Financial Derivatives Inflows and the Performance of Selected Financial Service Firms in African Economies

Abstract

This study examined the impact of financial derivatives inflows on the performance of selected financial service firms in Africa economies, focusing on Nigeria and South Africa from 2013 to 2024, using the Panel Autoregressive Distributed Lag (ARDL) approach. The selected financial services firms in Nigeria are Guaranty Trust Bank Limited, United Bank for Africa Limited, Zenith Bank Limited, and Stanbic IBTC Bank Limited, while ABSA Bank (a member of the Barclays Group), Capitec Limited, FirstRand Limited, and Standard Bank of South Africa were selected for South Africa. The variables used to represent financial derivatives inflows include financial derivatives assets and the ratio of derivatives to other money market instruments. Return on Assets (ROA) was employed as a measure of firm performance. The selection of these variables was guided by established economic theories and earlier empirical studies. An ex post facto research design was adopted for the study. Unit root tests and a Panel data Autoregressive Distributed Lag (ARDL) model were used to determine the impact of the explanatory variables on firms' performance. The unit root test indicated mixed integration orders among the variables, justifying the application of the Panel ARDL model. Using the short-run Panel ARDL estimates, the results revealed that derivative assets have a positive, statistically significant effect on the performance of financial services firms in Nigeria and South Africa. For the ratio of derivatives to other money market investments, the finding revealed that the ratio has a negative, statistically insignificant influence on the performance of financial services firms in Nigeria and South Africa. The study concluded that financial derivatives inflows have a significance effect on the performance of financial services firms in African economies. The study recommends that financial service firms in African economies. Firms should focus on derivative assets that generate fair-value cash inflows, especially those used for effective trading or hedging. Enhancing expertise in derivative valuation and management can help capitalize on these positive effects across different market environments.