The Impact of Burkina Faso’s Military Coup on Ghanaian Banks Stock Valuation: An Event Study

Abstract

The study aimed to investigates how political instability in neighboring countries influences stock Valuation and investors sentiment in emerging markets and the moderating role played by proper mix of capital structure, financial slack and the Covid-19 pandemic on this impact. This topic has become important given the current political tension amongst nations and how they impact business operation. Moreover literature on political instability in Africa specifically in Ghana from a neighboring country is lacking.

To calculate our dependent variable Cumulative Abnormal Returns(CAR) we collected daily stock price data of 8 listed Ghanaian banks for the event window.  We tested the moderating effects of financial slack represented by debt-to-equity, capital adequacy ratio and quick ratio on Cumulative Abnormal Returns using R statistical together with excel.

The finding reveals that mean Cumulative Abnormal Return pre event was negative at -4.19% suggesting that investors sentiment was already negative before the coup, on the event day banks recorded a slightly positive mean of at 1.48% reflecting the market reassessment of stabilization as investors reacted to the news, the post event Cumulative Abnormal Returns increased to 5.72% showing that the impact of the coup continued even after the coup , meaning investors may have shifted their assets to Ghana in search of stability. Furthermore the findings reveals that  maintaining excess liquidity and keeping the right mix of debt to equity and Capital adequacy do not moderate the impact of the coup on Cumulative Abnormal Returns. In a more striking finding the covid-19 pandemic was seen to have significantly moderated the effect of the coup on Cumulative Abnormal Returns with a p-value of 0.000127.Indicating that when two major events occur simultaneously, it is crucial to analyze both to prevent misattributing observed effects to a single event