Global investor sentiment and bank performance: Evidence from African banks

Damilola Tope Oyetade; Hilary Tinotenda Muguto; Paul-Francois Muzindutsi

doi:10.37075/FABA.2024.2.05

Authors

Damilola Tope Oyetade School of Accounting, Economics and Finance, University of KwaZulu-Natal, South Africa https://orcid.org/0000-0003-0120-5385
Hilary Tinotenda Muguto School of Accounting, Economics and Finance, University of KwaZulu-Natal, South Africa https://orcid.org/0000-0003-2367-3980
Paul-Francois Muzindutsi School of Accounting, Economics and Finance, University of KwaZulu-Natal, South Africa https://orcid.org/0000-0002-4819-8218

DOI:

https://doi.org/10.37075/FABA.2024.2.05

Keywords:

Bank profitability, investor sentiment, behavioural finance, African banks, bank risk management

Abstract

Purpose: This study aims to address the underexplored implications of investor sentiment on the performance of banks operating in African economies. It investigates how investor sentiment affects bank performance across different regulatory frameworks, market conditions, and bank-specific attributes.

Design/Methodology/Approach: Using panel data from 35 commercial banks listed on African stock exchanges from 2000 to 2022, this study employs a fixed effects model to assess the impact of investor sentiment on bank performance.

Findings: The findings indicate that investor sentiment positively impacts bank performance. This relationship is further influenced by bank-specific attributes, regulatory frameworks, and market contexts. Notably, confidence in the Basel regulatory framework enhances this sentiment-performance relationship, underscoring the importance of compliance for attracting investment.

Practical Implications: The results suggest several key policy implications: policymakers can utilize these insights to promote stable regulatory environments that support positive investor sentiment. Basel compliance further strengthens investor confidence, which contributes to improved bank performance in African banks. Bank managers can integrate sentiment analysis into their risk management strategies to anticipate shifts in investor confidence, thereby mitigating performance volatility and ensuring sustainable profitability.

Originality/Value: This study contributes to the literature by highlighting the significant role of investor sentiment in influencing bank performance within the African context. It emphasizes the importance of regulatory frameworks and sentiment-driven market dynamics in emerging economies, offering valuable insights for policymakers and bank managers aiming to enhance financial stability.

Paper Type: Research Paper

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