lópez et al., 2008; dhakal, 2009) (tang et al, 2018, p. 39). environmental management requires adoption of green products, processes and practices which are less detrimental to the environment than previous ones (zhu and sarkis, 2004; zhu et al., 2012) (huang and li, 2017, p. 309). managers are concerned about environmental performance because of several reasons such as public perception, competitive advantages, and regulatory and contractual compliance (zhu and sarkis, 2004; chiou et al., 2011) (huang and li, 2017, p. 316). companies can invest more in green innovation to gain and maintain environmental legitimacy (rennings, 2000) (li et al., 2018, p. 1090). innovation is an essential mechanism to improve organizational ability to maintain competitive advantages (eisenhardt and martin, 2000). green innovation has an essential role to create competitive advantages in environmentalism era (oecd, 2010; bocken et al., 2014; przychodzen and przychodzen, 2015). green innovation can offer business and customer values which contribute to sustainable development and reduce environmental effects and costs (hillestad et al., 2010; zhu et al., 2012; bocken et al., 2014; cai and zhou, 2014). companies can demonstrate green concepts in designing and packaging to enhance advantages of product differentiation (chen et al., 2006; chen, 2008). managers can be concerned about environmental performance due to several reasons such as competitive advantage, regulatory and contractual compliance and public perception (zhu and sarkis, 2004). green product and process innovation increase competitive advantage and decrease the negative effect on the environment (chen et al., 2006; chiou et al., 2011) (huang and li, 2017, p. 314). companies try to protect the environment by decreasing their wastage for their corporate social responsibility. thus, they face a lot of pressure to protect the environment (delmas and toffel, 2003) (shafique, asghar and rahman, 2017, p. 94). companies trying to cope with environmental regulations are should consider the green innovation strategy which require to initiate creative thinking, accept new ideas, and use resources efficiently to enhance green creativity. tough antecedents and consequences of green innovation 189 competition and environmental concerns can push companies to develop flexible product and process strategies (chang and chen, 2013). companies should focus on green products to meet customer demands for environmental responsibility (lin et al., 2013). green innovation strategy is critical for companies to survive and achieve competitive advantages. green innovation strategy can improve green awareness level of a company and stimulate its ability to create beneficial ideas for green product and processes (song and yu, 2018, p. 137). companies have develop environmentally friendly programs such as green technologies and products to enhance their capacities for green innovation (zhu et al., 2008; chiou et al., 2011; yung et al., 2011). several studies have examined factors which affect green innovation (friedman and miles, 2002; chang, 2011; lin et al., 2013; tseng et al., 2013). many studies have examined external contextual factors affecting green innovation capabilities of companies (chiou et al., 2011; lin et al., 2013; ford et al., 2014). chiou et al. (2011) showed that greening of suppliers could enhance green innovation. lin et al. (2013) revealed that demand affected green product innovation in the motorcycle sector. ford et al. (2014) pointed out that environmental regulations could affect green innovation level positively. some researchers have examined internal factors expanding organizational capability for green innovation. chang (2011) searched the relationship between corporate environmental ethics and competitive advantages. they (2011) showed that corporate environmental ethics positively motivated green product and processes innovation to enhance competitive advantages (chang, 2011; marin et al., 2017). external pressures to be more environmentally responsible and green product demand motivate companies to strive for green innovation (chang, 2011; lin et al., 2013). there are few researches which revealed internal organizational factors affecting green innovation, and identified green innovation strategy as a substantial factor to enable green product and process innovation (eiadatetal, 2008). green innovation strategy can enhance business models and change management attitudes to create a green organizational identity for triggering green innovation (chen, 2011). green creativity can be defined as ‘the development of new ideas about green products, green services, green processes, or green practices that are judged to be original, novel and useful’ (chen, 2011). when a company with a strong sense of green organizational identity faces with external pressures to address environmental issues, creative responses to this pressure can result useful and novel ideas to trigger organizational capability for green creativity (chen, 2011; chen and chang, 2013). then, these useful and novel green ideas can support green innovation (song and yu, 2018, p. 136). according to hart and sharma (2004), social collaboration between the company and its stakeholders can lead innovative ideas which cause organizational difference. chang and lin (2014) believe that social collaboration is a main driver of green innovation by creating environmentally friendly products. lee and kim (2012) highlight that the success of green innovation depend on collaboration between the company and its suppliers (handayani, wahyudi, and suharnomo, 2017, p. 153). globalization created awareness among ngo’s, customers, and government organizations to protect the environment. thus, they make pressure on companies to reduce their wastages and protect the society. also, international standard organization set standards for companies to protect the environment (shafique, asghar and rahman, 2017, p. 93). paraschiv et al. (2012) mention that companies can innovate sustainable products and update their product range continously to develop strong relationships with their stakeholders (handayani, wahyudi, and suharnomo, 2017, p. 154). according to de medeiros, vidor and riberio (2018, p. 334), critical factors of green innovation is as follows: investing in basic r&d infrastructure, cleaner technology research and qualified employees, creativity, fulfilling customer expectations, gathering knowledge about factors which lead sustainable purchase, integrating r&d, production and marketing, integrating with stakeholders, eliminating cultural barriers, complying with regulations and laws, gathering knowledge of competing products, predispositioning culturally towards collaboration, experimentation, proactivity of leader, and developing critical reflective analysis capability. green innovation practices are affected from corporate social responsibility, business ethics, environmental participation, public care, social collaboration, integration of resource capabilities, social interaction, minimizing hazardous emission, efficiency of natural resource utilization, production by environmental standard and product recycle (handayani, wahyudi, and suharnomo, 2017, p. 156). prof. dr. ahu tuğba karabulut 190 researches related to critical success factors of green innovation are highlighted in table 1: table 1. critical success factors of green innovation factor variables authors legislation and market knowledge fulfilling customer expectations iyer (1999), rennings (2000), chen (2001), pujari et al. (2003), beise and rennings (2005), zhu et al. (2005), mickwitz et al. (2008), visser et al. (2008), kammerer (2009), carrillo-hermosilla et al. (2010), doran and ryan (2012), horbach et al. (2012) complying with regulations and laws rennings (2000), chen (2001), beise and rennings (2005), zhu et al. (2005), mickwitz et al. (2008), kammerer (2009), horbach et al. (2012) information or financial support from government köhler et al. (2013), kiss et al. (2013) gathering knowledge about cultural variables affecting buyer behavior hanssen (1999), baker and sinkula (2005), beise and rennings (2005), lee et al. (2006), peng and lin (2008), gonza´lez-benito and gonza´lez-benito (2008), brito et al. (2008), naranjo-gil (2009) gathering knowledge about factors which drive sustainable purchase foster jr et al. (2000), bre´card et al. (2009), brouhle and khanna (2012), lin et al. (2013) gathering knowledge about consumption patterns of reference persons bhate and lawer (1997), halme et al. (2006), houe and grabot (2009), welsch and kühling (2009) gathering knowledge of competing products cetindamar (2007), triebswetter and wackerbauer (2008), yalabik and fairchild (2011) antecedents and consequences of green innovation 191 collaborating crossfunctionally predisposition culturally towards collaboration gonzalez-benito (2008), hallstedt et al. (2010), albino et al. (2012) integrating r&d, production and marketing pujari et al. (2003), pujari et al. (2004), pujari (2006) integrating with stakeholders (suppliers, environment specialists, universities etc.) byrne and polonsky (2001), jos and jabbour (2008), carrillohermosilla et al. (2010), aschehoug et al. (2012), de marchi (2012), jabbour et al. (2012) innovation oriented learning eliminating cultural barriers eder (2003), jamali (2006), battisti (2008) developing a set of green competences (creativity, leader proactivity, and experimentation) chen (2007, 2008), arago´n-correa et al. (2008), hallstedt et al. (2010), chen and chang (2012) developing critical reflective analysis capability jos and jabbour (2008), arevalo (2010) investing in r&d investing in cleaner technology research porter and linder (1995), hemel and cramer (2002), horbach (2008) investing in methods for sustainable product development hemel and cramer (2002), montalvo (2003, 2008), horbach (2008), boons and wagner (2009) investing in basic r&d infrastructure montalvo (2003, 2008), testa et al. (2011), horbach et al. (2012) investing in qualified employees montalvo (2003, 2008), zailani et al. (2012) resource: janine fleith de medeiros, gabriel vidor, & jose´ luı´s duarte ribeiro (2018), “driving factors for the success of the green innovation market: a relationship system proposal”, journal of business ethics, 147, p. 329. design, materials, recyclability, reusability, packaging and labeling of current and new products, products using less energy, materials and resources in the development and design stages are some important issues (chen et al., 2006; chen, 2008) whereas the ease of recycling products at the end of their lives, the use of non-toxic materials (chiou et prof. dr. ahu tuğba karabulut 192 al., 2011) and environmentally friendly packaging (wong et al., 2012) are other important issues (tang et al, 2018, p. 43) for green innovation. 3. consequences of green innovation companies want to achieve green innovation for its consequences, mainly benefits for themselves and their stakeholders. if companies achieve successful green innovation practices, they can improve their business practices, processes and performances. they can also make contributions to their stakeholders and the world. natural resources are diminishing in the world and companies can decelerate this process by conducting green innovation practices. also, they can decrease their costs and increase their efficiencies as well. green management focuses on how green practices influence organizational profitability and competitiveness (banerjee, 2002; pane haden et al., 2009). companies can initiate green innovation based on green product and process innovation. companies which have environmental concerns can consider green innovation as a business opportunity (zhu et al., 2012; bocken et al., 2014) (huang and li, 2017, p. 310). scholars started to discuss green innovation in the late 1990s. it presents a shift from current production technologies to innovate products and processes to line up with environmental regulations and environmental, economic, and social considerations to improve long-term production and reach sustainable industrial development (cleff and rennings, 1999; oecd, 2009). many studies explored development and performance of green innovation management (chiou et al., 2011). green innovation leads companies to gain incentives from using natural resources and assets, increasing productivity, reducing pollution, energy consumption and waste (cheng et al., 2014), and improving corporate image, competitive advantages and long-term profitability (porter and van der linde, 1995; oecd, 2009) (tantayanubutr and panjakajornsak, 2017, p. 195). there are three studies related to managerial environmental concern (eiadat et al., 2008; qi et al., 2010; ar, 2012). they consider centrality of environmental innovation to a company strategy and perceive its importance and effectiveness to achieve strategic goals (tang et al, 2018, p. 44). environmental performance can improve through implementing eco design during manufacturing (diabat and govindan, 2011). the main purpose of eco design is to recover investment by reusing products repeatedly. it will decrease remanufacturing costs and wastage. thus, eco design affects environmental and economic performances. customers prefer eco-friendly designs as well (miroshnychenko et al., 2017) (shafique, asghar and rahman, 2017, p. 96). the integration of green concept into product design and packaging can enhance product quality and product differentiation advantages (chen et al., 2006; chen, 2008; hillestad et al., 2010) (huang and li, 2017, p. 310). technological environmentally friendly innovation is socially acceptable interms of environmental sustainability and may enhance company performance. green innovation may enhance product quality. products become more efficient in the energy use and cost, need shorter time for product development (boonkanit and kengpol, 2010) (handayani, wahyudi, and suharnomo, 2017, p. 154). chen (2008) highlights that if companies pioneer in green innovation, they can have first mover advantages and charge higher prices for their green products. also, green innovation enhances corporate image (huang and li, 2017, p. 315). companies can increase economic efficiency and decrease production costs by applying environmental practices such as reusing materials, reducing energy consumption, and redefining production and operation processes (zhu and sarkis, 2004; huang and wu, 2010; dong et al., 2014) (huang and li, 2017, p. 310). continuous and endless innovation is the sole option for companies to invent, adopt and implement new procedures. innovation can reduce institutional pressure directed from competitors and customers to improve company performance (porter van der linde, 1995) (shafique, asghar and rahman, 2017, pp. 92-93). managers should realize the importance of green innovation and engage in green innovation practices. corporate commitment to environmental issues focuses on this and enhances environmental concern of management which has a positive impact on company performance (pipatprapa et al., 2017). the relevance of environmental concern of management enhances positive impact of innovation on performance. by making the environment a relevant concern for management, companies can promote green innovation as a means to improve performance (tang et al, 2018, p. 48). antecedents and consequences of green innovation 193 companies can adopt green innovation based on green product and process innovation to improve their performances (chiou et al., 2011) (shafique, asghar and rahman, 2017, p. 98). companies can adopt proactive green innovation strategies to merge ecological protection goals with economic performance (chen et al., 2006; janicke, 2008; zhu et al., 2012) (huang and li, 2017, p. 315). cheng and shiu (2012) pointed out that green product and process innovation improved corporate environmental performance. green process innovation influences environmental performance more significantly by improving organizational confidence to disclose carbon information. green product innovation creates more competitive advantages in the financial performance (rennings, 1998) and enhances financial performance (gonza´lez-benito and gonza´lez-benito, 2005) (li et al., 2018, p. 1101). green product innovation lets companies respond to environmental needs of governments and markets to enhance resource effectiveness to optimize environmental benefits in a product life cycle (chiou et al., 2011; dong et al., 2014). green process innovation requires to decrease pollutant emissions and clean production costs to comply with environmental regulations (chiou et al., 2011; dong et al., 2014). companies aiming to decrease environmental costs make efforts toward green innovation to increase productivity and minimize production waste (huang and wu, 2010; chiou et al., 2011). companies which practice green innovation can avoid punishments and protests from government regulators and satisfy environmental protection requirements (chen, 2008; zhu et al., 2008; chang, 2011). green product and process innovation are positively related to environmental performance because of that (huang and wu, 2010; chiou et al., 2011; dong et al., 2014) (huang and li, 2017, p. 315). green innovation decreases institutional pressure and improves environmental and economic performances (lee min, 2015). product innovation, process innovation and managerial innovation are three types of green innovation which are interlinked and equally important in companies (li et al., 2017). companies face environmental pressure from competitors, suppliers, customers, and regulatory bodies (fikru, 2016) to formulate strategies to apply higher standards to improve their performances and gain competitive advantages (weerakkody et al., 2016) (shafique, asghar and rahman, 2017, p. 93). chang (2011) shows that there is positive relationship between green innovation and competitive advantage. chiou et al. (2011) add that green innovation can enhance competitive advantages and environmental performance. huang and wu (2010) find that high-tech companies can develop green product and process innovation to convert their products and operations more environmentally efficient. green innovation has a positive effect on financial performance (huang and li, 2017, p. 315). 4. conclusion antecedents and consequences of green innovation are main motivators and contributions of companies. as it is reviewed, green innovation practices should be enhanced for sustainability and profitability of companies and leave a more livable world to new generations. although, it requires substantial investments and efforts, companies should conduct green innovation to satisfy their stakeholders, have more responsible presence and play leadership roles in their sectors. when the number of sensitive stakeholders increases, companies will feel more responsible to protect the world via green innovation practices. green innovation efforts will yield to higher performance and chance for long term survival of companies as well. prof. dr. ahu tuğba karabulut 194 references handayani, r. wahyudi, s., & suharnomo, s. (2017), “the effects of corporate social responsıbility on manufacturing industry performance: the mediating role of social collaboration and green innovation”, business: theory and practice, 18, 152-159. huang, j-w, & li, y-h (2017), “green innovation and performance: the view of organizational capability and social reciprocity”, journal of business ethics, 145, 309-324. li, d., huang, m., ren, s., chen, x., & ning, l. (2018), “environmental legitimacy, green innovation, and corporate carbon disclosure: evidence from cdp china 100”, journal of business ethics, 150, 1089-1104. de medeiros, j. f., vidor, g., & ribeiro, j. l. d. (2018), “driving factors for the success of the green innovation market: a relationship system proposal”, journal of business ethics, 147, 327-341. shafique, m. n., asghar, m. s., & rahman, h. (2017), “the impact of green supply chain management practices on performance: moderating role of institutional pressure with mediating effect of green innovation”, business, management and education, 15(1), 91-108. song, w., & yu, h. (2018), “green innovation strategy and green innovation: the roles of green creativity and green organizational identity”, corporate social responsibility and environmental management, 25, 135-150. tang, m., walsh, g., lerner, d., fitza, m. a., & li, q. (2018), “green innovation, managerial concern and firm performance: an empirical study”, business strategy and the environment, 27, 39-51. tantayanubutr, m., & panjakajornsak, v. (2017), “impact of green innovation on the sustainable performance of thai food industry”, business and economic horizons, 13(2), 192-209. international journal of commerce and finance, vol. 5, issue 2, 2019, 63-75 63 a systematic review of cryptocurrency scholarship isaiah adeleke nile university of nigeria, nigeria umaru mustapha zubairu federal university of technology minna, nigeria bilkisu abubakar baze university, nigeria faiza maitala nile university of nigeria, nigeria yakubu mustapha federal university of technology minna, nigeria ekanem ediuku nile university of nigeria, nigeria abstract purpose – the purpose of this paper was to conduct a systemic review of extant cryptocurrency research in order to identify important features of these studies and to provide directions for future cryptocurrency research. methodology the systematic quantitative assessment technique (sqat) was used to identify and review relevant peer-reviewed journal articles that investigated various facets of cryptocurrency. findings – 54 journal articles were identified from 12 high-quality databases. the findings of the review revealed that most of the studies took place in europe, north america and asia, while africa has been largely ignored. the main focus of cryptocurrency articles has been on a call for regulation of cryptocurrency without much work done on how to mitigate its vulnerability to the financing of terrorism and as a tool for money laundering. finally, most cryptocurrency articles adopted a single research method – survey. there is a need for future studies to combine a variety of methods so as to gain additional insight into the issues of cryptocurrency’s vulnerability, r isk identification and mitigation, regulation and acceptability. research limitations the use of limited but high quality academic databases means that some articles were not considered for this review. originality/value – this study is one of the few studies to conduct a systematic review on a phenomenon which has the potential to transform the global financial landscape. keywords: cryptocurrency, systematic review, regulation. jel classification: g23, g38 1. introduction one of canada's largest cryptocurrency exchanges, quadrigacx, was shut down in january 2019 amid a torrent of uproars arising from huge financial losses suffered by 76,319 clients due to the sudden death of 30-year-old gerald cotton, the founder/chief executive officer of the exchange in december, 2018. he was the only person who knew the encrypted passwords to gain access to quadrigacx's offline cryptocurrency reserves stored in what are called cold wallets and he was gone with the passwords! $214.6million was lost by investors and clients in this incident! (alexander, 2019; scotia 2019; disparte, 2019). in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e isaiah adeleke 64 in the last two decades, cryptocurrency has evolved as a response to the world’s search for an alternative to money that would be devoid of central banks’ controls, serve as a medium of exchange, store of value, unit of account, have reduced transaction costs, be fast, highly secured and capable of allowing for the creation of self-enforcing smart contracts that do not rely on financial institutions, lawyers or accountants for their execution(mahmoud et al., 2019; tredinnick, 2019; masciandaro, 2018).“crypto” means “conceal” or “secret”, and thus cryptocurrency is a virtual coinage system that functions much like traditional money, enabling users to provide virtual payment for goods and services (sele, 2018; masciandaro, 2018; zalan, 2018)). it uses strong secret codes to secure financial transactions, control the creation of additional units, and verify the transfer of assets. validation of transactions is without the need for a trusted third party such as a bank, credit-card company or escrow agent. its production and transactions ride on blockchain technology – a system that enables distributed public ledgers to hold immutable data in a secure and encrypted way and makes alteration impossible (conte de leon, et al, 2017; kirkby, 2018; miseviciute, 2018; tredinnick, 2019; zalan, 2018; pao, et al., 2018). the first cryptocurrency to go live was bitcoin in 2009, followed two years later by namecoin; today, there are hundreds of cryptocurrencies being traded globally, with major examples including etherum, ripple and litecoin (hileman and rauchs, 2017; brauneis, 2018; hu, 2019). the four key cryptocurrency industry sectors are: (i) exchange – purchase and sale of cryptocurrency (ii) wallet storage of cryptocurrency (iii) payments facilitating payments using cryptocurrency and (iv) mining securing the global ledger ('blockchain') generally by computing large amounts of hashes to find a valid block that gets added to the blockchain (hileman and rauchs, 2017; shahzad, 2018, koutmos,2018). as of june 28, 2019, the total market capitalisation of the top 100 cryptocurrencies stood at $336,669,705,557(coinmarketcap, 2019). this constitutes a significant volume of financial transactions and all indications show that it is on upward trajectory (coinmarketcap, 2019). however, loss of investment due to anonymity and decentralization of exchange system and other challenges such as high price volatility, lack of wide acceptance, irreversibility of transactions and possibility of serving as a haven for money laundering and other forms of criminality are the contending issues against cryptocurrency (gkillas and katsiampa, 2018; shahzad, et al., 2018; phillip, et al., 2019). recent scholarship on cryptocurrency has described and tested various significant aspects of the digital currency for example, scholars have recommended that cryptocurrency should be regulated but the “how” was not addressed (peters, 2015; corbet et al., 2018; phillip et al., 2018; wei, 2018; caporale and zekokh, 2019). other scholars have recommended the inclusion of cryptocurrencies in the investment portfolio mix because it is considered as a profitable financial asset (feng et al., 2018; saksonova and kuzmina-merlino, 2018; platanakis and urquhart, 2019). in terms of valuation, recommendation was made that the fair value should not be determined without considering the risk elements in cryptocurrency and hedging is regarded as a preferred measure against price movement risk (conte, 2017; feng et al., 2018; zhang et al., 2019). other scholars are of the opinion that purchasing power parity and social cognition have a role to play in decision making to invest in cryptocurrency (li and wang, 2017; reynolds and irwin, 2017; shahzad, 2018) it is observed that as much as the significance of cryptocurrency as an alternate currency has attracted much attention, so far there is little discussion on how to mitigate the risks posed by cryptocurrencies and the “exact” form of regulation that will make the virtual currency fully integrate into the world financial system as a medium of exchange – should the production and control of cryptocurrencies remain with the non-government entities or should central bank’s digital currencies? the reality of digital currency is not what the world can shy away from; however, there is an urgent need for governments to ensure a safe and reliable cryptocurrency that will not be shrouded in anonymity, and devoid of being a haven for criminality (miseviciute, 2018, zalan, 2018; van wegberg, 2018, kraus 2019). it is in recognition of the importance of cryptocurrency, the riskiness and complexity around it and the need to determine the “perfect fit” type of regulations to make it safe and secure that this study sought to conduct a systematic review of published scholarship dealing with these issues as this paper sets out to conduct a systematic review of cryptocurrency research, two main objectives were set to be achieved. first, identification of important features of cryptocurrency research (i.e. the number of journal articles published, the time and geographic distribution of these articles, the type of articles (conceptual vs. empirical), the research themes explored by these articles, and the research methods adopted).second, it attempted to provide a systematic review of cryptocurrency scholarship 65 directions for future research on cryptocurrency which will be beneficial to existing digital currency researchers as well as providing a starting point for new researchers who are considering delving into the issue of digital currency. the remaining part of this paper is structured as follows: the next section presents the methodology section, which discusses the method and procedures utilized in conducting this systematic review. this is followed by a section that discusses the findings of the review, and highlights directions for future research based on these findings. finally, the conclusion is provided with the limitations and additional suggestions for future research based on these limitations. 2. methodology i in conducting this systematic review of cryptocurrency research, this study adopted the “systematic quantitative assessment technique” (sqat) developed by pickering and byrne (2013). sqat is systematic in the way papers are assessed to determine their inclusion or exclusion in the review process, and the focus of this review was on peerreviewed original journal publications on cryptocurrency in order to maintain a high quality of papers. sqat enabled the reviewers to identify “important geographic, scalar, theoretical and methodological gaps in the literature” (pickering and byrne, 2013, p. 11). sqat recommends five important steps in conducting an effective systematic review. each step and how it was applied in this study is described in table 1. a total of 54 peer-reviewed english cryptocurrency articles met the selection criteria from 12 academic databases outlined in table 1. table 1: description and application of sqat step application in current study 1. define topic cryptocurrency scholarship 2. formulate research questions five research questions: 1. what is the time distribution of cryptocurrency research articles? 2. in which countries were these articles written? 3. what kind of cryptocurrency articles were published? (conceptual vs. empirical) 4. what are the specific themes these articles explored? 5. what research methods were utilized to conduct the research? 3. identify key words (not for your study, but for your search terms) “cryptocurrency” 4. identify and search databases 1. 12 databases utilized: elsevier; springer; wiley; taylor and francis; jstor; emerald; sage; inderscience; cambridge journal; oxford, mit, ssrn; 2. “all in title” search using one search term: “cryptocurrency” 5. read and assess publications 1. abstracts of papers found were read to ensure that they were dealing with cryptocurrency 2. literature reviews book chapters and conference proceedings were isaiah adeleke 66 not included; only peer-reviewed conceptual and empirical articles. 3. discussion and findings 3.1. time distribution of articles on cryptocurrency based on this study’s sample of 54 articles, the earliest publication dealing with cryptocurrency appeared in 2014 (dostov and shust, 2014).during the first 6 years (2009 to 2014) of the 10 years range the study focused on, there were almost no research publications, but interest picked up in 2015 as can be seen in the increase in publications from 2015 as shown figure 1. a peak was reached in 2018 (27 articles) and half of 2019 has witnessed 13 articles; if the search results for 2019 are extrapolated, it can be expected that a total of 26 cryptocurrency articles will be published at the end of 2019. going by the deluge of issues around cryptocurrencies, it is expected that researchers need to do more in the area of publications to address the pressing issues of risk mitigation and what form of regulation will be appropriate for cryptocurrency to make it globally recognised and acceptable. 3.2. geographical distribution of cryptocurrency articles a systematic review of cryptocurrency scholarship 67 figure 2 presents the geographical distribution of the 54 cryptocurrency articles reviewed in this study. 5 out of 7 continents have articles published on cryptocurrencies. europe with 26 out of 70 (spread across 14 countries) led the pack, followed by north america (largely the usa) with 21 articles and asia with 17 articles spread across 10 countries. from a country perspective, 70 countries out of 195 countries that make the world as contained in worldatlas.com (world map, 2019) had articles published on cryptocurrency research. going by 54 articles considered, it can be observed from figure 3 that the countries with the most publications on cryptocurrency were usa (20), uk (10), china (5) and germany (4). the countries in europe, north america and asia continents account for 90% of global market capitalisation of cryptocurrencies which stood at usd336 billion as at 28 june, 2019 (coinmarketcap, 2019). this is not a surprise because in the last 10 years that cryptocurrencies emerged, they have become very prevalent in the usa, europe and asia continents. even the exchanges that have recognized cryptocurrencies so far are only in these continents. isaiah adeleke 68 future research on cryptocurrencies needs to have a special focus on the countries in africa and nations of other continents that currently have no representation. this is because cryptocurrency is a global phenomenon because it has to do with the world financial system which is interconnected among nations. thus, it is important that researchers in these countries conduct studies to determine the adoption or not of cryptocurrencies as a form of digital currency and how its benefit can be optimised and its downsides can be minimized. 3.3. article type the 54 articles reviewed were divided into two categories: conceptual and empirical. conceptual articles were defined as those that provided a theoretical discussion on cryptocurrency, whilst empirical articles were those which collected data qualitatively or quantitatively in order to test a particular hypothesis in the real world (saksonova and kuzmina-merlino, 2018). figure 4 presents the breakdown of the 54 articles based on this categorization. it can be seen from figure 4 that the majority of articles reviewed (65%, 35 out of 54) are conceptual in nature, whereby the authors offered recommendations (brown, 2016; guadamuz and marsden, 2016; hayes, 2017; gkillas and katsiampa, 2018) and theoretical models on how cryptocurrencies are mined as better alternatives to regular currency (moore and stephen, 2016; li and wang, 2017; hacker and thomale, 2018;gregoriou, 2018; milunovich, 2018; corbet et al., 2018).the remaining35% of the articles were empirical in nature (avdeychik and capozzi, 2018; shahzad, 2018, van et al., 2018). this imbalance represents an obvious gap in cryptocurrency research which future researchers should address. as commendable as it is that cryptocurrency researchers are thinking and putting strategies in place, about ways to minimize the risks cryptocurrrency poses and make it acceptable as a virtual currency, empirical research will determine how effective these strategies are in achieving their important objectives. 3.4. cryptocurrency research themes figure 5 reveals that five cryptocurrency themes were explored by the 54 articles reviewed in this study. 18 articles which constitute one third articles (33%) dealt with regulation of cryptocurrencies (c.f. dostov and shust, 2014; a systematic review of cryptocurrency scholarship 69 marian, 2015). typically the authors in this category were of the view that conceptually, cryptocurrency is not a legal tender in any nation yet, but they recognised cryptocurrency/blockchain as a disruptive technology that is capable of altering the financial system, aiding money laundering and terrorism financing because of the anonymous and decentralised nature of its transactions (peters, 2015; brown, 2016). they recognised the efforts of some countries towards regulation of cryptocurrencies (guadamuz and marsden, 2016; luther, 2016). they also recommended that regulation is required across board to legitimise or outlaw cryptocurrencies because it poses to become “2nd life” in another decade (reynolds, 2017; yeoh, 2017). they would then conclude by making recommendation that if legitimised, guidelines, policies, and framework are needed for the activities of the operators and transactions to contain the risks and also to protect the investors (miseviciute, 2018; catania et al., 2019). the second biggest theme after regulation was cryptocurrency acceptability (24%) i.e. 13 out of 54. the articles in this cateogry made an observation that cryptocurrencies are unlikely to generate widespread acceptance in the absence of government support (conte de leon, 2017; avdeychik and capozzi, 2018). governments of many nations agreed that cryptocurrencies as virtual currency have come to stay but are indecisive whether to give it a government legal backing or not and if they are to do, how? (brown, 2018; zalan, 2018) sympathetic citizens’ intention to use cryptocurrencies as a mode of exchange is high, but government has to come out with clear policy statements regarding the legal recognition and usage of cryptocurrencies (geiregat, 2018; kirby, 2018; koutmos, 2018). cryptocurrency portfolio management (21%) i.e. 11 out of 54, were the third most common theme amongst the articles reviewed. the articles in this category emphasized the recognition of cryptocurrency as financial assets with unique mechanisms for determining the price and high price volatility, behaviour of returns on cryptocurrencies (gkillas and katsiampa, 2018; saksonova and kuzmina-merlino, 2018). these studies further advocated for cryptocurrencies to be considered as part of portfolio of financial assets of individuals and government, because in their view, it offers a window of investment diversification to investors (dierksmeir, 2018; caporale and zekokh, 2019). the next group of articles (13%) i.e. 7 out of 54, were on asset classification. they established a dynamic relationship between cryptocurrencies and other financial assets. the puzzle here was “is cryptocurrency a currency or financial product? (koblitz and menezes, 2016; ammous, 2016). these studies revealed that some countries viewed cryptocurrencies as securities, some viewed them as virtual currency and some, as commodity (moore and stephen, 2016; baur, 2018). some studies in this category opined that cryptocurrencies can serve as a medium of isaiah adeleke 70 exchange but are too unstable to be used as unit of account as they do not possess all features of money (brauneis and mestel, 2018; corbet et al., 2018; milne, 2018).it is up to the government of every nation to take a clear position on cryptocurrencies and decide whether to accept it a legal tender or simply a financial product which can serve as an investment tool (corbet et al., 2018; milne, 2018) finally, the last and fifth most common themes were vulnerability and criminality (9%), i.e. 5 out of 54. the submission here was that cryptocurrency’s two distinct features – decentralisation and anonymity made it a safe haven for money laundering and terrorism financing; as such it constitutes a substantial danger in terms of criminal enterprise (brenig, 2015; feng et al., 2018).criminal justice professionals, law enforcement officers, financial regulators should be aware and take more drastic steps in regulating the usage of cryptocurrencies (teichmann, 2018; van wegberg, 2018; foley et al., 2019) based on the cryptocurrency themes identified in this review, it is observed that a vast majority of researchers focused on the potentially negative aspects of cryptocurrencies and recommended that there is a need to regulate their usage in order to minimize the level of criminality it is prone to and not to cause an upset to the global financial system, but there is none that prescribed the exact type of regulation – should it be regulation of the exchanges, the current miners or the trading activities? should central banks be the only agencies authorized to produce cryptocurrency? should it be outlawed outright? it is thus incumbent for future cryptocurrency research to focus on these unanswered questions. another area that calls for further research is the ethical issues (criminality) surrounding cryptocurrency. for both defenders and detractors, cryptocurrencies beckon a revolution of global finance as we know it. the detractors condemn cryptocurrencies as downright evil because they can facilitate nefarious commerce (e.g., weapons, drugs, and sex) and they often escape public scrutiny or regulation while the defenders hail cryptocurrencies as a solution to some of the most pressing societal ailments (e.g., poverty, debt crises, and hyperinflation) of the current economic system, then, where is the balance? (brenig, 2015; dierksmeier 2018).with only 5 out of 54 papers dealing with this issue. future researchers should thus explore this area and find a way to optimise the benefits of cryptocurrency while mitigating the risks. another gap that has been identified is lack of standards for classification of cryptocurrency. large percentage of people believe it is a digital currency while some believe that it is a digital asset like stock or any other commodity.? there needs to be distinct empirical studies that actually address this. only 7 out of 54 papers addressed this issue. it is time to move beyond the theoretical assumptions of “what it seems to be” to “what it is”. 3.5. research methods the objective here was to identify the primary research method used in each of the 54 cryptocurency articles reviewed in this study. figure 6 provides a summary of the findings. a systematic review of cryptocurrency scholarship 71 as shown in figure 6, more than half of the studies reviewed, precisely 63% adopted a survey as their primary research method (c.f. brown, 2016; guadamuz and marsden, 2016; moore and stephen, 2016; hayes, 2017). these surveys were largely used to gather data so as to help in unravelling each component of the cryptocurrency’s major themes – regulation, acceptability, portfolio management, asset classification and criminality and identify key issues in them (li and wang, 2017; baur, 2018; corbet et al., 2018; gkillas and katsiampa, 2018; gregoriou, 2018). this was followed by content analysis (c.f. jaag and bach, 2017; teichmann, 2018). next was the interview of various stakeholders in cryptocurrency (c.f. avdeychik and capozzi, 2018; shahzad, 2018,). in addition, there was a mix of surveys and interviews in some cases (c.f seele, 2018; foley et al., 2019). this accounts for 10.5% of the data gathering method andit was lastly followed by observations which accounted for 5.5% (c.f. van et al., 2018) two opportunities for future cryptocurrency research have been identified in terms of research methods. from figure 6, it can be seen that a lot of prior studies have adopted the use of surveys. while this method is valuable for data gathering in order to understand cryptocurrency perceptions, there is a need for future studies to explore more of content analysis, case studies, questionnaire and observation for deeper insights on this research area. the second opportunity for future research lies in the fact that most of the studies reviewed adopted a single research method. future research can combine two or more research methods so as to attain greater insight as to the different perspectives of the cryptocurrency as it pertains to regulation, acceptability and vulnerability controls. 4. conclusion this paper reviewed 54 peer-reviewed journal articles dealing with cryptocurrency. the articles were examined along five key categories, including the time distribution of the articles, geographical distribution of the article, article type, research themes and research methods. the results of the review were discussed and directions for future research were provided. whilst a reasonable number of cryptocurrency studies have been conducted, there is still significant room for more empirical research in this area, particularly considering the crucial importance that cryptocurrency has set out to play as a digital currency; capable of being a major disruption in the world financial system. this is even more pertinent for countries that are deemed to be sitting on the fence regarding regulation of this global phenomenon. some limitations exist in this study, which serve as additional gaps which future reviews of cryptocurrency scholarship can explore. the main limitation concerns the method used to gather studies for review, which was the use of a title search in twelve databases. whilst the databases contained high quality, peer-reviewed articles, they isaiah adeleke 72 definitely do not contain all peer-reviewed cryptocurrency articles. future systematic reviews can widen the scope of databases to gain further insight in cryptocurrency research. another limitation is the fact that only journal articles were included in the review, while excluding book chapters and conference proceedings. this was done in accordance with the sqat methodology to maintain the high quality of articles reviewed. however, there is potentially very useful insight in book chapters and conference proceedings, which future research would do well to include. a further limitation is the fact that a title word search was utilized rather than a key word search. a title word search provides a more precise search of articles that are dealing with cryptocurrency. however a key word search would have produced a greater number of articles for the review. some of the papers might not have been directly addressing cryptocurrency, but might have provided additional insight. however, despite these limitations, this systematic review was important as it provided a clear picture on the current state of cryptocurrency research and gave clear directions on the areas that future research needs to address in order to make cryptocurrency a near risk free digital currency and widely accepted. references alexander, d. 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(2019), “extreme value analysis of high‐frequency cryptocurrencies” high frequency, 2(1), 61-69. international journal of commerce and finance, vol. 5, issue 1, 2019, 121-132 121 analysis of the impact of inflation, interest rate, and exchange rate on economic development samson ogege university of lagos phd, nigeria abstract this article seeks to empirically analyze the influence of inflation, interest and exchange rate on economic development. the sustainability of high economic development in most industrialized and developing countries has been the primary objective of macroeconomic policies. notwithstanding, there exist considerable contention on the innate feature of the inflation, interest rate, exchange rate and development association. the major purpose of this work is to assess the inflation, interest and exchange rate effect on some economic development indicators in nigeria which includes the life expectancy index, human development index, consumption per capita, physical quality of life, and health and education index. the secondary data employed were collected from the cbn statistical bulletins from 1981-2017 and were analyzed adopting descriptive, correlation as well as regression analysis. the empirical analysis revealed the existent relative effect of macroeconomic variables on nigeria economic development indicators. the impacts of the economic attributes mechanisms on performance indicators are distinct. the work infers that the diverse economic characteristics’ components influence diverse indicators of performance in various ways. it is however recommended that inflation, interest rate and exchange rate should be used to create a favorable investment climate on economic development variables, the apex bank needs to consider inflation threshold for the country in the process of targeting single digit inflation as one of its major objectives. also, government should adopt tight monetary policy measures to control inflation from time to time. keywords: inflation, interest rate, exchange rate, economic development, descriptive analysis, regression analysis, e-view software. 1. introduction the national bureau of statistics in nigeria realized a statement in the 2ndquarter of 2017 that nigeria has witnessed an increase in economic development to the tune of 0.055%, but how much of this development is felt by an average nigerian in the face of high inflation and interest rates is already a puzzle. the researcher’s motivation to study this area hinge on the fact that; one, interest rate is one of the most essential components of the nigerian economic system that affect the borrowing cost and borrowing is an imperative source of financing businesses and production which may lead to economic growth. two, interest rates affect the return on savings, if the interest on savings is encouraging; individuals would be encouraged to save more idle cash which may pave way for availability of lendable funds in the bank consequently economic development would be improved. three, interest rates are fundamental element of the total earnings of a lot of investments. four, certain rates of interest give an introspection of what the economic and financial market activity would be in the future. based on these vantage roles interest rates play in the nigerian economy, it is imperative to continuously study this area to find out how well or otherwise interest rates affect the nigerian economy aminu and anono (2012), opined inflation as an indefinitely continuous increase in the price level of wide range of goods and services in an economy over a given time frame. they attributed inflation to a popular view that it is excess money in circulation chasing the few commodities available. the structuralist argued that inflation is vital for economic growth while the monetarist postulated that it wakens economic growth (doguwa, 2012). inflation is an indicator of economy growth, but excess growth may be harmful as it can result in hyperinflation, conversely, an economy with no inflation will be stagnant. thus, having the right level of economic growth and inflation is quite plausible which can be viewed as mild inflation. creeping or mild inflation can be assessed as having favourable influences on economic growth. however, zero inflation is detrimental to other economic sectors with falling price, profit, and employment. generally, galloping inflation has influences that are unprecedented on an economy since it in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e samson ogege 122 distorts and disrupts the price mechanism, and discourages savings and investment leading to the break down on morals (hossain et al, 2012). the nigeria inflationary trend has been favourable exclusively spanning from mild to running away inflation. doguwa (2012) reveals that growth is affected negatively by inflation when it attains 10.5 to 12 percent in nigeria. based on the statistical bulletin (2005) of the cbn, it was recorded that inflation rose from 13.8percent in 1971 to 16.0percent in 1972 which was accounted for by the era of oil glut and the introduction of economic regulations following the civil war. the excess oil in the early 1980’s that resulted in increase in the prices of oil in the local market signified another era of inflationary trend in nigeria recording 23.2percent in 1983 as well as 39.6percent in 1984. this brought about the structural adjustment programme in 1986 that brought about another inflation era in the late 1980’s. in line with adelowokan (2012), the main challenge in the post sap period was the fluctuation in the rate of exchange that resulted in high instability of output, increase in price of goods, low wage rate and high unemployment rate which consequently placed heavy burden on the indigent. also, between 1992-96 the rate of inflation rose from 57 percent to 72.8 percent. high rates of inflation instability have been recorded in nigeria and as such should be of major concern and effectively monitored by the monetary authorities. the increase in overreliance on imports of nigeria economy has made it necessary to constantly assess the extent in which the instabilities in the rate of exchange brings about an inflationary pressure in nigeria adeleye et al. (2017). taguchi, (2002) defines exchange rate as the rate at which a domestic currency is traded for a foreign currency. the exchange rate instability modeling has notable ramifications for some budgetary as well as monetary issues as it evades to the vacillations in the rates of exchange over a time horizon. thorlie et al, (2014). it is viewed as the risk linked with sudden volatilities that cannot be predicted in the exchange rate level (adelowokan 2012). the major problem this study attempts to solve is to evaluate the influence of inflation, interest and exchange rates on economic development within the study duration. the inflation, interest and exchange rate influence on economic development is quite a serious challenge. the experiences of different countries on inflation is no longer the problem but the fact that inflation problem appears to have attained the crisis dimension. changes in interest rate determine the rate of inflation. the nominal rate of interest is a function of the real interest rate and inflationary anticipation. 2. empirical literature hossain et al. (2012) investigated the inflation influence on economic development in bangladesh adopting time series data from 1978to 2010. the research objective was to discover the long run association of inflation with economic development. the variables employed include gdp deflator (gdpd) to measure inflation and gdp to measure economic growth. co-integration and granger causality test were adopted. the johansen–juselius cointegration outcome reveals that inflation has no association with economic growth in bangladesh. the causality outcome at lag two (2) indicates unidirectional relationship was discovered moving from inflation to economic growth. additional test at lag four (4) upheld the first by revealing unidirectional relationship moving from inflation to economic growth. jaganath (2014) evaluated inflation effect on development in six south asian countries adopting time series data between1980 and 2012. the broad objective was to evaluate the influence of inflation on development in six south asian countries using gdp as a proxy economic growth and cpi to measure inflation. co-integrated test and error correction mechanism, causality test and unrestricted var model were adopted. correlation analysis was employed to analyze the data and the outcome reveals the existent high positive association of inflation with economic development for the countries under study. the co-integration outcomes indicate existent long run causality for malaysia. nevertheless, nonexistent long run association of inflation with economic development was revealed for the rest of the countries. the result of granger causality reveals existent unidirectional relationship move from gdp to cpi for bangladesh, bhutan, and india. it also reveals unidirectional association run from cpi to gdp in the context of nepal. nevertheless, no association of gdp with cpi for maldives and sri lanka exist. the correlation adopted does not actually expound the effect of inflation on economic development, instead a regression analysis would have been employed, the work duration is insufficient to proffer better analysis. bakare, etal (2015), assessed inflation rate impact on economic growth in nigeria between 1986 and 2014 employing gdp and inflation rate as the study variable and were tested with the aid of adf unit root test to test their stationarity. regression analysis was used to ascertain inflation influence on growth, while granger causality test was analysis of the impact of inflation, interest rate, and exchange rate on economic development 123 adopted to ascertain the association of inflation with the growth of nigeria economy. outcomes revealed the existent adverse influence of inflation on growth. the granger causality indicates that gdp cause inflation but inflation does not cause gdp. olu and idih (2015), determined the nature of the association inflation share with nigeria economic growth adopting the time series data from 1980 to 2013. the work variables are gdp being the output variable, while the input variables are: inflation rate, exchange rate, labour and capital input ordinary least square was adopted by the work to indicate the dependent variable influence on the independent variables. result reveals the existent positive influence of inflation on the growth of nigeria economy which corroborate with the finding of aminu and anono (2012). oladipo et al.(2015), ascertained inflation, lending rate impact on the growth of nigeria economy employing annual time series data spanning from 1981 to 2014 and adopted real gdp, inflation at consumer prices, lending rate, net domestic credit, transfer payment as the work variables. adf test was employed to examine the unit root properties of the series. the unit root outcome reveals the stationary of all the variables at first difference but inflation is stationary at level. the ordinary least square (ols) technique was utilized and long run association amidst the variables was examined adopting johansen co integration test and causality test was also conducted. the result of the ols indicates that both inflation as well as lending rates have adverse influence on the economic growth. johansen co integration revealed the existent long run association amidst the variables being considered. according to the granger causality test, economic growth in nigeria does not granger caused by both inflation and interest rate. the challenges of this work is that it failed to carry out post estimation test to determine the model’ s robusticity johansen co integration test adopted to test long run association is not the right model for me (0) and me (1). autoregressive distributive lag (ardl) is the appropriate model. kasidi & mwakanmela (2013) evaluated the inflation influence on the growth of tanzania economy adopting annual time series data between 1990 and 2011. the work objectives were to: assess the influence of inflation on economic growth, examine the extent of economic growth responsive to variation in general price level and establish inflation association with economic growth. the study variables are gdp as dependent and inflation as independent variable. the work adopted reduced form regression equation to analyze inflation effect on economic growth and the result revealed the existent adverse influence of inflation on economic growth johansen co-integration test and correlation coefficient adopted reveals insignificant long-run causality between inflation and economic growth. only short term adverse significant. the adverse association of inflation with economic growth corroborate with the result of inyiama (2013). finan (2016) refers to the rate of interest as a cost of credit in economy and specifically is a price which the creditors charged the borrowers per year for the loan obtained. mutinda (2014) research reveals that rising rate of interest is able to result in an adverse influence on essential variables like gdp, fdi, and inflation, that will mount pressure on firms and the economy. interest rate as a matter of fact is the variable that can influence the core operation of the economy in terms of production and consumption through the fdi and inflation transmission mechanism between other financial variables. he also opined that in the most common context, interest is the price a debtor is charged for the use of credit granted within a given time frame. idoko et al. (2014) revealed that lending rate has no significant influence on economic development. hatane & stephanie (2015) revealed the existent of adverse significant association between interest rate and economic development. faroh & shen (2015) presents a different view which indicates the nonexistent influence of high interest rate on fdi flow, while siddiqui & aumeboonsuke (2014) in their work revealed existent adverse association of interest rate with fdi. recent studies have discoursed the consequences of the trend in exchange rate on general output, export and nonexport activities of the economy. in most cases, these studies do not have a theoretical background and stated in detail a temporary association between the key variables. for instance, mamun et al (2013) investigated the effect of currency depreciation, regarding investment expenditure on the growth of labour force in the equation along with lagged gdp growth. they also failed to regard the properties of time series variables and equations was estimated with the aid of ols. in other study, uddin et al (2014) ascertained a bivariate causality of gdp with the rate of exchange without integrating other important variables that could as well impact on the growth of output. kamal (2015) adopted similar model to determine the association between the two variables in the long-run. the rate of samson ogege 124 exchange adopted in both works is specifically based on the taka value of the us dollar, unlike the normal practice of regarding a weighted average of all relevant rates of exchange in relation to other major trading partners’ currencies. 3. methodology this work adopted secondary generated from the cbn statistical bulletins from 1981-2017data due to the fact that such data cannot be gotten via primary source because of the long period of time required to obtain the data. also, the finances and the time required are beyond the reach of the researcher. the multiple regression method was employed for data analysis which is specified below; lei = β0 + β1inf + β2intr + β3exr + u . . . . . . . . . .. . . . . . . (1) edi = β0 + β1inf + β2 intr + β3exr + u . . . . . . . . . .. . . . . . . (2) cpc = β0 + β1inf + β2 intr + β3exr + u . . . . . . . . . .. . . . . . . (3) hdi = β0 + β1inf + β2 intr + β3exr + u . . . . . . . . . .. . . . . . . (4) hei = β0 + β1inf + β2 intr + β3exr + u . . . . . . . . . .. . . . . . . (5) pqli = β0 + β1inf + β2intr + β3exr+ u . . . . . . . . . .. . . . . . . (6) where, lei= life expectancy index edi = education index cpc = consumption per capita hdi = human development index hei = health index pqli = physical quality of life index inf = inflation rate inr = interest rate exr = exchange rate u= error terms, β0=constant β1, β2, β3, = are the independent variables’ coefficients analysis of the impact of inflation, interest rate, and exchange rate on economic development 125 4. data analysis 4.1. the unit root test (test for stationarity) in order for the stationarity of the data series to be assure for this work, the augmented dickey-fuller unit root test was adopted in which its estimation have revealed that employing classical estimation techniques, e.g. the error correction model (ecm) to evaluate associations with unit root variables results in inferences that are misleading. when non-stationary variables are present, there might be a spurious regression which basically has a high rsquared, and t-statistics that seem to be significant, but the outcomes do not have any economic meaning. so, the adf was used in this study as the decision rule will be to compare the adf test statistic for each variable in absolute terms with their respective critical value. when the test value is more than the critical value in (absolute term), this means that order of integration is determined and there is no unit root problem otherwise there is unit root problem or if the p-value of adf < 0.05 significant level implying t the rejection of the null hypothesis should and the alternative hypothesis should be accepted that there is stationarity in the data series. additionally, the statistic value of the series data must also be less than the critical value (cv) due to its level of significant. table 4.1 variables adf test statistics critical value s/ns cpc /-7.984241/ /-2.945842/ s edi /-3.516403/ /-2.971853/ s exch /2.527983/ /-2.945842/ ns hdi /-1.155238/ /-2.951125/ ns inf /-2.858673/ /-2.945842/ ns intr /-2.122809/ /-2.945842/ ns lif /-3.562704/ /-2.960411/ s pqli /-2.122809/ /-2.945842/ ns source: researcher’s computation 2019 ns – not significant s – significant in table 4.2 above, consumption per capita (cpc), education index (edi) and life expectancy (lei), are stationary at level while other variables, human development index (hdi), physical quality of life index (pqli), inflation index (inf), interest rate (inr) and exchange rate (exch) are not stationary at level that is 1(0). this is due to the fact that the test statistics of these variables are less than their respective critical values at 0.0.05 significant level in absolute term. hence, the study infer at level that data series hdi, pqli, inf, inr and exch are ch++++++aracterized by unit root problem. we can now proceed further to test for stationarity of these variables at first difference: samson ogege 126 4.2. analysis of the unit root test using adfat first difference table 4.2 variables adf test statistics critical value s/ns exch /-8.185578/ /-2.951125/ s hdi /-5.412356/ /-2.954021/ s inf /-5.515920/ /-2.948404/ s intr /-6.133327/ /-2.951125/ s pqli /7.859953/ /-2.951125/ s source: researcher’s computation 2019 ns – not significant s – significant from table 4.2, there is stationarity of all the variables at first difference i.e. the order of integration of these variable will now be 1(1), this is because at this order of integration the test statistics is > their corresponding cv at 0.01 significant level in absolute term. from the table above, we can now see that the cpc, edi and lei are stationary at level while hdi, pqli, inf, inr and exch are only stationary after taking their first difference. this result shows the important of undergoing a co-integration test to establish the long run equilibrium as the variables are not of the same other in term of their stationarity. 4.3. co-integration result to set up the existent of long run equilibrium amidst the selected variables for this study, co-integration test will be estimated to determine whether the errors are combined. this will be achieved by adopting johansen co-integration test, which produces the likelihood ratio and max-eigen value to assert the validity of the long run relationship at 0.05 significant level. if the probability ratio value or the max-eigen value are greater than the critical value, we can infer that there is a long run equilibrium association contrarily the residual is not co-integrated which means no long run equilibrium amidst the selected variables. table 4.3 date: 03/03/19 time: 15:46 sample (adjusted): 1983-2017 included 35 observations after adjustments linear deterministic trend assumption series: cpc edi exch infl intr lif_at_birth pqli lags interval (in first differences): 1 to 1 analysis of the impact of inflation, interest rate, and exchange rate on economic development 127 unrestricted co-integration rank test (trace) hypothesized trace 0.05 no. of ce(s) eigenvalue statistic critical value prob.** none * 0.903632 250.2016 125.6154 0.0000 at most 1 * 0.858058 168.3162 95.75366 0.0000 at most 2 * 0.684666 99.98440 69.81889 0.0000 at most 3 * 0.528495 59.59005 47.85613 0.0027 at most 4 * 0.376893 33.27616 29.79707 0.0191 at most 5 * 0.258649 16.71987 15.49471 0.0325 at most 6 * 0.163417 6.245037 3.841466 0.0125 trace test shows 7 co-integrating eqn(s) at the 0.05 level * indicates that the hypothesis should be rejected at the 0.05 level **mackinnon-haug-michelis (1999) p-values unrestricted co-integration rank test (maximum eigenvalue) hypothesized max-eigen 0.05 no. of ce(s) eigenvalue statistic critical value prob.** none * 0.903632 81.88546 46.23142 0.0000 at most 1 * 0.858058 68.33176 40.07757 0.0000 at most 2 * 0.684666 40.39435 33.87687 0.0073 at most 3 0.528495 26.31389 27.58434 0.0720 at most 4 0.376893 16.55629 21.13162 0.1940 at most 5 0.258649 10.47484 14.26460 0.1826 at most 6 * 0.163417 6.245037 3.841466 0.0125 max-eigenvalue test shows 3 co-integrating eqn(s) at the 0.05 level * indicates that the hypothesis should be rejected at the 0.05 level **mackinnon-haug-michelis (1999) p-values the table 4.3 shows the results for testing the long run association existent amidst the variables used for the study and revealed that long run association exists amidst the selected variables as the values of both t-test statistics and the max-eigen value are greater than seven critical values as shown above. the implication is that, it confirms the efficiency of the results that will be estimated at the next stage. table 4.4 dependent variable: lif_at_birth sample: 1981-2017 date: 03/03/19 time: 14:57 least squares method included 37 observations variable coefficient std. error t-statistic prob. c 45.96833 0.546358 84.13586 0.0000 infl -0.003041 0.012887 -0.235980 0.8149 intr -0.085292 0.087377 -0.976138 0.3361 samson ogege 128 exch 0.030369 0.003185 9.534576 0.0000 r-squared 0.806420 mean dependent var 47.90378 adjusted r-squared 0.788822 s.d. dependent var 2.662452 s.e. of regression 1.223505 akaike info criterion 3.343123 sum squared resid 49.39984 schwarz criterion 3.517276 log likelihood -57.84777 hannan-quinn criter. 3.404520 f-statistic 45.82420 durbin-watson stat 1.724614 prob(f-statistic) 0.000000 table 4.5 dependent variable: edi sample: 1981-2017 date: 03/03/19 time: 14:59 least squares method included 37 observations variable coefficient std. error t-statistic prob. c 0.446982 0.010920 40.93354 0.0000 infl 0.000212 0.000258 45.82306 0.0159 intr 0.001343 0.001746 11.76881 0.0074 exch -3.03e-05 6.37e-05 -0.476007 0.6372 r-squared 0.754659 mean dependent var 0.456946 adjusted r-squared 0.631281 s.d. dependent var 0.024080 s.e. of regression 0.024453 akaike info criterion -4.482290 sum squared resid 0.019733 schwarz criterion -4.308137 log likelihood 86.92237 hannan-quinn criter. -4.420893 f-statistic 24.63612 durbin-watson stat 1.689504 prob(f-statistic) 0.497140 table 4.6 dependent variable: cpc sample: 1981-2017 date: 03/03/19 time: 15:00 least squares method included 37 observations variable coefficient std. error t-statistic prob. c -7.347414 6.571843 -81.11804 0.0416 infl 0.028170 0.005009 54.18729 0.0069 intr 1.064603 0.051011 54.01932 0.0185 exch 0.005677 0.038312 0.148177 0.8831 analysis of the impact of inflation, interest rate, and exchange rate on economic development 129 table 4.7 dependent variable: hdi sample: 1981-2017 date: 03/03/19 time: 15:01 least squares method included 36 observations after adjustments variable coefficient std. error t-statistic prob. c 0.384290 0.023153 16.59790 0.0000 infl -0.000280 0.000533 -0.524323 0.6037 intr 0.001177 0.003634 0.323861 0.7482 exch 0.000611 0.000132 4.614499 0.0001 r-squared 0.549412 mean dependent var 0.438417 adjusted r-squared 0.507169 s.d. dependent var 0.072085 s.e. of regression 0.050605 akaike info criterion -3.025102 sum squared resid. 0.081947 schwarz criterion -2.849155 log likelihood 58.45184 hannan-quinn criter. -2.963692 f-statistic 13.00609 durbin-watson stat 1.946756 prob(f-statistic) 0.000010 table 4.8 dependent variable: hin sample: 1981-2017 date: 03/03/19 time: 15:02 least squares method included 37 observations variable coefficient std. error t-statistic prob. c 45.96833 0.546358 84.13586 0.0000 intr -0.085292 0.087377 -0.976138 0.3361 infl -0.003041 0.012887 -0.235980 0.8149 exch 0.030369 0.003185 9.534576 0.0000 r-squared 0.850660 mean dependent var 0.288205 adjusted r-squared 0.735643 s.d. dependent var 14.46140 s.e. of regression 14.71687 akaike info criterion 8.317671 sum squared resid 7147.344 schwarz criterion 8.491825 log likelihood -149.8769 hannan-quinn criter. 8.379069 f-statistic 98.58700 durbin-watson stat 2.481422 prob(f-statistic) 0.627818 samson ogege 130 r-squared 0.806420 mean dependent var 47.90378 adjusted r-squared 0.788822 s.d. dependent var 2.662452 s.e. of regression 1.223505 akaike info criterion 3.343123 sum squared resid 49.39984 schwarz criterion 3.517276 log likelihood -57.84777 hannan-quinn criter. 3.404520 f-statistic 45.82420 durbin-watson stat 2.274614 prob(f-statistic) 0.000000 table 4.9 dependent variable: pqli sample: 1981-2017 date: 03/03/19 time: 15:03 least squares method included 37 observations variable coefficient std. error t-statistic prob. c 455.0112 12.41700 36.64420 0.0000 intr -7.214399 0.263894 -27.33823 0.0000 infl -0.952311 0.235986 -4.035460 0.0003 exch 0.115340 0.037255 3.095952 0.0040 r-squared 0.894112 mean dependent var 105.7486 adjusted r-squared 0.871759 s.d. dependent var 21.38666 s.e. of regression 3.594062 akaike info criterion 5.498249 sum squared resid 426.2702 schwarz criterion 5.672402 log likelihood -97.71760 hannan-quinn criter. 5.559646 f-statistic 413.9092 durbin-watson stat 2.460797 prob(f-statistic) 0.000000 discussion of findings the estimated coefficient for inf (inflation rate) shows the existence of a negative and statistically insignificant effect on life expectancy, human development, health as well as physical quality life index. this by implication means the existent of an inverse relationship of inflation rate with the dependent variables. meaning that when inflation increases, it will bring about a decrease in life expectancy, human development, health and physical quality life index and an increase in education and consumption per capital. also, the coefficient for interest rate shows a negative and insignificant effect on life expectancy, health and physical quality of life index, while it has a positive effect on education index, consumption per capita and human development. meaning that increasing interest rate will have a decreasing effect on life expectancy, health and physical quality of life index in nigeria within the study duration. the coefficient for exchange rate (exr) shows that there exist positive effect on the dependent variable except for education index. this can be said that exchange rate will increase the life expectancy, consumption per capita, human development, health and physical quality of life index. this by implication means that increase in real exchange rate will have a positive and direct effect on all the dependent variables except for education index which is proven to give a negative relationship. analysis of the impact of inflation, interest rate, and exchange rate on economic development 131 5. conclusion and recommendation this work examined the influence of three key macroeconomic characteristics on key economic development indicators in nigeria over a period of thirty seven years 1981 to 2017. one of the primary objectives of macroeconomic factors is to gauge the sustenance of a domestic economy as a whole with regard to how a specific factor affects overall performance of such economy. for this reason, we considered it sufficiently beneficial to disaggregate the factors with the ultimate goal of exploring how inflation, interest and exchange rate has influenced the life expectancy, human development, consumption per capita, physical quality of life, health and education within the economy. the work infers from the empirical findings that there relative effect between the macroeconomic variables and economic development indicators in nigeria exist. the impact of the mechanisms of economic attributes on performance indicators differ. the work infers that the different components of economic attributes impact on the different indicators of performance in divers’ ways. as regards to the findings, the following were recommendations: 1. inflation, interest and exchange rate should be used to create a favorable investment climate on economic development variables. 2. the apex bank needs to consider inflation threshold for the country in the process of targeting single digit inflation as one of its major objectives. 3. the central bank of nigeria may also reduce interest rate to moderate the money market. 4. government should adopt tight monetary policy measures to control inflation from time to time. this is 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(2014). causality between exchange rate and economic growth in bangladesh. european scientificjournal, 10(3), 11–26. international journal of commerce and finance, vol. 5, issue 1, 2019, 70-78 70 capital structure determinants in transitional economies ardita bylo istanbul commerce university, phd. candidate, turkey assoc. prof. dr. serkan çankaya istanbul commerce university, phd., turkey abstract most of the empirical studies about capital structure tend to focus either on overall developed markets or on emerging countries. this paper aims to analyze the determinants of the capital structure of the companies in the western balkans (wbs) using a panel of 30 nonfinancial firms listed in zagreb stock exchange, belgrade stock exchange, and macedonian stock exchange over the period of 2012– 2017. the leverage ratio is modeled as a function of firm-specific characteristics. the study shows that firms in the wbs tend to rely more on short-term debt rather than long-term debt. there is a significant negative impact of liquidity, profitability and tax on both leverage level and short-term debt ratio. the long-term debt ratio is significantly positively affected by the growth opportunities of these companies and by its past level. theory. the results obtained from this empirical research indicate that companies in the wbs follow the pecking order. these findings appear to be similar to the results of previous studies of this nature done about emerging and transitional economies. keywords: capital structure, western balkans, transitional economies, leverage jel classification: c51, c58, g15, g30, g31 1. introduction even though there is extensive literature about the usage of leverage among companies, in transitional economies the optimal capital structure decision continues to be an unsolved puzzle. the considerations upon the capital structure have gained remarkable interest since 1950s. the research focused on finding an optimum debt – equity ratio in order to minimize the capital cost and to maximize the companies’ value. modigliani and miller (1963) paper about capital structure irrelevance of the capital structure decisions on companies’ value made a significant contribution to this field of research. the theory was developed under the premise of a perfect capital market, but the review of this assumption and the recognition of market imperfections led to varies conclusions that emphasize the importance of the capital structure. several other studies can be listed as: the trade-off theory (modigliani & miller, 1963; kraus & litzenberger, 1973; bradley, jarrell, & kim, 1984), the agency cost theory (jensen & meckling, 1976; jensen, 1986), and the pecking order theory (myers, 1984; myers & majluf, 1984). this paper aims to contribute to the literature on the changing aspects of the capital structure decisions for transitional economies, by analysing the relationship between leverage, profitability, liquidity, risk, and a set of explanatory variables. following, the study of akman at al. (2015) we used capital structure indicators such as: growth opportunities, market to book value, assets tangibility, the ratio of tax to earnings before tax, and liquidity ratio. the ability of explaining the capital structure decisions through financial theories has evolved, like in the case of countries that has passed through a long transitional period, such as eastern european countries. the wbs’ economies are considered economies in transition since they opened up to the global market after 1990s. all the countries of this region decentralized and changed towards a market oriented economic model. the banking system is still considered as a factor of great importance in the financial system (imf, 2015). this study aims to determine the appropriate theoretical capital structure model for transitional economies. the paper examines the capital in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e capital structure determinants in transitional economies 71 structure of the selected large listed companies in serbia, croatia, and the republic of north macedonia, from 2012 to 2017. the research questions of this paper can be listed as follows:  what are the main determinants of firms’ leverage in general and in short and long-terms for the listed companies in the wbs stock exchanges?  is the prevailing literature able to explain the capital structure of the wbs’ companies? is there any noteworthy change in the leverage decision determinants?  are the driving forces of the corporate financing decisions based on firm or country specific parameters? the second section presents a theoretical review about capital structure. the third section presents the data used and explains the econometric methodology. the fourth section discusses the empirical results and presents a crosscountry analysis. the last section concludes the study. 2. theoretical review and findings about capital structure most of the research related to the capital structure have focused on the well-known paper of modigliani and miller (1958). over the last six decades, this enabled the emergence of various theories, regarding capital structure, such as trade-off, pecking order, agency costs, signalling and market timing theory. in the first proposition of modigliani and miller (1958), the value of a company is independent of the way it chooses to finance its operations. later, on 1963, modigliani and miller (hereafter mm) explained how debt becomes beneficial for companies, if taxation is taken into account. the authors claim that, the tax deductions encourage the leverage usage. the static trade-off theory of capital structure foresees that firms aim to approach a target debt to equity ratio (myers, 1984). according to this theory, there is an optimal capital structure that maximizes the firm's value, while balancing the taxes, agency and bankruptcy costs with the benefits of an additional debt unit. thus, a firm’s target leverage can be determined by the trade-off between the cost of financial distress and the interest tax shields of debt (chakraborty, 2010). the pecking order theory explains that new investments follow a hierarchal process of financing. this theory assumes that firms prefer internal financing more than external funds. when internal cashflows are not sufficient to finance the activity, firms will borrow, rather than issue equity. this defined pecking order sends a signal to the public about the companies’ performance. it seems difficult to define an optimal leverage level by using pecking order theory (bauer, 2004). agency costs are incurred from asymmetric information and conflict of interest between the principal and the agent. as jensen and meckling (1976) mention, there are three common types of agency costs: the monitoring costs, the bonding costs, and the residual losses. based on kumar et al. (2017), most of the capital structure literature, focuses on developed economies and it results to be a limited knowledge on emerging markets. since the capital markets of transitional economies are relatively less efficient and incomplete than those of developed countries, studies on these economies’ markets have become attractive. different studies show that companies’ specific determinants of capital structure vary largely and are mainly focused on growth, profitability, liquidity, risk, tangibility, non-debt tax shield (ndts), size, and age. the relationship between these variables turns out to vary among studies. knowledge about decisions made regarding the capital structure usually originates from the empirical data of developed economies. empirical studies about leverage and capital structure determinants present conflicting results. agency cost and static trade off theory generally shows a positive relationship between size and leverage. rajan and zingales (1995) explain this relationship by increased transparency and less exposure to the negative aspects of asymmetric information. when firms have growth opportunities, in consistency with the pecking order theory, external financing seems to be more preferred (booth et al. (2001; rajan & zingales, 1995). however, in some empiric evidences about transition economies, chakraborty (2010) reports a negative effect on the total debt ratio. theoretically the asset structure of companies with a high level of tangibility tends to have a higher leverage. ardita bylo & serkan çankaya 72 however, chang et al. (2009) claims that there is a negative relation between tangibility and leverage. based on recent studies the effect of risk on the capital structure contradicts previous theories. chang et al. (2009) report a positive relation between risk and leverage. 3. data and methodology 3.1. data the dataset used in this study includes the determinants of the capital structure of the companies in the western balkans (wbs) based on a panel of 30 non-financial firms. the panel data set contains 3 countries: croatia1, serbia and the republic of north macedonia, each of which includes 10 companies listed respectively in zagreb stock exchange (zse), belgrade stock exchange (belex), and the macedonian stock exchange (mse) and each with 6 observations measured at annual intervals, over the period of 2012-2017. consequently, the total number of observations in the panel data is 180. companies operating in the financial sector have not been included. the data has been obtained mainly from stockopedia, zse, belex, mse and seinet2 database, and also from the annual reports found on the official sites of the companies. stata 12 has been used to analyse the data. this is a two-way balanced panel model. table 1. the dependent and independent variables’ explanation dependent variables definition symbol leverage debt-to-assets ratio = total debt/total assets lev short-term debt to assets short-term debt-to-assets ratio = total debt / total assets stdta long-term debt to assets long-term debt-to-assets ratio = total debt / total assets ltdta independent variables definition symbol company size ln (total assets) size growth opportunities (a) % change of total assets, per year gra growth opportunities (s) % change of sales, per year grs taxes taxes payable / ebt tax non-debt tax shield depreciation / total assets ndts tangibility tangible assets / total assets tang profitability ebt / total assets prof business risk interest coverage ratio = ebit / interest expenses risk asset utilization costs of goods sold / total debt cgtd liquidity current assets / short-term debt liqd dummy for macedonia the effect of macedonia over the 2 other countries dm dummy for serbia the effect of serbia over the 2 other countries ds dummy for croatia the effect of croatia over the 2 other countries dc table 1 shows the dependent and independent variable definitions and explanations used in this study. in this study, following akman et al. (2015), three leverage measures are used: total debts to assets; long-term debt to assets, and 1 croatia has been included in the analysis since its experience before joining the eu is very relevant for the economic problems of the other wb countries. 2 system for electronic informations from listed companies capital structure determinants in transitional economies 73 short-term debts to assets. independent variables are: firm size, growth opportunities, taxes, tangibility, profitability, business risk, and liquidity. 3.2. methodology panel data models evaluate the time effects, the unit-specific effects, or both, to deal with heterogeneity or individual effects that can be detected or not. hausman specification test is one of the most appropriate tests used to determine which effect, fixed or random, is more consistent and significant in the panel data used. the null hypothesis states that the preferred model is random effects, whether according to the alternative one the model would be based on fixed effects (greene, 2008). it basically tests whether the unique errors (ui) are significantly correlated with the regressors in the model, thus, in other words, the null hypothesis of hausman test states that these unique errors are not correlated (park, 2011). h0: error term (ui) is uncorrelated with “xit” h1: error term (ui) is correlated with “xit” table 2. results of hausman test model dependent variable chi2 (n) prob. > chi2 1 lev 7.52 0.0233 2 stdta -16.33 n/a 3 ltdta -4.18 n/a the results of hausman test have been displayed in table 2. based on these values, since the probability in model 1 is 0.0233 < 0.05, the null hypothesis is rejected, and as result the fixed effect model will provide a better estimation. regarding the second and third models, since chi2 < 0 in both of them, they fail to meet the asymptotic assumptions of the hausman test. this suggests that there is not enough information to reject the null hypotheses, and so as result the random effects model shall be used. in order to further examine our second and third model, the hausman test for fixed effects model versus random effects model can also be cast as a test of the additional over-identifying restrictions that re model imposes. the null hypothesis of this test (performed by xtoverid through stata) stands that re model is consistent (wooldridge, 2002; wooldridge, 2010; arellano, 1993). h0: random effects model is consistent h1: fixed effects model is consistent table 3. results of the over-identifying restrictions test: fixed vs random effects model dependent variable chi2(n) p-value 2 stdta 24.253 0.0001 3 ltdta 3.085 0.5437 based on the results of table 3, the p-value of model 2 is small enough (p-value = 0.0001 < 0.05) to reject h0, and since the p-value of model 3 is 0.5437 (> 0.05), in this case the evidence against re is not rejectable. thus, the second model is considered to be a fixed effects model, whereas the third model a random effect one. ardita bylo & serkan çankaya 74 we considered the following alternative models for the specification of the capital structure for each company, as a start point: • model 1: lev = f (size, gra, grs, tax, tang, prof, risk, liqd) • model 2: stdta = f (size, gra, grs, tax, tang, prof, risk, liqd) • model 3: ltdta = f (size, gra, grs, tax, tang, prof, risk, liqd) the test hypothesis is established as bellow: h0: there are no individual and time effects h1: there is autocorrelation table 4. the results of the baltagi wu lbi tests model dependent variable durbin-watson baltagi-wu lbi 1 lev 0.8106938 1.2759304 2 stdta 1.2102871 1.5632805 3 ltdta 1.2682174 1.6243993 the baltagi-wu lbi statistic values and the bhargava et al. (1982) durbin-watson statistic for zero first order serial correlation statistic values both reject the null hypothesis raised in relation to the above models (see table 4). the rejection of the null hypothesis here indicates the need to correct the standard errors for serial correlation. further, wald test and breusch and pagan lm test for fixed and random effects models has been performed, respectively. the test hypothesis would be as following: h0: there is constant variance among cross section error terms h1: there is heteroscedasticity table 5. the results of the wald tests and breusch and pagan lm test model dependent variable chi2 probability wald tests 1 lev 42354.12 0.0000 2 stdta 33543.25 0.0000 breusch and pagan lm test 3 ltdta 277.45 0.0000 based on table 5, since the p-value is smaller than 0.05 the results reject the null hypotheses and thus suggest that there is evidence of heteroscedasticity. since the tests recognize the presence of heteroscedasticity and autocorrelation in all models, heteroscedasticity-robust standard errors are going to be used for the regression of fixed and random effects panel data, following stock & watson (2006), eliminating in this way the hac problem (fischer & sousa-poza, 2009; nichols & schaffer, 2007). 4. empirical findings the results of robust standard error adjusted fixed (for the first and second models) and random effects (for the third model) panel regression are displayed in table 6. f-statistics, chi-square statistics and other values demonstrate that the selected models are reliable. even though, r-square values indicate a relatively low significance level of these models, at 26%, 16% and 17% for lev, stdta and ltdta, respectively, suggesting the idea that short-term and long-term debts might depend more on macroeconomic factors. capital structure determinants in transitional economies 75 table 6. results of standard error adjusted panel regressions note: ***significant at 1% level, **significant at 5% level, *significant at 10% level table 6 shows that liquidity has a significant negative relationship with the debt to equity ratio for each model. profitability have a significant negative impact on short-term debts to equity and total debts to equity, and even the lagged one period of profitability has a significant negative effect on the leverage as a whole and in long-terms of the debt. growth opportunities induce to an increasing of the leverage in terms of long-term debts, however this results insignificant in short and overall terms. the three of the models indicate that the companies’ size, tangibility, asset utilization, and non-debt tax shield does not connect to leverage significantly. as fan et al. (2012) reports, profitability seem to have generally a negative impact on the leverage, with the exception of some developed countries like the usa, canada, and ireland. the lack of developed debt securities’ markets in transitional economies or the presence of operation costs in developed countries may be an explanation. in this connection, the pecking order theory apprises that companies with high profits prefer their own resources, whereas unprofitable companies depend on debts. agency costs concerns may also explain the negative relationship among profitability and debt preferences, since debts might not be preferred in such circumstances. this is consistent with the fact that there is a dominance of small businesses and banks as primary financing resources in the western balkans. based on the results there is not a significant relation between tangibility and leverage. the impact of liquidity on leverage is significant and negative, and has a higher influence in total and short-term debt ratios. thus, companies with a high level of liquidity prefer long-term debts toward short-term debts. growth opportunities expressed as a model 1 (fixed-effects model) model 2 (fixed-effects model) model 3 (random-effects model) robust standard error adjustment for 30 clusters in id (robust) number of observations 180 = (2012-2017) lev stdta ltdta variable coef. robust std. err. prob. coef. robust std. err. prob. coef. robust std. err. prob. gra 0.15399** 0. 0636 0.015 prof -0.3670*** 0.0709 0.000 -0.3486** 0.1706 0.050 tax -0.0027* 0.0016 0.102 -0.0043** 0.0020 0.039 risk 0.00002** 0.00001 0.014 0.00002*** 0.0000 0.004 liqd -0.0118** 0.0045 0.013 -0.0106*** 0.0032 0.002 -0.0006* 0.0004 0.090 ltdta(-1) 0.8318*** 0.0562 0.000 prof(-1) -0.3201*** 0.0868 0.001 -0.2115*** 0.0810 0.009 tax(-1) -0.0015* 0.0008 0.058 ds -0.0175 0.0111 0.117 c 0.4891 0.0153 0.000 0.3311 0.0115 0.000 0.0322 0.0123 0.009 r2 0.2617 0.1597 0.1665 ardita bylo & serkan çankaya 76 rate of change of the total assets, affect the leverage at long terms positively suggesting that the companies depend on the capital structure in the case of making a decision about new investments. in line with our findings, akman et al. (2015) reports that in developed countries there is a negative relationship between growth opportunities and debtto-equity ratio, while in less developed countries this relationship turns out to be positive. we could not find significant relationship between company size and leverage. one reason may be the fact that the sample includes large-scale firms, which makes it more difficult to identify the size effect in the capital structure. taxes have a slight downward impact on short-term and the overall leverage. in addition, taxes of a previous period tend to decrease the long-term debt ratio, supporting the trade-off theory, under which the firms see taxes as an essential determinant of leverage. it is observed that the business risk variable considered as interest coverage rate has surprisingly a significant incremental effect on leverage. this result is in contrast to the theoretical expectations of pecking order, agency costs and static trade-off theory stating that companies under financial distress circumstances decrease the leverage level, as they wish to avoid issuing equity. regarding business risk, its impact should be seen both from the perspective of the firm and their creditors. firms in possession of a considerable amount of collateral tend to increase their leverage level, independently of the afflictions debt financing may cause. on the other hand, as long as these firms own collateral, creditors will continue to be predisposed and give debts. further, the lagged one period long-term debt ratio appears to have a positive significant effect on the short-term debt leverage. in addition to the firm specific factors used in this study, other factors such as the macroeconomic determinants can be effective in the formation of capital structure. transitional economies have different capital market and institutional structures and the power of banking industry might limit the explaining power of the classical theories asserted for developed countries. in these countries, most of the debt is covered by short-term debts. 5. conclusions this research explores the determinants of capital structure choices of thirty western balkans companies listed on the stock exchange markets of macedonia, serbia, and croatia, for the period 2012-2017. the capital structure of the companies observed is financed by debts at an approximate rate of 42 percent. transitional economies are facing many challenges such as the lack of investor protection rights, legal stability and the availability of financing sources. the high ratio of non-performing loans is the main issue of this region and has resulted in fewer loans, especially for the non-financial companies. the main financing method is through the banking system, as the other sectors such as insurance market, capital market and bond market are not fully developed. the results found in this study reveal that the capital structure determinants of companies placed in emerging and transitional economies and their behaviours seems to be similar. namely, both total debt to equity and short-term debt to equity ratios decrease with respect to profitability and liquidity, while the leverage measured by the long-term debt ratio increases significantly in relation with the possibilities of growth. in this way we notice that wb firms demonstrate reactions that support pecking order theory. however, we note that both the total debt to equity and short-term debt to equity ratios are affected positively by risk, albeit to a small extent, and negatively by taxes. this shows that these companies partially follow the static trade-off theory. our findings do not show any supporting evidence about the agency cost theory. regarding the long-term debt rate, there is a negative impact from the lagged one period variables of profitability and taxes, meanwhile the firms with high long-term debt rates tend to increase even more this kind of leverage level. another significant finding of this model is that serbia causes the long-term debt ratio to decrease in the entire region. for the analysed period, serbia has the lowest average rate of long-term debt to total asset among the three countries with an approximately rate of 10%. in conclusion, transitional economies require a unique theoretical approach to explain their capital structures. acknowledgement: we would like to thank the assoc. prof. dr. elif güneren genç, istanbul commerce university, for her insights and valuable comments about methodology. capital structure determinants in transitional economies 77 references akman, e., gokbulut, r. i., nalin, h. t., & gokbulut, e. 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(2010). econometric analysis of cross section and panel data (2nd ed.). cambridge, ma: the mit press. international journal of commerce and finance, vol. 5, issue 1, 2019, 79-91 79 internal branding and brand commitment: the role of years of experience & monthly income dr. najwan adileh istanbul okan university, phd. turkey prof. dr. özgür çengel istanbul commerce university, turkey abstract employee brand commitment has a vital role in their brand supporting behaviors. therefore, this study is investigated the effect of internal branding mechanisms on employee brand commitment from the employees’ perspective. this study also is examined the differences in employees’ perspectives on internal branding mechanisms, and employee brand commitment depends on their years of experience & monthly income. this study is targeted the banking industry using a convenience sample that includes ten banks in palestine. this study is explored the employees’ perspective, thus, the unit of analysis in this study is the banks’ employees. this study is employed a quantitative empirical causal research design, through a self-administered structured questionnaire. this study is used descriptive statistics tests, one-way analysis of variance (anova), post-hoc multiple comparisons, two-step sem process, and the confirmatory factor analysis (cfa). moreover, the data is analyzed using the “analysis of moment structure” amos 20 program. the findings are shown a strong effect of internal branding mechanisms on employee brand commitment. also, the study found differences in employees’ perspectives on internal branding mechanisms and employee brand commitment depend on their years of experience & monthly income. therefore, this research study may provide some benefits to the banking sector and the researcher in order to understand better the factors that will increase employee understanding of internal branding activities and enhancing employee brand commitment. keywords: internal branding, brand commitment, length of experience, income 1. introduction customers experience the brand value through their interaction with employees (devasagayam et al., 2010). also, brand values delivered to employees through various internal branding activities (terglav, konečnik ruzzier and kaše, 2016). while branding for goods and services aims to create brand equity and maintain the long relationship between the company and customers (grace and o’cass, 2002), service brands faced with different challenges. in contrast with goods, the risk of delivering inconsistent value increases in service brands because of the non-tangible nature of the service (king and grace, 2005). employees are the presenters of the brand to the other stakeholder. the alignment between their attitude and the brand values is crucial for a firm to have a successful brand in the market (punjaisri, evanschitzky and wilson, 2009). employee brand commitment and brand supporting behaviors are the keys for building brand equity (burmann, jost-benz and riley, 2009). on the other hand, for supporting the employees to deliver the brand value, they need to live the same values (preez, bendixen and abratt, 2017). thus, firms enhancing employees supporting behaviors by adopting effective internal branding activities, which increase employees brand knowledge and awareness (king and grace, 2010). as a result, internal branding activities will develop employees psychological attachment and commitment with the brand (terglav, konečnik ruzzier and kaše, 2016). 2. internal branding mechanisms internal branding defined as “a means to create powerful corporate brands. it assists the organization in aligning its internal process and corporate culture with those of the brand, and its objective is to ensure that employees transform espoused brand messages into brand reality for customers and other stakeholders” (punjaisri & wilson, in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e najwan adileh & prof. dr. özgür çengel 80 2007, p. 59-60). also, various internal branding models have proposed in the literature. in the study of punjaisri et al. (2008), they suggested that internal communication and training programs are the two principal mechanisms of internal branding. moreover, an essential holistic model for internal brand management had presented by burmann & zeplin (2005). the theoretical framework of this research depends on its model. they stated that brand centered human resources activities, internal brand communication activities, and brand centered transformational leadership are the main three internal branding mechanisms. these mechanisms affect employee brand commitment and support the alignment between employees’ values and brand values. the brand centered human resources activities have a significant role in developing, promoting, and enhancing the internal branding activities in the organization (alshuaibia and shamsudinb, 2016). these activities support the process of hiring brand fit employees based on brand identity and brand values (preez and bendixen, 2015). internal communication activities are critical to providing employees with brand knowledge (punjaisri and wilson, 2011; shaari, salleh and hussin, 2012). besides, according to previous studies, transformational leadership enhance the alignment of brand values with employees' values and develop employees’ supporting behaviors. transformational leadership is the ideal leadership style for enhancing employees adopt the brand's values and to increase their brand commitment (morhart, herzog and tomczak, 2009). figure 1: burmann & zeplin (2005) holistic model for internal brand management 3. employee brand commitment employees brand commitment is essential for enhancing the brand strength and for developing brand citizenship behaviors (burmann, zeplin and riley, 2009). when employees identify themselves with the brand, this will enhance their organizational citizenship behaviors and increase their organizational commitment (o’reilly and chatman, 1986). also, employee brand commitment defined as “the extent of psychological attachment of employees to the brand, which influences their willingness to exert extra effort towards reaching the brand’s goals, that is, to exert brand citizenship behavior and hence generate a new quality of brand strength” (burmann et al., 2009, p. 266). moreover, employees brand knowledge and brand rewards have a positive relationship with brand commitment and brand citizenship behavior. also, internal branding activities enhance employees brand commitment and brand engagement and supporting behaviors (shaari, salleh and hussin, 2012). 4. personal variables personal variables play a moderating role between internal branding process and employee commitment. personal variables include employees’ gender, age, marital status, educational level, income and length of service. in the study of punjaisri & wilson (2011), they found that employees whose age over 30 years old, expressed an intention to stay in the job more than those who were less than 30 years old. also, punjaisri et al. (2008) stated that the longer an internal branding and brand commitment: the role of years of experience & monthly income 81 employee stayed in an organization, the higher the influence of internal branding activities on their brand citizenship behavior. according to joiner & bakalis (2006), while employee stays a more extended period in the firm, this will enhance the sense of belonging. nevertheless, king, murillo, & lee (2017) argued that all employees regardless of their age or loyalty to the organization have to be fit with the brand values. based on the studies above, the following hypotheses represented: h1: brand-centered human resource activities positively affect employee brand commitment h2: internal brand communication activities positively affect employee brand commitment h3: brand-centered transformational leadership positively affect employee brand commitment h4: there is a significant difference in employees’ perspective on internal branding among employees according to years of experience in the bank. h5: there is a significant difference in employees’ perspective on brand commitment among employees according to years of experience in the bank. h6: there is a significant difference in employees’ perspective on internal branding among employees according to monthly income h7: there is a significant difference in employees’ perspective on brand commitment among employees according to monthly income about the literature presented above, the following is the prepared conceptual model: figure 2: the conceptual model najwan adileh & prof. dr. özgür çengel 82 5. the significance of the study this study aims to contribute useful information for brand services as well as for the researcher. this study intends to understand the employees’ perspective on the effect of internal branding mechanisms on employee brand commitment. moreover, this research will be significant in addressing the gap of the role of employee years of experience in the bank, and the monthly income, and these two variables effect on employees’ perspective on internal branding mechanisms and employee brand commitment. therefore, this research study may provide some benefits to the banking sector and the researcher in order to understand better the factors that will increase employee understanding of internal branding activities and enhancing employee brand commitment. 6. research design this study targeted the banking industry in palestine. according to the palestine monetary authority (pma), the palestinian system as the end of june 2017, includes (15) regulated banks. however, 10 out of 15 banks accepted to be part of this research. this study explores the employees’ perspective on internal branding mechanisms and brand commitment. thus, the unit of analysis in this study is the banks’ employees. this study targets employees from different departments and various job levels except for the vps employees. furthermore, some employees will have direct contacts with customers, while others will be from backline positions. employees expressed their perspective through a self-administered structured questionnaire. also, (627) surveys collected from employees and (614) surveys were identified as usable, as some of the questionnaires discarded due to response bias and non-response issues. 7. measurements respondents asked to assess their perceptions concerning the brand-centered human resources activities using a measure that adopted from the study of aurand et al. (2005). this scale aims to have a better understanding of the different human resource branding activities effects and role in the working environment. for internal brand communication, the measure adopted from punjaisri & wilson (2011). moreover, three main broad categories of internal brand communication tools identified; 1) mass method; like newsletter 2) written memo; like logbooks 3) face to face communication; which includes two main categories; the daily briefing and group meetings. the measure of brand-centered transformational leadership adopted by morhart et al. (2011) and derived initially from the multifactor leadership questionnaire from 5x of rowold (2005). besides, this study measured employee brand commitment using the scale of kimpakorn & tocquer (2010) that was adopted previously by cook & wall (1980) and also used by several previous organizational commitment studies. lastly, this study will investigate the difference between respondents from various personal variables including income and years of service in their jobs. in order to investigate these differences between employees, some demographic questions included in the questionnaire. 8. data analysis the univariate analysis performed for all the variables in the study. furthermore, frequencies of demographic characteristic examined to investigate the demographic profile of respondents. for investigating the differences for demographic characteristics of respondents one-way analysis of variance (anova) used in this study. additionally, post-hoc multiple comparisons performed by using tukey’s hsd test to analyze which groups are responsible for the differences. the data analyzed using the “analysis of moment structure” amos 20 program. this study used the two-step sem process. the confirmatory factor analysis (cfa) used to assess the measurement model fit and construct validity (hair et al., 2014). moreover, to assess the overall model goodness of fit, the study used stand-alone fit indices table 1 shows the cut-off values for the fit indices that were used in this study as suggested by hu & bentler (1999). internal branding and brand commitment: the role of years of experience & monthly income 83 table 1: fit index and cut-off values fit fit index cut-off criteria χ2(chi-square goodness of fit) p>0.05 rmsea (root mean square error of approximation) rmsea < 0.06 srmr (standardized root mean residual incremental) srmr<0.08 cfi (comparative fit index) cfi > 0.95 tli (tucker-lewis fit index) tli>0.95 source: hu & bentler (1999) then, convergent validity examined followed by assessing reliability through measuring the internal consistency and evaluating the discriminant validity. then, the structural model and evaluating the significance of the relationships examined (hair et al., 2014). after analyzing the structural model fit, the hypotheses tested and the path diagram used for estimation of the relationships. primary analysis conducted for the demographic characteristics of employees show the following results in table 2 below: table2: demographic characteristics of respondents research demographic characteristic number % years of experience in the bank less than one year 56 9.1 from 1-4 years 192 31.3 from 5-8 years 121 19.7 from 9-12 years 146 23.8 more than 12 years 99 16.1 total 614 100 monthly income less or equal $1000 300 48.8 $1001-$2000 196 31.9 $2001-$3000 78 12.7 $3001$4000 29 4.7 more than $4000 11 1.8 total 614 100 the next step is to deliver data description for the study’s dimensions; the collected data are presented using descriptive statistical tools as shown below in table 3. najwan adileh & prof. dr. özgür çengel 84 table 3: findings of the descriptive analysis of the study’s dimensions dimensions n mean std. skewness kurtosis ci 95% for mean lower bound upper bound human resources 614 3.84 0.654 -0.954 2.007 3.791 3.895 internal communication 614 3.90 0.661 -0.993 1.393 3.853 3.958 transformational leadership 614 3.95 0.734 -0.967 1.656 3.893 4.010 employee brand commitment 614 4.11 0.723 -0.828 1.775 4.058 4.173 as an interval scale used for collecting the data from the respondents, the parametric techniques specially t-test and anova test used for analysis to compare the differences between the different demographic characteristics between respondents’ groups. following are the study’s null hypotheses findings related to demographic differences between employees using t-test and anova: table 4: anova-test results for employees according to their years of experience in the bank for the study dimensions dimensions descriptive analysis anova mean std. g1 g2 g3 g4 g5 g1 g2 g3 g4 g5 pvalue posthoc human resources 3.98 3.81 3.75 3.77 4.05 0.53 0.71 0.74 0.61 0.50 0.002 ** g5>g2 * g5>g3 ** g5>g4 * internal communication 4.01 3.84 3.87 3.86 4.08 0.60 0.70 0.76 0.62 0.51 0.026 * g5>g2 * transformational leadership 4.13 3.91 3.85 3.90 4.14 0.69 0.78 0.89 0.64 0.52 0.009 ** g5>g3 * ib 4.04 3.85 3.82 3.84 4.08 0.53 0.64 0.72 0.53 0.44 0.002 ** g5>g2 * internal branding and brand commitment: the role of years of experience & monthly income 85 g5>g3 * g5>g4 * employee brand commitment 4.09 4.01 4.08 4.13 4.38 0.73 0.75 0.75 0.71 0.58 0.001 ** g5>g2 ** g5>g3 * years of experience groups: g1= less than one years, g2= 1-4 years, g3= 5-7 years, g4= 8-14 years, g5= 15 or more years. *significance level at 5%, **significance level at 1%. the above table 4 indicates that at 1% and 5% level there is a significant difference between employees according to years of experience in the bank for all the variables. therefore, a further investigation conducted by using a post hoc test (tukey hsd comparison) to understand which groups differ from each other. mainly, the respondents of the fifth group (15 years or more) rated higher than the other four groups. thus, the fourth and the fifth null hypothesis, both will be rejected. table 5: anova-test results for employees according to the monthly income groups for the study dimensions dimensions descriptive analysis anova mean std. g1 g2 g3 g4 g5 g1 g2 g3 g4 g5 p-value posthoc human resources 3.75 3.87 4.01 4.15 3.85 0.69 0.62 0.54 0.48 0.82 0.001** g4>g1* g3>g1* internal communication 3.84 3.92 4.05 4.07 3.98 0.68 0.66 0.63 0.43 0.72 0.066 transformational leadership 3.86 4.01 4.11 4.17 3.87 0.81 0.65 0.57 0.55 1.13 0.013* g3>g1* ib 3.81 3.93 4.05 4.13 3.90 0.65 0.55 0.52 0.41 0.85 0.003* g3>g1* employee brand commitment 4.00 4.20 4.27 4.18 4.55 0.79 0.63 0.69 0.64 0.42 0.001** g2>g1* g3>g1* monthly income: g1= less than or equal 1000, g2= 1001-2000, g3=2001-3000, g4= 30014000, g5= 4001 and more. *significance level at 5%, **significance level at 1%. najwan adileh & prof. dr. özgür çengel 86 according to the table 5. at 1% and 5% level, there is a significant difference between employees according to monthly income for internal branding (ib), and employee brand commitment (ebc). therefore, a post hoc test (tukey hsd comparison) conducted to understand which groups differ from each other. for internal branding (ib), the third group had a significant difference comparing to the first group. also, the fourth group had the highest mean. besides, for employee brand commitment, there was a significant difference between the second and third group comparing to the first group. also, the fifth group had the highest mean comparing to all the other groups. therefore, the sixth and the seventh null hypothesis, both will be rejected. according to table 6, the results of the hypothesized model are relatively well fitting. hence, when the sample size is more than 200, it is more appropriate to take the model fit decision based on other indices of fit, rather than the chisquare test (boomsma, 1985; boomsma and hoogland, 2001). therefore, the cfi and the rmsea are considered more reasonable and applicable to assess the goodness of fit for this model (hooper, coughlan and mullen, 2008). table 6: results of measurement model fit fit index measurement model (cfa) cut-off criteria χ2 1426.264(0.000) p > 0.05 df 591 cfi 0.952 cfi>0.95 tli 0.967 tli>0.95 rmsea 0.051 rmsea<0.06 srmr 0.062 srmr<0.08 note. χ2 = chi-square; df = degree of freedom; cfi = comparative fit index; tli = tucker-lewis fit index; rmsea = root mean square error of approximation; srmr = standardized root mean residual 9. reliability & validity the next step after consent the overall model goodness of fit was to analyze the variables for their reliability and validity. thus, convergent validity was examined to ensure that the items of the study’s structure are converging a high proportion of variance in common. in order to examine the relative amount of convergent validity among item measures, the factor loading for each variable checked. the factor loading for each variable was statically significant and exceeding the critical t-value of (2.576) at (p<.01). moreover, (0.5) or higher value of standardized loading estimates, and ideally (.7) or a higher value, refers to a high value of convergent validity (hair et al., 2014). furthermore, reliability also assessed including the composite reliability (cr) and the average variance extracted (ave) (hair et al., 2014). according to fornell & larcker (2018), an ave of (.5) or higher and a cr of 0.7 or higher has recommended. according to table 7, the standardized loading estimates for each indicator are higher than 0.5 and exceeding 0.7 for most of them. also, the composite reliability (cr) result exceeds (0.7), and average variance extracted (ave) result exceeds (0.5). table 7: construct validity assessment latent indicator std. loadings smc cr ave α human resources 0.923 0.709 0.805 hr1 0.580 0.704 hr2 0.684 0.416 hr3 0.728 0.639 internal branding and brand commitment: the role of years of experience & monthly income 87 hr4 0.783 0.614 hr5 0.800 0.530 internal communication 0.890 0.671 0.882 ic1 0.645 0.468 ic2 0.839 0.722 ic3 0.775 0.778 ic4 0.795 0.712 leadership behaviors 0.961 0.834 0.921 lb1 0.681 0.770 lb2 0.835 0.719 lb3 0.822 0.694 lb4 0.867 0.540 lb5 0.808 0.750 0.937 0.717 0.909 employee brand commitment ebc1 0.674 0.752 ebc2 0.829 0.675 ebc3 0.910 0.698 ebc4 0.901 0.464 ebc5 0.872 0.633 ebc6 0.641 0.600 note. smc: squared multiple correlation, ave: average variance extracted; cr: composite reliability; α: cronbach alpha after analyzing the convergent validity, the discriminant validity also assessed. the table 8 below, shows that for each pair of constructs the average of (ave) value exceeds (0.5), and for all items, it exceeds the value of the squared multiple correlation; which supports good evidence of discriminant validity in the model. table 8: the results of discriminant validity pairs of constructs average of ave φ φ2 human resources – internal com. 0.690 0.697 0.486 human resources – leadership 0.772 0.641 0.411 human resources – employee brand commitment 0.713 0.543 0.295 internal communication – leadership 0.753 0.722 0.521 internal communication – employee brand commitment 0.694 0.579 0.335 najwan adileh & prof. dr. özgür çengel 88 leadership– employee brand commitment 0.776 0.585 0.342 note. ave: average variance extracted; ф 2: squared multiple correlation ave computed as (ave of the first construct+ ave of the second construct)/2 the next step is testing the structural model and assessing the significance of relationships. table 9 below presents the results of the structural model fit. all fit indices meet the cut-off criteria and show a robust structural model fit. table 9: results of structural model fit fit index measurement model (cfa) cut-off criteria χ2 29.695 (0.055) p>0.05 df 14 cfi 0.966 cfi>0.95 tli 0.954 tli>0.95 rmsea 0.048 rmsea <0.06 srmr 0.022 srmr <0.08 note. χ2 = chi-square; df = degree of freedom; cfi = comparative fit index; tli = tucker-lewis fit index; rmsea = root mean square error of approximation; srmr = standardized root mean residual following table 10 that shows the results of path analysis: table 10: results of path analysis path to path from h0 std. coeff. t-value direct effects employee brand commitment human resources h1: supported 0.55 10.240** internal communication h2: supported 0.88 16.691** transformational leadership h3: supported 0.83 15.828** internal branding h total: supported 0.67 11.320** 10. discussion and conclusion the findings show a significant positive relationship between internal branding mechanisms and employee brand commitment. many previous studies in the literature support the results of this study (punjaisri, evanschitzky and wilson, 2009; preez and bendixen, 2015; yang, wan and wu, 2015; javid et al., 2016). conversely, kimpakorn & tocquer (2009) demonstrated contradicted result. there are several possible explanations for the significant relationship found in this study between internal brand management and employees brand commitment. according to punjaisri et al. (2008), internal branding mechanisms affect employees attitudinally; through brand identification, brand commitment, and brand loyalty. besides, two of the most important objectives of this study was to explore if internal branding and brand commitment: the role of years of experience & monthly income 89 there are some effects for the monthly income and years of experience among employees on their perspective on internal branding and employee brand commitment. an exciting finding appeared in this study. employees with 15 years of experience or more in the bank, showed a more favorable perception for internal branding activities and brand commitment. these results are also consistent with the findings of previous studies (salami, 2008; amangala, 2013; abdul-nasiru et al., 2014). the results may be for the reason that as employees spent an extended period spent in the organization, might develop a sense of belonging by time (joiner and bakalis, 2006). according to employees’ income, employees with good to high income between $2000 and $4000 showed better perspective for all the variables. in this study, insight has gained about the internal branding mechanisms and process in order to create employees brand supporting behaviors. furthermore, the study provides more knowledge for the role of brand-centered human resource activities, internal brand communication activities and brand-centered transformational leadership on enhancing employee brand commitment. therefore, the present findings might suggest several courses of action. the organization has to hire the right applicant by select, recruit, and promote employees who have a high personal identity-brand identity fit (preez and bendixen, 2015). moreover, managers have to discover the employees’ favorite channel of communication in order to ensure the effectiveness of the internal branding activity in their organization. besides, managers need to attend specialized training and courses that enable them to empower their leading transformational skills, motivate employees, deliver a clear vision, build a brand-oriented culture, and enhance trustbased relationships between employees, managers, and organization. the empirical findings in this study provide a new addition to the literature for the effect of demographic differences among employees on their varying perspectives about internal branding mechanisms in the service brands specifically in the banking industry. besides, this study assesses the demographic differences among employees’ brand commitment and supporting brand citizenship behavior. however, this study stated that employees with 15 years of experience or more in the bank, had more brand commitment comparing to the other employees. therefore, this study encouraging organizations to take into consideration the employee years of experience while structuring specialized training programs for enhancing employee brand commitment. moreover, the findings showed a favorable perspective for internal branding and a high level of employee brand commitment for employees with good to high income. therefore, it is essential to review the income scale for the organization and its relationship with employee brand commitment and employee performance. references abdul-nasiru, i. et al. 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(2015) ‘effect of internal branding on employee brand commitment and behavior in hospitality’, tourism and hospitality research, 15(4), pp. 267–280. doi: 10.1177/1467358415580358. international journal of commerce and finance, vol. 5, issue 2, 2019, 76-86 76 the effect of non-financial incentive scheme on employees’ motivation (in case of commercial bank of ethiopia in jimma town) kibru kefay , jimma university, ethiopia chalchissa amentie kero jimma university, ethiopia abstract the purpose of this study was to investigate the effect of non-financial incentive scheme on employees’ motivation. therefore, the study was descriptive as well as explanatory which used primary source of data. by that 162 questionnaires were distribute and all of them were returned and used for the study and stratified and simple random sampling methods were applied to determine respondent for the study. however, the study try to examine the perception of employees’ about the incentives scheme of the bank, motivation level of employees’ in the bank and the effect of promotion, recognition, training on employees’ motivation. among the major findings, the overall perception of respondents about current non-financial incentive practices were shown as they are happy and satisfied with promotion and training but they are neutral on recognition. the result of regression analysis shows that; promotion, recognition, training were a significant predictors of employees’ motivation. also of that, a significant portion of employees was at good motivation level to perform their job. it is recommended to review the bank's recognition practice to increase the current motivation level of employees.. keywords: non-financial incentive, motivation 1. introduction organizational theorists have generally acknowledged that the key quality that a corporation will ever have are its human resources, but the productive accomplishment of the goals of the organization are going to be subject to the correct readying of its human resources. moreover, organization success rests on its staff, so the necessity to worry on components that may impact on employees’ motivation and performance from the views of (liao et al., 2007). motivated staff creates organization become additional productive as they're driven to unendingly get enhancements to try to work (rutherford, 2007). a motivated and qualified manpower is crucial for any company that wishes to extend productivity and client satisfaction. during this context, motivation means that the temperament of a personal to try to efforts and take action towards companies goals (dobre, 2013). the challenge for any manager is to seek out the means that to form and sustain worker motivation. on one hand, managers ought to concentrate on reducing job discontentedness (working conditions, salary, supervision, relationship with colleagues), while on the other hand should use motivating factors such as achievement, recognition, responsibility and the work itself (dobre, 2013). non-monetary incentive includes a vital and distinct role that infuses enthusiasm in a very employee to perform. a study by lawler (1973) that has been explained by wiscombe (2002) has the flexibility of reinforcing the conception that non-monetary incentive includes a vital outcome of achieving organization goals. the reward structure ought to encourage adept workers to remain long period in the organization similarly as increase the motivation and commitment to the organization and thus increase the productivity (brickley et al, 2002). 1.1. statement of the problem increasing motivation, commitment and engagement levels are key organizational components nowadays. the improvement of compensation policies has an important role in motivating staff to supply high ranges of performance, discretionary effort and contribution (salanova and kirmanen, 2010). banks function under intense strain and in a competitive environment. they should justify their existence with the aid of making profits and in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e the effect of non-financial incentive scheme on employees’ motivation (in case of commercial bank of ethiopia in jimma town) 77 customers require them to grant better service. this has made it crucial for banks to use fantastic administration control to make sure that their personnel are working hard to reach the organization’s objectives (magnusson & nyrenius, 2011). apeyusi (2012) concurs that in order to attain company goals, personnel are supposed to be well influenced and remunerated in order to unleash their full potential. this is the reason companies are increasingly offering worker incentive schemes to inspire and encourage them to be extra productive and efficient. according to the study of safiullah, (2014) it is not just one factor can motivate employees, for example it is not just monetary rewards which motivate an employee, though monetary compensation is the physiological factor to the employees. that is the employees in any organization need to be constantly provided with opportunities for learning new skills so that they do not feel monotonous. they should be motivated to use the acquired skills on their job. shaheen and farooqi, (2014) have presumed that for individuals with acceptable financial incentives, some nonfinancial helpers are more compelling than additional trade out building long hour worker engagement in most divisions, work capacities, and business connections. numerous monetary remunerates basically create short-lived supports of vitality, which can have harming unintended outcomes. as fact, most organizations provide only money or financial incentives to remunerate employees for the work they done for the organization by perceiving that people need only money to stay, motivated and work in their organization. this perception may lead to lose of the skilled manpower and it would affect the productivity of organization. moreover, initiation for the study was that the word motivation seems simple to call and collection of only ten letters but it is a key for everyone’s (individuals or organizations) success. it is a means for success even more than ability because people or employees can improve their ability by different meanness only if they have motivation for what they need to do. therefore, the above gap and the importance of the title initiated the researcher to conduct this research. hence, this study was undertaken to investigate the effect of non-financial incentives on employees’ motivation in commercial bank of ethiopia jimma town. it has tried to response the following research questions. what are the current perception of employees about non-financial incentives and their level of motivation? what is the employees’ motivation level in the bank? what is the relation between non-financial incentives and employees’ motivation? 1.2. objective of the study the main objective of the study was to investigate the effect of non-financial incentive scheme practice on employees’ motivation in commercial bank of ethiopia in jimma town. 1.3. specific objectives 1. to understand the perception of employees’ about non-financial incentives 2. to examine the motivation level of employees’ of the bank. 3. to identify the relation between non-financial incentives (promotion, recognition and training) and employees’ motivation. 1.4. hypothesis of the study h0: promotion has insignificant effect on employee’s motivation h0: recognition has insignificant effect on employee’s motivation h0: training has insignificant effect on employee’s motivation 2. literature review 2.1. concept of motivation the study of motivation encompasses the science of perception ‘why people behave the way they do?’ (buelens et al, 2010). in easy phrases motivation can therefore be described as the will to perform (brooks, 2009). this definition kibru kefay & chalchissa amentie 78 paints motivation as a type of inner pressure or force that affect the actions and efforts of a person. motivation is concerned with the power and course of conduct and the factors that have an impact on people to behave in certain ways (armstrong, 2009). the term ‘motivation’ can refer variously to the goals persons have, the ways in which persons chose their dreams and the approaches in which others attempt to change their conduct (armstrong, 2009). motivation is set of procedures based totally on a pressure that makes the behavior energized and directs it closer to some purpose to attain (baron and greenberg, 2008). 2.2. theory of motivation 2.2.1. maslow’s hierarchy of needs theory probably one of the most known need theories, maslow’s hierarchy of needs theory, says there exists a hierarchy of 5 needs categorized into lower order and higher order needs, each of which must be satisfied before the next one becomes dominant. those needs are physiological (i.e. hunger, thirst, shelter, sex, health among other bodily needs) and safety needs are both categorized as lower order needs, which must be satisfied externally through salaries, type of contract (safety) and insurance policies among others. we can see those needs are extrinsic. on the upper half of the pyramid, social (i.e. affection, friendship, belongingness, acceptance), esteem (i.e. autonomy, self-respect, status and recognition) and self-actualization (i.e. growth, living up to one’s potential, self-fulfillment) are categorized as higher order needs, which must be satisfied intrinsically (judge and robbins 2009). 2.2.2. hertzberg’s two-factor theory the two-factor theory was once developed by herzberg, mausner, and snyderman (1959), following an investigation into the sources of job satisfaction and dissatisfaction. herzberg (1966) advised that factors involved in growing job pride had been separate and distinct from factors that led to job dissatisfaction. according to herzberg (1966), intrinsic elements such as the work itself, achievement in the work, the possibilities of personal growth and recognition, and being charged with vital responsibilities, regarded to end result from the human capability to personally advance and grow. he called these elements motivators. on the other hand, extrinsic factors had been these elements that prevented job pride and employee growth. the extrinsic factors such as working conditions, salary, job security, and relationships with others are not phase of the work, but they refer to the environment, and prevent job dissatisfaction. herzberg calls these elements hygiene, dissatisfiers or upkeep factors (herzberg, 1966). 2.2.3 theory of expectancy the expectancy theory is one of the motivational theories proposed by victor vroom in 1964. it encompasses what motivates employees in an organization. motivation is a force that energies, directs and sustains behavior (nteere, 2012). expectancy theory asserts that individuals are motivated by internal and external conditions. motivated performance requires a conscious decision, and people are motivated to do what they believe will result in the reward of highest value or probability. expectancy theory assumes that persons work to optimize their expectations of attaining a valued outcome and those predictions can be made regarding their behavior if the factors that influence behavior can be quantified (sanders, 2012). 2.3. concept and importance of incentive by definition, incentives are an external persuading issue that encourages the motive that absolutely directs the individual into operate hard working in long duration, matching the desired performance within the institution to gets the inducement. incentives also are outlined as strategies employed by institutions to encourage staff to figure with elation and also as concrete and ethical methods of satisfying the individuals' moral and material wishes (palmer, 2012). the importance of incentives originates from the necessity for the worker to be recognized and appreciated for his or her efforts. actually, appreciating individuals for his or her efforts by giving them incentives could be a terribly vital factor in satisfying the interior wishes of an individual. the individuals' own skills don't seem to be enough to allow them to work with high productivity unless there's an incentive system that encourages their internal motives so leads terribly tireless efforts (locke and braver, 2008). the effect of non-financial incentive scheme on employees’ motivation (in case of commercial bank of ethiopia in jimma town) 79 2.4. overview of non-financial incentives non financial incentives are the key to improving employees’ motivation, job satisfaction and better performance, there are a number of non-financial incentives that may represent more effective means of improving quality of work performance as well as motivational level (franco, et al, 2004). a simple definition has been given by mathauer and imhofff (2006) non-financial incentives as any means of incentives that do not involve directly with money, transfers of monetary values or equivalents. selected non financial incentives for this study were job promotion, recognition, and training and development. 2.5. job promotion if promotion done fairly it enhance worker motivation and competitiveness within the view of robbins (2005), upgrading is that the progression of a staff level or position in an institution’s hierarchical order. advancement in work could be an individual’s compensation or motivation for employment well done. an occasion to upgrade or promote a personal to a particular rank guarantees that, that individual worker is capable of handling the additional duties. 2.6. recognition “recognition explains the appreciation to the workers for the amount of performance, and success or an influence to attain goal. it is intimate or community, basic or official. it’s continuously in tally to pay” (robbins, 2005). but, the workers conjointly want recognition. persons prefer to distribute the celebration of their success with others and need to be recognized within the organization. whereas the required is satisfied it works to be an excellent motivator. further, if employers rely on reward solely to acknowledge influence and success it's most probable that the employee’s goals will become altered to safeguard the pay and nothing more while this will lead to a besmirched culture of the organization. therefore, using recognition properly it will be efficient way of increasing success and permit staff to feel intricate in the corporation culture (robbins, 2005). 2.7. training and development the training is properly organized, complex process, which the result is to improve the qualifications of employees, acquiring new skills and broadening employees’ knowledge (kochmańska 2016, p. 126-137). in new workplace also are conducted employee training in order to broaden the knowledge and skills about occupied position, training is concerned employees who haven’t contact with the pursuit of a given profession (silin et al. 2014, p. 69). most commonly associated with human professional sphere, not only during job. often training is enabling to get a new job (łaguna and fortuna 2009, p. 12). 2.8. conceptual framework the current study was guided by the following conceptual framework as summarized from the literatures. the proposed model below tried to show the relationship between independent variables and the dependent variable. kibru kefay & chalchissa amentie 80 h1+ h2+ recognition h3+ training 3. research methodology 3.1. research design this research paper adopts both descriptive & explanatory research approach since its purpose was to identify and describe the perception of employees about the nonfinancial incentive scheme practice of the bank; their motivation level and also it would identify the cause and effect relationship between no-financial incentive scheme practice and employees’ motivation. in addition to that the research was quantitative research. after collecting the questionnaire, the researcher tried to describe and relate the gathered data by quantitatively testing with different statistical techniques and cut point for mean was that 1-2.5 indicate low, 2.5-3.5 moderate and from 3.5-5 indicate high agreement with the raised measurement questions. 3.2. population of the study the target population of the study had the professional employees of cbe jimma town, which incorporates all professional employees from one main branch and ten sub branches of cbe with the total professional employees of 272. 3.3. sampling technique and sample size the study used probability sampling technique of stratified random sampling, within each stratum employees are being selected using a simple random method. stratified sampling technique was used to select samples from the existing employees in each branch of the bank in the jimma town; yamani (1967) formula was used to determine the sample size of the study. n=n/ (1+ne2) n= 272/ (1+272 (0.05)2 n= 272/ (1+ 0.68) n= 162 where; “n” is the sample size, “n” is the population size and “e” is the level of precision. at 95% confidence level, degree of variability=0.05 and level of precision/sampling error= 5%. 3.4. model specification mtv= α + β1pro + β2rec + β3tra + e where; mtv = motivation, α = the constant, or y intercept, βi= the coefficient of the independent variables, pro = promotion, rec = recognition, tra = training, e = the error term. 3.5. data sources and types the only source of the data used was primary in order to determine the effect of incentive practices on employee motivation and to meet the study objectives and the type of the data was quantitative. 3.6. data processing and analysis techniques promotion employee motivation the effect of non-financial incentive scheme on employees’ motivation (in case of commercial bank of ethiopia in jimma town) 81 the data collected was analyzed through quantitative data analysis techniques. the numerical data analysis was done using spss (statistical packages for social science) software program. both descriptive (frequencies, percent, mean, standard deviation) and inferential statistics (correlation, regression) would be used for data analysis. the pearson correlation coefficient was used to measure the linear relationship between dependent and independent variables. 4. data analysis 4.1. result of descriptive statistics table 1. frequency, mean and standard deviation for measures of promotion practice i variables frequency mean sd 1 2 3 4 5 1 there is opportunity of promotion in my organization. 14 5.1% 28 10.3% 27 9.9% 136 49% 68 24% 3.79 1.087 2 staffs has promoted in a fair and transparent manner. 14 5.1% 44 16.1% 58 21% 133 48.7% 24 8.8% 3.40 1.024 3 the criteria for promotion are acceptable 25 9.2% 78 28.6% 36 13.2% 113 41.1% 21 7.7% 3.10 1.170 4 my job allows me for rapid promotion 3 1.1% 26 9.5% 85 31.1% 131 48% 28 10.3% 3.57 .842 5 i’m satisfied with promotion system of the bank 21 7.7% 25 9.2% 58 21.2% 144 52.7% 25 9.2% 3.47 1.040 over all perception of employees towards the promotion 3.466 source: owen survey, 2019 1=strongly disagree, 2= disagree, 3= neutral, 4= agree, 5=strongly agree the result of descriptive statistics in the above (table 1) shows that (59.9% in average) of respondents have positive feelings about the promotion practice of the bank. the overall mean for all dimensions under promotion practices shows that the mean value of 3.466, which shows that majority of respondents were satisfied with promotion practice of the bank. table 2. frequency, mean and standard deviation for measures of recognition practice ii variables frequency mean sd 1 2 3 4 5 1 i feel that my efforts are being appreciated. 20 7.3% 56 20.5% 81 29.7% 89 32.6% 27 9.9% 3.17 1.093 2 the nature of my job helped me to get tangible recognition for my performance 25 9.2% 38 13.9% 36 13.2% 130 47.6% 54 16.1% 3.48 1.185 3 i get credit for what i do 13 4.8% 74 27.1% 73 26.7% 93 34.1% 20 7.3% 3.12 1.041 4 i get constructive criticism about my work 2 0.7% 71 26% 46 16.8% 121 44.3% 33 12.1% 3.41 1.026 kibru kefay & chalchissa amentie 82 5 i receive feedback on my progresses 3 1.1% 53 19.4% 56 20.5% 135 49.5% 26 9.5% 3.47 .947 over all perception of employees towards the recognition 3.3 source: owen survey, 2019 1=strongly disagree, 2= disagree, 3= neutral, 4= agree, 5=strongly agree from the value of above table 2 around half of the respondents (52.5% in average) have positive feelings about the recognition practice of the bank. the total perception of employees’ about the recognition was lie on the mean value of 3.3 ≈ 3. from this we understand that majority of respondents are neither satisfied nor dissatisfied or keep neutral about recognition practices of the bank. table 3. frequency, mean and standard deviation for measures of training practice iii variables frequency mean sd 1 2 3 4 5 1 organization provide training regularly 12 4.4 22 8.1 32 11.7 181 66.3 26 9.5 3.68 .913 2 the goals of the training were clearly communicated to trainee 42 15.2% 13 4.8% 42 15.4% 148 54.4% 28 10.3% 3.39 1.211 3 the training addressed my individual needs. 28 10.3% 55 20.1% 42 15.4% 135 49.5% 13 4.8% 3.18 1.126 4 the training was conducted in an interesting way 14 5.1% 14 5.1% 41 15% 164 60.1% 40 14.7% 3.74 .948 5 i am happy with the organization overall training system 14 5.1% 28 10.3% 27 9.9% 176 64.4% 28 10.3% 3.64 .975 over all perception of employees towards the training 3.52 source: owen survey, 2019 1=strongly disagree, 2= disagree, 3= neutral, 4= agree, 5=strongly agree in the above (table 3) majority of respondents (68.86%) have positive feeling about training practices of the bank and in other way the total mean was 3.52 which show that majority of respondents were satisfied with training practice of the bank. table 4. frequency, mean and standard deviation for measures of employee motivation iv variables frequency mean sd 1 2 3 4 5 1 i have opportunity to accomplish my objectives 28 10.3% 68 24.9% 150 54.9% 27 9.9% 3.64 .796 2 i have loyalty and belongings to my bank 27 9.9% 14 5.1% 42 15% 149 54.6% 41 15% 3.60 1.114 3 the bank provides me with challenging and meaningful jobs 29 10.6% 45 16.5% 32 11.7% 119 43.6% 48 17.6% 3.41 1.252 4 i have encouragement to improve my performance and to develop my skills 27 9.9% 30 11% 72 26.4% 130 47.6% 14 5.1% 3.27 1.057 5 i support and help each other with my coworkers or staff members 12 4.4% 27 9.9% 45 16.5% 151 55.3% 38 13.9% 3.64 .986 the effect of non-financial incentive scheme on employees’ motivation (in case of commercial bank of ethiopia in jimma town) 83 6 i am committed to my responsibility 14 5.1% 46 16.8% 59 21.6% 109 39.9% 45 16.5% 3.46 1.108 7 my accomplishments give me an important sense of self-respect 12 4.4% 53 19.4% 65 23.8% 113 41.4% 30 11% 3.35 1.051 over all perception of employees towards their motivation level 3.48 source: owen survey, 2019 1=strongly disagree, 2= disagree, 3= neutral, 4= agree, 5=strongly agree as shown in the above table 4 majority of respondent (60.9% in average) have positive feeling regarding their motivation level and they were motivated at mean value of 3.48. so, it is possible to say that majority of the respondents were motivated to do their job in the bank. 4.2. correlation and regression analysis from the result of pearson correlation the variables promotion and training have a strong positive relationship with employees’ work motivation but recognition has moderate positive relationship with employees’ work motivation. table 5. pearson correlation analysis for independent and dependent variables promotion recognition training motivation promotion pearson correlation 1 .501** .692** .608** recognition pearson correlation .501** 1 .570** .514** training pearson correlation .692** .570** 1 .627** motivation pearson correlation .608** .514** .627** 1 **. correlation is significant at the 0.01 level (2-tailed). source; spss results, 2019 the study used a multiple linear regression model and examined the effects and magnitudes of the independent variables on motivation level of employees. table 6: model summaryb model r r square adjusted r square std. error of the estimate 1 .689a .474 .468 4.19923 source; spss results, 2019 a. predictors: (constant), promotion, recognition, training b. dependent variable: motivation kibru kefay & chalchissa amentie 84 the table.3 indicates the results on the effect of promotion, recognition and training on employee work motivation. it is clear that this model has the r² .474 that shows 47.4% of the variation on the employees’ motivation was explained by the variables included in this model. table 7: anovaa model sum of squares df mean square f sig. 1 regression 4279.237 3 1426.412 80.892 .000b residual 4743.430 159 17.634 total 9022.667 162 source; spss results, 2019 a. dependent variable: motivation b. predictors: (constant), basic pay/ salary, recognition, promotion, fringe benefit, training in the above table f-ratio describes whether the regression model was good fit or not. large f value and a small significance level (sig.) (typically smaller than 0.05 or 0.01) indicate that the model was good fit 0.05 in this case. accordingly, as can be seen from the table above the f value is 80.892 and is significant at 0.000. hence, the researcher can suggest that, the regression model adopted in this study was good fit and is considered significant. table 8:coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 4.504 1.355 3.324 .001 promotion .461 .097 .296 4.760 .000 recognition .279 .082 .185 3.386 .001 training .408 .084 .317 4.830 .000 a. dependent variable: motivation h0: promotion has no positive & significant effect on employees’ motivation in the above table the p-value for the promotion was less than .05 as a result, the null hypothesis was rejected. the tvalue as shown in the table titled coefficients is 4.760 which is greater than +2 and that make it an important predictor of employees’ motivation. h0: recognition has insignificant effect on employees’ motivation. the null hypothesis was rejected and by the reverse alternative hypothesis was accepted because the p-value was less than 0.05; the t-value is 3.386 which is greater than +2 that make it an important predictor of employees’ motivation. h0: training has insignificant effect on employees’ motivation the null hypothesis was rejected since the statistical value in the above table 4.21 titled coefficients shows that the training has significant relationship with employee motivation at p (sig) of .000 which is < p = 0.05. the t-value as shown in the table 4.830 is greater than +2 thus making it an important predictor the effect of non-financial incentive scheme on employees’ motivation (in case of commercial bank of ethiopia in jimma town) 85 5. conclusion and recommendation 5.1. conclusion the study concludes that majority of employees’ are satisfied with the current promotion and training practices of the bank but they were neither satisfied nor dissatisfied with the recognition practice of the bank. however, majority of the employees’ were at good motivation level to perform their work. also, it concludes that promotion and training had a strong positive and recognition had moderate positive relationship with employees’ work motivation. standing from the result of regression analysis the study concludes that promotion, recognition and training are the significant non-financial incentives which are important predictors of the employee motivation. in generally, effective implementation of them will last in increment in employees’ motivation and the opposite is true 5.2. recommendation the bank should periodically examine its promotion and training practices to make it more interesting, fair and acceptable by its employees. even if there was a partial employee’s satisfaction on the promotion and training practices but there is a gap that would be improved by the bank to fully satisfy its employees’. so, human resource department of the bank should not sit silent by thinking as they are satisfied because these variables had positive, a strong & significant effect on employee’s motivation. so, improvement on those variables will lead to high employees’ motivation. also, the bank should improve its recognition practice since employees’ are neither satisfied nor dissatisfied with the variable. but, the variable has a positive and significant impact on employees’ motivation. therefore, the bank should make improvement on this variable to increase the employees’ motivation level at high extent. references armstrong, m. 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(1967), statistics, an introductory analysis, 2nd edition, new york: harper and row. international journal of commerce and finance, vol. 5, issue 1, 2019, 60-69 60 factoring as an effective working capital option: a critical review eletta onaepemipo federal university of technology minna, nigeria umaru zubairu federal university of technology minna, nigeria bilkisu abubakar baze university, nigeria simeon araga federal university of technology minna, nigeria hadiza umar federal university of technology minna, nigeria abdulhafeez ochepa federal university of technology minna, nigeria abstract purpose – the purpose of this paper was to critically review the concept of factoring, with the view to ascertain its effectiveness in ensuring that organizations have access to enough liquid funds that facilitate the smooth running of their operations. methodology – the systematic quantitative assessment technique (sqat) was used to identify and review relevant peer-reviewed journal articles that had investigated factoring as a source of working capital. findings – based on a critical review of extant factoring scholarship, it was deduced that factoring has been effective enough to elicit a growing rate of adoption across the continents, despite the costs of adoption, as well as the 2009-2014 global financial crisis, excluding only north america where there seems to be a constant decline in adoption rate. research limitations – the use of limited but high quality academic databases means that some articles were not considered for this review. originality/value –the study is one of few studies to discuss the effectiveness of factoring as a source of working capital. keywords: factoring, account receivables, working capital, fci, effectiveness jel classification: g320 1. introduction finance is seen as the elixir that enables businesses to exploit opportunities to grow (duff, 2018). however, there has been a consensus among scholars that finance-related problems, such as access to and management of finance, are constantly rated among the major hurdles hampering organizational growth (kumar and rao, 2015; chowdhury and alam, 2018). furthermore, while seasoned business owners are well aware that turnover and profits matter a great deal in the long run, they acknowledge that it is how cash flows in and out that makes or breaks a company in the short run (shiao, 2018). therefore, organizations have employed several means to optimize working capital, that is, to ensure that cash outflows are significantly less than cash inflows so that there is enough to run day to day operations (kowsari and shorvarzi, 2017; abbasi et al., 2018). in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e factoring as an effective working capital option: a critical review 61 as such, it is often said that cash flow is the lifeblood of any company (edwards et al., 2017). particularly, this applies to corporations that engage in the convention of credit sales to customers (li and gu, 2018), as well as construction and manufacturing companies which are more often than not, required to complete a certain proportion of, or the total project before receiving payment ( hansen et al., 2017; nasir et al., 2017). this supply of goods and services before payment results in accumulation of accounts receivables, that is, the money owed a company by its clients (li and gu, 2018). it is therefore a plus that debts (receivables) have become commodities that can easily be exploited, using tools like factoring and securitization (juutilainen, 2016). for the purpose of this study however, the focus is placed on factoring as it appears to be a trending working capital intervention option, which surprisingly dates back to the early days of civilization (rts financial, 2019). factoring refers to the phenomenon where a company (the adherent) sells its accounts receivables (the invoices showing the debts owed by its clients) to a financial service company (otherwise called factoring companies or factors) at a discounted rate (a little cheaper than the exact amount stated on the invoice), which will be paid immediately the status and creditworthiness of the debtors are ascertained by the factor. this allows for the uninterrupted running of day to day operations in the company, while passing off the burden of debt collector to the factor (chirkunova et al., 2016; dorfleitner et al., 2017; protopappa-sieke and seifert, 2017). as highlighted in the 2017 organization for economic co-operation and development (oecd) annual report “financing smes and entrepreneurs 2017: an oecd scoreboard”, it is interesting to note that despite the financial crises between 2009-2014, factoring volumes continued to expand, and served as an attractive substitute for more traditional bank lending, which greatly contracted within that period (oecd, 2017). regardless of the decline of factoring volumes in 2015 across the continents, excluding europe, the global factoring volume increased to eur 2,367,790 trillion in 2016, from eur 2,347,513 trillion in 2015, and has steadily increased ever since, confirming factoring’s role as an important financial resource for sustaining companies’ growth (fci, 2018). furthermore, unlike traditional bank loans, it does not create a liability for the company since it is a sale, not a loan (except in the case of default), therefore, there is no threat of property take-over (auboin et al, 2016). also, the asset sale process is simple, working capital to fund the production of orders is provided, and the payment of wages and purchase of production inputs is made possible with little or no delay (auboin et al, 2016). nevertheless, despite its merits, there are also demerits to adopting factoring. these include the interest rates and service fees levied on the companies, which are sometimes costly, especially depending on the tax treatment in such a country (bernard et al., 2018). also, how the factor handles companies’ clients may positively or negatively affect the clients’ view of the company. hence, it is advantageous for research to be carried out to determine, first, whether or not factoring is an effective financing option and then subsequently how it can be optimized for efficiency within organizations. as such, this study reviews extant journal and news articles that have discussed this field of interest, and also evaluates the highest ranking factoring body, factors chain international (fci) 2018 annual review, in order to answer the central research question “is factoring an effective financing option?”. recommendations and areas for further research are also provided. the subsequent sections of this study are as follows: the methodology section, review section where related literature are appraised, the current trends in the factoring world are discussed, and the answer to the central research question is provided; followed by the recommendations section, and then the conclusion section where limitations of the study are presented as gaps for future research. 2. methodology the “systematic quantitative assessment technique” (sqat) developed by pickering and byrne (2013) was utilized for this study. sqat is systematic in the way papers are assessed to determine their inclusion or exclusion in the eletta onaepemipo & umaru mustapha zubairu & bilkisu abubabakar & simeon araga & hadiza umar & abdulhafeez ochepa 62 review process, and the focus is on peer-reviewed original journal publications so as to maintain a high quality of papers (pickering & byrne, 2013). sqat enabled the researcher to identify “important geographic, scalar, theoretical and methodological gaps in the literature” (pickering & byrne, 2013, p. 11). the researcher found sqat to be logical, simple to use, and easily replicated, which are all important components of a systematic review. sqat recommends five important steps in conducting an effective systematic review. each step and how it was applied in this study is described in table 1. table 1: description and application of sqat step application in current study 1. define topic factoring as a financing option 2. formulate research questions one central research question: “is factoring an effective working capital option?” 3. identify key words “factoring” + “finance” 4. identify and search databases 1. 10 databases utilized: elsevier; springer; wiley; taylor and francis; jstor; emerald; sage; inderscience; cambridge journal; heinonline; 2. “all in title” search: factoring + finance 5. read and assess publications 1. abstracts of papers found were read to ensure that they were dealing with factoring as a financing option. 2. literature reviews book chapters and conference proceedings were not included; only peer-reviewed conceptual and empirical papers. nevertheless, given the paucity of research on factoring within the years under review in the study, the journal articles are augmented with the analyzed content of factors chain international (fci) 2018 annual review so as to gain a critical overview of the concept of factoring, in order to ascertain whether or not it has been effective as a working capital solution. 3. discussion and findings this section provides an overview of the opinions of scholars and professionals on factoring as a working capital option, its benefits and costs, as well as trends in the industry, in order to gain a comprehensive outlook of the effectiveness of factoring so far. the section also outlines the challenges militating against successful factoring transactions, both in emerging and emerged economies, with a view to recommending possible solutions. 3.1. factoring as a working capital solution the recent global economic crises has caused a serious problem of insufficient liquidity and working capital for small and medium ventures, including a significant increase in the cost of corporate borrowing from banks (song et al., 2018). these, combined with the absence of accurate or substantial financial records and bankable collateral (rao et al., 2017), as well as the slow processing and disbursement of funds, have made traditional bank lending less attractive (amoah et al., 2017). a possible solution would have been equity financing, however, many companies are factoring as an effective working capital option: a critical review 63 not connected to the capital market and, and as such are not allowed to sell titles through the capital market (bogdan et al., 2018). therefore, seeing as debt is a tradable asset in the dynamic, global market arena of today (juutilainen, 2016), factoring has been highlighted as a quick solution to ease the working capital crunch faced by many corporations (bogdan et al., 2018). this is supported by the fact that factoring releases finance that might be stuck in account receivables for a long time, immediately, in form of advances. this ensures that the firms can manage the required level of liquidity, while transferring the difficulties associated with debt collection to a financial institution (tanrisever et al., 2012). 3.2. benefits and costs of factoring entrepreneurial firms are often characterized as having insufficient acceptable tangible assets, such as buildings, landed property, and others, to offer as collateral. they are also seen as lacking in the track record necessary to establish their reputation. therefore, factoring is considered more doable for them, as the collateral itself (accounts receivable) is readily available to entrepreneurs, and serves as the primary source of repaying the factor. as such, factoring can be used to complement bank loans, or, as the case may be, substitute them entirely (mol‐gómez‐vázquez et al., 2018). like other traditional forms of commercial lending, factoring also provides corporations, especially service companies which grow faster than their credit line, and tend to be payroll intensive, with the funds needed to run their day to day operations (milenkovic-kerkovic and dencic-mihajlov, 2012). however, unlike most other forms of commercial lending, factoring supplies the needed funds speedily, in such a way that enables the sale of goods and services to continue with minimal interruption, thus encouraging productivity and profitability (mugarura, 2016). furthermore, financing large scales projects become challenging when there is need to secure and raise capital, as such, contractors use several alternative sources of funding, of which factoring is usually used to get the materials needed, in order to sustain financial flow and avoid any dissatisfaction between collaborated partners (romeli et al., 2016). this is corroborated by the fact that there is no cause for asset risk, credit risk, debt, or sale of ownership (chirkunova et al., 2016). also considering that, on average, 20 to 40 percent of manufacturers have assets locked as accounts receivables (lin et al., 2018), factoring allows the high-risk suppliers among them to mitigate their credit risk level with that of their high-quality buyers, as the decision of a factor to finance the adherent has more to do with the position of the buyers owing, than the supplier owed (klapper, 2006). in addition to this, the owing buyer’s informational asymmetries and risk become the primary concern of the factor, not the adherent, and even those become secondary concerns if the accounts receivable belong to transparent and large companies (mol‐gómez‐vázquez et al., 2018). as such, manufacturers’ abilities to expand operations or change product offerings in response to changing market conditions are unhindered. following these, despite the fact that corporate finance sees the protection of the rights of financiers as essential to mitigating agency problems in sme financing and assuring the flow of capital (jensen and meckling, 1976), extant financial literature have stated that not all financial contracts are equally affected by the low quality of laws. factoring is one of such financial contracts that are less affected by agency problems and inefficiencies in the legal system, regarding the protection of investors, as long as the debtor firms are transparent dealers: this is good news for developing countries which are usually characterized with such inefficiencies. as such, protection of creditor rights and enforcement mechanisms become less important for factors (mol‐gómez‐vázquez et al., 2018). on default risk, that is, the risk that the debtor refuses to pay up as at when due, factoring offers an option, “factoring without recourse”, wherein the factor assumes the payment risk of the debtor (rajput et al., 2015). on another hand, in the case of cross-country factoring, the exposure of a firm to foreign-exchange risk can also be mitigated, since the exporter can simply sell receivables to a factor and receive home currency in return (sirpal, 2009). eletta onaepemipo & umaru mustapha zubairu & bilkisu abubabakar & simeon araga & hadiza umar & abdulhafeez ochepa 64 the use of factoring has been seen to improve credit and default risks, cash-flow and liquidity, profitability, as well as time management. however, it has also been seen to impose a whole range of costs, mainly coming from both the business and legal environments. from the business environment, the standard costs consist of two main charges discount charges (based on the interest rate determined by the factor) and service fees. there might also be additional costs for additional requested services, such as credit protection charges for non-recourse factoring agreements, performing credit investigations, guaranteeing commercial and political risks, among others (milenkovickerkovic and dencic-mihajlov, 2012; rajput et al., 2015). from the legal environment, the tax treatment of factoring can cause factoring transactions to become excessively expensive (milenkovic-kerkovic and dencic-mihajlov, 2012; bernard et al., 2018. for instance, some countries do not allow the interest on factoring arrangements to be tax deductible. also, when the law sees factoring as a sale and purchase agreement where there is a complete transfer of the receivables’ ownership, in the case of bankruptcy, factored receivables would not be part of the property of the bankrupt firm, but the property of the factor. since the factors know these, it can affect the costing of factoring services, thus making their fees more expensive. there are also a number of additional taxes, as well as legal and regulatory challenges to factoring in many countries (milenkovic-kerkovic and dencic-mihajlov, 2012). 3.3. trends in the factoring industry as observed from the fci annual review 2018, this subsection explains the global factoring trends in the last 7 years (2011-2018), highlighting the growths and declines that have taken place in a continental context. figure 1. factoring volume per continent in eur millions for 2011,2015 and 2017 as observed in figure 1, there has been a steady growth in europe’s factoring volume right from 2011 to 2017, and this is corroborated by the data collected by the eu federation for 2017, wherein factoring volumes for eu factoring as an effective working capital option: a critical review 65 countries have increased by 7.5% for the 9th year in a row, exceeding eur 1.6 trillion: today factoring is recognized as a safe short-term source of funding, committed to the real economy and employment in europe (fci, 2018). owing to the sharp rise in china’s factoring volume by 34%, as well as the increase in other major markets such as hong kong (+10%), singapore (+9%). and taiwan (+5%), after declining from 2015-2016, asia pacific’s factoring volume made a spectacular return with a growth of 18% from eur 555.55 billion in 2016 to eur 657.18 billion in 2017 (fci, 2018). as of 2017, factoring volumes of latin america (south america) and caribbean countries had grown to over eur 117 billion, from eur 96.18 billion in 2011. this is a great achievement for the region where it has been a great challenge to proffer a one-off solution to support, provide needed, funds and at the same time mitigate lending risks of young and innovative smes. both international factoring and reverse factoring have proven to be good fits in the region, such that their financial institutions attest to being contented with the results attained so far (fci, 2018). in 2017, africa’s factoring volumes increased by 9% (eur 21.6 billion), surpassing the global average growth of 4%, even after the sharp plunge in 2015 (eur 18.7 billion) owing to the increased factoring volumes particularly in morocco (+25%) and south africa (+9%). however, africa’s share represented only 1% of global figures. the annual review also highlights that in the less developed countries of africa, factoring has gained grounds. in nigeria for instance, the nigerian factoring working group (nfwg) worked actively on the enactment of a factoring law. as such, a new factoring company (factoring and supply chain finance limited) obtained regulatory approvals, commenced business, and joined fci in 2017, while two others were under establishment (fci, 2018). it is observed that the middle east, despite experiencing increase from about eur 3.8 million in 2011, to slightly above eur 8 million in 2017, has obtained the least share in factoring volume so far, while north america has not done much better as there has been a decline by at least 3% since 2011(fci, 2018). 3.4. effectiveness of factoring financial effectiveness (fe) is the ability of organizations to use the proper choice of activities, efforts, initiatives, strategies and/or policies to generate and maximize long-term sustainable financial performance (omondi-ochieng, 2018). as such, it might be safe to say that any financing option that can potentially help an organization to achieve its financial goals is an effective one, and any one that actually succeeds in facilitating the achievement of such targets is efficient: this is as distinguished by drucker (1977), who associated efficiency to “doing things the right way” and effectiveness to “doing the right things”. however, as noted, the financial option must first be effective, which is what this paper is thus concerned with. therefore, considering the turns factoring has taken in the past 7 years, seeing as all the other continents asides north america, have seen reasons to increase their factoring volume, no matter how small the fraction, as in the case of the middle east and africa, it is safe to say factoring has been effective in meeting the financial needs of organizations in the continents, as if it was not, there would be no need for its increased volume, and no way that countries would have continued to adopt it. also, in a study carried out by bogdan et al. (2018) in romania, it was highlighted that the financial structuring of enterprises is based on the criteria that such structure can be easily accessed, it can achieve the lowest cost of the capital, and with the most reasonable level of debt to the company. therefore, the constant preoccupation of managers is finding the financing sources that meet these criteria, for their operations. in the same study, using the genetic algorithms method, the solution generated showed the fact that factoring is a viable financial solution, to the extent to which the particular factoring transaction can be easily accessed and can achieve the minimum level of cost and indebtedness (bogdan et al., 2018). furthermore, despite the obvious and weighty costs that could be incurred upon adopting factoring, many still do not mind as it effectively helps bridge the gap between cash outflows and inflows, without the costs running the business down. owing to this also, it is quite safe to decide that factoring is an effective financing option. eletta onaepemipo & umaru mustapha zubairu & bilkisu abubabakar & simeon araga & hadiza umar & abdulhafeez ochepa 66 3.5. challenges selecting factoring, or even any other type of financing option, as effective financing sources for investments is complex because, besides the main criteria concerning the costs of achieving the capital, there are a series of restrictions concerning the access, difficult legislations, the decision of the authorized institutions in approving the usage of these types of financing sources, as well as the financial situation of the company (bogdan et al., 2018). capital from factoring does not necessarily translate to the flow of goods between suppliers and recipients as lack of proper marketing techniques, constant defaulting, inconsistencies in deliveries, and so many other factors may militate against successful flow (hofmann, 2009). furthermore, successful factoring can be limited because of ineffective information infrastructures characterized by the absence of data on payment performance (as is usually the case in emerging countries), and /or high cost and long time required for the information collection (milenkovickerkovic and dencic-mihajlov, 2012). also, despite the fact that factoring is less affected by inefficiencies in legal systems, than many other means of financing smes, in a survey conducted by mol‐gómez‐vázquez et al. (2018), it was discovered that other institutional factors, besides the legal environment, might influence the demand and the supply of factoring. as such, firms operating in underdeveloped economies might still have a reduced use of factoring, despite having a weak legal environment in which factoring does not have a problem thriving. on another hand, due to the contradictory stands concerning the shari’ah-compliance and efficiency of factoring, international factoring is possibly one of the most controversial issues in islamic trade finance. this is owing to the element of bill discounting and interests, on which islamic finance puts restrictions as directed by the koran (gundogdu, 2016). 4. recommendations seeing as selecting factoring as an effective financing option goes beyond the direct costs it imposes, it is advised that corporate organizations do proper studies on the financing options available to them, using capital budgeting tools like net present value, and others to determine if factoring is the best fit for their particular organization, as it may be a viable venture for some, and not for others, owing to the internal, and sometimes external environment they find themselves. factoring provides capital almost as soon as it is needed, however, this does not automatically translate to higher sales and profitability, the internal conditions of the organization, such as how the money is managed, the value and quality of products and services, customer relations, proper communication of corporate goals to employees, and so many others, have to be properly handled. in the same vein, countries, especially developing ones, have to be holistic in their approach towards solving financial problems, which they are usually characterized by, such that the legal system, as well as the political and socioeconomic systems will be supportive of businesses, thus helping the economy to grow steadily and eventually develop (restructure for enhanced clarity). according to fci, a working group has been established to create an interface agreement which would enable the existing members of fci to cooperate with islamic financial institutions. as such, the global rules of international factoring (grif) has been revised, and it is believed that signing the supplemental agreement for islamic international factoring will eliminate the controversies (include reference). it is however advised that fci be careful in its attempt to draw in more of the islamic financial institutions, as they also risk losing former members who will not like to comply with the new rules. it is also recommended that corporations also carefully choose the particular customers whose debts they sell to the factors. this is pertinent as some customers will not like to be approached by third parties concerning their debts, and may feel insulted and completely stop patronizing the company. the careful selection will ensure that toppriority customers and clients are not driven away. lastly, a cost-benefit analysis should be carried out to ascertain if it will be more beneficial to undertake a factoring transaction, than to undertake the other options available to the company. 5. conclusion and suggestions for future research factoring as an effective working capital option: a critical review 67 despite the fact that the problem of finance is a persistent one in organizations because there are always more needs than available means of meeting them, factoring has been found efficacious as an innovative short-term financing tool that continues to gain grounds as a working capital financing solution, as it enables businesses to keep afloat and maintain competitive advantage in the ever evolving, not-waiting-for-anyone world we find ourselves, by freeing up cash stuck with the organizations’ debtors. nevertheless, it is worthy of note that when it comes to financing businesses, there is no one-size-fits-all. this means that, since strengths, weaknesses, opportunities and threats vary from firm to firm, managers are to be saddled with the responsibility of critically assessing the various means of funding available to their organizations, so as not to adopt just any one, but the one that best suits theirs: what works for company a might not work for company b. however, this paper is limited in that, as opposed to the original intent of the researchers, the paper could not rely on just peer reviewed journal articles as points of reference as the number of scholarly articles specifically discussing factoring are meager, and even some of the available ones are neither comprehensive nor holistic enough. it is therefore proposed that potential researchers seize the opportunity to explore the field of factoring, especially at a time like this when it is still a trending topic in the world of corporate finance. references abbasi, w.a., wang, z., & alsakarneh, a. 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(2017), “performance and financing strategies of female and male entrepreneurs in the republic of serbia”, international journal of gender and entrepreneurship, 9(2), 136-156. international journal of commerce and finance, vol. 5, issue 1, 2019, 51-59 51 a conceptual framework for the evolution of c2c social commerce business models in tunisia amir ben mekki ph.d. candidate istanbul commerce university, turkey abstract facebook is the preferred social networking service (sns) among tunisian users for social commerce (sc) and consumer-to-consumer (c2c) commercial activities. this article aims to increase the understanding of the influencing factors of c2c sc activities and provide a new interpretation of the evolution of c2c sc models in tunisia's fastest growing trend. in order to fulfill this goal, we performed a literature review to update existing multi-facet framework that combines four important dimensions with new fundamental components: incentive systems, information and communication technologies (ict), participative web, and e-business rules and regulations. this study has shown that these influencing factors are the key ingredients driving the evolution of c2c sc business models in tunisia and the consideration of the four dimensions founded in our study will aid ecom professionals to enable the widespread occurrence of c2c sc activities and can drive the success of these business models in tunisia. keywords: social networking service (sns), consumer-to-consumer (c2c), social commerce (sc). 1. introduction the development of social networking services (snss) has influenced the evolution of e-commerce (ecom) (turban et al., 2010). a new division of ecom has emerged as a result of combining social activities with commercial features. many of sns’s aspects are undergoing rapid changes and thus stimulating private individuals across the globe to engage in social commerce (sc) activities and multiply their income streams. messaging applications and platforms such as facebook messenger, whatsapp or viber are used to communicate with family and friends as well instantly can be used to set up communications between buyers and sellers (turban et al., 2015), intensifying the spread endorsement of consumer-to-consumer (c2c) sc activities. for instance, in tunisia, facebook (fb) and other tunisian snss users take part in both selling and buying activities of products and services. users (sellers) are regularly sharing publications (content) attached with pictures, and descriptions of their offer targeting potential buyers (turban et al., 2015). commercial activities over the snss often occur between unfamiliar buyers and sellers (sukrat et al., 2018). while ecom growth has intensely influenced the evolution of the retail industry in developed and developing countries (dahiya, 2017), the evolution of tunisia c2c sc models has shaped modern domestic e-business. the present research studies in depth the influencing factors involved in the rise of c2c sc business models in tunisia. based on the literature review (wang and zhang, 2012), we suggest a new conceptual framework, which covers four aspects that could better increase our understanding of the supportive factors of c2c sc development and provide a new interpretation of the evolution of c2c sc models in one of tunisia's fastest growing trend. 2. the rise of c2c social commerce in today’s marketplace, consumers are increasingly having control over their marketplace experiences. innovations in mobile technologies are removing barriers and facilitating access to modern social network and mobile applications anywhere and anytime, thus, making users connect to each more than ever before. a wide range of social network has led users to evolve from being content receivers to content creators (adams, 2015). numerous well-known online retailers added several sns functionalities into their ecom websites. consumers today can share knowledge and experience about products and services by using different social networking applications, such as social commerce constructs (scc) (recommendations, ratings, reviews) (shen and eder, 2009). sharing of information and experiences online consequently impact the consumer’s decision to purchase certain products and services from ecom websites (snyder et al., 1997). in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e amir ben mekki 52 online shoppers and online retailers in developing countries stimulated by socio-economic factors usually reinvent the use of sns platforms, which may circumvent the intervention of intermediary retailers. reinvention occurs when consumers are using sns unique characteristics with no intermediaries, managing and performing business transactions with each other as a c2c sc activity (yue and xie, 2011). snss provide opportunities for consumers to interact with businesses and other consumers. the adoption of these online platforms that involve the recognition of the consumer’s role as an integral part of c2c sc models persuades progressive sns suppliers to improve their commercial functionalities and consequently facilitates the growth of these new business models. wang and zhang (2012) introduced a comprehensive framework of sc named the information model or i model. the authors explained the evolution of sc from 2005 to 2011 and proposed that sc evolution can be summarized into four interlinked dimensions including people, management, technology, and information. further, these four dimensions have a mutual effect. as stated by the authors (wang and zhang, 2012), the people’s dimension in sc represents private individuals, small or large groups, or virtual communities and societies benefit from the technology. the management dimension embraces policies, strategies, management, operation, processes, structures, cultures, and opportunities practiced to benefit or to make profits from social commerce transactions. the technology dimension represents the technical capabilities and advancement responsible for social commerce's technological feasibility and maturity. the information perspective refers to the uniqueness of this content-driven environment where an extensive and massive amount of content related to products or services is continuously generating, processing and spreading among customers. 3. a conceptual framework of c2c social commerce in tunisia in recent years, several reports have highlighted the contribution of ecom in the economic growth of tunisia (export.gov, 2019). ecom services are covering a wide range of tunisian products including crafts, textiles, tourism, travel-related services, food, and beverage. because of specific government regulations related to online payment transactions, the development of this sector is limited. however, c2c sc market is growing exponentially (“le ecommerce en tunisie,” 2016). according to the literature review undertaken, we re-purpose the four dimensions of sc introduced by wang and zhang (2012) (i.e., people, management, technology, and information) and replace them with incentive systems, information and communication technologies (ict), participative web, and e-business rules and regulations. figure 1 dimensions of c2c social commerce models, updated from the i-model (wang & zhang, 2012) a conceptual framework for the evolution of c2c social commerce business models in tunisia 53 incentive systems refer to devices including monetary or non-monetary rewards that could engage and stimulate the consumer’s motivation. information and communication technologies (ict) refers to technologies that provide access to information through communications (chalopatham et al., 2015). it includes any communication device, television, mobile technology, and computer; that helps individuals, businesses, and organizations get access to information. using ict, particularly mobile technology and digital technology has increased dramatically, and new technologies such as video chat, live chat, and mobile banking played a vital role to support c2c sc activities. participative web concerns the implementation of new innovative web services that empower the users to express themselves through different channels and media such as user-created content (ucc) it includes content such as text, image, and multimedia shared across snss. e-business rules and regulations, including strategies, procedures, and policies that can assert business structure, ethical conduct, and control or guide consumer’s behavior. figure 1 illustrates a typical example of the dynamic interrelation of these four dimensions. when a fb member shares a publication about a product or service (participative web) on his profile or fb group (ict), prospective consumers who see the publication and are willing to make a purchase (incentive system) may contact the seller (user) directly via facebook messenger (ict). before deciding to buy, the prospective consumer can visit dedicated ratings and review sites or retailers’ ratings and reviews (ict) generated by other consumers (participative web) and check their historical sale information such as after-sales service, delivery history, comments, and star rating. to pursue the transaction, customers have to obey the rules and regulations enacted by group administrators and authorities (e-business rules and regulations). 4. the influencing factors of c2c social commerce in tunisia based on a thorough review of multiple articles, books and the results of a new survey conducted by the national institute of consumption in tunisia related to customer experience and ecom (institut national de la consommation, 2018) we present a detailed description of the influencing factors behind each aspect of our new conceptual framework (figure 1). 4.1. incentive systems multiple factors stimulate sellers and buyers to engage in ecom (celsi and gilly, 2019) such as economic incentive, social incentive, or moral incentive. similarly, in c2c sc activities these factors can profoundly influence the consumer’s purchase intention and decisions. having a well-established incentive plan could promote ecom in tunisia and consequently enable the widespread occurrence of c2c sc business. 4.1.1 economic incentives economic incentives include, low transaction cost, convenience, and particularly price discounts can motivate buyers and sellers to be involved in c2c sc activities. commonly the consumer wants to pay as less as possible. schlagbauer et al. (2014) showed that the more discount the seller offers, the higher the potential to trigger the intention to buy. the research revealed that consumers are much more sensitive to the price discount on the online than the conventional environment and that they often choose a product with more significant price discounts (degeratu et al., 2000). one of the reasons tunisian buyers shop at sns platforms such as fb buy and sell groups is that they can benefit from the higher profitability that results from selling directly to one another without an intermediary. for a local business owner with a limited budget, engaging in c2c sc business can be profitable because of the low transaction cost. they can share their products and services at a cheaper rate and trim unnecessary spendings such as rent and office supplies. 4.1.2 social incentives recent research has highlighted the social embeddedness of ecom, in which value is shaped by the tunisian culture and the post-revolution (after january 2011) environment influences. as a collectivist society, which privileges the group over individual interest, mainly always subordinate to the family or group (sandıkcı and rice, 2011). tunisian consumers understand the importance of social support and are involved continuously and mobilized for their network (madoui, 2012). amir ben mekki 54 cooperation and online interaction through sns can fulfill an individual’s social needs, bring cordiality among users and positively affect the sense of community (oh et al., 2014). informational and emotional supports are two forms that ensure ecom business success (yusuf et al., 2018). similarly, for c2c sc business, these two support messages can improve the attentiveness of social relations among users and encourage them to proactively share knowledge and contribute to evaluating and promoting products and services. 4.1.3 moral incentives in modern societies, moral incentives have high predictive power on purchase behaviors, and they can motivate the consumer to achieve a socially beneficial end (tolba, 2001). before making online purchase users do not merely act rationally, they also choose their actions according to moral motivations like fairness, justice, inalienable rights (schultz, 1986). islam is the official state religion in tunisia. the majority of the population of the country is muslim. based on an islamic point of view, a muslim should be very loyal, trustworthy and god-fearing in any financial practices (ali, 2015). in sns platforms such as fb buy and sell groups, tunisian consumers often promote ethical behavior as a way of gaining trust and increasing confidence. having a personal relationship is also an essential factor in the success of business transactions. usually, consumers avoid dealing with those whom they do not get along with or trust. another aspect of tunisian culture that has a significant influence on business is the conflict avoidance attitude. tunisians are non-confrontational (commisceo global consulting, n.d.). during traditional business negotiations, they usually reluctantly agree and wait until a better opportunity to express their disagreement, contrary to online transactions they behave as if ecom and especially sns platforms can shield them from the discomfort of saying “no” overtly (zarrad and debabi, 2012). we assume that an effective incentive plan is suitable for many aspects of a business and it is especially beneficial for the development of models in tunisia. 4.2. information and communication technologies (ict) advanced and emerging technologies have been the primary drivers for the societal changes in tunisia. the collaboration between government, higher education institutions and multinationals has resulted in a well established international reputation and a favorable technological environment for business (weber and hamlaoui, 2018). tunisia is the first african country to implement information and communication technologies (ict) as a based national strategy. it has 11 operational technoparks and over 15 industrial centers devoted to training, scientific, and technological research (youssef et al., 2012). moreover, telecommunication solutions are the most promising industry sectors in tunisia (export.gov, 2019). fb is the preferred platform among tunisian consumers and secondly on instagram (ig), another sns that is gaining ground in the tunisian market. 7.40 million from the total population, which is 11,75 million (worldometers, 2019), are monthly active fb users as compared to the second largest platform ig with 1.90 million monthly active users (datareportal, 2019). nearly all consumers perform c2c sc transactions in the above-mentioned social networks. according to develite, more than 80% of all ecom transactions are highly localized, in four major cities: tunis, sousse, sfax, and gabes, known for their well-developed ict infrastructures (“le e-commerce en tunisie,” 2016). people aged between 30 and 39 are the most active online shoppers, and high-income consumers are likely to shop more often (institut national de la consommation, 2018). fb groups are commonly used to operate c2c commercial activities (gnagey, 2017). sellers can leverage advertising in buy and sell groups for either new and second-hand product or service promotions while buyers can browse, search for relevant product information, connect and exchange information among other consumers. through crossplatform messaging and voice ip services such as fb messenger or whatsapp customers can contact sellers for more details about the offer and complete the deal. the lack of trust among sellers and buyers on snss has the potential to slow the transaction; tunisian consumers are not willing to share their banking information during sc operations. they consider “pay on the door” which represent 70% of all online transaction payments the safest payment method for ecom (nordea trade, 2019). another factor that limits and slows the transaction is the underdevelopment of online payment systems (regaieg essafi and bouslama, 2013). a conceptual framework for the evolution of c2c social commerce business models in tunisia 55 with the largest mobile phone subscriber rates, the third highest internet penetration rate in africa, and the development of sns applications, consumers can directly engage in c2c sc activities and conduct transactions (nordea trade, 2019). we assume that the development of e-commerce infrastructure can accelerate the advancement of tunisia’s c2c sc business. 4.3. participative web in an increasingly connected world, today’s internet users are allowed to take part in producing, rating, and distributing internet content and customizing internet applications. the implementation of new intelligent web services empowered the users to express themselves through different channels and media such as user-created content (ucc) (ocde, 2007). user-created content and social networking websites played an essential role in the tunisian revolution (january 2011) known as “jasmine revolution” (noah tesch, 2011). social networks such as facebook, twitter, and youtube were the primary online tools used to disseminate contents during the protests and report on events live by protesters, activists, and supporters of the protests (comninos, 2011). user-created content comprises text, audio, images, videos, blogs, forums, tweets, besides its consumer’s profile on snss, including biography, ratings, and scores critical to the online identity/image (s.l. lai, 2015). based on the literature review (sukrat et al., 2018) we can categorize user-created content into two types: 1. seller-created content: a complex process implemented by companies and retailers and known as content marketing. in this category, sellers produce, distribute and analyze contents that include product information, product reviews, presentation, news, and live feeds to distinguish themselves from the competition. 2. buyer-created content: including reviews, gchat, comments, bulletin board, blogs, and forum. in this category, buyer produces and share voluntarily content with their peers such as friends, families, and followers (pius, 2018) especially when they live a personal experience with a product, a service, or a person. the researchers anticipated that quality information helps establish trust (chen and shen, 2015) and higher trust influence behavioral intentions and stimulate consumers’ purchase intention (hajli et al., 2017). therefore, we can infer from this that the quality of ucc can enhance c2c sc activities in tunisia. 4.4. e-business rules and regulations 4.4.1 online customer community rules an online community is a group of individuals who share mutual interests, personal opinions, and ideas through the mediation of digital networks (li et al., 2018). an online customer community that supports c2c sc models needs continuing cooperation between its members. tunisian consumers commonly use fb for sc and online communities. buy and sell fb groups are often created and managed by voluntarily fb users (jing et al., 2016). they often manage the community following written or unwritten rules. effective fb group community management positively affects group confidence, trust, and rapport (staff, 2017). in a c2c sc models context, sellers who follow a defined sales and delivery strategy along with a well-maintained online customer community can enhance their relationships with prospective buyers and influence their purchase intention (baethge et al., 2016). 4.4.2 government regulations of ecom in tunisia, customers use e-dinar, a non-convertible currency as an electronic payment system created by the tunisian postal service for domestic internet transactions (touzani, 2004). moreover, this system can be used to pay public services such as public utilities, telecommunication, and university registration. for more secure payments, the tunisian government collaborated with the universal postal union (upu) to offer more secure shipment deliveries (universal postal union, 2017). furthermore, companies that operate a global online payments system and support online money transfers such as paypal has offered its payment service to the central bank of tunisia, and the integration is in effect. amir ben mekki 56 cross-border ecom purchases trade used to be negligible owing to the tunisian dinar's status as a non-convertible currency and the general lack of online payment systems (export.gov, 2019). nonetheless, tunisia-based websites offer transhipment services from international ecom platforms, such as from amazon and aliexpress. in april 2018, the tunisian parliament adopted the start-up act law. a progressive initiative expected to increase the number of tech start-ups, support successful entrepreneurship, and generate economic growth (katrin, 2018). tunisian start-ups can now have access to a particular worldwide online payment system to pay for cross domestic product and services without prior authorization from the tunisian central bank. the government has also implemented 'digital tunisia 2020' project that aims to develop digital governance and quality digital service for tunisia’s industrial and commercial sectors, which should drive ecom growth further and c2c sc activities (ezzeddine, 2018). according to the tunisian minister of communication and digital economy anwar maaroufi ‘digital tunisia 2020 will enable the country to become the first african country to invest in the digital economy’ (tunisian monitor online, 2018). thus, we suggest that efficient fb group community management along with government support and incentives can accelerate the development of tunisia’s c2c sc business. 5. limitations and future research many potential limitations may necessitate future research. first, we proposed the different factors involved in the rise of sc c2c business models in tunisia only from the consumers’ perspective. we thus suggest that future research may also consider exploring these influencing factors from the companies’ (auction-based sites) perspectives. second, we based our framework of the influencing factors on a thorough review of multiple articles, books and the results of a national survey that only consider users’ opinion as a reference. we suggest that future research may approach and target a more “balanced” sample that incorporates ecom professionals in the investigation. last, the dimensions proposed are only relevant for tunisia and other developing countries where a conventional ecom business infrastructure is still underdeveloped. further studies may replicate our proposed dimensions to other industrialized countries with highly developed ecom business infrastructure. for the incentive systems dimension, researchers can examine the effects of sustainable incentives on consumers purchase intention and their capability to stimulate people to engage in c2c sc business. as to participative web, future research may inspect the impact of language proficiency and users’ subjectivity on the quality of the information on sns. as regards to information and communication technologies (ict), researchers may propose the implementation of artificial intelligence to combat fraud and improve the user experience as well as the application of new systems to keep up with cybercriminals. finally, for e-business rules and regulations, while cybercrime is rising exponentially, researchers may propose different approaches towards consumer protection in c2c commercial activities. 6. conclusion in the present era, many of sns’s aspects are undergoing a rapid transformation and thus stimulating private individuals across the globe to engage in social commerce (sc) activities and multiply their income streams. similarly, social networking platforms enabled features and functionalities will allow ecom to evolve. consumers today can share knowledge and experience about products and services by using different social networking applications, such as social commerce constructs (scc) (recommendations, ratings, reviews). moreover, sharing can be observed as a pathway to conduct commercial activities and transaction processes. in reviewing the literature, we identified the influencing factors of c2c sc business models in tunisia and generated a new conceptual framework, which covers four aspects: incentive systems, information and communication technologies (ict), participative web, and ebusiness rules and regulations. the results of this study indicate that these influencing factors are the main pillars for c2c sc business models adoption in tunisia and that this evolving phenomenon will continue to expand in depth and scope. based on these assumptions, we propose that the implications of these factors should be explored in future research using empirical evidence. a conceptual framework for the evolution of c2c social commerce business models in tunisia 57 references adams, d.c. 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(2012), “attitudes éthiques et perceptions des tactiques non éthiques de la négociation commerciale”, available at: https://www.afm-marketing.org/fr/content/12277-attitudes-%c3%a9thiqueset-perceptions-des-tactiques-non-%c3%a9thiques-de-la-n%c3%a9gociation (accessed 4 april 2019). international journal of commerce and finance, vol. 5, issue 2, 2019, 1-7 1 implementation of good university governance and intellectual capital in university context (case study at mercu buana university) nurul hidayah, universitas mercu buana, jakarta indonesia ahmad badawi, universitas mercu buana, jakarta indonesia lucky nugroho, universitas mercu buana, jakarta indonesia abstract this study aims to determine the implementation good university governance (gug) and intellectual capital (ic) at the university with the unit of analysis at mercu buana university. the data used are primary data using questionnaires. the population in this study is all structural officials in the university environment. using stratified random sampling in which only the structural officials who became the study sample, from all questionnaires distributed, only 60 were able to be processed. this research uses a descriptive qualitative approach. the data analysis method used is partial least square. results outer test research models meet the criteria of validity and reliability, while from the inner test models indicate that the implementation of good university governance at the university of mercu buana related to intellectual capital. gug as the main factor ic appeal. ic implemented, will improve the ability of an institution, but there are some areas that need improvement. keywords: good university, intellectual capital, university 1. introduction the meaning of good corporate governance demands that companies create enterprise value by utilizing all available resources, aiming to run into the prosperity of stakeholders. in order to meet the prosperity of shareholders and other stakeholders that good management is in need of an enterprise. good corporate governance can also be applied to public sector organizations such as universities. according to trakman & south (2008) that good university governance (gug) can be seen as an application of the basic principles of the concept of "good governance" in the system and the process of governance in higher education institutions. higher education institutions evolved in a transformation of creation and capitalization of knowledge itself and eventually higher education institutions become more comparable, flexible, transparent and competitive in terms of education. universities viewed from the concept of education are an industrial economy, so the concept of good governance and the right to apply to college-university good (good university governance) reflects the performance and success of the university to produce graduates qualified students and competencies to compete with other universities both in the country or other countries (modood, 2016). to achieve good graduates must be supported by good infrastructure, for it takes hard work and discipline in giving guidance, educational and cultural values taught in the university environment. as the embodiment of good governance, then a university course lecturers are required to have qualified and superior competence and high productivity in implement of three principles-tri dharma higher education are included the learning, community services, and research. alred & garvey (2007), defines the university is part of the system of science, education, and innovation of a nation and producers of knowledge. the most important output produced from universities is knowledge, incorporated into new research results, publications and student manuscripts educated. so that the most valuable resource of the university is the research conducted by faculty and students. the main purpose of college is to produce and in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e nurul hidayah & ahmad badawi & lucky nugroho 2 disseminate knowledge, and no less importantly, the research and development of human resources (cañibano & sánchez, 2004). the college is a nonprofit organization that does not have a structure like private companies, but it has a long life cycle. associated with the main function is the production and dissemination of knowledge, universities need to improve competitiveness and service, as well as universities must report to stakeholders what had happened at the college from the standpoint of the development of knowledge and contribute to the transparency and increase trust (bratianu, 2009). strategic issues that continue to grow in the various circles of the country of which is the demand for good governance and accountability throughout the organization. demands the implementation of good governance not only in non-governmental sectors, especially in public companies and the like, the phenomenon is still weak competitiveness of universities in indonesia in the international arena indicate that the application of good university governance is still not good, it was delivered by the president joko widodo, who often poked the performance of the ministry of research, technology and higher education (kemristekdikti) regarding the competitiveness of universities in indonesia he considered unsatisfactory. finally, last october, jokowi wonders why only three universities who managed to enter the world's top 500 universities in the 2018 version of quacquarelli symonds (qs). the president questioned the university management is less able to respond to global demands (website almi, november 16, 2018). in the middle of the university's internationalization policy that is being promoted, the ministry of research recently released the findings of a number of ethical violations publications by researchers, managers, and administrators scientific periodicals public university. ethics violations discovered publication includes multiple publications, citations of his own works or self-citation that is not natural, and the policy of publishing scientific papers without a disciplined review process. results of research conducted by ulum & novianty (2012) at three universities in indonesia based webometrics ranking of the world organization, show that disclosure of the ic at the three state universities in indonesia is still low, and none of the universities in indonesia, which revealed the full item. ulum & novianty (2012), the use of the internet for the university are very appreciated by organizations that aim to improve the quality for universities in the world to evaluate and rank acknowledged to the web, such as webometrics. bezhani (2010), stated that 30 universities in the uk in the practice of intellectual capital disclosure in the annual report of the college are still low. the university is obliged to be able to dig funds by collaborating with business partners in developing the business unit. safieddine et al., (2009) examined the relationship gcg and ic in institutions and the result is that the application of gcg in the faculty becomes a major factor in the university ic disclosure. through the vision and mission, a university should be able to develop the governance of universities by implementing superior management, where the mission of the college is looking for, find, and disseminate scientific truth. 2. literature review and hypotheses 2.1 good university governance university governance is defined as the shape and the constitutional process when universities set their own affairs (shattock, 2013). governance is the way in which the organization's power or authority in allocating and managing resources. governance involves policies and procedures for decision-making and control over the direction and management of the organization to be effective (lucianelli, 2017). it refers to the practice of requiring the monitoring, control, disclosure, and transparency (muktiyanto, 2016; quyên, 2014), the structure of the university, delegation and decision-making, planning, organizational coherence and direction (swansson et al., 2005). the application of the values of good corporate governance in higher education can be internalized into the college culture so that it becomes a system that strengthens competitive advantage. the goal of good corporate governance policy in higher education is that the parties involved in running the university management to understand and carry out the appropriate functions and roles of authority and responsibility. world bank (2012) gug concept can be measured by using five dimensions: 1) overall context, mission, and goals; 2) management orientation; 3) autonomy; 4) accountability; and 5) participation. measurements for gug variable component based on the partial accreditation. implementation of good university governance and intellectual capital in university context (case study at mercu buana university) 3 2.2.intellectual capital intellectual capital has begun to flourish in indonesia since the advent of ias 19 regarding unfulfilled assets (endi, 2011; ulum, 2009; utami, 2005). unfulfilled assets are an identifiable non-monetary asset without physical form. some examples of intangible assets include science and technology, design and implementation of new systems or processes, licenses, intellectual property rights, market knowledge and trademarks (including product brands and publicity titles). the term intellectual capital, ic is used to describe the intelligence of individuals who are developed, maintained and use the knowledge to develop innovations in the form of business strategies (martín-de-castro et al., 2011). intellectual capital is the knowledge, information, experience used to create value (laswad & roush, 2000). disclosures intellectual capital (human capital and structural capital disclosure) has no effect on the company. however, the disclosure of customer capital disclosure affects the value of the company. this proves the importance of the disclosure of customer capital disclosure in the competitive strategy of business so as to contribute to increasing the value of the company (pujianto, utami, & sastrodiharjo, 2016). while kok (2007) argument, this intellectual capital is an intangible asset that consists of employee competence, internal and external structures are used effectively and generate value for the organization. according to the previous research from bontis (2006), ic consists of three sub-criteria, namely:  human capital: knowledge, expertise, knowledge of pent contained in the mind of an employee.  structural capital: routine activity, hardware and software, the data, organizational structure  relational capital: the knowledge that is built through the cooperation of both customers and other organizations. 3. methodology this study is qualitative research looking at the relationship gug with ic. the object of research is the event, phenomenon or a problem that has been abstracted research into a concept or variable (arikunto, 2015), the object of this study is the concept of good university governance and intellectual capital. the sample in this study using a stratified sampling, where the data is taken only at the level of structural officials by using the tool questionnaire. respondents consisted of 75 officials of the structural and questionnaires collected 60 respondents. data were analyzed using partial least square, by testing the outer and inner models. 4. results and discussion 4.1. evaluation measurement (outer) model convergent validity tests against reflexive indicators considered valid if it has a correlation value above 0.70 (figure 1). however, in the research stage of development of the scale, the load factor of 0.50 to 0.60 is still acceptable (ghozali, 2014). figure 1 the results of pls algorithm 2 source: data processed nurul hidayah & ahmad badawi & lucky nugroho 4 the results of the testing modifications to two convergent validity that shown in figure 1 above, the indicator variable constructs gug and ic after re-testing by eliminating the correlation values below 0.5, has filled the validity criteria. the indicators above are considered valid and further test can be carried out, namely reliability testing. 4.2. test reliability having tested the validity, the next step is to test the construct using a reliability test the reliability test can be done by measuring the construct of two criteria: reliability and cronbach alpha compositing. the construct will be declared reliable if the value of composite reliability and cronbach alpha above 0.70 (ghozali, 2014). pls algorithm on reliability testing results in table 1 are as follows: table 2 result of cronbach's alpha and composite reliability source: data processed results composite output and cronbach's alpha reliability, both to construct gug and excellent ic is above 0.70 so it can be concluded that all indicators of the construct are reliable or meet the reliability test. 4.3. inner measurement evaluation model (structural model) testing the inner model is the development of models based on concepts and theories in order to analyze the relationship between exogenous and endogenous variables described in the conceptual framework (ghozali, 2014). stages testing of structural models (inner model) is done with the following steps:  test rsquares the r-square value which is a test for goodness-fit model (table 2) as follow: table 2 test results of r-squares value source: data processed refer to table 2 it can be seen that the value of r-squares or the coefficient of determination is 0.535. this means that 53.5% of the variation or change in the ic affected by gug, while the remaining 46.5% is explained by other causes. from the above results can be seen the value of r-squares for ic variables by 0,535, which means that it is included in the high category.  test of path coefficient the second test is realizing a substantial impression on the ic gug see the value of coefficient parameters and the substantial value of t statistic on the path coefficients. implementation of good university governance and intellectual capital in university context (case study at mercu buana university) 5 table 3 test results of path coefficients value source: data processed in table 3 above shows that the relationship between the variables good university governance (gug) on intellectual capital (ic) is statistically significant with a value of 13.493 t (greater than 1.96) and the value of p values of 0.000 (less than 0.05), so it can be concluded that the good university governance significantly related to intellectual capital. 4.4. discussion discussion of empirical test results for the formulation of each problem and the hypothesis that use the results of the questionnaire results, open information from the respondents and interviews with several sources are utilized in addition to resolving the problem. the first hypothesis in this study is there is a relationship implementation good university governance by intellectual capital. the results of hypothesis testing conducted to ascertain the amount of p-value 0,000 less than the level of uncertainty of 0.005. the outcomes of this study provide empirical evidence that the better university governance applied will reflect the university has implemented intellectual capital so that it will produce superior graduates who can compete in the face of globalization. the university integrates strategies and aims to achieve a competitive advantage. these results prove that faculty members see that the implementation of intellectual capital (ic) in every academic activity in each faculty (improving the quality of lecturers, availability of facilities and infrastructure, quality management, graduate data base, maintaining good relations with the business and society, collaboration with universities in the country and abroad, improving the university's image, paying attention to stakeholder satisfaction) can improve mercu buana's university governance (good university governance) through achieving the university's mission, faculty goals and strategies, and achieving unit performance. this study confirms previous research that intellectual capital influences good university governance. this research was carried out by bratianu (2009), safieddine et al., (2009), ulum & novianty (2012) in this study showing the existence of a link between the implementation of intellectual capital which would improve the quality of university governance (good university governance). 5. conclusion this study conclusively that implementation of intellectual capital at the university of mercu buana (umb) directly and significantly related to the implementation of governance. good governance at the university of mercu buana accomplished through the achievement of umb's mission, strategy and goals are made and followed by members of the faculty of improving the performance of the faculty, by obtaining accreditation in the majority of the faculty at umb. however, umb must continue to improve governance in order to create a competitive advantage towards the era of globalization. nurul hidayah & ahmad badawi & lucky nugroho 6 references alred, g., & garvey, b. 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(2005). etika dan pengembangan pengajaran akuntansi. buletin penelitian, 8, 1–12. international journal of commerce and finance, vol. 5, issue 2, 2019, 106-119 106 financial inclusion and its determinants among households in jimma zone of oromia regional state, ethiopia mekuanint abera timbula, jimma university, ethiopia tadele mengesha, jimma university, ethiopia yonas mekonnen, jimma university, ethiopia dr. matiwose kebede jimma university, ethiopia abstract the majority of the developing countries, access to finance is demanded more for the middle and lowincome community and considered as a public good, which is as important as access to safe water, primary education, etc. the researcher used a hybrid of qualitative and quantitative approach. the exploratory research design used in exploring and developing financial literacy framework to study in the ethiopian context as there is no financial literacy framework developed previously. the descriptive research design used in describing the level of financial literacy, financial inclusion, saving behavior, the relationships between financial literacy and saving habit, the demographic and socio-economic characteristics of the study area. the sample size taken for the study was 173 households. descriptive statistics and inferential statisticswere used to attain the objective of the research. the probit regression model produced similar results as those obtained using the logit model showed that age, education, financial literacy, and income are positively related to financial inclusion and distance to the nearest provider of financial services negatively impact financial inclusion. it is possible to reduce determinates of financial inclusion with regulating well the financial system, creating healthy competition and building better enabling environment. identifying and segregating the root causes and addressing it appears to be removing the distance, services charge, and credit barriers. on the other hand, the market for financial services failures and behavioral problems related to customer tend to be addressed through designing of appropriate financial products. removing those challenges and expanding financial inclusion tend to be possible with the promise of the latest technologies. keywords: financial literacy, financial inclusion, household saving, demand side 1. introduction most developing countries have given their attention to the concept of financial inclusion as it is believed in bringing inclusive and equitable growth to the country.[1] declared the fact that sustainable development of a nationis closely related to the extent of inclusion of the population into the financial net. to understand to word financial inclusion, it is better to define financial exclusion first. the european commission has defined financial exclusion as, a process whereby people encounter difficulties accessing of using financial services and products in the mainstream market that are appropriate to their needs and enable them to lead a formal social life in the society in which they belong. many developing nations particularly in ethiopia, many of who work as an agriculturalist, low salaried workers, and others are widely excluded from the formal financial system.in contrast, [2]defined financial inclusion as expanding the outreach of financial services at an affordable cost and on a timely basis to many economical week section of society which may provide them a financial cushion for their sustenance as well as social empowerment. thus timely availability of financial services to the lower income and disadvantaged group will help them to save money safely and prevent the concentration of economic power with few individuals and mitigates the risk that the poor could face as a result of economic shocks. [3] supported the idea in stating that access to finance by the poor is a in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e financial inclusion and its determinants among households in jimma zone of oromia regional state, ethiopia 107 prerequisite for poverty reduction and sustainable economic growth. through financial inclusion, the saving to be mobilized so that it will become a source of finance for mega projects rather than looking for foreign loan and aid. the most important financial product requirement of rural poor is credit, which has almost been the topic of discussion right from the time of independence in india. seasonality and uncertainty in agricultural productivity have always forced the farmersto borrow from different sources of finance. credit to the rural area, basically, theagricultural sector has always been a debatable topic, in terms of issues including lesseraccessibility to institutional credit by farmers, mounting non-performing loan to thelender on account of non-repayment of the debt owing to different reasons including failure of the crop. horn of africa, access to finance is demanded more for the middle and low income community and considered as a public amenity, which is basic as access to clean water, free education, etc. equitable growth promotes economic growth, increase the standard of living, reduce poverty, promotes agricultural growth rate, and provides new work opportunities. there are a number of previous studies that have focused on the determinants of financial inclusion in africa (uddin et al., 2017; zins and weill, 2016; olaniyi and adeoye, 2016; musa et al., 2015; akudugu, 2013) they did at either country level or regional level with difference in the results. ethiopia financial sector has not diversified in terms of the type institutional delivering the service and the type of bank product has been being delivered. after going through various books, articles, journals, magazine, project report and annual reports related to financial inclusion based on literature review and past studies no systematic study has been done in this particular area as far as ethiopia is concerned. financial sector policies which provide the right incentives to individuals, help them to overcome access barriers, are crucial not only to stability but also to growth, poverty reduction and equitable distribution of economic resources and capacities. therefore, there is a desire need to study the nature, extent,prevalence,and impact of financial inclusion tohave effectivepolicies to achieve inclusive growth. 2. theoretical framework and hypotheses the extent and level of financial inclusion are varied, and so many factors are responsible for it. the nature and extent of financial inclusion are influenced by several factors which can be classified broadly into supply and demand side factors. the number of bank branches in the study area has increased whereas the population has increased at an alarming rate leading to high demand for bank services in the region. the poor people do have strongdemand for financial services; in fact, they often bear the high costs charged by the informal financial institution for various types of services, apart from the risk involved in such products [4]. the fact that the poor are capable of weekly repayments shows that the poor are capable of savings, even if it is only in small amounts. however, one of the reasons why the poor might not save in financial form might be the lack of appropriate products. financial literacy and awareness are important factors which determine the extent of access and usage of available financial products/services. exclusion occurs when clients are not aware of the products and services available, their use/relevance in meeting needs,and their contribution to risk management strategies. the high percentage of illiteracy and social exclusion play an important role in keeping the level of awareness regarding newer and better service plans and facilities low. the framework specifies the vital process, with is valuable to display the path of the study. mekuanint abera timbula & tadele mengesha & yonas mekonnen & dr. matiwose kebede 108 financial inclusion figure: 1 conceptual framework of determinates of financial inclusion, adopted from abel &mutandwa,2018), with modification 3. research method the study was an employed hybrid of qualitative and quantitative approach, which made researches successful rather than sticking to one dimension only. the exploratory research design was used in exploring and developing financial inclusion frameworkto study in the ethiopian context as there is no financial inclusion framework developed previously.the descriptive research designused in describing the existing level of financial inclusion, demographic and socio-economic characteristics of the study area. finally, diagnostic research was used in explaining the determinants of financial inclusion. according to kothari (2004), primary data are data that are collected for the first time and happened to be original. primary data of the study was information collected from sample households of the study area involved in the study. the questionnaire that has closedended question was prepared and delivered to family head to collect the primary data. use of sampling can save time and money (economic) and enable the researcher to obtain detailed information and allows in making the study intensively and elaborately as the number of a sample unit is fairly small. a sample size determined as follow. n = (z) 2 * (p) (q) (d) 2 where p = sample proportion, q = 1p z = the value of the standard normal variate at a given confidence level n = sample size d = acceptable margin of error for proportion estimated the exact value of p = 0.5 (q = 1-p) in which case the sample size was the maximum and the sample yield at least the desired precision. it was the most conservative sample size (kothari, 2004). by allowing an error margin of 5% with 95% confidence interval, the sample size required was 384. but for prudence, 10% of the calculated sample was added. therefore the sample size for this study was 423. model specification the study either the logistic model or the probit model were used to achieve research objectives. the basic objective of using discrete choice models in this study was to make the research more effective in analyzing impacts of  age of head of household  sex of head of household  literacy level  occupation  income  distance  trust  religious view  bank charge financial inclusion and its determinants among households in jimma zone of oromia regional state, ethiopia 109 independent variables (age, sex , education ,distances and income ) on the dependent variable (financial inclusion). according to gujarati (2006), logit and probit models are similar in most research applications. however, the similarities among the models, the estimated coefficients are not directly comparable. the previous studies employed the logit model to investigate the determinants of financial inclusion supported by the work of akudugu (2013),potrich et al. (2015), and abel.et al., (2018).to analyze the relationship between financial inclusion and socioeconomic and demographic variables, the empirical model estimated is: p(fininc=1/x)=β0+β1age+β2hsex+β3heduc+β4dis +β5income +μi where the dependent variable p(fininc=1/x) is the probability that household head will seek formal financial services given the vector of observable socio-demographic and economic characteristics. financial inclusion,according to the survey, was defined that household who have or use financial products and or services. table 1 demanddriven determinates of financial inclusion variable description age the age of the household head in years hex the sex of the household head male=0 and 1 female hedu the level of education attained by the household head dist the distance to the nearest bank, , atm, point of sale or mobile money agent income the level of income of the household head source: finscope survey, 2014 4. data analysis and discussion this section presents the results and discussions of the responses gathered from the respondents through questionnaire and interview, and the data collected from respondents were analyzed and interpreted using quantitative analysis which involves analysis of the demographical information of respondents and the descriptive and inferential statistics employed to test and investigate the influence of independent variables on dependent variable. to achieve the overall objective of the research undertaking, statistical procedures were carried out using spss version (20). a total of 173 questionnaires were distributed to head of ahousehold of the selected woreds to all the questionnaires were returned back with completely filled and significant responses. the returned questionnaires have 100 response rates and sufficient to analyze the data with it. this indicates that; the head of the household under study were committed to give relevant information to the researcher. demographic information of the respondent the results obtained from demographic information of the structured questionnaires were presented through frequency and valid percentage as shown on the table below. mekuanint abera timbula & tadele mengesha & yonas mekonnen & dr. matiwose kebede 110 gender of the respondent frequency percent valid percent cumulative percent male 108 62.4 62.4 62.4 female 65 37.6 37.6 100.0 total 173 100.0 100.0 figure 2 gender of the respondent source: compiled from aquestionnaire, 2018 the above table indicated that 62.4% of the respondents were males and 37.6 % were females. women were more financially excluded as they lacked routine income, very few had bank accounts and they tended to concentrate on business that required less capital. the results are supported by apreviousstudy(demirgüç-kunt et al., 2014). table 3 age group of the respondent age group of the respondent frequency percent valid percent cumulative percent 20 – 24 5 2.9 2.9 2.9 25 – 29 6 3.5 3.5 6.4 30 – 34 40 23.1 23.1 29.5 35 – 39 78 45.1 45.1 74.6 40 – 44 33 19.1 19.1 93.6 45 – 49 9 5.2 5.2 98.8 above 50 2 1.2 1.2 100.0 total 173 100.0 100.0 source: compiled from a questionnaire, 2018 the above table indicated that majority of the head of household (about 45.1 percent range between 35-39 years of age , while 23.1 percent fall between the age of 30-34, 19.1 percent are placed between 40-44 years, 3.5 percent are placed between 25-29 years and 2.9 percent fall between 20-24 years. the majority of the household were from 35 to about 39 years of age which they were economically active category. the results are supported by a previous study ( mago, 2013). financial inclusion and its determinants among households in jimma zone of oromia regional state, ethiopia 111 table 4 educational background of the respondent educational background of the respondent frequency percent valid percent cumulative percent no formal education 13 7.5 7.5 7.5 some primary school 8 4.6 4.6 12.1 complete primary school 9 5.2 5.2 17.3 some secondary school 22 12.7 12.7 30.1 complete secondary school 51 29.5 29.5 59.5 technical/vocational education 4 2.3 2.3 61.8 diploma 36 20.8 20.8 82.7 bachelor degree 29 16.8 16.8 99.4 masters and above 1 .6 .6 100.0 total 173 100.0 100.0 source: compiled from questionnaire, 2018 table 4.3: indicated that in terms of their education 29.1 percent of the respondents were above secondary school, while 20.8 percent of the respondents have diploma, 16.8 percent of the respondents have bachelor degree, 12.7 percent of the respondents were completed secondary school , 7.5 percent of the respondents were new attended formal education, 5.2 percent of the respondent were completed primary school, 4.6 percent were some primary school, 2.3 percent of respondents were graduated in vocational education and 0.6 percent have masters and above. it was known that higher levels of education have been more likely to be financially included as compared to their financially illiterate group. the results are also supported by a previous study (ghosh , 2013). mekuanint abera timbula & tadele mengesha & yonas mekonnen & dr. matiwose kebede 112 table 5 occupation of the respondents occupation of the respondents frequency percent valid percent cumulative percent government employee 27 15.6 15.6 15.6 working in my own small business 56 32.4 32.4 48.0 petty trade/guilit/ or home based jobs 23 13.3 13.3 61.3 employed in private business 39 22.5 22.5 83.8 working on my medium size business 25 14.5 14.5 98.3 unemployed 2 1.2 1.2 99.4 retired 1 .6 .6 100.0 total 173 100.0 100.0 source: compiled from a questionnaire, 2018 as stated in the above table that, 32.4 of the respondents were working in their own small business, 22.5 percent of the respondents were employed in private business, 15.6 percent of the respondent were government employees, 14.5 of the respondent were working on my medium size business, 13.3 percent of the respondent were petty trade/ guilty /or home based jobs, 1.2 percent of the respondent were unemployed and 0.6 percent of the respondent were retired. table 6 monthly income of the respondents frequency percent valid percent cumulative percent < br 500 8 4.6 4.6 4.6 br. 501-1000 9 5.2 5.2 9.8 br. 1001-1500 13 7.5 7.5 17.3 br. 1501-2000 3 1.7 1.7 19.1 financial inclusion and its determinants among households in jimma zone of oromia regional state, ethiopia 113 br. 2001-2500 7 4.0 4.0 23.1 br. 2501-3000 18 10.4 10.4 33.5 br. 3001-3500 23 13.3 13.3 46.8 br. 3501-4000 22 12.3 13.3 60.1 br. 4001-4500 10 5.8 5.8 65.9 br. 4501-5000 14 8.1 8.1 74.0 br. 5001-5500 24 15.3 13.3 87.3 br. 5501-6000 12 6.9 6.9 94.2 > br. 6000 10 5.8 5.8 100.0 total 173 100.0 100.0 source: compiled from a questionnaire, 2018 as stated in the above table that, 15.3% of the respondent were having monthly income between 5001-5500, 13.3% respondent were having monthly income of 3001-3500.respondent with 3501-4000 income per month are 12.3%, 10.4 of the respondent were having monthly income between 2501-3000, 8.1% respondent were having monthly income of 4501-5000,respondent with 5501-6000 income per month are 6.9%, 5.8% of the respondent were having monthly income up to 5001-5500 and 5.2% of the respondent were having monthly income between 501-1000. levels of income and occupation deference observed among head of household have been residing in jimma zone. demand driven determinants of financial inclusion table 7 determinants of financial inclusion using both logitmodel&probit model variable probit model logit model constant −2.216027 −3.993134 age 0.045229 0.079177 agesq −0.000420 −0.001714 hsex −0.160043 −0.324323 mekuanint abera timbula & tadele mengesha & yonas mekonnen & dr. matiwose kebede 114 hedu 0.379118 0.789263 dist −0.212917 −0.399315 finlit 0.224945 0.389210 trust 0.186553 0.352152 income 0.001380 0.003527 r2 0.2453 0.2137 source: own calculation the above logit model results show that there is a positive relationship between age and financial inclusion. the model also indicated that financial inclusion increases with age until it reaches a certain age limit, which it started to decrease. this is revealed by the negative coefficient of the age straight direct way. this result also supported by previous studies (peña et al., 2014; hoyos et al., 2013). as peopleaged they become aware about the various financial products offered by financial institution and start using them till they reach a certain age maybe towards retirement where they stop having interest to wards financial product. thelogit model also resulted as there is a positive and significant relationship between financial inclusion and financial literacy. the results reveal that financial literacy is keen predictor of the demand for financial products to consider as a whole. financial literacy shows the awareness and skillsets in reading the financial products on the market provided by financial institution hence it means those people who are financially literate are able to comprehend the advantages and disadvantages of the various financial products. the study also linked that education is a significant factor in explaining financial inclusion in jimma zone. educated people are able to understand the various financial products on the market and make informed decisions hence improving on their access to these. peña et al. (2014) argued that education is a way of measuring awareness, skillsets and ability to make decisions in formal financial markets hence the positive relationship between financial inclusion and formal education. the study results also show that distance has a negative significant impact on financial inclusion. the result means that the greater the distance away from centers that provides financial services and product the less the people will be financially included. distance reduces the chances of people to access financial products. financial products should be easily accessible to the people enable them to be able to derive any utility from them. this implies that access to financial product is a function of the distance between the financial product service provider and the end user of financial product. trust on financial services provider has a positive and significant relationship with financial inclusion. this means that as people increase their trust in the financial services provider there increase also their uptake of the same services. shankar (2013) founded that negative experiences and perceptions of financial institutions makes people to gain no faith of financial institutions leading to self-exclusion. the global findex (2012) also reported that lack of trust in the banking industry has caused difference in some respect in financial inclusion. lack of customer trust in the financial product could be a result of improper supervisory mechanisms. the study showed that a positive relationship between financial inclusion and income. as income increases financial inclusion also increases. in the jimma zone context this results makes sense because the majority of the people who earn an income from civil services get paid through a bank account. of late because of cash shortages even those employed in the informal sector are now receiving their income through bank accounts or mobile money technology. the determinants of financial inclusion model were also estimated using the probit model. the probit regression model produced similar results as of obtained using the logit model. table shows that age , education, financial literacy, and income are positively related to financial inclusion and distance to the nearest provider of financial services negatively impact financial inclusion.the results are supported by prior study (abel.et al ., (2018). financial inclusion and its determinants among households in jimma zone of oromia regional state, ethiopia 115 measurement of financial inclusion distance from branch of financial institution rate the distance of your nearest financial bank from your place of residence? table 9 distance from branch of financial institution distance from branch of financial institution frequency percent very far away 10 5 far away 21 12 average 38 22 near 53 30 very near 51 29 total 173 100 sources: compiled from questionnaire, 2018 the above table reveled how distance of the banks from the general public was a factor to be considered while predicting financial exclusion but due to the incremental of using technological means of banking and expansion of bank branches in the rural part of the country , this was no longer seen as a common factor. it interpreted the above table; many of the respondents demonstrate that the finance institutions are actually near for them to access. accessibility of products or services is there any financial institution branch in your worda? table 10 accessibility of products or services branch of financial institution frequency percent yes 173 100 no 0 0 total 173 100 sources: compiled from questionnaire, 2018 the interpretation of the above revealed that the ethiopian financial system has significantly developed and grown sufficiently that all respondents have a bank‘s branches in their home town. regarding financial access this is primarily requirement.all respondents noted that there were automated teller machines or branches or agents in the study area. mekuanint abera timbula & tadele mengesha & yonas mekonnen & dr. matiwose kebede 116 extent of financial inclusion the researcher used a set of parameter which helper to determine the extent andprevalenceof financial inclusion by their level of awareness about banking services. the results of the following are indicated below: which of these services can you state that you can identify/aware with? a. a bank loan secured on a property table 11 a bank loan secured on a property level of awareness frequency percent not aware 0 0 poorly aware 2 .5 fairly aware 46 26 a ware 78 45 very aware 47 27 total 173 100 sources: compiled from questionnaire, 2018 the table above showed in general the public‘s perceived awareness of loan and advances services granted by banks. the respondents indicated a higher value for general awareness about the bank loans. it means the respondents in jimma zone were very much aware about the loan and the bank has generally attracted the knowledge of the public in the access and the benefits of the given service. type of account with financial institution do you have table 12 type of bank account type of bank account frequency percent current account 19 11 saving account 122 70 fixed account 17 9 loan account 12 6 total 173 100 sources: compiled from questionnaire, 2018 financial inclusion and its determinants among households in jimma zone of oromia regional state, ethiopia 117 the above table indicated that,70% respondents were having saving account with the bank, 11% respondents were having current account, 9% respondents were having fixed account and 6% respondent were having loan account with a bank. most of the villagers from the survey having saving bank account which showed that rural people are very much aware of importance of savings in the real life. but on the other hand the loan account had very low percentage it means rural people were not borrowing from the banks or other financial institution; they were still looking from other sources of finance. insurance table 13 coverage from insurance company sources: compiled from questionnaire, 2018 the above table indicated that, 83.2 % respondents have no awareness about coverage from insurance company and 16.2% respondents have ample information about coverage from insurance company. majority of the respondents in jimma zone they lacked knowledge about coverage from insurance company, because most of the respondents of rural area didn`t have regular income due to that they didn`t bother about coverage from insurance company. 5. conclusion, implication, suggestion and limitations conclusion during the investigation, the researcher used both descriptive and inferential statistics and based on the findings make the research project to an end by outlining the following classic conclusion. the researcher used both descriptive and explanatory research design. the descriptive research design was more suitable to detail description of the findings showed in tables and charts as well as, explanatory research design help to develop insinuations on the relation between dependent and independent variable. more specifically, the study used closed ended questionnaire survey of the head of household. the main objective of this study was to investigate the determinants of financial literacy, household saving and demand drove financial inclusion based on the analysis and interpretations made at the a pervious chapter the following summaries, conclusions and recommendation made. the data obtained from the respondents analyzedusing various statistical tools. after analyzing the information gathered through questionnaires, the following findings were presented. the descriptive results of demographic characteristics of respondents indicated 62.4% of the respondents were males and 37.6 % were females. women were financially excluded as they lacked regular income, very few had accounts with a financial institution,and they intended to do business that required less initial capital. the majority of the head of household were from 35 to about 39 years of age which they considered as the economically active category, while in terms of their education 29.1 percent of the respondents were above secondary school, it indicated that who have higher educational level were more likely to be financially included as likened to their financialilliterate group. 32.4 of frequency percent yes 28 16.2 no 144 83.2 total 173 100.0 mekuanint abera timbula & tadele mengesha & yonas mekonnen & dr. matiwose kebede 118 the respondents were working in their own small business: 22.5 percent of the respondents employed in private business activity. most of the respondents having the monthly income were between 50015500. the result of demand driven determinates of financial inclusion logit and probit model in stated that, there is a linear relationship between age and financial inclusion. the model also indicated that financial inclusion increases with age until they reaches a certain age limit, which it started to decrease. the study revealed by the negative coefficient of the age straight direct way. the results show a positive and significant relationship between financial inclusion and financial literacy. the results reveal that financial literacy is a keen predictor of the demand for financial products to consider as a whole. the study also linked that education is a significant factor in explaining financial inclusion in jimma zone. the result means that the greater the distance away from centers that provide financial services and product ,the less the people financially included. distance reduces the chances of people to access financial products. the probit regression model produced similar results as obtained using the logit model. the result shows that age, education, financial literacy, and income are positively related to financial inclusion and distance to the nearest provider of financial services negatively impact financial inclusion. with regarding measurements of financial inclusion, the result shows that the national bank of ethiopia directive about financial inclusion has at least reaches its first stage that all respondents owned an account with financial institutions in their home town, many of the respondents demonstrate that the finance institutions are near for them to access. all respondents stated that there were atms` (automated teller machines) or branches or agents in the study area. finally, the researcher used a set of a parameter which helper to determine the extent and prevalence of financial inclusion by their level of awareness about banking services. majority respondents indicated in general, the public‘s perceived awareness of loan and advances services granted by banks. the respondents indicated a higher value for general awareness about bank loans. it means the respondents in jimma zone were very much aware of the loan and the bank has generally attracted the knowledge of the public in the access and the benefits of the given service and most of the villagers from the survey having a saving bank account which showed that rural people are very much aware of importance of savings in the real life. but on the other hand, the loan account had a very low percentage; it means the rural people were not borrowing from the banks or other financial institution; they were still looking from other sources of finance. results showed that the respondents in jimma zone they lacked knowledge about how coverage from insurance company obtaining, because most of the respondents of rural area they didn`t have regular income to get coverage from insurance. recommendation based on the findings and conclusions of the study, the researcher forwards the following recommendations to the concerned body and suggestion for other researchers. parallel with theobjective; the study has established that financial inclusion determined by age, education, financial literacy, distance,and income. based on these results,age, education, financial literacy,and income are directly related to financial inclusion. the study revealed that an increase in any of these variables significantly increases the extent and prevalence of financial inclusion in the study area. on the other corner,the longer the interval to the nearest financial access point increase the chances of people financial excluded. this implies that the national bank of ethiopia should support expansion of delivery channels by financial institution that reaches out to rural part,and unbanked areas, without the increasing expansion costs this would encourage innovations such as agency banking (hello cash, mbirr, ebirr and the like), mobile banking and set atm to be adopted as a way of increasing access to financial products by the general public. it is possible to reduce determinates of financial inclusion with regulating well the financial system, creating healthy competition and building a better enabling environment. identifying and segregating the root causes and addressing it properly appear to be removing the distance, services charge,and credit barriers. on the other hand, market for financial services failures and behavioral problems related to customer tendto be addressed through designing of appropriate financial products. removing those challenges and expanding financial inclusion tend to be possible with the promise of latest technologies. for instance, mobile payment, mobile banking, agency banking and use of biometric devices can lessen cost, speed up transfers and increase household transaction security. financial inclusion and its determinants among households in jimma zone of oromia regional state, ethiopia 119 references gupta, p. & singh, b. (2013): “role of literacy level in financial inclusion in india: empirical evidence”, journal of economics, business and management, vol.1 (3), pp.272-27. pratishapadmasrideka, (2015). financial literacy and financial inclusion for women empowerment.international journal of applied research: ijar 2015; 1(9): 145-148 adityashatri, (2014). financial inclusion in madyapradesh.a study with reference to rural population. journal of business management and social science research (jbm&ssr): vol. 3, no. 12, december 2014. reserve bank of india. (2012). how the poor manage their finances: a study of the portfolio choices of poor households in ernakulam district, kerala: author. sanderson abel , learnmore. m &pierre le.r (2018). “determinates of financial inclusion in zimbabaw”.international journal of economics and financial, available at http: www.econjournals.com akudugu, m.a. (2013), the determinants of financial inclusion in western africa: insights from ghana. research journal of finance and accounting, 4(8), 1-10. potrich, a.c.g.r., vieira, k.m., kirch, g.g. (2015), determinants of financial literacy: analysis of the influence of socioeconomic and demographic variables. revistacontabilidade and finanças, 26(29), 362-377. finscopeconsumersurvey.(2014),http://www.zimstat.co.zw/sites/default/files/img/publications/finance/finscop e.pdf. [last accessed on 2016 may 23]. demirguc-kunt, a., klapper, l., singer, d., & van oudheusden, p. (2014). the global findex database. policy research working paper, no.7255. washington, dc: world bank. international journal of commerce and finance, vol. 5, issue 2, 2019, 158-166 158 risk management in viet nam tourism industry under the impact of a two factor model during and after the global crisis dinh tran ngoc huy binh duong university, vietnam du quoc dao binh duong university, vietnam abstract over past few years, the global financial crisis shows certain influence on emerging financial markets including viet nam. therefore, this study chooses an analytical approach to give some systematic opinions on how much some certain determinants such as income tax and leverage, affect the level of market risk in listed tourism companies.first, it calculates equity and asset beta values in three (3) different scenarios of changing tax rates and changing the level of financial leverage.second, under 3 different scenarios of changing tax rates (20%, 25% and 28%), we recognized that there is not large disperse in equity beta values, estimated at 0,753 for current leverage situation.third, by changing tax rates in 3 scenarios (25%, 20% and 28%), we recognized both equity and asset beta mean values have positive relationship with the increasing level of tax rate.last but not least, this paper covers some ideas and policy suggestions.. keywords: risk management, asset beta, financial crisis, corporate tax, leverage jel classification numbers: g00, g3, g30 1. introduction after financial crisis and reactions in financial industry taking place recently, we find out that there are signals of impacts of tax rates and the level of financial leverage on the fluctuations of market risk, measured by both equity and asset beta values. this leads to a question on using external debt of management team in a hope that the business market value can be recovered. despite of trying to select an easy-reading writing style, there is still some academic words need to be explained in further. the organization of paper contents is as following. as our previous series of paper, research literature, issues, methodology and theories are covered in the first two sessions. next, it followed by introduction of our empirical findings in session 3 (3rd). continuously, session four (4) covers conclusion and policy suggestion. before last, there are exhibit session which covers some calculated results of this paper’s analysis and comparison. 2. preliminary notes 2.1 research issues this research aims to figure out two (2) issues: issue 1: what happen to asset beta if both fl and tax rate change in 3 scenarios issue 2: what happen to equity beta if both fl and tax rate change in 3 scenarios 2.2 literature review john (1999) mentions a two-rate tax system where land is taxed at a higher rate than structures in his research on two-rate property tax effects on land development. anderson (2009) recognized that the user cost tax elasticities are relatively small while the expected house price inflation elasticity is substantially larger and therefore plays a greater role in affecting housing market demand. beside, modigliani and mill (1963) show that firm value is an increasing function of leverage due to the tax deductibility of interest payments at the corporate level. carr and wu (2011) stated that equity volatility increases in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e risk management in viet nam tourism industry under the impact of a two factor model during and after the global crisis 159 proportionally with the level of financial leverage, the variation of which is dictated by managerial decisions on a company's capital structure based on economic conditions. and, irrespective of financial leverage, a positive shock to business risk increases the cost of capital and reduces the valuation of future cash flows, generating an instantaneous negative correlation between asset returns and asset volatility. mccarty (2012) stated there is evidence which suggests that for the most tax risky firms investors also apply a higher discount rate to estimations of future cash flows. then, vello and martinez (2012) indicated there is a negative and significant relation between the market risk and the tax planning efficiency index of firms that have good governance practices. next, madhou (2012) found out, for australia firms over the period 2003-2008, those with low leverage appear to hold higher cash holdings than high leverage ones. then, mccauley (2013) pointed that during calm periods, portfolio investment by real money and leveraged investors in advanced countries flow into emerging markets, leading to an asymmetric asset swap (risky emerging market assets against safe reserve currency assets) and leveraging up by emerging market central banks. last but not least, gunarathna (2013) found out in different industries in sri lanka, firm size does not significantly affect the financial risk, but the degree of financial leverage has a significant positive correlation with financial risk. 2.3 conceptual theories the tax system not only responds to the globalization but also affects national income, investment levels and risks of doing business. furthermore, tax system can affect the investment return and the ratio of re-investment and business growth. the using of leverage also could create both negative and positive effects on business operational results. a firm will make decision on significant amount of debt when it hopes roa will be higher than the lending interest. using leverage might affect both company performance and its risk. 2.4 methodology in this research, analytical research method is used, philosophical method is used and specially, scenario analysis method is used. analytical data is from the situation of listed banking industry firms in vn stock exchange and applied current tax rate is 25%. 3. main results 3.1. empirical research findings and discussion data used are from total 10 listed tourism industry companies on vn stock exchange (hose and hnx mainly). in the scenario 1, current tax rate is kept as 25% as in the 2011 financial statements which is used to calculate market risk (beta) while leverage degree is kept as current, then changed from 30% up to 20% down. then, two (2) fl scenarios are changed up when tax rate is up to 30% and down to 20%. in summary, the below table 1 shows three (3) scenarios used for analyzing the risk level of these listed firms. market risk (beta) under the impact of tax rate, includes: 1) equity beta; and 2) asset beta. table 1 – analyzing market risk under three (3) scenarios (made by author) tax rate as current (25%) tax rate up to 30% tax rate down to 20% leverage as current scenario 1 scenario 2 scenario 3 aylin gözen & prof. dr. beliz ülgen 160 leverage up 30% leverage down 20% a. scenario 1: current tax rate 25% and leverage kept as current, 20% down and 30% up in this case, all beta values of 10 listed firms on vn airline and tourism industry market as following: table 2 – market risk of listed companies on vn airline and tourism industry market under a two factors model (case 1) (source: vn stock exchange 2012) order no. company stock code leverage as current leverage down 20% leverage up 30% equity beta asset beta (assume debt beta = 0) equity beta asset beta (assume debt beta = 0) equity beta asset beta (assume debt beta = 0) 1 ctc 0,226 0,072 0,226 0,103 0,226 0,026 2 dlc 0,475 0,281 0,684 0,461 0,200 0,094 3 dlv 0,719 0,264 0,932 0,460 0,368 0,065 4 fdt 0,764 0,300 0,965 0,496 0,433 0,091 5 hot 1,447 1,222 1,489 1,303 1,384 1,104 6 pdc 2,035 1,298 2,035 1,445 2,035 1,077 7 pgt 1,648 1,532 1,648 1,555 1,648 1,497 8 tct 1,016 0,913 1,016 0,934 1,016 0,882 9 ttr -1,060 -0,888 -1,060 -0,922 -1,060 -0,836 10 mas 0,382 0,143 0,382 0,190 0,382 0,071 b. scenario 2: tax rate increases up to 28% and leverage kept as current, 20% down and 30% up all beta values of total 10 listed firms on vn airline and tourism industry market as below: table 3 – market risks of listed airline and tourism industry firms under a two factors model (case 2) (source: vn stock exchange 2012) order no. company stock code leverage as current leverage down 20% leverage up 30% equity beta asset beta (assume debt beta = 0) equity beta asset beta (assume debt beta = 0) equity beta asset beta (assume debt beta = 0) 1 ctc 0,226 0,072 0,226 0,103 0,226 0,026 2 dlc 0,492 0,292 0,704 0,474 0,210 0,099 risk management in viet nam tourism industry under the impact of a two factor model during and after the global crisis 161 3 dlv 0,735 0,270 0,948 0,468 0,380 0,067 4 fdt 0,780 0,307 0,981 0,505 0,446 0,094 5 hot 1,455 1,228 1,495 1,308 1,393 1,111 6 pdc 2,035 1,298 2,035 1,445 2,035 1,077 7 pgt 1,648 1,532 1,648 1,555 1,648 1,497 8 tct 1,016 0,913 1,016 0,934 1,016 0,882 9 ttr -1,060 -0,888 -1,060 -0,922 -1,060 -0,836 10 mas 0,382 0,143 0,382 0,190 0,382 0,071 c. scenario 3: tax rate decreases down to 20% and leverage kept as current, 20% down and 30% up all beta values of total 10 listed firms on vn airline and tourism industry market as below: table 4 – market risks of listed airline and tourism industry firms under a two factors model (case 3) (source: vn stock exchange 2012) order no. company stock code leverage as current leverage down 20% leverage up 30% equity beta asset beta (assume debt beta = 0) equity beta asset beta (assume debt beta = 0) equity beta asset beta (assume debt beta = 0) 1 ctc 0,226 0,072 0,226 0,103 0,226 0,026 2 dlc 0,447 0,265 0,653 0,440 0,184 0,087 3 dlv 0,693 0,254 0,905 0,447 0,350 0,062 4 fdt 0,737 0,290 0,939 0,483 0,413 0,087 5 hot 1,436 1,212 1,479 1,295 1,369 1,092 6 pdc 2,035 1,298 2,035 1,445 2,035 1,077 7 pgt 1,648 1,532 1,648 1,555 1,648 1,497 8 tct 1,016 0,913 1,016 0,934 1,016 0,882 9 ttr -1,060 -0,888 -1,060 -0,922 -1,060 -0,836 10 mas 0,382 0,143 0,382 0,190 0,382 0,071 all three above tables and data show that there are just tiny changes in the values of equity beta and there are bigger fluctuations in the values of asset beta in the three (3) cases. aylin gözen & prof. dr. beliz ülgen 162 3.2. comparing statistical results in 3 scenarios of changing leverage: table 5 statistical results (fl in case 1) (source: vn stock exchange 2012) leverage as current leverage down 20% leverage up 30% statistic results equity beta asset beta (assume debt beta = 0) differenc e equity beta asset beta (assume debt beta = 0) differenc e equity beta asset beta (assum e debt beta = 0) differe nce max 2,035 1,532 0,503 2,035 1,555 0,480 2,035 1,497 0,538 min -1,060 -0,888 -0,173 -1,060 -0,922 -0,138 -1,060 -0,836 -0,225 mean 0,765 0,514 0,251 0,831 0,603 0,229 0,663 0,603 0,060 var 0,7530 0,5302 0,223 0,7532 0,5572 0,196 0,7879 0,4962 0,292 note: sample size : 10 firms table 6 – statistical results (fl in case 2) (source: vn stock exchange 2012) leverage as current leverage down 20% leverage up 30% statisti c results equity beta asset beta (assume debt beta = 0) differenc e equity beta asset beta (assume debt beta = 0) differenc e equity beta asset beta (assu me debt beta = 0) differe nce max 2,035 1,532 0,503 2,035 1,555 0,480 2,035 1,497 0,538 min -1,060 -0,888 -0,173 -1,060 -0,922 -0,138 -1,060 -0,836 -0,225 mean 0,771 0,517 0,254 0,837 0,606 0,231 0,667 0,606 0,061 var 0,7528 0,5299 0,223 0,7543 0,5571 0,197 0,7869 0,4966 0,290 note: sample size : 10 firms table 7statistical results (fl in case 3) (source: vn stock exchange 2012) leverage as current leverage down 20% leverage up 30% statisti c results equity beta asset beta (assume debt beta = 0) differenc e equity beta asset beta (assume debt beta = 0) differenc e equity beta asset beta (assum e debt beta = 0) differen ce max 2,035 1,532 0,503 2,035 1,555 0,480 2,035 1,497 0,538 min -1,060 -0,888 -0,173 -1,060 -0,922 -0,138 -1,060 -0,836 -0,225 mean 0,756 0,509 0,247 0,822 0,597 0,225 0,656 0,597 0,059 risk management in viet nam tourism industry under the impact of a two factor model during and after the global crisis 163 var 0,7534 0,5305 0,223 0,7516 0,5573 0,194 0,7895 0,4954 0,294 note: sample size : 10 firms the above calculated figures generate some following results: first of all, equity beta mean values in all 3 scenarios are acceptable (< 0,9) and asset beta mean values are also small (< 0,7). if leverage increases to 30%, asset beta max values keep the same value of 1,497 when tax rate is up to 28% or down to 20%. finally, when leverage decreases down to 20%, asset beta max values keep the same value of 1,555 in both cases: tax rate up and down. the below chart 1 shows us : when leverage degree decreases down to 20%, if tax rate is up to 28%, average equity beta value increases slightly (0,837) compared to that at the decrease of tax rate of 20% (0,822). however, equity beta var is 0,754 (tax rate up), little higher than 0,752 (tax rate down). then, when leverage degree increases up to 30%, if tax rate is up to 28%, average equity beta increases little (to 0,667) compared to that at the decrease of tax rate of 20% (0,656). however, in case the tax rate up, the equity beta var is 0,787, smaller than 0,790 (tax rate down). the below chart 2 shows us : when leverage degree decreases down to 20%, if tax rate is up to 28%, average asset beta value increases slightly (0,606) compared to that at the decrease of tax rate of 20% (0,597). however, asset beta var is 0,557 (tax rate up), the same as that in the case of tax rate down. then, when leverage degree increases up to 30%, if tax rate is up to 28%, average asset beta also increases little more (to 0,606) compared to that at the decrease of tax rate of 20% (0,597). however, in case the tax rate up, the asset beta var is 0,497, higher than 0,495 (tax rate down). chart 1 – comparing statistical results of equity beta var and mean in three (3) scenarios of changing fl and tax rate (source: vn stock exchange 2012) aylin gözen & prof. dr. beliz ülgen 164 chart 2 – comparing statistical results of asset beta var and mean in three (3) scenarios of changing fl and tax rate (source: vn stock exchange 2012) 4. conclusion and policy suggestion in summary, the government has to consider the impacts on the movement of market risk in the markets when it changes the macro policies and the legal system and regulation for developing the tourism market. the ministry of finance continues to increase the effectiveness of fiscal policies and tax policies which are needed to combine with other macro policies at the same time. the state bank of viet nam continues to increase the effectiveness of capital providing channels for tourism companies as we might note that in this study when leverage is going to increase up to 30%, the risk level decreases (asset beta mean decreases to 0,597 if tax rate moves down to 20%). furthermore, the entire efforts among many different government bodies need to be coordinated. tourism and hotel industry in vietnam also need to establish risk warning system (for environment, human resource, financial, business, unexpected risk and technology risk). vietnam tourism school also enhance training programs to meet the market demand while hotel industry has to improve quality of service and reduce risk in 4.0 technology era. finally, this paper suggests implications for further research and policy suggestion for the viet nam government and relevant organizations, economists and investors from current market conditions. 5. acknowledgements i would like to take this opportunity to express my warm thanks to board of editors and colleagues at citibank – hcmc, scb and bidv-hcmc, dr. chen and dr. yu hai-chin at chung yuan christian university for class lectures, also dr chet borucki, dr jay and my ex-corporate governance sensei, dr. shingo takahashi at international university of japan. my sincere thanks are for the editorial office, for their work during my research. also, my warm thanks are for dr. ngo huong, dr. ho dieu, dr. ly h. anh, dr nguyen v. phuc and my lecturers at banking university – hcmc, viet nam for their help. lastly, thank you very much for my family, colleagues, and brother in assisting convenient conditions for my research paper. references allen, f., and gale, d., stock price manipulation, review of financial studies, (1992). ameer, beenish., and jamil, moazzam., (2013), a test of fama and french three factor model in pakistan equity market, global journal of management and business research, vol.13, issue 7, pp. 24-28 baker, kent h., singleton, clay j., and veit, theodore e., (2011), survey research in corporate finance: bridging the gap between theory and practice, oxford university press basu, devraj., streme, alexander., (2007), capm and time-varying beta: the cross-section of expected returns, ssrn working paper series risk management in viet nam tourism industry under the impact of a two factor model during and after the global crisis 165 chatterjea, arkadev., jerian, joseph a., and jarrow, robert a., market manipulation and corporate finance: a new perspectives, 1994 annual meeting review, southwestern finance association, texas, usa, (2001). degennaro, ramon p., kim, sangphill., (2003), the capm and beta in an imperfect market, ssrn working paper series flifel, kaouther., (2012), financial markets between efficiency and persistence : empirical evidence on daily data, asian journal of finance and accounting galagedera, d.u.a., (2007),an alternative perspective on the relationship between downside beta and capm beta, emerging markets review huy, dinh t.n., (2013), whether the risk level of viet nam real estate firms under the different changing tax rates increase or decrease so much, international journal of research in business and technology khwaja, asim ijaz., mian, atif., unchecked intermediaries:price manipulation in an emerging stock market, journal of financial economics 78, (2005), 243 241 marchesi, michael favere., the impact of tax services on auditors’ fraud risk assessments, advances in accounting research ang, a., chen, j., (2007), capm over the long run: 1926-2001, journal of empirical finance adb and viet nam fact sheet, 2010 other web sources http://www.ifc.org/ifcext/mekongpsdf.nsf/content/psdp22 http://www.construction-int.com/article/vietnam-construction-market.html http://fia.mpi.gov.vn/default.aspx?ctl=article&menuid=170&aid=185&pagesize=10&page=0 http://kientruc.vn/tin_trong_nuoc/nganh-bat-dong-san-rui-ro-va-co-hoi/4881.html http://www.bbc.co.uk/vietnamese/vietnam/story/2008/12/081226_vietnam_gdp_down.shtml http://www.mofa.gov.vn/vi/ exhibit exhibit 1vni index and other stock market index during crisis 2006-2010 http://www.mofa.gov.vn/vi/ aylin gözen & prof. dr. beliz ülgen 166 (source: global stock exchange 2012) exhibit 2comparable firms and changing leverage for viet nam airline and tourism firms order no. company stock code comparable firm fl as current fl up 30% fl down 20% 1 ctc 68,1% 88,5% 54,5% 2 dlc dlv as comparable 40,7% 52,9% 32,6% 3 dlv pgt as comparable 63,3% 82,3% 50,6% 4 fdt pgt as comparable 60,7% 78,9% 48,6% 5 hot pgt as comparable 15,6% 20,3% 12,5% 6 pdc 36,2% 47,0% 29,0% 7 pgt 7,1% 9,2% 5,6% 8 tct 10,1% 13,2% 8,1% 9 ttr 16,3% 21,2% 13,0% 10 mas 62,6% 81,4% 50,1% average 38,1% 49,5% 30,5% (source: viet nam stock exchange 2012) international journal of commerce and finance, vol. 6, issue 2, 2020, 117-124 117 corporate bonds and stock prices: a coherency analysis in europe arif buda, near east university, cyprus hüseyin özdeşer, near east university, cyprus andisheh saliminezhad near east university, cyprus received: may 18, 2020 accepted: june 18, 2020 published: oct 02, 2020 abstract this paper aims to find a coherent relationship between stock prices and bond yields on the day of issue. we show that stock prices seem to have a weak positive relationship with yields as investors seem to consider the underlying health of a firm before investing their money in either security. this contrasts with earlier research and falls in line with later research. the findings show that one percentage increase in share price on date of issue has the potential to raise yields by 0.20% given the near-zero interest environment of the euro. keywords: corporate bonds, stock market, european market 1. introduction as stocks’ overlooked cousin, corporate bond issues do not get much academic attention. yet, as a business’ way of raising funds issuing corporate bonds stands as the most popular option with the us bond market, the world’s biggest by a far margin, valued at a $9.3 trillion , to the institutional investor bonds remain profitable and popular investment vehicles. therefore, us corporate bond yields, studied plainly as securities, have been perhaps the only example of a wellresearched academic topic. earlier research tried to explain the variation in yields solely based on the risk of a particular issue. (sharpe, 1964) (ross, 1976) later research however, contradicts these earlier findings entirely as risk seems to have no impact on yields, and past stock return performance seems to explain the variation of excess returns more. (fama & french, 1992) yet, any comprehensive paper that seems to link corporate bond yields with stock prices seems to lacking in all nonus markets. a great deal of this can be explained by the sheer unavailability of data for underdeveloped financial markets – this seems to incentivise researchers to study the us. this captures our interest. the eu bond market, valued at $410.8 billion during q3 2019 , while small compared to its us counterpart, is the second choice for investors globally. since there is no indication that these two markets would behave in the same way due to the different makeup of investors investing in them, this area seems ripe for fresh research producing fresh insights. we will also take a moment here to note the differences between the money markets of us and eu. the current us federal funds rate stands at %1.75 whereas the eu equivalent base rate stands at a negative %0.50 . these different rates have different impacts on the excess returns of papers in their respective markets, presenting us with another unanswered question that this paper will seek to shed some light upon. we are especially interested in the impact of stock prices, especially the opening stock price on the date of the issue on yields – as both types of investors essentially wager on the fundamentals of a company. yet bond yields are predetermined, meaning positive news will not impact their returns unlike shareholders. it will be interesting to see if these differences will mean that stocks and bonds are not substitutes of each other – perhaps even complements. in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e arif buda & hüseyin özdeşer & andisheh saliminezhad 118 bonds are also graded according to their risk by major ratings agencies. for our research purposes, we will be taking moody’s grading system into account and try to observe its impact on yields as our measure of risk. we believe this in itself will be adequate without delving into more complicated ways of measuring this risk associated with corporate bonds unlike some modern research. (de jong & drissen, 2006) without digressing, our paper will be as follows. section 2 will include a significantly more comprehensive literature review in which we compare and contrast research findings. section 3, our methodology section, will include our econometric model and the paper we took inspiration from to construct it. section 4, we will be discussing our data, how we collected it and where from, and how it was filtered for our purposes. section 5, as you might expect, will include our results, findings and discussion on the limitations of our aforementioned findings and finally, in section 6, we will be recapping all we have discovered and concluding. 2. literature review while retained earnings present themselves as a source of potential funds for such projects most of the times they remain insufficient for massive undertakings and have been shown to be generate less return as opposed to external financing. (whittington, 1972). stock prices and bonds can essentially be seen as betting on the company’s future. therefore, it is not a stretch of imagination to think these two instruments are substitutes. there is some evidence that seems to suggest that this is indeed the case. empirically, one can observe that as corporations issue new bonds, their market value, and therefore their share price, goes down. (huberman, 1984) it has been observed that as, the risk premium on its corporate bonds, and therefore, it’s corporate bond yield would increase, as it’s share prices fell. (davydenko, 2012) however, movements in prices do not always seem to fit this counter-pattern that theory dictates we should observe. sometimes prices seem to be sticky (dichev & piotroski, 2001) and sluggish to move, and more complicated factors at play might complicate what should be this ‘straight forward’ price relationship. (amihud, et al., 2005) drawing on the pricing model outlined by their predecessor to price corporate debt (merton, 1974), recent papers have indeed found correlation that despite this substitution effect in prices, as both securities draw their value from the underlying ‘inherent’ value of the firm in question, prices seem to have a tendency to move in the same direction. (bao & hou, 2013) recent papers have a tendency to find that, these two indicators do indeed move in the same direction. (shiller & beltratti, 1990) the same relationship also seems to extend beyond corporate bonds, with government bonds also exhibiting a similar relationship. (baker & wurgler, 2012). the best metric for the risk of default, is of course, a rating from a ratings agency such as moody’s or standard & poor’s. these ratings announcements impact both equity prices and bond yields. (kliger & sarig, 2000) it has been observed that positive ratings changes by these major agencies has the potential to create abnormal returns. (grier & katz, 1976) these impacts can be observed even in municipal bond markets. (ingram, et al., 1983) it is again here that the research consensus breaks down. while a downgrade in ratings is definitely warrants an increase in corporate yields, we observe a negative downwards pressure in prices just as theory predicts as these investment vehicles are substitutes. sometimes, a downgrade in ratings is widely expected in the market consensus and cannot be observed as impacting common stock prices and therefore common stock holders as (goh & ederington, 1993) finds. this lends credibility to common stock being a substitute to corporate bonds as they can be seen as more robust in terms of earnings to rating changes. both (holthausen & leftwich, 1986) and (zaima & mccarthy, 1988) find similar results, while also casting doubt on the idea that bond rating changes actually convey any new information to investors at all or argues that these changes are priced in, more of than not. another drawback of previous research is that the vast majority of papers, including the ones cited and will be cited in this paper are very us-centric. as financial centres grow more integrated in the world, they have been wide varying impact on all real sectors of the economy, from consumption (smith, et al., 1994) to government spending. (hasan & taghavi, 2002) as such, we note the lack of research into other markets, something we hope to remedy in our more european-centric paper. however, we digress. while research does lack in less studied markets, it is not completely absent. stocks are seen to be impacted in the uk corresponding to ratings changes for their respectively companies, as well as both shortand corporate bonds and stock prices: a coherency analysis in europe 119 long-term corporate bonds. (barron, et al., 1997) it seems, regardless, that mainly stock purchasing investors seem to interpret the ratings as a source of information about the firm’s health in itself – this does not seem to project itself onto a stronger co-movement in yields and stock prices. (ohmi & okimoto, 2006) (campbell & ammer, 1993) 3. methodology our approach is rather simple. we consider a potential investor who has a lump sum to invest, and has to pick between a stock of a publicly traded company and its corresponding bonds. therefore, our analysis is restricted to the date of issue – we compare the yield to maturity and the respective ecb with the closest matching maturity to calculate excess returns. our econometric approach draws heavy inspiration from previous research, especially the two-term model laid out in (gebhardt, et al., 2004) – we modified it to fit our approach as we hope to capture the impact of stock prices. therefore, we will outline our model as follows; r_cb-r_f=z+β_1 p_i+β_2 t_i+β_3 g_i+u_i where r_cb-r_f represents excess returns on our selected corporate bonds, p_i being the opening stock price of the company issuing the bond on the date of issue, t_i as the number of days until the bond matures, and g_i representing the moody’s ratings for that specific paper. the moody’s ratings and the maturity date should represent adequate controls for the illiquidity and risk associated with purchasing these papers. with three independent variables, we also have the added benefit of being able to work with limited points of data – as is the case with the european bond market, for which data is scarce. 4. data we have obtained assorted corporate bond data, courtesy of bloomberg llc, – all denominated in euros. then we proceeded to filter our results to fit the needs of our research. firstly, any bond with a moody’s rating below b was eliminated – and the rest was divided into 5 categories, each receiving a score from 1 to 5 – from the junk bonds to the pristine investment grade bonds. secondly, we screened the listed corporate entities. for our model to make sense, the company needed to be traded on a public exchange denominated in euros such as the frankfurt or vienna stock exchange on the date of issue. for example, the corporate bonds of gazprom – which were included in our dataset, were eliminated on the account that gazprom is a publicly traded company. another notable example is while the initial pre-filtered data set included tesla inc. bonds, we filtered these out – while tesla is indeed a publicly traded company, it is traded out of the new york stock exchange with prices quoted in usd, and therefore, not applicable for our purposes. we end up with 148 points of data – each with a matching rating grade, excess return and stock price. in this section, we will also display scatter plots to observe a visual relationship between each of our independent variables and dependent variables individually. these are shown below. arif buda & hüseyin özdeşer & andisheh saliminezhad 120 0 40 80 120 160 -8 -4 0 4 8 12 excessreturns st oc kp r figure 1: scatter plot showing the relationship between share price and excess returns here, we can observe a positive relationship exist between the series. one interesting thing to note is that the vast majority of excess returns are actually zero – meaning there are none excess returns for most of the papers in our dataset, which is to be expected given both the efficient market theorem and the extremely low interest environment of contemporary european financial markets. 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 -16 -12 -8 -4 0 4 8 excessreturns da ys m at ur ity figure 2: scatter plot showing the relationship between days until maturity and excess returns here, it is again extremely difficult to make out a visual relationship between our liquidity measure, the lifetime of the bond and our excess returns. this in itself is interesting – theory predicts that as a financial instrument becomes less liquid, excess returns should increase to compensate for the increased market risk the investor is undertaking. table 1. the ratings makeup of our dataset. moody's rating grade score frequency aaa investment 5 5 a investment 4 22 baa investment 3 0 corporate bonds and stock prices: a coherency analysis in europe 121 ba junk 2 40 b junk 1 81 source: own calculations. finally, here we can observe the moody’s grade makeup of our dataset. we see that the vast majority of our corporate bonds are graded as junk and only a small minority are what we would term investment grade bonds. this table also shows the scoring system we have used to control our dataset as our risk measure. 5. discussion in this section, we display the results of our regressions and discuss our findings, and how they fit in with previous research, whether there are any surprises and the limitations arising from the nature of our methodology and data. table 2. estimation results variables dep. var ( dep. var ( constant 0.98*** 4.55*** stock price 0.01 0.02* days until maturity -0.01 -0.02* ratings score -0.17*** -0.25** r-squared 0.01 0.40 notes: robust standard errors are shown in parentheses. * p < 0.05, ** p < 0.01, *** p < 0.001. table 2 displays the results of a standard multivariate ordinary-least-squares analysis that we run with our dataset. the first column stands for the estimation results when the dependent variables is considered as r_cb-r_f while the second column shows the results of the estimation with the r_cb as a dependent variable. as shown in table 2, the results of the first estimation are somewhat disappointing. the predictive and explanatory power of our model as it stands is low – our r-squared shows us that the model explains less than 2% of the variation between excess returns. this is extremely low, and casts doubt over our methodology. rating score is found to be significant at 1% level while the other explanatory variables are insignificant. moreover, looking at our coefficients, we can see that our liquidity measure and share price variable have coefficients close to zero, meaning they do not seem to impact excess returns at all. this can be partly explained due to the fact that in europe’s near-zero-to-negative interest rate environment, we just do not observe excess returns. finally, the coefficient for our rating grade is one that is expected. as the rating grade increases, (1 being b-grade, 5 being aaa grade), we see that there is a downward pressure on excess returns. this is, of course, in line with what theory predicts. it is at this point that we decide to take things a little further and tweak our econometric model a little more – and end up with the following model below. we remove the corresponding risk-free yield term we were using to calculate excess returns – and just leave the yield to maturity (ytm) as our dependent variable. we justify this choice in two ways – first, by far and large, efficient market theorem predicts that excess returns are not consistently possible for any investor. and secondly, the zerointerest rate environment of the euro should mean that yields to maturity present an adequate measure of the returns arif buda & hüseyin özdeşer & andisheh saliminezhad 122 associated with this corporate bond. however, we still suspect that our analysis suffers from misspecification errors. to remedy this issue, we log both our dependent variable and our first independent variable, the stock price – as it is the focal point of our study, the other two variables merely being there as control measures. as some of our corporate bond entries have negative yields, we cannot outright transform them into log values. for this purpose, we rebased both our stock prices and our bond yields with a base of +100, allowing us to transform them both into logs and perform our regression again, whose results will be shown below. having the new dependent variable in hand, the findings sound better and more realistic. the predictive power of our model has been increased as the r squared jumped up to 40%. the right-hand side variables are now becoming significant given the provided robust standard errors. the coefficient of our stock price has also become more meaningful, with a 1% increase in the share price on the date of issue increasing yields by 0.20% not a meagre amount considering the monetary state of the eurozone. however, we still suspect that our research is plagued with misspecification errors. we have no reason to suspect that our variables have a linear relationship with the dependent. as a way of coping, we utilise ramsay’s reset test on our secondary regression, the one displayed in table 3. the results are shown below. table 3. ramsay reset test value probability ramsey test 1.47 0.23 it seems that our ramsay reset test fails to show evidence for any non-linear relationship between our independent variables and dependent variable. by and large, our findings in this section seem more in line with later research – as we also found evidence that stock prices and yields commove in the same direction. there is not any evidence of a substitution effect, which is surprising. it seems that investors do not consider stocks and bonds to be substitutes. this can be due to a variety of factors – stocks being significantly more liquid than bonds while at the same time presenting more risk and earning opportunities seem more suited to the individual investor whereas bonds might end up in the hands of large institutional investors such as pension funds and retail banks, meaning these two markets are segmented and serve two different customer bases with different needs, eroding the substitution effect that we had hoped to observe. 6. conclusion in this paper, we looked at examining the relationship between stock prices and bond yields with and without controlling for excess returns. it was our hope to find a relationship that could be identified as substitutory but instead we found that instead, these two markets were most likely segmented and served the different needs of two different customer bases. we also found that while stock prices were impactful, liquidity, as measured by the lifetime of the bond were not. by and large, the most impactful determinant of bond yields in our model turned out to be ratings – for our purposes, we used moody’s which usually moves in tandem with s&p and other major rating agencies’ ratings. this result seems to lend credibility to the idea that bond holders are only concerned with the risk of default when purchasing a bond, and do not pay much attention to anything else. this provides evidence that bond buyers in the eurozone care about risk – and perhaps risk alone due to the memory of the greek sovereign debt crisis. in further research, we would augment our research to include several measures of different types of risk such as liquidity, market, etc while discarding the other terms. we obtained our data for corporate bonds denominated in euros – trying to contribute to filling the gap caused by the lack of research into the european financial market. we observed all throughout the literature review that the vast majority of research, both seminal and contemporary, is us-centric. considering the different interest rate environments present in both markets, we hoped to glimpse new insights. another way in which our approach was different than most was the lack of time-series analysis in our paper. for all intents and purposes, we were only concerned with the issue date. as investors of bonds mostly hold until maturity, corporate bonds and stock prices: a coherency analysis in europe 123 and the secondary market for bonds is limited, especially so in europe, we hoped this simpler approach’s drawback would be mostly mitigated. references amihud, y., mendelson, h. & pedersen, l. h., 2005. liquidity and asset prices. foundation and trends in finance, vol 1, no 4, pp. 269-364. baker, m. & wurgler, j., 2012. comovement and preditability relationships between bonds and cross-section of stocks. the review of asset pricing studies, volume 2, issue 1, pp. 57-87. bao, j. & hou, k., 2013. comovement of corporate bonds and equities. fisher college of business 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smith, p. n., wallis, k. f. & church, k. b., 1994. econometric evaluation of consumers' expenditure equations. oxford review of economic policy, volume 10, issue 2, pp. 71-85. whittington, g., 1972. the profitability of retained earnings. the review of economics and statistics,vol. 54, no. 2, pp. 152-160. zaima, k. j. & mccarthy, j., 1988. the impact of bond rating changes on common stocks and bonds: tests of wealth redistribution hypothesis. the finacial review, volume 23, issue 4, pp. 483-498. international journal of commerce and finance, vol.6, issue 1, 2020, 50-60 50 human capital development and service delivery of public health facilities agnes kabithe chege, california miramar university, california, usa dominic mwenja, california miramar university, california, usa kellen kiambati, karatina university, nairobi kenya levi mbugua, 3the technical university of kenya, nairobi, kenya abstract healthcare provision stipulated by sustainable development goals (sdgs) is a relatively new concept in many developing countr ies subsaharan africa part of asia. therefore, this study examined the influence of human capital development on the service delivery of devolved county health facilities. the path coefficients were positive and significant at 0.05 level of significance. the path coefficient beta value was β = 0.50. these findings indicate that for every 1-unit increase in human capital development, service delivery is predicted to increase by 0.5 in public county health facilities in kenya. the study concluded that measures contributed to the positive relationship between human capital development and service delivery in these facilities. as the hospitals lacked funding of further training for their staff and also failed to pay competitive salaries and allowances, the study recommends that for improved service delivery within these facilities, promotions should be on performance, as well remuneration. most employees will work hard when they know that they get rewards for it. the hospitals should also promote staff and offer scholarships for training to the high performing staff. keywords: healthcare, human capital development, service delivery, public county health facilities 1. introduction the rationale for devolved healthcare is to allow county governments to design innovative models and interventions that suit the unique health needs in their contexts, encourage citizen participation and make autonomous and quick decisions on resource mobilization and the management of possible issues (kimathi, 2017). devolution is the substantial transfer of powers and authority and functions from higher or central government to local units, upon which the local governments subsequently acquire significant and autonomous financial and powers to function without reference to central government (hazell and rawlings, 2015). devolved healthcare is the transfer of the management of healthcare services to counties and other local governments. according to mohammed, north, and ashton (2016), devolved healthcare is a way to improve the efficiency in the delivery of health services and their responsiveness to community needs. in developing countries, for example, decentralization is seen as a means to improve access to healthcare. however, to realize these benefits, a localized decision space needs to be created in terms of finance, service organization, human resources, access rules, and governance rules. although devolved healthcare has been accepted globally as a means to improve the efficiency and responsiveness of the health system, each country adopts and implements this policy differently (stubbs, 2015). devolved healthcare in thailand is done through local administrative organizations (laos). the devolution of health services are focused on primary health centers and the transition of ownership from the ministry of health to laos. the ministry o f health of thailand continues to be responsible for the technical, policy, supervision and training aspect, and in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e human capital development and service delivery of public health facilities 51 regulation of health professionals (hawkins, 2009). according to jongudomsuk and srisasalux (2012), in thailand, health-care decentralization could not be implemented effectively without the support of the central government. also, local government staff needed to have their capacity strengthened to handle the new responsibilities. this is best done by the central ministry staff that was previously responsible for these. in ethiopia, the concept of healthcare devolution was introduced in 1996 and was the primary strategy to improve health service delivery. it formed part of a broader devolution strategy across different sectors. devolution first t ook place at the regional level and was further extended to the district in 2002 (el-saharty et al., 2009). through devolution, a four-tiered system of care facilities was created. national referral hospitals, regional referral hospitals, district hospitals, and primary healthcare facilities were created. the devolution mechanism entailed districts receiving block grants from the regional government. they, in turn, are entitled to set their priorities and determine further budget allocations to healthcare facilities based on local needs. as such, the district levels were responsible for human resources management, health facility construction, and supply chain processes (assfaw, 2010). elsaharty et al. (2009) report that impressive improvements in service delivery existed despite some challenges in the initial stages. in kenya, devolution provides an opportunity to rationalize the service delivery framework for increased efficiency and accountability. this is achieved by making counties the hub for organizing services at the local level (khaunya et al., 2015). a report by kpmg (2014) states that the success of the devolution of health care services in kenya depends to a great extent on the presence of an enabling environment, an environment that is marked by the will and commitment of all health stakeholders. previous studies on the subject of the devolution of healthcare have focused on the implementation of the devolution in healthcare and the factors that influence this implementation (kubai, 2015; omondi, 2016; miriti and keiyoro, 2017). as observed by gimoi (2017), the devolution significantly influences healthcare systems in kenya while muchomba (2015) posited a positive influence of the devolution on the performance of healthcare. therefore, the study examined the contribution of human capital development on the service delivery of public county health facilities in kenya. 2. method the study was based on the research philosophy of positivism. through this positivism research approach, the study came up with hypotheses based on existing empirical studies and theories. in hypotheses testing, the study translated human capital development into a measurable form. the study adopted the explanatory survey research design. saunders and lewis (2012) noted that a research design helps to foster a smooth research operation which is aimed at making the research efficient, cost-effective and timeeffective. this study used the research design to help conduct the research on the relationship between human capital development, and the dependent variable – service delivery of public county health facilities. the ideal target population in our study was comprised of doctors and clinical officers (cos) and nurses from the 1423 level 3, 4, and 5 hospitals in kenya (moh, 2014). therefore, the total target population was 15,160 among the medical staff. table 1 medical staff  level of hospital  doctors  cos  nurses  total  three (3)  47  112  456  767  four (4)  297  417  8,917  9,733  five (5)  234  389  4,291  4,926  total  578  918  13,664  15,160 agnes kabithe chege & dominic mwenja & kellen kiambati & levi mbugua in the study, the sampling frame constituted of 15,160 medical staff comprising of doctors, cos, and nurses (gok, 2018). the study employed a stratified sampling technique to select the respondents from the three levels of public hospitals in kenya. kothari (2004) argued that by use of strata, it is easier to choose participants if they can be classified into different groups. that is especially important in this study that focused on different cadres comprising doctors, clinical officers, and nurses. stratified sampling was, therefore, suitable since the research had different strata of respondents. the study adopted yamane's (1967) formula for simple random sampling of the medical officers following the nature and the characteristic of the target population to achieve the required sample. yamane (1967) formula where: n = target (total) population of medical officers (15,426) n = desired sample size d= confidence interval (0.05 testing at 5% significant level) n= 390 table 2 sample population level of hospital doctors sample cos sample nurses sample three (3) 47 1 112 3 456 12 four (4) 297 7 417 11 8,917 230 five (5) 234 6 389 10 4,291 110 total 578 14 918 24 13,664 352 the sample size for the study was 390 respondents from level 3, 4, and 5 public hospitals in kenya. that included 14 doctors, 24 cos, and 352 nurses. this study used primary data collected by administering questionnaires as an instrument to the respondents in all three levels of public hospitals. the instrument collected quantitative data using likert style questions. the researcher picked up the instruments after filling it by the participants. the researcher took 10% (n=39) of the population to participate in the pilot study test in the testing of the data collection instrument for internal consistency (reliability) and validity. the respondents for the pilot test were chosen from nairobi county which is suitable because it has a big number of the targeted levels 3, 4 and 5 hospitals and the county has diversified characteristics that could reflect the situation in the whole country. the questionnaire contained 47 items measuring the variables of the study. the study found an overall cronbach’s alpha of 0.797 for the 11 querries, which show the overall reliability of the instrument as shown in table 3. human capital development and service delivery of public health facilities 53 table 3 overall cronbach’s alpha cronbach's alpha n of items .797 11 the ability of a research instrument to be a measure of what it claims to measure is known as validity (bryman & cramer, 2012). in the content validity examination by the experts, they checked and identified the shortfall of the research instrument in anticipation of what it ought to be measured as per the research questions. the expert opinion was used to ensure the face validity by checking on its structure, grammar, alignment as per margin, and any other issue which may minimize the chances of the questionnaires being responded to or fall short of collecting the desired data. data analysis was executed using descriptive and inferential statistics. descriptive statistics adopted the mean, standard deviation, percentages, and frequency of response while inferential statistics used structural equation modeling (sem) using analysis of moment structures (amos) version 26 as the tool of analysis. 3. results the study assessed the influence of human capital development on the service delivery of public county health facilities in kenya. the study found that the hospital trained staff when they were in service (m = 3.46, sd = 0.930); hospital staff were given study leave (m = 3.21, sd = 1.248); the hospital endeavored to provide a conducive working environment for its workers (m = 3.73, sd = 1.033); the hospital offered permanent contracts to its workers (m = 3.35, sd = 1.163); and the hospital had a set out mechanism for dealing with the grievances of staff (m = 3.47, sd = 0.903). the participants, however, disagreed with the rest of the statements. table 4 descriptive statistics on human capital development mean sd my hospital trains staff when they are in service 3.46 .930 study leave 3.21 1.248 the hospital funds further training for its staff 2.74 1.276 the hospital pays competitive salaries and allowances 2.82 1.341 the hospital promotes staff who perform well 2.89 1.400 the hospital endeavors to provide a conducive working environment for its employees 3.73 1.033 the hospital that it is equipped so as to attract highly qualified employees 2.91 1.195 the hospital has a high turnover of staff 2.91 1.159 agnes kabithe chege & dominic mwenja & kellen kiambati & levi mbugua the hospital offers permanent contracts to its employees 3.35 1.163 the hospital has a set-out mechanism for dealing with the grievances of staff 3.47 .903 the hospital has a human resources officer who deals with staff welfare 2.87 1.219 factor analysis was conducted to reduce items of human capital development. the construct was measured using eleven questions thereby the construct was factor analyzed to come up with an appropriate measure. the study found a kmo value of 0.705 and bartlett's test, x2(55, n = 316) = 1927.262, p = .000 (table 5), showing that sampling was adequate for the human capital development. table 5 kmo and bartlett's test for human capital development kaiser-meyer-olkin measure of sampling adequacy. .705 bartlett's test of sphericity approx. chi-square 1927.262 df 55 sig. .000 the results for the scree plot indicated that two components had eigen value that was greater than one. this finding corroborates the total variance explained results for equipped health facilities (figure 1). figure 1 scree plot for human capital development construct human capital development and service delivery of public health facilities 55 the factor loadings for human capital development were obtained in the study as shown in table 6. the acceptable threshold was 0.6. all the queries exceeded 0.6, except for the last three components, therefore, the three questions were dropped for human capital development. table 6 component matrix for human capital development component 1 2 my hospital trains staff when they are in service .606 .173 study leave .786 -.162 the hospital funds further training for its staff .796 -.361 the hospital pays competitive salaries and allowances .783 -.306 the hospital promotes staff who perform well .863 -.195 the hospital endeavors to provide a conducive working environment for its employees .708 -.144 the hospital ensures highly qualified employees .710 -.041 the hospital has a high turnover of staff .607 .346 the hospital offers permanent contracts to its employees .432 .688 the hospital has a set-out mechanism for dealing with the grievances of staff .175 .760 the hospital has a human resources officer who deals with staff welfare .344 .607 extraction method: principal component analysis. a. 2 components extracted. hypothesis testing rh: human capital development has a positive influence on the service delivery of public county health facilities in kenya. before path coefficients, confirmatory factor analysis was conducted and subjected to maximum likelihood cfa. the study found that the relative normed chi-square value of 418.448 (p-value = 0.000) indicating an acceptable fit between the hypothesized model and the sample data. in addition, the nfi = .725, tli = .626, cfi = .733 indicated an acceptable fit as they were approximately 0.7. the analysis yielded the path diagram presented in figure 2 and table 7. agnes kabithe chege & dominic mwenja & kellen kiambati & levi mbugua figure 2 human capital development cfa table 7 baseline comparisons for human capital development model nfi delta1 rfi rho1 comparative fit index delta2 tli rho2 cfi default model .725 .614 .734 .626 .733 saturated model 1.000 1.000 1.000 independence model .000 .000 .000 .000 .000 the path coefficients obtained show that the path coefficient was positive and significant at 0.05 level of significance. the path coefficient beta value, β = 0.50. these findings indicate that for every 1-unit increase in human capital development, service delivery is predicted to increase by 0.5 in public county health facilities in kenya. additionally, all the factor loadings were well above 0.5 and, therefore, they were within the acceptable threshold (figure 3). human capital development and service delivery of public health facilities 57 figure 3 path coefficients for human capital development the overall table with path coefficients, standard errors, and p-value s was therefore summarized (table 8). as presented, all the p-value s for the paths in the model were less than 0.05 and thus significant at 0.05 level of significance. in particular, the cr value for human capital development and service delivery was 5.160, and its pvalue is 0.000, which is less than 0.05. this p-value tested the third hypothesis in the study at a 5% significance level. therefore, the null hypothesis that human capital development has no positive influence on the service delivery of public county health facilities in kenya stood. table 8 regression coefficients for human capital development and service delivery path standardized estimate unstandardized estimate s.e. c.r. p label sd <--hcd .384 .502 .097 5.160 *** hcd1 <--hcd .542 1.000 hcd2 <--hcd .594 1.472 .178 8.276 *** hcd3 <--hcd .874 2.214 .215 10.306 *** hcd4 <--hcd .842 2.240 .221 10.125 *** hcd5 <--hcd .912 2.535 .242 10.491 *** agnes kabithe chege & dominic mwenja & kellen kiambati & levi mbugua path standardized estimate unstandardized estimate s.e. c.r. p label hcd6 <--hcd .513 1.052 .141 7.473 *** hcd7 <--hcd .586 1.388 .169 8.197 *** hcd8 <--hcd .357 .848 .151 5.609 *** sd9 <--sd .584 1.000 sd8 <--sd .666 1.038 .112 9.287 *** sd7 <--sd .811 1.218 .116 10.525 *** sd6 <--sd .781 1.124 .109 10.296 *** sd5 <--sd .794 1.082 .104 10.403 *** sd4 <--sd .639 1.052 .117 9.022 *** sd3 <--sd .551 .950 .117 8.092 *** sd2 <--sd .500 1.013 .135 7.498 *** 5. discussions the findings obtained in the study agree with those of zinnen et al. (2012) that offering training opportunities to health workers would most likely improve the competence and performance of the health care workers. the interesting case scenario is from a study in tanzania, which revealed that upgrading opportunities and training were postulated to enrich the work performance of the health workers after decentralization even better than financial incentives. however, a hindrance cannot be ruled out in such a set-up due to the challenge of money to train staff and identifying those who qualify for the opportunities, as observed by kyaddondo and whyte (2013) as evident in the study. willis-shattuck et al. (2008) disagree with the findings of the study that healthcare workers were well motivated. the main themes regarding the motivation of health workers include finance in terms of salaries; career development, education, infrastructure; work environment; resource availability; and personal recognition or appreciation. mbindyo et al. (2009) and kruse et al. (2009), however, established that healthcare workers were not given motivation, as determined in the study. the study also found that human capital development has no positive influence on the service delivery of public county health facilities in kenya stood. similar findings are given by son (2010) and mathauer and imhoff (2012). 6. conclusion the study concluded that human capital development measures had been put in place in the hospitals such as training of the staff when they are in service, giving them study leave, and, offering permanent contracts to the employees. the study also concluded that measures contributed to the positive relationship between human capital development and service delivery in these facilities. as the hospitals lacked funding of further training for their staff and also failed to pay competitive salaries and allowances, the study recommends that for improved service delivery within these facilities, promotions should be on performance as well remuneration. most employees will work hard when they know that they get rewards for it. the hospitals should also promote staff who perform well and offer them scholarships for further training. the study examined the contribution of human capital development on the service delivery of public county health facilities in kenya. the study proposes studies the same subject area, especially in private and mission-based human capital development and service delivery of public health facilities 59 hospitals, for comparative results. also, other studies can focus on the other concerned parties in healthcare, such as the county government, national government, and even the hospitals' management. references assfaw, y. t. 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(2015), “influence of devolved governance and performance of the health sector in kenya.” strategic journal of business & change management, 2(2), 23-31. agnes kabithe chege & dominic mwenja & kellen kiambati & levi mbugua olang’o, c. o., nyamongo, i. k., & aagaard-hansen, j. (2010), “staff attrition among community health workers in home-based care programmes for people living with hiv and aids in western kenya.” health policy, 97(2), 232237. omondi, k. b. (2016), “factors influencing service delivery in public hospitals: a case of nairobi county, kenya.” mba thesis. university of nairobi. saunders, m. n., & lewis, p. (2012), “doing research in business & management: an essential guide to planning your project.” pearson. son, h. (2010), “human capital development.” asian development review, 27(2), 29-56. stubbs, e. (2015), “road to healthcare devolution.” civitas. willis-shattuck, m., bidwell, p., thomas, s., wyness, l., blaauw, d., & ditlopo, p. (2008), “motivation and retention of health workers in developing countries: a systematic review.” bmc health services research, 8(1), 247. yamane, t. (1967), “elementary sampling theory.” sage publications. new york: usa. zinnen, v., paul, e., mwisongo, a., nyato, d., & robert, a. (2012), “motivation of human resources for health: a case study at rural district level in tanzania.” the international journal of health planning and management, 27(4), 327-347. international journal of commerce and finance, vol. 2, issue 1, 2016, 91-101 why go public? an empirical analysis of ipo’s competitive effect on turkish firms yakup ergincan, (ph.d.) central securities depository of turkey, turkey fatih kiraz, (ph.d.) central securities depository of turkey, turkey özgür uysal, (ph.d.) central securities depository of turkey, turkey abstract: the motivation of this study is to approach the ipo issue from a different perspective. most of the studies in the existing l iterature deal with three broad issues which are operating performance, stock performance, and the reasons to go public. however, there aren’t many studies which tackle the ipo issue from a pure competitive perspective which enables limited but clear results. this study contributes to the literature, not by answering a broad and old question but by providing new and partial evidence which seem to contradict the whole at first glance. most of the 60 bist (borsa istanbul) listed large industrial firms in this study have improved their relative ranks after their ipos, when compared to their own large competitors most of which are not listed in bist. these ranks are available in turkey’s top 1.000 industrial enterprises annual lists and they are officially assigned by ici (istanbul chamber of industry) according to firms’ sales revenue figures. thus, they provide us with the single and clear window to observe. keeping in mind that this window is limited, this study comes up with some non-negligible findings and then elaborates on their significance for the ipo literature, raising more questions than answers for the sake of a more solid theory. keywords: initial public offerings (ipo), borsa istanbul (bist), competitive effect, finance and product market competition, large industrial firms 1. introduction there is a vast amount of studies on ipo subject which can be divided into at least three broad categories. naturally, first of them is the basic question that why do firms go public. more specifically, why the motivation to do an ipo does ever exist and why it is stronger in some situations or times. there are a few theories in the literature, including entrepreneurs’ chance to sell their companies/shares to a higher price (zingales, 1995), control regain opportunity for entrepreneurs in favorable conditions (black and gilson, 1998), raising funds for further growth (pagano et al., 1998), allowing more dispersion of ownership (chemmanur and fulghieri, 1999), inspiring more faith in the firm (maksimovic and pichler, 2001), first-mover advantage (schultz and zaman, 2001), ipo timing models based on asymmetric information (lucas and mcdonald, 1990), and window of opportunity due to investor sentiment (baker and wurgler, 2000). these are just some examples for the first category. the second category, short/long term stock performance after ipo, has very much to do with the concept of ‘underpricing’. the main theories trying to explain it can be grouped as the ones which focus; asymmetric information between issuers and investors, legal liabilities of the issuers, share allocation concerns, and valuation methods. a very good review of these issues is available in ritter and welch (2002). however, neither stock performance nor the reasons and timings of ipos is interesting for us for the time being, because the core subject of this study falls to the third and the last broad category which is operating performance before and after an ipo. our interest in this latter category was aroused by a naive question that we in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e 92 yakup ergincan, fatih kiraz, özgür uysal http://ijcf.ticaret.edu.tr want to answer and also by the availability of a very good dataset to help us come up with that answer. that basic question is ‘whether going public is a really bad signal, in general, for the future of the firm itself or not’. the important thing here is that we focus our attention on the firm itself and not on issuers, investors, or other thir d parties such as government bodies. sure, we are aware that even this narrowed version of the issue has many dimensions to consider, but if we were forced to make a sweeping generalization, the quick and dirty result, from the literature, would be poor overall operating performance after ipos. this is something that the authors of this study and some other researchers find hard to believe and to say out loud. main reason for this ignorance is that one can, within seconds, think of many possible theoretical/practical reasons for things to go well for ipo firms. secondary reasons are supplied by our own market experience and the results from a few related studies from the literature. thus, we hypothesized that firms, at least relatively large firms if not all, would become more competitive after their ipos. in this situation of a possible conflict, we needed to provide new, clear, and reliable evidence either for or against the seemingly prevailing claim. istanbul chamber of industry’s (ici) publicly available yearly dataset came in to rescue, providing us with the actual ranks of industrial firms over the years. the next part of this paper is a brief summary of the related literature on the effects of going public on operating performances and competitiveness of firms. part three, first by describing the data, presents the methodology and results. the last part concludes by highlighting the main findings and possible future directions. 2. literature review there are many studies on operating performance after ipo. however, only a few of them approach the issue from a competition perspective or use turkish data. there is no study focusing on the competitiveness of turkish large firms which have gone public in any year since 1993. below is a brief review of the general ipo performance literature. jain and kini (1994), by analyzing 682 ipos performed during 1976-1988, find a significant decline in performance (market-to-book ratio, price/earnings ratio, and earnings per share) subsequent to the initial public offering. they also claim that there is a significant positive relation between post-ipo operating performance and equity retention by the original entrepreneurs. on the other hand, cai and wei (1997), relying on their regression results for 180 japanese firms, state that managerial ownership structure is not a significant determinant of performance. thus, for the new issue puzzle, they do favor ‘window of opportunity’ explanation against ‘ownership’. spiess and pettway (1997) approach the problem from a different perspective and they claim that the only thing matters is the way the firms define an ipo. more specifically, the firms which have low corporate governance scores and see ipo as a single financing event not as a process to be planned, are more likely to be the underperformers. these papers are just some examples of studies which do not directly deal with sales growth or market share. like the ones above, there are many studies which support underperformance hypothesis but differ in the reason(s) outlined. however, there are also some studies which do not find convincing evidence of underperformance. brav and gompers (1997) is one good example for this. they argue that not ipo but size matters because crises, such as the one in mid -1980s, do affect smaller firms more. when controlled for size, they do not find a significant difference between the performances of ipo firms and other firms. there is another group of papers which find some mixed evidence on underperformance in some financial ratios but improvement in sales growth performance. thus, this is the most interesting group for the authors of this study. one of the earliest members of this group is kim et al. (2004). they analyze, mainly, three different operating performance measures of 133 firms quoted at thailand stock exchange during 1987-1993. their key measures are; sales growth, profitability of assets, and turnover of assets. for the period beginning with ipo date (t) and ending at three years later (t+3), they do find declines in all measures but sales growth. however, instead of focusing on this questionable contradiction, they focus on explaining the causes of lower profits. main cause they find is the level of managerial ownership. when the level is intermediate, the relationship with change in profitability is negative whereas the level is high or low enough, that relationship becomes positive. thus, naturally, they discuss these findings under the light of ‘entrenchment’ and ‘alignment-of-interest’ hypotheses. although the variable at the center of discussion is ‘profitability’ here and not ‘competitiveness’ or more specifically ‘ranks based on sales’, this study is still a good example since it differentiates between sales growth and other operating measures in terms of ipo. there are two very similar studies analyzing the ipos at bist some of which are the observations of our study as well. first of these two studies is kurtaran and er (2008) in which the sample consists of all firms which have gone why go public? an empirical analysis of ipo’s competitive effect on turkish firms 93 http://ijcf.ticaret.edu.tr public at bist between 1992 and 2000. the same sample of 205 firms is used in bulut et al. (2009) but this latter study is written in turkish. all of the three articles mentioned in this paragraph have something in common. the authors want to analyze the effects of managerial and ownership structure changes, not the ipo concept as a whole. thus, they consider ipo event just as an opportunity since every ipo changes the structure to a degree. as another common point, they find that sales growth behavior is not like other operating measures’ after ipo. this finding was promising at the beginning. however, it surely is not a direct proof of improved competitive power since none of these studies take the rivals, including also the firms which have not gone public, into account. in fact, the lack of this proof is one of the big motivations for our study. a more recent paper, spiegel and tookes (2015), is another study which aims to see ‘competition’ in the big ipo picture. their main question is ‘how one firm’s decision to switch from being private to public impacts its rivals’. to answer this, they develop a continuous time model in which heterogeneous firms producing heterogeneous goods compete for consumers. their general results imply that ipos forecast future industry changes but do not cause them. this may seem to be in conflict with our findings. however, there are important differences in methodologies of these two studies. firstly, their paper is more theoretical than empirical. secondly, they focus on rivals’ average profitability and market value, not the new ipo firm’s rank based on sales. finally and the most importantly, their sample includes mostly small firms with already small market shares whereas our sample consists of relatively large firms. on the other hand, hsu et al. (2010) investigate the returns and operating performance of publicly traded competitors around the time of 134 large ipos in their industries. they find that industry competitors experience negative stock price reactions around ipos and a significant deterioration in their operating performance after these ipos. they also claim that these large ipos are responsible for this underperformance, since they see that publicly traded competitors respond positively to the withdrawal of an ipo in their industry. this finding is in line with our main finding. they say competitors become worse and we say newly public firms become better, relatively. however, there is one thing that might be important; they do not include non-public firms in the competitors group. thus, the private rivals are missing in this picture. chemmanur and he (2011) provide us with the missing part, since they develop a model to compare newly public firm against a non-public competitor in a set of different external conditions such as existence/inexistence of productivity shocks and ipo waves. then they test this model empirically as well. this study has a lot to say on ipo waves but what is more interesting for us is one of their general findings; “going public, though costly, not only allows a firm to raise external capital cheaply, but also enables it to grab market share from its private competitors”. tests of our data provide partial support for the general claim that new ipo firms grab market share from both private and public rivals. support is partial, because our dataset includes only relatively large firms, whether they are new ipos or private/public rivals. to summarize this section, there is a very long literature on ipos but the literature seems to have only recently turned its attention to the issue of competition effects of ipos. our study falls under this young category. although our main question, methods, and datasets are somewhat different from these recent studies’, as explained throughout the study, our main finding is not that different. 3. data, methodology, and findings we used the publicly available dataset of ici which include, as the key variable, sales revenue figures of top 1,000 industrial firms in turkey. ici has been providing this yearly data since 1993 so that it was possible to create rank histories for all firms in those datasets, whether or not they are selected to be in the final sample of this study. final sample consists of 60 ipo firms and the selection process is as follows: (1) any of 111 industrial firms which performed an ipo at bist (formerly istanbul stock exchange) after year 1993 is a candidate. (2) each of these 111 firms has a “t” value representing its own ipo year. (3) the ones which have valid data for all of their own “t-1”, “t”, “t+1” periods are included in the final sample of 60 firms. during this process, 51 firms were eliminated because we do not have data about their performance in pre and/or post ipo periods. absence of this data has two reasons. first, some firms do not let ici to publish their names in some years, so we know their ranks but we do not know to which firms those ranks belong. for example, 55 of the top 1,000 firms in 2014 fall into this category. including them was an option but we would need some assumptions in that case and we rejected to base our analyses on some questionable assumptions. second and more important reason for the missing data is simply that some firms could not find a place for themselves in top 1,000 lists for some related periods. the reader may rightfully think that 94 yakup ergincan, fatih kiraz, özgür uysal http://ijcf.ticaret.edu.tr eliminating these firms from the final sample may result in a survivorship bias and thus may provide an artificial and unjust support to the findings of this study. in fact, the opposite seems to be true, since there are only 4 firms which were in top 1,000 before their ipos but were not in top 1,000 during or right after the ipo. on the other hand, there are 32 different examples for the reverse case, which makes one think that firms get better ranks after ipo event. as a consequence, by omitting all these firms and refusing to rely on any assumptions, we are actually purposefully reducing the probability of rejecting equal or less post-ipo performance when compared to pre-ipo performance. once the final sample is decided, the key variable of this study is calculated for the years around ipo by the following formula: (1) i,t+c si,t+c i,t+c comp =meanrank -rank where (i) represents the firm, (t) represents the ipo year of that firm, (c) is an integer between -3 and +3, and (si) represents the sector of that firm which includes itself and its competitors. ‘rank’ variable is already available in ici dataset. the dataset also provides sector codes for all firms assigned by ici according to ‘international standard industrial classification of all economic activities, rev.2’ (isic rev2). ‘meanrank’ variable gives the sector average rank for the related year. from the top 1,000 list, all firms in the related sector, whether they are quoted at bist or not, are included in the following formula.      , , (2) j t c si t c t c rank meanrank n where (j) stands for all firms in the related sector and (n) is the total number of these firms. as in formula (1), (t+c) represents the years around the ipo of firm (i). there may be at least three important issues to discuss here. firstly, non-quoted firms’ inclusion is necessary because we are interested in all rivals and ‘not going public’ may well be a wise decision at some circumstances. secondly, ‘median’ could be utilized instead of ‘mean’ but the overall results do not change in our case. finally, sector average/median may suddenly change from year to year, at least theoretically, since we have data for at most 1,000 firms for each year. to make things more clear, let’s consider the following example. suppose that there are only three firms in a sector in (t) moment. first firm’s rank is 1, second firm’s is 500, and the last firm’s is 999 in the top 1,000 list. let the second firm be an ipo firm and be in our final sample. in this case, the sector average rank is 500 and our ipo firm’s performance is neither better nor worse when compared to its sector. one year later (t+1), suppose that both first and our ipo firm protected their positions at 1 and 500 respectively. however, the third firm is no longer at top 1,000 list since its rank is now more than 1,000 and we have no chance to know exactly what the new figure is. now, the sector average is 250.5, much better than our ipo firm’s rank. applying formula 1, we should deduce that the ipo firm performed poorly and lost some of its competitiveness just after its going public. in fact, there is no such thing and our ipo firm is at least as competitive as it was one year ago. thus, one can claim that our key variable calculation/interpretation process is clearly biased by design. nevertheless, the important thing is that it is biased towards only one direction and this is intentional. what this design actually performs for us is to decrease the probability of failing to reject a false improvement signal for ipo firms. fortunately, the opposite is not true since, in the actual dataset, there is no firm which was better than its sector average at a year and then was suddenly out of the list in the following year. the idea experiment above is about only two or three firms within a sector, just to clarify something. in our real dataset, number of firms within any sector at any year is generally much more than three. table 1 below may give a hint about this issue. as expected, the distribution is not uniform, some sectors are overrepresented, but since the motivation of this study is not comparing the sectors, this does not pose a significant problem for the time being and this issue is revisited at the findings part. however, another feature, the total number of different firms in the final dataset, is somewhat striking. 2,067 is a low figure when you compare it with a potential maximum value of 20,000 (think about a completely different firm list in each year since 1993). this means that turnover is low for top 1,000 lists, making our calculated figures more reliable for testing our hypotheses. in fact, the total number of firms which appeared at least once in one of the top 1,000 lists is 2,371. the difference, a group of 304 firms, is missing because their sectors do not have any representatives in the final sample of 60 ipo why go public? an empirical analysis of ipo’s competitive effect on turkish firms 95 http://ijcf.ticaret.edu.tr firms for this period. trying to explain why these sectors seem to refrain from going public is beyond the scope of this study and it might be an interesting future work, especially for the policy makers. table 1. sectoral frequency distribution of all firms in ici top 1,000 lists sector code number of firms % 321 396 19.2 311 295 14.3 322 200 9.7 384 167 8.1 352 137 6.6 383 135 6.5 371 125 6 369 116 5.6 382 93 4.5 381 75 3.6 356 74 3.6 341 53 2.6 351 37 1.8 342 36 1.7 400 30 1.5 313 27 1.3 324 20 1 332 19 0.9 361 18 0.9 390 14 0.7 total 2067 100 returning back to our original path, we are now ready to discuss the most important variable which is ‘comp’. ‘comp’ is a very good proxy of a firm’s competitive power, since it shows the relative rank against rivals. calculating it for five different moments, from (t-1) to (t+3), for each ipo firm, enables the direct comparison of pre and post ipo periods. results for a broader version, from (t-3) to (t+3), are also available but in that case number of firms without missing data falls from 60 to 26. nevertheless, as figure 1&2 illustrates, results and interpretations below are quite similar for these two cases. to compare pre and post periods, nonparametric tests were preferred because shapiro-wilk test results rejected normality for ‘comp t+3’ (p = .002). besides this fact, the same quantitative variable is measured at different times from the same sample in this study, thus friedman test is appropriate to check whether the distributions are the same or not. figure 2 below shows the distributions of ‘comp’ variable in each of the five important periods. friedman test statistic (30.413, p=.000) clearly points out a significant change in distribution through the years. furthermore, the change seems to be in only one direction. figure 1. changes in distributions of comp, for 26 firms from t-3 to t+3 96 yakup ergincan, fatih kiraz, özgür uysal http://ijcf.ticaret.edu.tr figure 2. changes in distributions of comp, for 60 firms from t-1 to t+3 looking at these figures, especially figure 1, readers may think that ipo firms do better than their competitors also before their ipo years. besides, they may think that this is in line with pagano et al. (1998) claims about growth and ipo decision and/or timing. that paper, analyzing ipos in italy, implies that firms are more likely to go public after large investments and abnormal growth and they might be seeing an ipo event just as a tool to raise the needed funds for additional growth. however, this is not a valid explanation in our case, for two reasons. firstly, please remember the discussion on 36 ipo firms purposefully discarded from this study. 32 of them were not in the top 1000 list before their own ipos, but they are successful enough to be in top 1000 list only after their ipos. so, including these 36 firms would certainly lower the mean rank figures observed in pre-ipo periods. secondly, ipo is not a single point event, but it is a process. the important thing is deciding to do ipo and getting ready for it and finally timing it. this process and its possible positive effects might have begun even before t-3. in other words, ‘making the decision to do an ipo at a future time’ might be preceding the growth as well. as pagano et al. (1998) suggests and as the firms know, the probability of successfully going public increases according to firm size. thus, ipo may be one of the major aims for a firm’s life, not just an ordinary tool to raise fund. however, whether we see it as an important goal/aim or as a simple tool, our main finding is not affected. in the special case of large industrial turkish firms, the competition-based results of complete ipo process seem to be favorable for ipo firms and not very good news for their (private or not) competitors. friedman post-hoc analysis results are presented in table 2, for a better understanding of the aforementioned general difference in distributions. pre-ipo (compt-1) and post-ipo (compt+3) values seem to be mostly responsible for that difference. table 2. pairwise comparisons of comp, for 60 firms from t-1 to t+3 pair test statistic std. error std. test statistic significance adj. significance compt-1 compt -0.333 0.289 -1.155 0.248 1.000 compt-1 compt+1 -0.433 0.289 -1.501 0.133 1.000 compt-1 compt+2 -0.983 0.289 -3.406 0.001 0.007** why go public? an empirical analysis of ipo’s competitive effect on turkish firms 97 http://ijcf.ticaret.edu.tr compt-1 compt+3 -1.417 0.289 -4.907 0.000 0.000** compt compt+1 -0.100 0.289 -0.346 0.729 1.000 compt compt+2 -0.650 0.289 -2.252 0.024 0.243 compt compt+3 -1.083 0.289 -3.753 0.000 0.002** compt+1 compt+2 -0.550 0.289 -1.905 0.057 0.567 compt+1 compt+3 -0.983 0.289 -3.406 0.001 0.007** compt+2 compt+3 -0.433 0.289 -1.501 0.133 1.000 **: significant at 99% confidence level in general, ipo firms seem to have improved their positions (ranks based on sales) within their sectors after their ipos. however, we need to calculate the median of the differences to test this hypothesis. hence, wilcoxon signed rank test for related samples is proper here and table 3 provides the detailed results for each meaningful term-pair. table 3. wilcoxon signed rank test results for comp, for 60 firms from t-1 to t+3 year1 year2 no of positive differences no of negative differences wilcoxon test score p t-1 t 39 21 3.188 0.010* t-1 t+1 33 27 2.282 0.022* t-1 t+2 40 20 3.754 0.000** t-1 t+3 46 14 4.262 0.000** t t+1 35 25 0.942 0.346 t t+2 39 21 2.356 0.018* t t+3 43 17 3.379 0.001** t+1 t+2 36 24 1.855 0.064 t+1 t+3 44 16 3.364 0.001** t+2 t+3 34 26 1.980 0.048* *: significant at 95% confidence level **: significant at 99% confidence level as seen above, the difference of ‘year2’ and ‘year1’ figures is significantly higher than zero in most of the cases. exceptional pairs are (t) and (t+1), (t+1) and (t+2). for those periods, the difference is still positive but not significant. on the other hand, the most obvious improvement is observed at pair (t-1) and (t+3), which are the beginning and the end of this study’s time period. 46 out of 60 firms seem to be in better positions against their rivals three years after their ipos when compared to their pre-ipo ranks within their sectors. although the number of firms, which have improved their relative positions, changes in both ways from year to year, there are at least 20 firms which showed continuous improvement till the end, beginning with their ipos. there are 7 examples for 98 yakup ergincan, fatih kiraz, özgür uysal http://ijcf.ticaret.edu.tr exactly the opposite case, but 4 of those firms are actually in better positions when compared to their pre-ipo years. 33 firms have experienced both up and downs in their post-ipo years, yet most of them enjoyed higher ranks than their pre-ipo ranks at least once. given these facts, only 3 firms’ market positions seem to have become totally worse after their ipos. to present a general and more clear picture of these findings, we derive another variable which we call general success score (gss). it is, as stated in formula 3, average post-ipo scores minus just before ipo scores.  (3) i,t+p i i,t-1 comp gss = -comp 3 where (i) represents the firm, (t) represents the ipo year of that firm, (p) is an integer between +1 and +3. tables 4, 5, and 6, together, present detailed info on the gss’s distribution. table 4. descriptive statistics for gss statistic std. error mean 95.43 20.73 %95 confidence interval for mean lower bound 53.95 upper bound 136.91 %5 trimmed mean 98.13 median 116.99 variance 25779.45 std. deviation 160.56 minimum -272.64 maximum 447.38 range 720.02 interquartile range 241.60 skewness -0.36 0.31 kurtosis -0.38 0.61 n 60 table 5. one-sample wilcoxon signed rank test results for gss paira total n test statistic std. error std. test statistic asymptotic significance why go public? an empirical analysis of ipo’s competitive effect on turkish firms 99 http://ijcf.ticaret.edu.tr observed vs hypothetical 60 1459.000 135.840 4.005 0.000** a: observed median= 116.99 and hypothetical median= 0 **: significant at 99% confidence level table 6. one-sample t-test results for gss statistic total n 60 mean difference 95.43 %95 confidence interval of the difference lower bound 53.95 upper bound 136.91 table 6 (cont’d) statistic t 4.60 df 59 significance 0.000** **: significant at 99% confidence level as seen above, mean and median are both significantly higher than zero (p=.000) and thus the distribution is left skewed. this is the macro-level assessment. if we look at it at micro level, 44 firms out of 60 have got a positive score. in other words, more than 73% of ipo firms seem to have enjoyed some benefits of going public and as a result increased their market shares against the closest rivals. these figures may be somewhat surprising to some readers, especially when our aforementioned strict ‘final sample selection process’, which obviously favors the null hypothesis of equal performance, is considered. with a more flexible missing data handling procedure, the percentage figure above would easily be more than 79% (76/96). all findings up to now lead us to a one single direction which is simply ‘going public is a good option if an industrial firm cares about improving its near future market share levels’. however, before jumping into that conclusion, we should elaborate on the issue a bit more. whether ipo decision is the most important reason for the up and downs or not, as expected, does not have a straightforward answer. a crystal clear answer requires a thorough elimination or importance ranking process of all other possible reasons. to make things even worse, this should also be done case by case for each firm, since firmspecific attributes may always alter the process. however, fortunately, the way we derive our key variable ‘comp’ inherently prevents our results from being significantly biased by time-specific and sector-specific attributes/shocks at least. if ‘comp’ were an absolute measure not a relative one and/or if t moments had represented the same calendar years for all firms, we should have utilized some extra control variables to eliminate the possible biases as much as we could. but, again, we still need to assume that the effects of these external shocks are perfectly or at least almost uniform across the firms within the same sectors. firm-specific attributes mostly come into play at this stage. in a few circumstances, they may increase the chance of a violation of the uniformity assumption above but proving, if possible at all, that they are not a significant part of the equation requires extensive case studies with a much richer dataset. however, such an effort is needless for the time being, since this study’s aim is neither a factor decomposition of relative success/failure nor identifying the ideal time and conditions for a firm to go public. the aim is providing some missing evidence from an emerging market, which should never be overlooked by any comprehensive approach to ipo field. the summary of what we have learnt from the related ipo literature and the findings of this study is that an ipo, especially a relatively large one, is bad news for the rivals. their performance ratios, profitability being at the top of them, and their market shares as well are very likely to be adversely affected. on the other hand, this is not totally true for that newly public firm since its market share is very likely to improve. there have been a few recent direct/indirect promising attempts to explain some parts of this situation. hsu et al. (2010) discuss the issue through 100 yakup ergincan, fatih kiraz, özgür uysal http://ijcf.ticaret.edu.tr loosening of financial constraints, financial intermediary certification, and the presence of knowledge capital. chemmanur and he (2011) deal with ipo waves and relate performance directly to timing. going public; off the wave, during a wave, earlier in a wave, or later in a wave, does matter according to them. each of these possibilities affects performance in a different way. timing seems to be important also from a different perspective. ruan and qian (2014) results suggest that industry rivals' earnings news, during the book-building period of a first-time issuer firm, exert a competitive effect on that issuer. on the other hand, spiegel and tookes (2014) stress the profitability issue within the industry. they find that post ipo industry profits per unit of market share decline and customers become easier to steal. however, they see an ipo as a canary in the coal mine. in other words, ipos do not cause danger but do just inform that something bad will happen. these attempts described in this paragraph are just some examples worth to explore further. these and alike should be tested, jointly whenever possible, in different settings. this would lead us through a sort of unified competition based theory which is required to fill a very important gap in broad ipo literature. 4. conclusion ipo literature is voluminous, however there are not many studies approaching the issue from a pure competition perspective. furthermore, most of these already few studies deal with only rivals or the general changes in the competitive environments within sectors after ipos. thus, there is an important gap here. by directly focusing on the relative competitive powers of big ipo firms in an emerging country for twenty years, this study tries to fill this gap. main finding of the study is that going public seems to be a good option if an industrial firm cares much about improving its relative market share ranks. thus, it also provides support to the idea that an ipo is generally bad news for the rivals. as discussed in the methodology part, any comprehensive ipo study should take this evidence seriously. however, before accepting it as a given and general fact, we all should see some similar results for other stock markets and different time periods. trying a similar methodology in some different settings would be fruitful and the authors of this study sincerely believe that those new evidence would support this study’s findings. after then, a natural continuation might be trying to form a sort of unified competition based theory, from the promising but not yet conclusive attempts aforementioned and may be a few new ones as well. connecting it successfully to the broad ipo literature would finalize the issue. without this solid connection, something will always be missing in this field. references baker, m. p. & wurgler, j. 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(1995) insider ownership and the decision to go public. review of economic studies, 62, 425–448. http://ssrn.com/abstract=1508482 http://dx.doi.org/10.2139/ssrn.1508482 http://ssrn.com/abstract=2437027 http://dx.doi.org/10.2139/ssrn.2437027 international journal of commerce and finance, vol. 6, issue 1, 2020, 61-69 61 factors affecting employees work ethical in organizations: the case of addis ababa city road authority tomas tadesse jimma university, ethiopia chalchissa amentie kero jimma university, ethiopia abstract the main objective of the study was to assess factors affecting employee’s work ethics. to achieve objective of the study, 346 respondents were selected by simple random sampling method, and data were gathered through questionnaire. the major findings of the study show that leadership, organization structure, control, recruitment selection and training were factors affecting employee work ethics. also the study found there was a statistically significant and positive relationship between the leadership, organization structure and control and recruitment selection and training and employee work ethics. therefore, the study recommends organization administrator be supposed to involve employees in key decision making and create a relationship where employees can be open and free, management should support the employees and work together with employees in ensuring the procedures, code of conduct and processes are well understood and followed. lastly recruitment should be done in a fair way and that the human resources department should ensure that proper vetting is done in order to hire staff with good ethical morals right from the beginning keywords: leadership, organization structure, control, recruitment and training and employee work ethics. 1. background of the study ethics is the code of moral principles that guide the behaviors of a person, group, or organization, and that constitute the boundaries of truth or wrong, good or evil (çalışlar, 1983). according to drucker (1954) described ethical behavior as a reflection process and a communal exercise that concerns the moral behavior of individuals based on an established and expressed standard of individual values. the ethical purpose is based on aristotelian thought and it is "to aim good life". the moral rule is "based on kant's conservatism and it is an obligation to obey the rule." for this reason, a person must first have ethics in order to have morals; the ethical purpose must go through the sieve of the rule. ethical the orientation of a leader is the key factor in promoting ethical behavior; ethical leaders must take personal, ethical responsibilities for their actions and decision making. leaders who show high ethical standards become role models for others and raise the organizations overall level of ethical behavior (dess, 2010). ethics has been a matter of public concern since the industrial revolution. much of the current concern of ethics has been encouraged by a resurfacing of public criticism if organizations are perceived to have amassed a vast personal fortune at the expense of the public or being ruthless and corrupt in their dealings with anyone. ethical dilemmas arise in business more frequently than it is convenient to recognize. indeed what is right or wrong is sometimes very unclear in organizations and varies from place to place and change with time (rollinson, 2002). unethical behavior is periodic and individualistic in nature, evil is systemic and embedded in the culture of the organization. programs, policies, practices, reward systems, hiring and training, external and internal relations all are designed with the intention to seek immediate advantage through the deliberate harm of others. the climate in some organizations does not encourage people to think through the ethical consequences of organizational decisions. an organizational culture that de-emphasizes business ethics and considers all decisions to be purely economic ones, another cause of unethical behavior maybe pressure from top management to meet performance goals that are not realistic and can only be attained by cutting corners or acting in an unethical manner. an organizations culture can in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e tomas tadesse & chalchissa amentie “legitimize” behavior that society would judge as unethical, particularly when this is mixed with a focus upon unrealistic performance goals such as maximizing short-term economic performance regardless of the cost (jones and hill, 2013). according to rollinson (2002) there are various factors that influence workers behavior, some of which are not conducive to the individual behavior in a way that is ethical in a particularorganizational context. since the list of issues about the ethical standards is continually growing, a convenient way to consider matters is to examine two relationships: the internal relationship between the organization and its employees and the relationship between an organization and its external stakeholders. for this study the researcher focused on the internal relationship between the organization and its employees that is the way an organization deals with employees and the way that employees deal with the organization. ethical and unethical behaviors are behaviors that occur within organizations by employees on a daily basis. ethical behavior is the behavior companies seek to drive performance and success. organization is highly concerned about unethical behavior for a number of reasons; decreases in organizational performance, financial losses, reputational damage, safety concerns, and a loss of customers are all concerns that are connected with unethical behavior, unethical behaviors lead to damaging consequences for others through ignoring rules, standards, regulations, and company guidelines (kaptein, 2011). 2. statement of the problem the ethical dimension of public administration has engaged the attention of governments, scholars, donor agencies and public servants. according to the economic commission for africa (1996), there has been an increase of interest in improving ethics in the public service throughout the world in the last two decades. definitely, ethics in the public service has become a major concern in public administration and management in recent decades, with some intensification in the 1980s and 1990s (kernaghan, 1993; oecd, 1996 as cited in larbi, 2001). the preliminary survey taken by the researcher at addis ababa city road authority showed that managers and salaried employees have adequate technical qualifications, they lack the will and commitment to deal with uncertainties and conflicting interests constructively and to enable them to shape change processes. there also exist widespread perception that unethical practices are uncontrolled in the civil service including acceptance of gifts or favors; engaging in outside employment or activities that conflict with one’s official duties; disclosure of confidential information; not having a good attitude and care with regard to one’s work; using organization’s work time for conducting personal business; unauthorized use of organizational resources for personal gain; getting to work late and going out early; wanting less work, more fun, and quicker promotion; taking no initiative when one sees problems in the workplace; cheating with regard to leaves, absenteeism and others; stealing; and the like. there is a widespread conviction among the public that work ethic is declining in the country in general, and in the civil service in particular. ethics was identified by the ethiopian government as one of the areas requiring attention and was made an integral part of the ongoing civil service reform program since 1996. despite the reform efforts that have been going on for many years, no rigorous academic and empirical research has been conducted to understand the nature and depth of the problems. moreover, the theoretical discourses in the general literature and the national efforts made by the government and its development partners also emphasize on the structural and procedural issues of ethics, giving little focus to the behavioral components or dimensions of ethics of civil servants, there for realizing this, this study intended to fill the gap by considering the variables like organization structure and control, leadership, socio-cultural and recruitment selection and training effect on employee work ethics. this study aimed at finding out which factors are affecting employee’s work ethics in the organization in the case of addis ababa city road authority. 4. research questions 1. what is the effect of organizations structure and control on employee’s work ethics? 2. does leadership affect employee’s work ethics in organizations? 3. how does recruitment selection and training effect on employee’s work ethics? 5. objectives of the study factors affecting employees work ethical in organizations: the case of addis ababa city road authority 63 5.1. general objective of the study the main objective of the study was to assess factors affecting employee’s work ethics in organizations the case of addis ababa city road authority. 5.2. specific objective of the study  to examine the extent to which organizations structure and control affect employee’s work ethics in organizations.  to investigate how leadership factors affect employees work ethics in organizations.  to examine the extent to which recruitment selection and training affect employee’s work ethics in organizations. 6. research methodology the cross-sectional design with field work was used in the study. in this study, the descriptive and explanatory research design was used to fulfill the objectives of the research, descriptive method was used to investigate the major factors that affect employee’s work ethics in organizations the case of addis ababa city road authority while explanatory method was used to examine the relationship between independent variables and dependent variable and to determine effects of each factors on employee work ethics. the target population of the research paper was all permanent employee of the addis ababa city road authority their total number is 2612. to decide on sample respondents from the total study population, probability sampling specifically simple random sampling technique were used since it avoids biases and helps to generalize data gained from sample respondents and avoiding an error that could arise from sampling. according to kothari (2004) sample size should be optimum in which it fulfills the requirement of efficiency, representativeness, reliability, and flexibility. the number depends on the accuracy needed, the population size, population heterogeneity and resources available. so, the sample size should be determined by using a statistical formula. of course, different authors use different formulas to determine the sample size of the study. for this study, the formula set by (yamane, 1967)was used to determine the sample size, which is reliable when the population size is known and sample size of the study were 346 respondents.the study used primary and secondary source of data, primary data was collected by using questionnaires, the questionnaires were prepared thematically on the basis of the research objectives and secondary sources of data were books, magazines and the internet that involves; looking into already done materials, document analyses from various published and unpublished documents. validity refers to the extent to which an instrument measures what is supposed to measure, data need not only to be reliable but also true and accurate. if a measurement is valid, it is also reliable (mugenda and mugenda, 2003). in the study, the validity of instruments was pre-tested by potential experts and consultant. the reliability of the instrument was measured by usingcronbach’s alpha test. the internal consistency reliability results in the study were 0.912 that is classified under excellent categories. analysis of data was done in order to answer research questions of the study. data collected was sorted, classified and coded then tabulated for ease of analysis. the data was summarized and categorized according to common themes to analyze the data, different kinds of statistical methods including descriptive statistics and inferential statistics was used. furthermore, descriptive are applied for percentage standard devotion, and mean value was computed using spss (20). tomas tadesse & chalchissa amentie 7. results and discussions based on the sample size, questionnaires were prepared and distributed to the participants and from these, only 10 respondents did not return back the questionnaire, due to this reason 336 (97.1%) of the distributed questioners are collected. according to mugenda and mugenda(2003) a response rate of 70% and over is excellent; therefore, this response rate is adequate for analysis and reporting. the result of background of respondents indicated that majority of the respondents are male with total of 65.5% while the remaining 34.5% were female. with regarding to marital status of the respondent majority of respondent 76.8 % were married, with mention to age most of them are in the age range of 18-30 at 41% and education back ground majority of the employee sample group were first degree holders which represents 84.1% from the total employee participant, in addition majority of respondents have a working experience from 6-10 years which represent 44.5% from employee participant of research. descriptive statistics the analysis is based on the assumption zaidatol (2009) comparison bases of mean score for five point likert scale instruments to compare the mean value. according to zaidatol (2009), the mean score below 3.39 is considered as low; the mean score from 3.40 up to 3.79 is considered as moderate and the mean score above 3.8 is considered as high. table 1: effect of leadership on employees work ethical no effect of leadership on employees work ethical no mean stand. devotion 1. employees are oriented properly on ethical issues and how to handle ethical problems. 336 2.81 0.956 2. leaders motivate employees to work in an ethical behavior in achieving the set goals and objectives. 336 2.61 1.154 3. leaders involve employees in key decision making. 336 2.01 1.341 4. employees communicate their grievances to top manager without fear. 336 2.84 1.189 5. . leaders encourage employees to develop their skills in an ethical manner. 336 2.94 1.042 source: data obtained from respondents through questionnaire, 2019 according to the findings in table 1 employee are oriented properly on ethical issues and how to handle ethical problems, employees communicate their grievances to top manager without fear and leaders encourage employees to develop their skills in an ethical manner at grand mean score of 2.81, 2.61, 2.01, 2.84 and 2.94respectively. the findings in regards to the impact of leadership on ethical behavior showed that management did indeed play a crucial part in ensuring ethics behavior is practiced in the organization and that the relationship between managers and subordinates should be a positive one and encourage ethical behavior. it implies that ethical leadership and leader effectiveness negatively influences both work related stress and turnover intention, this indicates that a type of leadership which is both ethical and effective at the same time helps reduce both stress and turnover. these findings factors affecting employees work ethical in organizations: the case of addis ababa city road authority 65 and implications are mostly in line with van knippenberg et al, (2007) leader behavior has an important effect on employee behavior, such as job satisfaction and organizational commitment. table 2: effects of organizations structure and control on employees work ethical no effects of organization structure and control on employees work ethical no mean stand. devotion 1. organizations structure and control encourage employees work ethical. 336 2.745 1.213 2. the control of the organization promotes ethical behavior in the organization. 336 2.61 1.168 3. the organization has benefited from the measures put in place to ensure ethical behavior 336 2.541 1.378 4. the organization ensures auditing is done in accordance with the laid procedures and processes. 336 2.781 1.179 source: data obtained from respondents, 2019 as per table 2, organization structure and control encourage employees work ethical, the control of the organization promotes ethical behavior in the organization, the organization has benefited from the measures put in place to ensure ethical behavior and the organization ensures auditing is done in accordance with the laid procedures and processes at the grand mean score of2.745, 2.61, 2.541 and 2.781respectively. the finding implies that organizations structure and control affect employee work ethics. finding is consistent with finding ofrees and porter (2001), organizations structure and control facilitates clear communication and coordination of activities within the employees and customers, this intern leads to and ethical environment within the organization. effective controls are a guideline to any strategy the organization wants to realize. good controls ensure that laid out plans are followed and avoid deviating from what was intended to be realized. strategic controls do promote ethical behavior and give the organization a competitive advantage and a good public image. therefore in order to ensure ethical behavior is practiced proper control and procedures have to be established. table 3: effect of recruitment and training on employees on work ethical no effect of recruitment and training on employees on work ethical no mean stand. devotion 1. recruitment is done in a fair and open way, where skills match job description. 336 3.24 1021 2. employees are trained on ethical behavior and how to 336 2.261 1.324 tomas tadesse & chalchissa amentie carry themselves in an ethical manner. 3. compensation is used to rewards personnel and reduces employee dissatisfaction. 336 2.698 1.301 4. employees are motivated by the pay for their contribution in the organization. 336 2.94 1.09 5. unethical behavior is punished/unaccepted in the organization. 336 2.71 1.241 source: data obtained from respondents, 2019 according to the findings in table3; recruitment is done in a fair and open way, where skills match job description, employees are trained on ethical behavior and how to carry themselves in an ethical manner, compensation is used to rewards personnel and reduces employee dissatisfaction, employees are motivated by the pay for their contribution in the organization and unethical behavior is punished/unaccepted in the organization at mean score of 3.24, 2.261, 2.698, 2.94 and 2.71 respectively. the findings of the descriptive statistic indicated that recruitment and training have effect on employees on work ethical. this finding is steady with the finding of bentham (1996) notes that a focus on ethics in human resource management have been perhaps a response to employee dissatisfaction, lack of commitment, frustration, or growing distrust in the workforce among other things, the increasingly wider gap between mangers pay and lower cadre employees’ pay, inequalities that arise once individuals work along, like discrimination, favoritism, harassment, work-life balance, inconsistencies in discipline, or just how staff get at the side of managers. coefficient of determination the variation employee work ethics in organization needs to be explained by leadership, organization structure and control andrecruitment and training. table 4 coefficient of determination result model r r square adjusted r square std. error of the estimate 1 .841 a .707 .703 .65068 according to table 4, the independent variables that were studied explain only 70.7% of the employee work ethics in organizations presented by the r². this, therefore, means that the independent variables only contribute to about 70.7% to the employee work ethics in organization while the other factors not studied in this research contribute 29.3 % to the employee work ethics in organization hence there is a need to further study the other factors. multiple regression analysis multiple regression analysis was done to determine various factors that influence employee work ethics in organization factors affecting employees work ethical in organizations: the case of addis ababa city road authority 67 table 5 multiple regression analysis model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) .180 .109 2.581 .011 leadership .318 .052 .319 6.146 .000 organization structure and control .235 .072 .237 3.271 .001 recruitment and training .331 .059 .284 2.782 .007 dependent variable: employee work ethics according to table 5, taking all factors (leadership, organization structure and control and recruitment and training) constant at zero the employee work ethics in organization realized would be 0.180. the data findings analyzed also shows that taking all other independent variable at zero. a unit increase leadership at beta value .318, which implies that a 1% increase in leadership unit will cause a 31.8% increase in employee work ethics. organization structure and control at the beta value of .235 which implies that a 1% increase in organization structure and control unit will cause a 23.5% increase in employee work ethics; recruitment and trainingunit will cause a 33.1% increase in employee work ethics; the statically significance level of this variable is 0.000; this is at 95 percent confidence interval. 8. conclusion from the finding researcher revealed that ethical leadership is critical in ensuring ethical behavior in the organization and have a big influence on the ethical behavior as they set the standards in which the rest of the employees work under. ethical behavior should be nurtured in an organization and management encourages and motivates employees to realize the set goals and objectives in an ethical manner. the study established that the organizational structure and control does truly determine the level of employee work ethical in an organization. well laid down procedures, policies and open communication channels facilitate coordination of activities and realizing the main goals and objectives of an organization. employees and management should be keen in ensuring the procedures and processes are in check in order to encourage and ensure ethical behavior is practiced within the organization. management would also strengthen the structures and controls in place and constantly review the procedures which will enforce ethical behavior in the organization. the human resource has the main responsibility of ensuring recruitment is done in a fair and open way and that skills match the job description. human resource also ensures that training on ethical behavior is carried out. employees are greatly influenced and motivated by the rewards and compensation they receive in respect to their contributions to the organization; therefore good packages encourage employee work ethical in the organization. human resource is also responsible for ensuring the employees are aware of the ethical officers in an organization and their duties and tomas tadesse & chalchissa amentie responsibilities. unethical behavior should also be punished to bring forth the consequences of behaving in unethically. based on the correlation analysis the relationship between leadership, organization structure and control andrecruitment and training andemployee work ethics in organization were strong and positive relationship and the results of regression analysis observed that leadership, organization structure and control andrecruitment and training andemployee work ethics in organization has a significant positive effect on the employee work ethics. 9. recommendations based on the findings of study and conclusion made, the study recommends that addis ababa city road authority administrator be supposed to involve employees in key decision making and create a relationship where employees can be open and free and management should be effective by constantly seeking information that may lead to unethical behavior. it is significant to continuously review and ensure that the organizations structure and controls are up to date. make certain the organizations formal procedures, processes, governance, control mechanism is in line with the organizations strategy and is effective in the implementation of ethical behavior in the organization. finally the study recommends that recruitment should be done in a fair way and that the human resources department should ensure that proper vetting is done in order to hire staff with good ethical morals right from the beginning. employees should also be trained on how to carry out their duties in the most ethical manner and how to tackle ethical issues and dilemmas. human resources should also ensure that employees are compensated and rewarded according to their input to the organization, that way employees are most likely to be motivated and work in an ethical environment. punishment of unethical behavior is recommended that way unethical behavior will not be taken lightly. references bentham, j., (1996). an introduction to the principles of morals and of legislation, oxford: university press. çalışlar, a. (1983). ansiklopedikkültürsözlüğü [encyclopedic culture dictionary]. i̇stanbul: altın. dess, g. g., lumpkin, g. t., & eisner, a. b. (2010).strategic management.new york, ny: mcgraw hill. drucker, p. f. (1954). the practice of management (1st ed). harper: new york, ny. jones, g. r., & hill, c. w. (2013).theory of strategic management. washington, dc: erin oyner. rollinson, d., & broadfield, a. (2002). organizational behavior and analysis: an integrated approach (2nd ed.). gasport: ashford colour press. larbi, g. 2001. ‘assessing infrastructure for managing ethics in the public sector in ethiopia: challenges and lessons for reformers’.international review of administrative sciences, 67(2), 251-262. kaptein, m. (2011). toward effective codes: testing the relationship with unethical behavior. journal of business ethics, 99(2), 233-251. doi:10.1007/s10551-010-0652-5. kernaghan, k. 1996. ‘the ethics era in canadian public administration’. canadian centre for management development, research paper, no.19. kothari. (2004). research methodology methods and techniques, second revised edition. new age international publishers. van knippenberg et al., 2007 van knippenberg, d., de cremer, d. and van knippenberg, b.2007). leadership and fairness: the state of the art. european journal of work and organizational psychology, 16 (2), 113-140. factors affecting employees work ethical in organizations: the case of addis ababa city road authority 69 mugenda, o. m., &mugenda, a.g. (2003). research methods: qualitative and quantitative approaches. nairobi: acts press.mugenda, o. m., &mugenda, a. g. (1999).research methods: quantitative and qualitative approaches. nairobi: acts press. oecd. 2000. ‘building public thrust: ethics measures in oecd countries’. oecd public management policy brief no.7. rees, w. d., & porter, c. (2001).the skills of management. london, uk: thomson learning. zaidatol, a., (2009). entrepreneurship as a career choice: an analysis of entrepreneurial self efficacy and intention of university students. european journal of social sciences.vol. 9 no. 2, pp. 338-349. [accessed: 20th april 2017] international journal of commerce and finance, vol. 6, issue 1, 2020, 155-165 155 factors affecting economic growth in central java soeharjoto soekapdjo, universitas trisakti, jakarta indonesia debbie aryani tribudhi, universitas trisakti, jakarta indonesia dini hariyanti, universitas trisakti, jakarta indonesia lucky nugroho universitas mercu buana, jakarta indonesia abstract economic growth is an indicator of the success of the development. increasing economic growth in central java will be realized if the government can implement the right policies. research on factors that influence economic growth can be used as a reference in making government policies in the economic field. the results of the study using multiple regression in 2008.q1-2016.q4 are foreign direct investment (fdi), domestic investment (di), consumer price index (cpi), health index (hi), education index (ei), and the gross regional domestic product previous year (grdp (-1)) was able to explain economic growth in central java by 99.9 percent. fdi and grdp (-1) have a positive and significant effect on economic growth. hi, negative and significant effect on economic growth. di, cpi, and ei are not significant for economic growth. keywords: economic growth, foreign direct investment, domestic investment, consumer price index, health index, education index, and gross regional domestic product 1. introduction indonesia is one country that has a large area and is an archipelago. this situation can be an opportunity or even an obstacle to the development of its economy. it can be said that, if the government has the right strategy in development with its potential, it will produce extraordinary development. this was also done by the government, which had carried out development policies through centralization for 40 years in the old order and new order era, then changed to decentralization in the reform era. java island is one of the largest islands in indonesia, which is densely populated, which is divided into several provinces. the existence of the province of central java has been quite long and has a unique condition, namely its relatively stable economic condition. but what is unfortunate is that economic growth is still below the national level. this happens because the available resources and capital are still dominated by the central government (figure 1). in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e soeharjoto soekapdjo & debbie aryani tribudhi & dini hariyanti & lucky nugroho source: bps economic development in indonesia will have an impact on the region. moreover, to support development, a number of investment funds are needed, both from within the country and abroad. with the presence of investors, it will absorb labor in its area, and the welfare of its people will increase, which will ultimately increase regional income. the development of domestic investment (pmdn) in indonesia has continued to increase, but foreign investment (pma) has complained that the increase is not so significant and then decreases (figure 2). source: bkpm factors affecting economic growth in central java 157 inflation is an important support in the macroeconomy to increase production and consumption. thus, low and stable inflation is needed to facilitate economic growth. the inflation condition in central java is very supportive of regional development. moreover, inflation is still below the national level (figure 3). this situation will benefit his blood because, in production, it will be efficient and, at a stable price, will increase the demand of the people. figure 3. inflation in indonesia and central java, in 2010-2016 (percent) source: bps besides good funding and conducive macroeconomic conditions, there are actually other elements that are not less important in supporting economic growth. this is not different from other developed countries, namely human resources. reliable hr can carry out efficient and effective work so that it will accelerate economic growth. the human development index (hdi) is one indicator of the strength of a country's human resources. the hdi from central java is good, although there is a slight difference below the national level (figure 4). the dimensions of the health index, education index, and expenditure index are elements that exist in the hdi. however, to support reliable human resources, good education and health are needed. soeharjoto soekapdjo & debbie aryani tribudhi & dini hariyanti & lucky nugroho figure 4. ipm indonesian and central java (percent) source: bps the economic growth of a region is one indicator that can be used to see the success of its development. this indicator, also used in the province of central java. by knowing the factors that influence economic growth, policies can be made that support the success of regional development. 2. literature review economic development, according to azariadis & drazen (1990) and soeharjoto (2018), can occur because of the ability of humans to save and invest capital, which at the end of the process is stationary. however, in line with the time, the profits will decrease, which is due to business competition and low-interest rates. in the process, economic growth can occur from two aspects, namely the growth of total output (natural resources, human resources, and stock of capital goods) and the presence of growth agents (farmers, producers, and entrepreneurs). economic growth, according to dewi et al., (2020), soekapdjo et al., (2019), and solow, 1956), is very dependent on the existence of additional factors of production (population, labor, and capital accumulation) and technological progress. in many ways, with the existence of a market mechanism, balance can occur, so that government intervention is limited to fiscal and monetary policies. however, if the capital per capita has reached a stable level, there will be a long-term balance, thesis backwardness in developing countries (cumulative causation) from rudra (2002) stated that their economic relations developed countries and not would lead to international imbalances, especially in per capita income and poverty in countries that are not developed. the causes are the inequality of progress in the field of science and technology, and the existence of a broad market and concentration of capital in developing countries. setterfield (1998), rejects the assumptions of neo-classical and considers it unrealistic with the existence of general equilibrium and constant return to scale. as for his opinion, that in the production process will lead to increasing returns to scale, in situations of imbalance (disequilibrium), which will arise endogenously, within an economic system. besides that, thinking from neoclassical is considered excessive, especially in terms of the importance of the role of prices formed in free markets, which can be used as a guide to determine the level of output (allocation of economic resources). in fact, according to him, the company has other objectives besides seeking profits, according romer (1986), the growth of gross national products is more determined by the system of the production process and not from outside the system. besides that, according to him, there is no decrease in the scale of production. so, basically, the growth occurs because of the presence of endogenous factors. he also explained the factors affecting economic growth in central java 159 peculiarities of international capital flows, which would exacerbate the inequality of developed countries and developing countries, due to the low level of complementary investment, especially human resources (education), infrastructure, research, and development. krugman (1991) considers that there will be an impact of free trade and the determinants of global migration. this happens because the location of the factors of production and economic activity can be analyzed in an integrated manner, in a framework of equilibrium models, which are often used in economic analysis. the analysis focuses on the impact of economies of scale on the trade sector and business location. he found that the more goods and services produced in the same factory, the lower the production costs. as a consequence, the market will not compete perfectly as stated by the creators of previous international trade theories. according to him, the theory of comparative advantage cannot answer the phenomenon of international trade at this time. in fact, world trade in the 20th and 21st centuries was dominated by only a handful of countries, which turned out to trade the same product. 3. previous research mulyadi (2017), revealed economic growth in the city of semarang. domestic capital growth and foreign capital are not significant for economic growth. hussin et al., (2013), revealed economic growth in pakistan. foreign direct investment (fdi) has a negative and significant influence on economic growth for the long term. pambudi & miyasto (2013), revealed economic growth in central java province. investment has a positive and significant effect on economic growth. human capital investment is not significant for economic growth. lenka & sharma (2013), revealed economic growth in developing countries. education and fdi have a positive and significant influence on economic growth. inflation has a negative and significant effect on economic growth. loana & mihaela (2014), revealed economic growth in 12 new eu member countries. human resources have an influence on economic growth. suparno (2014), revealed economic growth in east kalimantan. the government expenditure on the education sector has an effect on economic growth. maharani & isnowati (2014), revealed economic growth in central java. regional private investment, government investment, and labor have a positive and significant effect on economic growth. udeaja & onyebuchi (2015), revealed economic growth in nigeria. expenditures for education have a positive and significant effect on economic growth, and fdi is not significant for economic growth. pribadi et al., (2015), revealed economic growth in gresik regency. investment, labor, and inflation have a positive and significant effect on economic growth. tabassam et al., (2016), revealed economic growth in pakistan. the previous year's gross domestic product has a positive and significant influence on economic growth. 4. research methods in this study, using quarterly time-series data, during the period 2008-2016. testing data with estimation methods of regression equation models (sekaran & bougie, 2016). the independent variables used are grdp (-1), pma, pmdn, cpi, health index, and education index, while the dependent variable is grdp. 4.1. description of research variable grdp growth in central java has an average of 1.31 percent. the maximum investment value is 1.61 percent in 2016 in the third quarter, and the minimum value is 1.61 percent in 2009 quarter 1. this situation, supported by a small standard deviation, is 0.077861 percent. soeharjoto soekapdjo & debbie aryani tribudhi & dini hariyanti & lucky nugroho figure 5. grdp growth in central java, in 2008.1-2016.6 (percent) source: bps cpi in central java has an average of 102.166 percent. the maximum inflation value is 124.307 percent in 2016 in the fourth quarter, and the minimum value is 79.404 percent in 2008 quarter 1. this situation is supported by a significant standard deviation of 13.73711 percent. figure 6. consumer price index in central java, in 2008.1-2016.4 (percent) source: bps pma in central java has an average of rp. 1,128,622 billion. the details of the maximum investment value are rp3,492.253 billion in 2016 in the third quarter and the minimum value was rp83,829 billion in 2009 quarter 1. this situation is supported by a significant standard deviation of rp1,197,797 billion. domestic investment in central java has an average of rp2,366.75 billion. the details of the maximum investment value are rp9,710.18 billion in 2016 in the fourth quarter, and the minimum value was rp53.86 billion in the first quarter of 2008. this situation was supported by a significant standard deviation of rp2,379,598 billion. factors affecting economic growth in central java 161 figure 7. pma and pmdn in central java, in 2008.1-2016.4 (rp. billion) source: bkpm the education index in central java has an average of 51.78 percent. the details of the maximum investment value are 58.06 percent in 2016 in the first to fourth quarters, and the minimum value is 46.73 percent in 2009 quarter 1 up to 4. this situation, supported by a moderate standard deviation, is 4,592362 percent. the health index in central java has an average of 32.14 percent. the details of the maximum investment value are 35.52 percent in 2011 in the first quarter and the minimum value of 28.72 percent in 2010 quarter 1 up to 4. this situation, supported by a moderate standard deviation, is 1.811896 percent. figure 8. education index and health index in central java, in 2008.1-2016.4 (percent) source: bps soeharjoto soekapdjo & debbie aryani tribudhi & dini hariyanti & lucky nugroho 4.2. testing of research hypotheses in testing the hypothesis, the research needs to do data processing. the results are in table 1 table 1 results of processing economic growth regression variable you are expected coefficient t-statistic prob. conclusion di (+) -0.053 -2.081 0,023 ho accepted fdi (+) 0.136 1.837 0,038 ho rejected cpi (-) -3.659 -0.158 0,437 ho accepted ihealth (-) -36.749 -1.934 0,031 ho rejected ieduc (+) 24.619 1.081 0,144 ho accepted grdp(-1) (+) 1.009 91.689 0,000 ho rejected r-squared 0.999 f-statistic 223772,1 adjusted rsquared 0.999 prob(f-statistic) 0.000000 jarque berra 14,134 lm test 4,9789 prob 0,000 prob 0.0257 white test 29,765 prob 0.3724 from the results of processing r 2 is obtained adjusted amounted to 0,999, which means that the variation or the behavior of the independent variables are di, fdi, cpi, ihealth, ieduc, grdp (-1) was able to explain the variation of the dependent variable, namely its economic growth which is proxied by the gdp price constant at 99.9 percent, while the remaining 0.1 percent is a variation of another independent variable ya ng affect the economic growth of central java province, but not included in the model. these results indicate that the resulting model has good goodness of fit. individual testing is done to examine the effect of each of the independent variables that influence central java's economic growth. the findings of data processing can be explained as follows: a) testing the effect of domestic investment on economic growth in central java is indicated by an estimated coefficient of -0.053, which means that domestic investment has a negative effect on economic growth in the province of central java. increasing domestic investment will reduce economic growth in central java, and conversely, the decline in domestic investment will increase economic growth in central java. these findings indicate that domestic investment is not proven to have a positive effect on economic growth in the province of central java. b) the results of processing for testing the effect of fdi on economic growth in central java are indicated by an estimated coefficient of 0.136, which means that an increase in fdi will increase economic growth in central java, and conversely, a decline in fdi will reduce economic growth in central java. with the pvalue of t statistics of 0.038 <0.05, ho is rejected, and ha is accepted, so it can be concluded that the hypothesis that pma has a positive effect on economic growth in central java is proven. c) the processing results for the inflation variable proxies through cpi are indicated by an estimated coefficient of -3.659, which means increasing the cpi will reduce economic growth in central java, and preferably a decline in the cpi will increase economic growth in central java. the prob value of t statistic is factors affecting economic growth in central java 163 0.437> 0.04, indicating that ho is accepted, so it can be concluded that the negative effect of the cpi on economic growth in central java province is not proven. d) to test the effect of the health index, which is proxied from the percentage of the population experiencing health problems (ihealth), it produces an estimated coefficient of -36,749, which means an increase in the percentage of residents experiencing health problems will reduce economic growth in central java province, and preferably the declining percentage of the population experiencing disruption will increase economic growth in the province of central java. with a prob value of t statistic of 0.031 <0.05, then ho is rejected, and ha is accepted, so it can be concluded that the negative effect of the percentage of the population experiencing health problems on the economic development of the province of central java proved significant. e) the test results from the influence of the education index (ieduc) on economic growth in the province of central java are indicated by an estimated coefficient of 24.619, which means increasing the education index will increase economic growth in the province of central java, and in fact, the declining education index will reduce economic growth in the province central java. the prob value of t statistic is 0.144> 0.05, indicating that ho is accepted so that it can be concluded that the positive effect of the education index on economic growth in the province of central java is not proven. f) test results for grdp (-1) on economic growth in the province of central java are indicated by an estimated coefficient of 1.009, which means increasing grdp (-1) will increase economic growth in the province of central java, and as a result, the decline in grdp (-1) will reduce economic growth in the province of central java. the prob value of t statistic is 0.00> 0.05, indicating that ho is rejected, so it can be concluded that the positive effect of grdp (-1) on economic growth in central java province is proven. 5. conclusion pma, pmdn, ihk, ihealth, ideas, and grdp (-1) are able to explain the economic growth in central java at 99.9 percent. pma and grdp (-1) have a positive and significant effect on economic growth. health has a negative and significant effect on economic growth. pmdn, cpi, and ideas are not significant for economic growth. nvertheless, the implication of the research as follows:  the government needs to take policies that can improve the quality and quantity of pma and pmdn, such as the ease of licensing procedures, tax relief, and levies, legal certainty, the use of local raw materials, export-oriented, technology transfer, and others;  the government needs to make breakthroughs and strategies to increase grdp without reducing justice and public welfare;  the government and regional officials and the community need to maintain a conducive atmosphere so that prices are stable;  the government and regional officials and communities need to maintain good health with a healthy lifestyle and maintain the environment and provide health facilities optimally;  the government and regional officials and the community need to improve the process and carry out education, both formal and non-formal education. soeharjoto soekapdjo & debbie aryani tribudhi & dini hariyanti & lucky nugroho references azariadis, c., & drazen, a. 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(2015). determinants of economic growth in nigeria: evidence from error correction model approach. developing country studies, 5(9), 27–42. international journal of commerce and finance, vol. 5, issue 2, 2019, 120-127 120 corporate governance, share ownership structure and tax avoidance yenny dwi handayani, i mercu buana university, indonesia ewing yuvisa ibrani sultan ageng tirtayasa university, indonesia abstract this study aims to examine the effect of corporate governance and share ownership structure on tax avoidance. the share ownership structure uses controlling shareholders who have the largest shareholding in the company with ownership of between 20-50%. this study used manufacturing companies listed on the indonesia stock exchange (idx) during 2015-2017, with 99 observation data and the analytical used multiple linear regression. the results of the study show that both corporate governance and the share ownership structure proxied using controlling shareholders have an effect on tax avoidance. keywords: corporate governance, share ownership structure, controlling shareholders, tax avoidance 1. introduction one job of the management of the company is to minimize the amount of tax that has to be paid in which some companies consider that tax is a burden for the company and will reduce the profits earned by the company. there are several ways taken by company management to minimize the tax burden, legally and illegally (frank, lynch, & rego, 2009). the legal way taken by the company to minimize the tax burden is by utilizing the weaknesses in tax legislation called tax avoidance, while the illegal way is to violate the regulations in the tax law or tax evasion. utilizing transactions not classified as objects of tax (natural granting) is one of the ways companies can minimize the tax burden by utilizing loopholes in the taxation law (tax avoidance). tax evasion actions carried out by the company will cause losses for the income of a country, where taxes are a source of state revenue which will later be allocated to finance the government's general expenditure. if many companies carry out small tax activities that will have to be paid then it will affect state revenue from the tax sector. in addition, tax avoidance measures will also provide a bad reputation for the company. the phenomenon of tax evasion in recent years has been horrified by the emergence of the document "panama papers". this document presents information about various state leaders, officials and political leaders, business people, sportsmen, and professionals who use the services of the law firm mossack fonseca in panama for various purposes, business, ownership disguises, and tax avoidance. the disclosure of the panama papers document revealed the biggest alleged tax evasion in history. the indonesian government was not silent about the findings. the indonesian finance minister said that the government already has data on thousands of offshore companies and shell companies belonging to indonesian people abroad. the tax amnesty policy is one of the government's efforts to withdraw all the funds. the disclosure of the panama case certainly has an impact on the state revenue from the tax sector. from year to year the government tries various ways to increase income from the tax sector. however, from the target set by the government, the target for tax revenue has not been fully achieved. to minimize tax avoidance actions carried out by company management, there is a need for a mechanism for implementing corporate governance within the company. such supervision is very necessary to suppress opportunistic actions that will be carried out by management. corporate governance in this study uses corporate governance indices developed by iicd. the main objectives of corporate governance generally relate to accountability especially the implementation of guidelines and mechanisms to ensure good behavior and protect the interests of shareholders, including the in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e corporate governance, share ownership structure and tax avoidance 121 governance of company compliance in tax payment activities. the application of corporate governance in a company will determine the direction of the company's performance. if the company implements corporate governance, it will create effective company performance which will have an impact on determining policies related to the effective tax rate in a company (hanum & zulaikha, 2013; kesit, 2014). to minimize tax avoidance activities, one of the tools used is implementing corporate governance (sari & martani, 2013; schön, 2008). one principle of corporate governance that can influence tax decisions is the principle of transparency, if the company is transparent to the information it has, the company tends to take taxation policies that are not risky (sari & martani, 2013). the audit committee is a committee formed by the board of commissioners with the aim of helping conduct checks or controls on the company's financial management activities. with the existence of audit committee members who have competence in the field of accounting or finance, they can support the creation of corporate governance in a company. corporate governance can overcome agency problems so as to prevent management from doing unexpected tax avoidance. supervision of the audit committee can help detect the practice of tax avoidance within the company. the practice of tax avoidance is done by redesigning transactions by taking advantage of loopholes in the tax law so as to minimize the amount of the tax burden paid. the existence of an audit committee can also suppress tax avoidance measures, when the level of tax avoidance is high, it encourages low risk tax planning activities, because tax avoidance practices can increase costs, namely the existence of fines and decreasing the company's reputation in the public (sari & martani, 2013). dewi & i ketut jati (2014) states that audit committees have a significant effect on tax avoidance. the quality of corporate governance will increase when the number of audit committee members increases, the supervision will reduce the practice of tax avoidance in the company. the results of the above studies are not in line with the results of the research conducted by hsu, pathak, srivastava, tschida, & bjorklund (2015) saying that audit committees do not have a significant effect on tax avoidance. the existence of audit committee members who have competence in the field of accounting or finance can be associated with an effective tax rate that shows the effectiveness of tax management within the company. tax management is used as a means to fulfill tax obligations by utilizing loopholes in the law so that companies can benefit in the form of schemes/figures in their tax calculations. the role of the audit committee only monitors corporate tax planning activities specifically in the company's business strategy. supervision of audit committee members is to ensure the quality of financial statements. according to mahendra, luh, & widhiyani (2016) the audit committee has no significant effect on tax avoidance, the role of the audit committee is limited in carrying out its duties and responsibilities. the audit committee cannot access company documents, but it also cannot communicate with internal auditors regarding the results of the company's internal audit. so, it is said that the audit committee is only to meet regulations while its roles and responsibilities are limited. in indonesia, the structure of share ownership tends to be concentrated in a group of shareholders whose majority of shares are owned by a group or majority shareholders (masripah, diyanti, & fitriasari, 2015; rebecca & siregar, 2012). the ownership structure of a corporation will determine the characteristics of agency problems so that it will map the division between power and supervision in a corporate entity (lukviarman, 2016). the existence of majority owners is expected to act as an alternative governance mechanism in reducing the negative impacts caused by agency problems. the research conducted by afni & hermawan (2016) states that controlling shareholders have a significant positive relationship to corporate tax avoidance, the weak corporate governance system in the company benefits the controlling shareholders in obtaining benefits from the controls they have. the percentage of shares owned provides an opportunity to determine policies within the company. management that has control rights over cash flow rights will reduce tax avoidance measures by trying to maximize the benefits received to regulate transactions in companies that can harm minority shareholders (masripah et al., 2015; mcguire, omer, & wang, 2012). the research conducted by masripah et al., 2014 states that the control rights possessed by management can be used to reduce corporate tax avoidance activities though tax avoidance measures are allowed or legal according to the law but controlling shareholders tend to take policies to avoid relatively large expenditures as the impact of tax avoidance activities this study intends to integrate the pre-existing research on the effect of corporate governance and the shareholding structure on tax avoidance activities by using a research sample of manufacturing companies listed on the indonesia stock exchange (idx) during the period of 2015 to 2017. the manufacturing sector is a fairly complex corporate yenny dwi handayani̇ & ewing yuvisa ibrani 122 sector and the large number of issuers makes manufacturing companies have a significant influence on the dynamics of trade in the indonesian capital market. 2. literature review and hypotheses development agency problems arise when there is a separation of ownership and control functions within the company (jensen & meckling, 1976). principal as the owner of the company gives authority to the agent to make decisions related to the company's operations. there is a conflict of interest between the agent and the principal and this is compounded when one party has more information than the other party. information about the company is more owned by the agent than the principal, this will lead to information asymmetry. information asymmetry according to jensen & meckling (1976) includes: 1. moral hazard, i.e. activities carried out by agents are not fully known by shareholders, of course it violates contracts that have been mutually agreed upon and violates applicable ethics or norms 2. adverse selection is information owned by an agent (manager) about the condition and prospects of a company's business, not all of which are reported to shareholders the capital structure consisting of majority ownership called ownership of controlling shares and minority ownership which is called non-controlling share ownership can cause agency problems. so far, agency problems tend to only involve principals (shareholders) and agents (management). apparently, the potential for conflict does not only involve the principal agent but can also involve shareholders. the controlling shareholders have the authority to make a policy that can provide benefits to the majority shareholders which of course will indirectly harm minority shareholders. with the majority and minority shareholder conflicts, it will reduce conflicts between agents and principals (masripah et al., 2015) 2.1. tax avoidance tax avoidance is an effort to reduce or even eliminate the tax debt that the company must pay by not violating existing laws (lauger, wisniewski, & mckenna, 2014). another definition of tax avoidance is an action that aims to reduce taxable income through tax planning using either methods classified or not classified as tax evasion (sari & martani, 2013). according to alfiyani nur hidayanti (2013), there are several components to measure tax avoidance, namely effective tax rate (etr), cash effective tax rate (cetr), current etr (cetr), book-tax difference manzon-plesko (btd-mp), book-tax difference desai-dharmapala (btd-dd), and tax planning (taxplan). from the various types of tax avoidance measurements above, it is concluded that the measurements used in tax avoidance studies use the current etr (current effective rate), a formula that accommodates the taxes paid by the company at this time. the value obtained from this measurement is if it is low, it will have an impact on increasing tax avoidance. given that tax is a burden (which will reduce the company's net profit), the company will make every effort to pay taxes as little as possible and try to avoid taxes, but the efforts carried out are still in a positive context or in the legal sense by utilizing existing loopholes and rules taxation law (harnovinsah & mubarakah, 2016). the way companies conduct tax avoidance is usually by utilizing transactions that are not classified as tax objects. the tax law regulation cannot yet regulate financial instruments so that companies can easily interpret the recognition of profits or losses and capital debt in accordance with the considerations of the management of the company. this is what is used by companies to exploit the shortcomings in the tax law so that the practice of tax avoidance is inevitable (alfiyani nur hidayanti, 2013). 2.2. corporate governance the organization for economic cooperation and development (oecd, 1999) states that corporate governance is a system that brings together various elements of the organization (board of commissioners, managers, shareholders, and stakeholders) with rules and procedures for decision making designed to achieve organizational goals. along with the concept, there are several insights to clarify corporate governance, one of which is acccording to lukviarman (2016), the role of corporate governance becomes very critical in empowering companies to be more competitive in their competition environment. the good implementation of cg will increase the ability of companies to access international capital markets, besides, it will also produce governance outcomes that are corporate governance, share ownership structure and tax avoidance 123 expected to increase competitiveness and company access to funding sources at the global level. realization of governance outcomes is an increase in the performance of the company, so that it cannot be denied that with the optimal governance system in the company surely the company will avoid the risk of bankruptcy the measurement of the practice of corporate governance (cg) in this study refers to the effectiveness measurement of the board of commissioners conducted by the indonesian institute for corporate directorship (iicd). 2.3. controlling shareholders controlling shareholders are shareholders who have the largest shareholding in the company (afni & hermawan, 2016). the percentage of share ownership shows a strong concentration of ownership in the company. the percentage of controlling shareholding in this study uses a percentage of ownership between 20-50% the corporate governance structure in indonesia is characterized by the many found companies, both private and public, regulated and owned by the founding family. this phenomenon indicates the lack of separation between ownership and control in the company as commonly found in modern companies. in fact, the majority owner can maintain control of their company, even though some ownership of the company has been sold to the public through the mechanism of listing in the capital market. this is done by only selling a small portion of their shares, usually 20% according to the provisions of the minimum number of shares to be sold. thus, it means that ownership rights and management control which, if combined, are still owned by a circle of family members and (trusted business associates). 2.4. corporate governance and tax avoidance board of commissioners is a party that has an important role in overseeing the performance of directors. independent commissioners are considered to have better supervision of management because they are free from various internal interests of the company. through the role of the board of commissioners in carrying out the supervisory function of the company's operations, it is expected to provide an effective contribution to prevent aggressive tax behaviour carried out by management. research conducted by nasution & setiawan (2008) states that a large proportion of board of commissioners will make it difficult for board members to carry out coordination activities so that it will hamper their duty to conduct supervision, this will be used by management to conduct aggressive tax actions. the worse the level of corporate governance in a company is, the higher the tax avoidance action is taken by the company (desai & dharmapala, 2006). minnick & noga (2010) study found that corporate tax management will increase when the corporate governance mechanism has gone well, this can be seen from the existence of audit committee members within the company. the existence of an audit committee helps the board of commissioners carry out their duties to ensure that internal and external audits run well so that the quality of financial statements can increase. the task of the audit committee is to control and supervise the preparation of financial statements so as to minimize fraudulent activities carried out by management. the effectiveness of the function of the audit committee can improve the company's control activities and the quality of financial reporting, and support the implementation of corporate governance (andriyani, 2008).section. h1: corporate governance has an effect on tax avoidance 2.5. controlling shareholders and tax avoidance concentrated share ownership will cause agency problems, no longer a conflict between the principal and the agent but has developed into a conflict between the controlling shareholders and non-controlling shareholders. weak corporate governance in a company causes controlling shareholders to influence company policy to control management decisions in accordance with their interests which of course can later harm minority shareholders (masripah et al., 2015). the higher the percentage of majority shareholders is, the greater the influence in determining company policy will be (timothy, 2010). thus, controlling shareholders can influence company policies which surely can be used to achieve personal goals (la porta, lopez-de-silanes, shleifer, & vishny, 2000). h2: controlling shareholders has an effect on tax avoidance yenny dwi handayani̇ & ewing yuvisa ibrani 124 3. research method the sample used in this study is manufacturing companies listed on the indonesia stock exchange in the period 2015-2017. purposive sampling method is used in sample selection which is first done by determining criteria by the researcher. samples that do not meet the established criteria will be issued. the criteria for the company that will be used as samples in this study are as follows: 1. manufacturing companies listed on the indonesia stock exchange from 2015-2017 2. consistently publish audited financial statements from 2015-2017. 3. financial statements are expressed in rupiah. 4. the company does not experience losses in the commercial financial statements and fiscal financial statements during the year of observation. 3.1. dependent variable (y) in this study, the dependent variable used is tax avoidance. tax avoidance is the avoidance of tax legally and safely done for taxpayers. this is because tax avoidance does not violate the applicable tax laws, therefore tax avoidance measures can be used by utilizing the weakness (grey areas) contained in the applicable laws and tax regulations so that taxpayers can reduce the amount of tax which he owed (pohan, 2013). 3.2. corporate governance the organization for economic cooperation and development (oecd, 1999) states that corporate governance is a system that brings together various elements of the organization (board of commissioners, managers, shareholders, and stakeholders) with rules and procedures for decision making designed to achieve organizational goals. the measurement of corporate governance (cg) in this study refers to the measurement of the effectiveness of the board of commissioners conducted by the indonesian institute for corporate directorship (iicd). the characteristics of the board of commissioners are based on information available in the annual report of each company. to measure the effectiveness of the board of commissioners consists of 21 questions which are grouped into 2 categories, namely: board qualification and composition, board activities. each question will consist of 3 ratings: good = value 3 is given if each existing criterion is fulfilled fair = value 2 is given if only a number of criteria are met poor = value 1 is given if no existing criteria are met after obtaining scores for each question, the score for the board of commissioners is obtained by summing the total score for each characteristic then divided by the maximum score. 3.3. controlling shareholders controlling shareholder is the shareholder who has the largest shareholding in the company (afni & hermawan, 2016). the status as controlling shareholder is obtained through a 20% -50% share ownership. 4. results and discussion t-test is used to determine whether or not there is influence of each independent variable on the dependent variable that supports by comparing the count with t table. the results of the trial can be seen in the table below. corporate governance, share ownership structure and tax avoidance 125 table 1. regression result model unstandardized coefficients standardized coefficients t sig. b std. error beta (constant) -.264 .009 -28.902 .000 indekscg .400 .011 .506 35.352 .000 kp .653 .009 1.044 72.977 .000 a. dependent variable: currentetr 4.1. corporate governance and tax avoidance in this study in which corporate governance has an effect on tax avoidance, the principle of corporate governance which includes transparency, accountability, responsibility, independency and fairness can be used as one of the company's controllers to not to carry out tax avoidance activities that pose risks. the role of the audit committee is very helpful in providing objective reviews of corporate financial reporting. there are many gaps in the tax law that can be utilized by management to reduce tax payment activities rather than choosing full of risk actions that can lead to penalties and damage to the company's reputation. the results of this study are in line with the research of dewi & i ketut jati (2014) which states that the existence of competent audit committee members in accounting and finance has an effect on tax avoidance. the existence of audit committees that is increasingly high within the company shows the high level of quality of good governance within the company so that it can further reduce the possibility of a company going to practice tax avoidance. the audit committee can be more responsible and open in presenting financial statements because the audit committee will immediately see all activities carried out by the company. the results of this study are also in line with the research conducted by waluyo (2017) which states that audit committee and audit quality have positively affected tax avoidance at banking enterprises registered on the indonesia stock exchange. it has figured out the roles of audit committee and audit quality have been involved in a decision making to execute taxavoidance. on the other hand, this study is not in line with the research conducted by hsu et al. 2015) and g. dewi & sari, (2015) which state that audit committees do not affect tax avoidance. the existence of an audit committee within the company lacks an active role and responsibility in a company's policy regarding tax rates. the duties and authority of the audit committee within the company are only neutral. this is due to the limitations of the audit committee to be able to access the company's data and information. this study is also not in line with the research of sari & martani (2013) which state that corporate governance index does not affect aggressive tax actions, the application of good governance in public companies tends to be limited to meeting existing regulations. the effects of implementing corporate governance have not had a significant impact on companies in indonesia. 4.2. stock ownership structure and tax avoidance the shareholding structure in this study uses controlling shareholders, namely the largest shareholders in the company whose shareholdings are between 20-50%. the controlling shareholder has an effect on tax avoidance. the greater the share owned by the controlling shareholder, the greater the control rights held to determine company policy. the control rights held by the largest shareholders in the company are used to suppress tax avoidance activities carried out by management. tax avoidance is a risky issue and incurs high costs, not to mention the threat of fines and damage to the company's reputation is one factor that must be considered. this research is in line with the research conducted by masripah et al, 2015 where the controlling shareholders have limited cash flow rights so yenny dwi handayani̇ & ewing yuvisa ibrani 126 that the effect is very small on tax avoidance activities. unlike the research conducted by afni & hermawan (2016) the largest shareholders in the company have the right to be involved in making company policy. the policies taken must be chosen which are most beneficial to shareholders, and aggressive tax policies that will be chosen to achieve their goals. 4.3. suggestion 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(2017). the effect of good corporate governance on tax avoidance: empirical study of the indonesian banking company. the accounting journal of binaniaga, 2(02), 1–10. https://doi.org/10.33062/ajb.v2i02.92 international journal of commerce and finance, vol. 5, issue 2, 2019, 147-157 147 preparedness to teach international financial reporting standards (ifrs) in ethiopia: a study on selected universities deresse mersha lakew, jimma university, ethiopia mohammed getahun musa jimma university, ethiopia abstract modern type of business organizations were started in ethiopian before hundred years ago and the number is tremendously increasing nowadays. however, there was no one set of generally accepted accounting standard used by business organization in the country till december 2014 when ifrs was proclaimed as the law of the land. though ifrs was accepted for financial reporting in the country starting from 2014, the level of preparedness in teaching ifrs in ethiopian universities was not studied. this paper is aimed at identifying problems in teaching ifrs among teachers in ethiopia universities. to achieve this objective, data was collected from 46 academic staffs working in six universities in the country. the study found that teachers in relatively old universities are trying to incorporate ifrs in their course plan as compared to those in recently established universities. generally, the level of preparedness to incorporate ifrs is low in majority of the universities under study. lack of text books in line with ifrs, problem of integrating ifrs in to the curriculum and lack of practical experiences are the top three bottle necks that hinder teaching ifrs in our universities. in order to prepare our staffs to teach in line with ifrs, both short and long term capacity building strategies were recommended in this study. keywords: international financial reporting standard, preparedness, universities, ethiopia jec codes: m400, m410, m420 1. introduction education is the backbone for the development of any nation. it is because of this that ethiopian government is investing a huge amount of resource on expansion of schools and universities throughout the country. many universities came to existence within a few years to increase the accessibility of higher education to citizens capable of perusing their training at tertiary level. accounting and finance is one of the departments that we find in most universities in the country. the department is responsible to prepare students for the rewards and challenges facing them in the professional accounting, finance and auditing world both today and tomorrow. however, opening many universities and departments by itself may not bring the required result. it has to be equipped with the necessary skilled manpower, teaching material and other pertinent facilities. education cannot play its role unless it is of the highest quality and is relevant to the development needs of the country. in order to equip students with the necessary skills and knowledge’s, there must be adequate manpower and teaching facilities. the library should be equipped with relevant and up-to-date books. the curriculum should be designed in line with development needs of the country and the contents incorporated in the courses should be up-to-date with the current development in the globe. international financial reporting standards, commonly referred to as ifrs, is gaining acceptance as the global norm in financial reporting. issued by international accounting standards board (iasb), ifrs is currently accepted in more than 144 countries in the world (iasb, 2019). in line with this, as of december 2014, ethiopian parliament has proclaimed companies, public enterprises and small and medium enterprises in the country should prepare their financial report in line with the international accepted ifrs. accounting and auditing board of ethiopia (aabe) in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e deresse mersha lakew & mohammed getahun musa 148 was also established to facilitate the adoption of ifrs and control accounting and auditing profession in the country (proclamation no.847/2014). so, it is important that today’s accounting students have a basic understanding of these standards as they are responsible for preparing financial report in line with ifrs tomorrow, when they complete their study. the purpose of this study is to assess the level of preparedness of accounting and finance teachers in incorporating ifrs in their course and session plan. 2. statement of the problem although ethiopia was never been colonized, it’s economic and social environments were significantly shaped by its dependence on western countries for resources. when one closely looks at accounting profession in the country, it is characterized as importing accounting education from one source and accounting practice from another source. accounting education in ethiopia was introduced by us academics and was modeled based on the us accounting education system. as a result, universities were teaching accounting principles and theories which are formulated based on us accounting standards. most of the accounting academic staffs we have today throughout the country are the products of this education system. on the other hand, british experts were the first to open public accounting practices; and the first ethiopian professional accountants obtained british accounting qualification. both trends continue to the present day. the sourcing of accounting education and accounting practice from different countries has led to the misalignment of the two and has adversely affected the development of the profession and restricted its contributions to the economic development of the country (mihret & bobe ,2014). to solve this misalignment of accounting education and practice in the country, the house of peoples representatives (hpr) adopted international financial reporting standards (ifrs) with the aim of unifying the country’s finance and audit standards. a board was also established to implement a unified reporting standard across the country and comply with the standards acceptable at international level. therefore, students of today need to be prepared for what they will face outside of academia in their careers as the conversion to ifrs is certain in the country’s financial reporting. coursework needs to be adapted to ensure that students are exposed to all the knowledge, skill and attitude they need to succeed and that they are able to communicate, analyze and utilize financial information. today’s student must be made aware of ifrs, its principles, and its impact on the accounting world. the future accountants must prepare themselves and become fluent in ifrs. however, the most difficult tasks for instructors are finding and assimilating all resources available, developing a curriculum that works in their classrooms, and educating themselves in all of the potential changes as convergence continues. in most universities, many instructors are having difficulty discerning the how, when, and what of incorporating ifrs into today’s accounting courses as most of them have limited practical experience. all universities are using common harmonized curriculum which is not well integrated with ifrs. though there is an effort to train accounting and finance teachers to enable them integrate ifrs in their daily lesson, there are no studies that investigated to what extent they are trying to incorporate ifrs in their course plan. therefore, the main objective of this study is to identify the challenges while incorporating ifrs in the accounting and finance program. specifically, the study is aimed to: 1. investigates the level of preparedness of academic staffs in teaching ifrs at selected universities in ethiopia 2. identify the main challenges while incorporating ifrs in to the curriculum and course plan. 3. literature review international financial reporting standard (ifrs) is a set of accounting standard prepared by the london based standard setting body named “international accounting standard board (iasb)” and its earlier forerunner international accounting standards committee (iasc). the need for ifrs arise as a result of the desire of multinational companies for one set of financial statements, and the demand for one common global reporting language. according to iasb (2019) report, currently about 144 countries have decided to adopt ifrs and other 12 countries permits ifrs. ethiopia is one of the countries that proclaimed to adopt ifrs in december 2014. by july preparedness to teach international financial reporting standards (ifrs) in ethiopia: a study on selected universities 149 8, 2020, all private and public reporting business enterprises in the country are required to prepare their financial statement in line with ifrs (proclamation no. 847/2014). the application of global standards including ifrs requires a high level of human capacity that can be developed through education, training and experience. in order to achieve the above framework, adequate number of competent accounting and auditing professionals should be produced. for this purpose, curriculum in accounting and finance education at higher institutions should be integrated with ifrs or include modules in ifrs to narrow the gap between what is taught at the universities and what is required in the work place to provide fast track entry for professional qualification for graduates (aabe, 2015; unctad, 2013). however, previous studies showed that there are a number of human capacity related challenges that countries face when implementing ifrs and other standards developed at international level. these challenges occur to a varying extent in all countries regardless of their level of economic development. changing in to a new accounting standard is challenging and a critical integral component in such a transition period is developing the necessary competencies of human resource thus, developing human resource capacity for corporate reporting in a sustainable manner requires regulatory and institutional support as well as reliable sources of funding (unctad, 2013). poor ifrs education is one of the major bottlenecks for successful ifrs implementation identified by iasb (2019). the adoption of ifrs for accounting education are considered important due to the role played by accounting educators in providing graduates for the business world globally. some of the factors affecting ifrs adoption for educators around the world have been addressed in the literature. for example, the lack of accounting educators with experience in ifrs , the lack of textbooks and educational materials in languages other than english , and the broader range of skills that need to be addressed in accounting curriculum, academics’ resistance to changing the way they teach, environment in which the change is to occur, budget constraints associated with the change, time investment required from academics to support the change, academics’ dependency on textbooks and ready materials to avoid extra preparation for lectures, academics’ lack of updated knowledge on emerging issues and lack of interdisciplinary knowledge are some of the factors hindering incorporation of ifrs in the accounting curriculum and the main causes resulting in increasing the hesitation of accounting academics to start teaching ifrs (albader, 2014; saito et al., 2013; vysotskoya & prokfeiva, 2013). in transitioning to ifrs, there is an understanding that ifrs requires the exercise of professional judgment involving a high level of professional experience. hence, while teaching principle based ifrs, teachers should design instructional methods that require them to be active, independent learners and problem solvers rather than passive recipients of information in the class room. a student centred approach represents the most modern approach of teaching principle based standards such as ifrs. the benefits of this approach stems from its focus on the development of students’ critical thinking and professional – judgment skills. this approach assists in increasing students’ conceptual understanding of economic events, accounting concepts and principle. thus, teachers should utilize new teaching methods that are more relevant to a principle based approach such as simulations, role plays, oral presentations by students and problem based case studies with multiple solutions (albader, 2014). however, this method has its own challenges both for the teachers and students. accounting academics have the challenges of preparing questions and cases for examinations and evaluating and grading students’ responses (bonnier et al., 2013). conversely, students face the challenge of studying and preparing for examinations, ensuring that they cover all required aspects of what constitutes a correct and appropriate answer. students also need to be sure of the accuracy and fairness of the grading process (bonnier et al., 2013). similarly, tan, chatterjee and bolt, (2013) attribute difficulties in adopting a principle based approach of teaching accounting to the tendency of students and academics towards rule-based approach that favors a system of teaching and learning in which ‘right’ and ‘wrong’ are easily identified. they added that accounting academics need to compromise the ease of preparing examinations and the grading process under the old approach with the benefits of applying new pedagogical deresse mersha lakew & mohammed getahun musa 150 approaches despite the difficulties and challenges associated with these new approaches. smaller class size has positive effects on students’ grades and performance. conversely, large class sizes are considered major impediments to students developing soft and generic skills and increasing the quality of teaching and the adoption of innovative pedagogical approaches. considering the principles -based nature of ifrs, which requires meeting the learning outcomes of developing critical thinking and exercising judgment, most studies encouraged an active learning approach to teaching ifrs. active learning engages students in higher order thinking, exercising their critical thinking skills, and requires teachers to focus on what students do, rather than on transmission of information (tan, chatterjee and bolt, 2013). 4. research methodology the research design adopted in this study is descriptive in nature. this is because the objective of the study is to examine the level of preparedness of academic staffs to teach ifrs and the associated challenges. the data for the study was collected mainly from selected public and private universities in the country. there are about 43 public universities and many more private universities and college that are training students in accounting and finance discipline in either regular or continuing and distance education program at the moment. it is very difficult to incorporate the whole universities and colleges in the study since they are very much dispersed throughout the country. hence, multi stage sampling methods was employed to select representative universities. first universities in central and west ethiopia were selected for convenience of data collection. second, the universities in the central and western ethiopia were categorized in to four generation and six universities were selected for this study. therefore, two sample universities were selected from first, second and third generation universities respectively. fourth generation universities were not included in this study since they are still at establishment stage. finally, from each of the six universities, 10 academic staffs were selected for questionnaire which gives a total sample of 60 academic staffs. the following table 1 shows the selected universities, selected sample respondents and actual respondents from each university. table 1: selected universities for the study sample universities ownership of the universities sample respondents actually respondents response rate (%) addis ababa public 10 10 100 jimma university public 10 8 80 mizan tepi university public 10 8 80 rift valley university private 10 3 30 wolkite university public 10 9 90 mettu university public 10 8 80 total 60 46 76.67 the low response rate at rift valley university is because; most of the teachers are par timer working in a nearby public university. to facilitate the analyses, the study used different methods of data collection including survey questionnaire and interview with department heads. questionnaires were personally distributed to accounting and finance teachers in each university. further, semi structured interview were made with accounting and finance department heads in each universities in order to triangulate the data obtained through questionnaire. preparedness to teach international financial reporting standards (ifrs) in ethiopia: a study on selected universities 151 5. result and discussion before going to the discussion of the main objectives of the study, it is important to know the characteristics of academic staffs contacted. ten academic staffs from each university teaching accounting and finance courses at undergraduate level were selected for the study and survey questionnaire was given to them. however, only forty six completed questionnaires were returned back. the demographic characteristics of the respondents are summarized in table 2 below. table 2: description of the respondents educational level % specialization %  ph.d. 6.52%  accounting and finance 84.78%  masters 80.43%  mcom (accounting) 6.52%  ba degree 13.04%  finance and investment 6.52% age % experience %  less than 25 years 17.39%  0 5 years 39.13%  26 – 35 years 63.04%  6 10 years 32.61%  greater than 35 years 19.57%  greater than 10 years 28.26% sex % marital status %  male 82.61%  single 47.83%  female 17.39%  married 60.87% from table 2 above, it can be seen that the majority of the respondents have master’s degree and above education level in accounting and finance discipline. this indicates that the academia involved in teaching accounting and finance are relatively well trained as compared to the past situation in the country. with respect to age, the majorities are below 35 years with less than ten years of experience which implies majority of the teachers are in their young age categories who are less resistance to changes coming. further, the majorities of the academic staffs are males and married which implies the dominance of male in the accounting and finance academic staffs. ifrs become the law of the land starting from december 2014. hence, students of today should be trained in line with ifrs and accounting and finance programs at university should incorporate ifrs in the curriculum and academicians should be prepared to teach ifrs. in connection to this, academic staffs teaching accounting and finance courses at undergraduate level were asked to state their experience of incorporating ifrs in to their daily session plan. the result is summarized in table 3 below table 3: practice of teaching ifrs have you started teaching ifrs whenever you are assigned to related courses? frequency % yes all the times 11 23.91% yes sometimes 20 43.48% not at all 12 26.09% deresse mersha lakew & mohammed getahun musa 152 total 46 100% table 3 above shows that only about 24% of the respondents are incorporating ifrs in their daily session plan all the times. about 43.50% of the respondents are including ifrs only sometimes and about 26% of the academics did not incorporate in to their daily session plan at all. this implies majority of the teachers are not adopting ifrs consistently in their courses as a result of low preparedness. in relation to this, existing studies highlighted that several institutional factors can influence what is included in the accounting curriculum. further, characteristics of academic staffs, such as their background, have been shown to play a significant role in the development of course content. chi square test was used to see the association between the different demographic variables and the practice of teaching ifrs in the class. the result was summarized in the table 4 below. table 4: association between teaching ifrs and selected variables teaching ifrs total χ2 test always sometimes not at all generation of university first 10 7 3 20 χ2=15.452 second 0 3 5 8 asymp. sig=0.004 third 1 10 7 18 total 11 20 15 46 teaching ifrs total alway s sometimes not at all education level ph.d. 1 2 0 3 χ2=4.725 masters 10 15 11 36 asymp. sig=0.317 ba 0 3 4 7 total 11 20 15 46 teaching ifrs total always sometimes not at all experie nce >10 years 7 4 0 11 χ2=16.832 6 – 10 years 3 10 6 19 asymp. sig=0.002 < 5 years 1 6 9 16 total 11 20 15 46 teaching ifrs total alway s sometimes not at all age >35 years 7 3 0 10 χ2=17.064 26 – 35 years 4 12 10 26 asymp. sig=0.002 < 25 years 0 5 5 10 preparedness to teach international financial reporting standards (ifrs) in ethiopia: a study on selected universities 153 total 11 20 15 46 teaching ifrs total alway s sometimes not at all sex female 0 3 4 7 χ2=4.725 male 11 17 11 39 asymp. sig=0.174 total 11 20 15 46 from table 4 above, one can see that teaching ifrs is significantly associated with the age of the universities identified by generation, experience and age of the academia. this implies, academic staffs working in first and second generation universities tend to teach ifrs more as compared to those in third generation universities. this might be because old universities have well established facilities including libraries and internet connection where one can easily find ifrs related resources. this finding is in line with the finding of groomer and murthy (1996) who identified several institutional factors that affect the course content of accounting subjects including the size of university, type of university, number of academic staffs, and whether the institution is a doctoral granting school or not. in addition, the χ2 test further shows relatively older teachers with long years of experience tend to teach ifrs as compared to relatively young teachers with short years of experience. this is in line with watson et al. (2007) who suggested that professional experience including teaching experience, research interest, and training have direct impact on course delivery methods and ultimately affect the skills and knowledge of the students. however, education level and gender has no significant association with the practice of teaching ifrs. teachers under the study were asked to identify the main challenges while incorporating ifrs in their course plan and the result is summarized in the figure 1 below. 0,00% 10,00%20,00%30,00%40,00%50,00%60,00%70,00%80,00% lack of staff motivation/resistance to change use of common harmonized curriculum shortage of time to do so no incentives to prepare teaching material confusion in teaching two type of standards lack of training for academic staffs lack of practical experience of the teachers problem of integrating ifrs in to the curriculum lack of text books in line with ifrs percentage c h a ll e n g e s figure 2: challenges in teaching ifrs deresse mersha lakew & mohammed getahun musa 154 figure 1 above shows large majority of teachers surveyed identified lack of text books in line with ifrs, problem of integrating ifrs in to the curriculum and lack of industry experiences are the top three bottle necks that hinder teaching ifrs in the class. developing ‘new’ materials and getting textbook authors/publishers to incorporate ifrs material is seen as a problem in developing country like ours. on the date of awareness creation workshop conducted by accounting and auditing board of ethiopia (aabe) back in 2016, representative of the board recommended the design and implementation of a national curriculum that can meet the international standards in the field of study. furthermore, the board also promised to work closely with universities and colleges to help them revamp their curriculum so that they can teach their students with materials which are up to the standards and the international practices of the field. however, the curriculum revision was not finalized till to date and it is still the major bottleneck raised by department heads in each universities. the other challenges cited by teachers and department heads includes lack of adequate training in ifrs. intensive training of academic staffs plays critical role in teaching ifrs as the majority of the staffs are educated using us based accounting system. interview with the six department heads shows that four out of the six department heads have organized short term training to their staffs. one university is planning to do so in the near future and the remaining one is a private university and has no plan to train as most the teachers are par timers. in this respect, most department heads responded that arranging training on ifrs has taken long time because of administrative and budget challenges and the training provided by itself was not intensive and complete because of lack of qualified trainers in the country. confusion of teaching two types of standards; absence of incentives and time shortage to do so; lack of staff motivation and use of common harmonized curriculum are additional challenges mentioned by respondents. incorporating principle based ifrs in course plan while teaching accounting and finance subjects is becoming problematic. this is because most of the text books used in the currently working curriculum are written based on us gaaps. this implies revision of the existing curriculum is the first requirement. department heads in each university complain that curriculum revision was started before three years under the responsibility of addis ababa university but not completed yet because of administrative and financial limitations. in connection to this, academicians have different opinion on how to include ifrs in the curriculum. those teachers who are teaching ifrs either always or some times were asked their preference in incorporating ifrs in the accounting and finance curriculum and the result is summarized in table 5 below table 5: methods of incorporating ifrs in the accounting and finance curriculum what do you suggest on how to inculcate ifrs in to undergraduate accounting and finance curriculum % if you suggest integration to other courses, in to which of the following course should it be integrated? %  separate ifrs module 23.91%  financial accounting 78.26%  integrating to other courses 60.87%  principles of accounting 76.09%  both together 21.74%  advanced financial accounting 60.87%  cost and management accounting 36.96%  accounting information systems 36.96%  government and nfp accounting 36.96%  public finance and taxation 30.43% table 5 above shows that majority of the academics have the opinion that ifrs should be integrated in to other courses. this is in line with berrios (2012), who suggested the integrated approach to ifrs education rather than preparedness to teach international financial reporting standards (ifrs) in ethiopia: a study on selected universities 155 teaching ifrs as a separate module in latin america. the study by judy et al. (2016) also support that the main approach to teaching should be to integrate ifrs into existing courses instead of a separate module. according to them, most integration should be done in to intermediate or advanced accounting modules although other courses can also be used for integration. this is similar with the opinion of academic staffs in this study who suggested integration should be made to financial accounting, principles of accounting and advanced financial accounting courses. another important preparation while teaching ifrs is a change in method of teaching. past literature has discussed different teaching methods applied to teach ifrs. most studies suggested that real-life case studies are the best method to teach ifrs because ifrs are principles – based (tan, chatterjee & bolt, 2013). in connection to this, academic staffs were asked the method of teaching they are using at the moment in their class. the response was summarized in table 6 below. table 5: methods of teaching used at the moment methods of teaching frequency percentage lecture method 43 93.48% group work method 21 45.65% cooperative teaching method 15 32.61% practical teaching method 10 21.74% case based teaching 6 13.04% as we can see from the table 6 above, lecture method is the most dominant method of teaching practiced by teachers. group work, cooperative teaching, practical teaching and cased based teaching are next in respective order. this indicates that most accounting academics in ethiopia tend to prefer traditional way of teaching, an approach not ideally suited to teaching ifrs. this implies an awareness of this issue is required to ensure there is an appropriate shift in direction of academics’ teaching approaches so that accounting academics are prepared to teach principles based ifrs. most studies suggested that reallife case studies are the best method to teach ifrs because ifrs are principle – based. the reason behind suggesting case studies is that they inform students about the real world, develop their critical thinking and familiarize them with companies’ financial statements (tan, chatterjee & bolt, 2013). department heads further indicated that most of the teachers in higher institution are not prepared for teaching profession and they did not take any pedagogy course. hence, most of them are following traditional method of teaching as indicated above. 6. conclusion and recommendation there is a gap between ethiopia's accounting education system and the international standards of the profession. since many international companies are now coming to ethiopia we need to work hard to comply with the standards. one way we do that is starting with the accounting education system in order to meet the international standard in terms of accounting curriculum and daily session plan. this study found that although the roadmap of adopting ifrs in the country specifically mandate to accept ifrs starting from 2015/16, university accounting and finance education is lagging behind in teaching future accountants about ifrs. only limited numbers of academic staffs are exerting their personal effort to update themselves with recent development in accounting and finance and incorporate ifrs in their lesson. the major bottle necks identified includes absence of books written in line with ifrs, problem of integrating ifrs in to curriculum, lack of industry experience, lack of training, confusion of teaching two types of standards, lack of incentives, time and deresse mersha lakew & mohammed getahun musa 156 motivation. the problems are critical in recently opened new universities in the remote area in the country (third and fourth generation universities). mandatory adoption of ifrs in 2015/16 and the absence of a well-developed program for retraining of accountants to date indicate that much closer attention is needed to restructure the entire system of accounting and accounting education in the short and long time frame. since the curriculum we are using at the moment was designed based on the us gaap, the text books available in our library are us books. in addition, as ifrs is a resent development, it is very difficult to find text books written in line with it. therefore, the researchers recommend that curriculum revision should be made urgently and books and other resources that are written in line with ifrs should be purchased by each universities. universities should enable academic staffs to complete higher diploma program (hdp) that will help them change their method of teaching ifrs. creating awareness by conducting term training and motivating academic staff to use resources written in line with ifrs are other suggested short term strategies to solve the problem. in the long run, it is recommended that faculty members should have certificate of qualification in ifrs. further, it is recommended employing academic staff who are certified accountants. the problem with this strategy is that it is difficult to obtain qualified staffs at the current university salary rate. therefore, another possible strategy may be encouraging the existing academic staffs to pursue their training by covering the tuition fee at least partially. academic staffs should be encouraged to attend higher diploma program (hdp) in pedagogy in order make them ready to teach ifrs. in addition, professional accounting bodies can play a vital role in helping universities revisit their pedagogical approaches, revise their accounting curricula and cope with the requirements of adoption of ifrs. for example, for a long time, the professional accounting organization in south africa has greatly influenced the way accounting curricula are designed in south african universities. therefore, strengthening accounting and auditing professional associations plays vital role in ethiopia. accounting and auditing board of ethiopia should work hard in supporting professional associations in this respect. references albader m. 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(2013). the difficulty of teaching ifrs in russia. issues in accounting education. 23(1) pp. 309-319 watson, s. f., apostolou b, hassell j.m., and webber s.a. (2007). accounting education literature review (20032005), journal of accounting education 25 (2): pp. 1-58. international journal of commerce and finance, vol. 5, issue 2, 2019, 8-21 8 supply and demand side determinants of inflation in ethiopia auto-regressive distributed lag model (ardl) tekeber nigusse department of economics, college of business and economics, jimma university tekilu tadesse department of economics, college of business and economics, jimma university tesfaye melaku department of economics, college of business and economics, jimma university abstract inflation is defined as a persistent increase in general price level of goods and services. even though ethiopia has experienced a low inflation until 2008, recently, double digit inflation has become troublesome for policy makers as well as the society. so, this study tried to examine the supply and demand side determinant of inflation in ethiopia by employing the techniques of auto-regressive distributed lag model (ardl) for 32 years’ data spanning from 1985 to 2016. the study included macroeconomic determinant that alter or change inflation level measured by consumer price index such as money supply, real gross domestic product, world oil price, budget deficit and real effective exchange rate. the results of bound test confirmed that the long run relationship between explanatory variables and consumer price index in ethiopia. the empirical results implied evidence of a long-run positive impact of money supply, world oil price, budget deficit and real effective exchange rate on inflation in ethiopia whereas as real gross domestic product insignificantly affect price level . finally, from the finding of our study in the short run, real effective exchange rate, money supply budget deficit and world oil price are the main determinant of inflation in ethiopia. given these findings, the effectiveness of fiscal deficit and exchange rate as well as contractionary monetary policy as a mechanism of price stabilization in the long run and short run is recommendable for policy inference. keywords: ardl, bound test to coinegration, inflation, supply side, demand side 1. introduction according to(acharya, 2010) when the principal pointer of a country's macroeconomic performance measured by economic growth, inflation comes next for almost every countries macroeconomic objective. hence, price stabilization is considered as an imperative macroeconomic goal for sustainability of economic growth. regardless of development status of countries, nobody questioned about cross-border transmission of inflationary forces and one of the foremost and dynamic macroeconomic concerns provoking most economies across the globe. understanding inflation dynamics has received due attention in the recent years due to the high inflation levels occurred in developing countries. theoretical justification of keynesian macroeconomic of positive relationship between inflation and unemployment was disproved by different empirical studies that suggested an insignificant relationship between inflation and unemployment inferring the breakdown of the phillips curve and no possibility of trade-off between the two macroeconomic variables (kaur, 2017). generally agreed definition is that inflation is a continuous and persistent rise in general price level of goods and services or continual weakening in the purchasing power of money, caused by a rise in available money and credit beyond what the economy produced at all. the definition of inflation cannot be an indication of particular commodity price and not for particular period of time. for an inflation to be happened, the rise in the general price of goods and services should be sustained. a normal functioning of any economic activities in a given country is retained by the level of domestic price. in other words, majority of continuous instability of economic activity of a country is explained by erratic fluctuation in domestic price of goods and services (mishkin, 2009). hence, the in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e supply and demand side determinants of inflation in ethiopia auto-regressive distributed lag model (ardl) 9 national bank realized price stabilization as the focus of attention of monetary policy. this is because monetary policy of a country was mostly intended by giving attention toward responsible factors for raising the inflation rate. inflation in the long run is always and everywhere a monetary phenomenon (friedman, 1963). inflation in ethiopia has been low relative to other country over the last 30 years at the earlier time. as study of habtamu (2000) worked out it averaged about 7.3 percent during the 1967 to 1999 which is far below an average inflation rate of 10.3 percent, 39.8 percent 13.4 percent, 90 percent and 19 percent for asia, europe, middle east western hemisphere and africa respectively. additionally, according to yohannes (2009) in 1980, in most cases the ethiopian economy experienced rate of in inflation that is below 7.5 percent except for year at which a sudden shot in price where registered. the supply decrease specially related to agricultural sector, which determines food prices, was responsible for the spur inflation particularly in 1984/85 during which serious famine took surged to 18.4 percent. however, in the post 2003 inflation began to become visible problem because of the government plan and strategy towards adopting expansionary monetary and fiscal policy and huge government intervention so called developmental state in the economy. during this period, ethiopia economy registered as a fast growth, remarkable expansion of export revenue as well as generation of domestic tax revenue prevailed in the economy. due to expansionary fiscal policy emanated from huge government expenditures, the economy experienced by fast growing money supply (kibrom, 2008). to the best of our knowledge, there were few scholars conducted their study on the factors that determining of inflation in ethiopia. the descriptive analysis done by teklebirhan (1990) found the growth of money supply is an important cause of inflation in the country whereas samuel (2007) found that the monetarist model of interaction does not explain the inflation in ethiopia. both of them used the variables of money supply, real gdp, expected inflation and lagged real money balances factors determining inflation in the country. other latter study by kibrom (2008) suggested that the determinants of inflation differential between sectors (food and non-food) and found that most influential variable that affect food inflation in the long run were real gdp, money supply, inflation expectation and international food price. similar study done by (hagos, 2014) found that food inflation in the long run explained by broad money supply, narrow money supply, food consumption price index, non-food consumption price index, interest rate, real gdp and nominal gdp whereas non-food inflation determined by broad money supply, narrow money supply, food consumption price index, non-food consumption price index, interest rate, real gdp and nominal gdp variables. similar study conducted by(kashay, 2017) employed ols and found that gdp, money supply and national saving were significantly and positively contributed to inflation rate both in the short and long-run. in our study, we concerned an evidence oriented investigation to identify and examine the main driving factors of inflation in ethiopia in recent years. the aforementioned empirical literature on inflation in ethiopia stress basically on the demand-pull factors of inflation and failed to incorporate the supply side factors. previous studies considered only the variable world price as a as a measure of external supply shock for cost-push factors in their estimation and come up with insignificant result. moreover, one of the critical variables that have not been addressed is the effect of budget deficit from demand side and world oil price and real effective exchange rate from supply side factor on domestic price level. furthermore, to fill the methodological gap, this study used an auto regressive distributed lag (ardl) model as the core methodological framework due the fact that it provides consistent and efficient estimators as compared other any estimation method regardless of stationary and non-stationary properties series (pesaran, et al. 2001). the investigation is anticipated to offer the current policy issue in ethiopia with a consistent, precise and concrete result-based investigation on the major source of inflation. as long as price stabilization concerned as one of the pillar targets of the policy plan for current and the future, this study expected to dig out the problem and add to the macroeconomic policy formulation process. besides, we believe that the study will append essential outcome to fill existing knowledge gap and instigate for further study in the area due the fact that there is no clear cut solution on the causes of the rise in inflation. tekeber nigusse & tekilu tadesse & tesfaye melaku 10 2. literature review 2.1 theoretical literature review inflation is still an arguable word which has gone different adjustment over theoretical and empirical literature across the world. the first definition of inflation is forwarded by the neo-classical economists. according to them, inflation is defined as a sustainable rise in prices due to having too much rise in the quantity of money. as of keynesians argument, the main cause for the occurrence inflation is in situation where rise in money supply greater than the level of full employment in a given economy (jhingan, 1997). nevertheless plenty economists describe inflation in diverse ways; there is a general consensus that inflation is an unremitting rise in the general price level. despite the fact that inflation is a continuous rise in prices, its magnitude is differently explained. when the rise in prices is inconsequential like that of a snail or creeper, it is called creeping inflation. it is said to be creeping when inflation rate is less than 3 percent per year. such an increase is considered as secure and indispensable for economic growth. when average rise in price level is beyond 3 but less than 10 percent per annum, it is known as walking inflation. walking inflation is a forewarning hint for the government need to intervention through designing policies to control inflation prior to it turn into running inflation. an annual rise in prices at rate of 10 to 20 percent is categorized as running inflation. when inflation rate climb beyond 20 percent it is called hyper inflation (jhingan, 1997). 2.2.theories on causes of inflation 2.2.1 demand pull theory demand pull inflation theory is the conventional and most frequent categorization of inflation (jhingan, 1997). according to this theory, the main source demand ful1 inflation is raise in aggregate demand which sum up consumption, investment and government expenditure. when the economy experienced with large imbalance between aggregate demand and supply in which excessive demand manifested, the faster is the inflation (totonchi, 2015). as mentioned in keynesian general theory of employment, interest, and money, policy issue that targeted towards reduce in each section of aggregate demand is successful in decrease of pressure on demand and inflation. government tax increment is one the policy instrument in which expenditure is reduced and to control size of money alone or jointly, can be efficient in dropping effective demand and in controlling inflation as well (keynes, 1936). 2.2.2 cost push theory the main cause of cost-push inflation is raise in wage bargained by unions and pursuit of employer to increase the level of profit. the emergency of this type of inflation has not been current issue rather it goes back to a medie val period. however, to consider it as a chief cause of inflation, different scholars put pressure in reviewing and investigation its cause was started in 1950s and again later in the 1970s so called “new inflation” (totonchi, 2015). the fundamental cause of cost-push inflation is the nominal wages grow faster relative to the labor productivity. the labor unions enforce employers to subside remarkable wage increment so that it is increasing the cost of production of goods and services. consequently, employers in turn, charger higher prices for their products. higher wages allow employees to purchase as much as before, despites of higher prices. in contrast, the rise in prices associated with higher wage demand by unions which lead to cost-push or wage-push inflation. in other word, costpush inflation may be further provoked by upward alteration of wages to compensate adverse effect caused by increase in cost of living. moreover, another cause of cost-push inflation is profit-push inflation in which oligopolist and monopolist firms charge the price of their products so as to compensate the rise in wage and other cost of production to make higher profits. this is known as administered-price inflation or price-push inflation(totonchi, 2015). supply and demand side determinants of inflation in ethiopia auto-regressive distributed lag model (ardl) 11 2.2.3 quantity theory of money quantity theory of money is one of the earliest existing economic theories. the theory states that general level of prices change is mainly caused by changes in the quantity of money circulated at the hand of public. the quantity theory of money created the main dialogue issues of classical monetary analysis of 19th century, in line with offered the leading conceptual framework for infer in modern financial events and emergence of different scholars towards mainstream policy instruction intended to safeguard the gold standard. david hume (1711-76) came up with the first dynamic process analysis in which dissemination channel of monetary change across different economic sector, varying relative price and quantity simultaneously. he provided substantial modification, explanation and extensive investigation to the quantity theory of money. moreover, david ricardo (1772-1823), the most dominant of the classical economists, thought such disequilibrium effects short-lived and irrelevant in long-run equilibrium analysis. according to him, ricardo asserts that inflation in britain was exclusively the consequence of the bank of england's negligent over the printing of money. under the pressure of the napoleonic wars, britain missed the gold standard for a less liquid paper standard. he depressed discussions on likely valuable output and employment consequence of monetary injection (ricardo, 1817). in its rudimentary definition, quantity theory of money indicates that any prices change must be overwhelmed by the same proportional vary in the quantity of money. irving fisher (1876-1947) came up with his well-known equation so called fishers‟ equation of exchange which is mv= pt, where m refers to the nominal stock of money, v refers to its velocity money in circulation; t refers to the total number of transactions undertaken over period and p is the average general price level. the equation of exchange is obliged to grasp of the prerequisite because mv and pt are two ways of obtaining the same thing. accordingly, the aggregate value of all transactions undertaken over given period of time was the similar (jackman et al., 1981). all irving fisher as well as other classical quantity theorists did not supposed that v and t were constant rather their debatable issues is that in equilibrium velocity was affected by taste and preference of people and the technology of exchange, whereas t was determined by adjustment supply and demand by market force. moreover, monetarists superiority over keynesian in policy effectiveness could be approved by employing the common identity of exchange equation of fisher(totonchi, 2015). 2.3 empirical literature we have seen various studies conducted in developing countries, particularly in africa, where the inflationary upsurge threatened their development endeavor. in africa, both structural and monetary factors determined inflation, although specific factors differ from country to country. in theory, it is believed that when regressed inflation opens, it results in to observation increase in the general price level (habtamu, 2000). this situation has been seen in transition economics in the study of study (fischer, et.al, 2003). in ethiopia, one of the earliest works that of teklebirhan (1990) by considering variables such as broad money supply, import value index, pavement tax revenue, real gdp, rainfall, all velocity of money in his descriptive analysis, found that the existence of chronic drought has some impact in determining inflation in the country. money supply took by (teklebirhan, 1990) as an important cause of inflation in the country this study covers, however, the period when most prices are controlled, during the derg regime. moreover, the methodology he employed was only descriptive statistics which doesn’t explore the long-run and shortrun dynamics of variable of interest. another study done by dejan (2007) used factor forecasts for the general inflation and the disaggregated inflation namely energy inflation, industrial goods inflation, services inflation, processed food and the non-processed food inflation in the case of slovenia. the result from forecasts of the factor model was compare to autoregressive (ar) and vector autoregressive (var) models in terms of the root mean squared error (rmse). in his study, the factors were recognized so as to offer analysis to the forecasting. accordingly, results show that the factor model was significantly superior over the ar yardstick forecasts and is not poorer from the var forecasts for all disaggregated inflation and the headline inflation, which gives it an excellent apparatus for inflation forecasting in the case of slovenia. kibrom (2008) has studied the “sources of the inflationary experience in ethiopia whose study aimed to understand the forces behind the recent inflationary process in ethiopia. he used vector autoregressive (var) and single error tekeber nigusse & tekilu tadesse & tesfaye melaku 12 correction models to estimate inflation dynamics. this estimated model allows comprehending the long run as well as short-run dynamics of inflation in ethiopia between 1994/95 and 2007/08. the study reveals that the determinants of inflation for food and non-food are different, and depend on the time span under deliberation. 3. research methodology 3.1. data type and sources to conduct this investigation, the researcher used annul and time series data for the time starting from 1985/862016(17) that is 32 years’ data have been employed. this study was limited to macroeconomic variables determining inflation in ethiopia. so as to achieve study objective, secondary data was employed and the necessary data required to this study are obtained from different secondary data sources such as publications, annual bulletins and reports by concerned institutions like ministry of finance and economic development (mofed, 2016) for variables like real gross domestic product and budget deficit , ethiopian economic association (eea, 2016) for world oil price ,national bank of ethiopia (nbe, 2016) for variables like inflation and real exchange rate, central statistical authority (csa, 2016) for real exchange rate and others. 3.2 econometric model specification the model specification to undertake the study, the theoretical guideline was classical quantity theory of money. according to the classical economists, quantity theory of money implied that there are direct and indirect relationship between inflation and money supply because inflation is monetary phenomena. they expressed variable relationship given by the following identity where m is nominal money supply, v is velocity of money in circulation, p is general price level and y is real output the equation can be expressed in terms of price to show the determinant taking natural logarithm to both sides the equation can be rewritten as it is important to include other variables so as to investigate macroeconomic determinant of inflation. accordingly, the deterministic relationship would be given by: where, cpi is consumer price index; m2 -is broad money supply; bdis budget deficit; reer is real effective exchange rate; wpis world oil price and rgdpis real gross domestic product all the variables in the model are in the log form which is interpreted as elasticity. based on theoretical justification provided in literature part, the long run model of inflation is expected to vary positively with all variables. 3.3. model estimation procedure 3.3.1 unit root test it is fundamental to check for the statistical properties of variables while discussing with time series data. time series variables are hardly stationary in level forms. the necessary condition for testing unit root test when we applying supply and demand side determinants of inflation in ethiopia auto-regressive distributed lag model (ardl) 13 ardl model is to check whether the variables enter in the regression are not order two (i.e. i(2)), which is precondition in ardl model. therefore, it is prerequisite to test for time series variables before running any sort of regression analysis. augmented dickey-fuller (adf) test can be used to non-stationary proprieties of variable so to guarantee consistent outcome of test for stationarity. this test is carried out by supplementing the different equations by summing-up the lagged value of the dependent variable say δyt. if the t value or t-statistic in absolute value greater than the critical values, the first hypothesis (i.e. h0) is rejected and the conclusion is that the series is stationary. conversely, if the t-statistic in absolute value less than the critical values, the second hypothesis (h1) is rejected 3.4.2 the autoregressive distributed lag model (ardl) there are numbers of advantages of using ardl model also called ‘bound testing approach’ instead of the conventional engle-granger two-step procedure (1987), maximum likelihood methods of cointegration (johansen, 1988) and johansen and juselius (1990). first, the ardl model is the more statistically significant approach to determine the cointegration relation in small samples as the case in this study (pesaran et al., 2001; narayan,2004). a second advantage of the ardl approach is that while other cointegration techniques require all of the regressors to be integrated of the same order; the ardl approach can be applied whether the regressors are purely order zero [i(0)], purely order one [i(1)], or mixture of both. third, with the ardl approach it is possible to capture different optimum number of lengh for different variables (nasiru, 2012 as cited in tsadkin, 2013). finally, appling the ardl technique we can obtain unbiased and efficient estimators of the model (narayan, 2004), (harris and sollis, 2003; pesaran, 1995) as cited in tsadkin 2013. therefore, this approach becomes prevalent and appropriate for investigating the long-run relationship and extensively applied in empirical research in the recent years. hence, ardl model can be specified as:  respective variables and ut error term which is assumed to be serially uncorrelated.  β_1,β_2,β_3,β_4 & β_5 indicates coefficients that measure long run elasticies between the variable whereas α_i,α_j,α_k,α_l,α_m& α_n indicates coefficients that measure short-run elasticities among the variable. the first step involved in ardl model is to test the null hypothesis of no cointegration relationship which is defined as h_o= β_1=β_2=β_3=β_4=β_5=β_5=0 against the alternative hypothesis of h_1≠ β_1≠β_2≠β_3≠β_4≠β_5≠β_5≠0 of the existence of co integrating relationship between the variables. according to pesaran et al. (2001), there are two sets of critical value bounds for all classifications of regressors’ namely upper tekeber nigusse & tekilu tadesse & tesfaye melaku 14 critical bound value and lower critical bound value. the critical values for i (1) series are referred to as upper bound critical values; while the critical values for i (0) series are referred to as lower bound critical values. if the calculated f statistic is greater than the upper bound critical values, we reject the null hypothesis of no long run relationship among the variables. if the calculated f statistic is less than the lower bound critical values, we can’t reject the null hypothesis rather accept the null hypothesis of no co integration among the variables. however, if the calculated f statistic is between the upper and lower bound critical values, inference is inconclusive and we need to have knowledge on the order of integration of underling variables before we made conclusive inference (pesaran et al., 2001). accordingly, with the existence of cointegration, the short run elasticities can also be manipulated through building the error correction of the series as stated the follows. here all variables are as previously defined. the order of the lags in the ardl model is selected by either the akaike information criterion (aic) or the schwarz bayesian criterion (sbc) automatically, before the selected model is estimated by ardl model. 4. results and discussion 4.1 results of unit root test when we check stationarity of variable by adf, all variables is non-stationary at level so they are differenced. from the augmented dickey fuller test, the variables are integrated at different order and none of the variables are integrated of order two. table 1. augmented dickey-fuller (adf) test s no . variable with intercept with intercept and trend at level 1st difference order of integration at level 1st difference order of integratio n 1 inf -0.610064 -3.876628* i(1) at 1% -2.008248 -3.781685 i(1) at 5% 2 lnm2 -1.788559 -5.187734* i(1) at 1% -0.991645 -5.542462* i(1) at 1% 3 lnreer -0.606138 -3.598664* i(1) at 5% -2.718510 -3.543776 i(1) at 5% 4 lnbd 2.365709 -3.839873* i(1) at 1% -1.242459 -4.305291* i(1) at 1% 5 lnwop -0.268000 -7.224346* i(1) at 1% -3.270220*** -7.078391* i(1) at 1% 6 lnrgdp 0.324345 -3.926183 i(1) at 1% -2.054471 -4.276035 i(1) at 1% source: author’s computation of e view 9 result, 2018 supply and demand side determinants of inflation in ethiopia auto-regressive distributed lag model (ardl) 15 notes: the sign of ***, ** and * represents the rejection of the null hypothesis of non-stationary at 10%, 5% and 1% significant level respectively. the null hypothesis is that the series is non-stationary or the series has a unit root against alternative hypothesis that the series are stationary. akaike info criterion (aic) is used to determine the lag length while testing the stationarity of all variables. 4.2. model stability and diagnostic test to check the verifiability of the estimated long run model, some diagnostic test is undertaken. priority in doing any analysis, we required to check the standard property of the model. in this study, we carried a number of model stability and diagnostic checking, which includes serial correlation test (brush & god fray lm test), functional form (ramsey’s reset) test, normality (jaque-bera test), and heteroscedasticity test. in order to reject or accept the null hypothesis, we can decide by looking the p-values associated with the test statistics. that is the null hypothesis is rejected when the p-value are smaller than the standard significance level (i.e. 5%). table 2: long run ardl diagnostic tests test statistics lm version f version description a. serial correlation chsq(2)= 0.0454 f(2,15)= 0.3398 lagrange multiplier test of residual serial correlation b. functional form chsq(2)= 0.9597 f(1,10)= 0.9597 ramsey's reset test using the square of the fitted values c. heteroscedasticity chsq(17)= 0.3577 f(17,11) = 0.4224 based on the regression of squared residuals on squared fitted values source; own computation from eviews 9.5 the above table indicates that the long run ardl model estimated in this study passes all the diagnostic tests. this is because the p-value associated with both the lm version and the f version of the statistic was unable to reject the null hypothesis specified for each test. therefore, based on the result of the test the null hypothesis of no serial correlation (brush cod fray lm test) is failed to reject for the reason that the p-values associated with test statistic is greater than the standard significant level (i.e. 0.3398> 0.05). here lm test for testing serial correlation is applied because unlike the traditional durbin watson test statistic which is totally inapplicable when the lagged dependent variable appears as a regressors, lm test avoid such limitation of dw test. we could not reject the null hypothesis test for ramsey’s reset test, which tests whether the model suffers from omitted variable bias or not. as the test result indicates that we can’t reject the ramsey’s test, which means that the model is correctly specified. lastly, diagnostic test for heteroscedasticity seen from the above table, we cannot reject null hypothesis at 5% significant level due to its p-value associated with the test statistics are greater than the standard significance level (i.e 0.05<0.4224) tekeber nigusse & tekilu tadesse & tesfaye melaku 16 4.2.1 test of parameter stability the stability of the model for long run and short run relationship is detected by using the cumulative sum of recursive residuals (cusum) which helps as to show if coefficients of the parameters are changing systematically and the cumulative sum of squares of recursive residuals (cusumsq) tests which is useful to indicate if the coefficient of regression are changing suddenly. accordingly, if the blue line cross redline which is critical line and never returns back between two critical line, we accept the null hypothesis of the parameter instability whereas the cumulative sum goes inside the area (can returns back) between the two critical lines, then there is parameter stability in the short run and long run. figure 1: plot of cumulative sum of recursive residuals (i) figure 2: plot of cumulative sum of squares of recursive residuals (ii) as the result seen from the figure, the plot of cusum test did not cross the critical limits. in the same manner, the cusumsq test shows that the graphs do not cross the lower and upper critical limits. so, we can conclude that long-run estimates are stable and there is no any structural break. in addition to the confirming model stability by employing cusum and cusumsq test mentioned in above figure, we can look at goodness of fit statistics of the model containing the explanatory variables that was proposed actually explain variations in the dependent variable because it is important to have some measure of how well the regression model actually fits the data. accordingly, adjusted r2 was 81 percent of the model has been explained by the regressors respectively. hence the results of the estimated model are consistent and efficient. 4.3. long run ardl bounds tests for co-integration since we determined the stationary nature of the variables, the next task in the bounds test approach of cointegration is estimating the ardl model specified in equation (3.7) using the appropriate lag-length selection criterion. according to pesaran and shine (1999), as cited in narayan (2004) for the annual data are recommended supply and demand side determinants of inflation in ethiopia auto-regressive distributed lag model (ardl) 17 to choose a maximum of two lag lengths but for small data it is advisable to use 1 lag because when the lag length increases the observation fail to show the appropriate long run relationship among variables because to show the long run relationship the number observation must be greater than 30. as we discussed so far, the f-test through the wald-test (bound test) is performed to check the joint significance of the coefficients specified in equation (3.7). the wald test is conducted by imposing restrictions on the estimated long-run coefficients of real gdp, real effective exchange rate, money supply, budget deficit, world oil price. the computed f-statistic value is compared with the lower bound and bound critical values provided by pesaran et al. (2001) and narayan (2004) table 3 bound test source; own computation from eviews 9.5 from the above table calculated f statistics (7.9551) is higher than both the pesaran et al. (2001) and narayan (2004) upper bound critical values at 1% level of significance. this implies that the null hypothesis of no long -run relationship is rejected; rather accept the alternative hypothesis (there is long-run relationship) based on critical values at 1% level of significance. therefore, there is cointegration relationship among the variables in long run. 4.4 long run ardl model estimation after confirming the existence of long-run co-integration relationship among the variables, the next step is running the appropriate ardl model to find out the long run coefficients, which is reported in table below. table 4: long run coefficients co integrating equation variable coefficient stan.error t-statistics probabilities lbd 0.764 0.273 2.79 0.013* lgdp 0.1169 0.209 0.5581 0.587 lm2 0.5012 0.1864 2.689 0.021* lreer 0.491 0.348 4.276 0.0013* lwop 0.342 0.3029 7.733 0.000* c 9.708 2.173 4.466 0.0010 source; own computation from eviews 9.5, 2018 lags f statistics decision 1 7.9551 co integration significance lower bound upper bound 5% 2.62 3.79 2.5% 2.96 4.18 1% 3.41 4.68 tekeber nigusse & tekilu tadesse & tesfaye melaku 18 note: the sign *, ** and *** indicate that the variables are significant at the level of 1%, 5% and 10% respectively. the result of the above table indicates that all the variables entered in the regression have the expected signs regardless of their significant level. as we have discussed in the theoretical and empirical literature parts money supply, budget deficit, real effective exchange rate, world oil price, budget deficit and real domestic product have positive impact on ethiopian inflation rates. moreover, real gross domestic product has positive relationship and insignificantly affects inflation in ethiopia. as expected from economic theory, money supply has positive and significantly affect inflation in ethiopia which is evidenced with 1% significance level in the long run. this coefficient shows that assuming other things held constant, a percentage change in money supply would increase consumer price index by on average 0.5012 percent in the long run. the result supports the arguments of classical economists so called the theory of quantity theory of money which stated that an increase in money supply always come up with higher price levels. the classical economist monetary transmission channel to inflation implies that as money supply increase, economy investment encouraged through available credit and thereby high employment creation. aggregate demand automatically increases because of expanded investment and employment. finally, the economy experienced by increased inflation. as the result reveals that in the long run, the most significant variable that affects the rate of inflation is world oil price which possessed a direct positive relationship between world oil price and inflation. the long run coefficient of the variable shows that, holding other things constant, a one percent change in world oil price (wop) which is proxy by general world oil price of dollars leads to on the average 2.342 percent increase in cpi. as it is known that oil is major source of energy which affects almost every sector of the economy which manifested in an increase in cost of production. as result, prices rise in international market increase domestic price of goods and services due the fact that ethiopia energy demand is fully imported. this result confirms with the study of saleem, and ahmad (2015). as the result predicted that there is a positive real exchange rate (depreciation) and inflation measured by cpi which evidenced by conventional significance level; this indicates that, in the long run, holding other things constant, a one percent increase in real effective exchange rate (depression of domestic currency) lead to 1.491 increase in consumer price index. the rational justification behind this relationship is that exchange rate volatility can affect on price level their effect on both aggregate supply and demand. demand side; increase in exchange rate push up foreign demand for domestic goods and services, causing raise in net exports and hence aggregate demand. the boosted aggregate demand further accelerates the price of input, there by bid up domestic price level. on the supply side, exchange rates could affect prices paid by the domestic buyers of imported goods directly. developing countries like ethiopia categorized as an international price taker experienced by the domestic currency depreciation leads to higher cost of imported inputs which will raise marginal cost and come up with increased domestic price. this result confirms with the finding of vinh and fujita (2007) in vietnam and monfared and akin (2017) in iraq. another long run determinant of inflation that we observed from estimation is the budget deficit which has found positive relationship with consumer price index and statistically significant at 1 percent significance level. its coefficient in long run equation is 0.764 it means that in the long run taking other factors constant or negligible one percent increase in budget deficit causes increase in consumer price index by 0.764 percent. the result confirms with the study of akcay et.al, (1996) who proposed two possible channels in which higher deficit leads to higher inflation. first possibility is that the government's debt requirements drive up demand of credit in the economy, rise the interest rates and as result, private investment is crowded out. the declining of national income will lead to a decrease in the supply of good and service for a given level of cash balances and hence, come up with increase in the domestic good and services. second proposed justification for positive relationship is that when national bank refused to monetize the debt while the private sector monetizes the deficits. the implication of this channel indicates that when high interest rates encourage the financial sector to develop new interest bearing assets which are risk free asset and equivalent to liquid money. as result, government borrowing not monetized by the national bank is monetized by the private sector and consequently, higher price level experienced by higher deficit. 4.5. short run error correction model after the acceptance of long-run coefficients of the inflation equation, the short-run ecm model is estimated. the error correction term (ecm), as we discussed in chapter three, indicates the speed of adjustment to restore equilibrium in the dynamic model. it is a three lagged period residual obtained from the estimated dynamic long run supply and demand side determinants of inflation in ethiopia auto-regressive distributed lag model (ardl) 19 model. the coefficient of the error correction term indicates how quickly variables converge to equilibrium. moreover, it should have a negative sign and statistically significant at a standard significant level (i.e. p -value should be less than 0.05) table 5: short run coefficient variable coefficient standard error t-statistics prob. d(lbd) 3.656 0.942 3.879 0.026** d(lbd(-1) -1.648 0.843 -1.842 0.0924** d(lgdp) 0.201 0.383 0.524 0.610 d(lm2) 0.859 0.649 1.321 0.213 d(lm2(-1)) 1.223 0.715 1.711 0.115 d(lreer) 3.651 0.914 -3.994 0.0021** d(lwop) 1.623 0.579 2.802 0.017** d(lwop(1)) -1.775 0.705 -2.516 0.028** coineq(-1) -1.72 0.423 -4.064 0.019** source; own computation from eview 9.5 note: the sign *, ** and *** indicate that the variables are significant at the level of 1%, 5% and 10% respectively. r2=0.9765 adj r2=0.948 f-sta=31.54(0.0001) dw stat= 1.71 the coefficient of determination (r-squared) is high explaining that about 97 % of variation in the inflation is attributed to variations in the explanatory variables in the model. in addition, the dw statistic does not suggest autocorrelation and the f-statistic is quite robust. the large number f-statistic implies overall jointly significant the independent variables in the model. furthermore, the results also reveal that budget deficit, money supply, real exchange rate and world oil price are positive and significant determinant of the inflationary spiral in ethiopia in the short run ethiopia. surprisingly, real rgdp is not significant at least in the short run. this result justifies that emphasizing the importance of monetary policy and fiscal policy in the inflationary process could have immediate impact on real sector. the error correction coefficient, estimated at -1.72 is highly significant, has the correct negative sign, and implies a very high speed of adjustment to equilibrium. according to narayan and smith (2006) the highly significant error correction term further confirms the existence of a stable long-run relationship even though most economists recommend that ecm<-1. moreover, the coefficient of the error term (ecm-1) implies that the deviation from long run equilibrium level of inflation in the current period is corrected by 172 % in the next period to bring back equilibrium when there is a shock to a steady state relationship but higher than 100% ecm means that it has oscillating type of convergence to long run equilibrium and it takes less than one year to return to its long run equilibrium. 5. conclusion this research has been undertaken to assess the macroeconomic determinant of inflation in the country from 1985/6-2016 by ardl model bound test to co-integration. the result of the above table indicates that all the variables entered in the regression have the expected signs regardless of their significant level. as we have discussed in the theoretical and empirical literature parts, money supply, budget deficit, real effective exchange rate, world oil price and budget deficit have positive and statistically significant impact on ethiopian inflation rates. however, real tekeber nigusse & tekilu tadesse & tesfaye melaku 20 gross domestic product has positive relationship and insignificantly affects inflation in the long run. regarding to short run dynamics, the results also reveal that budget deficit, money supply, exchange rate and world oil price are positive and significant determinant of the inflationary spiral in ethiopia in the short run. surprisingly, real rgdp is not significant at least in the short run. this result justifies that emphasizing the importance of monetary policy and fiscal policy in the inflationary process could have immediate impact on real sector. therefore, concerned body should give care of in policy formulation to control inflation such as using alternative energy sources including using hydroelectric power, solar energy and other important energy sources; to revaluate or appreciate domestic currency not by direct intervention of government but by providing subsidies for those who produce exportable goods and imposing high tax rate for imports; to use contractionary monetary policy to fix the growing inflation and to keep budget deficit at low level by balancing budget revenue with 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ethiopia, addis abeba ethiuopia: ethiopian economic assosation. ethiopia, n. b. o., 2015. annual reports, s.l.: s.n. fekadu, k., 2005. cause of imported inflation in ethiopia, addis abeba ethiopia: s.n. gujarati., 2004. basic econometrics. s.l.: mcgraw-hill companies, 4th edition. habtamu, d., 2000. the cause of low inflation in ethiopia , addis abeba ethiopia: aau. hagos, 2014. determinants of recent inflation, mekele : unpublished masterhis thesis,mekelle university,college of business and economics department of economics. jinghan, m., 1997. montary economics 4th edition. virinda india: virinda publication press. johansen, s. and jtiselius, k., 1990. “maximum likelihood estimation and inference on co integration – with applications to the demand for money”. oxford bulletin of economics and statistics. vol. 52, no. 2, pp. 169-210. johansen, s., 1988. “statistical analysis of cointegration vectors”. journal of economic dynamics and control vol. 12, , pp. 231-254 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markets. s.l.:pearson/addison wesley. monfared.s. and akin f., 2017. the relationship between exchage rates and inflation: the case of iran. european journal of sustainable development vol.4 issue 4, pp. 329-340. narayan, k., 2004. reformulating critical values for bound test f-statistics approach to cointegration, victoria ,australia: monash university. nayaran, k., 2004. reformulating critical values for the bounds f-statistics approach to co integration: an application to the tourism demand model for fiji”. discussion papers no 02 monash university, victoria, australia. pesaran, h. and shin, y., 1999. an autoregressive distributed lag modeling approach to co-integration analysis. uk: cambridge university press.. pesaran, h. m., & shin, y., 1995. autoregressive distributed lag modeling approach to cointegration analysis. working paper, no. 95/14. department of economics, university of cambridge, dae. ricardo, d., 1817. principles of political economy and taxation. london: murrary 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ethiopia. working paper in economics. international journal of commerce and finance, vol. 6, issue 2, 2020, 33-39 33 phenomenological study of exploring integrity culture during covid-19 in ethiopia debebe alemu kebede, jimma university, jimma, ethiopia mesfin lemma jimma university, jimma, ethiopia received: may 19, 2020 accepted: june 18, 2020 published: oct 02, 2020 abstract integrity is a common issue regardless of level of economy and conditions. the aim of this study was to explore what integrity looks like in ethiopia during covid-19. the study philosophical stances will be objectivist ontology and critical realist epistemology. to achieve the objective of the study, the qualitative phenomenological method will be applied to illustrate the issue. the necessary data was collected from purposively selected stakeholders by using semi-structured interview and observation as well document analysis for the secondary data. the study revealed there is a problem of awareness about the pandemic specifically in rural areas of the country, there is also a problem on existing media making the pandemic their prior issues, the business ethics are highly violated and leaders of political parties prioritizing issues of election rather than pandemic. commonly prioritization of the current worldwide pandemics is what expected from different stakeholders in the country. keywords: phenomenology; integrity; ethiopia; covid-19 1. introduction in the current dynamic environment modern organizations face challenges to “do the right thing” and ensure organizational effectiveness as the result of system volatility (lawler and worley, 2006; armenakis and harris, 2009). to deal with such a complex and dynamic environment, organizations need organizational system integrity. cameron et al., (2004) consider that the ethical factors in organizations can be measured by organizational integrity among other four factors such as organizational forgiveness, organizational trust, organizational optimism, and organizational compassion. thereby, to develop beneficial cooperation between persons and organizations, it is required trust-generating integrity (axelrod, 1984). shafter, et al. (2016) also stated as integrity is the most valued and respected quality of leadership and one of the most important management skills organization need to attain. integrity is an organization functioning consistently with the purposes and values for which it was created (molina, 2016). along these lines, it is crucial for an organization to effectively articulate its mission and values for its members to internalize and integrate them into dayto-day work. it is expected from management and leadership of the organization to formulate strong system integrity for the aligned implementation of organizational policies that institutionalize ongoing moral improvement within and between organizations (petrick & quinn, 2000). hence, to avoid the possibility of what hicks (2007) terms “systemic ethical failure” in organization, it is important to sustain an ethical organizational culture framework for maintaining and promoting organizational management integrity and for understanding and managing people in organizational settings. therefore, improving integrity has become a major concern in the organizations including the public sectors. public servants assist in the supervision of public resources, perform policy-making functions, and interact with citizens. in this sense, fostering integrity and prevent unethical behavior in the public sector are essential in sustain confidence in government and its institutions also helps to guard against the abuse of powers (thompson, 1992) regardless of comforting the integrity slogans on the home page of the company website and main organizational principles. simons (2008) has argued that integrity is the main feature that touches every aspect of a business. great strategies are nothing if they cannot be implemented perfectly (pearce & robinson 2010). according to witsen churchill “price of greatness is responsibility” so great strategies can only be formulated and implement with responsible management and leadership. there are abundant of studies within the ethiopian context regarding the in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e debebe alemu kebede & mesfin lemma 34 problem of public and private sectors in relation to their customer and complaint handling mechanism, service quality, competition; effect, role and impact of management and leadership in organizational performance and commitment. however, there is lack of empirical study that assessed from integrity perspective and during pandemic. however, it is currently during covid-19 observed in ethiopia increasing levels of unethical business activities, illegal acts, suspicion and leader malfunction (pilot survey, 2019). lacks of integrity leads partiality on service providing, problem on service they provide, service delay, usually changing rule and regulation, concerned body of organization act abnormally, declining performance because of previous leader transferred to another position and a single change have constraint on function of organizations. organizations in ethiopian is not exceptional. a culture of integrity adds value to the firm. the true measure of integrity in a firm is not comforting slogans on the home page of the company website, but how employees feel about whether top management and how customers feel about the organization, through its actions and behaviors, is living up to the promise in words and reason for establishment. the purpose of this survey was to describe what integrity seems like in ethiopian during covid-19 pandemic. specifically, the study will try to address: • to assess the societies awareness towards covid-19 in ethiopia • to analyze the role media played during the pandemic • to identify the current integrity status of business sectors in ethiopia • to identify the current integrity status of leadership in ethiopia 2. research methods philosophy impacts upon management research because research based on a different philosophy can produce a different result. since it will not only influence how research is going to be conducting but also the criteria by which it should be evaluated (cassell & johnson, 2006). mingers (2003) describes that ontology is the assumption about the nature of reality and taking a stance on ontology is to recognize the existence of different types of objects and relations while a stance on epistemology is to recognize that there are different ways of knowing the world. therefore, the study philosophical stances will be objectivist ontology and critical realist epistemology. since media, business unit and leadership is an objective entity that the researcher decided to adopt an objectivist stance to the study of integrity. the study epistemological stance will be critical realist (saunders, et al., 2009). critical realists argue that what we experience are sensations, the images of the things in the real world, not the things directly. business and management research are concerned with the social world in which we live. it is better to agree with writers such as bhaskar (1989) who identify with the epistemology of critical realists which states we will only be able to understand what is going on in the social world if we understand the social structures that have given rise to the phenomena that we are trying to understand. in other words, what we see is only part of the bigger picture. further, the critical realist’s position that the social world is constantly changing is much more in line with the purpose of business and management research which is too often to understand the reason for phenomena as a forerunner to recommending change. that is the reason critical realist epistemology will be applied for this study. the purpose of this study is to explore integrity through illustrating it from a society, media, business unit and leaderships perspectives so as to contribute to the concept of integrity during the pandemics, an inductive and qualitative research approach is well suited. further, to achieve the objective of the study, the phenomenological method will be applied. thus, to conduct this study both primary and secondary data’s will be collected. the primary data source was 20 population from societies, media (public, private and social media), 20 population from business units and government body, while, the sources of secondary data were strategic plan document of the government related to pandemics, internets and journals. the potential data collection method were observation and telephone interview. convenience sampling were used to reach the target population. after the data is collected the researcher tried to make the data ready for analysis. tracy (2013) advocates forms of data analysis and interpretation in case study research as follows: categorical aggregation form, the researcher seeks a collection of instances from the data, hoping that issue-relevant meanings will emerge. it is a process of pulling the data apart and putting them back together in more meaningful ways. also, the researcher establishes patterns and looks for a correspondence between two or more categories. this study will follow categorical aggregation forms of data analysis and interpretation since result can be analyzed for important themes. themes are identified by the frequency phenomenological study of exploring integrity culture during covid-19 in ethiopia 35 with which the same term (or a synonym) arises in the narrative description. the themes may be useful in discovering variables that are relevant to potential explanations (zikmund, et al., 2009). also, while conducting this study qualitative research validation and reliability will be checked. creswell (2013) consider “validation” in qualitative research to be an attempt to assess the “accuracy” of the findings, as best described by the researcher and the participants. internal validity refers to correct mapping of the phenomenon with findings. this is through triangulation which is make use of multiple and different sources, methods, investigators, and theories to provide corroborating evidence. so, integrity is evaluated through collaborating evidence from different sources to shed light on perspective. further, prolonged engagement and persistent observation in the field will takes place to check for misinformation that stems from distortions introduced by the researcher or informants. external validity refers to generalizability of findings. to assure the generalizability of the study the researcher will collect the information from target population which is interdependent group systematically as it describes the detail of the participants or setting under study using strong action verbs, and quotes. while reliability in qualitative research refers to the stability of responses and is closely related to replicability. reliability will be assured through asking question of the same concept. all necessary requirements were considered will collecting the data. the research results discussed, analyzed and reported without actually side with the participants on issues that emanated from spending considerable time with them. 3. results and discussions from the telephone interview undertaken with respondent’s majority of them replied as they are more or less aware about the covid-19 from different medias and volunteers since they are found where frequency of radio and television program is appropriately reaches. almost all of the respondents describe as the first two weeks awareness creation was focused only on hand wash. for this a lot of volunteers are participating on street hand washing program. every body was wash and move here and there, the road was a full of journeyer because of the school and government organizations was closed. some of the respondents also informed as they meet those don’t know about the pandemics in the cities and additionally, their family in the country side haven’t any awareness about the covid-19. majority of respondents raised as it was difficult for them what ministry of health announced about keeping social and physical distance as the result of its difficulty with our living standards, culture and lack of infrastructures. inadequacy of water supply, difficulty of getting sanitizers and its expenses was what raised by the respondents and observed in ethiopia. this implies as societies specially those have access for information are aware about the covid-19 in spite of difficulty of getting necessary materials. also, the role that played by medias whether it is private, public or social media was the issues that interviewed. the respondent’s thanks those media that works day and night for creating awareness to the societies about the pandemics. the result from the interview undertaken with some media and respondents the role that was played by media are aware the societies through: producing and distributing short films, debates and discussion with health professionals and societies, informing the existing gap of government. however, the program designed to distribute for societies are up to their frequency coverage, not reachable at country side specially where no power. it is also observed as there was a media that forgotten the current worldwide pandemics and focused on political issues. this implied as there is shortage of media coverage on pandemics in ethiopia. there are the media in the country those are not properly participating on reason for what the media is established. additionally, business unit was considered while interview was undertaken. majority of the respondents indicated as business ethics was violated during this pandemic as the result of business organization increase the price of products, secrete the products to form shortage in the markets, selling low quality products and contrabands covid-19 protection materials. almost all respondents indicated as what business units did to his societies are out of culture and unethical. this shows as business units in the country didn’t respect the integrity slogan they attached on their website or basic principles. lastly, interview and observation result with respect to leadership. majority of respondents replied as what leaders of different political parties crying about this year national election rather than the pandemic is out of mind. some of respondents raised whom this political parties going to lead? there are also leaders that cares about societies day and night specially addis ababa mayor that systematically leading the city by preparing food bank, encouraging the debebe alemu kebede & mesfin lemma 36 investors to invest on protection materials. one of the respondents raised unethical and corrupted individuals with those was appointed to check whether private and public organizations readiness to protect the covid-19. it also observed 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the effect of financial incentive scheme practice on employees’ motivation in the case of cbe jimma district. the study was descriptive as well as explanatory which used primary source of data. non-probability and probability sampling method were applied (cluster & purposive). accordingly, the major findings are, the overall perception of respondents about current financial incentive practice was shown as they are dissatisfied with salary and they are neither satisfied nor dissatisfied with fringe benefits pay. the result of regression analysis shows that; financial incentive variables (salary and fringe benefits pay) were not significant predictors of employees’ motivation. also of that, a significant portion of employees was at good motivation level to perform their job. also, it is advisable to the bank to reviews its salary scale & fringe benefits pay practice even so it had not significantly affect employee motivation it may be a cause for employees’ dissatisfaction. keywords: report financial incentives, salary, fringe benefit, motivation 1. introduction organizational theorists have generally acknowledged that the key quality that a corporation will ever have are its human resources, but the productive accomplishment of the goals of the organization are going to be subject to the correct readying of its human resources. moreover, organization success rests on its staff, so the necessity to worry on components that may impact on employees’ motivation and performance from the views of (liao et al., 2007). motivation is “a predisposition to behave in purposeful manner to realize specific, unmet wants and then to realize them, and also it is the inner force that drives people to accomplish personal and organizational goals” (williams 2010). motivation is that the increase within the employees’ work ethic so as to perform to a selected personal accomplishment (beardwell, et al, 2010). motivation is about of processes supported a force that produces the energized behavior and directs it towards some goal to realize (baron and linguist, 2008). the reward structure ought to encourage adept workers to remain long period in the organization similarly as increase the motivation and commitment to the organization and thus increase the productivity (brickley et al, 2002). according to mugaa, (2017) “despite, a number of incentives being given to employee, it was revealed that some incentives are more powerful than others in motivating workers. this is because some are more valued than others, cash incentives are more preferred than non-cash incentives. barongo, (2013) there is a significant positive relationship between salary and employees’ motivation. according to saira et al, (2014) money is ranked top as an influential factor in creating employee motivation because it satisfies the basic necessities along with attainment of power fulfills belongingness needs. according to biruk, (2017) the independent variables (payment/salary and benefit) are positively and significantly related to employee motivation as this variable changes directly affect employee motivation. in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e kibru kefay & chalchissa amentiea & lalise kumera 1.1. statement of the problem increasing motivation, commitment and engagement levels are key organizational components nowadays. the improvement of compensation policies has an important role in motivating staff to supply high ranges of performance, discretionary effort and contribution (salanova and kirmanen, 2010). banks function under intense strain and in a competitive environment. they should justify their existence with the aid of making profits and customers require them to grant better service. this has made it crucial for banks to use fantastic administration control to make sure that their personnel are working hard to reach the organization’s objectives (magnusson & nyrenius, 2011). financial incentives can motivate worker to perform well on their occupation. the reason for financial incentives is to compensate workers for amazing occupation execution through cash. research demonstrates that pictured financial incentives vary for workers in view of profession stage and generation (osa, 2014). shaheen and farooqi, (2014) have presumed that for individuals with acceptable financial incentives, some nonfinancial helpers are more compelling than additional trade out building long hour worker engagement in most divisions, work capacities, and business connections. numerous monetary remunerates basically create short-lived supports of vitality, which can have harming unintended outcomes. as fact, most organizations provide only money or financial incentives to remunerate employees for the work they done for the organization by perceiving that people need only money to stay, motivated and work in their organization. moreover, initiation for the study was that the word motivation seems simple to call and collection of only ten letters but it is a key for everyone’s (individuals or organizations) success. it is a means for success even more than ability because people or employees can improve their ability by different meanness only if they have motivation for what they need to do. therefore, the above gap and the importance of the title initiated the researcher to conduct this research. hence, this study was undertaken to investigate the effect of financial incentives scheme practice on employees’ motivation in commercial bank of ethiopia jimma district. it would try to response the following research questions. what are the current perception of employees about financial incentives and their level of motivation? what is the employees’ motivation level in the bank? what is the relation between financial incentives and employees’ motivation? 1.2. objective of the study the main objective of the study was to investigate the effect of incentive scheme practice on employees’ motivation in commercial bank of ethiopia in jimma district. 1.2.1. specific objectives 1. to understand the perception of employees’ about non-financial incentives 2. to examine the motivation level of employees’ of the bank. 3. to identify the relation between non-financial incentives (promotion, recognition and training) and employees’ motivation. 1.2.2. hypothesis of the study h0: salary has no positive & significant effect on employee’s motivation h0: fringe benefit pay has no positive & significant effect on employee’s motivation 2. literature review 2.1 concept of motivation the study of motivation encompasses the science of perception ‘why people behave the way they do?’ (buelens et al, 2010). in easy phrases motivation can therefore be described as the will to perform (brooks, 2009). this definition paints motivation as a type of inner pressure or force that affect the actions and efforts of a person. motivation is concerned with the power and course of conduct and the factors that have an impact on people to behave in certain ways (armstrong, 2009). the term ‘motivation’ can refer variously to the goals persons have, the ways in which persons chose their dreams and the approaches in which others attempt to change their effect of financial incentive scheme practice on employees’ motivationş in case of commercial bank of ethiopia 43 conduct (armstrong, 2009). motivation is set of procedures based totally on a pressure that makes the behavior energized and directs it closer to some purpose to attain (baron and greenberg, 2008). 2.2. types of motivation 2.2.1. intrinsic motivation intrinsic motivation arises from a psychological reward that comes from inside and not as a result of exterior forces (buelens et al., 2010). intrinsic motivation is described as the motivation to execute the job in order to acquire pleasure and pleasure in the absence of financial reward (kuvaas &amp; dysvik, 2010). fang and gerhart (2012) defined intrinsic motivation as the motivation to perform work because the project is interesting and gratifying to the employee. 2.3. extrinsic motivation for an individual to be extrinsically influenced then an instrumentality between a recreation and some separate reward is required. this means that motivation is derived not from the activity itself, but instead from the extrinsic penalties to which the activity leads (gagné &amp; deci, 2005). when a character is extrinsically influenced the person is driven to perform his or her mission due to the fact it leads to some separate end result (deci and ryan, 2008). 2.4. theory of motivation 2.4.1. maslow’s hierarchy of needs theory probably one of the most known need theories, maslow’s hierarchy of needs theory, says there exists a hierarchy of 5 needs categorized into lower order and higher order needs, each of which must be satisfied before the next one becomes dominant. those needs are physiological (i.e. hunger, thirst, shelter, sex, health among other bodily needs) and safety needs are both categorized as lower order needs, which must be satisfied externally through salaries, type of contract (safety) and insurance policies among others. we can see those needs are extrinsic. on the upper half of the pyramid, social (i.e. affection, friendship, belongingness, acceptance), esteem (i.e. autonomy, self-respect, status and recognition) and self-actualization (i.e. growth, living up to one’s potential, self-fulfillment) are categorized as higher order needs, which must be satisfied intrinsically (judge and robbins 2009). 2.4.2. hertzberg’s two-factor theory according to herzberg (1966), intrinsic elements such as the work itself, achievement in the work, the possibilities of personal growth and recognition, and being charged with vital responsibilities, regarded to end result from the human capability to personally advance and grow. he called these elements motivators. on the other hand, extrinsic factors had been these elements that prevented job pride and employee growth. the extrinsic factors such as working conditions, salary, job security, and relationships with others are not phase of the work, but they refer to the environment, and prevent job dissatisfaction. herzberg calls these elements hygiene, dissatisfiers or upkeep factors (herzberg, 1966). 2.4.3. erg theory this theory was established by (alderfer, 1972), the theory ascertains three diverse stages of a concept which is somewhat related to maslow’s hierarchy of needs. mcshane et al. (2003), give details of alderfer’s erg concept as a satisfied stimulus theory that has three features of basic wants categorized in an ordered arrangement by which workers develop the direct significant want. as soon as the lower desire or need is achieved the next higher level want in the ranked-order yet to be accomplished turns to the lower level need. kibru kefay & chalchissa amentiea & lalise kumera 2.5. overview of financial incentives financial incentives are developed to satisfy basic human needs, encouraging and pushing people to do their best work performance, the recruitment of their capabilities and enhance their competencies level. financial incentives are also designed as a means of payment to increase productivity and improve employee work performance. therefore, the more employees produce the more they can get. whereas, decrease in quality or quantity of work might deprive employees’ from earning part or all of their incentive (jadallah, 1997). selected financial incentives for this study were basic pay and fringe benefits explained as follow. 2.6. base pay/ salary base pay is the core payment made through the organization for work performed and typically tends to mirror the organizational value of either the work that the employee undertakes or the value of skill and competency who is undertaking the work. it is directly related to time and the price is calculated in terms of quantity of hours, week or month that the employee carried out the project given (thorpe &amp; homan, 2000). 2.7. fringe benefits gupta (2014) states that key employee allowance advantages encompass residence hire allowance, travel allowance and any other extraordinary allowances given at a normal interval at a exact time by the organization. hina, et al (2014) has the same opinion that allowances are given to maintain the fine genius in the enterprise and scale as per the position of the employee in the organization. 3. research methodology this research paper adopts both descriptive & explanatory research approach since its purpose was to identify and describe the perception of employees about the financial incentive scheme practice of the bank; their motivation level and also it would identify the cause and effect relationship between financial incentive scheme practice and employees’ motivation. in addition to that the research was quantitative research. 3.1. population of the study the target population was the total 1355 professional employees’ of commercial bank of ethiopia jimma district. 3.2. sampling technique the study employs both probability and non-probability sampling techniques. four city clusters namely, jimma, bonga, bedelle, and mettu cities are selected through purposive sampling technique. from those cities totally 14 branches as well as respondents for the questioner were selected by simple random sampling technique and proportion of respondents for each branch was determined judgmentally by the researcher. 3.3. sample size yamani (1967) formula was used to determine the sample size of the study. n=n/ (1+ne2) n= 1355/ (1+1355(0.05)2 n= 1355/ (1+3.3875) n= 308 where; “n” is the sample size, “n” is the population size and “e” is the level of precision. at 95% confidence level, degree of variability=0.05 and level of precision/sampling error= 5%. 3.4. data sources and types effect of financial incentive scheme practice on employees’ motivationş in case of commercial bank of ethiopia 45 the only source of the data used was primary in order to determine the effect of incentive practices on employee motivation and to meet the study objectives and the type of the data was quantitative. 3.5. data processing and analysis techniques the data collected was analyzed through quantitative data analysis techniques. the numerical data analysis was done using spss (statistical packages for social science) software program. both descriptive (frequencies, percent, cumulative percentage, mean, standard deviation) and inferential statistics (correlation, regression and anova) would be used for data analysis. the pearson correlation coefficient was used to measure the linear relationship between dependent and independent variables. 4. data analysis and findings a total of 308 questionnaires were distributed to the sample respondents. from that only 284 questionnaires were returned out of which only 273 were usable. the response rate was 92%. 4.1. result of descriptive statistics table 1 frequency, mean and standard deviation for measures of basic pay iv variables frequency mean sd 1 2 3 4 5 1 my basic payment is reasonable with respect of my contribution 35 12.8% 115 42.2% 76 27.8% 45 16.5% 2 0.7% 2.50 .940 2 my salary is fair when compared with that of similar jobs in other companies. 31 11.4% 125 45.7% 66 24.2% 45 16.5% 6 2.2% 2.52 .970 3 my salary is enough to satisfy my needs. 39 14.3% 147 53.8% 53 19.5% 27 9.9% 7 2.5% 2.33 .927 4 salary increment is managed fairly. 55 20.1% 122 44.7% 71 26% 24 8.8% 1 0.4% 2.25 .888 5 salary adjustment is made according to the current market 36 13.2% 145 53.1% 67 24.5% 25 9.2% 2.30 .811 over all perception of employees towards the basic pay/salary 2.38 source: owen survey, 2019 1=strongly disagree, 2= disagree, 3= neutral, 4= agree, 5=strongly agree in the above table 1, out of the total respondents (62.26% in average) have negative feeling about the salary scale of the bank. in other way, the mean value for the salary was 2.38. so, depending up on the two figures we can say that majority of respondents were not satisfied by the basic pay/salary of the bank. table 2: frequency, mean and standard deviation of respondents for fringe benefits of bank. v variables frequency mean sd 1 2 3 4 5 1 my medical allowance is 36 34 66 121 16 3.17 1.142 kibru kefay & chalchissa amentiea & lalise kumera satisfactory. 13.2% 12.5% 24.2% 44.3% 5.9% 2 transportation benefit is fair with the current cost of transportation service. 32 11.7% 38 13.9% 58 21.2% 115 42.2% 30 11% 3.27 1.184 3 house allowance pay of the bank cover my house rent 25 9.2% 20 7.3% 76 27.8% 123 45.1% 29 10.6% 3.41 1.074 4 overtime pay is fair and reasonable 48 17.6% 38 13.9% 33 12.1% 127 46.5% 27 9.9% 3.17 1.296 5 fringe benefit scheme is fair when compared with similar companies 27 9.9% 22 8.1% 80 29.3% 101 37% 43 15.8 % 3.41 1.147 over all perception of employees towards the fringe benefit of bank 3.28 source: owen survey, 2019 1=strongly disagree, 2= disagree, 3= neutral, 4= agree, 5=strongly agree around half of the respondents (53.66% in average) have positive attitude for the fringe benefit practices of the bank. the results of overall perceptions of respondents towards the fringe benefit practice of the bank shows that the majority of respondents were at the position of indifference (neutral) feeling at the mean of 3.28. table 4. frequency, mean and standard deviation for measures of employee motivation iv variables frequency mean sd 1 2 3 4 5 1 i have opportunity to accomplish my objectives 28 10.3% 68 24.9% 150 54.9% 27 9.9% 3.64 .796 2 i have loyalty and belongings to my bank 27 9.9% 14 5.1% 42 15% 149 54.6% 41 15% 3.60 1.11 4 3 the bank provides me with challenging and meaningful jobs 29 10.6% 45 16.5% 32 11.7% 119 43.6% 48 17.6% 3.41 1.25 2 4 i have encouragement to improve my performance and to develop my skills 27 9.9% 30 11% 72 26.4% 130 47.6% 14 5.1% 3.27 1.05 7 5 i support and help each other with my coworkers or staff members 12 4.4% 27 9.9% 45 16.5% 151 55.3% 38 13.9% 3.64 .986 6 i am committed to my responsibility 14 5.1% 46 16.8% 59 21.6% 109 39.9% 45 16.5% 3.46 1.10 8 7 my accomplishments give me an important sense of self-respect 12 4.4% 53 19.4% 65 23.8% 113 41.4% 30 11% 3.35 1.05 1 over all perception of employees towards their motivation level 3.48 source: owen survey, 2019 1=strongly disagree, 2= disagree, 3= neutral, 4= agree, 5=strongly agree 4.2. correlation and regression analysis effect of financial incentive scheme practice on employees’ motivationş in case of commercial bank of ethiopia 47 from the result of pearson correlation, salary have a very weak positive relationship with employees’ work motivation but fringe benefit pay has moderate positive relationship with employees’ work motivation. the study used a multiple linear regression model and examined the effects and magnitudes of the independent variables on motivation level of employees. the regression result was presented and discussed as follow. mtv= α + β1pro + β2rec + β3tra + β4fri + β5bas + e where; mtv = motivation, α = the constant, or y intercept βi= the coefficient of the independent variables pro = promotion, rec = recognition, tra = training, fri = fringe benefit, bas = basic pay/salary e = the error term coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta (constant) fringe benefit pay basic pay/salary 3.605 .156 .047 1.655 .091 .085 .114 .025 2.178 1.715 .554 .030 .088 .580 source; spss results, 2019 a. dependent variable: employee motivation b. predictors: (constant), fringe benefits pay, basic pay/salary h0: fringe benefit has no positive & significant effect on employees’ motivation the null hypothesis was accepted since the statistical value’ in the above table shows the fringe benefit has no significant relationship with employee motivation at sig of .088 which is > p 0.05. the t-value is 1.715 which was less than +2 that make it not an important predictor and it was concluded as fringe benefit has no significant relationships with employee motivation. h0: basic pay/salary has no positive & significant effect on employee’s motivation the null hypothesis was accepted because the p-value was greater than 0.05 and the t-value was .554 which is less than +2 that make it not a useful predictor and it was concluded as basic pay/salary has no significant relationship with employee work motivation. this shows that basic pay/ salary would not determine the motivation level of employees in cbe jimma district. 5. conclusion the mean value of fringe benefit pay was neutral; therefore, the study concludes that employees’ of the bank were neither satisfied nor dissatisfied with the fringe benefits pay practices. also, mean value of basic pay/salary was low. so, the study concludes that the salary provided by the bank was not enough to satisfy its employees’ in other word employees’ are dissatisfied with salary amount paid to them. the finding of the study indicates that the mean value for motivation level was partially high or it can be said as good but not enough. therefore, it could be concluded as employees’ of the bank were at good motivation level. standing from the regression result, financial incentives (basic pay/salary & fringe benefit) haven’t been significantly affected employees’ motivation. so, it could be concluded as financial incentives are not significant incentives to motivate employees’ of the bank. this is because financial incentives may create short-lived satisfaction that may last in hours or for few days after they receive. kibru kefay & chalchissa amentiea & lalise kumera 6. recommendation the bank should not consider basic pay/salary and fringe benefit as a motivation factor rather it may go with herzberg’s motivation theory so, it may be a dissatisfaction (hygiene) factor rather than motivation factor. the finding of the study shows that salary & fringe benefit does not significantly affect employee motivation. depending up on the herzberg’s view of motivation theory it is recommendable to the bank to make salary adjustment according to the industry market and put cost of living in to consideration to avoid employees’ dissatisfaction; as well as it is advisable to the bank to make partial positive improvement on its current fringe benefit practice to turn employees’ from their neutral position. because, the employees’ dissatisfaction with those financial incentives may lead employees’ to 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(1967), statistics, an introductory analysis, 2nd edition, new york: harper and row. international journal of commerce and finance, vol. 6, issue 2, 2020, 18-32 18 determinants of gross domestic saving and its trend analysis in turkey: a time-series outlook solomon amare tessema istanbul commerce university, istanbul, turkey received: may 05, 2020 accepted: june 18, 2020 published: oct 02, 2020 abstract saving is an engine for the growth and prosperity of a nation by creating capital accumulation and financial investments through resource mobilization. turkey appears in the set of countries that have relatively low domestic saving rates and relatively high current account deficits. this study examined the determinants of gross domestic saving and its trend in turkey, using time series data (annual) ranging from 1980-2018. data were collected from the world development indicators (wdi) 2019 database, world bank and central bank of turkey annual reports. the macroeconomic variables used in the model were gross domestic saving rate to gdp ratio (gds), inflation rate (inf), deposit interest rate (dir), broad money supply to gdp ratio (m2r), age-dependency ratio (adr), and growth of gross national income per capita (gnipcg). the study has used auto-regressive distributed lag (ardl) model and appropriate diagnostic tests for model specification. the results of the study have shown that the first lag of gross domestic saving, inflation rate, age-dependency ratio, and broad money supply to gdp ratio have positive effects, whereas gross national income per capita growth and deposit interest rate have negative effects on gross domestic saving rate in turkey. only the first lag of gross domestic saving rate and deposit interest rate have statistically significant effects on gross domestic saving in turkey at a 5 percent level of significance. the rest of all variables have statistically insignificant effects. the overall findings of the study underlined the importance of adopting strict fiscal and monetary policies to regulate inflation and money supply with manageable levels to improve the gross domestic saving rate in turkey. keywords: turkey, gross domestic saving rate, inflation rate, deposit interest rate, broad money supply, growth of national income per capita, age dependency ratio, auto-regressive distributed lag model. 1. introduction domestic saving is the difference between the gross domestic product and final consumption expenditure. the sum of the saving by the public sector, the private corporate sector, and the household sector in a country is called gross domestic saving. domestic saving plays a noteworthy role in the economic growth of a country. it is an important factor that finances investment, creates job opportunities, improves the level of productivity, and maintaining high growth rates through its effect on capital formation in a country (khan, 2017). saving is one of the main elements in a macro-economy that contributes to the growth of a nation, improve social welfare, increase per capita income (pci), etc. it is, hence, one of the basic determinants of prosperity, growth, and wealth of a nation. from the perspective of devoting resources to the production of capital goods in the context of developing countries, saving is necessary to fund investment. saving is not only a form of relationship but also a basic source of investment financing. therefore, it would be vital to look at the factors which affect the level of domestic saving and improve economic growth. classical economists emphasized saving as a determinant of growth and economic development. growth in capital stock is functionally related to the portion of additional output, which is preserved and not consumed (polshikov, 1981). this portion, which is saved subsequently, becomes available for investment or an increase in capital. thus, there is a link between saving and growth. it is the growth in saving as a crucial factor in capital formation that eventually determines the direction and level of economic development. according to c.v. rijckeghem (2010), turkey appears or belongs to the set of countries that have relatively low domestic saving rates and relatively high current account deficits. turkish saving rate is also much less than the asian-tigers saving rate. a low saving rate leads to a low investment amount, which in turn hinders the economic in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e determinants of gross domestic saving and its trend analysis in turkey: a time-series outlook 19 growth of the country. so, to achieve a superior rate of economic growth for turkey, it requires a historically unprecedented level of saving, either from domestic or foreign sources. even though the external source of investment financing has some disadvantages as it makes the country highly sensitive to external shocks, it is recommended when the domestic resources are not much enough to finance domestic investment requirements. turkey’s investment has been financed from foreign savings in addition to funds from internal sources. this shows the financial gap of the country to finance its investment. therefore, to avoid this financial gap, and to improve its economic growth rate, domestic saving should be the primary alternative to the economy. because of these facts, deep scrutiny of the dynamics behind saving and the possible policy options has an indispensable role to increase the national savings rate in line with the need of the economy. the purpose of this paper is to identify the major determinants of gross domestic saving rate in turkey and to suggest potential policy options by using time series annual data ranging from 1980-2018 drawn from world development indicators 2019 database. 2. literature 2.1. theoretical literature 2.1.1. the concept and definition of saving saving is defined as the difference between income and consumption at a specific period of time. keynes (1936) agrees with this definition (mithani, 2000). he defined saving as an excess of income over expenditure on consumption. the above definition works for both individual and community cases. symbolically, it can be represented as follows: s=y-c …………………………………………………………… (1) where; s − denotes individual/community-saving. y − stands for individual/community income, and c − stands for individual/community consumption. according to keynes (1936), saving is the function of income, i.e., s = f(y). as income increases, saving also increases, and vice versa. saving depends on the propensity to save which is a stable function of income in a short period. it follows that the consumption function (the propensity to consume), which can be derived from a propensity to save, would also be a stable function of income. however, saving is an increasing function of income. thus, the marginal propensity to save (δs/δy) is always greater than zero, but less than unity. symbolically, 0 < δs/δy < 1 ( mithani, 2000). 2.1.2. theories on the virtue of saving saving is one of the main sources of financing investment in the country. saving with financial intermediaries facilitate the flow of funds to investors and make investment possible. there is circular causation among saving, investment, and growth. hence, promoting investment can be a solution to the economic problems of developing countries (lewis, 2000). the virtue of saving is debatable among scholars. classical economists, consumption theorists, and keynesians have different thoughts about saving. while classical economists consider saving as an advantage of having a surplus, consumption theorists argue saving on the bases that saving will decrease consumption. classical economists suggest that saving is a virtue and the act of saving is virtuous because individual savings will add up to national saving which is a source of investment. however, consumption theorists like g.a. hopson and albert aftalion vehemently oppose the classical theory of saving. they argued that there is no virtue involved in the act of saving because an increase in aggregate saving would lead to growing under-consumption, which would cause an overall decrease in demand and ultimately lead to over-production, which in turn reduce price and profit of the firm, which make firms draw from investing and reduce national investment (mithani, 2000). on the other hand, keynes in his book (1936) titled by the “general theory of money, interest, and employment” took a middle position between the classical and the proponents of the consumption theory. in his opinion, it was not so important whether an individual saves or not but what is more important was what use he made to his saving. solomon amare tessema 20 according to him, saving is a positive virtue but a public vice. saving is a positive virtue since every individual induces to save owing to the instinctive fear of future uncertainty and insecurity and therefore as a precaution has saved to safeguard against future contingencies. according to keynes, when aggregate saving in a community increases through general reduction of consumption by the community as a whole, it leads to decrease in aggregate demand in consumer goods which in turn leads to a decrease in the price of consumption and capital goods, and then producers will decrease their investment in production. 2.1.3. sources of saving and subjective motives for saving there are three main sources for domestic saving in any country. these are: i. household saving: it is the difference between disposable personal income and consumption expenditure at an individual level. ii. firm or corporate saving: it refers to profits or gross income less dividends and business taxes. iii. government or public saving: it is the difference between public revenue and current expenditures. iv. the total saving amount is the sum of private savings (which includes household and firms saving together) and public saving. individuals or households, firms, and government are induced to save more when there are strong subjective factors which motivate them to save. individuals induced to save more when they want to build up a reserve for future uncertainties, to earn additional income from interests and then to smoothen up lifetime consumption, to build up power and self-confidence through capital accumulation, to have new business plans, and so on. likewise, firms induced to save more when they want to purchase capital goods, to solve liquidity problems, to invest in different financial markets, etc. the government used saving as an instrument to narrow the gap between government expenditure and revenue, to reduce higher import rates, to stabilize price and financial markets, and so on (mithani, 2000). 2.1.4. trends of gross domestic saving in turkey economic growth is largely related to the rate of investment which in turn related to saving. it is therefore important to pay close attention to this phenomenon if a country wants to achieve rapid economic growth. turkey has a low national saving rate compared to countries with similar levels of income and it has been declining since 1988. from 1988 to 2002, the private saving rate displayed a stable path while the public saving rate exhibited a trend decline that results in a declining national saving rate. however, these patterns changed radically after 2002. public saving rates marked a considerable increase due to the fiscal austerity measures, whereas private saving rates showed a striking decline, rendering a quite low national saving rate by international standards (e.p. matur et.al, 2012). when it is compared with other equally performing countries, as rijckeghem (2010); turkey’s national saving rate is much lower than its asian tiger counterparts. however, it is comparable to that of central and eastern europe and it is not much lower than that in the eu. turkey’s saving rate is similar to that in eastern european countries, which have also experienced “credit booms” during the last two decades. according to imf (2005), unadjusted private saving has been roughly stable at around 20% of gdp for emerging markets excluding china, east asia, and oil producers. turkey’s private saving rate was almost similar in comparison to this set of countries until 2002: saving unadjusted for inflation lay somewhat above comparator countries while saving adjusted for inflation lay somewhat below. from 2002 onwards, however, turkish private savings declines dramatically. the rapid decline in national saving rates and the fact that the decline in the recent period was primarily driven by the private sector causes concerns about the sustainability of growth in turkey. this is also reflected in the increasing current account deficit. moreover, the dependence on large foreign capital inflow as a major source of investment and growth makes the economy fragile to sudden stops or huge capital outflow. the memories of past crises driven by internal or external factors, such as the 1994 crisis, the 2001 crisis, and finally the 2008-2009 global financial crisis aggravates these concerns. determinants of gross domestic saving and its trend analysis in turkey: a time-series outlook 21 2.1.5. determinants of gross domestic saving economic and demographic factors like income growth, age-dependency ratio, inflation rate, interest rate, and money supply are major determinants of domestic saving (mithani, 2000; abu, 2005; mahmoud, 2008; kidane, 2010; and kıvanç, 2015). according to the life cycle hypothesis (lch), expectations of individuals about lifetime income matters the amount of their consumption and saving ratio in a certain period. the theory classified the individuals’ lifetime into working and retirement periods. individuals are assumed to produce more than their consumption during their working period. so, they are net savers during this period. in the retirement period, individuals are assumed to be dis-savers. in this context, saving performance may have a positive relationship with income growth. lch clearly stated that demographic factors like age-dependency ratio and population growth influence the saving performance of a country. the theory implies that the net effect of population growth is theoretically unclear. the reason is that even if an increase in population growth increases the number of productive workers (net savers), it may be offset by an increase in the young age-dependency ratio (mahmoud, 2008). so, the net effect of population growth on gross domestic saving depends on the dominant factor of the two (i.e. amount of saving increased due to new productive workers versus the amount of saving decreased due to an increase in the young age-dependency ratio). the lch implies that the real effect of inflation on saving performance is almost negligible because of a lack of money illusion. however, individuals who worried about their future will increase their savings while the inflation rate goes up. on the other hand, individuals increase their savings rate with the rate of inflation in order to preserve the value of their wealth which will be diminished over time (mahmoud, 2008). the degree of financial sector development influences the willingness and amount of individuals’ saving. people in many countries having good accessibility of bank facilities are motivated to save more since the cost to bank transactions are too low. if access to banking service is not enough, people prefer to capture their savings in nonmonetary terms like jewelry and real-estate. 2.2. empirical literature kıvanç (2015) examined the determinants of saving in thirteen middle east countries for the period 2000-2013 using the panel data method. results showed that income, money supply, and government expenditures had a negative impact on saving rate whereas the young population and inflation influences saving positively. old population, urban and rural populations had no significant effect on saving. loayza et al. (2000) analyzed the driving factors of private saving across the world by using a large, cross-country, time-series data set. in this study, instrumental-variable techniques were used to correct for endogeneity and heterogeneity. the results showed that the growth of real per capita income, inflation, and fiscal policy had positive impact on saving, whereas dependency ratio and financial liberalization had a negative effect on saving in the long-run. abu (2005) examined the determinants of gross domestic saving in ethiopia for the period 1960 2002 by using a vector auto regression (var) method of estimation technique. the results showed that the growth rate of income per capita, investment rate, inflation rate, and real interest rate had a positive effect on gross domestic saving rate whereas, public consumption, import intensity, openness, and term of trade had a negative effect on it. agrawal et al. (2007) examined the saving behavior in south asia by taking five countries; india, pakistan, bangladesh, sri lanka, and nepal by using co-integration, error correction, and dynamic ols model for the period 1960 2004. the result showed that per capita income, access to banking institutions and interest rate had a positive effect on saving while dependency ratio and foreign saving rate had a negative impact on the domestic saving rate. mahmoud (2008) analyzed the determinants of domestic saving in egypt for the period 1975-2006 by using the ols regression model. the study showed that growth of per capita income, money supply (m2/gnp), inflation, and real interest rate had positive effects on saving, whereas budget deficit ratio and current account deficit had negative effects on domestic saving. 3. the methodology of the study 3.1. data type and data sources this study employed annual data ranging from 1980 – 2018. the data set comprises inflation rate (inf), deposit interest rate (dir), gross national income per capita growth (gnipcg), broad money supply to gdp ratio (m2r), age-dependency ratio (adr), and gross domestic saving rate to gdp ratio (gds). the data was drawn from the solomon amare tessema 22 world development indicator 2019 database, central bank of turkey (tmb) annual report, and world bank annual reports. 3.2. methods of data analysis different econometrics and statistical tools were employed for data analysis. these include diagnostic and model stability tests, descriptive statistics, correlations, unit root tests, co-integration tests, and auto-regressive distributed lag models were employed. 3.3.model specification in this study, the auto regressive distributed lag (ardl) model was used to analyze the major determinants of gross domestic saving in turkey. as many economic theories and previous studies on saving clearly described that domestic saving has a fundamental functional relationship with many macroeconomic variables including, inflation rate, deposit interest rate, age dependency ratio, broad money supply, gni per capita growth rate, gdp, population growth, and so on (girma, 2017). therefore, the functional relationship between domestic saving and its determinants can be expressed as follows: …………………………………………... (2) based on this functional relationship, the following specific econometric model was generated: ……….. (3) where: • gds, inf, dir, m2r, adr, and gnipcg refer gross domestic saving to gdp ratio, inflation rate, deposit interest rate, broad money supply to gdp ratio, age dependency ratio, and gross national income per capita growth rate respectively. • β0 − is an intercept function that shows a change of gds when there is not an independent variable. • β1 to β5 − refers to slope coefficients. • u − refers to the error term which holds variables that affect gds but not included under the model. • t − refers to the time period. 3.4. auto-regressive distributed lag (ardl) model auto-regressive distributed lag (ardl) model is the one that contains both lagged values of the dependent and independent variables (r.c hill et al, 2008). using the ardl model for time series data analyses has a number of advantages in which others might not have. firstly, the ardl model doesn’t need the same order of integration for variables in the model. the variables in the model can have a different order of integration but should be less than i (2). secondly, for small and finite sample data size, the ardl model is relatively efficient than other models and can yield unbiased estimates of the long-run model. thirdly, it is possible to have different lag lengths for variables while using the ardl model (t. nigusse et al, 2019). in its general form, the ardl (p, q) model can be written as follows: 𝑌𝑡 = 𝛼 + 𝛼0𝑋𝑡 + 𝛼1𝑋𝑡−1 + 𝛼2𝑋𝑡−2 + ⋯+ 𝛼𝑞𝑋𝑡−𝑞 + 𝛽1𝑌𝑡−1 + 𝛽2𝑌𝑡−2 +⋯+ 𝛽𝑝𝑌𝑡−𝑝 + 𝑈𝑡………………………………………………………………………………………….(4) where:y and x − refers to the dependent and independent variables respectively, p and q − refers to the maximum lag length of the dependent and independent variables respectively, α − refers the intercept term, α1 to αq and β1 to βp − refers to coefficients, u − refers to the error term, and t − is the time period. 3.5.unit root test for stationarity all the macroeconomic variables used for the empirical analysis of this study are time series. however, the problem of non-stationary is the main challenge in the practice of econometric analysis. in regressing of a time series variable on another time series variable, a very high r2, significant t-values and f-statistics can be obtained although there is determinants of gross domestic saving and its trend analysis in turkey: a time-series outlook 23 no meaningful relationship between the variables. this problem is referred to as spurious regression (gujarati, 1995). the problem arises because if both the time series involved exhibit strong trends (sustained upward and downward movement). the high r2 observed is due to the presence of the trend, not a true relationship between the variables. therefore, it is very important to find out if the relationship between economic variables is true or spurious. this is done by first identifying stationary and non-stationary variables. a time-series variable is said to be stationary if its mean and variance are constant over time and the value of covariance between the two time periods depends on distance or lag. if the mean, variance, and auto-covariance of the individual time series are not time-invariant, these time series are not stationary. stationary variables contain deterministic (fixed) trends, while non-stationary variables contain stochastic (i.e. random) trend (harris, 1995). however, using ardl models for econometric analyses can accommodate those problems arising from unit root variables even though performing the test is mandatory to ascertain that no variable is integrated of order 2. in this study, the augmented dickey-fuller test, which becomes popular over the past several years were applied to identify whether the variables are stationary at the level and/or at first difference. augmented dickey-fuller test designed with three different options to take account of the intercept term. it can be applied without constant term and trend, with constant but no trend, or with constant and trend. the suitable adf test has been selected based on the behaviour of variables found in the model. 3.6.co-integration test the co-integration test is applied to examine whether there is a long-run equilibrium relationship among variables. if there is co-integration, both dependent and independent variables follow a similar stochastic trend and do not go in different directions. for this study, the ardl bounds test for co-integration is applied to examine whether there is a long-run relationship among variables. the null hypothesis of this test is that there is no long-run relationship among variables, and the alternative is that there is a long-run relationship among variables. if there is co-integration among variables, the conditional ardl long-run model can be estimated as follows: 𝛥𝐺𝐷𝑆𝑡 = 𝛼 + 𝛽1𝑖 𝑝 𝑖=1 𝛥𝐺𝐷𝑆𝑡−𝑖 + 𝛼0𝑖 𝑞1 𝑖=0 𝛥𝐼𝑁𝐹𝑡−𝑖 + 𝛼1𝑖 𝑞2 𝑖=0 𝛥𝐷𝐼𝑅𝑡−𝑖 + 𝛼2𝑖 𝑞3 𝑖=0 𝛥𝐴𝐷𝑅𝑡−𝑖 + 𝛼3𝑖 𝑞4 𝑖=0 𝛥𝐺𝑁𝐼𝑃𝐶𝐺𝑡−𝑖 + 𝛼4𝑖 𝑞5 𝑖=0 𝛥𝑀2𝑅𝑡−𝑖 + 𝑒𝑡………………………(5) where: α − refers a constant term; β1 and p − refers the coefficient and lag length of dependent variable gds respectively; α0, α1, α2, α3, and α4 − are coefficients and q1, q2, q3, q4 and q5 are lag lengths for independent variables inf, dir, adr, gnipcg and m2r respectively; δ − refers first difference operator. 3.7.error correction mechanism j.d. sargan was the first economist who had used the error correction mechanism (ecm) for correction of disequilibrium. this method of correction was later popularized by engle and granger. it is a method of making short-run behavior of a variable consistent with its long-run behavior. the granger representation theorem states that if two variables are said to be co-integrated, their relationship can be expressed by ecm. if there is a long-run relationship among variables, the error correction model representation can be specified as follows: 𝛥𝐺𝐷𝑆𝑡 = 𝛼 + 𝛽1𝑖 𝑝 𝑖=1 𝛥𝐺𝐷𝑆𝑡−𝑖 + 𝛼0𝑖 𝑞1 𝑖=1 𝛥𝐼𝑁𝐹𝑡−𝑖 + 𝛼1𝑖 𝑞2 𝑖=1 𝛥𝐷𝐼𝑅𝑡−𝑖 + 𝛼2𝑖 𝑞3 𝑖=1 𝛥𝐴𝐷𝑅𝑡−𝑖 + 𝛼3𝑖 𝑞4 𝑖=1 𝛥𝐺𝑁𝐼𝑃𝐶𝐺𝑡−𝑖 + 𝛼4𝑖 𝑞5 𝑖=1 𝛥𝑀2𝑅𝑡−𝑖 + 𝜃𝐸𝐶𝑀𝑡−1 + 𝑒𝑡…………(6) solomon amare tessema 24 where: α…refers a constant term; β1 and p…refers the coefficient and lag length of dependent variable gds respectively; α0, α1, α2, α3, and α4…are coefficients and q1, q2, q3, q4 and q5 are lag lengths for independent variables inf, dir, adr, gnipcg and m2r respectively; δ…refers first difference operator; θ…refers the speed of adjustment; ecm…refers the error correction term; and et…refers the error term. 4. results and discussion 4.1.results from unit root test as discussed in the previous section, the adf test was applied to ascertain that no variable(s) in the model are integrated at order 2. table 4.1 below shows that three variables namely, gross domestic saving to gdp ratio (gds), inflation rate (inf), and deposit interest rate (dir) are non-stationary at level forms, but they are stationary at the first difference (i.e. i (1)). whereas, variables like the age-dependency ratio, broad money supply to gdp ratio (m2r), and gni per capita growth rate are stationary at level (i.e. i (0)) table 4.1 results of unit root test based on adf test statistics variables adf result at level adf result at first difference with constant with constant and trend with constant with constant and trend inf -2.418 (-2.964) -2.736 (-3.548) -7.865** (-2.966) -7.740** (-3.552) dir -1.719 (-2.964) -2.822 (-3.548) -7.585** (-2.966) -7.747** (-3.552) adr -11.199** (-2.964) 1.928 (-3.548) -0.392 (-2.966) -4.270** (-3.552) m2r -1.232 (-2.964) -3.846** (-3.548) -8.691** (-2.966) -8.566** (-3.552) gnipcg -6.734** (-2.964) -7.181** (-3.548) -11.702** (-2.966) -11.527** (-3.552) gds -2.003 (-2.966) -1.692 (-3.552) -5.515** (-2.969) -5.742** (-3.556) residuals -4.425** (-2.964) -4.366** (-3.548) note:(**) denotes 5% level of significance, and values in the parenthesis are tabulated values at 5% level of significance. the above adf test result confirms that none of the variables are integrated of order 2. in other words, some of the variables are integrated at order 1 (i.e. stationary at level), while some others are integrated at first difference (i.e. non-stationary at level but stationary at first difference). since the variables are integrated at different levels and the study has small sample size, auto regressive distributed lag (ardl) model is more appropriate for the analysis of long-run relationships among variables. determinants of gross domestic saving and its trend analysis in turkey: a time-series outlook 25 4.2. ardl bounds test for co-integration there are different methods for the selection of optimal lag length for variables in the model. akaike information criterion (aic) and bayesian information criterion (bic) are the most common methods for optimal lag length selections by many researchers. selecting too large lag length may affect the power of the test, while selecting too small lag length may offer remaining residuals to serially correlated and then yield biased results. however, the bic tends to select more parsimonious specifications (pesaran and smith, 1998) as cited in ayalew (2013). so, based on the bic, a maximum lag of 1 is selected for this study. f-statistics was used for hypothesis testing. as stated above, the null hypothesis of the ardl bounds test for co-integration is that there is no long-run relationship among variables, and the alternative is that there is a long-run relationship among variables. if the calculated f-statistics is greater than the upper bound critical value at a 5% level of significance (i.e. in our case, 3.79), we can reject the null hypothesis of no long-run relationship among variables, which implies that there is co-integration among variables. if the calculated f-statistics is lower than the lower bound critical value at a 5% level of significant (i.e. in our case, 2.62), we couldn’t reject the null, which implies that there are no long-run relationships among variables. if the calculated f-statistics is between the lower and upper bound critical values at a 5% level of significance, the test result is considered inconclusive. as we can see below in table 4.2, the calculated f-statistics is fall below the lower bound critical value at a 5% level of significance. this result implies that there is no long-run relationship (no cointegration) among variables. table 4.2 ardl bounds test result f-statistics critical values lower bound upper bound decision 2.167 1% 3.41 4.68 no co-integration 5% 2.62 3.79 no co-integration 10% 2.26 3.35 no co-integration when we failed to reject the null hypothesis in ardl bounds test for co-integration at 5% level of significant, i.e. when there is no long-run relationship among variables, we couldn’t estimate ecm model and our estimation should focus only on short-run model, which is the ardl model. 4.3. model stability and diagnostic tests before doing any analysis, it is important to verify the efficiency of the model using some diagnostic tests. the main problem in time series data is the problem of autocorrelation. breusch-godfrey lm test and durbin-watson d statistics method of autocorrelation tests were used for this study. as shown below from the stata result, there is no any evidence to reject the null, which states that there is no serial correlation since the value of durbin-watson d statistics is approximately 2, and this result is supported by the breusch-godfrey lm test in which the p-value associated with the test is greater than the critical value of the standard 5% level of significant (i.e. 0.0509 > 0.05). durbin-watson d-statistic( 7, 38) = 1.900311 . dwstat solomon amare tessema 26 h0: no serial correlation 1 3.811 1 0.0509 lags(p) chi2 df prob > chi2 breusch-godfrey lm test for autocorrelation . bgodfrey ramsey’s reset test was used for test of model specification error (i.e. test of model functional form). the result of the test revealed that the null hypothesis, which states that the model has no omitted variable, couldn’t be rejected (i.e. 0.0544 > 0.05). f(3, 30) = 3.03 ho: model has no omitted variables ramsey reset test using powers of the fitted values of gds . ovtest for test of hetroscedasticity, both the breusch-pagan/cook-weisberg test and white test were applied. the result of those tests showed that the null hypothesis, which states that there is a constant variance, couldn’t be rejected (i.e. 0.1133 > 0.05). this result confirms that there is no hetroscedasticity problem in the model. prob > chi2 = 0.1133 chi2(1) = 2.51 variables: fitted values of gds ho: constant variance breusch-pagan / cook-weisberg test for heteroskedasticity . hettest determinants of gross domestic saving and its trend analysis in turkey: a time-series outlook 27 total 26.12 26 0.4566 kurtosis 2.08 1 0.1491 skewness 5.75 5 0.3308 heteroskedasticity 18.28 20 0.5688 source chi2 df p cameron & trivedi's decomposition of im-test prob > chi2 = 0.5688 chi2(20) = 18.28 against ha: unrestricted heteroskedasticity white's test for ho: homoskedasticity . imtest, white cumulative sum of recursive residuals (cusum) test and cumulative sum of squares of recursive residuals (cusumsq) tests were applied to check the stability of the model. if the cusum as well as the cusumsq line crosses the upper and/or lower critical limits and never returns back, the null hypothesis which states that there is model stability, should be rejected. but if the line goes between the critical limits, we may fail to reject the null. cu su m year cusum lower upper 1987 2018 0 0 fig. 1. cumulative sum of recursive residuals (cusum) solomon amare tessema 28 c u su m s qu ar ed year cusum squared 1987 2018 0 1 fig.2. cumulative sum of squares of recursive residuals (cusumsq) as shown from the above graphs, the cusum line comfortably lies between the upper and lower critical limits. likewise, the cusumsq line finally goes between the two critical limits, which generally imply stability of the model and absence of structural breaks. 4.4. ardl model estimation after verifying the absence of long-run relationships among variables in the model, the upcoming step is running the appropriate ardl model to find out the short-run coefficients which are reported as follows: table 4.3 short-run coefficients of the ardl model variables coefficients standard err. t-statistics prob. gds(-1) 0.419 0.190 2.21 0.035** inf 0.055 0.037 1.50 0.145** dir -0.113 0.053 -2.13 0.041 adr 0.319 0.176 1.81 0.079** gnipcg -0.037 0.135 -0.27 0.786 m2r 0.177 0.139 1.27 0.213 -cons. -9.183 14.212 -0.65 0.523 f (7, 30) = 8.23 r-squared = 0.6143 prob > f = 0.0000 adj. r-squared = 0.5397 determinants of gross domestic saving and its trend analysis in turkey: a time-series outlook 29 the goodness of fit of the model is measured by the coefficient of determination (r-squared). the regression result above showed that the coefficient of determination is 0.6143 which implies that about 61.43% of the variation in gross domestic saving is explained by the explanatory variables incorporated in the model. the f-statistics result (i.e. 8.23) and the corresponding p-value (i.e. 0.0000) confirms the overall significance of the model. as shown above, the first lag of gds has a positive and statistically significant effect on gross domestic savings in the short run. a unit increase in the first lag of gds is associated with a 0.419 unit increase in gds on average, ceteris paribus at a 5% level of significance. it is observed that the inflation rate, measured as a consumer price index, as a proxy of macroeconomic instability, has a positive but statistically insignificant effect on gds in the short-run. regardless of its statistical significance, this result supports the argument of precautionary motive which suggests that increased macroeconomic instability induces people to save a large portion of their incomes. the result is consistent with the findings of ayalew (2013), and kıvanç (2015). the coefficients of gross national income per capita growth are negative and its effect on gross domestic saving is statistically insignificant at a 5% level of significance in the short-run. this result is not consistent with many economic theories. however, kıvanç (2015) suggested, income growth can have a negative impact on saving if there is disequilibrium in income distribution. the age-dependency ratio which is the ratio of total persons under age 15 plus persons aged 65 and above to the labor force (ages 15-64) has a positive and statistically insignificant effect on gross domestic saving at a 5% level of significance. this result is also not consistent with expectations. another striking result that emerged from this analysis is that the negative and statistically significant effect of deposit interest rate (which is measured as the annual interest rate of bank deposits) on gross domestic savings in the short-run. a unit increase in deposit interest rate reduces the level of gross domestic saving by 0.113 on average, ceteris paribus at a 5% level of significance. this result is possible when the income effect of interest rate dominates its substitution effect (mahmoud, 2008). life cycle hypothesis introduced that if households are net lenders, an increase in interest rate will increase lifetime earnings, which in turn increases consumption and reduce saving. this refers to the income effect of the interest rate. so, a negative effect of deposit interest rate on gross domestic saving has an implication of a higher consumption rate rather than higher saving rate. this result is consistent with the findings of girma (2017) and loayza et al (2000). broad money supply to gdp ratio has a positive but statistically insignificant effect on gross domestic saving in the short-run. the positive coefficient for money supply was expected as many economic theories suggest that an increase in the money supply can revive the overall economic conditions. 5. conclusion and recommendations saving is an engine for the growth and prosperity of a nation by creating capital accumulation and financial investments through resource mobilization. most growth models like harrod-domar and solow-swan growth models are in favor of this idea. many newly developing and newly industrialized countries in the world like japan, korea, taiwan, singapore, and hong kong have been attained their maximum economic growth and development through their high saving performance and good saving habits. this study has used time series data ranging from 1980 – 2018 which was drawn from the world development indicator 2019 database, central bank of turkey and world bank annual reports. it examined the impact of five independent variables namely inflation rate, deposit interest rate, age-dependency ratio, broad money supply to gdp ratio and growth of gross national income per capita on gross domestic saving in turkey. auto-regressive distributed lag model with appropriate diagnostic tests was used for the data analyzing process. results obtained from this study have shown that the first lag of gross domestic saving has a positive and statistically significant effect on the gross domestic savings rate at a 5 percent level of significance. broad money supply to gdp ratio has also a positive effect on gross domestic savings in turkey. this result is consistent with expectations that money supply can revive economic conditions and stimulate competitiveness even though its effect is statistically insignificant at 5_percent level of significance. gross national income per capita growth has a negative and statistically insignificant effect on the gross domestic savings rate at a 5 percent level of significance. inflation rate and age-dependency ratio have both positive and statistically insignificant effects on gross domestic saving rate, whereas deposit interest rate has a negative and statistically insignificant effect on gross domestic saving in the country at a 5 percent level of significance. a negative effect of deposit interest rate on saving had a policy implication that an increase in interest rate will not lead to a rise in gross domestic savings in turkey. in general, the significance of a higher gross domestic saving rate to the real economic solomon amare tessema 30 growth of turkey may warrant policy intervention. managing fundamentals that underline the improvement of the gross domestic saving rate should top the policy agenda to reduce excessive volatility impinging on it. so, the government and any other concerned bodies should emphasize controlling severe inflationary cases in the economy through policy intervention because hıgh inflation may the cause for losing the momentum of the economy in the long-run. the negative relationship between gross national income per capita growth and gross domestic saving rate may imply the income inequality in the country. therefore, policymakers have to give attention to solve the problem. besides, emphasis should be given to create awareness in the society to save part of their income by reducing the extravagant 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"corporate governance committee-investment and finance definition," https://onlinelibrary.wiley.com/doi/full/10.1111/corg.12143 international journal of commerce and finance, vol. 5, issue 2, 2019, 219-229 219 factors affecting the disclosure of sustainability reporting nurul hidayah, universitas mercu buana, jakarta indonesia ahmad badawi, universitas mercu buana, jakarta indonesia lucky nugroho, universitas mercu buana, jakarta indonesia abstract this study examines the factors that influence the sustainability of the company's disclosure has registered at indonesia sustanaibility award (isra). data were taken from 2012 to 2017 and became a sample of 9 companies featured in the isra. regression analysis was used to examine the effect of factors (current ratio, size, type industry, social responsibility committee and meetings of the audit committee) on the disclosure of sustainability reporting. result of regression explains that the variable currente ratio (cr), size and audit committee meetings significant effect, while the governance committee and the type of industry effect are not significant. therefore, companies are growing fast in asset and have a large debt must disclose the information in a sustainability report. keywords: cr, size, type industry, corporate governance committee, audit committee, sustainability report 1. introduction social and environmental responsibility into the company's commitment to the role of supporting sustainable economic development and improve the quality of life and environment that is beneficial to the company, the company's internal, and society in general. some problems, such as pollution, climate change, global warming, resource depletion, poverty, product safety, and labor rights are also increased public interest (gray, owen, & maunders, 1987). therefore, the financial statements are no longer adequate for the stakeholders, because the financial statements alone do not contain information about the social and environmental aspects of the company's operations (martínez-ferrero et al., 2013). as a result, companies need to report corporate social responsibility (csr), and any additional information that may affect the company's performance (bernardi & stark, 2016; utami & nugroho, 2017). demands from some of the stakeholders, investors, creditors, employees, suppliers, customers, communities, ngos, and governments to companies more transparent and be accountable for its activities related to sustainable enterprises. companies are required to not only focus on achieving profit, but also focus on people and the planet is often called the triple bottom line. the resulting profit company aims to make the company remains a going concern. but in reality, the profit is not enough for companies to say going concern, but should also pay attention to the terms people and the planet. this is due to people and the planet is also associated with the process and the impact of corporate activity that is sometimes forgotten by the company. the sustained performance of the company has changed the traditional management process by focusing not only on the financial aspects of business performance but also on the social and environmental dimensions (laskar & maji, 2016). therefore, financial reporting alone no longer satisfies the needs of shareholders, customers, and other stakeholders to provide information related to the performance of the organization (siregar & bachtiar, 2010). in indonesia, the sustainability report is still voluntary and in the introduction stage so it is still a little bit interested companies to disclose a sustainability report. of the top 100 companies listed on the jakarta stock exchange (idx), only 30% of companies that make the sustainability report (sr) (ernst & young, 2016). in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e nurul hidayah & ahmad badawi & lucky nugroho 220 even though ongoing reports are still voluntary, as of the end of 2016 there were 120 companies that have published continuous reports in indonesia. although every year the number of companies that disclose sustainability reports is increasing, but not comparable to the number of companies in indonesia. this happens because there is still a lack of awareness of the company regarding the benefits of disclosure of sustainability report. to attract companies' interest in disclosing sustainability reports, indonesia held appreciation concerning economic, social, environmental and called indonesia sustainability reporting award (isra). isra held to give an award to the company that has revealed a sustainability report, with isra, is expected that he is a conscious company that aspect of the environment must be protected and preserved and made into a separate reporting to the annual report. the company's concern for the environment can be seen from the absence of ongoing reporting or sustainability reporting. characteristics of a company that helped determine the level of investor confidence, the credibility of the good require that the company needs to contribute to the social growth and the environment are the firm size (nasir et al., 2014). the size of the company can be based on the total value of assets, total sales, the market capitalization, the amount of labor and so on. in general, large companies would reveal much more information than the smaller companies because they have a social responsibility to the greater community. in addition to the size of the company's improving the structure of corporate governance provides a higher level of voluntary disclosure (ho & taylor, 2013). on the other hand, a weak corporate governance structure reduces corporate disclosure because management of companies with such government structures is unlikely to provide information to stakeholders (kent & monem, 2015). wang (2017) examined the relationship of company characteristics with sustainability reports for samples of companies registered in taiwan. the results show that corporate governance and business characteristics, including board size, the percentage of independent directors, the existence of an audit committee, the percentage of export sales, foreign share ownership, company growth, and average asset age are positively related to the issuance of sustainability reports, while managerial share and stock prices are negatively related. kuzey and uyar (2017) analyze the factors that influence sustainability reporting in turkey, with a sample of 100 large companies showing industry type results and company size influencing the sustainability report, while current leverage and ratio have a negative effect. the role of the committee in the company's social responsibility also determines the company's success in publishing a sustainability report, because the committee has the role of social responsibility, planning activities of social and environmental responsibility, and supervise their implementation. amran et al., (2014) found that the presence of the social responsibility committee impact on the quality of sustainability reporting, while hussain et al. (2016) reported the need for social responsibility committee in achieving social and environmental company performance. while research dienes et al., (2016) concluded that the size of the company, availability of media and ownership is essential for sustainability disclosed in the report, while gcg (audit committee, profitability, capital structure, the age of the company, the composition of the board does not affect the disclosure of sustainability reporting. 2. literature review and hypotheses the company will increase voluntary disclosure to avoid potential pressure from the regulator (akhtaruddin, hossain, hossain, and yao, 2009). so, from the perspective of agency theory, companies voluntarily publish a sustainability report to reduce the asymmetry of information, reduce agency costs, and avoid pressure from external agents. according to the agency theory, managers as the party more to know more information related to the performance of current and future rather than shareholders and other stakeholders (ho & taylor, 2013). to reduce asymmetric information, the company required to disseminate valuable and relevant information to stakeholders (brammer & pavelin, 2008). dowling and pfeffer (1975: 122) provide a logical reason about the legitimacy of the organization, including public service institutions that the organization will try to create harmony between social values inherent in its activities with the norms of conduct that exist in the social system in which the organization is part of the system. legitimacy theory of continuous explains that the organization will operate in accordance with the limits and the value received by the community around the company (ulum, 2015: 34) states that the organization's legitimacy. legitimacy theory states that organizations are continually looking for ways to ensure their operations are within the limits and norms that apply in society. factors affecting the disclosure of sustainability reporting 221 2.1 sustainability report act no. 40 of 2007 on limited liability companies. disclosure sustainability report within the established rules in the form of a stand-alone report, although there are many implementations of the sustainability report is disclosed in conjunction with the annual report of a company (gunawan, 2010). disclosure of the sustainability report according to gri (global reporting initiative) must meet several principles. these principles are contained in the gri-g3 guidelines, namely balance, comparable, accurate, time sequence, compliance, and accountability. the disclosure standards in sustainability report according to gri-g3 guidelines consist of:  the economy is regarding the resulting impact on the economic conditions of the company's stakeholders and on economic systems at local, national, and global;  the environment is regarding the impact produced by the company against the creatures of the earth, and the surrounding environment, including ecosystems, land, air, and water;  human rights, namely the lack of transparency in considering the selection of investors and suppliers/contractors. in its work, the company must always take into consideration the interests of shareholders and other stakeholders based on the principles of fairness and equality;  society, the organization focuses on the impact on the community in which they operate, and reveals how the risks that may arise from interactions with other social institutions.  responsibility for products, which contain enterprise reporting produced products and services that directly affect customers, namely health and safety, information, labeling, marketing, and privacy;  social, which provides social activities undertaken by companies, whatever has been done and how they are carried out. 2.2. liquidity according to kashmir (2012: 130) the liquidity ratio, or often referred to as the working capital ratio is a ratio used to measure how the liquidity of the firms. the trick is to compare the components in balance, ie total current assets to total current liabilities (short-term debt). the assessment can be done for some period so that visible liquidity development companies from time to time. the purpose and benefits of liquidity ratios for companies, according to kashmir (2012: 132) is as follows:  to measure a company's ability to pay its liabilities or debts that are due at the time billed. that is, the ability to pay obligations 20 that it was time to be paid according to the schedule stipulated deadline (date and a specific month);  to measure a company's ability to pay short-term liabilities with current assets overall. this means that the amount of the obligation under the age of one year or equal to one year, compared with total current assets;  to measure a company's ability to pay short-term liabilities with current assets regardless of dosage or receivable. in this case, the current assets in fewer stocks and debt considered lower liquidity;  to measure or compare the number of stocks that exist with working capital;  to measure how much cash is available to repay debt;  as a means planning ahead, especially with regard to the planning of cash and debt;  to see the conditions and the liquidity position of the company from time to time by comparing it for some period;  to see the weaknesses of the company, of each component in current assets and current debts;  become a trigger tool for the management to improve its performance, by looking at the existing liquidity ratio at this time. nurul hidayah & ahmad badawi & lucky nugroho 222 2.3. company size according to brigham & houston (2010: 4) the size of the company is the size of a company is shown or judged by total assets, total sales, profit, tax expenses, and others. according to hartono (2008: 14), the size of the company (firm size) is the size of the company can be measured by total assets or major property companies using the logarithm of total asset value calculation. uu no. 20 of 2008 is divided into four (4) categories: micro, small business, medium, and large businesses. yogiyanto (2007: 282) the size of the company or firm size is calculated based on the logarithm of total assets. 2.4. company type gao et al., (2005), different industry will have different characteristics and depending on the growth potential, the number of employees, competition and government intervention. uu no. 3 tahun 2014, industry definition is all forms of economic activities that manage raw materials and/or utilize industrial resources, so that they can produce goods that have higher added value or benefits, including industrial services. one example of a company that has a high risk is a mining company with the characteristics of the mining industry using high-tech equipment almost 24 hours a day and involves many facilities and infrastructure. this has caused many accidents that have caused a small loss or even lost their lives. in this study, the type of industry is differentiated into 2, namely high-risk industries (pharmaceuticals, cement, glass, energy, machinery, metals, mining, oil, paper and pumps and transportation). in addition to these criteria, it is categorized as a low-risk industry. 2.5. governance committee corporate governance committee is a committee established by and responsible to the board of commissioners in an effort to support the implementation of the tasks and responsibilities of the board of commissioners in reviewing policy corporate governance well organized directors and assess the consistency of the application of corporate governance good, including those relating to business ethics and corporate social responsibility (corporate social responsibility). the governance committee is a committee consisting of several members of the board of directors (wiley, 2009). formation of good corporate governance, strong and sustainable not just run regular practices as well as the appointment of independent directors, the implementation of a regular board meeting, the proportion of the board of directors, or the appointment of an independent audit committee members, rather, it requires the establishment of additional committees formed company. one additional committee established is the governance committee. in terms of sustainability governance committee report called the remuneration and nomination committee whose task helps directors and commissioners are responsible to assist in the implementation of good corporate governance. the application of the principles of good corporate governance performance of the company is to produce an effective and efficient through harmonization of corporate management that can be achieved either by the establishment of governance committees (suryono and prastiwi, 2011). in looking at a company's corporate governance practices, to get a good practice, strong, and sustainable, which should be considered not only whether the company has been running a normal practice as well as the appointment of independent directors, the implementation of the board meeting that routine, the proportion of the board of directors, or the appointment of the independent audit committee, but it can also be seen through the formation of committees additional formed company as an embodiment of the establishment of good corporate governance is strong. the committees constituted in question include governance committee, nomination committee, and remuneration, csr committee, risk management committee, budget committee, the investment committee, or other appropriate functions and roles of each but it can also be seen through the establishment of additional committees formed as a form of business enterprise embodiment of good corporate governance is strong. 2.6. the audit committee bapepam circular letter no.se-03 / pm / 2000, that public companies should establish an audit committee. the audit committee is tasked to assist the commissioners to give an independent professional opinion to improve the quality of work and reduce irregularities in the management of the company. in general, the board of commissioners established committees under it according to the needs of the company and the prevailing regulations to assist the commissioners in carrying out the responsibilities and authority effectively. the committee established by the board of directors is of the audit committee, the risk policy committee, the remuneration committee, and the nomination factors affecting the disclosure of sustainability reporting 223 and corporate governance policy committee (national committee on governance, 2006). however, according to regulations issued by the jse no. kep-339 / bej / 07-2001, the nature of which must be owned by companies listed on the stock exchange is only the audit committee. 2.7. liquidity and disclosure of sustainability report liquidity level of corporate liquidity increases, the disclosure of sustainability report will also increase. companies with a high level of liquidity means signify a great ability to pay its short-term obligations on time. a strong financial condition will encourage companies to disclose more information as an instrument to assure its stakeholders. jannah and kurnia (2016) stated that a liquidity significant positive effect on the sustainability disclosure report. 2.8. the size of the company and disclosure of sustainability report large companies have a higher agency cost due to higher information asymmetry between managers and shareholders to avoid the agency costs, the company is more likely to provide information by publishing a sustainability report stand-alone (ho & taylor, 2007). in connection with the theory of legitimacy, large corporations will certainly pay more attention to the stakeholders' interests and activities will follow boundaries and the value received by the public. the great company better known and more highlighted by the people than the small firms, large companies have the resources and social responsibility to the community greater. larger companies also have an organizational structure that is a better and more developed information system (uyar et al., 2013). this can help them to prepare and publish a stand-alone sustainability report. 2.9. industry type and disclosure of sustainability report different industries have different characteristics for each industry has growth potential, employment, competition, the nature of its activities, business risk and government intervention are different (gao. et al., 2005, brammer and pavelin (2008) so the quality of the information disclosed in accordance with different types of industries. companies that have a higher risk level will reveal more information on their sustainability report. alsaeed (2006) suggests that manufacturing companies disclose more information than non-manufacturing companies. meanwhile, reverte (2009) that the companies included in environmentally sensitive industries have a higher csr rating. can be interpreted companies (high) that intersect with the area of the fault that occurs will be highlighted broad party. therefore it is expected the company will communicate information on the implementation of economic responsibility, social environment through sustainability reports to generate stakeholder confidence. 2.10. committee on governance and disclosure of sustainability report the company developed the existence of a committee that supports sustainability or csr as an element of the corporate governance structure to address risks and opportunities for sustainability (rossi & tarquinio, 2017). the presence of the committee increased sustainability reporting because these committees will emphasize sustainability issues (dienes et al., 2016). suryono and prastiwi (2011) additional committees placed in the company as a form of business to embody strong good corporate governance. formation committees in question include governance committees, nomination and remuneration committees, csr committees, risk management committees, budget committees, investment committees, or others according to their respective functions and roles. thus, the presence of the committee can be a better integration of sustainability issues, which in turn is attached to a higher interest related to a sustainability report (ruhnke & gabriel, 2013). 2.11. board audit committee and disclosure of sustainability report the audit committee can hold executive meetings with parties outside the audit committee members who are invited according to their needs or periodically. these external parties include commissioners, senior management, heads of internal auditors and heads of external auditors. the results of the audit committee meeting are contained in minutes of the meeting signed by all members of the audit committee. the chairman of the audit committee is responsible for the meeting agenda and is obliged to report the audit committee meeting activities to the board of nurul hidayah & ahmad badawi & lucky nugroho 224 commissioners. the audit committee has a good understanding of its business environment, has an understanding of risk and control, and has a good understanding of financial and non-financial reporting. the number of audit committee meetings will produce decisions that will be disclosed in the company report. 3. methodology the research design is causal research to test hypotheses about the effect of a single variable or multiple variables (independent variable) to another variable (dependent variable). in this study to examine the factors that affect the disclosure of sustainability reporting. (sustainability reporting). the object of research is the event, phenomenon or problem that has been abstracted research into a concept or variable (arikunto, 2006: 118). the object of this study is the concept of cr, company size, industry type, corporate governance committee, the audit committee, and disclosure sustainability report. variable sustainability report reveals about the most important impact of an organization whether it is positive or negative for the environment, society, and economy (global reporting initiative g4, 2013: 3). governance committee was measured using a dummy variable, the value of 1 if the company has a governance committee and a value of 0 if it does not have a governance committee. company size or commonly referred to company size is a variable that is measured by the logarithm of total assets of the company, the type of industry can be divided into industry high risk and low risk, companies included in the high risk rated 1 and low-risk enterprise value is 0. current ratio variable measured by total current assets divided by current liabilities. an audit committee meeting is proxied by the number of audit committee meetings in a year. sampel in this study is a company incorporated in isra and published a sustainability report (sr) year from 2012 to 2017 consisting of 9 companies. data analysis in this study used multiple linear regression. 4. results and discussion table i shows the descriptive statistics of the variables of the study, while table ii displays percentage of disclosure of sr based on gri and table iii show the results of multiple linear regression. table 1 test descriptive statistics descriptive statistics n minimum maximum mean std. deviation cr 54 1.095 7.937 2.89172 1.753416 size 54 30.0308 34.1953 31.903502 1.2485365 highrisk 54 0 1.0 .889 .3172 ktk 54 0 1 .89 .317 radit 54 4 117 22.59 22.469 sr 54 .0779 .7738 .372893 .2085519 valid n (listwise) 54 source: data is processed with spss 20 the above table presents the data disclosure sustainability by meeting the economic aspects, environmental aspects and social aspects of the guidelines of the global reporting initiative (gri) standards on average in the company based on gri4 by 37%. however, there are still companies that only revealed in the report sr of 7.79%. ratios current ratio (cr) to measure the ability of the company in the short term with its current assets have an average of 289.1% means the company incorporated in the isra has a good ability to repay their debts. isra company size in this company has an average of 31.9% of the natural log of its assets. the type of company in this study is more dominated by companies classified as high risk. the average company has a governance committee and the number of audit committee meetings held in one year is on average 22 times. factors affecting the disclosure of sustainability reporting 225 table 2 percentage of disclosures of csr based on gri standards no disclosure category frequency of disclosure precentage of disclosure 1 economic standards 13 item gri 52,85% 2 environmental standards 30 item gri 39,51% 3 social standards 34 item gri 40,25% source: data is processed with spss 20 source: data is processed with spss 20 table 2 presents the percentage of companies in conducting corporate information disclosures based on gri. the disclosure of the company's sr on economic performance is very broad in explaining everything related to the company's financial performance, the average reveals 13 items of economic indicators (52.85%). the company's disclosure regarding environmental performance is quite extensive in explaining something related to efficient processing of products and services, renewable energy of 39.51% of gri items can be said that companies pay enough attention to improvements to the surrounding environment. in the category of standards expressed by the company as many as 34 indicator items or equal to 40.25%, this proves that the company cares about social and community problems where the company runs social programs ranging from health, education and welfare to the people both around and outside the company. table 3 test result t model unstandardi zed coefficients standardize d coefficients t sig. b std. error beta 1 (constant) 2.621 .989 2.652 .011 cr .040 .018 .335 2.160 .036 size -.078 .031 -.464 -2.532 .015 highrisk -.065 .103 -.099 -.626 .534 ktk .094 .099 .143 .944 .350 radit .004 .001 .404 2.709 .009 a. dependent variable: sr 4.1. effect of liquidity (cr) on disclosure of sustainability reports table 3 explains that the current ratio (cr) significant positive effect on the disclosure of a sustainability report for 0036, it shows if the company's liquidity increases, the company will increase the disclosure of cr information in its sustainability report. companies with high liquidity levels indicate a strong capacity to repay its short-term obligations. strong financial condition will encourage companies to disclose more information as an instrument to assure stakeholders, namely by publishing related activities through disclosure of social and environmental sustainability report. the results are consistent with research jannah and kurnia (2016) which stated that a liquidity significant positive effect on the sustainability disclosure report. the result of this research was supported by a previous study conducted by research jannah and kurnia (2016) and sari and marsono (2013) which states a liquidity effect on the sustainability disclosure report. but unlike adhipradana and daljono research (2014) shows that the result does not affect the disclosure of liquidity sustainability report. doktoralina, caturida et al (2018) current liquidity ratio proxy with a negative effect on the disclosure of sr.. nurul hidayah & ahmad badawi & lucky nugroho 226 4.2. influence of company size (size) against disclosure sustainability report company size a significant negative effect on the sustainability disclosure report. this shows that the bigger companies are not necessarily the responsibility disclosure level of economic, environmental and social sustainability reports of the company will also increase. this condition indicates that to get legitimacy from stakeholders, large companies do not always do the disclosure of economic responsibility, environmental and social sustainability report. this is because corporate responsibility is no longer just the activities, but it is the duty of companies to maintain the viability of the company otherwise even small companies must disclose corporate responsibility activities with a good and indeed necessary. companies with total assets increase show that the company's assets increased so that it can more contribute to social activities to gain public legitimacy. with more and more social activities undertaken by the company so the more information that can be disclosed in the sustainability report. so that large companies that already have legitimacy in society can maintain or improve it. the results of this study support the research adhipradana and daljono (2014), which states that the size of the company's significant negative effect on the disclosure of sustainability report and does not support previous research carried out aliniar and wahyu (2017) which states that the size of the company not significant effect on the disclosure of sustainability report. 4.3. influence of company size (size) against disclosure sustainability report companies with the type of high risk and low risk do not significantly influence the sustainability disclosure report. this is due to a lack of a specific classification of industry sectors and different regulations led to unequal companies to disclose the information even within one type of sector. this research is in line with the research ward (2013) but does not support the sembiring study (2005) that the type of industry that is grouped in industries of high risk and low-risk significant effect on sr disclosure. 4.4. effect of disclosure of industry type sustainability report companies with the type of high risk and low risk do not significantly influence the sustainability disclosure report. this is due to a lack of a specific classification of industry sectors and different regulations led to unequal companies to disclose the information even within one type of sector. this research is in line with the research ward (2013) but does not support the sembiring study (2005) that the type of industry that is grouped in industries of high risk and low-risk significant effect on sr disclosure. 4.5. influence of corporate governance committee against disclosure sustainability report governance committee whose job it is to help directors and commissioners are responsible to assist in the implementation of good corporate governance, but it is not only affecting the governance committee to disclose the company's sustainability report. corporate governance committee not significant effect on the disclosure of sustainability report, the responsibility of the governance committee is not the only committee that is responsible for the disclosure of sr but there are many other committees that support the improvement of corporate governance such as the audit committee, board of directors and commissioners (suhardjanto et al., 2018). 4.6. effect of audit committee meeting (radit) against disclosure sustainability report the results of the data processing analysis show that the audit committee meeting has a significant positive effect on the disclosure of sustainability reports. this shows that the existence of an audit committee helps ensure disclosure and control systems to work properly. the more often the audit committee meets and communicates with each other, then some audit findings will be evaluated and reported to managers, so as to encourage managers to make better disclosures. to lead to better information disclosure, in addition to publishing financial reports with integrity, the audit committee will submit to the management to disclose information in additional reports, namely disclosure of sustainability report. the results of this study are supported by previous research conducted by sari and marsono (2013) and dwita aliniar and sri wahyuni (2017), but different from nasir's research, dkk (2014) which shows that the audit committee has no significant effect on the sustainability report. factors affecting the disclosure of sustainability reporting 227 5. conclusion the conclusion of this study is the first liquidity (current ratio) significant positive effect on the disclosure of the company's sustainability report which followed the indonesia sustainability reporting award, the higher the liquidity the higher the level of the disclosure sustainability report. second, the size of the company's significant negative effect on the disclosure of the company's sustainability report which followed the indonesia sustainability reporting award. this shows that the bigger companies are not necessarily the responsibility disclosure level of economic, environmental and social sustainability reports of the company will also be always wider. the third type of industry does not affect sustainability report significantly to the disclosure of the companies participating in indonesia sustainability reporting award. type of company both high risk and low risk should remain published reports sustainability report. but the company's regulations and the specific category does not cause the company must disclose sr. fourth corporate governance committee no significant effect on the disclosure of the company's sustainability report which followed the indonesia sustainability reporting award. corporate governance committee duties only support a policy of commissioners and directors so that the decision to disclose sr not be the task of the governance committee. fifth meeting of the audit committee (radit) significant 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"corporate governance committee-investment and finance definition," https://onlinelibrary.wiley.com/doi/full/10.1111/corg.12143 international journal of commerce and finance, vol. 5, issue 1, 2019, 1-12 1 capital expenditures structure, cost of capital and shareholders' wealth hooshang asheghi-oskooee university of qom, iran abstract financing with reasonable cost, correct usage of capital and preventing the creation of unused resources are the financial management’s most important tasks. appropriate financing and correct investment in assets leads to sustainable growth in shareholders’ wealth. this study was carried out to investigate the relationship between the capital expenditures structure (ces) and the cost of capital with shareholders’ wealth. using systematic sampling in a five years period, 186 companies, including the listed companies in tehran stock exchange were selected. to analyze data, partial least squares method of structural equation modeling was used. the findings indicated that there is a significant positive relationship between the ces and shareholders’ wealth in total, but some components of the ces are not related to shareholders’ wealth and it is necessary to be studied carefully. because, understanding the relationship between the ces and shareholders’ wealth is very important to maximize shareholders’ wealth and will be most effective in capital expenditures’ budgeting. also, there is a significant inverse relationship between the cost of capital and shareholders’ wealth. keywords: assets structure, capital expenditures structure (ces), cost of capital, shareholders’ wealth, unused resources jel classification code no: g31, d24 1. introduction providing long-term resources to invest in various economic sectors is one of the major goals of the capital market. the capital markets play a significant role in advancing the countries' economic goals. typically, the main market capitalization of most countries is the stock exchange. the stock exchange, attracts and directs the savings and liquidity of the community towards productive investments. the main goal of the managers of the companies listed in the stock exchange is to maximize the wealth of their shareholders. the companies' capital structure (resources and expenditures of capital) is one of the factors that can affect this goal. the structure of capital resources (lefthand side of the balance sheet) is one of the important issues for managers (hassani and pakmaram, 2017). one of the important responsibilities of managers is to decide on how to obtain resources and allocate these resources to each of the asset considering the goal of maximizing shareholders' wealth. kind of financing model that can make a financial performance better for the company is the question of many corporate finance managers (rezagharehbagh and mohammadi, 2015). on the other hand, the proper use of capital and the prevention of the creation of unused resources while financing at the right cost is one of the most important tasks of financial management. proper financing and proper investment in assets can lead to sustainable growth of shareholders' wealth. due to certainty that all assets are related to the company's performance and, consequently, to the shareholders' wealth, many managers and even researchers in the field of financial management and investment have not paid much attention to studying and researching about. while, the preparatory studies undertaken to initiate this study yield a different result. it specifies that all components of assets do not necessarily have the same relation to the performance and wealth of the shareholders. an examination of existing databases shows that, there have been few researches on the structure of capital expenditures (asset structure) in a comprehensive manner. however, there are several studies on working capital (part of the ces). comprehensive analysis of all items on the right side of the balance sheet is one of the features of the present study. the results of this study can provide a comprehensive view for corporate executives and investors regarding capital structure and affect financing and investment practices. so, because decisions about capital expenditures in assets regardless of how they relate to corporate performance and shareholders' wealth can reduce in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e hooshang asheghi-oskooee 2 the company's return, and consequently reduce wealth and also reduce investors' willingness to invest in companies, this study examines the relationship between ces and cost of capital with shareholders' wealth. the study of the relationship between each component of the company's assets with the cost of capital and shareholders' wealth is a new topic that this paper addresses. in the research process, first, theoretical foundations and research background were reviewed, and then the hypotheses related to research questions were designed and analyzed using structural equation modeling. 2. literature review and research background 2.1 literature review literature in the last few decades, there have been many changes in the economic situation of countries. this changes, to a widespread, have led the new generation to investing on securities. business managers are facing a number of challenges. due to the expansion of online trading and transactions, investors are able to easily transfer their capitals to a company that generates higher returns. there is no trace of the effective rules restricting the displacement of capital. corporate executives must accept that the capital will go to where it will increase and not remain available to company forever. this situation creates challenges for corporates managers. in short, all these challenges are, management to create value. that is, key systems and processes in business units should be oriented toward value creation and their orientation towards creating value (izadinia, 2005). the importance and necessity of using financial management also begins at this point. financial management refers to the managing of capital resources and capital expenditures in such a way that maximize shareholders' wealth (neveu, 1989). capital sources are the same as the loans or debts that the company owns or the funds that shareholders have provided to the company in the form of capital and written on the left side of the balance sheet. capital expenditures are also the acquisition of assets (current assets, fixed assets, investments and other assets) derived from sources of capital and written on the right side of the balance sheet. given the fact that wealth is derived from the use of assets, the structure of capital expenditures is one of the important factors that financial managers have to pay attention to for maximizing shareholders' wealth. but the proper structure of corporates' capital expenditures is what seems to be neglected in capital market and competition. minimize the cost of capital is another effective factor in maximizing shareholders' wealth. because there are different financing methods, the costs of these methods are also varies. considering the cost of each financing method and its effect on the company's returns and risks, management should choose resources that will minimize financing costs and maximize shareholders' wealth (molanazari et al., 2009). given what has been noted, the ability of company to participate in creating wealth for shareholders is one of the key factors in deciding whether to invest or not. this goal (wealth creation) is possible through the proper utilization of resources and lowering the cost of capital. so, this study examines the relationship between capital expenditure structure and cost of capital with shareholders' wealth. 2.1.1 capital expenditures structure one problem with corporate assets is the problem of determining the optimal structure of assets. ces is an important and explicit indicator of investment in assets and financial performance of the company. due to use of each asset in different parts of the operation, the structure of capital expenditures is influenced by the management's intention to operate more effectively and increase returns. in fact, determining the structure is the decision about the ratio of assets. for example, when more capital is invested in current assets, the company's returns are lower. but, liquidity risk increases if less invested in current assets. deciding in these cases depends on manager's views about risk and return. in fact, deciding on the ces of a firm is at the discretion of its management, and what actually happens can be different from theory (chen and haque, 2015). the ces is the different types of assets shown in the balance sheet (neveu, 1989). it should be managed more efficiently (markovic et al., 2009). so, type of industry, organizational strategies, economic requirements, competition, macroeconomic variables such as interest rate and inflation, and financial indicators such as financing methods, business risk, financial risk, credit risk, political risk, etc. are the most important factors that managers have to put under consideration to allocate resources among different types of assets. the decision about the ratio of assets should be in such a way that it leads to the ultimate goal of financial management that is to maximize the capital expenditures structure, cost of capital and shareholders' wealth 3 wealth of shareholders. the ces that can maximize wealth, will be realized under the following conditions (reilly and brown, 2000; litterman, 2003): • the ces that yields the highest returns based on a certain amount of risk. • the ces that minimizes the risk of a company for an expected rate of return. 2.1.2 cost of capital issues related to the cost of capital are related to maximizing shareholders' wealth. each company has its own special risk and return. each of the investor groups, such as bondholders, preferred stock holders and ordinary share holders, requires a rate of return that is relevant to that risk. cost of capital can be defined as “the rate that makes the present value of the cash flow equal to the value of the capital of the asset in question” (goncalves et al., 2018). that is, the cost of capital is the minimum return that the company must acquire to preserve the shareholders' wealth. on the other word, the minimum return that a company must earn to have no change in the company's value. so, if the company earn a higher rate of return than the cost of capital, the market value of the company will be increased and in the opposite, the market value of the company will be reduced (neveu, 1989). given that the main purpose of financial management is to maximize shareholders' wealth, it seems that the best way to achieve this goal is to increase the return on investment and minimize the cost of capital. 2.1.3 maximizing shareholders' wealth many researchers like bohme et al. (2005), shen (2006), anglano et al. (2014), gonzalez-alcorta et al. (1994) and marston et al. (2011), who seems are not financial management specialists have investigated maximization of profit. however, it is possible to consider maximizing profit as one of the objectives of financial management. but it is not the main objective. the goal of financial management is to maximize the current value of the existing stock (ross et al., 2016), or to maximize shareholders' wealth (neveu, 1989). profit maximization is essentially a short-term goal. a company can increase the profit of each share by implementing high risk plans (neveu, 1989). but increase in the profit does not lead to an increase in share price and shareholders' wealth necessarily; because shareholders give less valence to the risky profits and stocks its profits are more fluctuating. moreover, the profit can be manipulated (likierman, 1983; lambert and sponem, 2005) and it seems the profit cannot be the only measure to evaluate the value of investment. regarding the above discussions, it can be concluded that, the company's performance depends on the use of its assets. on the other hand, the provision of assets requires cost. so, it is necessary, while paying attention to the cost of investing in assets, first, buy appropriate assets to the appropriate extent (the ces issues are shapes at this stage) and then, have to be used appropriately to maximize shareholders' wealth. the main question of the research arises at this point. how is the relationship between the ces and the cost of capital with shareholders' wealth? 2.2 research background based on a review of the research background, there is no comprehensive study on the ces. many previous studies have studied part of the ces that is, working capital management. given that the present study has a new and different view compared to previous studies, some researches that are related to the subject are briefly reviewed and then questions and research hypotheses are proposed. auerbach (1979) stated that investors who seek to maximize their utility, they tend to maximize current value of their investment. achieving this goal involves investing in projects that its current value considering the expected return rate of investors is positive. in this way, cost of capital is one of the factors affecting the maximization of shareholders' wealth and should be minimized. the capital structure (from an accounting standpoint), that been called the structure of capital resources from a financial management perspective that is, combination of liabilities and shareholders' equityaffect the cost of hooshang asheghi-oskooee 4 capital. so, to determine the cost of capital, it should be measured the debt and equity costs (gitman et al., 1982; francis et al., 2008; berry-stölzle and xu, 2018). yaghobnezhad et al. (2010) examined various variables of working capital and net operating profit and found an inversely relationship between the variables of working capital management and profitability. they mentioned, an increase in the receivables collection period, the payment period, the inventory turnover and the cash flow cycle, will reduce profitability. al-ani (2013) studied structure of fixed and current assets (it is introduced as the ces by neveu, 1989). the assets structure doesn’t have a strong impact on roe, he found. in other words, the change in the structure of assets does not correlate with the change in their returns. in another part of the results, it has been stated that, only the fixed assets affect roe, while they do not affect roa. on the other hand, current assets have no effect on roe and roa, while assets structure in the petrochemical industry affects roe. regarding the results of al-ani's research, it seems, the impact of assets structure on the shareholders' wealth can be different in different industries. so, it is important issue to be studied. tashakori jahromi et al. (2014) have studied the relationship between working capital variables, such as sales cycle and receivables collection period, with stockholders' wealth (adjusted return). they found, there is a significant positive relationship between working capital components and the optimal level of working capital with stock's adjusted returns. aktas et al. (2015) found that the existence of an optimal level of working capital policy and converge of that optimal level by increasing or decreasing investment in working capital, improve firms' stock and operating performance. also, efficient management of working capital can provide a new sources of internally-generated funds, which can be used at the benefit of firms' shareholders. mun and jang (2015) suggest that, working capital influences operating profitability. it has a significant inverse relationship with profitability and an increase in working capital has a negative effect on profitability. also, the cash level is an important factor in efficient management of working capital. harc (2015) found that tangible assets have a positive impact on the long-term debt. so, it can be concluded that the ces is related to the cost of capital and can ultimately affect the shareholders' wealth. in another study, ahmad et al. (2017) found a significant and positive impact of asset structure on capital structure. as it was identified before, the asset structure is the ces and the capital structure is liabilities and shareholders' equity, from the financial management perspective. according to the results of this research, it can be argued that the ces can be related to the shareholders' wealth and cost of capital too. 3. research questions and hypotheses there are several researches similar to those reviewed in the previous section. but, as previously mentioned, there is no comprehensive study on the ces and cost of capital which be directly related to the shareholders' wealth. so, given the literature review and study of research background, the following questions were raised. • is there a significant relationship between the ces and shareholders' wealth? • is there a significant relationship between cost of capital and shareholders' wealth? • how is the model of relationship between the ces and cost of capital with shareholders' wealth? to answer the first two questions, two main hypotheses and several sub-hypotheses has been raised based on research literature and background. h1: the ces has a significant relationship with shareholders' wealth. h1.1: the cash to total assets ratio (cta) has a significant relationship with shareholders' wealth. h1.2: the short-term investments to total assets ratio (stita) has a significant relationship with shareholders' wealth. h1.3: the current assets to total assets ratio (cata) has a significant relationship with shareholders' wealth. h1.4: the fixed assets to total assets ratio (fata) has a significant relationship with shareholders' wealth. h1.5: the long-term investments to total assets ratio (ltita) has a significant relationship with shareholders' wealth. capital expenditures structure, cost of capital and shareholders' wealth 5 h1.6: the other assets to total assets ratio (oata) has a significant relationship with shareholders' wealth. h2: the cost of capital has a significant relationship with shareholders' wealth. h2.1: the cost of debt capital (cdc) has a significant relationship with shareholders' wealth. h2.2: the cost of equity capital (cec) has a significant relationship with shareholders' wealth. 4. methodology the method (strategy) of this study is analysis of secondary data. it is applied research and has used quantitative data to explore and describe the subject. this study examined the business level; that is, companies that have one business, not holding companies having several businesses. for this study, the statistical population encompassed companies listed in the tehran stock exchange. the statistical population was screened, because 1) holdings, the group companies and companies reporting consolidated financial statements, have more than a business were excluded due to lack of access to detailed data about each business and because this study focused on the business level, 2) their fiscal year ended in march, 3) need to review past performance of business that require the presence of companies in the stock exchange not less than five years. finally, some 186 companies were selected as sample based on systematically eliminated sampling. 4.1 research variables the independent variables of the research are the ces and the cost of capital and the dependent variable is shareholders' wealth. 4.2 variables' measurement methods to measure variables, standard methods used by most researchers have been hired. 4.2.1 capital expenditures structure the cash to total assets (deakin, 1972), short-term investments to total assets (doukas and lang, 2003), current assets to total assets (öcal et al., 2007), fixed assets to total assets (deloof, 2003), long-term investments to total assets (doukas and lang, 2003) and other assets to total assets ratios are used to calculate the ces. 4.2.2 cost of capital companies combine equity and debt or loan financing. the firms' cost of capital is usually calculated as the weighted average cost of debt and equity (ross et al., 2016). it can be calculated by equation 1. equation 1: wacc = rdebt(1-tc) d/v + requity e/v there is wacc = weighted average cost of capital, rdebt = cost of debt capital, tc = tax rate, d/v = debt/total financial resources ratio, requity = cost of equity capital and e/v = equity/total financial resources. equation 2 (ross et al., 2016) has been used to calculate the cost of equity capital. equation 2: re = d1/p0 + g there is re = cost of equity capital, d1 = next period’s projected dividend, p0 = current stock price and g = the dividend growth rate. also, the equation 3 has been used to calculate the cost of debt capital. equation 3: rd = i(1-t) there is rd = cost of debt capital, i = interest rate debt, t = tax rate. hooshang asheghi-oskooee 6 4.2.3 shareholders' wealth for calculating the wealth created for shareholders, the formula provided by fernández (2002) is used. equation 4: created shareholder value=equity market value×(shareholder return×ke) ke is the cost of equity capital that is equal with re (mentioned in equation 2) and calculated by the same method. 5. data analysis and findings this section consists of categorizing and summarizing and describing and analyzing the data collected. it was done using descriptive and inferential statistics techniques. at first, the research variables were described using descriptive statistics techniques. then, the structural equation model has been used to construct a model and test the hypotheses. 5.1 descriptive statistics three main variables have been studied. research data has an interval scale. to describe the variables of the research, the measures of central tendency and index of dispersion are used, which are shown in table 1. table 1. descriptive statistics research variables sample size mean median standard deviation skewness kurtosis cta 186 0.043 0.029 0.049 3.425 18.403 stita 186 0.020 0.000 0.051 4.473 24.741 cata 186 0.646 0.681 0.196 -0.601 -0.388 fata 186 0.246 0.203 0.179 1.127 1.001 ltita 186 0.078 0.023 0.125 2.333 5.570 oata 186 0.014 0.004 0.033 5.815 43.695 cec 186 0.295 0.290 0.202 0.909 3.915 cdc 186 0.150 0.118 0.384 17.270 394.217 shareholders' wealth 186 891221.200 15452.376 8099648.740 4.443 93.511 5.2 inferential analysis of findings in the inferential statistics section, the following tests have been used to investigate the hypotheses: • confirmatory factor analysis • structural equation modeling 5.2.1 confirmatory factor analysis research variables have been extracted from literature review and previous researches. confirmatory factor analysis was used to determine the relationship between unobservable and observed variables. factor loads should be higher than 0.5 and ideally 0.7 or higher (fornell and larcker, 1981). figure 1 shows the path analysis model in the estimating mode of standard coefficients. the summary of the confirmatory factor analysis results is shown in table 2. it indicates the suitability of the observed variables' factor loads. capital expenditures structure, cost of capital and shareholders' wealth 7 figure 1. path analysis model in the estimating mode of standard coefficients table 2. factor loads of unobservable variables unobservable variables items factor loads c e s cta 0.881 stita 0.872 cata 0.850 fata 0.874 ltita 0.871 oata 0.503 cost of capital cec 0.928 cdc 0.913 shareholders' wealth 1.000 5.2.2 structural equation modeling the structural equation model of the relationship between variables, which was designed using smartpls software, was investigated after confirmatory factor analysis and identifying the factor loads. figure 2 shows the model in the absolute value of t-statistic. this model tests all measurement equations and structural equations using t-statistic. according to this model, if the value of t-statistic is more than 1.96, then the path coefficient in the 95% confidence level is significant. given that the absolute value of t-statistic for all paths is more than 1.96, the coefficient of paths is significant at 95% confidence level. shareholders' wealth cec cdc ltita fata cata cta stita oata shareholders' wealth cost of capital ces 1.000 -0.164 0.224 0.000 0.000 0.388 0.913 0.928 0.871 0.874 0.850 0.881 0.872 0.503 hooshang asheghi-oskooee 8 figure 2. model in the state of absolute significance of t-statistic validity, reliability and goodness-of-fit indexes of the model are shown in table 3 and the correlation coefficients and divergent validity index are shown in table 4. table 3. validity, reliability and goodness-of-fit indexes unobservable variables ave cr r 2 ave 2r gof (1) ces 0.673 0.923 0.000 0.860 0.515 0.442 (2) cost of capital 0.570 0.814 0.000 (3) shareholders' wealth 1.000 1.000 0.265 table 4. correlation coefficients and divergent validity index unobservable variables (1) (2) (3) ave ces 1.000 1.000 cost of capital 0.473 1.000 0.820 shareholders' wealth -0.434 -0.563 1.000 0.773 average variance extracted (ave) indicates the convergent validity of the measurement model. if the value is less than 0.5, the validity of the indexes, whether individually or structurally, is doubtful (fornell and larcker, 1981). given that all ave values are more than 0.5, the measurement model has credibility. composite reliability (cr) or convergent validity is present when cr is larger than 0.7 and cr should be larger than ave too (hair jr et al., 2014). as shown in table 3, both conditions are met. therefore, the model has the necessary reliability. the results of the main research hypotheses test in table 5 and the results of sub-hypotheses test are also shown in table 6. table 5. structural equation results for research hypotheses test independent variable dependent variable β t-value sig r 2 result relation direction ces shareholders' wealth 0.388 8.420 0.001 0.224 confirmed + cost of capital -0.164 3.719 0.001 confirmed |t|>1.96 significant at p<0.05, |t|>2.58 significant at p<0.01 shareholders' wealth cec cdc ltita fata cata cta stita oata shareholders' wealth cost of capital ces 1.000 3.719 8.420 77.401 87.463 59.440 71.558 53.921 77.327 68.109 10.717 capital expenditures structure, cost of capital and shareholders' wealth 9 table 6. structural equation results for research sub-hypotheses test independent variable dependent variable β t-value sig r 2 result relation direction cta s h a re h o ld e rs ' w e a lt h 0.120 1.579 0.115 0.244 unconfirmed stita 0.143 2.237 0.031 confirmed + cata -0.085 -1.147 0.252 unconfirmed fata 0.288 3.719 0.000 confirmed + ltita 0.138 2.852 0.005 confirmed + oata -0.008 -0.109 0.913 unconfirmed cdc -0.174 -1.639 0.009 0.141 confirmed cec -0.233 -3.530 0.000 confirmed 6. discussion and conclusion according to the research findings, it can be concluded that there is a direct and significant relationship between the ces and shareholders' wealth with 95% confidence. also, there is a reciprocal and significant relationship between the cost of capital and the shareholders' wealth with 95 percent confidence. although, in general, the existence of such a relationship is obvious and there is no doubt, but the most important part of the results is related to the details of the relationship. these details were investigated through sub-hypotheses. the results showed that despite the general relationship between independent variables and dependent variable of research, all components of the independent variables do not have the same relation to the dependent variable. this increases the importance of the issue and indicates the need to focus on the ces. the results of the testing of the sub-hypotheses shown in table 6 show that there is no relation between the cta, cata and the oata with the shareholders' wealth. cash is one of the components of current assets that mun and jang (2015) also have paid attention to the its importance in managing working capital. the absence of a relationship between cta and cata with shareholders' wealth, is the same as the results of al-ani (2013), yaghobnezhad et al. (2010) and tashakori jahromi et al. (2014). but, differs with the results of aktas et al. (2015) and mun and jang (2015), which focused on working capital and in particular on the cash flow cycle. the differences observed in the results of these studies can be attributed to the time, economic, and political conditions of the countries in which the research is carried out. also, the type of industry in which the company operates may have a significant impact on the research results. this could be the subject of future researches. in general, it seems, the absence of a significant relationship between the cata as well as the oata with shareholders' wealth, appears due to the concept of unused resources. current assets are items that, if invested in, excessively necessary, reduce stockholders' returns (stockholders' wealth) due to low returns or lack of returns. for example, cash surplus on need, does not produce any returns. other assets are not used in the company's operations. these assets are acquired and maintained in order to gain more future returns. obviously, in conditions of market downturn, holding such assets cannot increase the company's returns, and may even reduce the company's return due to the lack of increase in value or even their devaluation. this could reduce shareholders' wealth, especially if it is financed from debt. the results of harc (2015) and ahmad et al. (2017) also confirmed, the ces is related to the cost of capital and the capital structure (liabilities and shareholders' equity). perhaps one of the main reasons for the lack of comprehensive attention to the ces by the researchers is the perception of an obvious relationship between it and the shareholders' wealth, or the firm's performance and returns. but, as stated above, the lack of attention to the proper combination of assets (ces) can create unused resources and thus reduce the returns. hooshang asheghi-oskooee 10 the results of this study showed that the assumption of the existence of the relationship between all the components of the asset with the shareholders' wealth is not correct and it is necessary to decide more carefully on the composition of the assets. also, researchers need to deviate from focusing only on the left side of the balance sheet and working capital, and to consider the right side of the balance sheet comprehensively. what is remarkable as the final result of this study, is the absence of a relationship (in other words, the existence of a very weak relationship) between current assets (working capital) and other assets with shareholder wealth and the relationship between other components of the ces as well as the cost of capital with the shareholders' wealth. the relation between all elements of the ces (assets structure) with the shareholders' wealth is not the same. therefore, more attention should be paid to research in this field. references ahmad, g. n., lestari, r., & dalimunthe, s. 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(in persian) international journal of commerce and finance, vol. 6, issue 1, 2020, 70-80 70 analysis of financial structure of cooperative organization in nigeria nurudeen afolabi sofoluwe olabisi onabanjo university, ago-iwoye, ogun state, nigeria bamidele ilo olabisi onabanjo university, ago-iwoye, ogun state, nigeria abstract this study analysed financial structure of workers cooperatives using university based cooperatives as a case study. the paper employed secondary data from annual reports and accounts of the cooperatives between 2012 and 2018 accounting years and uses descriptive statistics to analysis the data. the financing structure of the cooperatives consists of share capital, reserves and savings. the assets structure of the cooperative consist of outstanding loans to member-patrons, cash and stock of trading items. further analysis shows that the trend of share capital as a component of financing structure was increasing more consistently over the period. keywords: finance, workers cooperative, assets, university, nigeria. jel classification: g32, j54, p13 1. introduction cooperatives, including enterprises owned by workers, could play significant roles in repositioning an economic system as a whole, in addition to generating another form of social governance. this, in addition to the rising ideas of democracy in various business establishments and organizations, have brought about renewed interest in cooperativism in various academic and community circles (alperowitz, 2013). among several factors to which economic and social needs of individuals could be met, cooperation among workers is vital. however, skepticism remains on the capabilities of workers in organized institutions to realistically own and manage successful business. relative to all existing types of cooperatives, workers-owned cooperatives appear to attract higher level of involvement from employees (perotin, 2015). in such arrangement, many employees are able to contribute capital and labour to the development of their cooperative. in workers’ cooperative, two main forms of participation exists: involvement in decision-making and policy formulation, and shared equity which includes dividends, and individual financial account (cheney et al., 2014). in recent years, and following declining fortunes from direct employment into formal institutions, increasing number of cooperative groups are changing their business orientation from rochdalian and more conservative approach to conventional and profit driven self-help organizations (hendrikse & veerman, 2001). in this circumstance, financial structure of such cooperatives is modelled to mirror investors owned firms while retaining specificity of cooperative organization. expectedly, changes in business and financial orientation of a cooperative group could results in increasing demand for both short term and long term needs of members-patrons of cooperative firm. but, undue financial pressure may results most especially in the presence of risks that are known to be associated with conventional business orientation. the question is whether workers cooperative with primary obligations to their employers in an organized institution could put up additional capabilities to meet both the short and long term obligations to members who are also the patrons. hence, the need for understanding financial structure of cooperatives set up and managed by workers using higher institution of learning as a case study. despite the view held by a number of scholars (anheier & salamon, 2006; levi & davies, 2008) that cooperatives societies belong to nonprofits organization, largely due to its principles and market operations, its contribution to social economy cannot be ignored (defourny and nyssens, 2006). in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e analysis of financial structure of cooperative organization in nigeria 71 in the financial literature, the overall impact of firms’ financial leverage on the cost of capital to business enterprise is contentious. but, it is traditionally expected that a business enterprise can lower the cost of capital by substituting debt for equity. consequently, optimum financial structure that reduces cost of capital is expected. while the importance of financial structure of conventional firms has been widely debated since the research efforts of myers (1984), little attention has been paid to the relevance of financial structure to cooperative business enterprise. for a healthy business enterprise, an optimum financial structure is required to provide direction to decisions on asset financing, cost and risks. in recent times, limited studies have analysed financial structure of cooperative firms. the work of kassali, adejobi and okparaocha (2013) was narrowed to agricultural cooperatives with overall interest in financial performance. although their findings indicates negative effect of financial measures such as loan and cooperative size on performance, understanding the financial structure of cooperatives was suggested as crucial to projecting cooperative financial performance. earlier, hendrikse and veerman (2001) tested applicability of transaction costs theory to financial structure of marketing cooperatives. they found less favourable terms for marketing cooperatives compared to conventional firms with respect to outside equity. in this study, we examine the trends in financial structure of cooperatives organized and managed by university workers. we also analysed the capabilities of the cooperatives to meet short term and long term obligations to the members using university based cooperatives as a case study. it is expected that the outcome would lay a clear premise for understanding the nature of financial strength of cooperatives organized by labour. also, the findings should provide insights into financial policy formulation for future financial strategies of cooperatives. the rest of the paper is arranged in sections; section two covers review of literature on cooperatives in general and workers cooperatives specifically. it reviews theoretical underpinning of financial structure and the linkage between financial structure and workers cooperatives. section three presents the methodology including the data for the study. these two sections are followed by results, discussion and conclusions. 2. literature review prior to the internationally acclaimed definition of cooperatives by ica (1995), a number of scholars have defined and conceptualized cooperatives in several ways. although the principles and practices of cooperatives are widely acknowledged, modern economic changes suggest that the appropriate definition of cooperatives could better be understood if the structure and types of cooperatives are put into perspective. for instance, ica (1995) put the definition of cooperatives as “an autonomous association of people united voluntarily to meet their common economic, social and cultural needs as well as aspirations through a jointly-owned and democratically controlled enterprise”. the definition of ica puts up a number of issues that are specific; it implies cooperatives are only formed by people who have common challenges and needs. also, the management structure of workers cooperatives especially in government controlled institutions does not make it absolutely independent of discreet monitoring. nonetheless, the implied definition of cooperatives as economic enterprises (galor, 2003) initiated and owned by members provides the basic linkage to financial structure assessment. to this end, valetinov and lliopoulos (2013) argued for understanding of cooperatives from three economic perspectives. the perspectives are drawn from early proposition of nourse (1922) and emelianoff (1942). they viewed cooperative as “a form of vertical integration to serve the members, a distinct firm from members’ individual business and a coalition of people”. the ensuing argument emanated from the principle of cooperative-operation at costwhich implies that a cooperative firm neither incurs profit nor loss. based on this, cooperative could be modelled as a business unit from multi business entities thereby establishing rules and decisions for cooperative pricing and output (cook, 1995). economic realities underlined the motives for cooperative formation to achieve desired financial leverage. some of these include need for risk reduction (lliopoulos, 2009), need to manage transaction cost in business (hansmann, 1996; valentinov, 2007), need for improved marketing margins (cook & lliopoulos, 1999), opportunities offered by scale economies or increased power of bargaining (ortmann & king, 2007) and avoidance of market power that is usually wielded by contractual partners in the business chain (valetinov & lliopoulos, 2013). a number of theoretical perspectives have been put into the analysis of financial structure of firms. mackay & phillips (2005) base their work on competitive equilibrium models and found that financial structure decisions are nurudeen afolabi sofoluwe not independent of risk and technology choices of business enterprise. in addition, the three interdependent decisions are dependent on the positions of the firm in its industry. the implication of the finding is that financial structure of workers cooperatives can only be assessed through identification of their position in the broad cooperative entities-producers and service cooperatives. sexton and iskow (1993) argued that ratios as financial measures are devoid of sound economic theories and on the basis that cooperatives are only a vertically and jointly integrated entity. hence, such entity may not be suitable for the peculiarities of financial ratio analysis. but, the argument does not take into consideration an important dimension of cooperatives which emphasizes management of cooperative business entity. even in a case where such entity will be managed by elected governance members or board in replica to investors owned firms. also, while cooperative is truly a vertical entity of members, suitable financial measures for cooperatives may actually depend on the type and nature of the cooperatives. in addition, some cooperatives in modern times do exhibit similar behaviour to investors owned firm (soboh et al., 2009). consequently, financial ratios are applicable to cooperatives as business enterprise. mateos-ronco and guzman-asuncion (2018) considered financial decisions of agricultural cooperatives and used financial ratios to determine long term financial decisions of agricultural cooperative firms. decisions of the sampled were closer to pecking order theory with equity capital that pushes them to debt to fund future growth. the review of extant literature leave a gap that suggest the need for detail analysis of financial structure of cooperative organization. 3. methodology we employed descriptive survey design for the study. with specific focus on university based cooperative which is owned and managed by academic staff of olabisi onabanjo university, ago–iwoye, ogun state, nigeria. in the history of workers cooperatives in nigeria, our case study is one of the foremost and functional workers’ cooperatives in nigeria. the sampled cooperative firm was established in 2002 as olabisi onabanjo university academic staff (ago-iwoye) co-operative multipurpose society limited. it attained cooperative legal status in 2004. it currently has five hundred and ten (510) members comprising 386 male and 124 female staff-members as at december, 2018 (table 1). although the cooperative became legally functional in 2004, the financial record only became standardized from the year 2012. hence, data for the study were sourced from the annual accounts and statistics of the sample cooperative firm from that period. the data covers the period of seven (7) years between 2012/13 and 2018 cooperative business years. the data were secondary in nature. information gathered covers data on current assets, current liabilities, fixed and total assets, as well as the cooperatyive investment over the sampled period. the data collected measure the cooperative capacity to meet short term obligations of the member-patrons. descriptive statistics were largely employed to analyze the data. 4. results and discussion 4.1. characteristics of the sampled cooperative: membership the sample cooperative has skewed distribution across gender over the study period. the number of male membership is far more than female. for instance, there is a record of 284 male to 85 female in the period between 2013 and 2014 accounting year. this represented a difference of 199 in favour of male. the result perhaps suggests gender imbalance in the cooperative’s industry sector in the country. it also depicts gender imbalance in the employment of the university housing the cooperative and perhaps the university education sector in the industry. the data reflects the same observation for the succeeding years as there are more male patrons of workers cooperative than female. the data show high possibility of female exclusion from employment bracket in the study area. the period also witnessed decline in membership from 386 to 369, representing a decline by 17. a possible reason could be work mobility of members from the location of the cooperative settings to another work place or non attractiveness of cooperative ideals to the members. although there is an increase in membership in the succeeding years by 50 cooperators, the data shows an increase at a decreasing rate of additional members to the workers cooperative as shown in table 1. table 1: description of sampled cooperative firm period (year) membership (% change) male female analysis of financial structure of cooperative organization in nigeria 73 2012 386 nc nc* 2013 369 (-17) 284 85 2014 419 (50) 324 95 2015 463 (44) 353 110 2016 479 (16) 365 114 2017 492 (13) 376 116 2018 510 (18) 386 124 source: annual reports of the sampled cooperative firm (2013-2019) *ncnot categorized 4.2. financial structure of workers cooperatives the financial structure of the sampled workers cooperative is presented in table 2. the current assets progressively increased over the period to reach n798.724 million ($2.219 million) in the year 2018. the total assets of the cooperative firm at the end of the study period (2018) stood at n811.860 million ($2.255 million). however, the investment flow is not impressive as constant values were recorded from the period 2015 to 2018. although the current liabilities increases over the period, the rate of increase is minimal. the estimates of percentage change in the financial series is presented in table 3. the current assets of the worker cooperatives show over 100% increase (117.189%) over the sample period (2012-2018). however, the fixed assets of the cooperative increased by 30.488% over the period. the overall assets of the sampled workers cooperative increased by 117.408% over the period under study. the liabilities has reduced per cent value of (-78.532%) (table 3). table 2: balance sheet of workers cooperatives (n 360 =$1)* year ended 2012 2013 2014 2015 2016 2017 2018 balance sheet asset (n million) current asset 367.755 ($1.022) 394.196 ($1.0949) 464.807 ($1.2911) 522.361 ($1.451) 573.018 ($1.5917) 689.949 ($1.917) 798.724 ($2.219) fixed asset 5.671 ($0.016) 6.184 ($0.017) 6.589 ($0.018) 6.755 ($0.018) 6.986 ($0.019) 7.258 ($0.020) 7.400 ($0.021) investment 5.738 ($0.016) 5.737 ($0.016) 86.748 ($0.241) 5.737 ($0.016) 5.737 ($0.016) 5.737 ($0.016) 86.748 ($0.241) total 373.427 400.380 558.145 534.853 585.741 702.943 811,861 current liabilities (n) 373.426 ($1.037) 400.380 ($1.112) 459.413 ($1.276) 73.0723 ($0.203) 76.247 ($0.212) 77.469 ($0.212) 80.168 ($0.223) source: annual reports and accounts of the cooperative * values are in millions table 3: changes in the balance sheet (2012-2018) (n 360 = $1) variables 2018 n($) millions 2012 n($) millions difference n($) millions % change asset (n) current asset 798.724 ($2.219) 367.755 ($1.022) 430.969 ($1.197) 117.189 fixed asset 7.400 5.671 1.729 30.488 nurudeen afolabi sofoluwe ($0.021) ($0.016) ($0.005) total 811.861 ($2.255) 373.427 ($1.037) 438.434 ($1.218) 117.408 current liabilities (n) 80.168 ($0.223) 373.427 ($1.037) -293.259 ($-0.815) -78.532 source: computed from the cooperative annual reports and accounts 4.3. description of financial structure of the sample cooperative the descriptive statistics of the balance sheet is presented in table 4. the average current assets of the sample workers cooperative is 1.51 in million us dollars over the sampled period. this represents cash, goods or items having a short life which are the most important current assets of the cooperative. the value of the current assets is more than fixed assets which stood at 0.02 million dollars. the higher value of the current asset suggests that the workers cooperative give more priority to liquidity. the cooperative only shows record for current liabilities and the value stood at $0.61 millions over the sampled period. since the value of the current assets is greater than the current liabilities, it could be inferred that the cooperatives lay more emphasis on staying liquidworkers are financially prudent in the management of their cooperative. this is an indication of future success and sustainability of the workers cooperative. however, the investment flow is low at 0.04 million dollars over the sample period. this suggests that opportunity to grow the cooperative and generate desirable employment potential may be limited. the standard deviation of all the variables indicates stability of the workers cooperative effort over the years. with the exception of investment variable that has higher standard deviation than its mean values, all other values of the deviation are expectedly lower than that of the mean. over the period under study, investment value of the cooperative is the lowest relative to other balance sheet variables. the minimum fixed asset generated is 0.02 million dollars. comparative of current assets to current liabilities show that the minimum value of the current assets is 1.02 million us dollars while that of current liabilities is 0.20 million us dollars. the higher value of the current assets relative to current liabilities suggests that the sampled workers cooperative has higher working capital, implying higher liquidity for the business albeit in the short run. the maximum value is observed with current assets which stood at 2.22 in million us dollars. the maximum for the fixed assets over the period is $0.02 million us dollars which also equal the minimum value observed for the same period. the maximum value of investment is 0.24 million us dollars over the period. table 4: description of financial structure of the sample cooperative (360n = 1$) (’million) variable mean* std. dev. min max current asset n 544.40 ($1.51) n 156.67 ($0.44) n367.76 ($1.021) n798.72 ($ 2.22) fixed asset n 6.69 ($0.02) n 0.61 ($0.00) n 5.67 ($0.02) n 7.40 ($0.02) total asset n 566.76 ($1.57) n155.53 ($0.43) n 373.43 ($1.04) n 811.86($2.26) investment n 15.67 ($0.04) n 31.46 ($0.09) n 0 ($0) n 86.75 ($0.24) current liabilities n 220.03 ($0.61) n 180.52 ($0.50) n 73.07 ($0.20) n 459.41 ($1.28) *1$ = n 360 source: data analysis 4.4. breakdown of financing and asset structure of cooperatives 4.4.1. financing structure of cooperatives results in table 5 shows the financing structure of the cooperatives. the financing of the cooperatives rests on capital contributions from members in form of share capital, reserves and savings. the overview of capital contribution values indicates that the share capital of members generally increased over the period under study suggesting an increase in members of the university community showing preference for financial transaction with cooperative organization. the capital contribution grew from $0.258 millions dollars in 2012 to a high value of analysis of financial structure of cooperative organization in nigeria 75 $308.258 millions dollars in 2018. this suggests high responsiveness of university members to capital contributions in the cooperatives. similarly, the reserves also increased over the period from $0.106 in 2012 to $0.306 in 2018. in the cooperative structure, the reserves are meant to fund fixed assets need of cooperative organizations. savings as a difference between cooperative earnings and expenses also increased from $0.179 to $0.577 over the sampled period. the percentage changes in the financing structure is presented in table 6 and illustrated in figure 1 to 3. with the exception of years 2014 and 2015, the percentage changes in capital contribution of members to cooperative could be described as relatively consistent. aside the observed exceptions, the changes range from maximum of 22.98% to minimum of 16.21% over the sampled period. although, higher percentage changes is observed fro cooperative reserves as form of financing, the successive changes in the value is also relatively consistent. while the percentage changes in the values of savings could be said to be irregular, the trend of changes is relatively consistent. table 5: financing structure of cooperatives (n 360 = $1) n($) millions* year 2012 2013 2014 2015 2016 2017 2018 capital contribution 92.740 ($0.258) 112.054 ($0.311) 14.089 ($0.039) 178.401 ($0.496) 207.319 ($0.576) 254.96 ($0.708) 308.18 ($308.18) reserves 38.072 ($0.106) 47.34 ($0.131) 55.066 ($0.153) 69.60 ($0.193) 834.519 ($2.318) 90.37 ($0.251) 109.99 ($0.306) savings 64.59 ($0.179) 77.11 ($0.214) 96.33 ($0.268) 121.34 ($0.337) 140.62 ($0.391) 172.38 ($0.478) 207.86 ($0.577) grand total 195.406 ($0.543) 236.502 ($0.657) 165.489 ($0.459) 369.347 ($1.026) 1182.461 ($3.285) 517.712 ($1.438) 626.037 ($1.739) source: annual report and accounting of the cooperative table 6: changes in financing structure (2012-2018) 2013 2014 2015 2016 2017 2018 % % % % % capital contribution 20.83 -87.43 1166.28 16.21 22.98 20.87 reserves 124.33 116.33 126.39 119.89 108.29 121.71 savings 119.38 124.93 125.962 115.89 122.59 120.58 source: computed from data extracted from annual reports of the cooperatives nurudeen afolabi sofoluwe fig. 1: % changes in capital contributions of members to the cooperative fig. 2: trend of financial reserves of the cooperative (2012-2018) fig. 3: trend of savings of the cooperative (2012-2018) 4.4.2. assets structure of cooperatives the breakdown of assets structure of the cooperative organization is presented in table 7. the assets structure are decomposed into fixed assets and current assets. the current assets are by loans, investment, cash and stock of trading items as contained in the annual reports and accounts of the cooperatives. the outstanding loans of the cooperative was increasing steadily up till 2016 with the exception of 2014 (figure 4). the outstanding loan reduces from $0.603 in 2013 to $0.553 in 2014 representing about 8.4% reduction in outstanding loan to members (table 8). from 2016, there was an increase in the value of loan up to 76%. this shows an increase in inclination towards loan access through cooperative organizations. the cash representing liquidity of the firms to meet urgent financial needs was generally decreasing over the period. the percentage changes in stock of trading items over the period was found to be flunctuating. analysis of financial structure of cooperative organization in nigeria 77 table 7: assets structure of cooperative (360n = 1$)* millions 2012 2013 2014 2015 2016 2017 2018 fixed asset 5.671 ($0.016) 6.184 ($0.017) 6.589 ($0.018) 6.755 ($0.018) 6.986 ($0.019) 7.258 ($0.020) 7.400 ($0.021) current assets loans 165.398 ($0.459) 217.244 ($0.603) 198.952 ($0.553) 217.244 ($0.603) 224.417 ($0.623) 396.226 ($1.101) 557.913 ($1.549) investment 5.738 ($0.016) 5.737 ($0.016) 86.748 ($0.241) 5.737 ($0.016) 5.737 ($0.016) 5.737 ($0.016) 86.748 ($0.241) cash 29.016 ($0.081) 0.4 ($0.001) 5.944 ($0.017) 0.594 ($0.002) 0.589 ($0.002) 0.005 ($1.389e05) 0.005 ($1.389e05) stock of trading items 167.398 ($0.465) 388.059 ($1.078) 173.163 ($0.481) 298.786 ($0.829) 342.275 ($0.951) 466.963 ($1.297) 154.058 ($0.428) sources: computed from annual reports of cooperatives fig. 4: trend of outstanding loans of cooperatives table 8: changes in assets structure of cooperative 2013 2014 2015 2016 2017 2018 % % % % % % fixed asset 9.05 6.55 2.52 3.42 3.89 1.96 current assets loans 31.353 -8.420 9.194 3.302 76.558 40.807 investment -0.010 1412.079 -93.387 0 0 1412.079 cash -98.621 1386 -90.007 -0.842 -99.151 0 stock of trading items 131.818 -55.377 72.546 14.555 36.429 -67.009 nurudeen afolabi sofoluwe total% change (current asset) 7.249 17.913 12.382 9.698 20.406 15.766 source: computed from data extracted from annual reports of the cooperatives 5. discussions and conclusions there is an increasing drive for cooperative formation and participation across the world. however, in emerging countries like nigeria, cooperative involvement and establishment is rampant among formally employed individuals who strive to take advantage of both economic and social needs expected from cooperative membership that is usually not attainable from the gains of employment in the country. among the most coveted by people is institutional based cooperative group. to this end, we chose university based cooperative as a case study. the analysis of the financial structure of the cooperative shows interesting outcome. first, the working capital of the workers cooperative and hence its liquidity status, as dictated by the ratio of its current assets to current liabilities, is relatively impressive given the higher value of the former compared to the latter. but, the utilization of such advantage in investment is unimpressively low. after over 16 years of existence of such cooperative, it is expected that one of the cardinal values of cooperative –to generate employment will be a centre focus not neglecting the need to raise the economic needs of the patrons. the appraisal of the balance sheet leads to the understanding that workers’ cooperative, though desires by many workers in nigeria, is yet to reach its potential. a constant value of investment show either lack of investment education on the part of cooperatives or low capacity to take advantage of cooperatives ideals to contribute to community development through increasing investment drive for the cooperative firms. the study found that a number of individuals are increasingly participating in cooperative with financial commitment as reflected in the balance sheet. but, one of the critical additional concern is low involvement of women in the cooperative participation. overall financial benefit is desirable through elimination of gender exclusion in the running of cooperative business activities. the study points to financial exclusion of women which perhaps could lead to cross fertilization of ideas for better investment which is obviously lacking in the financial outcome of the sampled workers cooperative. the findings of the study leads to suggestion that the workers’ cooperative has poor investment drive. expectedly, potential for investments should be higher given higher working capital presented in the balance sheet. evidence of poor investment presented show the need for further investigation on the reasons for poor investment drive of workers cooperative. in arriving at appropriate understanding of financial structure of cooperatives, two components were identified and analysed. these are the financing structure of the cooperative which comprises of share capital, reserves and savings. these represent the sources of funds for the workers cooperative. capital contribution through share capital was found to be a crucial source of financing for the cooperatives. the assets structure are categorized into two where current assets were found to comprise of outstanding loans to member-patrons and which was expected to be repaid at flexible exchange rate. other components of current assets include investment, cash and stock of trading items. under this financial item, outstanding loan was found to be more important as it appears that members participate in cooperative based on expectation of flexible loans. the cash representing liquidity of the firms to meet urgent financial needs was generally decreasing over the period. the percentage changes in stock of trading items over the period was found to be flunctuating. the overall assessment of the financial structure show that workers manage the finance of their cooperative based on stable financing sources and distribution of same as loans to 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(eds) the routledge companion to alternative organization, pp. 64–88. london: routledge international journal of commerce and finance, vol. 5, issue 2, 2019, 211-218 211 islamic insurance system: tekaful insurance sabri öz istanbul commerce university, turkey mehmet ali işik istanbul commerce university, turkey abstract the insurance issue, which is one of the convention means of finance, is based on old times. the issue of insurance, which is highly criticized in the islamic sense, is to be integrated into a holistic system by a methodology that will remain within the scope of islamic finance. while the compansation of possible risks for a certain premium is defined as insurance; the aid system, which provides relief from the troublesome situations caused by undesirable situations, is expressed as islamic insurance. the purpose of this study, the islamic insurance concept, basic features and by reviewing the literature on the model, the financial system is one of the global players and islamic finance interest known by the muslim population of the legislation and its applications in turkey. by this paper, it is clearified the difference between conventional insurance as its well known structure and islamic insurance. keywords: tekaful, islamic finance, islamic insurance, participation insurance system 1. introduction the insurance system, which is one of the important structures of traditional finance, is a commercial activity that allows individuals or institutions to compensate for their financial losses related to possible risks. possible risks are shared by insurance companies in exchange for premiums paid. collected premiums are collected in a pool and evaluated in various alternative investment instruments. the insurance system that emerged at the beginning of the 14th century, such as defined as “uncertainty, gambling, interest” in the islam, was a system in which muslims were avoided but needed in the current order due to reasons that are not in accordance with islamic law, it led people to seek a different system suitable for the the islam. evolutionary insurance has emerged as a product of the islamic finance system for the purpose of responding to this need. it is an aid system developed for the compensation of the problems for which the undesirable situation of any member will encounter in the structure formed by the system: which is also called an arabic term “tekaful” or by its word by word meanin as participation insurance. the system, which is in its initial phase, has a serious potential in the short and medium term. the aim of this research, under the islamic insurance concept, basic features and by reviewing the literature on the model, the financial system is one of the global players and islamic finance interest known by the muslim population of the legislation and its applications in turkey. by this paper, it is clarified the difference between conventional insurance as its well-known structure and islamic insurance. 2. islamic insurance system: tekaful insurance 2.1 traditional (convention) insurance in order to remedy the damage caused by the possible danger in the future, the insurance refers to being guaranteed and paid in advance for the payments called as premiums (tdk, 2018) . according to the definition of the american risk and insurance association, the insurance is the collection of the incidental losses in a single pool by transferring the defined losses, meeting the other material damages that may arise related to the losses and transferring them to the agreed insurance institutions for the fulfilment of the risk related services (saka, 2010). the law of turkish commerce, considers the insurance as a contract, in the case of a person who may damage the in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e sabri öz & mehmet ali işik 212 measurable interest of a person in return for a premium, to give compensation or to pay a money due to a number of events in a person's life or life, to compensate in other ways expressed as receiving (ttk, 2011). there are some other definitions on insurance in different literature. insurance can also be defined as the fact that people joining under the same roof face possible damages within certain contracts (şenel, 2006). according to karabulut, insurance is, a contract between the insurance company and the insurer is a trust and good faith (karabulut, 2004). on the other hand, according to hacak, the insurer shall be responsible for the contract; insured, acquiring contractual rights; risk, the potential of creating damage and the future event; the cost of insurance (compensation), the amount that the insurer is obliged to pay if the risk occurs; premium, insurance fee; time is the period covered by the contract (hacak, 2006). reinsurance is a kind of vertically upside foundation for the insurance sector. reassurance, means a partial or total insurance of the insured risk. the possibility of major damage or risk of several risks when used simultaneously the probability (turkey insurance association, 2018). the terms, “ette’mîn, et-tekâfülülictimî” and “et-tadâmun” are used in the meaning of assurance for insurance in arabic and in terms of assurance (turkish-arabic translation, 2018; gürbüz, 2017). it is not used in terms of absolute safety and has been used to mitigate the effect of danger (avcı, 1987). according to genç, insurance contracts have indispensable elements: damage and damage to be coincidental, to be insured to the same degree of danger, the damage can be measured with the money, the risks can be calculated (genç, 2002). there are insurance types depending on what you want to be insured. under the headings of property insurance and life insurance, insurance is provided under many sub-headings such as fire insurance, theft insurance, animal insurance, accident insurance, social insurance, voluntary insurance, life insurance and health insurance (akmut, 1980). the date of insurance goes back approximately 4000 years. it was used to compensate for the damages of those who were attacked by the bandits as it was included in the hammurabi laws. the known insurance system is the barcelona directive 1435, which is known as maritime insurance in italy. the first accident and life insurance also emerged in the uk after the great london fire (beşer, 2006). at the beginning of the 20th century, insurance companies were organized to meet every need. while the level of insurance is currently high in developed countries, it is lower in other countries. the insurance sector is sensitive to global risks and is highly affected by natural disasters, legal risks, geopolitical and macroeconomic shocks (sigorta.com.tr, 2018). turkey has now quite literally fuse in the west. however, the traditional structure of the turks based on solidarity is not far from the concept of insurance. the researchers base the insurance-like structure on the turks until the huns. afterwards, it is known that the turks who control the silk road are compensated by the state in return for taxes similar to the protection of taxpayers and caravans (kuşçu and revanoğlu, 2011). derbent organization in seljuks is a structure that can be accepted as insurance and it is a transportation insurance that the caravans suffered by the state. derbent organization, the ottomans continued until 300 years (genç, 2002). the maritime law of 1864 is a threshold in the ottoman empire. the first insurance activities in turkey after 1872 in the western sense pere fire began with the british insurance company (kamilçeleb of 2012). the first turkish company was the ottoman umum (general) insurance company in 1893 (gözen, 2008). the first turkish-owned company of the republican era was the anadolu anonim turkish insurance company, founded in 1925, under the order of atatürk. "milli reasürans türk anonim şirketi (t.a.ş.)" was established in 1929 (çelik & erdoğan, 2009). in 1942, doğan sigorta was established as the first private company with domestic capital (çalık, 2011). it is possible to say that the turkish insurance sector has improved since the 2000s. the product range of the sector has expanded and the collected premium has increased (tunay and tunay, 2013). on the other hand, the number of firms operating in the sector increased. although the turkish insurance sector has made significant progress in recent years, the share of the sector in the national income is still low as compared to the developed countries (çekici and inel, 2013). 2.2. islamic (tekaful) insurance interest is strictly prohibited in three celestial religions. however, the prohibition of judaism and christianity has been stretched over time due to the necessity of sea trade for futures and for other reasons. it is protected by prohibition in islam. world trade has almost turned into a system based on interest. the search for alternative islamic insurance system: tekaful insurance 213 alternatives of muslims in this system has increased. both islamic countries and western financial institutions have worked to develop islamic finance products (ustaoğlu, 2014). the insurance that emerged at the beginning of 14th century was accepted as haram for reasons such as uncertainty, gambling and interest. in the end, muslims have to stay away from the insurance system and insurance has become a necessity nowadays. 2.2.1 the meaning of tekaful as a word anthology evolution from arabic "kfl" is the same as the words "guarantor, bail". supporting, guaranteeing, mutual assurance, being a guarantor for one job, undertaking responsibility for that business, means common responsibility. the meaning of the dictionary is solidarity. while bail represents the unilateral guarantee of a person to another person, it has the nature of solidarity and mutuality on the basis of bail, which is based on bail, and therefore the surety is mutual (katılım sigortası: participation insurance, 2018). 2.2.2 the definition of tekaful insurance tekaful insurance is mentioned with many different names such as islamic insurance, non-interest insurance, participation insurance, mutual insurance, mutual insurance. it is an aid made by individuals in a simple sense to compensate for the catastrophe of the disaster to be exposed. (neova, 2018). participation banks association of turkey (tkbb) in the islamic dictionary islamic finance is referred to as the alias of the insurance system. at the same source, tekaful insurance is stated to be based on cooperation, solidarity, donation and partnership. the premiums paid are for the insurance of the company and not for the participants. funds generate profits, by premiums and premium could be obtained in ”interest-free investment areas“ (tkbb, 2018). according to the legislation of turkish laws, whih is, participation insurance according to the definition of the working procedures and principles; tekaful insurance is a type of insurance based on the principles of common risk sharing and solidarity, whereby the participants contribute to the risk fund established to ensure that the participants and other participants meet their demands for compensation and / or savings payments. (official gazette, 2017). in 1984, according to the malevolence law of malaysia, it is “a business method that does not involve any activities and objectives that are not approved by the islamic law (ahmed, 2009). wahab and friends, describe the islamic versions of traditional insurance products (wahab, lewis & hassan, 2007). it is also considered as an islamic version of the transitional (mutual) insurance that has been used for a few centuries in the west. co-operative insurance is a dual structure that is created by the desire of people to reduce risk and increase their social trust and is compatible with the mutual insurance. the basis of solidarity and bail and mutuality overlap with each other (üstün, 2014). there is limited debate about the islamic thought on tekafur insurance systems. garar (which means uncertainty), gambling and interest are issues that the majority alliance, which separates traditional insurance from tekafül insurance. according to some islamic jurists, and economists, insurance contracts are garared. the conventional insurance contract does not have any certainty for both parties. the realization of the contract is contingent and the compensation to be paid if the risk is realized is not definite and unclear (yanpar, 2015). in tekafül insurance, although the risk itself is uncertain, the contract made is not about whether the risk is realized or not. the contract is about sharing the loss. garar is not an essential element of this contract. in addition, one of the parties to the other against the prosperity of the other and there is no unfair gain. the resulting damage is eliminated by hand to hand, co-operatively (dalgin, 2003). it is considered as a gamble that if the risk is not fulfilled at the end of some islamic insurance insurance contract, the premium is left to be returned to the insurance company and if the risk is realized, the insurance holders receive more and more losses from the insurance company. there is a refund in the tekafül insurance, the company does not suffer from damages due to compensation (beşer, 2006). there is an alliance that muslims are not eligible to use this system because it is an insurance-based system (zerka and neccar, 2003). the price deposited by the participants in tekafül insurance is not a debt. there is no requirement that more income will be generated than it invests. if the exhibitor's property is not damaged, he / she cannot take more than he / she paid. receiving more than the premium paid is not an interest but an aid to the loss within the framework of the contract of aid (dalgin, 2003). sabri öz & mehmet ali işik 214 some other economists have examined the basic characteristics of the tekaful insurance in three areas: jointly sharing risks by using donations made for garar and rib-free aid; the open financial distinction of the shares of participant and monopoly insurance managers; insurance policies and investment strategy in compliance with islamic law (ahmed, 2009). teberru means to donate, to grant, to volunteer. the monopoly insurance provides the participants with a donation and the joint assistance meets the requirements for joint participation. although the teberru approach is specific to the islamic insurance system, it is a controversial issue that the contributions given in takaful insurance can be considered as donations (ahmed, 2009). the emergence of the tekaful insurance breaks the monopoly of the traditional insurance system. the history of the evolutionary system that emerged in sudan in 1979 was actually as old as the history of islamic banking. after 1984, especially in malaysia and far east countries. the first re-assurance system of tekaful insurance, which will call retekaful was established in 1985. at present, there are different managers and products in 85 countries. with a population of more than 15 million muslims, a great interest has begun in the european market (act. al-salih, 2014). 2.2.3 principles of tekaful insurance the basic principles of the tekaful insurance system are as follows (neova, 2018): the presence / purpose of voluntarily assistance, evaluation of premiums collected from shareholders and insured by primary market instruments as with non-interest, insurance coverage is not considered unethical or legitimate on issues given. selective action for economic assets. at tekafül insurance, there are three parties, namely the company owner, managers and insurance holders. the owner of the fund receives a fee during the life of the fund, and also receives a share in the event of a profit. however, the real purpose is not profit. funds of the funds of the company capitalist are kept separate from the funds generated by the participants. if the money in the background is insufficient to cover the damage, additional money can be received from the participants, and in case of excess money, they are returned. due to the logic of the study, the insurance is similar to the cooperative insurance (yanpar, 2015). the rules of the takafur insurance as follows: interest is prohibited. excessive risk (maisir) is not taken. financing should be based on a concrete asset. profit and loss should be shared. it is forbidden to speculate. investments in non-interest (interest-bearing) vehicles, which are considered to be inconsistent with islamic law, should not be invested. all activities must comply with islamic law and its rules. in order to achieve this, it is necessary to avoid absolute haram in both policies and investments. all kinds of alcohol and drug production and trade, selling alcoholic beverages etc. workplaces; prostitution; prohibited foods, production, trade (eg pigs and products, pornography); any kind of action involving fraud, interest, excessive risk, fraud is prohibited (ahmed, 2009). according to gürbüz, the differences between convention (traditional) insurance and the tekafur insurance of the malevolence are shown in the table. islamic insurance system: tekaful insurance 215 table 1: the difference between tekaful insurance and convention insurance tekaful insurance vr convention insurance tekaful insurance, based on mutual solidarity conventional insurance, based solely on commercial factors non-interest, no gambling and no dubt interest gambling and doubt some or all of the premiums paid by the participant are transferred to the tekaful fund to protect other participants against potential risks premiums paid to convention insurance companies are at their own risk. applies just the islamic rules applies the governmental legislations there is a complete distinction between the participants and the accounts of the shareholders. all surpluses and profits belong to the shareholders. has its own supervisory board governmental auditing is on board source: (gürbüz, 2017) there are three types of productions in different conditions: general tekaful insurance: firefighting insurance, employee insurance, real estate insurance etc. risks. family tekaful: for the long-term protection of individuals or companies, such as health plans, education, accident, marriage, pilgrimage and umrah etc. the maturity date ranges from 10 years to 40 years. re-tekafül: there is no widespread application for the protection of the companies of the companies, against the risk of the claims of the companies. (oz, 2012) 2.3 tekaful insurance models the world's first tekaful insurance company was founded in 1979 as “the islamic insurance co.“ in sudan. after this leadership, monopoly insurance funds were established in different parts of the world (çalık, 2011). companies that differ according to who is used by the region, where and how the funds are used have emerged. it is possible to encounter different modes of operation from country to country and from company to company. based on the common points of different applications, it is possible to reach three basic groups (ustaoğlu, 2014): co-operative insurance, where the insured come together without profit, the insurance that companies collect in the interest-free investment instruments, social insurance in which the share of loss / responsibility is shared in proportion. sabri öz & mehmet ali işik 216 in the implementation of the system, different incentives can be made to the system according to local needs and thus, the models can be varied in time. in practice, there are five main models: mudarebe, power of attorney, power of attorney-foundation, mixed and non-profit models. in every country a different model can come forward. for example, in malaysia, the mudarebe model comes to the fore. in pakistan and south africa, the power of attorney model stands out. the mixed model is the most common model and is practiced in almost every country (al-salih, 2014). 2.3.1 mudarebe models according to tkbb (2018); as a term; stated as, one side capital and the other side labor-capital partnership. participation accounts in participation banks are based on such a partnership. it is based on the agreement between the partners in the mudarebe contracts about how much share they will receive from the profit. the loss is in fact entirely owned by the shareholders as capitalists. the operator lost his labor. however, the operator may be held liable for indemnity if the act is in violation of the terms and conditions of the contract. participation banks' participation in the loss accounts (up to half of the minimum profit rate) is based on the assumption that there is always a defect in the loss. the mudarebe model was first applied in malaysia in 1984. in turkey it is known as "profit-loss sharing". as a result of the initial account, the dividend is determined and the investor decides how to evaluate the invested deposits and puts forth their labor. the gain is everyone's gain. it is a normal trading activity. in case of loss, the capital owner assumes the risk. since the investor has already spent his labor, no harm is incurred. the most debated issue in the model is that the company which is a partner in profit is not a shareholder (dalkılıç and ada, 2013). mudarebe is the basic operating principles of the current system in turkey accession partnership. on the one hand, banks collect funds from entrepreneurs and transfer these funds to those in need. the bank itself is capitalizing on the capital. in the mudarebe model, everyone's profit share is evident. if the total profit is obtained, the parties receive profit at the rate of profit share. it is not possible for the participants to fall in despair as the profit share is certain from the beginning. in mudarebe model, when the participant wants to leave the system, operational expenses are deducted and profit sharing is made so that the member system is separated (çalık, 2011). 2.3.2 power of attorney model also known as the proxy-agent model. it was introduced in the 1990s. the liaison tekaful insurance company works as an agent and receives a fee from the savings before starting the evaluation of funds. this fee, which gives the system its name, is a power of attorney. it is possible to accept this model as a work contract based on the power of attorney in the legal systems. in case of loss due to the identified risks, it is covered from the proxy assigned. if the agent makes a profit from the fund that is evaluated other than the power of attorney allocated, the share also receives a share. with respect to the mudarebe model, the party collecting the funds is more advantageous (çalık, 2011). the system guarantees itself from the beginning. the suitability of this system, which is operated with reference to the values specific to islam, is somewhat controversial. there is a company who wants to feel safe in the middle and sells it with 25-30% commission in cash (çalık, 2011). 2.3.3 power of attorney-foundation model it works with the understanding of conventional foundations. the company invests its initial investment by establishing a foundation and then adds the funds it collects from the participants. operating fees are taken from investors. it is widely applied in sudan, south africa, indonesia and malaysia. the center of motion of the model is the capital that the foundation shows. participates in the savings received from the participants to operate and share the profit share (çalık, 2011). according to the proxy model, the participant is more prominent in this model. conducting activities on the basis of philanthropy from the established foundation, collecting donations (contributions) and participation shares from the participants, the same risks of the shareholders and the participants are important differences. it can be said that it is the most suitable model for islamic concerns. furthermore, if the resources are not sufficient to cover the loss, the company tries to maintain the system by using interest-free credit (çalık, 2011). islamic insurance system: tekaful insurance 217 2.3.4 mixed model in the model, which is the mix of the proxy and the mudarebe model, the strengths of both are combined. again, the company manages the funds of the participants by taking a proxy fee. this model is widespread in the gulf cooperation council countries. there are different local formats in pakistan and south africa. the models in these countries emphasize more philanthropy (dalkılıç and ada, 2013). 2.3.5 non-profit model it is a model based on philanthropy and practiced in sudan. first of all, a fund is created with interest-free credit and participants participate in this fund through donations. participants are both operator and participant. funds collected on a voluntary basis are used in charitable work and the members are eliminated. it is almost similar to the proxy, power of attorney foundation model (dalkılıç & ada, 2013). 3. conclusion tekaful insuranceconvention is a system established to create a new market, not as a competitor in the conventional sense of insurance. it is an extension of the market. a method which is not in the market because of the adoption of a method appropriate to the islami market has made it possible to participate in the market. a more detailed study on this issue can be finalized by survey studies to be carried out on existing insurance customers. in this study, a literature review was made to reveal the differences between the tekaful insurance classical one, on the basis of varieties, models, system formation and legislations. the philosophy is certainly different. the biggest difference is the evaluation form of the fund which consists of premiums. on different models of tekaful, it is stated that, system is working non-interest model. as a market, there are some regional countries which has been founded as different tekaful insurance company. however, uk, which has the most interest on the participating finance and islamic models should be evaluated deeply. this would make sense to be able to clearify the market sharing and the system transformation for the future. references ahmed, a. 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(2007). islamic takaful: business models, shariah concerns, and proposed solutions. thunderbird international business review, vol. 49, no. 3, pp. 371–396. yanpar a. (2015). i̇slami finans, i̇stanbul: scala yayıncılık. yıldırım f. ve başar ö. d. (2013). marka sloganları türkiye sigorta pazarına ilişkin içerik analizi. i̇stanbul: beta yayınları. zerka, m.a. ve neccar, a.m. (2003). terc. hayreddin karaman, i̇slam düşüncesinde ekonomi banka ve sigorta, i̇stanbul: i̇z yayıncılık. international journal of commerce and finance, vol. 6, issue 1, 2020, 143-154 143 motives of foreign direct investment (fdi) in ethiopia: an empirical analysis abdu seid ali istanbul university, turkey abstract the central aim of this paper is to investigate the major motives of inward fdi to ethiopia from 1992-2015. various economic and financial variables were taken into consideration to assess the relationship between fdi and its motivational factors. ordinary least square method was applied to estimate the association, while johansen’s co-integration test was employed to examine the combination, and vector auto-regressive (var) model was used to check whether there is a long run relationship between fdi and explanatory variables. the statistical results show that there is positive and significant relationship between fdi and market size, trade openness, exchange rate and financial freedom whereas inflation had negative and significant association with fdi. however, investment freedom and economic globalization indicated an insignificant relation. even though all variables jointly affect fdi in the long run, the var result didn’t reveal any long term relationship between fdi and its motivational factors individually. keywords: fdi, motives, ethiopia, var model, ols regression method jel classification: f21, c32 1. introduction one of the indispensable constituent of the movement vis-à-vis economic globalization is international capital flows, in which portfolio investment and fdi figure outstandingly. fdi entails that the investor exercises a considerable degree of authority on the management of the enterprise dwelling in the other economy. such investment engages mutually the original business deals among the two entities and the entire succeeding transactions between them and amongst foreign associates, incorporated and unincorporated. both individuals as well as business entities can be the important actors in fdi process (unctad 2007). such investment involves both the initial transaction between the two entities and all subsequent transactions between them and among foreign affiliates. fdi has innumerable effects on the host country’s economy. it influences the income, production, prices, employment, economic growth, development and general welfare of the recipient country. fdi creates significant channels for the dissemination of modern technology (blomstrom and wang 1992). therefore, we can say that fdi plays a key role in development of emerging economy because the very essence of economic development is the rapid and efficient transfer and adoption of “best practice” across borders. currently, the issue of fdis is being paid more attention, both at national and international level and playing an important role in improving and modernizing the productive structure of emerging economies. however, the driving forces for investment abroad are inconclusive as different factors might motivate investors to undertake investments on various sectors of the host countries' economy. investing entities or individuals’ characteristics, capacities and strategies on one hand and the political, social cultural and economic situations of the host and investing countries on the other hand can be taken into account when we think of the desire in fdi. over the past decades, fdi (fdi) became a major source of funding for capital projects in the majority of world economies. theories and existing literature have given incompatible outcomes about the association between fdi and its determinants. some researchers affirmed that fdi inflows could trigger technological change through the implementation of foreign technology, essential capital and skills to speed up huge levels of output. in the region, fdi inflows to a dozen beneficiaries dropped, and vigorous gains were documented in only two countries: ethiopia (an increase of 26 per cent to $1.2 billion) and zambia (up 37 per cent to $2.5 billion). the intensifying textile sector remained to catch the attention of fdi in ethiopia with its stumpy wages and inexpensive in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e abdu seid ali power. ethiopia set foot in the top five fdi flows to landlocked developing countries for the first time, in terms of worth of inflows, joining zambia, kazakhstan, turkmenistan and azerbaijan. the role of fdi in the global economy is becoming progressively imperative, leading to ever greater emphasis on the drivers of fdi in the recent two decades. ethiopia’s recent enormous achievement in creating a centre of attention in fdi in terms of joining the top five fdi flows to landlocked developing countries for the first time creates some sort of curiosity about what attracts those foreign direct investors to ethiopia. it is clearly shown on figure 1 that the amount of fdi flow to ethiopia dramatically surged following the year 2012. there are several potential factors which make ethiopia a preferred investment destination from both developed and developing countries like the general political trade and investment agreements with the main investor countries in addition to cheap unskilled labour, market attractions, investment guarantee, tax exemptions and other incentives. therefore, the central aim of this paper is to examine the major motivations of fdi in ethiopia taking into considerations various economic and financial variables. figure 1: fdi flow to ethiopia from 1992-2015 source: world bank and author’s computation 2. literature review several empirical studies have been conducted concerning the motives and determinants of inward and outward fdi on developing and developed countries employing various methods. larimo & arslan (2013) examined the determinants of fdi in four nordic countries in central and eastern europe region for the period of 1990-2007. superior r&d strength of the industry of the investment, insignificant host country risk, enormous economic size and extraordinary economic progress in the target country enhance likelihood of the creation of wholly-owned subsidiary. for fdis that took place in 1990s, additional thorough analysis discovered that product variety, transnational experience and supremacy of market compatible standards in the host country were substantial elements of ownership mode preference for nordic fdis. likewise, villaverde & maza (2015) argued that competitiveness, economic potential, technological progress and labour market characteristics were the chief location-specific determinants of fdi in the region. nevertheless, the remaining factors such as labour regulation and market size reveal insignificant effect on the above mentioned location-specific variables. a conference paper by castro, et al. (2013) uncover that trade openness and gross domestic product play a crucial role in drawing fdi to brazil whereas trade liberalization became a significant element for mexico. focusing on fdi investments of two countries, tahir & weijing (2011) pointed out that anz manufacturing firms will engage in efficiency-seeking ownership structures, market-seeking and/or wholly owned subsidiary fdi due to low levels of motives of foreign direct investment (fdi) in ethiopia: an empirical analysis 145 cultural gap and huge market potential. on the other hand, low exchange rate variation intensifies the likelihood that anz manufacturing firms will embark on wholly owned subsidiary-type risk reduction-seeking fdi. according to the panel data analysis of ranjan & agrawal (2011), trade openness, macroeconomic stability, market size, growth prospects, infrastructure facilities and probable labour cost stimulated fdi inflow in brazil, russia federation, india and china. however, labour force and gross capital formation remained trivial even though the effect of growth prospects and macroeconomic stability is slightly low. the other region which attracts foreign direct investors is sun-saharan africa. several studies focused on motives fdi in sub-saharan african (ssa) countries. as stated by asiedu (2002) trade openness stimulates fdi to ssa countries whereas enhanced infrastructure and considerable return on investment don’t show substantial result in attracting fdi. the paper argues that nonssa countries are in advantageous position in terms of trade liberation and geographical location as compared to ssa countries. a study based on a sample of 45 african countries from 1980-2009 indicated that real gdp growth, natural resources, agglomeration economies and worldwide investment arrangements are some of the critical factors to attract inward fdi to the continent (sichei and kinyondo 2012). in the same way, olatunji & shahid (2015) mentions that effective implementation of privatization; foreseeable and reliable policy and macroeconomic atmosphere efforts at regional integration, wide-ranging human resource development; adequate infrastructural amenities and diligent investment campaign. furthermore, a sequence of panel data models is utilized by ross, (2015) to evaluate the determinants of chinese ofdi into eight african countries: nigeria, egypt, kenya, zambia, sudan, south africa, algeria, and ghana. the outcome of the study emphasized that infrastructure superiority, regulatory environment imposed by host governments and access to natural resources are the main factors which motivate chinese investment in african countries. wafure & nurudeen (2010) scrutinizes the driving factors of fdi in nigeria. the results disclose that the scope of the market in the target country, political uncertainty, deregulation, and depreciation of exchange rate are the chief contributing factors of fdi in nigeria. in addition, bekhet & al-smadi (2015) observed long-run and short-run links between fdi and financial market development, money supply, gross domestic product, stock market index, consumer price and index economic openness. the empirical findings of tang, et al., (2014) show that real exchange rate, financial development, gdp, and macroeconomic instability are positively associated with inward fdi in electronic and electrical industry in malaysia in the long term. nevertheless, social uncertainty and corporate income tax registered an adverse effect on inward fdi in the industry. additionally, the granger causality outcomes point out that, in the long run, all the above variables granger-cause fdi; however, social and macroeconomic uncertainties merely granger-cause fdi in the short-run. when we come to ethiopian case, some studies shed light on motives and determinants of inward fdi at different times. the empirical study made by getinet & hirut (2006) from 1974 to 2001 illustrates that export orientation, growth rate of real gdp and economic liberalization brings a positive significant effect on fdi. conversely, inadequate infrastructural facilities and uncertain macroeconomic variables entail adverse effect on fdi. another study supports the previous findings that the recent substantial fdi growth is unswervingly linked with the enormous development of infrastructure such as road access, telecommunication, electricity, and outstanding airline facility in the country (atlaw, teklemariam and dong-geun 2014). in addition to that, amanuel’s (2015) study based on time-series data demonstrates that inflation rate and trade openness level have had a compelling influence on the movement of fdis to ethiopia. however, infrastructural growth, human capital and market size remained insignificant for the study period. to sum up, there are number of studies which focused on fdi vis-à-vis its motives and/or determinants but this study took the tip of the iceberg emphasizing on the most recent ones. though the above studies focused on different countries and regions, employed a variety of models and methodologies, covered diverse time periods, it seems possible to summarize that macroeconomic and political stability, infrastructural development, cheap labour, trade openness and effective regulatory environment are significant to attract fdi to countries. abdu seid ali 3. variables and hypothesis based on the theoretical and empirical evidences that were discussed in the previous parts of the paper, the following hypothesizes are proposed. 3.1. dependent variable 3.1.1. fdi (fdi) fdi can be expressed either fdi values in monetary terms or fdi as a percentage of gdp. in this study, the later was employed as endogenous variable to assess the major driving forces of inward fdi in ethiopia. 3.2. independent variables 3.2.1. market size the size of the recipient country’s market is customarily intended to be one of the most chief contributing factors, particularly for market-seeking fdi. a larger market is an indication of superior demand for goods and services and, consequently, makes the host country more eye-catching for fdi. numerous empirical studies have supported the significance of market size, and the association between fdi and market size has been evidenced to be positive and unambiguous in many of these studies. h1 larger market size/growth is positively associated with fdi inflows 3.2.2. openness to trade the relationship between fdi inflows and trade openness of the host country is subject to primarily on the motives of fdi in the recipient country. for instance, in market-seeking fdi, the intention of the investing firm is to serve the domestic market. it is anticipated that the more the trade permitted and/or accessible with a country, the more opportunities it brings for the investors and improved incentives for foreign investors to involve in the countries’ business and economic development. h2. the expected effect of openness to international trade on fdi is to be positive. 3.2.3. exchange rate currency devaluation measured by the exchange rate is likely to encourage inward fdi in the host country as it makes the host country's assets undervalued, reduces the unit cost of the host country's factor of production and increases the relative wealth position of foreign investors. however, the counter argument also holds that as foreign investors might take a depreciating domestic currency as a signal of future depreciation and thus reduce investment. h3. exchange rate is expected to have an impact on inward fdi 3.2.4. inflation rate high and volatile inflation increases uncertainty and thus, leads to higher investment risk. therefore, fdi will be discouraged by such conditions. moreover, high inflation rate increases the user cost of capital in the host country and negatively influences profitability of fdi. h4. high and volatile inflation affects fdi inflow negatively 3.2.5. business, financial and investment freedoms the us based heritage foundation publishes countries’ business, financial, investment and other freedom scores annually. business freedom measures individuals’ choices to form and manage a business without government intervention whereas financial freedom deals with the accessibility of varied savings, credit, payment and investment facilities in the country and investment freedom shows the independence of individuals/firms to decide on where and how to invest. motives of foreign direct investment (fdi) in ethiopia: an empirical analysis 147 h5. business, financial and investment freedoms affect fdi flow positively 3.2.6. economic globalization kof globalization index which is issued by swiss economic institute constitutes economic, political and social globalization scores. the economic globalization takes into consideration universal trade, investment and revenue flows corresponding to gdp along with the impact of limitations on trade and capital dealings to gauge economic globalization of countries. h6. economic globalization will have a positive effect on fdi flow 3.2.7. infrastructure the accessibility of improved quality infrastructure in the host country is believed to be vital for the process of production as it smooths the development of supply and circulation of production factors. foreign investors favour to place their investment in countries that have a full-figured physical infrastructure such as unswerving telecommunication facilitates (e.g. mobile, fixed telephones and internet), railways, paved roads, sea, a power supply and air ports. h7. infrastructure development is a positive determinant of fdi inflows 3.2.8. country risks political instability and corruption are supposed to measure countries’ risk level in the current study. the two components are presumed to affect fdi inflow unfavourably. corruption impedes investment directly and indirectly although the relationship between political instability and fdi is not unresolved. several countries in this analysis are characterized by a high degree of instability, such as frequent military interventions and religious and ethnic conflicts. h8. there is a negative relationship between country risks (corruption and political instability) and fdi inflows 3.2.9. human capital an educated workforce has been recognized as an important determinant of fdi especially when firms are efficiency seeking. some studies argued that a higher level of education in the workforce can lead to higher flows of fdi. over the last few years, great attention has been given to education as it is one of the central tenets of the millennium development goals. also, quality of labour is important and raising the levels of human capital through education leads to skill acquisition h9. human capital accumulation has a positive impact on fdi inflows 4. data and methodology in order to examine motives of inward fdi in ethiopia, time series data from 1992-2015 were collected from secondary sources. these data were collected from both domestic (i.e. ethiopia) sources like national bank of ethiopia and central statistical agency and international data sources such as world bank and imf as well as specific indices from the heritage foundation and swiss economic institute. the study employed a quantitative approach to assess the relationship between fdi and the above mentioned explanatory variables to document the real motivational factors of inward fdi in ethiopia. therefore, using the above variables, the following model can be formed to explain the short and long run association between fdi and the expected motivational variables: abdu seid ali fdi = β0+β1gdp +β2trade +β3exra+β4infla+β5invfre +β6finfre +β7ecoglo+ β8infras+ β9cor+ β10humcap+ et (1) where gdp stands for market size, trade is openness of trade, infl is inflation rate, ex is exchange rate, finfr is financial freedom, invfr is investment freedom, ecgl signifies economic globalization, infras is infrastructure cor stands for corruption and humcap indicates human capital. ordinary least square regression method was used to determine the estimation of the relationship between fdi and the explanatory variables whereas the var model was employed to check whether there is a long run relationship. the time series data were analysed using eviews 8.0 software package. 5. results and discussion 5.1. multi-collinearity test various testes were made in order to determine both short and long run relationships among variables accurately. the first is multi-collinearity test which occurs when two or more of the explanatory variables in a regression model are reasonably or extremely interrelated. when this happens, it can adversely affect our analysis and inferences we make. therefore, the result of the multi-collinearity test shows that human capital, labour force, infrastructure and country risk are highly correlated with each other and with other explanatory variables and are removed from the study. 5.2. unit root test numerous economic and financial time series data reveal trending behaviour or nonstationarity in the mean. a series is supposed stationary if the mean and auto-covariances of the series do not depend on time and an alteration in time doesn’t affect a variation in the form of the distribution. it is inaccurate to perform hypothesis tests concerning the regression parameters if the variables in the regression model are not stationary. hence, unit root tests are used to test for stationarity in these time series data. as it shown in table 1, we reject the null hypothesis because the unit root test of adf shows that fdi, infla and trade are stationary at level whereas exra, finfre, invfre and ecoglo are stationary at first difference. besides, gdp per capita became stationary at second difference. therefore, it is plausible to undertake a regression test since the result implies that all variables are stationary. 5.3.co-integration tests economic theory often recommends that some sets of economic or financial variables ought to be interrelated by a long-run economic association. two time series variables xt and yt are assumed to be co-integrated if there occurs a parameter α; ut = yt − αxt (2) table 1: unit root test result based of augmented dickey-fuller (adf) variable level first difference second difference lnfdipers -5.076 *** lntrade -3.139 ** lninfla -4.926 *** lnexra 0.787 -8.213 *** lnfinfre 0.821 -4.690 *** motives of foreign direct investment (fdi) in ethiopia: an empirical analysis 149 lninvfre -2.046 -4.393 *** lngdppergr -1.039 -0.795 -8.462 *** lnecoglo -2.353 -2.830 * *** significant at 1% level, ** significant at 5% level and * significant at 10% level source: author’s calculation the above formula follows a stationary process as it appears that plenty of economic series tracks that approach and because this is often anticipated by theory. table 2 demonstrates that h0 of no co-integration among the variables in the invfre, gdp and ecoglo models are rejected at 1% level of significance which indicates that there is a cointegration between fdi and the three variables. similarly, trade and finfre are co-integrated with fdi at 5% significance level. conversely, infl and exra did not show any co-integration among the variables. a regression analysis which indicates the relationship between our dependent variable fdi and the independent variables stated below displayed in table 3. in addition, the regression equation enables us to forecast or predict the relation between variables. three variables namely exra, finfre and gdp became significant at 1% level while trade and infla are significant at 5% with positive and negative coefficients respectively. however, the other independent variables invfre and ecoglo turn out to be insignificant. r2 which gauges the success of the regression in forecasting the values of the dependent variable within the sample is 94% that is quite high and supports appropriateness of the regression model. the p-value just below the fstatistics signifies the marginal significance level of the f-test. the value is 0.0000 which is fundamentally zero that shows all the independent variables jointly affect the dependent variable. the market size represented by gdp growth draws the attention of investors since it is an indication of the ethiopia’s potential to produce goods and services. this finding is supported by omar & anil (2015); chan et.al (2014); castro (2013) and mangir et.al (2012). investment freedom is essential for the development of fdi in countries like ethiopia because the existence of it may encourage foreign investors to invest more. comparable results were found in the studies of fofana (2014); sinha et.al (2007). economic globalization is noteworthy for the smooth movement of trade, investment and capital in the country and this statement is backed by the empirical findings of neto & veiga (2009) and leitão (2012). table 2: johansen’s co-integration test result h0 trace statistics critical value probability trade r=0 15.533 * 15.494 0.0493 r ≤ 1 2.271 3.841 0.1318 infl r=0 14.318 15.494 0.0746 r ≤ 1 2.209 3.841 0.1372 exra r=0 12.245 15.494 0.1455 r ≤ 1 0.599 3.841 0.4387 finfre r=0 15.543 * 15.494 0.0492 r ≤ 1 1.156 3.841 0.2822 invfre r=0 35.437 * 15.494 0.0000 abdu seid ali r ≤ 1 3.532 3.841 0.0602 gdp r=0 21.711 * 15.494 0.0051 r ≤ 1 9.735 3.841 0.0018 ecoglo r=0 24.182 * 15.494 0.0019 r ≤ 1 7.701 3.841 0.0055 * denotes significance at 5% level source: author’s calculation trade openness is an imperative determinant of fdi for ethiopia. the more the country allows trade openness the more it boosts investors’ confidence favouring productivity surge of transnational firms by means of importing capital goods and innovative technologies. rogmans & ebbers (2013), assefa, et al. (2013) and vijayakumar, et al. (2010) found identical results emphasizing the significance of trade openness. like the investment freedom, financial freedom plays a vital role for the improvement of fdi flows to ethiopia. the accessibility of varied loans, payment and investment facilities in the country can be a catalyst to enhance fdi. the research results of matallah & ghazi (2015) and ajide (2014) strengthens the finding. concerning exchange rate, one of the two outcomes was expected which supports the literature. the ethiopian birr, which is known for devaluation and depreciation, encouraged foreign investors to invest more probably due to boosting their relative wealth position. tang et.al (2014), bilawal, et al. (2014) and omankhanlen (2011) found positive relation between fdi and exchange rate. like anticipated the coefficient of inflation was negative which indicates that skyrocketed and volatile inflation exacerbates uncertainty and brings about higher investment risk in ethiopia. the inquiries of demirhan & masca (2008) and bekhet and al-smadi (2015) illustrated the same outcome. table 3: regression results variable coefficient std. error t-statistic prob. c -38.52405 8.437083 -4.566038 0.0003 lntrade 2.288860 0.922883 2.480119 0.0246 ** lninfla -0.409517 0.160085 -2.558126 0.0211 ** lnexra 2.761572 0.859337 3.213607 0.0054 * lnfinfre 4.590394 1.217472 3.770431 0.0017 * lninvfre 0.352702 0.420885 0.838000 0.4144 lngdppergr 0.365058 0.100309 3.639325 0.0022 * lnecoglo 2.974410 2.044748 1.454658 0.1651 r 2 0.942 f-statisitcs 37.141 prob(f-statisitcs) 0.000000 * *significant at 1% ** significant at 5% *** significant at 10% source: author’s calculation the var model is a generalization of the univariate autoregressive model for predicting a pool of variables; that is to say, a vector of time series. it encompasses one equation per variable measured in the system (hyndman and athana motives of foreign direct investment (fdi) in ethiopia: an empirical analysis 151 sopoulos 2013). a constant and lags of all the variables in the system is incorporated in the right hand side of each equation. y =c+a1 yt-1 +......... ap yt-p +et (3) a var model was used to check whether there is a long run relationship between fdi and its motivational variables. as it is indicated in table 4, even though the model elucidates all the variability of the response data around its mean (r2= 89%), the statistical result didn’t reveal any long term relationship between fdi and its motives individually. table 4: var model result source: author’s calculation in the same way, wald test was carried out to show the effect of two or more variables together on independent variables. here the results found confirm chi square value with probability of above 1%, 5% and 10% level of significance signifying that the variables jointly cannot influence the dependent variable. therefore, there is no coefficient std. error t-statistic prob. c(1) -0.156045 0.694880 -0.224564 0.8235 c(2) -0.409910 0.639143 -0.641343 0.5250 c(3) -0.227505 3.634674 -0.062593 0.9504 c(4) -0.024379 2.524838 -0.009656 0.9923 c(5) -0.179777 0.509827 -0.352623 0.7262 c(6) -0.205026 0.509865 -0.402119 0.6897 c(7) 2.090154 8.809459 0.237262 0.8137 c(8) 3.494414 6.898746 0.506529 0.6153 c(9) 2.912830 3.144400 0.926355 0.3598 c(10) -0.471326 4.293347 -0.109781 0.9131 c(11) 1.815790 1.797713 1.010055 0.3185 c(12) -0.294549 1.869495 -0.157555 0.8756 c(13) -0.057391 0.603190 -0.095146 0.9247 c(14) 0.010464 0.374173 0.027965 0.9778 c(15) -0.027134 11.57848 -0.002344 0.9981 c(16) 1.437435 10.44722 0.137590 0.8913 c(17) 1.590414 27.25607 0.058351 0.9538 r-squared 0.893571 adjusted r-squared 0.552999 abdu seid ali statistical evidence for the considerable fdi investments into ethiopia greatly inspired by the trends in the explanatory variables used in this study. 6. conclusion the study assessed the major motives of inward fdi in ethiopia employing time series data from 1992-2015. ols regression method, johansen’s co-integration test and var model were used to predict, check combinations and examine long run relationship between fdi and the explanatory variables during the stated period of time. the statistical results show that there is significant and positive relationship between fdi and market size, trade openness exchange rate and financial freedom whereas inflation had negative and significant link with fdi. the remaining variables which are investment freedom and economic globalization indices were found positive but insignificant. this shows that ethiopia’s double digit growth for the last decade, impressive performance in trade, devaluations and depreciations of birr and the availability of credit and investment facilities for foreign investors play a substantial role to attract inward investments to the country. however, high and volatile inflation rate became one of the challenges for investors in form of escalating uncertainty and aggravating investment risk. therefore, ethiopian government should take appropriate macroeconomic policy measures to tackle this and other investment related impediments in order to attract and motivate investors. references akhtaruddin, m., hossain, ma, hossain, m., & yao, l. 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"corporate governance committee-investment and finance definition," https://onlinelibrary.wiley.com/doi/full/10.1111/corg.12143 international journal of commerce and finance, vol. 5, issue 2, 2019, 31-44 31 effect of nonfinancial compensation on the employees’ job performance: a case of jimma geneti woreda health centers in horro guduru , ethiopia kituma merera jaleta jimma university, ethiopia chalchissa amentie kero jimma university, ethiopia lalise kumera jimma university, ethiopia abstract the main purpose of this study was to assess the effect of non-financial compensation on the of employees’ job performance. the crosssectional, descriptive and inferential design with field study were used in the study. accordingly, 136 samples of respondents’ from 206 populations were taken. the study used mainly primary data and secondary data. survey data collected from respondents were analyzed by descriptive statistics such as frequency, percentage, and inferential statistics such correlation and multiple linear regressions analysis. the findings of the study indicated that there was a significant relationship between non-financial compensation and employee job performance in particular. but also, non-financial compensation; recognition positively and significantly affects employees’ job performance with is highly correlated with (r=0.605, p=0.000), and followed by work condition (r=0.590, p=0.000) and empowerment (r=0.554, p=0.000). finally, it is recommended that health centers needs to continually review and adjust the compensation system from time to time focusing more on nonfinancial compensation in order to influence employees to perform better. this may help to motivate the employees to perform well and will decrease the rate of turnover and absenteeism with in health centers. keywords: compensation, non-financial compensation, employee job performance 1. introduction human resource is one of the most important assets and major foundations that should exist in the organization because the organization without machine can still be run by the work force. however, the organization without human will not be able to run at all even with the help of advanced machines. therefore, the human resources need to be increased their skills because the function of human (employees) cannot be replaced by other equipment. consequently, employees must be managed as well. managing employees is one of the continuing responsibilities for manager and team leader. (mangkuprawira, 2007), state that “employees’ performance is a result of work both quality and quantity are achieved by employees in performing their duties in accordance with the responsibilities given to them.” these issues would be the responsibilities for managers and team leaders to increase employees' performance, for example keeping employees feel happy and satisfy because the organization believe that when employee feels happy and satisfy then it have an effect on employees' performance. as per of (sopiah, 2013),compensation is one of the strategies used in hrm for attracting and retaining useful employees as well as facilitating them to improve their performance through motivation. (ryan.et.al, 2000), indicate that non-monetary types of compensation can be very meaningful to employees and very motivating for performance improvement. banker et al. (2000) confirm that firms are increasingly adopting nonfinancial incentives. mushrush (2002) identifies lack of non-monetary rewards as an important cause for employee turnover. in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e kituma merera jaleta & chalchissa amentie & lalise kumera 32 in discipline of hrm different writers suggest the following indicators for measuring employee performance. as per of (aguins, 2007) and (inuwa.m, 2015), job performance is employees’ overall performance which is meeting the expected quality and achievement of tasks under the policy and time requirements of the organization. ali and raza (2015) indicate their opinion that employees only stay in an organization to give their best when they believe the compensation process is matching to their input. this has constituted a high rate of employees leaving their employers, moving sometimes away from their city or the country just to find greener pastures. tausif (2012) conducted a study on the influence of non-financial rewards on employee in educational sector of pakistan. the findings of the study reveals that employee performance is positively and considerably associated with non-financial rewards such as promotion, job enrichment and task autonomy. aktar, et.al (2012) examined the impact of intrinsic rewards (recognition, learning opportunities, challenging work and career advancement, and extrinsic rewards (basic salary and performance bonus) on employee performance in twelve commercial banks of bangladesh. the study found that each factor within intrinsic reward was a highly significant factor which affects employees‟ performance. a study conducted by sheila &josephat (2015) with objective of finding the influence of compensation and reward on performance of employees at nakuru county government. the findings indicated that there was a strong relationship between compensation and reward on employee performance. in jimma geneti woreda there are four (4) health centers which have about 206 employees. still, there is major movement of individuals (turnover), absenteeism (woreda health office report, 2018) lack of motivation through compensation. these shows as there is poor compensation practice and employee motivation those increase an employee job performance. these situation are then examined in this paper in relation to case and empirical evidence on different factors of nonfinancial and employee job performance relationship 1.1. statement of the problem employees’ performance is an important element to build a good status for the outsider towards the image of an organization and also within an organization. if the employees are not satisfied with the compensation provided by the organization they will reduce their effort in performing their jobs or less committed to organizational goals (marris, et.al 2004) as cited in ermias n.(2017). philip (2014), states that employees’ performance is dependent on the way they are treated in the organization and the extent to which organizational strategy fits with employees’ interest. in the study area, there was a sign of demotivation among employees like: low morale, indiscipline, absenteeism, and turnover. these demotivations may rise from inappropriate compensation, which is the reason for lower the performance of the employee as a result. it is evident that highly motivated employees are more likely to have high productivity. however, according to certo (2006) as cited in elizabeth w.(2017), good performance is not as a result of motivation only, but also includes ability i.e. skills, equipment, supplies and time. different people are motivated by different factors. it is important for managers and supervisors to understand what motivates individual employees, and not assume a one-size-fits-all approach (george and jones, 2013) with that in mind, the researcher decided to carry out research in jimma geneti health centers, interested on the effect of non-financial compensation on employee job performance. besides, the researcher considers the unavailability of study in this area in the health centers, previous studies focus on the bank industry by considering some variables of compensation, as a huge gap which needs research. thus, the researcher was interested to study on selected elements of; non-financial compensation: (recognition, working condition, and empowerment) as they might be a triggering factor for performance in public organization. 1.2. basic research questions the study was guided by following questions: 1. what is the effect of recognition on employees’ job performance? 2. what is the effect of work condition on employees’ job performance? 3. what is the effect of empowerment on employees’ job performance? effect of nonfinancial compensation on the employees’ job performance: a case of jimma geneti woreda health centers in horro guduru , ethiopia 33 general objective the general objective of the study is to determine the effect of non-financial compensation on employee job performance at jimma geneti woreda health center. specific objectives more specifically, the study aims at the following objectives:  to determine effect of recognition on employees’ job performance.  to evaluate effect of work condition on employees job performance.  to examine effect of empowerment on employee job performance 2. literature review 2.1. compensation compensation is all income in the form of money; goods directly or indirectly received by the employee in exchange for services rendered to organization .appropriate compensation will have a positive effect against employees, because it cannot be denied that compensation becomes the main goal for most employees working within an organization. odeoye (2014) states that compensation aims to get employees interested in work so as to have good retention for the organization. compensation is reviewed from shape, including financial and non-financial, while viewed from the way of delivery consists of direct and indirect compensation. odeoye (2014) stated that compensation is divided into three types; i.e., material, social, and activity. compensation is all form of payment or gift given to employees and emerges from their work (dessler, 2007: 46). the term compensation is used to indicate the employees gross earnings in the form of financial and non-financial rewards. compensation means the reward that is received by an employee for the work performed in an organization. the term “compensation‟ is often used as an alternative to “reward‟ or “remuneration‟, especially in the usa, although it is becoming more common in the uk (armstrong, 2010).compensation is the remuneration given to the employees for the work they do for the organization. in other words, an employee is entitled to both the financial and the nonfinancial benefits in return for his input to the organization. martocchio,(2016). define compensation as a feedback received by employee in form of monetary and nonmonetary. compensation is direct and indirect. direct compensation such as salary received every month and indirect compensation is a payment in forms others than money. compensation is an intrinsic and extrinsic reward received by employee after they done their work. compensation refers to all the provided tangible and intangible rewards an employee receives from the employer as part of the employment relationship. it can be said that compensation is the “glue” that binds the employee and the employer together in the organized sector. rewards and benefits are also type of compensation program that are important for employees (cascio, 2015). 2.2. employee job performance employee performance is the key dependent variable in the present research. different scholars have defined the concept of employee performance from different perspectives. according to shields (2016), employee performance has been defined as the degree to which an employee executes the duties and responsibilities. performance is the quality and quantity of the achievement of the tasks well individuals, groups or organizations vlaicu's (2015). performance can be improved through the establishment of clear and measurable job description for each employee so that they understand what their functions and responsibilities are states that performance is a theoretical implementation a balance that says someone will show an optimal accomplishment if he is get benefits , and there is stimulus in the work and rationally. job performance in the form of performance appraisal is an important development in human resource portfolio (bateman & snell, (2007). employee performance is a sign of individual job performance after a person does the work involved in the profile dessler (2000). in discipline of hrm, overachieving and talented employees are the driving force of all organizations so it is essential that, kituma merera jaleta & chalchissa amentie & lalise kumera 34 organizations strive to motivate and hold on to the best employees. the quality of human resources management is a critical influence on the performance of the institution (dessler, 2007). different writers suggest the following indicators for measuring employee performance and they include: quality that can be measured by percentage of work output that must be redone or is rejected; customer satisfaction that can be measured by the number of royal customers and customer feedback. also, timeliness, measured in terms of how fast work is performed by the employee when given a certain task; absenteeism/tardiness observed when employees absent themselves from work; and achievement of objectives measured when an employee has surpassed his/her set targets, he/she is then considered to have performed well to achieve objectives (hakala, 2008; armstrong, 2006). as per of (aguinis, 2007), indicators for measuring employee performance and they include quantity of work done (how much unit of a product has been produced), quality on work produced (how well the work has been done) and the timeliness of the work that has been done (meeting due dates, following to schedules and deadline). 2.2.1. the relationship between non-financial compensation and employees job performance compensating employees is associated with the motivation of the workforce of organization for better performance. the rationale behind the use of various components of compensation to employees is that motivated employees become satisfied in terms of fulfilling their wants, both financial and non-financial thus demonstrate improved performance. failure to do so, employees will be tempted to leave the organization (azasu, 2017. compensation that do not involve any direct payments and often arise from the work itself, for example achievement, autonomy, recognition, promotion, scope to use and develop skills, training, career development opportunities, working condition and high-quality leadership (armstrong and murlis, 2004).the study at hand therefore looked at the effect of nonfinancial (recognition, working condition and empowerment) on employees job performance. 2.2.2. recognition and employee performance in today’s work surrounding that is high paced, there has been reports that today’s workforce put into consideration how their work is acknowledged by their employers, however, efforts on this have normally reported as infrequent and rare (recognition rewards enterprises, 2007). deeprose (1994) argues postulated that recognizing employees in an organization causes a fundamental outcome on the productivity of employees. when recognition as a reward is used in an effective manner, it results in the performance of employees that is improved. in the real sense, workers have always taken recognition as part of what they feel; it results in improved work, which in turn leads to improved performance in turn to an organization’s efficiency. deeprose (1994) did mention that mangers that are good have a way of recognizing their workers via things which deem better to acknowledge the accomplishments they make in their assignments, and they compensate their employees by offering them tangible rewards. barton and gold (2013) described that recognition is considered the most important factor among non-financial rewards in order to increase job satisfaction level of employees and thus their performance. lawler (2016) suggested that the well-being of any organization depends on how its human resource is treated. organizations achieve its well-being through giving rewards and recognition to its employees to enhance their performance. andrew (2016) described that employees become more loyal to their organization and perform much better if the organization recognizes and appreciates their work in terms of certification, verbal appreciation among other components. organizations are missing the very valuable component in the organization that is recognition. andrew (2016) however says that the cost of practical implementation of this component is very low in many organizations. through recognition, employees are being realized that they are valuable for organization and employees feel appreciated through recognition. danis and usman (2010) found that there are different dimensions of work motivation and satisfaction that are significantly correlated and reward and recognition greater impact on performance of the employees. effect of nonfinancial compensation on the employees’ job performance: a case of jimma geneti woreda health centers in horro guduru , ethiopia 35 2.2.3. working condition and employee performance working condition covers a broad range of topics and issues, from working time (hours of work, rest periods, and work schedules) to remuneration, as well as the physical conditions and mental demands that exist in the workplace. lekha p., & dr. r. magesh, (2016) defines working environment as an entirely which comprises the totality of forces, actions and other influential factors that are currently and, or potentially contending with the employee’s activities and performance. working environment is the sum of the interrelationship that exists within the employees and the environment in which the employees work. they also defines working environment is a composite of three major sub-environments: the technical environment, the human environment and the organizational environment. technical environment refers to tools, equipment, technological infrastructure and other physical or technical elements. the technical environment creates elements that enable employees perform their respective responsibilities and activities. the human environment refers to peers, others with whom employees relates, team and work groups, interactional issues, the leadership and management. this environment is designed in such a way that encourages informal interaction in the work place so that the opportunity to share knowledge and exchange ideas could be enhanced. this is a basis to attain maximum productivity. organizational environment include systems, procedures, practices, values and philosophies. the quality of work depends upon safe and healthy working conditions in determining employee’s job behavior. the organizational climate is an important indicator of employee behavior as a combination of social and psychological factors. it is found that working conditions are attached with employees’ job involvement and job satisfaction that ultimately leads to better performance of the employees (scott et al., 2000). it is reported that there is a positive correlation between perceived supervisor support and nurse occupation related outcomes (hall, 2007). kazmi et al. (2008) examines the effects of stressful work environment on the performance of medical house officers. the results reveal an inverse relationship between job stress and job performance. high job stress in the house of officers results in low job performance. similarly, it is reported that perceived adequacy or inadequacy of work environment, both physical and psycho-social, extends noticeable effect on employees’ job satisfaction, performance and perception of effectiveness of an organization (srivastava, 2008). 2.2.4. empowerment and employees’ performance the aim of the employee empowerment is to develop individual and organizational performance and to help employees achieve their goals by authorizing employees to participate in the decision-making process. employees think about their own jobs, and find and solve problems related to their job. empowerment is the process of enabling or authorizing an individual to think, behaves, take action, and control work and decision making in autonomous ways. danit and menon (2012) have noted that ‘employee empowerment’ has been most preferred option in many organizations during the time of business decline. hechanova et al. (2006) did a study on the relationship between psychological empowerment, job satisfaction and performance among filipino service workers. the study found that psychological empowerment was positively correlated with performance. pride et al. (2009) explained that employees of any organization that feel empowered work with better efficiency and help the organization to achieve its ultimate goals. employee performance becomes crucial and the organizations attempt to ensure uninterrupted employee performance through many non-monetary methods, including ‘employee empowerment’. kituma merera jaleta & chalchissa amentie & lalise kumera 36 figure 1. conceptual frame work the concepts and variables with associated indicators and measures were developed as follows. table 1: operationalization of variables 3. research methodology the cross-sectional design with field work was used in the study. in this study, the descriptive and explanatory research design was used to fulfil the objectives of the research, because descriptive method was used to investigate the major factors that affect employee job performance in the health centers while explanatory method was used to examine the relationship between independent variables and dependent variable and to determine effects of each factors on employee job performance. in this study the researchers took stratified random sampling technique. the criterion for creation of strata was position level. three strata namely management staff, supportive staff and technical staff and non-managers had been used. since the distribution are no equal the variance of these three strata is unequal (disproportional stratified was used). further for these strata, simple random sampling was proposed. as the study comprises of three strata, a reasonable sample size from each strata was taken up to cover a sample out of 26 management staffs 17 respondents, from 39 supportive staffs 26 while out of 141technical staffs 93 respondents were selected as a sample representative. totally out of 206 employees 136(66.02%) samples had taken. this study the sample size was determined using the formula given by (yamane.t, 1967) . for the study both primary and secondary sources of data were used. primary data: for the purposes of this research, questionnaire and interview were used to gather the necessary information. questionnaire is developed based on the research hypotheses. the aim of questionnaire is to capture the data and information required to establish the parameters of the model, the relationship between the independent and dependent variables, evaluate the final model and hypotheses. five points likert scale ranging from 1 (strongly disagree) to 5 (strongly agree) was used to measure responses. secondary data: these include all types of published and unpublished, documents and other such types of information. such as, reports of the organization personal database (internets). data analysis procedure: the processed data was analyzed by using statistical package for social sciences (spss) version 20. the researchers used descriptive analysis such as; frequency, and percentage and inferential analysis like; pearson’s correlation and multiple linear regressions to determine the effect of independent variables on dependent variable (employee job performance) of health center employees from transformed qualitative data to quantitative were applied. vital qualitative information obtained during interview is used to substantiate the qualitative result. model specification concept variable indicator measure nonfinancial compensation  recognition fairness in appraising performance questions  work condition facility in work area questions  empowerment participation in decision making questions employee performance  quality  quantity  timeliness high or low questions recognition employees’ job performance working condition empowerment effect of nonfinancial compensation on the employees’ job performance: a case of jimma geneti woreda health centers in horro guduru , ethiopia 37 the resulting estimator or parameter can be expressed by a regression formula (gujarati.d.n, 1995). thus, the following multiple linear regressions was developed to make the research more effective in analyzing the influences of in dependent variables ejp= f (rec, wc, emp) ejp= β0 + β1rec + β2wc + β3emp +e---------------------(1) where:ejp = employee job performance which is the dependent variable, β0= average performance β1= unstandardized regression coefficient of recognition (rec) = recognition, β2= unstandardized regression coefficient of work condition (wc) =work condition β3= unstandardized regression coefficient of empowerment (emp) = empowerment and e = error term or residual or unexplained variable. 4. findings and discussion 4.1. response rate of respondents the analysis is based on the information obtained from 136 employees. out of these 136 questionnaires distributed to the respondents, 131 questionnaires were properly filled and returned and five were not. thus, the analysis is based on 131 (96.32%) response rates. 4.2. reliability of research instruments measuring reliability is a good way to show evidence of consistency within the construct. gregory (2000) stressed that coefficient alpha is a useful internal consistency technique to estimate the reliability, where 1 (one) indicates the perfect reliability, while 0 (zero) indicates no reliability. . table below represents the spss generated conbach’s alpha for each dimension of the study variables. table 2. table represents the spss generated conbach’s alpha for each dimension of the study variables source: researcher own survey & spss output, 2019 the table above shows that reliability coefficient with cronbach’s alpha. hair et al (1998) have suggested that exploratory research could reduce the value to 0.60 as the minimum acceptable limit for the conbach’s alpha. according to the cronbach’s alpha test, all the values are greater than 0.60 which surpass the acceptable value. it seems that the questions used in the questionnaire are good measurements of measuring the independent variable i.e. non-financial rewards. 4.3. descriptive statistics descriptive analysis was carried out in order to depict the demographical profile of respondents using frequency and percentage analysis. independent variables cronbach's alpha n of items recognition .807 5 work condition .789 5 empowerment .763 5 kituma merera jaleta & chalchissa amentie & lalise kumera 38 4.3.1. descriptive statistics of independent variables this part presents the descriptive statistics of the independent variables by frequency and percentage table based on the five-point likert scale (i.e. 5= stands for strongly agree, 4= agree, 3= neutral, 2= disagree and 1= strongly disagrees). table 3: descriptive statistics results likert scale variables recognition work condition empowerment n % n % n % strongly disagree 9 6.87 50 38.17 16 12.21 disagree 35 26.72 51 38.93 47 35.88 neutral 55 41.98 14 10.69 25 19.08 agree 22 16.80 15 11.45 38 29.01 strongly agree 10 7.63 1 0.76 5 3.82 total 131 100 131 100 131 100 source: researcher own survey & spss output, 2019 4.3.2. recognition as per the above table majority 41.98% (n=55) of the participants were neutral and 33.59% (n=44) were responded negatively to recognition while only 22.43 %( 32) positively responded about the existing recognition. according to health center employees, the existing recognition practices differentiate among them based on their performance. the results resonate with barton and gold (2013). during key informants, interviews health center workers explained their ideas as “we are working very hard to meet the set goals of health program.” but looking at our acceptance toward appreciation was not equally fair. for your surprise, there is only some employee repetitively recognized (get a promotion) by friendship this is a pain for me. therefore, the management should improve the recognition system and make recognition fair, free from bias to boost the performance of an employee and hence the organization performance. 4.3.3. working condition as per the above table majority 77.1 %( 101) of the participants were negatively responded with the facility of health centers and 10.69 % (n=14) were neutral respondents with work condition of health centers. 12.21 %( n=16) were positively responded. this implies that health center workers were not satisfied with the working conditions in the study area. during key informant interview respondents (workers) said “frankly speaking, what is expected from us to do and the basic facility provided by the government do not much. therefore the organization makes sure the confortable and supportive work condition in order to increase employees’ performance in health centers. 4.3.4. empowerment the above table indicates the majority of 32.83 % (n=43) of the respondents were positively responded and 48.09% (n=63) were responded negatively with empowerment. this implies that more than half of the perception of the employee towards empowerment negative. this indicates low empowerment to apply new skills, which is likely to reinforce the values of personal development thus improving employee performance and organizational performance. during key informant interview one person from technical said,” i do my work freely but only those individuals who are highly relate to managements get the more chances in all direction. therefore the managements improve communication system and develop team decision making in organization in order to increase employees performance in health centers. 4.4. correlation analysis in this part the pearson’s correlation coefficient was computed to determine the relationships between recognition, working condition and empowerment with employee job performance. for this study diction rule given by bartz (1999) as cited by ermias b. (2017) was used. effect of nonfinancial compensation on the employees’ job performance: a case of jimma geneti woreda health centers in horro guduru , ethiopia 39 table 4.the correlation analysis: nonfinancial and employee job performance variables person correlation (r) level of significance (p) recognition .802** 0.000 work condition .780** 0.000 empowerment .777** 0.000 source: researcher own survey & spss output, 2019 the results reported in the table above shows that recognition (r=0.802, p = 0.000) has a very strong relationship on employee performance. it means that increase or decrease in recognition will bring corresponding changes on employee job performance. as well as it shows work condition, empowerment and employee performance have strong relationship which have correlation values of (r=0.780, p < 0.000) and (r=0.777, p<0.000) respectively. therefore, overall finding showed that there is a strong, positive and significant relationship between recognition, work condition, empowerment and employee performance. thus, increase or decrease in nonfinancial compensation is associated with similar change in employees’ performance, quality of work, and quantity of work and affect absenteeism. finally, based on the overall results implied that there is a strong, positive relationship between nonfinancial compensation and employee job performance. it means recognition; work condition and empowerment have significant impact on employee job performance. 4.5. regression analysis the study proposed that there exist a relationship between compensation and employee job performance of health center in jimma geneti woreda. table 5. regression analysis model summary model summaryb model r r square adjusted r square std. error of the estimate 1 .870a .757 .751 .15037 a. predictors: (constant), empowerment , recognition, work condition b. dependent variable: employee job performance source: researcher own survey & spss output, 2019 the table above describes the relationship between compensation and employees’ job performance. the model had an r square value of 0.757 indicating that the dependent variable percentage of the variance that was explained by the independent variables was 75.7% such a percentage indicates a very good level of prediction, that is, 75.7% of the variations in employee performance of health centers of jimma geneti could be explained by the changes in recognition, work condition and empowerment , while the remaining 24.3% unexplained is because of either error or random sample. the pvalue of 0.000 (lesser than 0.01) implies that employee performance model of health center is significant at the 1 per cent significance. kituma merera jaleta & chalchissa amentie & lalise kumera 40 table 6: results of anova output model sum of squares df mean square f sig. 1 regression 8.944 3 2.981 131.865 .000b residual 2.871 127 .023 total 11.816 130 a. dependent variable: employee job performance b. predictors: (constant), empowerment , recognition, work condition source: researcher own survey & spss output, 2019 the anova output indicates that the multiple regression model itself is statistically significant or not significant. because r2 is not a test of statistical significance (it only measures explained variation in y from the predictor xs), the f-ratio is used to test whether or not r2 could have occurred by chance alone. in short, the f-ratio found in the anova output measures the probability of chance departure from a straight line. on results of the output found in the anova table, the model is statistically significant when non-performance adequacy ratio were included (f=131.865, p<0.01). therefore, the overall equation was found to be statistically significant. table 7: regression analysis of non-financial compensation on employee job performance coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) .723 .170 4.248 .000 recognition .352 .068 .370 5.187 .000 work condition .270 .069 .282 3.934 .000 empowerment .215 .048 .310 4.524 .000 source: researcher own survey & spss output, 2019 have significant effect at a pvalue of less than 0.01. multiple regression estimates the coefficient of the linear equation involving one or more independent variables that best predict the value of the dependent variable and the regression equation is presented as: ejp= f (rec, wc, emp) ejp= β0 + β1rec + β2wc + β3emp +e---------------------------------------(1) ejp= 0.723 + 0.352*rec + 0.270*wc + 0.215*emp +e---------------------(2) these results conclude that non-monetary types of compensation can be very meaningful to employees and very motivating for performance improvement. from the above table of regression coefficient recognition contributes more to employee performance of health center, followed by work condition, empowerment. this study is in line with the study of barton and gold (2013) who described that recognition is considered the most important factor among non-financial compensation in order to increase employee’s motivation and thus their performance. danis and usman (2010) found that there are significantly correlated and compensation and recognition greater impact on performance of the employees. also a research conducted by minarsih (2015) which explain working environment variable has significant influence on employees’ performance also supports these findings. the study revealed that empowerment had a direct and positive effect on employee performance, which is supported by tuuli & rowlinson (2009) who analyzed the relationship between psychological empowerment and employee job performance. effect of nonfinancial compensation on the employees’ job performance: a case of jimma geneti woreda health centers in horro guduru , ethiopia 41 5. conclusion and reccomendation 5.1. conclusion human resource provides the basis for an organization to achieve sustainable competitive advantage. attracting and retaining competent workforce is a challenging task for every organization. it is illustrious that employee job performance can be improved when employees are motivated to achieve their goals. based on the findings of this study, it can be summarized that employee compensation package plays a significant role in employee performance. it means that compensation is directly proportion to employee job performance. the changes in compensation directly affect to the changes of the employee performance. hence, rewards offered to employees in health centers are increased, and then there would be an equivalent enhancement in work motivation and employee job performance. a health center is a public sector service organization. in order to attract and retain their workforce, health centers needs to make improvements in their existing reward system by integrating reward strategy with human resource strategy. the study concludes that reward plays a vital role in employee performance in health centers. from the above it can be concluded that diverse compensation package can influence employees to perform assigned task in an efficient and effective manner. considering the fact that management of health centers is the responsible party to develop a unique compensation strategy with the aim of achieving sustainable competitive advantage. a compensation system can be a cluster of different reward components, but it should be integrated with the organizational strategy which means aligning compensation practice with both goals and employee values. in addition to above suggestions health centers can improve their existing reward system by linking performance with, the handling the compensation in a positive manner and maintaining internal equity and external competitiveness 5.2. recommendation actually nonfinancial compensation gives benefit to the organization because it did not need to spend a lot of money if compared with financial compensation. taking into account the findings of this study, the researcher needs to recommend the following points in relation to the effect of compensation on employees’ job performance at jimma geneti health centers.  the health centers should redesign its compensation system in general and its non-financial compensation in particular based on the workload of employees. because the highest influential factors for employee performance were nonfinancial compensation in health centers but there was less attention given.  nonfinancial compensation in order to influence employees to perform better especially focusing more on appreciation, praise, giving education chance, giving promotion, giving a certificate for the better performer, verbal thanks, making favorable working environment and facilitate the full participation of the employee in the decision to motivate the employees. therefore adjustment in nonfinancial compensation can boost the performance of health centers employees.  making comfortable working condition improve employees’ job performance through reduces the level of stress in work. therefore the organization makes sure the comfortable and supportive work condition is often provided for the employees in order to increase their performance. 5.3. limitations and suggestions for further study the sample size was too small and considered the jimma geneti district only. present study focused on one public sector organization and findings may not be generalized to a wider sector such as public sector organizations in jimma geneti. in this study focused on three independent variables and it is recommended for future researches;  to investigating the impact of compensation on organizational commitment and human resource development in private and public organization. because future research would be benefited from large sample size and using a variety of samples for this kind of research study. kituma merera jaleta & chalchissa amentie & lalise kumera 42  to examining the relationships between compensation and other dependent variables, such as turnover intention, employee commitment or productivity; will produce more interesting results.  the study also recommends that future research may explore to find out other unaddressed variables, since the motivation of employees affected by many factors other than compensation. references aguins, h. 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(1967). statistics: an introductory analysis, 2nd edition,. new york: harper and row. international journal of commerce and finance, vol. 2, issue 1, 2016, 14-24 market liquidity, analysts coverage, and ownership concentration: evidence from ase majd iskandrani, (assoc. prof.) the university of jordan, jordan abstract: this research investigates the association between analyst coverage, ownership concentration and market liquidity in amman stock exchange (ase). using a unique dataset about information asymmetry, several proxies related to the information asymmetry are used to clarify certain aspects of market liquidity. in a sample of 131 companies with comprehensive data collected from company guides and datastream, information asymmetry measured by analysts’ coverage is found to be an important determinant of market liquidity. in particular, market liquidity is lower where firms have larger analysts coverage and where firms are denoted with high degree of ownership concentration. the effect of analysts coverage is, however, found to be more marked in firms with high levels of ownership concentration. the study provides theoretical and empirical improvement of market liquidity literature towards an understanding of the information asymmetry proxies in ase. policymakers, after the 2007-2009 scandal have formed governance codes that highlight the importance of disclosure requirements as key responsibility of financial analysts. the link between analysts coverage and market liquidity established in this research provides evidence for insider investors on the roles and potential effectiveness of analysts in carrying this responsibility. keywords: analysts coverage, ownership concentration, market liquidity, ase jel codes: g14 and g32 1. introduction we examine the association between ownership concentration, analysts coverage and market liquidity. there are two conflicting views on the effects of ownership concentration on market liquidity: adverse selection and trading hypotheses. the former argues that when large shareholders possess superior information about the firm’s prospects compared to minority shareholders, an adverse selection problem arise, which decreases market liquidity (e.g., easley & o'hara 1987; glosten & milgrom 1985; grossman & stiglitz 1980; kyle 1985; rubin 2007). nevertheless, the latter suggests that minority shareholders trade more often, which increases market liquidity (e.g., demsetz 1968; merton 1987; schwartz & shapiro 1992). prior literature on the relationship between ownership concentration and market liquidity is far from conclusive (e.g., attig et al., 2006; brockman et al., 2009; ginglinger & hamon 2007; heflin & shaw 2000; jacoby & zheng 2010; naes 2004). interestingly, there is few evidence on how analyst coverage is associated with market liquidity. this paucity of evidence motivates our study. moreover, we test the association between ownership concentrations, analysts’ coverage and market liquidity on amman stock exchange (ase) who is often regarded as one of the most successful arab countries in protecting investors (i.e. minority investors) relative to its economic size. therefore, jordan offers an ideal setting to examine the degree of information asymmetry in the region. in particular, little evidence documents with respect to the relationship of ownership concentration, analysts’ coverage and market liquidity. this relationship is important to capital market participants mainly minority shareholders given the role of analysts’ forecasts in transforming the private information into public that leads to higher market liquidity (e.g. brennan & subrahmanyam, 1995; roulstone 2003; jiang et al. 2011). others (e.g.,van ness et al. 2001; easley et al. 1998) document a negative relationship between analysts coverage and market liquidity. these studies assume that financial analysts have a greater motivation to follow firms with higher ownership concentration. thus, the relationship between analysts coverage and market liquidity is also expected to be positive (negative) when the firm’s ownership is concentrated (dispersed). to sum up, although scholars report that analysts coverage and ownership concentration is related to market liquidity, empirical evidence on this relationship is mixed. we include a sample of ase firms for the period of 2005-2013. in investigating the relationship between analysts’ coverage, ownership concentration and market liquidity, we incorporate a number of control variables that are important determinate of market liquidity such as shares price, return volatility and firm size in the ols models. our findings indicate that firms with larger number of analysts following have higher proportional bid-ask spread and in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e 16 grzegorz zajac http://ijcf.ticaret.edu.tr lower trading activity measures (i.e., turnover ratio by volume and trading volume). moreover, we notice that firms with higher ownership concentration have a wider proportional bid-ask spread and lower turnover ratio by volume and trading volume. interestingly, we show that the effects of analyst following on market liquidity are more pronounced in concentrated firm. our findings are consistent with rubin (2007) who document a negative association between ownership concentration and market liquidity. and in the line with the findings of jiang et al. (2011) show that firms with larger analysts’ coverage have lower market liquidity. our study adds to the literature that investigates the association between ownership concentrations, analysts’ coverage and market liquidity the following two points. first, by documenting a relationship between analysts following and market liquidity, we show that financial analysts are linked with the information environment of the firms. we also infer that financial analysts may access the precision of private information of the firm’s prospects when ownership concentration is higher, which in the line with the adverse selection hypothesis. second, our study adds to the literature on the market liquidity. to the best of our knowledge, this study is the first of its kind to links ownership concentration, analyst coverage and market liquidity in ase. our findings are important given the significant effect of analysts coverage in reducing the degree of information asymmetry between insider and outsider investors. our findings document that analysts coverage is an important determinant of market liquidity in highly concentered firms. the remainder of this article is organized as follows. in section 2, we form our hypotheses. we present our methodology and the research model in section 3 and discuss the sample selection in section 4. we highlight the results in section 5 and document our conclusions in section 6. 2. literature review and hypothesis development blockholders have an informational advantage over minority shareholders with regarding the firm’s private information and possess economies of scale in the collection of information (e.g., brockman et al., 2009; heflin & shaw 2000; jacoby & zheng 2010). as a result, we conjecture that blockholders may trade in that private information. theories offer a clear expectation on the association between ownership concentration and market liquidity. for example, coffee (1991) was among the first to point out that the active role of large shareholders and the liquidity of their shares cannot go hand on hand. others (glosten & milgrom, 1985; copeland & galai 1983) also argue that large shareholders are informed investors who may trade against uniformed investors. as a result, market makers increase the bid-ask spread, which leads to lower market liquidity. nevertheless, the empirical studies that have examined the impact of blockholders on market liquidity have been inconsistent (brockman et al., 2009; heflin & shaw 2000; jacoby & zheng 2010). for instance, kini & mian (1995) document a significant and positive relationship between blockholders and bid-ask spread for 1063 nyse listed firms for 1985. moreover, heflin & shaw (2000) investigate the impact of blockholders on market liquidity, measured by quoted, effective, adverse selection components of bid-ask spread and depth, in 260 us listed firms, over the period from 1988 to 1989. they report a positive relationship between blockholders and, the quoted and effective bid-ask spread, and adverse selection spread components. furthermore, rubin (2007) examines the effect of blockholders on market liquidity using a sample of 1369 nyse firms for the period 1993-2003. he documents a negative relationship between blockholders and dollar volume and a positive relationship between bid-ask spread and price impact ratio. similar to that vein, brockman et al. (2009) and jacoby & zheng (2010) examine the relationship between blockholders and market liquidity and report a negative relationship between them. following this series of empirical studies, we form the relationship between ownership concentration and market liquidity as follows: h1: there is a negative association between shareholder concentration and stock market liquidity. many shareholders do not have the potential to analyse the information in firm’s earnings forecasts. in making trading decisions, they depend on the recommendations from financial analysts. as a result, an effective way for managers to influence market liquidity is to provide financial information directly to financial analysts. by improving the firm’s information environment through higher quality financial reports and more disclosure, firms can reduce the the degree information asymmetry which leads to a higher market liquidity (e.g. copeland & galai 1983; welker, 1995). the scope of state aid and public service obligation for airports and air carriers in the light of european law 17 http://ijcf.ticaret.edu.tr nevertheless, the relationship between analysts following and market liquidity will depend on whether the firm is concentred or dispersed (i.e., firms who are more (less) concentrated are more (less) likely to to be followed by financial analysts. on the one hand, in concentrated firms blockholders may access valuable private information and thus they can create an adverse problem in the capital market (e.g., jiang et al. 2011; zhou 2011). these studies suggest that the adverse selection risk faced by market makers may be negatively correlated with the number of analysts following the firm. in turn, this implies that the bid-ask spread may be lower for firms followed by a larger number of financial analysts. following this series of reasoning, we form the relationship between analysts coverage and market liquidity as follows: h2: there is a negative association between analysts following and market liquidity in summary, the review of the empirical papers that investigate the influences of ownership concentration and analysts’ coverage on market liquidity reveals several important gaps in the literature. in the first place, the number of empirical studies in this area is clearly limited and this explains the few papers that were discussed in the empirical review. in addition, the review indicates the need for this study in the ase since most of the above-mentioned studies come from the us and developed markets (chiang & venkatesh 1988; dennis & weston 2001; kini & mian 1995; rubin 2007; jiang et al. 2011). however, as discussed previously, the differences in corporate governance arrangement, codes’ rules and regulations between countries justify the need for more country-specific studies especially from the mena countries. to the best of our knowledge, this study is the first of its kind in the ase that investigates the effect of ownership concentration and analysts’ coverage on market liquidity. 3. the methodology and model this study depends on linear regression using the method of ordinary least square (ols). we run linear regressions using the proportional bid-ask spread (pbas), turnover by volume (trvo), then trading volume (vo) as measures for stock market liquidity. generally, the relationship that relationship between ownership concentration, analysts coverage and market liquidity can be written as follows: liqit = α0+ β1bkoit+ β2analit+ γ1mvit+ γ2pit+ γ3volit + + εi…………(1) liqit analit market liquidity variables: information friction (proportional bid-ask spread) and real friction (trading volume and turnover by volume) number of analysts who follow the firms bkoit proportion of aggregate blocks of at least 3% of the firm’s outstanding shares held by outside investors mv it the natural logarithm of the market capitalization as a proxy for firm size p it price per share vol it return volatility measured by the standard deviation of daily returns ind a dummy variable for industry year a dummy variable for each year of the eight years from 2005-2013, 2005(y1), 2007 (y2)……………. 2013 (y9) εit unobservable individual-specific effect the model includes three control variables –size, return volatility and share pricethat previous studies document that they are related to the firm’s information asymmetry and that may affect the association between ownership concentration , analysts coverage and market liquidity. we measure firm size (mv) as the natural logarithm of market capitalization at the end of the fiscal year. previous research report that firm size has a positive impact on market liquidity as stated by anderson & fraser (2000). in addition, larger firms, on average, release more information than 18 grzegorz zajac http://ijcf.ticaret.edu.tr smaller firms release and had more analyst coverage and are thus subject to more scrutiny by the investment community than smaller firms (e.g., brennan & subrahmanyam 1995). thus, we expect a positive relationship between mv and market liquidity. we control for the volatility in returns (vol) because it reflects information uncertainty. prior studies (e.g., mclnish & wood 1992; stoll 1978; tinic & west 1972; jegadeesh & subrahmanyam 1993) have confirmed that there is a positive relationship between price volatility and bid-ask spread. we measure volatility of share price as the standard deviation of daily returns. moreover, we include the share price (p) to control for price discreteness and acts as a proxy for market depth; that is, low prices are associated with higher market depth (jegadeesh & subrahmanyam 1993; welker 1995; stoll 2000). thus, this study measures the annual stock price using the average of the daily closing prices. 4. sample selection and descriptive statistics 4.1. sample selection we choice our sample from the population of amman stock exchange (ase) firms over the period 2005-2013. we extract data on ownership concentration from the companies’ guides, analysts’ coverage data from the i/b/e/s database, and accounting and market data from datastream. the sample contains all firms with comprehensive data for the main variables used in the empirical analyses. our main sample consists of 131 nonfinancial firms. 4.2. descriptive statistics table 1 shows descriptive statistics for the variables used in the empirical tests. the mean (median) value of ownership concentration (bko) is 34% (23%).furthermore, the mean (median) of the analysts following (anal) is 9.64 (5). for market liquidity proxies, table 1 reports that the mean (median) of proportional bidask spread (pbas) and trading volume (vo) are jd 0.03 (jd 0.01) and jd 28546 (jd 7549.3), respectively indicating that our sample contains of relatively liquid firms. for firm characteristics, mean (median) firm size (mv) and return volatility (vol) are jd 157.53 (jd 20.70), 9.4% (8.4%), respectively revealing that our sample contains of relatively larger and less risky firms. the mean (median) of share price is jd 2.39 (jd 1.6). table 1 descriptive statistics table 1 presents descriptive statistics for the dependent variables and independent variables. total number of firms is 131 over the period 2005-2013. variable definitions are given in appendix 1. mean median standard deviation max min vol (%) 9.4% 8.4% 4.2% 29.5% 0 mv in millions jd 157.53 20.70 653.86 10445.04 1.01 vo in thousand 28546.09 7549.3 65606.02 875496.4 0 pbas in pence 0.0307 0.0063 6.1020 0.50 0 p 2.39 1.6 4.38 46.51 0.03 tr (%) 1.35 0.34 2.9 31.62 0 bko (%) 34% 23% 36% 95% 0 # of anal 9.64 5 10.41 35 0 table 2 shows the pairwise correlations among the variables used in the empirical results regressions. the table shows that blockholders (bko) is negatively correlated with turnover by volume (trvo) and trading volume (vo), showing that the firms with higher block ownership have lower market liquidity. analysts coverage (anal) is insignificantly positively correlated with turnover by volume (trvo) and negatively with proportional bid-ask spread (pbas). for market liquidity measures, turnover by volume (trvo) is significantly positively related with the scope of state aid and public service obligation for airports and air carriers in the light of european law 19 http://ijcf.ticaret.edu.tr trading volume (vo). while, proportional bidask spread (pbas) is negatively correlated with turnover by volume (trvo) and trading volume (vo). table 2 correlation matrix table 2 shows pairwise correlation matrix for the variables used in the empirical results. numbers are significant at 5% and more. variable definitions are given in appendix 1. tr vo vol mv p pbas bko anal tr 1.00 vo 0.82* 1.00 vol -0.01 0.02 1.00 mv 0.08* -0.04 -0.04 1.00 p -0.23* -0.20* 0.01 0.05 1.00 pbas -0.04 -0.19* 0.04 -0.06 -0.25* 1.00 bko -0.32* -0.21* -0.01 -0.01 -0.27* 0.01 1.00 anal 0.04 -0.04 0.02 0.02 0.13* -0.01 -0.01 1.00 5. results and analysis 5.1. the effect of ownership concentration and analysts coverage on market liquidity we test the relationship between ownership concentration, analysts coverage and market liquidity. table 3 reports the estimation results of the ols dummy year and industry effects regression models. column (1) reports the results of the proportional bidask spread (pbas). similar to the findings of jiang et al. (2011), this study shows that the coefficients on bko and anal are insignificantly positive. column (2) of table 3 documents that the coefficient on anal is -0.57 (t-stat= -2.33). in the line with the adverse selection hypothesis, the anal coefficient is positive and significant at the 1% level showing that there is a negative relationship between analysts following and market liquidity. the bko coefficient documented in column (3) is positive and significant (coefficient=-0.06, t-stat=-1.69) at the 10% level. furthermore, column (3) reveals a negative relationship between anal and market liquidity, this result is once again broadly in the line with the adverse selection hypothesis. in terms of control variables, the results are consistent with our expectations and the previous studies. columns (1) to (3) show that the return volatility is negatively correlated with market liquidity. in particular, this negative relationship is common in the literature, where firms with higher volatility are exposed to higher uncertainty and information asymmetry (black 1986; french & roll 1986). our results are in line with previous studies (e.g., poon et al. 2013; rubin 2007). the coefficient of firm size is negative and significant with proportional bid-ask spread (pbas). this negative relationship confirms that larger firms have lower information asymmetry and higher market liquidity because they are more able to diversify risk and have quick and greater access to the capital market. moreover, table 3 indicates that the share price has a significant effect on market liquidity. under the ols estimation, the negative relationship is consistent with the trading hypothesis. for instance, stoll (2000) reports a negative and relatively significant relationship between share price and market liquidity. one of the most common tests used to check for the multicollinearity problem is called the variance inflation factor (vif), which is calculated as follows: 20 grzegorz zajac http://ijcf.ticaret.edu.tr vif=1/tolerance…………………………….…………….………………………….…………………………(2) where: tolerance = 1-r2 r2 is the coefficient of determination it has been suggested that, if the vif exceeds 10, which means that r2 exceeds 90%, this indicates a multicollinearity problem for those variables in the model using market liquidity as the main dependent variables. the results of vif tests indicate that multicollinearity is not a problem in our dataset. from table 4 it is clear that all values are less than 10. from table 4, we can notice that the average vif is 1.89. consequently, this value confirms that our dataset is free from multicollinearity problems. table 3 relationship between ownership concentration, analyst coverage and market liquidity table 3 reports the results of the regressions that run the dependent variables (proportional bid-ask spread (pbas), trading volume (vo), and the turnover by volume (trvo) on block holders (bko) and analysts coverage (anal) and control variables (mv, vol, and mv). variable definitions are given in appendix 1. ***,**,* indicate significance at 1%,5%,10% levels respectively. table 4 variance inflation factors (vifs) test table 4 presents an overview of the maximum variance inflation factors (vifs) test for all research variables reported in table 3. the reported vifs are the maximum vifs obtained from the regression analyses in stata 11. pbas vo trvo anal 0.08 (1.13) -0.57 (-2.33)*** -0.76 (-5.61)*** bko 0.02 (1.55) -0.05 (-0.64) -0.06 (-1.69)* mv -0.03 (-2.51)** 0.29 (3.07)*** 0.05 (0.84) vol -0.02 (-0.53) -0.23 (3.14)*** -0.09 (-1.95)* p -0.07 (-1.69)* -0.06 (-0.35) -0.58 (-6.43)*** constant 0.08 (1.67)* 2.76 (10.67)*** 0.35 (2.24)*** industry dummy yes yes yes year dummy yes yes yes observations 1179 1179 1179 adjusted r2 0.85 0.17 0.30 pbas vo trvo bko 1.54 1.54 1.54 anal 1.04 1.04 1.04 the scope of state aid and public service obligation for airports and air carriers in the light of european law 21 http://ijcf.ticaret.edu.tr 5.2. further analysis and robustness checks this section provides a further test to confirm the prior results in the main analysis and to pinpoint any potential drawbacks about our model. in particular, this study divides the data into concentered, dispersed firms based on their blockholder ownership, and re-examines the relationship between analysts coverage and market liquidity. in fact, this check allows us to determine whether the nature of the relationship between market liquidity and analysts coverage is different between concentrated and dispersed firms. concentrated (dispersed) firms are defined as firms that have a block ownership (equal to or greater) than the median of block ownership for the entire sample of 64 firms. in table 5 panels a and b, the study reports the pooled ols year and industry dummies results for concentrated and dispersed firms respectively. with respect to analyst following, table 5 panel a reveals that the effect of analyst following on proportional bid-ask spread (pbas) is stronger and significant for concentrated firms than dispersed firms. moreover, analysts following have a more negative and significant effect on trade turnover by volume ratio (trvo) and trading volume (vo). taken together, table 5 shows that the relationship between analysts coverage and market liquidity is stronger and more significant for concentered firms than dispersed firms. existing literature has stated that concentrated firms have a higher degree of information asymmetry between insider and outsider investors, which leads to lower market liquidity (chiang &venkatesh 1988; jacoby & zheng 2010; kini & mian 1995; williams 1986). in contrast, dispersed firms have a large number of shareholders; as a result, more investors will participate in trading. consequently, this may dilute the relationship between analysts coverage and market liquidity (jacoby & zheng 2010; jiang et al. 2011). table 5 table 5 shows the results of the regressions that run the dependent variables (proportional bid-ask spread (pbas), trading volume (vo), and the turnover by volume (trvo) on blockholders (bko) and analysts coverage (anal) and control variables indicated above.. variable definitions are given in appendix 1. ***,**,* indicate significance at 1%,5%,10% levels, respectively. mv 1.06 1.06 1.06 vol 1.04 1.04;2 1.04 p 1.27 1.27 1.27 industry dummy yes yes yes year dummy yes yes yes mean vif 1.89 1.89 1.89 model intercept anal vol mv p adj.r2 panel a concentrated firms pbas 0.15 (1.69)* 0.05 (1.35) -0.01 (-0.28) -0.08 (-2.96) -0.07 (-0.90) 0.80 trvo 0.35 (1.66) -0.12 (-2.17)** 0.03 (0.42) -0.13 (-2.17)** -0.68 (-6.22)*** 0.26 vo 3.98 (15.45)*** -0.12 (-1.57) 0.11 (0.96) 0.07 (1.02) -0.61 (-3.52)*** 0.15 panel b dispersed firms pbas -0.02 (-0.63) 0.01 (1.29) -0.01 (-1.03) 0.01 (0.42) -0.09 (-2.88)*** 0.93 trvo 0.29 (2.12)** -0.04 (-0.90) 0.06 (0.94) -0.05 (-0.97) -0.57 (-4.72)*** 0.18 22 grzegorz zajac http://ijcf.ticaret.edu.tr 6. conclusion: the association between ownership concentration, analysts coverage and market liquidity consider one of the most area in the mena countries such as jordan, where the legal protection of investors is weak. the issue is particularly relevant post to the 2007-2008 financial crisis, where large shareholders and insiders have often been blamed for their greedy behavior against minority shareholders. theoretical perspectives on the effects of ownership concentration, analysts coverage and market liquidity are far from conclusive, and there is little empirical work on how analysts coverage is related to market liquidity in ase. our findings on this issue reveal that companies with more financial analysts coverage have lower market liquidity. in addition, we notice that companies with higher ownership concentration have lower market liquidity. nevertheless, the effect of analysts coverage is, however, found to be more marked in firms with high levels of ownership concentration. references amihud, y., & mendelson, h. 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(1980) ‘on the impossibility of informationally efficient markets’, american economic review 70 (3):393-408. vo 3.07 (12.23)*** -0.01 (-0.01) 0.50 (4.15)*** 0.38 (3.33)*** 0.48 (1.60) 0.26 the scope of state aid and public service obligation for airports and air carriers in the light of european law 23 http://ijcf.ticaret.edu.tr heflin, f. & shaw, w.k. (2000) ‘blockholder ownership and market liquidity’, journal of financial and quantitative analysis 35 (4):621-33. jacoby, g. & zheng, x. (2010) ‘ownership dispersion and market liquidity’, international review of financial analysis 19 (2): 81–88. jegadeesh, n., & subrahmanyam, a. (1993) ‘liquidity effects of the introduction of the s&p 500 index futures contract on the underlying stocks’, journal of business 66(2): 171-187. jiang, c. x., kim j.c. and zhou d. (2011). liquidity, analysts and institutional ownership. international review of financial analysis, 20, 335-344 kini, o. & mian, s. 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(1992) ‘the challenge of institutionalization of the equity market, in recent developments in finance’, anthoney saunders, ed. (new york salomon center, new york, 1992). stein, j. (1988) ‘takeover threats and managerial myopia’, journal of political economy 96 (1): 61-80. stoll, h. (1978) ‘the pricing of security dealer services: an empirical study of nasdaq stocks’, journal of finance 33 (4 ): 1153-1172. stoll, h. (2000) ‘friction’, journal of finance 55(1): 1479−1514. tinic, s. m. & west, r. (1972) ‘competition and the pricing of dealer service in the over-the-counter stock market’, journal of financial and quantitative analysis 7 (3) : 1707-27. welker, m. (1995) ‘disclosure policy, information asymmetry, and liquidity in equity markets’, contemporary accounting research 11 (2): 801-82. williams, j. (1986) ‘financial anomalies under rational expectations: a theory of the january and small effects’ , working paper , new york university , gsb. zhou, d. (2011) ‘ownership structure, liquidity, and trade informativeness’, journal of finance and accountancy 6: 110. appendixes appendix 1: definition of the variables variable description bid (pb) the highest price for a stock in a particular day at which the market maker (i.e. dealer) is willing to buy ask (pa) the lowest price for a stock in a particular day at which the market maker (i.e. dealer) is willing to sell proportional bid-ask spread (pbas) (pa-pb)/ (pa+pb)/2 trading volume (vo) the total value of shares traded for a stock on a particular day in jd adjusted for capital action (stock split) turnover ratio (tr) the number of times that shares are traded for a stock on a particular day, calculated by dividing stock trading volume (vo) by the number of shares outstanding (wc05301) blockholders (bko) the proportional of aggregate blocks of at least 3% of the firm’s outstanding shares held by all institutional investors 24 grzegorz zajac http://ijcf.ticaret.edu.tr analysts coverage (anal) the number of analyst who follows the firms return volatility (voli) the standard deviation of daily returns share price (p) the official closing price expressed in pence market value of equity (mv) is measured as the share price on a specific date multiplied by the number of ordinary shares in an issue adjusted for capital action changes (stock split and dividend) (p * wc05301) international journal of commerce and finance, vol. 5, issue 2, 2019, 22-30 22 financial inclusion in africa through mobile money services: a swot analysis of mobile money services: evidence from bukavu in dr congo kulondwa safari universite evangelique en afrique, the democratic republic of the congo lukogo chanceline universite evangelique en afrique, the democratic republic of the congo abstract financial inclusion has been proved as a strategy to fight poverty. africa is a continent where the poverty rate is high and the financial sector is not developed. the continent needs more financial innovation and an increase of financial access to fight these problems. mobile money, a mobile based financial service has been including more and more people in the financial system and the sector is growing. a lot of studies grew interest in this new financial service but none studied the system strategically. this study uses the strategic approach swot, completed by tows matrix to ascertain the current status and the future of mobile money services. the results revealed several strengths and significant opportunities for the system as well as its weaknesses and threats. several strategies are proposed afterward. keywords: mobile money, swot analysis, financial inclusion, africa 1. introduction according to data from the findex survey of the world bank, financial inclusion in sub-saharan africa increased significantly from 23% in 2011 to 43% in 2017. the rate of financial inclusion in africa is low compared to the other continents (zins and weill, 2016). the region-wise examination of financial inclusion by region index prove that the northern african nations have the highest financial inclusion rate, the east african nations follow which are among the poorest economies in the world (sankaramuthukumar and alamelu, no date).providing more people with access to financial services is considered as a way to alleviate poverty as well as boosting economies (owen and pereira, 2018). the increasing use of mobile phones and internet is significantly impacting financial inclusion through different services offered (evans, 2018) (gosavi, 2015). the use of mobile phones to provide financial services in africa has become a way of enabling unbanked people to access financial services (alfred, maureen and were, 2017).mobile phone has become an instrument that allows users to access financial transactions through a system called m-pesa (munyegera and matsumoto, 2016). with the use of mobile phone based technology, in the past 10 years mobile money has provided a safe and fast peer-to-peer money transfer transactions, saving facilities as well as cash payment systems to people who did not have access to financial services before (lepoutre and oguntoye, 2018). m-pesa is a mobile money service with its first success in kenya. after its success several private and public actors copied its business model across africa (lepoutre and oguntoye, 2018). without any doubt, mobile banking is an instrument in boosting economies to allow the unbanked to access financial services (mwangi and brown, 2015). providing financial services through mobile phones is considered as the missing channel by development economists whose access to payments, credits and savings using this new technology is an opportunity for people previously difficult to serve to access financial services (suárez, 2016). mobile money services are increasing and expanding in countries, however the literature did not sufficiently provide a full strategic analysis of mobile money services. this study sought to fill this information gap by assessing the current status and future of mobile money in a strategic approach. in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e in te rn a ti o n a l jo u rn a l o f c o m m e rc e a n d f in a n c e financial inclusion in africa through mobile money services: a swot analysis of mobile money services: evidence from bukavu in dr congo 23 objective of the research:this study intends to carry out the strategic analysis swot of mobile money services in africa, to ascertain its viability and to propose solutions to strengthen it. the paper is organized as follows: section 1 present the introduction, section 2 present the literature review, section 3 present data and methods, the results and findings of the study are presented in section 4 and finally section 5 conclude the paper. 2. literature review 2.1 definition and origin of mobile money services mobile money is a mobile phone based technology that provides financial transactions in a safer and quicker way across a vast geographical space (gosavi, 2018). it’s not easy to appreciate evolution of retail electronic payments systems. for approximately 50 years, most of the industrialized countries have been using plastic credit cards and other payment tools. back in 1900 most people used cheques, cash, bank drafts, store credit recorded in a paper ledger as well as a merchant’s memory for their payments. mobile money came out from the past 50 years of looking for a value chain in the payment transactions: developing new payment systems to promote ‘efficiencies’ as well as to produce revenue through different transaction fees. (mas and radcliffe, 2010) cited by (maurer and maurer, 2012). safaricom in kenya is the pioneer of mobile money services in africa with the introduction of m-pesa. m-pesa is a money transfer service using text messages that allows users to send, deposit, and withdraw money with their mobile phones. a bank account is not needed to carry out the different transactions, which they could perform at any mobile money provider agent’s place of activity. enrollment and deposits are free of charges while other transactions are charged to make the system affordable for every user. this system was the first program using that business model in kenya and did not face competition for almost two years after its creation. the idea behind m-pesa was created by vodafone in the united kingdom to enhance financial inclusion and provide financial services to the “unbanked.” safaricom launched a pilot program in 2005 and 2006 with less than 500 users in the region of nairobi( sarit m., charlotte s.r, 2017b) several authors got interest in mobile money services: use of mobile money based on the gender (ngumbu and mulu-mutuku, 2018), mobile money and development (meniago and asongu, 2018), (meniago and asongu, 2018), intention and adoption of mobile money (osei-assibey and osei-assibey, 2015), attitude towards using m-money (chauhan, 2015), user continuance intention towards m-pesa (parijat u., saeed j., 2016) (osah o.mickael k., 2017) mobile money and productivity(gosavi, 2018),… in line with our research problem, we present below some studies on the growing of mobile financial services and mobile money. 2.2.growing of mobile financial services & mobile money omigie, zo, rho, & ciganek, (2017) pointed out that mobile financial service market is expanding and is replacing traditional financial services. it is important therefore to deeper understand the underlying service value that determines customer choice behavior to use mobile financial for market success and sustainability. their study results are relevant for attracting prospective users and give insights for managers to attain and sustain competitiveness in the mobile financial services market. mutsonziwa (2016) find out that mobile money in the sadc (southern africa development community) region is significantly increasing financial inclusion. while some people are benefiting mobile money services, it is crucial to point out that there are people who do not have access to services from formal financial system. poverty is a main explanatory factor for not using mobile money services. mutsonziwa & maposa (2016) revealed that mobile money in zimbabwe came out at the good moment and users are now enabled to access financial services in an efficient, reliable, secure and cost effective manner. kulondwa safari 24 3. data and methods 3.1. data collection we used questionnaires and interview as data collection instruments. 100 people who are using mobile money services were interviewed within the city of bukavu and the choice of the person to interview was random. they filled the questionnaires themselves or with the help of the interviewer. 3.2. analysis of data approach having regard to the gaps in the literature, the objective of this paper is to conduct and report the findings of a swot analysis of mobile money services in drc. the acronym swot represents strengths, weaknesses, opportunities, and threats (azubuike et al., 2018). we carried out a swot analysis to analyze the positive and negative factors as well as internal and external factors that might have affected the growth of mobile money use in drc. this method has been used by many authors in their studies. a swot analysis (also called swot matrix) is a structured planning method used to examine the strengths, weaknesses, opportunities, and threats associated with a project, a firm or any other business activity (shi, 2016). piercy, giles, piercy, & giles (1998) argued that swot analysis is the most used practical analytical tool for strategic planning by executives and consultants. 4. results and discussion this section presents the different outcomes from our study in line with our research objectives. the characteristics of our respondents, the swot matrix as well as the tows matrix are presented in this section. 4.1. characteristics of respondents 4.1.1. demographic characteristics table 4.1. variables frequency percentage marital status married 30 30% single 59 59% divorced 11 11% total 100 100% education primary school 3 3% high school 22 22% university 75 75% total 100 100% sex male 68 68% female 32 32% total 100 100% figure 1 the table below shows that 30% of the people surveyed were married while 59% were single. the majority 75% hold a university degree, while 22% hold only a high school degree. the male was 68%, while the female was 32%. financial inclusion in africa through mobile money services: a swot analysis of mobile money services: evidence from bukavu in dr congo 25 4.1.2. economic characteristics table 4.2. variables frequency percentage employment status employed 8 8% self employment 29 29% unemployed 15 15% student 48 48% total 100 100% monthly income 0 to 100$ 58 58% 101 to 250$ 18 18% 251$ to 500$ 15 15% 501 tp 1000$ 5 5% 1000$ and more 4 4% total 100 100% the figure shows that 66% of people interviewed were employed and 15% unemployed, 48% were student. most of people in our sample are earning less than 100$ per month. this is because mobile money is mostly used by low income people. table 4.3. variables frequency minimum maximum mean numbers of years as user 100 1 5 2,27 amount of transanction 100 1 200 19,73 amount of savings 100 1 500 34,06 this table shows that the average years of use of mobile money services is 2.27, this indicates that the services money is a new service in the area. the maximum of transactions is valued to 200 us dollar, this prove that until now mobile money service is used mostly for transactions with limited amount and small transactions. 4.2. usage of mobile money services table 4.4. variables frequency percentage mobile money services provider airtel money 67 50% orange money 16 16% m-pesa 17 34% total 100 100% mobile money transaction used mostly money transfer 30 30% deposit/ savings/withdrawls 44 44% purchase of goods and services 8 8% buying airtime 18 18% total 100 100% kulondwa safari 26 raison of using mobile money speed in use 25 25% its accessibility 39 39% its low cost 11 11% more easy to use 17 17% get discount and bonus 8 8% total 100 100% owning a bank account yes 53 35% no 47 65% total 100 100% mobile money providers operating in bukavu are airtel money, m-pesa, orange money respectively for 50%, 34%, and 16%. airtel money is the service which is mostly used in bukavu town. people use mobile money services mostly for savings followed by money transfert, purchase airtime and last purchase goods/services. okello et al., (2018) find out that savings and withdrawls transactions are leading financial services transacted through mobile money in uganda; while narteh, mahmoud, & amoh (2017) find out that in ghana money transfert via mobile money is the most used service. most of people use mobile money services for its accessibility. many people interviewed own also a bank account, this show that they are using mobile money not to substitute bank services, but to complete them. 4.3. swot matrix analysis the responses from interviews were compiled to get the matrix below. table 4.5. variables frequency percentage strenghts speed services 33 33% low cost of transaction 12 12% availability 36 36% accessibility 15 15% total 100 100% most people interviewed (36%) find that it is easy to use mobile money services anytime and anywhere using their mobile phones. the transaction reflects directly in the phone of customers. the availability of the service anywhere is also relevant for customers and the service can be used anywhere depending of the availability of the network. some customers consider also the service as cheap. weaknesses difficulty of access 22 22% high transaction cost 28 28% liquidity problems 17 17% lack of information 33 33% total 100 100% according to 33% of our respondents the first weakness of mobile money is the lack of information for non-users. most of people are not enough informed about mobile money services. our respondents argued that the service is expensive. the charge for sending money or withdrawal money is expensive. in some areas it’s difficult to access mobile money services, especially deposits and withdrawal due to the long-distance needed to cover in order to reach an agent of mobile money services for that particular purpose. the problem of liquidity is also relevant due to the fact that a customer who needs to deposit or withdraw money have to visit many agents sometimes because the first agent doesn’t have enough money in his account or enough cash to deliver. financial inclusion in africa through mobile money services: a swot analysis of mobile money services: evidence from bukavu in dr congo 27 table 4.6. variables frequency percentage opportunities quick growth 16 16% easy adoption 16 16% possibility of diversification 27 27% change of attitude/mentality 41 41% total 100 100% the first opportunity of mobile money services is the change of customer’s attitudes according to our respondents (41%). people have understood the advantage of the service and have adopted it easily. our respondents argued that the mobile money services are growing, people adopt it easily and accounts are easily created, hence there is a huge potential for the market to grow. they explained that mobile money services providers can diversify the activity and add other services like loans, payment methods… threats exchange rate instability 21 21,0 network disturbance 39 39,0 cyber attack 19 19,0 bankrupt of financial institutions 21 21,0 total 100 100% according to 39% of our respondents, disturbance of the network could lead people to abandon the service. it happens to not access airtime balance check for a while when there is a network disturbance. respondents are expecting the same risk for their mobile money accounts. the instability of the exchange rate could discourage people to use mobile money services especially the account in national currency. people fear cyber-attack and are expecting risks related to cyber-attack for mobile money services, they are not very sure about the security of the system. it happens in the past for some network operators to go bankrupt or to be sold in the region. using financial services based on a network operators sound very secured for customers. 4.4 tows matrix with regards to the swot matrix, it’s relevant to propose some strategies to make the mobile money services more efficient. tows matrix is used to ascertain the different strategies. according to suhana m., sedigheh m.i, suhaiza z.i, (2017) the matrix could be used by managers and consultants to examine the situation and develop key strategies as well as actions to undertake. the dimensions of tows matrix are shown as below:  s-o (strengths-opportunities): give key strategies that could maximize the strengths by taking advantage of external o