1.foreign Direct Investment and Its Effect On The

Business Intelligence Journal
July, 2011 Vol.4 No.2

Volume 4 - Number 2 - July 2011 - Semiannual Publicaion
The Business Intelligence Journal (BIJ) is published by the Business Intelligence Service of London, UK (BIS) in collabo-
raion with the European Business School (Cambridge, UK) and the Business Management and Economics Depart-
ment at the School of Doctoral Studies of the European Union (Brussels, Belgium), as semiannual open access content
publicaion.
Editorial Note 202

Words from the Board of Editors 203
Proile of Authors Included in this Number 204
Information for Contributors 206
Articles Banking Proitability Determinants 209
James W. Scott, José Carlos Arias

The Strategic Impact of the Business Dynamics in Emerging Countries on Contemporary Perspectives 231
Walter Gerard Amedzro St-Hilaire

E-Banking Patronage in Nigeria: An Exploratory Study of Gender Difference 243
Asikhia, Olalekan
Foreign Direct Investment and its Effects on the Nigerian Economy 253
Omankhanlen Alex Ehimare

Artiicial Learning and Support Vector Machines: Default Risk Prediction 262
Fabio Franch
Revaam Model Applied to Multiple Valuation Comparison Among Different World Regions 273
Carlos Acosta-Calzado
Marketing Principles of a Neglected Banking Service: Safe Deposit Box Rental 293
Monireh Panahi, Mohammad Pakeniat

Strategic Marketing and Firms Performance: A Study of Nigerian Oil and Gas Industry 303
Akinyele, S.T.
Intuitive Managerial Decision Making in Malaysia and the United States 312
Isola Oluwabusuyi
Franchising and Organizational Performance: Empirical Investigation of Selected Fast Food Restaurants 320
in Nigeria
Olu Ojo, I. A. Irein
Relationship between Rewards and Employee’s Motivation in the Non-Proit Organizations of Pakistan 327
Nadia Sajjad Haiza, Syed Sohaib Shah, Khalid Zaman, Humera Jamsheed
Comparing Bankruptcy Prediction Models in Iran 335
Ali Ebrahimi Kordlar, Nader Nikbakht
Continued on back cover
Business Intelligence Journal - July, 2011 Vol.4 No.2

© Copyright 2011: IIU Press and Research Centre A.C.
This is an open access content publication recognized by the Scholarly Publishing and Academic Resources Coalition
of the European Union (SPARC Europe) and distributed worldwide by the Directory of Open Access Journals
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ISBN: 978-1-4251-8179-6
ISSN: 1918-2325
Vol. 4 No. 2
Strategic Inluence of Promotional Mix on Organisation Sale Turnover in the Face of Strong Competitors 343
July 2011
Continued From Front
Cover
Adebisi Sunday A. , Babatunde Bayode O.
The Practicability of Activity-Based Costing (ABC) in the Nigerian Retail Banks 351
Ahmed Audu Maiyaki
Social Support as Mental Health Improver for Managerial Women in the Organizational Work
355
Environment
Jocelyn Sackey, Mohammed-Aminu Sanda
Case Studies Three Case Studies On Bank Nagari Padang (Indonesia) Headquarters And Main Branch 362
Heryanto
Organizational Communication as an Important Factor of Company Success: Case Study of Bosnia And
390
Herzegovina
Kenan Spaho
Short A Short Communication on - How a Leading Power Distribution Company Effectively Tracks business
areas like Safety, Finance and Operation for Region and Business wise for evaluating their KPI’s - Using
Communications BusinessObjects Xcelsius Dashboards.
394
Rakesh Tej Kumar Kalahasthi, Benson Hilbert

Modeling Strategies for Financial Hedging 402
José Carlos Arias
Announcements 405
2011 Business Intelligence Journal 202
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Words from the Board of Editors
The Business Intelligence Journal has come a long way since its irst issue appearance on July 2008 as it reaches the last
number of its fourth Volume with this July 2011 edition.
Because of obvious needs of higher quality and low budget, at the beginning the Business Intelligence Journal’s collaboration
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Most cordially,
The Editorial Board

204 Business Intelligence Journal July
Profile of authors included in this number
Article 1: Banking Proitability Determinants

Author: 1 - James W. Scott – (PhD) Researcher at the Business Intelligence Research Centre of hosted at the Business Intelligence
Service, London, UK.
email: scott.j@bis.org.uk
2 - José Carlos Arias – (PhD) In Science by the school Robert de Sorbon, Paris, France, Professor of Management Science at
the European Business School, Cambridge, UK.
email: josecarlosarias@saycocorporativo.com
Article 2: The Strategic Impact of the Business Dynamics in Emerging Countries on Contemporary Perspectives
Author: Walter Gerard Amedzro St-Hilaire – (PhD) Researcher on Strategy and Governance of Public Organizations in HEC
Montréal, Researcher for the Research Center on the Governance of Natural Resources.
email: walter-gerard.amedzro@hec.ca
Article 3: E-Banking Patronage in Nigeria: An Exploratory Study of Gender Difference
Author: Asikhia, Olalekan – Senior Lecturer, Department of Business Studies, College of Business and Social Sciences, Covenant
University, Ota, Canaan land.
email: mailasikola@yahoo.com
Article 4: Foreign Direct Investment and its Effects on the Nigerian Economy
Author: Omankhanlen Alex Ehimare – Lecturer at the Department of Banking and Finance, Covenant University, Ota, Ogun State,
Nigeria.
email: alexehimare@yahoo.com
Article 5: Artiicial Learning and Support Vector Machines: Default Risk Prediction
Author: Fabio Franch – (PhD) from West Virginia University and studied at University of Trento, where he successfully completed his
studies (BA and MA) in 2007. He was also an exchange student at the Abo Akademi in Turku, Finland. His interests are machine
learning and the dynamic analysis of economic phenomena.
e-mail: ffranch@mix.wvu.edu
Article 6: Revaam Model Applied to Multiple Valuation Comparison Among Different World Regions
Author: Carlos Acosta Calzado – (MBA) BS in Industrial Engineer from ITESM, MBA with focus on Finance and Economics from
NYU Stern. He is currently partner at Ibkan Consultants, Investment Banking.
e-mail: cacosta@ibkan.mx
Article 7: Marketing Principles of a Neglected Banking Service: Safe Deposit Box Rental
Author: 1 - Monireh Panahi – (PhD) candidate in Strategic Management in Shahid Beheshti University. Marketing consultant; author
of articles on marketing and strategic management in Iranian journals. School of Management & Accounting, Shahid Beheshti
University, Daneshjoo Blvd., Evin,
email: m.panahi@sbu.ac.ir
2 - Mohammad Pakeniat – Researcher in SRRC, Sharif University of Technology. MBA from School of Management &
Economics, Sharif University of Technology. Business consultant and researcher in the ields of strategic management in
developing countries and service marketing. Shahid Rezaii Research Center, Sharif University of Technology, Azadi Avenue,
Tehran, Iran
email: Pakniat@samasamaneh.com
Article 8: Strategic Marketing and Firms Performance: A Study of Nigerian Oil and Gas Industry
Author: Akinyele, S.T. – (PhD) School of Business, Covenant University,Ota-Nigeria.
email: akinsamolu2000@yahoo.com
Article 9: Intuitive Managerial Decision Making in Malaysia and the United States
Author: Isola Oluwabusuyi – (MBA, MA, DBA) School of Business and Accounting Brown Mackie College, Atlanta.
email: oluwabusuyi5@yahoo.com

Article 10: Franchising And Organizational Performance: Empirical Investigation Of Selected Fast Food Restaurants In Nigeria
Author: 1 - Olu Ojo – Department Of Business Administration College of Management and Social Sciences Osun State University P.
M. B. 2008, Okuku Osun State, Nigeria
email: oluojoe@yahoo.com
2 - I. A. Irein – Technology Planning and Development Unit Obafemi Awolowo University Ile-Ife, Osun State, Nigeria.
email: iirein@oauife.edu.ng
Article 11: Relationship Between Rewards and Employee’s Motivation in the Non-Proit Organizations of Pakistan
Author: 1 - Khalid Zaman – Assistant Professor, Department of Management Sciences, COMSATS Institute of Information Technology,
Abbottabad, Pakistan.
email: khalidzaman@ciit.net.pk, Khalid_zaman786@yahoo.com
2 - Nadia Sajjad Haiza, Syed Sohaib Shah, Humera Jamsheed – MS Scholar, Department of Management Sciences,
COMSATS Institute of Information Technology, Abbottabad, Pakistan.
Article 12: Comparing Bankruptcy Prediction Models In Iran
Author: 1 - Ali Ebrahimi Kordlar – Faculty of management, Tehran university, Tehran, Iran.
2 - Nader Nikbakht – Faculty of management, Tehran University, Tehran, Iran.
email: Nikbakht1389@gmail.com
Article 13: Strategic Inluence of Promotional Mix on Organisation Sale Turnover in the Face of Strong Competitors
Author: 1 - Adebisi Sunday A. – (PhD) Department of Business Administration, Faculty of Management sciences
University of Ado Ekiti, P.M.B 5363, Ekiti State Nigeria.
email: yommysun@yahoo.com
2 - Babatunde Bayode O. – Department of Business Administration, College of Management and Social Sciences, Osun State
University, P.M.B 2008, Okuku, Osun State, Nigeria.
email: bayoogoga@yahoo.com
Article 14: The Practicability of Activity-Based Costing (ABC) in the Nigerian Retail Banks
Author: Ahmed Audu Maiyaki – Department of Business Administration Bayero University Kano, Nigeria.
email: aamaiyaki@yahoo.com
Article 15: Social Support as Mental Health Improver for Managerial Women in the Organizational Work Environment
Author: 1 - Jocelyn Sackey, MPhil – Department of Business Administration, Technology and Social Sciences
Luleå University of Technology.
2 - Mohammed-Aminu Sanda – (PhD) Division of Industrial Work Environment, Department of Business Administration,
Technology and Social Sciences, Luleå University of Technology.
email: mohami@ltu.se
Case Studies 1: Three Case Studies On Bank Nagari Padang (Indonesia) Headquarters And Main Branch
Author: Heryanto – (PhD) Chief of RfD of the Chamber of Commerce and Industry; Professor of Mangement Science in Indonesia.
email: dr_heryanto@yahoo.com
Case Studies 2: Organizational Communication As An Important Factor Of Company Success: Case Study Of Bosnia And Herzegovina
Author: Kenan Spaho – Center for Techological and Economical Development. Sarajevo, Bosnia and Herzegovina.
email: spaho@energoinvest.com
Short Communi- A Short Communication on - How a Leading Power Distribution Company Effectively Tracks Business Areas Like Safety,
cations 1: Finance and Operation for Region and Business Wise for Evaluating their Kpi’s - Using Businessobjects Xcelsius Dashboards.
Author: 1 - Rakesh Tej Kumar Kalahasthi – SAP BI Practice, Bangalore, India.
email: rakeshtej@gmail.com
2 - Benson Hilbert – SAP BI Practice, Bangalore, India.
email: benhilbert.hilbert@gmail.com
Short Communi- Modeling Strategies for Financial Hedging
cations 2:
Author: José Carlos Arias – (PhD) In Science by the school Robert de Sorbon, Paris, France, Professor of Management Science at the
European Business School, Cambridge, UK.
email: josecarlosarias@saycocorporativo.com
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2011 James W. Scott, José Carlos Arias 209
BANKING PROFITABILITY DETERMINANTS

James W. Scott (PhD)
Researcher at the Business Intelligence Research Centre of hosted at the Business Intelligence Service, London, UK
2nd Floor, 147 St. John Street, London, UK
Email: scott.j@bis.org.uk
José Carlos Arias (PhD, DBA)

Professor of Management Science at the European Business School, Cambridge, UK,
Email: josecarlosarias@saycocorporativo.com
Abstract
Notwithsanding the enormously complex and dynamic nature of the environment in which they compete, there is a growing body
of evidence that suggests it is possible to discern relevant indicators of profitability for the banking industry today. The purpose of this
study was to develop an appropriate econometric model whereby the primary determinants of profitability of the top five bank holding
companies in the United States could be examined and understood. To accomplish this purpose, an econometric model based on internal
aspects of the banking organizations as they related to their return on assets and external aspects of the environment in which they
compete as measured by growth in GDP was developed based on guidance provided by economists and industry experts to determine
the impact of the external national economy of these five leading banks according to their size as measured by total assets. A critical
review of the relevant peer-reviewed, scholarly and organizational literature is followed by an analysis of the statistical data for these
bank holding companies using the econometric model. A summary of the research and salient conclusions are provided in the concluding
chapter. Key words: Finance, Economics, Banking, Profits, Profitability Measurements.
The banking industry in general has experienced some has been a dearth of research concerning the potential
profound changes in recent decades, as innovations in inluence of the macroeconomic environment, due in
technology and the inexorable forces driving globalization part to the small time dimension of the panels used in the
continue to create both opportunities for growth and estimation (Athanasoglou et al., 2005).
challenges for banking managers to remain proitable in Other factors that have constrained the research to date
this increasingly competitive environment. Most of the include the fact that the econometric methodology used
studies concerning bank proitability to date, including in the study was not adequately described and/or failed to
Short (1979), Bourke (1989), Molyneux and Thornton account for some features of bank proits which suggest
(1992), Demirguc-Kunt and Huizinga (2000) and Goddard, that the estimates obtained by these studies may have
Molyneux, and Wilson (2004b), have employed different been biased or inconsistent (Athanasoglou et al., 2005).
linear models to estimate the impact of various factors Nevertheless, studies have amply demonstrated the ability
that could be signiicant in terms of explaining proits. of models to better understand what fuels proitability in
According to Athanasoglou and his colleagues (2005), inancial services organizations, and this represents the
these studies were seminal in demonstrating the feasibility purpose of the study which is described further below.
of conducting a meaningful analysis of the determinants The general purpose of this study was to develop an
of bank proitability, but some of the methods used by appropriate econometric model whereby the primary
these studies failed to take into account the robust and determinants of proitability of the top ive bank holding
dynamic nature of the economic environment in which they companies in the United States could be examined and
competed. Moreover, the studies to date have primarily understood. The speciic purpose of this study was to
considered determinants of proitability at the bank and/ determine the impact of the external environment in which
or industry level, with the choice of variables used lacking the ive leading bank holding companies in the United
internal consistency in some instances; in addition, there States (as of June 2007) as measured by real growth in GDP
Scott J. W., Arias J. C. - Banking Proitability Determinants

compared to internal aspects of the respective organizations gains attained through size, the adoption of entry-deterring
as measured by their return on assets as an indicator of strategies, or the exercise of other forms of market power”
proitability. (p. 1069). Likewise, as noted above, a number of studies
This study reviewed the peer-reviewed, scholarly have demonstrated the feasibility of using bank-level data
and organizational literature as it applied to the banking to investigate proitability determinants. In addition, the
industry in general and to the United States in particular research to date also suggests that banking irms are one of
to identify recent trends, determinants of proitability for the best places to test for the effects of various proitability
inancial services organizations, and to provide the requisite factors such as technological innovation. In this regard,
background to developing a straight-forward econometric Berger and Deyoung (2006) emphasize that, “Banks
model that could be used to analyze bank-level data for the have embraced substantial advances in both physical and
nation’s ive leading bank holding companies as measured inancial technologies during the past two decades, and
by total assets. the broader industry category of which banking is a part,
According to Goddard and his colleagues (2004a), in Depository and Nondepository Financial Institutions, is
spite of the growing body of research into determinants the most information technology-intensive industry in the
of banking proitability, there remains a paucity of studies United States” (p. 1483).
that have investigated the speciic relationship between This study used a ive-chapter format to achieve the
organizational size and its impact on proitability. These above-stated research goals. The irst chapter introduced
authors report that, “Previous studies of the dynamics of the topics under consideration and provided a statement
growth on the one hand, and proit on the other, have in of the importance of the study, its importance and scope,
the main developed separately, and followed contrasting as well as its supporting rationale. The second chapter of
empirical methodologies. Nevertheless, there are several the study consists of a critical review of the relevant peer-
theoretical arguments to suggest that these two performance reviewed, scholarly and organizational literature. The third
indicators are closely related. [However], few researchers chapter more fully describes the econometric methodology
have tested for empirical relationships between growth and used to analyze the proitability of the top ive banks in the
proit directly” (Goddard et al., 2004a p. 1069). Moreover, United States today, and chapter four presents the analysis
as Cover (1999) emphasizes, the need for identifying of the data. Finally, chapter ive provides a summary of the
determinants of proitability in the banking industry has research, salient conclusions and recommendations.
never been greater: “As banks move into the twenty-irst
century, they must focus more than ever before on creating Review of Related Literature
new streams of revenue in order to shareholder value.
Crucial to this effort is the need to assess and analyze the Background and Overview.
proitability of the bank’s current customers, relationships,
services, and products. It is only through such analyses that On the one hand, the banking industry today enjoys a
banks can determine which customers to ight for, which number of advantages compared to past years that would
customer relationships to expand, and which prospective appear to contribute to their ability to generate proits.
customers to pursue” (p. 78). According to Berger and Deyoung (2006), the banking
The rationale that guided this study was that the larger industry in the United States has been in a constant process
the bank holding company, the more impervious it would of geographic expansion in recent years, both within
be to downturns in the external environment as measured nations and across nations. These authors report that, “At
by real growth in GDP. Larger inancial services companies one time, nearly all customers were served by locally
enjoy a wide range of advantage by virtue of economies of based institutions. In contrast, it is now much more likely
scale, accumulated tacit knowledge and expertise as well that the bank or branch providing services is owned by an
as the resources needed to continue their expansions into organization headquartered a substantial distance away,
foreign markets where barriers to entry may be prohibitive perhaps in another state, region, or nation” (p. 1483).
for smaller players in the market. For example, according to As an example, these authors note that between 1985
Goddard, Molyneux and Wilson (2004), “Previous studies and 1998 the distance between the largest bank and the
of the determinants of concentration have proposed various other afiliate banks in U.S. multibank holding companies
explanations as to why some irms grow and attain large (MBHCs) increased by over 50 percent on average, from
size. These include economies of scale or scope, eficiency 123.35 to 188.91 miles, as a number of MBHCs acquired
banks in other states and regions (Berger & Deyoung, 2006). A “retarded” inancial services industry, in this sense,
Moreover, the banking industry, like any other industry, will can represent a major impediment to a nation’s overall
experience potential diseconomies to geographic expansion real economic performance. Such retardation represents
in the form of agency costs associated with monitoring a burden on the inal consumers of inancial services and
junior managers in a distant locale; however, innovations potentially reduces the level of private and social welfare. It
in information processing and telecommunications may also represents a burden on producers, by raising their cost
lessen these agency costs by improving the ability of senior structures and diminishing their competitive performance in
managers located at the organization’s headquarters to domestic and global markets (Saunders and Walter, 1998).
monitor and communicate with staff at distant subsidiaries Therefore, any such retarded inancial services industry
(Berger & Deyoung, 2006). skews the trends involved in the resource allocation in the
In the modern banking industry, technologies such as national economy.
ATM networks and transactional Internet websites allow Financial system ineficiencies can be traced to a number
banks to interact more eficiently with their customers of factors:
regardless of geographic proximity; furthermore, recent
innovations in inancial technologies provide the capacity 1. Regulations that prevent inancial irms from complete
to provide these services using long-distance interfaces with access to alternative sources of funding or the full range
customers. According to Berger and Deyoung, “Greater of borrowers and issuers;
use of quantitative methods in applied inance, such as 2. Taxation imposed at various stages of the inancial
credit scoring, may allow banks to extend credit without intermediation process, including securities transfer
geographic proximity to the borrower by ‘hardening’ their taxes, transactions taxes, etc.;
credit information” (p. 1483). Likewise, new product mixes 3. Lack of competition that reduces incentives to cut
of inancial engineering, such as derivative contracts, may intermediation costs and promote innovation;
provide banks of all sizes to unbundle, repackage, or 4. Lack of market discipline imposed on owners and
hedge risks at lower costs without regard to the geographic managers of inancial intermediaries, leading to poor
proximity to the other party (Berger and Deyoung, 2006). risk management, agency problems, and increased
These inancial innovations may also provide senior banking costs; and,
managers with the ability monitor the decisions made by loan 5. Existence of major information imperfections among
oficers and managers at distant afiliate banks more easily, contracting parties (Saunders and Walter, 1998).
and to evaluate and manage the contributions of individual
afiliate banks to the organization’s overall returns and risk National inancial systems that are statically and/
more eficiently as well (Berger & Deyoung, 2006). or dynamically ineficient tend to be disintermediated.
On the other hand, these same trends have introduced Borrowers or issuers in a position to do so seek foreign
some additional constraints on the banking industry as markets or offshore markets that offer lower costs or a
they seek to maintain their existing market share and grow more suitable range of products. Investors likewise seek
their companies along multinational lines. In this regard, markets abroad that offer higher rates of return or improved
Saunders and Walter (1998) report that, “Financial systems opportunities to construct more eficient portfolios.
that are deemed ineficient or incomplete are characterized These types of systems can be described as being
by a limited range of inancial services and obsolescent either “uncompetitive” or “unattractive” as venues for
inancial processes. Both static and dynamic eficiency are inancial intermediation in the context of global markets;
of obvious importance from the standpoint of national and nevertheless, individual inancial services institutions may
global resource allocation, not only within the inancial be able to cross-subsidize foreign activities from abnormal
services industry itself but also as it effects users of proits earned domestically for a period of time (Saunders
inancial services” (p. 19). In other words, because inancial and Walter, 1998).
services can be regarded as being “inputs” to the overall The delivery of inancial services can be conceptualized
production process of a country, the level of national output as a market structure that combines three principal
and income -- as well as its rate of economic growth -- are dimensions in the delivery of inancial services in terms of
directly affected by the eficiency characteristics of the the clients served (C), the geographic arenas where business
inancial services sector (Saunders and Walter, 1998). is done (A), and the products supplied (P) (Saunders and

Walter, 1998). In this regard, Figure 1 below illustrates Moreover, economies of scope indicate there has been
these dimensions in the form of a matrix of C X A X P cells an effort made to broaden inancial services activities
wherein individual cell characteristics can be analyzed in across cells; in other words, a bank can produce a given
terms of conventional competitive structure criteria. level of output in a given cell more inexpensively or market
it more effectively than institutions that are less active
Figure ___. The Client-Arena-Product (C-A-P) Matrix. across such multiple cells; however, this depends on the
beneits and costs of linking cells together in a coherent
fashion (Saunders and Walter, 1998).
In this regard, regulation of inancial services can be
viewed as having an important inluence in terms of:
1. Accessibility of geographical arenas;

2. Accessibility of individual client groups by players
originating in different sectors of the inancial services
business; and,
3. Substitutability among inancial products in meeting
personal, corporate, or government inancial needs
(Saunders and Walter, 1998).
Financial intermediaries are clearly sensitive to

incremental competition in C-A-P cells as illustrated in
Source: Saunders and Walters, 1998 at p. 20. Figure __ above, particularly where economic entry barriers
are limited (Saunders and Walter, 1998). Furthermore,
The inherent attractiveness of each cell to the suppliers “Market penetration by competitors can erode indigenous
of inancial services is inextricably related to the size of players' returns and raises protectionist motivations.
the prospective risk-adjusted returns that can be extracted Given the economic interests involved, banks and other
from it; in addition, the durability of returns generated will inancial institutions are in an excellent position to convert
depend on the ability of new players to enter the cell and the them into political power in order to achieve protection
development of substitute products over time (Saunders and against potential rivals. They are often exceedingly well
Walters, 1998). Based in large part on recent innovations in connected politically, and their lobbying power motivated
technology and inancial deregulation, competitors in the by protectionist drives can be awesome” (Saunders and
inancial services industry are confronted with expanded Walter, 1998 p. 21).
potential access to each dimension of the C-A-P opportunity Competitive distortions in the inancial services industry
set (Saunders and Walters, 1998) take the form of entry barriers and operating restrictions. In
To achieve maximum proitability, these authors terms of Figure 1 above, entry barriers tend to restrict the
recommend that inancial services companies allocate their movement of inancial services irms in the lateral "arenas"
available resources to those C-A-P cells in Figure 1 that dimension of the matrix; a inancial services organization
promise to provide them with the highest risk-adjusted that is locked out of a particular national market does not
returns. According to these authors, though, “In order to do enjoy the same level of lateral opportunity set that excludes
this, they will also have to allocate capital, costs, returns, and the relevant segment of "client" and "product" cells
risks appropriately across cells. Beyond this, however, the (Saunders and Walter, 1998).
economics of supplying inancial services internationally Assuming that a inancial services organization has
is jointly subject to economies of scale and economies successfully gained access to a particular arena, there are
of scope. The existence of both types of economies have a number of operating restrictions that carry the potential
strategic implications for players in the industry; indeed, to constrain either the depth of service it can supply
economies of scale suggest an emphasis on deepening the to a particular cell (e.g., lending limits, stafing limits,
activities of individual irms within a cell, or across cells restrictions on physical location) or in the feasible set of
in the product dimension” (emphasis added) (Saunders and cells within the tranche (e.g., limits on services banks or
Walter, 1998 p. 21). securities irms are allowed to supply and the client groups
they are allowed to serve). Operating restrictions in turn market banks (GTA [less than or equal to] $1 billion, ofices
can be subclassiied in terms of whether they place limits in only one market) decreased by approximately two-thirds
on the kinds of inancial services that may be sold locally from 60 percent to 19 percent (Berger et al., 2007).
(Type A) or the speciic client-groups that may be served As shown in Table 1 below, the number of banks
(Type B). According to these authors, “Operating limits decreased by more than 6,000, while the percentage of total
may severely reduce proitability associated with the arena assets held by the largest banks doubled; as a result, 82 large
concerned, while creating signiicant excess returns for the banks representing less than 1 percent of the total number
protected industry; regulators may also tolerate a certain of banks now hold more than two-thirds of all bank assets:
amount of anticompetitive, cartel-like behavior on the part
of domestic inancial institutions” (Saunders and Walter,
1998 p. 21). Table 1.Banking Structure in the United States.
Economies of scope and scale may be signiicantly
constrained by entry and operating restrictions in a No. of Banks
No. of Total Assets % of Assets Held
Year w/Assets>$10
particular market, indicating the importance of the impact Banks ($ Billion) by Large Banks
Billion
of competitive distortions on horizontal integration in 2000 8,315 $6.2 82 70%
the inancial services industry. Under universal banking 1980 14,769 $1.9 18 34%
structures the entire C-A-P matrix is available to inancial
institutions in terms of their competitive positioning and
Source: FDIC cited in Gup, 2003 at p. 2.
execution, providing the potential -- absent anticompetitive
behavior -- for maximum static and dynamic eficiency
in the inancial system. Restrictions on entry by "it and Figure 2. No. of Banks in the United States: 2000 versus 1980
proper" players, regardless of whether they are domestic
or international, as well as limits on the business that may
be done and the clients that may be served, represent a 16,000
14,000
signiicant threat for eroding the domestic and international
12,000
performance of inancial institutions and of the national 10,000
economy as a whole (Sanders and Walters, 1998 p. 22). 8,000
As noted above, consolidation by acquisition or 6,000
otherwise in the banking industry in the United States from 4,000
2,000
1980 to 2000 is one of the most signiicant changes to affect
0
the industry in recent years (Gup, 2003). In their recent No. of Banks
study, “Competition from Large, Multimarket Firms and the
2000 1980
Performance of Small, Single-Market Firms: Evidence from
the Banking Industry,” Berger and his colleagues (2007) Source: Based on tabular data cited in Gup, 2003 at p. 2.
report that, “Over the last two decades, retail banking in
the U.S. has changed dramatically. Large banks that branch Figure 3. Total Assets of Banks in the United States (in $
across multiple local markets have signiicantly increased billion): 2000 versus 1980.
their share of local markets, and small banks that operate
$7.00
in a single market have experienced substantially reduced
$6.00
local market shares” (p. 331). In 1982, large, multimarket
$5.00
banks--banks with gross total assets (GTA) over $1 billion
$4.00
(real 1994 dollars) with branch ofices in more than one
$3.00
local market held 23 percent of local deposits in U.S.
$2.00
metropolitan markets; however, by 2000, this igures had
$1.00
almost tripled to 65 percent (Berger et al., 2007). During this
$0.00
same time period, shares in these markets of small, single- Total Assets ($ billion)
2000 1980
Source: Based on tabular data cited in Gup, 2003 at p. 2.

Figure 4. No. of Banks in the United States with Assets Greater 3. Innovations in communications technology;
than $10 billion: 2000 versus 1980. 4. Changes in information technology;
5. The desire to achieve economies of scale;
6. High stock prices used as currency in mergers, and,
100
7. Other factors (Gup, 2003).
80
60 In general, the consolidation involves large banks

within one country, cross-border bank consolidations, and
40
consolidations between banks and other types of inancial
20 institutions (Gup, 2003). Some of the “other factors”
0 identiied by Gup (2003) above include the need to respond
No. of Banks w/Assets > $10 Billion
to new competition from smaller bank that are able to
2000 1980 market higher proit products more eficiently than their
larger counterparts. These and others determinants of bank
performance are discussed further below.
Figure 5. Percentage of Assets Held by Large Banks in the Determinants of Bank Performance.
United States: 2000 versus 1980.
While virtually all of the studies reviewed herein
emphasize the need for yet more studies, there has been
70%
a growing body of evidence concerning the ability of
60%
50%
researchers to identify accurate determinants of bank
40% performance in recent years. Most of the studies on the
30% determinants of bank’s interest margin and proitability
20% have focused whether on a particular country (Berger,
10% 1995; Guru et al., 2002; Barajas et al., 2001; Ben Naceur
0%
% of Assets Held by Large Banks and Goaied, 2001) or on a panel of countries (Abreu and
Mendes, 2002; Demerguç-Kunt and Huizingha, 1999). The
2000 1980
empirical evidence for the United States has largely been
compiled by Berger (1995), Neeley and Wheelock (1997)
and Angbazo (1997) (all cited in Ben Naceur, 2003).
One study by Berger (1995) investigated the relationship
According to Toyne and Tripp (1998), reductions between the return on equity and the capital asset ratio for
in regulatory restrictions on interstate bank mergers a sample of banks in the United States for the period 1983-
and increased proitability in the banking industry have 1992; using the Granger causality model, this researcher
resulted in higher levels of merger and acquisition activity determined that the return of equity and capital to asset
in the United States in recent years. The trend towards ratio tend to be positively related. Similarly, Neeley and
consolidation in the banking industry, though, is certainly Wheelock (1997) studied the proitability of a sample of
not unique to the United States. For example, a study by the insured commercial banks in the US for the 1980-1995
central banks of the Group of Ten Nations (G-10) identiied period. These researchers determined that bank performance
a high level of concentration in all of the 13 countries they is positively related to the annual percentage changes in
investigated (Gup, 2003). These consolidations have been the state’s per capita income. Likewise, Anghazo (1997)
the result of the following: studied the determinants of bank net interest margins for a
representative sample of banks in the United States for the
1. Deregulation of geographic markets; period 1989-2003; the indings of that study showed that
2. Shifts in inancial technology (e.g., securitization and default risk, the opportunity cost of non-interest bearing
derivatives); reserves, leverage and management eficiency are also

all positively associated with bank interest spread (Ben Table 2 below provides a recapitulation of comparable
Naceur, 2003). studies of proitability indicators in the banking industry in
general, and in the United States in particular.
Table 2.Recapitulation of Proitability Determinants in the Banking Industry.
Author/Date/Title/
Key Findings Comments
Publication
Spindler, J. Andrew, Jonathan T. B. Howe, and In terms of size, U.S. banks fell consistently throughout the The authors report the results of a study by the Federal Reserve
David F. Dedyo. (1990, May). “The Performance period, especially against their Japanese competitors. The same Bank of New York attempted to assess the performance of 51
of Internationally Active Banks and Securities approximate pattern emerged with respect to revenue growth. banks and securities irms based in various countries (the
Firms Based on Conventional Competitiveness (The authors note that while a signiicant component of this United States, Canada, France, Germany, Japan, Switzerland,
Measures”. Federal Reserve Bank of New York, “size efect” is attributable to the decline in the value of the dollar and the United Kingdom) that were internationally active
Mimeo. against the yen and other major currencies over the period.) They during the second half of the 1980s. The performance
performed slightly below the sample mean on ROA, well below measures used include irm size (total assets and total revenue,
their Swiss, British, and Japanese counterparts. The same was true in real terms); proitability (return on assets [ROA] and return
of ROE in comparison with Japanese and French banks. In terms on equity [ROE]); productivity (ratio of total revenue to total
of productivity, U.S. banks fell into the middle of the range. On non-interest expense); and capitalization (as measured by
capitalization, U.S. banks were high in the rankings on the irst the ratio of shareholder equity to total assets, and the ratio of
measure cited above, but well behind Japanese, German, and market capitalization to reported earnings).
Swiss banks on the second.
Goddard, John, Phil Molyneux and John O.S. Empirical research concerning the dynamics of company The hypotheses tested in the persistence of proit (POP)
Wilson. (2004). “Dynamics of Growth and proitability is based on an account of the determinants of proit literature are that entry and exit are suiciently free to
Proitability in Banking.” Journal of Money, Credit that is an alternative to the essentially static Structure-Conduct- eliminate any abnormal proit quickly, and that all irms’ proit
& Banking, 36(6), 1069. Performance (SCP) paradigm; however, although the relevant rates tend to converge to the same long-run average value.
microtheory identiies SCP relationships applicable when markets The alternative is that some irms possess special knowledge
are in equilibrium, there is no certainty that a proit igure observed or other advantages enabling them to prevent imitation or
at any point in time represents an equilibrium value. block entry. If so abnormal proit may tend to persist from
year to year, and diferences in average proit rates may be
sustained indeinitely. Empirical tests of the POP hypothesis
in banking are few in number; however, recent studies have
presented extensive evidence of POP in U.S. banking.
Stiroh, Kevin J. (2004). “Diversiication in Banking: These researchers conclude that the banking industry is the The shift toward noninterest income has contributed to
Is Noninterest Income the Answer?” Journal of U.S. is steadily shifting away from traditional sources of revenue higher levels of bank revenue in recent years; there is also an
Money, Credit & Banking, 36(5), 853. such as loan making and toward activities that generate fee indication that it will lower the volatility of bank proit and
income, service charges, trading revenue, and other types of revenue and reduce risk.
noninterest income; while noninterest income has always played
an important role in banking revenue, there is a clear trend that it
is gaining importance. By 2001, noninterest income represented
43% of net operating revenue (net interest income plus
noninterest income), an increase from just 25% in 1984. Also note
that, “banks with higher noninterest income shares have lower
proitability per unit of risk” (p. 853).
Kaushik, Surendra K. and Raymond H. Lopez. Commercial banks and credit unions experienced growth in Authors also determined that credit union loan portfolios have
(1996) “Proitability of Credit Unions, Commercial assets faster than growth in loans during the 1990s; as a result, grown more rapidly than either commercial banks’ or savings
Banks and Savings Banks: A Comparative Analysis.” their investment portfolios have been increasing in absolute and institutions’ in recent years, and their net interest margins have
American Economist, 40(1), 66. relative size. “This tends to hold down proitability since margins consistently been above banks.
on loans are greater than those on investments” (p. 67).
Prendergast, C. (1993, March). “The Provision Studies have shown that some incentive structures may result Bank managers may be rewarded by the volume of loans rather
of Incentives in Firms.” Journal of Economic in dysfunctional behavior; this may occur more frequently when than their risk-adjusted proitability; numerous instances of
Literature, 7, 63. incentives within regulated inancial services companies relate to bank distress have been related to inappropriate incentive
volume and create a clear bias towards writing business. structures that created a bias in favor of the bank’s balance
sheet growth.
Grigorian, David A. and Vlad Manole. (2006). One of the methods used in the literature to evaluate productivity This method compares relative performance of decision-
“Determinants of Commercial Bank Performance and performance of banks is the data envelopment analysis (DEA), making units (DMU) (i.e., banks) by constructing a frontier
in Transition: An Application of Data Envelopment a non-parametric method that provides a framework in which it comprised of the most eicient DMUs and focusing on how
Analysis.” Comparative Economic Studies, 48(3), is possible to account for a wide range of functions performed by close other DMUs are to this frontier.
497. the banks.
Hasan, Iftekhar and William C. Hunter. (1996). Studies comparing the economic performance of smaller minority- Previous studies reported that smaller minority-owned banks
“Management Eiciency in Minority- and Women- and nonminority-owned banks have generally shown that the tended to operate with lower ratios of equity capital to assets,
Owned Banks.” Economic Perspectives, 20(2), 20. minority-owned banks have tended to be smaller, somewhat less to employ more conservative asset portfolio management
proitable, and more expenditure prone than comparable groups policies, and to post higher loan losses than their nonminority
of nonminority banks. peers.
Li, Shaomin, Yigang Pan and David K. Tse. (1999). Large irms have more resources to invest in innovation, pursue Financial services’ proitability and market share performance
“The Impact of Order and Mode of Market Entry more aggressive expansion strategies, and perform better; in are determined by a number of diferent factors and the size of
on Proitability and Market Share.” Journal of addition, large irms beneit from economies of scale, scope, and irms has long been of interest to business researchers.
International Business Studies, 30(1), 81. learning. “In short, large irms tend to perform better holding
other factors constant” (p. 81).

Author/Date/Title/
Key Findings Comments
Publication
Cover, Jerry. (1999). “Proitability Analysis - A “Pareto’s Curve,” or the so-called 80/20 rule, holds that 80 “The real winners will be those banks who take advantage of
Necessary Tool for Success in the 21st Century.” percent of all business activity results from 20 percent of current this window of opportunity. Clearly, it is a window, because
ABA Banking Journal, 91(2), 78. customers; however several recent studies reveal that in the other banks and non-bank competitors are focusing on those
banking business, the ratio is even more extreme. One study found same customers” (p. 78).
that 15 percent of a bank’s customer base is responsible for 85
percent of its proitability. In the small business banking industry,
the ratio is even more pronounced with fewer than 10 percent of
a bank’s relationships produce 90 percent of its proits. In a typical
retail portfolio, 20 percent of accounts contribute proits equaling
200 percent of the overall return, while up to half of the accounts
generate losses.
Frieder, Larry A. (1991). “Determinants of Bank This study found that both the internal factors of returns on equity It is also possible to measure a inancial services company’s
Acquisition Premiums: Issues and Evidence.” (ROE) of the target organization and the external factor of the proitability by using either return on assets (ROA), ROE, the
Contemporary Policy Issues, 9(2), 14. market growth rate of the target’s state (as measured by deposit ratio of operating earnings to assets, or the net interest spread
growth and projected population growth) were signiicant positive to assets.
determinants of a bank’s capacity for expansion and growth.
Berger, Allen N., Astrid A. Dick, Lawrence Under the eiciency hypothesis, technological progress in Authors note that the relevant research on bank size and
G. Goldberg and Lawrence J. White. (2007). the 1990s signiicantly improved the performance of large, performance in the U.S. includes studies of cost and revenue
“Competition from Large, Multimarket Firms and multimarket banks relative to small, single-market banks; performance, as well as the abilities of banks of diferent sizes
the Performance of Small, Single- M a r k e t therefore, a greater presence of large, multimarket banks exerted to provide retail services in which both large and small banks
Firms: Evidence from the Banking Industry.” more competitive pressure and had more deleterious efects on compete, such as loans to small businesses and deposits.
Journal of Money, Credit & Banking, 39(2-3), 331. the performance of small, single-market banks in their markets in
the second period, 1991-2000, than in the irst period, 1982-90.
The more intense competition from large, multimarket banks in
the second time period may be manifested in decreased revenues
for small, single-market banks (e.g., lower fees or rates on loans,
lower fees on deposits) and/or increased expenses (e.g., higher
rates on deposits, additional expenses on advertising or quality to
retain customers).
Having established some of the important determinants The top ive banking holding companies in the United
of proitability for the banking industry today, a review of States today by consolidated assets are, respectively,
the leading bank holding companies in the U.S. today is in Citigroup Inc., Bank of America Corporation, JPMorgan
order, and this review is provided below. Chase & Co., Wachovia Corporation and Wells Fargo &
Review of Top Five Bank Holding Companies in the Company. These companies’ respective rank in the banking
United States Today. industry, city and state of their headquarters, and total, are
shown in Table 3 and Figure 6 below.
Table 3. United States' Largest Bank Holding Companies (as of Figure 6. United States' Largest Bank Holding Companies (as
June 30, 2007). of June 30, 2007).
Rank Institution Name Location Total Assets

$2,500,000,000
1 Citigroup Inc. New York, NY $2,220,866,000
2 Bank of America Charlotte, NC $1,535,684,280 $2,000,000,000
Corporation $1,500,000,000
3 JPMorgan Chase & Co. New York, NY $1,458,042,000 $1,000,000,000
4 Wachovia Corporation Charlotte, NC $719,922,000
$500,000,000
5 Wells Fargo & San Francisco, $539,865,000
Company* CA $0
Total Assets
Note: As of June 30, 2007, Taunus Corporation was listed as the 5th
largest bank holding company by the Federal Reserve; however, in Citigroup BAC JPMorgan Wachovia Wells Fargo & Co.
2003, Taunus changed its organization from a Bank Holding Company
to a Financial Holding Company – Domestic (see http://www. fiec. Source: Based on tabular data from Federal Reserve National
gov/nicpubweb/ nicweb/InstitutionHistory.aspx?parID_RSSD= Information Center, 2007.
2816906&parDT_END =99991231), and was therefore was replaced
with the next top BHC, Wells Fargo & Company, for the purposes of this
analysis; a list of the top ifty bank holding companies in the U.S. as of
June 2007 is provided at Appendix A.
Source: Federal Reserve National Information Center, 2007.

Overview of Top Five Bank Holding Companies in the Bank of America Corp.
United States (as of June 2007). Bank of America Corporation was established in 1874
An overview and brief description of the top ive bank and is currently headquartered in Charlotte, North Carolina
holding companies in the United States as of June 2007 is (Bank of America, 2007). Bank of America Corporation
provided below, followed by a recapitulation of management competes today through its banking and non-banking
summaries from each bank holding company’s most subsidiaries as a provider of inancial services and products
recent Form 10-Q iling with the Securities and Exchange throughout the United States and in selected international
Commission (SEC). markets (hereinafter “the bank” or alternatively, “the
Citigroup Inc. bank” or “Bank of America”). Through its banking and
Citigroup, Inc. (hereinafter “Citigroup” or alternatively, nonbanking subsidiaries, the bank and its subsidiaries
“the bank”) was established in 1812 and is headquartered provide a diverse range of inancial services and products
New York City (Citigroup, 2007). Citigroup provides a wide throughout the U.S. and in selected international markets
range of inancial services to its domestic and international (Bank of America, 2007). As of June 30, 2007, the Bank of
customers through the following business segments. America operated its banking activities under two primary
charters: (a) Bank of America, National Association (Bank
Business Segment Description of America, N.A.) and (b) FIA Card Services, N.A. (Form
Global Consumer segment This segment features banking, lending, 10-Q, 2007).
insurance, and investment services; as of
March 31, 2007, this business unit boasted The bank competes through three business segments as
a network of 8,140 branches, about 19,100 shown in Table 5 below.
automated teller machines, 708 automated
lending machines, and the Internet.
Markets and Banking This segment is responsible for the Table 5. Bank of American Business Segments.
provision of various investment and
commercial banking services and Business Segment Description
products; these services consist of
investment banking and advisory services, Global Corporate and This segment provides commercial and
debt and equity trading, institutional Investment Banking corporate bank loans, indirect consumer
brokerage, foreign exchange, structured loans, commitment facilities, real estate
products, derivatives, and lending lending products, and leasing and asset-
(Citigroup, 2007). The bank also provides based lending products for banking
cash management and trade inance for clients, middle market commercial clients,
corporations and inancial institutions; multinational corporate clients, public
custody and fund services to insurance and private developers, homebuilders,
companies and pension funds; clearing and commercial real estate irms; advisory
services to intermediaries; and depository services, inancing, and related products for
and agency/trust services to multinational institutional investor clients in support of
corporations and governments (Citigroup, their investing and trading activities; debt
2007). and equity underwriting, merger-related
advisory services, and risk management
Global Wealth Management This segment of the bank ofers investment solutions; and treasury management, trade
advice, inancial planning, and brokerage inance, foreign exchange, short-term credit
services to aluent individuals, companies, facilities, and short-term investing options for
and non-proit organizations (Citigroup, correspondent banks, commercial real estate
2007). This segment also provides wealth irms, and governments.
management services for its high net
worth clients, including investment Global Consumer and This segment provides savings accounts,
management, such as investment funds Small Business Banking money market savings accounts, certiicate
management, capital markets solutions, of deposits, individual retirement accounts,
trust, iduciary, and custody services; and regular and interest-checking accounts;
investment inance that comprises credit consumer cards, business cards, debit cards,
services, such as real estate inancing, international cards, and merchant services;
commitments, and letters of credit; and mortgage products for home purchase and
banking services, which consist of deposit, reinancing needs; insurance services; and
checking, and savings accounts, as well lines of credit and home equity loans.
as cash management and other banking Global Wealth and This segment features wealth management
services (Citigroup, 2007). Investment Management. and retail brokerage services, as well as asset
Alternative Investments The bank’s Alternative Investments management services, including mutual
segment manages products across ive funds, liquidity strategies, and separate
asset classes, such as private equity, hedge accounts.
funds, real estate, structured products, and
managed futures (Citigroup, 2007).

As of July 30, 2007, the company operated approximately bank”), provides a range of commercial and retail banking,
5,700 retail banking ofices and 17,000 automated teller as well as a range of trust services through its full-service
machines (Bank of America, 2007). banking ofices in the U.S. (Wachovia, 2007).
J. P. Morgan Chase & Company. The bank provides its customers with a full range of
The company was established in 1823 and is currently checking, savings, check card, foreign currency, annuities,
headquartered in New York, New York (JPMorgan, 2007). life insurance, brokerage account transfers, CAP accounts,
According to its company proile, JPMorgan Chase & Co. individual retirement accounts, credit cards, home equity,
(hereinafter “the company” or alternatively, “the bank”), mortgage, hazard and lood insurance, escrow, taxes, private
through its subsidiaries, provides a range of inancial mortgage insurance, education loans, online services, online
services worldwide (JP Morgan, 2007). The bank currently banking, online bill pay, and online brokerage services
operates through six segments as shown in Table 6 below. (Wachovia, 2007). Wachovia was established in 1879 and
is currently headquartered in Charlotte, North Carolina
Table 6. JP Morgan Business Segments. (Wachovia, 2007).
The company also provides various other inancial
Business Segment Description services, including mortgage banking, investment banking,
Investment Bank This segment ofers investment banking estate planning, investment advisory, asset management,
products and services, such as advising on
corporate strategy and structure, capital raising credit and debit card products, trust services, charitable
in equity and debt markets, risk management, services, mortgage banking, asset-based lending, leasing,
market-making in cash securities and derivative
instruments, and research. It serves corporations, insurance, and international and securities brokerage
inancial institutions, governments, and services. In addition, it engages in equity and debt
institutional investors.
underwriting activities, private equity investment activities,
Retail Financial Services This segment provides regional banking
services, including consumer and business derivative securities activities, investment and wealth
banking, home equity lending, and education management advisory businesses, and brokerage activities.
lending, as well as ofers mortgage banking and
auto inance services.
As of June 1, 2006, Wachovia operated 3,159 ofices in 16
Card Services This segment issues credit cards, and general-
states, as well as operated 40 ofices internationally. The
purpose cards to individual consumers, small company reports assets of approximately $541.8 billion, as
businesses, and partner organizations, including
cards issued with AARP, Amazon, Continental
of June 1, 2006 (Wachovia, 2007).
Airlines, Marriott, Southwest Airlines, Sony, On a inal note, according to the company’s most recent
United Airlines, and Walt Disney Company Form 10-Q iling:
brands.
In the second quarter of 2007, we announced a
Commercial Banking This segment provides lending, treasury services,
investment banking, and asset management realignment of some of our businesses and other corporate
services to corporations, municipalities, inancial functions. This included the combination of the General
institutions, and not-for-proit entities.
Bank’s private advisory group into the Wealth Management
Treasury and Securities This segment provides transaction, investment,
Services and information services to institutional clients. businesses and the General Bank’s commercial real
It also ofers custodian services and cash estate business into the Corporate and Investment Bank’s
management solutions, including trade inance
and logistics solutions, wholesale card products, investment banking line of business, which is expected to
and liquidity management services. occur by the end of the year. We are still evaluating how
Asset Management This segment provides investment and wealth these realignments may affect our segment reporting for
management services to institutions, retail
investors, and high-net-worth individuals. future periods; however, we expect Wealth Management
It ofers global investment management will remain a separate reporting segment. (Form 10-Q, p. 4)
services; trust, estate, and banking services; and
retirement services (JPMorgan, 2007).
Wells Fargo & Company.
Wells Fargo & Company was established in 1929 and is
currently headquartered in San Francisco, California (Wells
Wachovia Corp. Fargo, 2007). According to its company proile, Wells Fargo
The parent company, Wachovia Corporation, engages in & Company (hereinafter “the company” or alternatively,
capital management, the general bank, wealth management, “the bank”), through its subsidiaries, provides banking and
and the corporate and investment bank businesses. inancial products and services in the United States. The
Wachovia (hereinafter “the company” or alternatively, “the bank operates in three segments as shown in Table 7 below.

Table 7. Wells Fargo & Company Business Segments. The company reports that the competitive environment
varies for its far-lung operations. For example, the
Business Segment Description bank’s most recent Form 10-Q iling reports that, “The
Community Banking This segment provides a comprehensive inancial services industry is highly competitive. Our
group of deposit products, including checking
accounts, savings deposits, market rate subsidiaries compete with inancial services providers,
accounts, individual retirement accounts, time such as banks, savings and loan associations, credit
deposits, and debit cards; this segment’s loan
portfolio includes: lines of credit; equity lines unions, inance companies, mortgage banking companies,
and loans; equipment and transportation loans, insurance companies, and money market and mutual fund
including recreational vehicle and marine;
education loans; origination and purchase companies” (March 1, 2007 p. 3). Beyond this broad range
of residential mortgage loans; servicing of of competitors, the bank’s subsidiaries were also confronted
mortgage loans; and credit cards (Wells Fargo,
2007). This segment also provides receivables
with a number of challenges on some new fronts as well:
and inventory inancing, equipment leases, real “They also face increased competition from nonbank
estate inancing, small business administration
inancing, venture capital inancing, cash
institutions such as brokerage houses and insurance
management, payroll services, retirement plans, companies, as well as from inancial services subsidiaries
health savings accounts, and credit and debit of commercial and manufacturing companies. Many of
card processing services.
these competitors enjoy fewer regulatory constraints and
Wholesale Banking This segment provides commercial, corporate,
and real estate banking products and services some may have lower cost structures” (Form 10-Q, March
in the United States. This segment’s products 1, 2007 p. 3).
include traditional commercial loans and lines
of credit, letters of credit, asset-based lending, Recapitulation of Management Summaries from Most
equipment leasing, mezzanine inancing, high- Recent Form 10-Qs.
yield debt, international trade facilities, foreign
exchange services, treasury management, A recapitulation of the respective ive leading bank
investment management, institutional holding companies’ management summaries from their
ixed income and equity sales, interest rate,
commodity and equity risk management, most recent Form 10-Q ilings with the SEC and comments
online/electronic products, insurance, and are provided in Table 8 below.
investment banking services (Wells Fargo, 2007).
Wells Fargo Financial This segment consists of consumer inance and
auto inance operations. It also provides credit
cards and lease, and other commercial inancing
services; as of March 24, 2007, this segment
provided its services through approximately
6000 branches (Wells Fargo, 2007).
Table 8. Recapitulation of Citigroup’s Management Summary from Most Recent Form 10-Qs.
Date of Filing Organization Key Performance Metric Highlights Comments

August 3, 2007 Citigroup Income from continuing operations rose 18% to $6.226 billion and was the highest Acquisitions represented approximately 4% of the
ever recorded by the bank. Diluted EPS from continuing operations was also up bank’s revenue growth.
18%. Revenues were a record $26.6 billion, an increase of 20% over the previous
year to date, led by Markets & Banking, up 33%. The bank’s international operations
recorded revenue growth of 34% in the quarter, with International Consumer up
16%, International Markets & Banking up 50%, and International Global Wealth
Management more than doubling. U.S. Consumer revenues grew 3%, while
Alternative Investments revenues increased an impressive 77%.
August 7, 2007 Bank of America At June 30, 2007, the Corporation had $1.5 trillion in assets and approximately In July 2007, the Corporation completed the acquisition
196 thousand full-time equivalent employees. Net interest income on a FTE basis of U.S. Trust Corporation (U.S. Trust) for $3.3 billion in
decreased $145 million to $8.8 billion and $588 million to $17.4 billion for the three cash.
and six months ended June 30, 2007 compared to the same periods in 2006. The
primary drivers of the decreases were the impact of the divestitures of certain foreign
operations in 2006 and the irst quarter of 2007, increased hedge costs, higher
cost of deposits, spread compression, reduced beneits from purchase accounting
adjustments and the negative impact of the adoption of FSP 13-2. These decreases
were partially ofset by a higher contribution from market-based activity, higher
levels of consumer and commercial domestic loans and increased ALM portfolio
levels.

Date of Filing Organization Key Performance Metric Highlights Comments

August 9, 2007 JP Morgan The company reports $1.5 trillion in assets, $119.2 billion in stockholders’ equity and The second quarter of 2007 economic environment
operations worldwide. The company reported 2007 second-quarter Net income of was a contributing factor to the performance of the
$4.2 billion, or $1.20 per share, compared with Net income of $3.5 billion, or $0.99 Firm and each of its businesses. The overall economic
per share, for the second quarter of 2006. Return on common equity for the quarter expansion, strong level of capital markets activity and
was 14% compared with 13% in the prior year. positive performance in equity markets helped to
Net income for the irst six months of 2007 was $9.0 billion, or $2.55 per share, drive new business volume and organic growth within
compared with $6.6 billion, or $1.85 per share, in the comparable period last year. each of the company’s wholesale businesses; however,
Return on common equity was 16% for the irst six months of 2007 compared with weakness in the housing markets resulted in increased
12% for the prior-year period. losses in Retail Financial Services, causing in an increase
in provision related to the home equity portfolio.
July 30, 2007 Wachovia Wachovia’s net income in the irst six months of 2007 was $4.6 billion, up 29 percent Wachovia and certain of its subsidiaries are currently
Corporation from the irst six months of 2006, and diluted earnings per common share were up 7 involved in a number of judicial, regulatory and
percent to $2.42. After-tax net merger-related and restructuring expenses amounted arbitration proceedings concerning matters arising
to 1 cent per share in the irst six months of 2007 and 4 cents per share in the same from the conduct of its business activities; these
period of 2006. Tax-equivalent net interest income increased 24 percent in the irst proceedings include actions brought against Wachovia
six months of 2007 from the irst six months of 2006, relecting a larger balance sheet. and/or its subsidiaries with respect to transactions in
The net interest margin declined 22 basis points to 2.97 percent, primarily due to which Wachovia and/or its subsidiaries acted as banker,
growth in lower-spread consumer and commercial loans, a shift in deposits toward lender, underwriter, inancial advisor or broker or in
lower-spread categories, the impact of acquisitions and the efect of an inverted activities related thereto. The actual costs of resolving
yield curve. legal claims may be substantially higher or lower than
the amounts reserved for those claims.
March 1, 2007 Wells Fargo At December 31, 2006, the company reports assets of $482 billion, loans of $319 All common share and per share disclosures in this
billion, deposits of $310 billion and stockholders’ equity of $46 billion; based on Report relect the two-for-one stock split in the form of
total assets, WFC is the ifth largest bank holding company in the United States. At a 100% stock dividend distributed on August 11, 2006.
December 31, 2006, the bank had 158,000 active, full-time equivalent team members.
The iling reports that the bank enjoyed record earnings in 2006 with record diluted
earnings per share of $2.49, record net income of $8.5 billion, both up 11%, and
exceptional, broad-based performance across the company’s 80+ businesses. The
report also emphasizes that, “Over the past twenty years, our annual compound
growth rate in earnings per share was 14% and our annual compound growth rate
in revenue was 12%. Our total annual compound stockholder return of 14% the past
ive years was more than double the S&P 500 — and at 15% almost double for the
past ten years. We far out-paced the S&P 500 the past 15 and 20 years with total
annual compound shareholder returns of 18% and 21%, respectively — periods with
almost every economic cycle and economic condition a inancial institution can
experience” (p. 34).
Sources: As indicated.
Stock Performance of Top Five Bank Holding Key:

Companies in the U.S.: Past Five Years to Date. C = Citigroup Inc.
A comparison of the top ive bank holding companies’ BAC = Bank of America
stock performance for the past ive years to date is provided JPM = JPMorgan Chase & Co.
in Figure 7 below. WB = Wachovia
WFC = Wells Fargo & Company
Figure 7. Stock Performance of Top Five Bank Holding
Companies in the U.S.: Past Five Years to Date Methodology
Description of the Study Approach
This study used a mixed methodology to achieve the

above-stated research purpose. The irst component of the
research methodology consisted of a comprehensive review
of the relevant peer-reviewed, scholarly and organizational
literature. This approach is congruent with various social
researchers who report that such a literature review is the
natural place to begin such an endeavor (Neuman, 2003;
Wood and Ellis, 2003). According to one authority, “Both
the opinions of experts in the ield and other research
Source: Yahoo! Finance, 2007.
studies are of interest. Such reading is referred to as a
review of the literature” (Fraenkel and Wallen, 2001 p.
48). Similarly, Gratton and Jones (2003) emphasize that
a critical reviewing of the timely literature is an essential data was conducted. Both university and public libraries
component of almost any type of research endeavor: “No were consulted for this purpose, as well as a range of
matter how original you think the research question may online resources including EBSCO, Questia, Edgar Online,
be,” they advise, “it is almost certain that your work will Yahoo! Finance and others.
be building on the work of others. It is here that the review The econometric approach used in the study is also
of such existing work is important. A literature review is congruent with a number of economic researchers who
the background to the research, where it is important to emphasize that it is common practice for economists to
demonstrate a clear understanding of the relevant theories describe or discuss a theory in terms of an equation or a
and concepts, the results of past research into the area, the set of equations; moreover, even elementary economics
types of methodologies and research designs employed in textbooks present postulated relationships between
such research, and areas where the literature is deicient” economic variables in an algebraic form, and suggest
(p. 51). inferences by mathematical manipulations (Charemza,
In addition, Wood and Ellis (2003) identiied the Deadman & Elgar, 1997).
following as important outcomes of a well conducted Therefore, extending the process to include assignation
literature review: of quantitative measures to these relationships represents a
logical step. According to Charemza and his colleagues, “The
1. It helps describe a topic of interest and reine either most widely used tool of economists to determine empirical
research questions or directions in which to look; forms of theoretical constructs is that of econometrics.
2. It presents a clear description and evaluation of the The likely originator of the term 'econometrics' deined
theories and concepts that have informed research into it as '...the uniication of economic theory, statistics, and
the topic of interest; mathematics...' Much of the early empirical work in
3. It clariies the relationship to previous research and economics (in other words, prior to 1940) was concerned
highlights where new research may contribute by with the measurement of demand elasticities, and the
identifying research possibilities which have been representation of the business cycle” (p. 1).
overlooked so far in the literature; To a great extent, these trends were relective of the
4. It provides insights into the topic of interest that are activity of economists in developing theory in these areas,
both methodological and substantive; and the increasing availability of reasonably long runs
5. It demonstrates powers of critical analysis by, for of statistical data on agricultural commodities, foreign
instance, exposing taken for granted assumptions trade and various industries (Charemza et al., 1997).
underpinning previous research and identifying Subsequent developments of national income accounting
the possibilities of replacing them with alternative in conjunction with Keynesian economic theory further
assumptions; created new opportunities for the econometric analysis
6. It justiies any new research through a coherent critique of macroeconomic series, including complete models of
of what has gone before and demonstrates why new economies; these estimated macroeconomic models could
research is both timely and important. be used for economic policy purposes, such as forecasting
or simulation (Charemza et al., 1997).
Likewise, Silverman (2005, p. 300) suggests that a
literature review should aim to answer the following Regardless of the objectives being considered, it is
questions: clear that in order to undertake econometric analysis, the
1. What do we know about the topic? following must be used:
2. What do we have to say critically about what is already
known? 1. A relevant economic theory;
3. Has anyone else ever done anything exactly the same? 2. Statistical data;
4. Has anyone else done anything that is related? 3. A method that allows for the expression of the economic
5. Where does your work it in with what has gone before? theory using the statistical data (in practice, a theory
6. Why is your research worth doing in the light of what of estimation stemming from econometric theory)
has already been done? (six properties that would be considered desirable
It was with the above goals and guidance that the review in an estimated model: (a) relevance, (b) simplicity,
of the relevant peer-reviewed, scholarly and organizational (c) theoretical plausibility, (d) explanatory ability, (e)
accuracy of coeficients and (f) forecasting ability; a internationally (Saunders and Walter, 1998). While this is
“good” model will display all of these properties to fairly simple task when it comes to industries such as steel
some degree, but the existence of a potentially large or automobiles that provide comparatively homogeneous
number of theoretically plausible models which also goods and services, such an application to the inancial
satisfy some or all of the criteria makes the model services industry is far more complicated because of
choice problem a nontrivial one in practice; the wide range of mixes and national settings involved
4. A “know-how,” which guides how to apply the (Saunders and Walter, 1998).
estimation theory to the statistical data, and how to Moreover, deining competitiveness in these terms may
decide whether this application has been successful; in not be especially relective of an individual organization’s
this case, the requisite “know hows” relate to methods proitability, which depends as well on a variety of market
of deining “good” models, and in inding them structure and other cost factors such as scale and scope
(Charemza et al., 1997, p. 3). economies (Saunders and Walter, 1998). On the other hand,
using market share is a commonly used indicator of the
Based on the foregoing guidance, this study used a outcome of the competitive process itself because in free
weighted average approach to determining the impact of markets, companies that enjoy the lowest cost structure or
the external national economy on the ive leading bank’s feature highest product quality generally gain market share
proitability according to their total assets. The econometric compared to those with a higher cost structure or lower
model described further in Chapter 4 below that was product quality (Saunders and Walter, 1998).
developed for this study was deemed to have satisied all of In terms of applying this method to the inancial services
these criteria to some extent. industry, the picture becomes more complex. For instance,
Saunders and Walter emphasize that, “The inancial services
Data-Gathering Method and Database of industry sells perhaps 50 more or less distinct services to
Study perhaps 20 more or less distinct client groups. They range
from credit card loans to lower middle income households
Beyond the critical review of the relevant peer-reviewed, all the way to swap-driven repackaged synthetic securities
scholarly and organizational literature concerning engineered for the largest multinational companies. Some
proitability determinants in the banking industry today, this of these services are highly internationalized, indeed
study also used bank-level data for the top ive banks in the globalized, while others are individually sold or mass-
United States for last ive years for its econometric analysis, marketed domestically” (p. 24). Further complicating any
as well as ive years’ of data from various international such across-the-board analysis is the paucity of market share
inancial statistics for the U.S. banking industry in general. data; in some cases, this information is reasonably available;
As noted above, these data were collected from reliable however, in other cases, there are no available market share
online resources such as the U.S. Federal Reserve System’s data whatsoever (Saunders and Walter, 1998). Moreover,
National Information Center, Free Edgar, Yahoo! Finance some information is also obscured or contaminated by
and comparable organizational and governmental Web exchange rate changes that take place during the periods
sites. of time that data are available to researchers (Saunders and
Walter, 1998).
Data Analysis Based on the foregoing constraints, a better indicator
of proitability was required for the purposes of this
Econometric Model. investigation. As noted above, the empirical test used in
this study is concerned with the determinants proitability
In their study, “Proitability of Credit Unions, of these ive leading bank holding companies in the United
Commercial Banks and Savings Banks: A Comparative States as of June 2007. For this purpose, the measure of
Analysis,” Kaushik and Lopez (1996) report that, proitability of each bank was deined as the return on assets
“Proitability is the measure of both performance of each of (ROA); the ROA is a ratio that is calculated by dividing
the industries and the degree of competition among them” the net income over total assets. The macro-economic
(p. 66). On the one hand, a straightforward approach to variable GDP per capita growth was also used in the model
deining competitiveness at any industry level is in terms as estimated by the CIA World Factbook for 2006 and the
of the percentage of market shares held domestically and International Monetary Fund for the years 2004 and 2005.
The GDP per capita growth rate was expected to have Table 9. Bank of America: December 31-December 2006.
a positive impact on bank’s performance according to the
well documented literature on the association between Period Ending 31-Dec-06 31-Dec-05 31-Dec-04
economic growth and inancial sector performance by Net Income 21,133,000 16,465,000 14,143,000
virtue of economies of scale that accrue to larger banking Total Assets 1,459,737,000 1,291,803,000 1,110,457,000
organizations whose assets run into the billions. This is Return on Assets
1.45% 1.27% 1.27%
(ROA)
congruent with the indings of Berger et al. (2007) who
Per Capita Growth
report, “Early research on bank cost scale economies 3.20% 3.70% 4.20%
Rate*
using data on U.S. banks from the 1980s generally inds Weighted Average 1.00% 0.95% 0.98%
very little scale economies or diseconomies except at very Percentage
small sizes, typically well under $1 billion in assets. Later Diference ROA- 0.45% 0.33% 0.30%
Weighted Avg.
research suggests that there may be more extensive cost
scale economies in the 1990s, with average costs declining
up to asset sizes of $25 billion or more” (p. 331). 5.00%
The rationale in support of this model was found 4.00%
3.00%
extensively throughout the body of evidence concerning
2.00%
relevant proitability indicators for the banking industry 1.00%
that clearly demonstrated economies of scale for larger 0.00%
2004 2005 2006
inancial institutions, particularly as they compete across
international borders, notwithstanding any substantive Per Capita Growth Rate*
Weighted Average
changes in the external operating environment to the
Percentage Difference ROA-Weighted Avg.
contrary. To gauge the soundness of this rationale, the
degree of proitability for each bank holding company
was determined by using a return on investment weighted Table 10. JP Morgan: December 31-December 2006.
average approach. In this regard, Li, Pan and Tse (1999)
report that, “Proitability is measured by returns on assets Period Ending 31-Dec-06 31-Dec-05 31-Dec-04
(ROA)” (p. 81). According to the editors of MoneyTerms, Net Income 14,444,000 8,483,000 4,466,000
“A weighted average is more heavily inluenced by some Total Assets 1,351,520,000 1,198,942,000 1,157,248,000
of the numbers it is calculated from than others. It is Return on Assets

1.07% 0.71% 0.39%
(ROA)
calculated by multiplying each number by a weight, adding
Per Capita Growth
these together and then dividing the total by the sum of the 3.20% 3.70% 4.20%
Rate*
weights” (Weighted Average, 2007 p. 3). The formula for Weighted Average 0.80% 0.59% 0.35%
this model is shown below: Percentage
Diference ROA- 0.27% 0.11% 0.03%
Weighted Avg.
ROA (net income/total assets) * GDP per capita growth
/ (ROA*GDP per capita growth/ROA+GDP per capita
growth) 5.00%
4.00%
3.00%
The return on assets calculations internal aspect for the
2.00%
ive respective banks compared with the GDP per capital 1.00%
growth external factor rate is provided in Tables 9 through 0.00%
2004 2005 2006
13 below, as well as graphic representations of the data in
the accompanying igures; the percentage differential is Per Capita Growth Rate*
Weighted Average
also shown.

Table 11. Citigroup: December 31-December 2006. Table 13. Wells Fargo & Co.: December 31-December 2006
Period Ending 31-Dec-06 31-Dec-05 31-Dec-04 Period Ending 31-Dec-06 31-Dec-05 31-Dec-04
Net Income 21,538,000 24,589,000 17,046,000 Net Income 8,482,000 7,671,000 7,014,000
Total Assets 1,884,318,000 1,494,037,000 1,484,101,000 Total Assets 481,996,000 481,741,000 427,849,000
Return on Assets Return on Assets
1.14% 1.65% 1.15% 1.76% 1.59% 1.64%
(ROA) (ROA)
Per Capita Growth Per Capita Growth
3.20% 3.70% 4.20% 3.20% 3.70% 4.20%
Rate* Rate*
Weighted Average 0.84% 1.14% 0.90% Weighted Average 1.14% 1.11% 1.18%
Percentage Percentage
Diference ROA- 0.30% 0.51% 0.25% Diference ROA- 0.62% 0.48% 0.46%
Weighted Avg. Weighted Avg.
5.00% 5.00%
4.00% 4.00%
3.00% 3.00%
2.00% 2.00%
1.00% 1.00%
0.00% 0.00%
2004 2005 2006 2004 2005 2006
Per Capita Growth Rate* Per Capita Growth Rate*

Weighted Average Weighted Average
Percentage Difference ROA-Weighted Avg. Percentage Difference ROA-Weighted Avg.
Table 12. Wachovia: December 31-December 2006. Table 14. Comparison of Percentage Differences in ROA-
Weighted Averages.
Period Ending 31-Dec-06 31-Dec-05 31-Dec-04
Net Income 7,791,000 6,643,000 5,214,000 Period Ending 31-Dec-06 31-Dec-05 31-Dec-04
Total Assets 707,121,000 520,755,000 493,324,000 Bank of America 0.45% 0.33% 0.30%
Return on JP Morgan 0.27% 0.11% 0.03%
1.10% 1.28% 1.06%
Assets (ROA)
Citigroup 0.30% 0.51% 0.25%
Per Capita
3.20% 3.70% 4.20% Wachovia 0.28% 0.33% 0.21%
Growth Rate*
Wells Fargo 0.62% 0.48% 0.46%
Weighted
0.82% 0.95% 0.84%
Average
Percentage
Diference 0.70%
0.28% 0.33% 0.21%
ROA-Weighted 0.60%
Avg.
0.50%
0.40%
5.00%
0.30%
4.00%
3.00% 0.20%
2.00% 0.10%
1.00%
0.00% 0.00%
2004 2005 2006 2004 2005 2006
Per Capita Growth Rate* Bank of America JP Morgan Citigroup Wachovia Wells Fargo
Weighted Average

Summary and Conclusions factors concerning innovations in technology that relate

both to a inancial services company’s internal and external
Summary environment that will depend on the effectiveness of the
bank’s management to add value or not. Responsiveness
The purpose of this study was to develop an appropriate to the external economic environment and potential threats
econometric model whereby the primary determinants of to far-lung operations based on terrorist activities abroad
proitability of the top ive bank holding companies in the represent yet more factors that may be highly signiicant,
United States could be examined and understood. To this but are dificult to model accurately.
end, the research showed that proitability determinants for
the banking industry include positive relationship between Conclusions
the return of equity and capital to asset ratio as well as the
annual percentage changes in the external per capita income. The studies on the determinants of bank’s performance
There was also a virtual consensus identiied concerning in the United States in recent years have shown some
the effect that the internal factor of size as measured by mixed results, with some researchers inding that little
an organization’s total assets had on its ability to compete cost saving can be achieved by increasing the size of the
more effectively, even in times of economic downturns. banking irm and others report signiicant scale economies
This relationship was clearly identiied in the data for banks whose asset size extends well into the billion
analysis, wherein all ive of the leading bank holding range such as those investigated herein. In addition to being
companies in the United States (as of June 2007) enjoyed extremely dificult to measure on an international level,
increases in their weighted averages of return on assets determinants of proitability may be skewed by an inability
despite decreases in the GDP per capita rate. While there to obtain accurate and timely data and by an unbalanced
were some luctuations and variations identiied between competitive environment in which a given bank may be
the respective organizations in spite of their relative sizes, forced to compete with smaller players that can market
these differences could be accounted for by virtue of speciic high proit products more eficiently. In fact, it would be
economic initiatives in place during these isolated points in reasonable to conclude that the determinants of proitability
time that are not accounted for in the analytical model. can be discerned at a given point in time as they relate to
Some of the constraints identiied during the research a speciic set of factors, but there is much more involved
process included the fact that the majority of research to in the analysis than a straight-forward modeling approach
date has investigated determinants of proitability at the can address. Nevertheless, the research was absolutely
bank and/or industry level, with the choice of variables consistent in emphasizing the need to gauge proitability
used failing to provide internal consistency in some cases and to identify what revenue sources provide inancial
and a paucity of timely research concerning the potential services companies with the biggest “bang for the buck”
inluence of the macroeconomic environment in which so they can focus their energies where they will do the
inancial services companies compete. There were also most good both in the short term and for the long haul. In
a broad range of unique iscal activities that took place conclusion, analyzing proitability in the inancial services
during the time period examined that clearly inluenced a sector requires constructing a comprehensive picture of a
given bank’s proitability, either positively or negatively, wide range of relevant performance metrics. This analysis
over the short-term while failing to provide any indication also requires a signiicant amount of judiciousness and
of its potential long-term impact on the bank’s proitability. recognition of their limitations when interpreting them.
In the inal analysis, it would appear that the industry
analysts and experts were absolutely correct in their References
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Appendix A
United States' Largest Bank Holding Companies (as of June 2007)
Rank Institution Name (RSSD ID) Location Total Assets

1 CITIGROUP INC. (1951350) NEW YORK, NY $2,220,866,000
2 BANK OF AMERICA CORPORATION (1073757) CHARLOTTE, NC $1,535,684,280
3 JPMORGAN CHASE & CO. (1039502) NEW YORK, NY $1,458,042,000
4 WACHOVIA CORPORATION (1073551) CHARLOTTE, NC $719,922,000
5 TAUNUS CORPORATION (2816906) NEW YORK, NY $579,062,000
6 WELLS FARGO & COMPANY (1120754) SAN FRANCISCO, CA $539,865,000
7 HSBC NORTH AMERICA HOLDINGS INC. (3232316) PROSPECT HEIGHTS, IL $483,630,057
8 U.S. BANCORP (1119794) MINNEAPOLIS, MN $222,530,000
9 SUNTRUST BANKS, INC. (1131787) ATLANTA, GA $180,314,372
10 ABN AMRO NORTH AMERICA HOLDING COMPANY (1379552) CHICAGO, IL $160,341,966
11 CITIZENS FINANCIAL GROUP, INC. (1132449) PROVIDENCE, RI $159,392,731
12 CAPITAL ONE FINANCIAL CORPORATION (2277860) MCLEAN, VA $145,937,957
13 NATIONAL CITY CORPORATION (1069125) CLEVELAND, OH $140,648,168
14 REGIONS FINANCIAL CORPORATION (3242838) BIRMINGHAM, AL $137,624,205
15 BB&T CORPORATION (1074156) WINSTON-SALEM, NC $127,577,050
16 BANK OF NEW YORK COMPANY, INC., THE (1033470) NEW YORK, NY $126,457,000
17 PNC FINANCIAL SERVICES GROUP, INC., THE (1069778) PITTSBURGH, PA $125,736,711
18 STATE STREET CORPORATION (1111435) BOSTON, MA $112,345,777
19 FIFTH THIRD BANCORP (1070345) CINCINNATI, OH $101,389,721
20 KEYCORP (1068025) CLEVELAND, OH $93,490,903
21 BANCWEST CORPORATION (1025608) HONOLULU, HI $70,661,335
22 HARRIS FINANCIAL CORP. (1245415) WILMINGTON, DE $64,475,903
23 NORTHERN TRUST CORPORATION (1199611) CHICAGO, IL $59,609,734
24 COMERICA INCORPORATED (1199844) DETROIT, MI $58,945,727
25 MARSHALL & ILSLEY CORPORATION (1199497) MILWAUKEE, WI $58,327,527
26 M&T BANK CORPORATION (1037003) BUFFALO, NY $57,869,069
27 UNIONBANCAL CORPORATION (1378434) SAN FRANCISCO, CA $53,173,833
28 CHARLES SCHWAB CORPORATION, THE (1026632) SAN FRANCISCO, CA $49,003,812
29 ZIONS BANCORPORATION (1027004) SALT LAKE CITY, UT $48,703,130
30 COMMERCE BANCORP, INC. (1117679) CHERRY HILL, NJ $48,231,325
31 POPULAR, INC. (1129382) SAN JUAN, PR $46,985,000
32 MELLON FINANCIAL CORPORATION (1068762) PITTSBURGH, PA $43,389,057
33 TD BANKNORTH INC. (1249196) PORTLAND, ME $42,981,084
34 FIRST HORIZON NATIONAL CORPORATION (1094640) MEMPHIS, TN $38,395,825
35 HUNTINGTON BANCSHARES INCORPORATED (1068191) COLUMBUS, OH $36,422,081
36 COMPASS BANCSHARES, INC. (1078529) BIRMINGHAM, AL $34,938,942
37 SYNOVUS FINANCIAL CORP. (1078846) COLUMBUS, GA $33,295,823
38 NEW YORK COMMUNITY BANCORP, INC. (2132932) WESTBURY, NY $29,638,404
39 RBC CENTURA BANKS, INC. (1826056) RALEIGH, NC $25,374,678
40 COLONIAL BANCGROUP, INC., THE (1080465) MONTGOMERY, AL $23,823,484
41 ASSOCIATED BANC-CORP (1199563) GREEN BAY, WI $20,849,531

Rank Institution Name (RSSD ID) Location Total Assets

42 BOK FINANCIAL CORPORATION (1883693) TULSA, OK $19,363,601
43 W HOLDING COMPANY, INC. (2801546) MAYAGUEZ, PR $17,894,049
44 FIRST BANCORP (2744894) SAN JUAN, PR $17,596,317
45 WEBSTER FINANCIAL CORPORATION (1145476) WATERBURY, CT $16,964,451
46 SKY FINANCIAL GROUP, INC. (1071203) BOWLING GREEN, OH $16,807,287
47 FIRST CITIZENS BANCSHARES, INC. (1075612) RALEIGH, NC $16,012,041
48 COMMERCE BANCSHARES, INC. (1049341) KANSAS CITY, MO $15,531,107
49 NEW YORK PRIVATE BANK & TRUST CORPORATION (3212091) NEW YORK, NY $15,095,466
50 FULTON FINANCIAL CORPORATION (1117129) LANCASTER, PA $15,078,415
Appendix B
Excel Spreadsheet Results of Data Analysis

Bank of America
Net Income 21,133,000 16,465,000 14,143,000
Total Assets 1,459,737,000 1,291,803,000 1,110,457,000
Return on Assets (ROA) 1.45% 1.27% 1.27%
Per Capita Growth Rate* 3.20% 3.70% 4.20%
Weighted Average 1.00% 0.95% 0.98%
Percentage Diference ROA-Weighted Avg. 0.45% 0.33% 0.30%
JPMorgan
Net Income 14,444,000 8,483,000 4,466,000
Total Assets 1,351,520,000 1,198,942,000 1,157,248,000
Citigroup
Net Income 21,538,000 24,589,000 17,046,000
Total Assets 1,884,318,000 1,494,037,000 1,484,101,000
Wachovia
Net Income 7,791,000 6,643,000 5,214,000
Total Assets 707,121,000 520,755,000 493,324,000
Wells Fargo & Co
Net Income 8,482,000 7,671,000 7,014,000


Total Assets 481,996,000 481,741,000 427,849,000
*Based on 2006 estimates from CIA World Factbook and bar graph data from International Monetary Fund

2011 Walter Gerard Amedzro St-Hilaire 231
THE STRATEGIC IMPACT OF THE BUSINESS DYNAMICS

IN EMERGING COUNTRIES ON CONTEMPORARY
PERSPECTIVES
Walter Gerard Amedzro St-Hilaire, Ph.D

Researcher on Strategy and Governance of Public Organizations in HEC Montréal
Researcher for the Research Center on the Governance of Natural Resources
Email: walter-gerard.amedzro@hec.ca
Abstract
The current competitive environment requires countries to make strategic choices regarding international trade which are not without
impact on their value regards to positioning. Therefore, it becomes important for business owners and for analysts to assess the impact
of policy decisions on global competitiveness and wonder if becoming a future “Giant” does not pass through a choice of sector for
export growth. Also how is the comparative advantage of the current Asian Dragon evaluated in the various sectors that underpin its
economy? In this paper, we propose a both strategic and economic analysis case of the new global competitive order based on the concept
of comparative advantage to ind that China, by taking advantage of all its assets, has built a model which is typical while integrating
the new realities of contemporary global trade, occupying a prominent place in the global economic landscape. The present article goes
beyond this Asian dragon’s rather negative image to highlight its success in adapting to the reconceptualization of economic exchanges.
Key words: Strategy, competitiveness, added value, economic analysis, economic development.
Marking the 2000s by its ascension into world trade1, the crisis of 2008-9 caused the share of exports in China’s
and after surpassing, in 2008, the German level in GDP to drop from 36% in 2007 to 24% in 2009.
manufactured exports, China saw, in 2009, its share in total In this regard, it is worth asking whether the future
world trade of goods exceeding the Germany2. From 1998 growth of Chinese exports wouldn’t come from its exports
to 2008, the total Chinese share in world exports grew at of high added value products (computers and vehicles)
23% per year, twice the growth rate of total world exports. rather than textile. How comparative advantage in this
If the trend continues, exports from China could represent country is evaluated the various sectors that underpin its
a quarter of the global total in 2018, surpassing the U.S. economy?
in the 1950s that didn’t reach this igure since totalizing To address this issue of International Affairs, it will be
at the time, only 18% of world exports (as against 8% in conducted a comparative analysis of this dragon with the
2009). However, the possibility of a decline of the Chinese rest of the world by sector, and with the assumption that
exports growth rate remains. According to IMF forecasts, it will, as regards the export growth, take the same way as
these exports are expected to represent 12% of world total Japan that gradually exported products of increasingly high
in 2010. Worth 9.6% in 2009, this share corresponded to added value. It will, in this article, be traced the concept
that of Japan at its peak, is 19863. In addition, the IMF, in of “comparative advantage”, to then bring out a stark and
a study published in 2009, indicated that a Chinese GDP pertinent analysis of the results recorded by the Chinese
growth rate remaining at or above 8% and a growth still trade during the last decade.
heavily dependent on exports would mechanically raise this
dragon’s share in world exports to 17% in 2020. However, Conceptual Framework
For this paper purposes, we are led to identify one

1
Figures on China's place in global trade given below are from the article "China's
export prospects, Fear of the Dragon", The Economist, January 7, 2010. key concept necessary in understanding our theme: the
2
In 1997, China was only ..... the 10th largest exporter! See the table of the main concept of comparative advantage. It is the ability of an
exporters in 1997.
3
economic agent (individual, company, country) to create
Since then, Japan’s share fell to 5%, partly because of the rising yen.
a product or service for a lower opportunity cost than
Amedzro W. G. - The Strategic Impact of the Business Dynamics in Emerging Countries on Contemporary Perspectives
that borne by other economic agents. For Paul Krugman, of Wassily Leontief (1909-1999) should also be associated
it’s especially the ability to grasp the difference between with this model because the empirical test that he has done.
comparative advantage and absolute advantage that deines The study of this model requires, initially, understanding the
an economist4. If comparative advantage should not be functioning of a “Heckscher-Ohlinian” economy in a closed
confused with absolute advantage, which is a special case of economy or “autarky”, and then comparing it to another
comparative advantage, it should not be with the concepts economy that is identical in all respects except for relative
of free trade (international trade without tariffs and other factor endowments. This comparison aims to highlight the
artiicial restrictions to trade), the gains from trade, or the direct dependence of the concept of comparative advantage
international division of labor which are distinct, though to both countries’ factor endowments: it is the heart of the
related to that of comparative advantage. The latter is, Heckscher-Ohlin “theorem”.
with returns to scale, the main determinant of international Indeed, stating that comparative advantage is determined
trade5. by differences in relative endowments between countries,
Although the idea of comparative advantage was exposed the HOS theorem is a direct consequence of the Rybczynski
by Robert TORRENS in 18156, its authorship is attributed theorem which allowed us to establish, under the HOS
to David Ricardo (1817), whose best known proof could be model with two goods and two factors, that the higher the
found in his Principles of political economy and taxation. capital-labor ratio of a country, the higher the supply curve
Taking the example of England and Portugal, both of able is shifted to the right. The proof of this theorem involves
to produce wine and cloth, he shows that the comparison the comparison of the autarkic equilibrium of two countries
of the production costs of wine to cloth (or cloth to wine) with identical technologies and different production relative
in each country simultaneously reveals the comparative factor endowments.
advantage of each country. The ratio of production costs Let two countries, h, home country, and f, foreign
is also known as relative cost, opportunity cost, or even country when the country h has a capital-labor ratio higher
relative productivity. The two basic models of comparative than the country f’s (k > k*)7. The h’s relative supply curve
advantage are Heckscher-Ohlin’s and Ricardo’s. is more right than f’s while their relative demand curves
merge, the two countries having the same utility function. It
The Heckscher-Ohlin-Samuelson model follows that in absence of international trade, at equilibrium
of supply and demand of each country, the relative price of
Named after its three principal architects, the Swedish good 1 is lower in country f than h while good 2 has lower
economists Eli Heckscher Filip (1879-1952) and Bertil relative price in h than in f. In other words, the country h
Ohlin (1899-1979) and American economist Paul Samuelson has a comparative advantage in the production of good 2
(1915-2009), the Heckscher-Ohlin-Samuelson model is while f harbors a comparative advantage in the production
frequently referred to as the “HOS model”. But the name of good 1.
It should be noted that, in this model, comparative
advantage is explained neither by differences in technology
4
" If there were an Economist’s Creed, it would surely contain the afirmations «
I understand the Principle of Comparative Advantage » and « I advocate Free (since, by deinition, production technologies are identical
Trade ». For one hundred seventy years, the appreciation that international trade from one country to another) nor by differences in taste
beneits a country whether it is “fair” or not has been one of the touchstones of
professionalism in economics. Comparative advantage is not just an idea both (preferences for goods are identical). The only reason why
simple and profound: it is an idea that conlicts directly with both stubborn relative prices before exchange are different lays in the fact
popular prejudices and powerful interests. This combination makes the defence
of free trade as close to a sacred tenet as any idea in economics” - Paul KRUG- that h has a capital-labor ratio greater than f, which gives it
MAN, "Is Free Trade Passé?" by Paul R. KRUGMAN, Journal of Economic a comparative advantage in producing good 2. Conversely,
Perspectives, vol.1, no.2, 1987, pp.131-44.
5
f has a higher labor-capital ratio than h, which gives it a
I like to begin classes on international trade by telling students that there are
two basic explanations of international trade. The irst is comparative advan- comparative advantage in producing good 1.
tage, which says that countries trade to take advantage of their differences – a In sum, in our example, where k > k* and where, by
concept that lay at the heart of Alan Deardorff’s beautiful, classic paper “The
general validity of the law of comparative advantage” (1980). The second is in- hypothesis8, production of good 2 requires relatively more
creasing returns, which says that countries trade to take advantage of the inher-
ent advantages of specialization, which allows large-scale production – which 7
is what the “new trade theory” was all about" - Paul KRUGMAN, “Increasing To distinguish the country f from the country h, an asterisk is added to the sym-
Returns in a Comparative Advantage World”, novembre 2009, 15 pages. bols on the country f.
8
6
But the issue is controversial [see, for example, the article by Roy RUFFIN, This hypothesis, like other HOS model assumptions is discussed in more details
Debunking a Myth: Torrens on Comparative advantage] at http://www.mazerolle.fr/Economie-internationale/Glossaire-economie-inter-
nationale/Modele-2X2-standard-Hypotheses-centrales.pdf

capital than labor, the Heckscher-Ohlin theorem can be international exchange, distinct from that of comparative
stated as follows: the country h, relatively abundant capital advantage, though linked to it. Based on the concept of
(k > k*) has a comparative advantage in production of good exchange among economic agents, the positive theory of
2 (since the production of good 2 uses capital relatively international trade of David Ricardo, developed mainly
intensively). As for the country f, relatively abundant in the microeconomics ield, is rooted in the ideas of
in labor, it has a comparative advantage in production neoclassical economists, particularly in the theory of general
of good 1 (because the production of good 1 uses the equilibrium including consideration of the phenomenon
work of relatively intensively). It follows that at autarkic of exchange without production, called “pure trade” and
equilibrium, the country h produces relatively more of the exchange with production. Insofar as the exchange
good 2 than f (conversely, the country f produces relatively becomes international, it its into the broader framework
more of good 1 than h). Openness to trade will cause h of international economic relations. International Economy
to specialize in production and export of good 2 and f’s could be seen as an observable reality that should be
specialization in production and export of good 1. As this is described from a statistical point of view and facts: the
a model of just two countries, exports of h will go to f and economic exchanges between the nations are steadily
f’s exports will go to h. growing and being an essential component of globalization,
while as trade policy of countries. In this latter sense, it
Optimality of Free Trade in the Ricardo Model is often the terms “international trade” or “international
trade”, which are used.
On another hand, the RICARDO model bases itself
on usual concepts of microeconomic theory to show that Methodology: Content Analysis Linked
the specialization of each country in the production and to the Index of Competitiveness of the
export of goods for which it has a comparative advantage, World Economic Forum
improves well-being in each country. For this, it shows
that the international exchange based on the exploitation of The study of countries’ growth factors will be based
comparative advantage improves the purchasing power of on an analysis of the competitiveness index published
wages in both countries. Indeed, the comparison between annually by the World Economic Forum in Davos. This
autarky and free trade shows the overall superiority of index is a score assigned to different countries varying, in
the purchasing power of wages in conditions of free trade 2009, between 2.58 (Burundi) and 5.6 (Switzerland), from
relative regards to the purchasing power of wages in the which countries are ranked. This classiication is meant to
autarkic economy. relect the competitiveness of countries, which is evaluated
For example, RICARDO considers two countries, by 12 criteria (the 12 pillars of competitivity9) deined by
namely England and Portugal, and two goods, wine and the WEF and also by the interaction of these criteria allow
cloth, from which he evaluates the purchasing power of the in fact distinguishing three categories of economies.
hourly wage for these two products in autarkic economy,
then where free trade occurs. In England, the hourly wage The Three Stages of Development According
yields 0.01 hl of wine for free trade instead of 0.008 hl to the Wef
in autarky. Regarding cloth, the purchasing power of
wages is the same in autarky and free trade (0.01 m2). In It must indeed be noted that the 12 factors or pillars
Portugal, the hourly wage yields 0.0125 m2 of cloth in of competitiveness deined by the WEF interact and even
free trade instead of 0.011 m2 in autarky. As regards wine, mutually reinforce themselves. For example, innovation
the purchasing power of wages is the same in autarky and (12th pillar) is inconceivable in a world where powerful
free trade (0.0125 hl). We can therefore conclude that free institutions (Pillar 1) are absent, because starting innovation
trade improves both the English and Portuguese overall requires that a protection by copyright IP. Similarly, if the
purchasing power of wages. workforce is not educated (5th pillar), or the different
The Theory of International Trade 9

See the notice "Les 12 piliers de la compétitivité selon le World Economic Fo-
rum", http://www.mazerolle.fr/Economie-internationale/Glossaire-economie-
In regard to the model that was previously shown, it is internationale/12-piliers-de-la-competitivite-selon-le-World-Economic-Forum.
pdf
important to understand the concept of exchange, including
markets not eficient (pillars 6, 7 and 8) or there is no Result and Analysis

infrastructure (pillar 2), innovation will not be possible
or will be very limited. From these interactions emerges a Still ranked by the WEF in 2008-9 in an intermediate
classiication of countries according to factors that inluence stage between stages 1 and 2, according to the GDP per
their competitiveness. These economic classes deine the capita criterion (in current dollars not in PPP dollars), China
countries’ development level, and by extension the role is now ranked among countries of group 2 with its GDP per
of the 12 pillars. Thus, improving the competitiveness of capita in current dollars over $ 3,000.
Chad does not go through the same channels as in Japan
or the United States, these countries not being at the same GDP threshold for membership in a stage of development
stage of development. As the latter evolves, the level of Development stage GDP per capita (in current dollars)
wage increases, and thus increases the income per head Stage 1: Economies whose
competitiveness is determined by <2000
of population, hence the need to improve productivity to their resourse inputs
maintain the living standards. Three types of economies Transition between 1 and 2 From 2000 to 3000
can be distinguished, including economies whose Stage 2: Economies whose
competitiveness is under the inluence of their resources in competitiveness is determined by From 3000 to 9000
their eiciency
production factors, those whose competitiveness is under
Transition between 2 and 3 From 9000 to 17000
the inluence of eficiency and those whose competitiveness
Stage 3: Economies whose
is inluenced by innovation. competitiveness is determined by >17000 dollars
innovation
• Economies whose competitiveness is determined by
their resource inputs. These are economies whose An Emerging Giant in Global
competitiveness is sustained by their resources Competitiveness
in production factors, mainly unskilled labor and
natural resources. Companies in these countries According to the WEF latest report of (Global
sell commodities, manufactured by unskilled labor Competitiveness Report 2009-10), this Asian giant’s Global
and therefore not well paid. The maintenance Competitiveness Index 2009-10 is 4.74 out of 7, giving it
and enhancement of competitiveness at this stage the 29th position out of 133 countries, an honorable and
of development essentially requires the proper progressive position. Below is China’s ranking with more
functioning of public and private institutions (pillar 1), details on each of the 12 pillars:
the eficiency of infrastructure (pillar 2), the stability of
the macroeconomic environment (pillar 3) and healthy
workforces a basic education (pillar 4).
their eficiency. As wages rise, as production methods
become more complex and product quality improves,
competitiveness is mainly governed by the workforce
qualiication and vocational training (pillar 5), eficient
goods and services market (pillar 6), labor market
(Pillar 7) and capital markets (pillar 8), and by the
domestic and / or export market size (pillar 10) and
technological agility (pillar 9).
innovation. The economies that fall into this category
are those where wages are high, even very high, as well Represented by a so-called “spider” graph and
as living standards, and where the main competitive compared with the average performance of category 2
factors become innovation (pillar 12), which takes countries (economies whose competitiveness is determined
the form of knowing how to make new and different by eficiency), this ranking shows that the dragons’ country
products, as well as a dense and advanced organization does as well or better, especially as regards the market size
intra and inter irms (pillar 11). and macroeconomic stability.
However, economic development does not take place country in the world in terms of market size is participating
smoothly. In this regard, the chart below highlights the in reshaping world trade, particularly by cutting itself a
most problematic aspects of business: special place.
Competitive Advantage and Competitive The Aviation Industry

Disadvantage
Until the late 2000s, with the U.S. McDONNELL
The small square appearing next to the China’s rank DOUGLAS that disappeared in 1997, and the Brazilian
for each indicator shows a situation of either competitive EMBRAER, BOMBARDIER the Canadian, Russian and
advantage (dark blue) or competitive disadvantage (light Japanese Mitsubishi SUKHOI limited to regional aircraft
gray). For determining the nature of competitiveness (the and having no real inluence on neither of the Toulouse and
color of the square), the WEF proceed in accordance to the Seattle giants’ strategies, airliners manufacturers competing
position of countries in the global CGI index. Indeed, those with Boeing and Airbus were rare. However, AVIC, the
classiied in the top 10 have a competitive advantage for an newcomer from the land of dragons, supported by this
indicator when it also has a rank lower than 10. Otherwise, land’s 11th Five-Year Plan (2006-2010), could change the
it is considered a competitive disadvantage. Furthermore, deal, and make the two global giants worry, especially by
countries at ranks higher than or equal to 11 (it’s the the planned launch of a medium-haul with 150 seats, thus
case of the Asian dragon that is 29th) have a competitive competing with the two giants much earlier than expected.
advantage for an indicator when its rank is lower than the Next to AVIC, Bombardier, with its CSeries, also
country’s global ranking, otherwise there is a competitive becomes a potential competitor:
disadvantage for the indicator. Indicators ranked below 29 “Annoncé pour une capacité standard de 130 sièges, il
have therefore a dark blue square to indicate the competitive pourrait ainsi faire de l’ombre à l’A318, le plus petit des
advantage of the dragons’ country. Airbus, dès 2013. Sukhoï, avec son nouveau Superjet et
Embraer avec son E-190 afichent également leur ambition
Some Examples of Expanding Industries sur ce segment de marché. Mais la principale menace
est le futur appareil chinois C919, dont le premier vol est
If the Asian giant is an emerging economy, relatively annoncé pour 2014. D’une capacité de 170 à 190 sièges, ce
new to the world trading scene, it does however have futur rival de l’A320 et du B737 pourra lui aussi compter
many assets to shine on it and make the longer-established sur le dernier cri en matière de réacteurs et d’équipements.
countries worry. Indeed, expanding in many sectors, the irst
Bien que très jeune, l’industrie aéronautique chinoise designed TGV(derived from the Japanese Shinkansen and
a en effet tous les atouts. Outre ses centaines de milliers the German Velaro) reaching peaks of 350 km / h (cons
d’ingénieurs, elle peut compter sur les moyens inanciers 320 maximum in France). He still beneited from the SNCF
colossaux de l’Etat et sur un marché national en plein expertise in station construction. Now, China intends to
boom, susceptible d’absorber quelque 2.800 avions neufs sell its know-how on TGV to Saudi Arabia and also plans
d’ici à 2026. Aucun de ses concurrents n’a autant de cartes to build, by 2020, 45,000 km of high-speed lines, widely
en main. Bombardier l’a d’ailleurs bien compris, qui a outdoing the French 1000km of high speed lines13.
conclu un partenariat stratégique avec l’industrie chinoise,
lui offrant son expertise et son implantation internationale Mobile Phone Industry
pour le C919 en échange d’un coup de pouce inancier
pour son Cseries”10. It should also be noted that with the Regarding the mobile sector, it is in February 2010 that
recent installation in Tianjin of the A320 irst assembly line the Asian giant passed the milestone of one billion users
outside Europe, Airbus aims to take a part in the largest with a mobile operator market controlled entirely by local
market of world11. businesses, which do well on the OEM market too.
An article in “Les Echos” focuses on the two giants
Satellite Positioning System China Telecom, ZTE and Huawei14 that, like many others,
are typical of the rise of the Asian Dragon’s economy and,
In addition to the aviation industry, the Asian giant more signiicantly, follows the curve of its evolution. In the
cuts itself a place in the satellite space by launching the early 1980s, Ren Zhengfei, , a researcher in the laboratories
building of its own system, called “Beidou”, whose release of the army in Beijing and founder of Huawei, and Hou
is scheduled for 2015. Direct competitor of the European Weigui, ZTE’s founder, working in Xian in a research
Galileo project, it has more than 30 satellites, ive of center in electronics, adopted a similar strategy to win :
which have already been installed. Concerned, Europe, “Face à un marché balbutiant en Chine et des acteurs
which has fallen behind in the Galileo project, denounced européens comme Alcatel, Siemens, Nokia ou Ericsson,
the fact that China is currently pre-empting the frequency qui trustent les relations avec les grandes sociétés d’État,
allocated to the European Union by the International les deux nouveaux venus se sont lancés à l’assaut des
Telecommunication Union. Indeed, China has published campagnes chinoises totalement sous-équipées, avec
frequencies and signals that overwrap those of Galileo. une arme, l’engouement pour le téléphone mobile. Et un
However, the strongest signal “crushing” the others, some argument massue, le prix. Quand le fournisseur européen
of Galileo signals could be jammed by the Chinese satellites vendait son matériel de 200 à 300 dollars la ligne, Huawei
and made non-functional, especially the encrypted signals et ZTE séduisaient les PTT de troisième zone avec leurs
reserved among others to Defense12. matériels trois fois moins chers”.
They then repeated this low cost strategy in Pakistan,
High Speed Trains Burma and Africa, with this incredible feature, inspired by
the postwar Marshall Plan, i.e. inance the purchase of their
In terms of land transport, land of dragons is setting own products with the help of the Chinese Government to
up travel at high speed. Indeed, although the French these countries, and now they are entering India, the old
Alstom denied it the transfer of its technology, the Chinese Europe and the strong America. Indeed, something to give
TGV was nevertheless established, namely the Wuhan- cold sweat to Alcatel that, a decade ago, reigned supreme
Guangzhou line (departure from the new Guangzhou but must now be content with the bare minimum:
Railway Station), where circulate Nippon and German “Ainsi, lors de son dernier appel d’offres en décembre
dernier pour son nouveau réseau au protocole Internet, le
premier opérateur du pays, China Mobile, a en quelque
10
Bruno TREVIDIC, Le troisième avionneur mondial sera-t-il chinois ? Les
sorte livré une photo du nouvel équilibre des forces. Selon
Echos, December 7, 2009.
11
See http://www.mazerolle.fr/Economie-internationale/Glossaire-economie-in-
ternationale/IDE-francais-en-Chine-et- chinois-en-france.pdf See « La Chine s’afirme comme un acteur majeur de la grande vitesse ferrovi-
13
12
aire », Les Echos, June 21, 2010.
But Beijing was involved in the Galileo project to the tune of 65 million euros 14
and a portion of the work was entrusted to Chinese companies. Despite this See “Deux oiseaux dans les télécoms chinoises”, by Philippe ESCANDE, Les
cooperation, the Chinese government has developed a competing system. Echos, April 7, 2010.

les analystes d’iSuppli, il aurait accordé 35% du marché the Chinese Hebei Steel and Bao Steel are two of the ive
à ZTE, autant à Huawei, 10% à Alcatel- Lucent et 5 % à largest producers of steel in the world (see graphic).
Ericsson. On comprend mieux les problèmes d’Alcatel, qui
dix ans avant était le leader incontesté de ce marché”.
Banking
The inancial sector does not fall behind, given the vast
expansion of banks in the country of dragons since the
2000s. As a proof, in 2010, four of the top ive banks in the
world are Chinese according to their book to market ratio15.
Scientific Research
Regarding the scientiic research, the Asian giant is

experiencing a continuous boom since the 1980s, 1990s and
2000s, ranking second in the world behind the United States,
according to the Financial Times16. Although the indicators
of this development are not necessarily very illuminating
and reliable, the newspaper bases itself on the research
articles published in scientiic journals criterion to make
this classiication. Since 1981, the number of publications
has been multiplied by 64 reaching, in 2008, no fewer than
112,318 articles published by Chinese researchers (against
332,916 in the U.S.).
The Financial Times quoting James Wilsdon, director of
the Science Policy Centre of the Royal Society, shows three Multiple Assets: Acquisitions, Counterfeiting,
factors thought to be behind this growth, namely the huge Espionage and Authoritarian Planning ... But
public investment in education and research at all research Also Tourism Counterfeiting, the Cybersitter
levels, in both schools and universities, the fast and well Case Example
organized circulation and dissemination of scientiic
information and the set up by the Chinese government of To reach the level of the greatest in areas where
very attractive opportunities for researchers in the Diaspora, technology is usually a hurdle, China does not hesitate
allowing them to teach in their country, while continuing to to use the counterfeit, fast and inexpensive, to build
spend part of their time abroad. its competitiveness in high technology industries. The
example of the Green Youth Escort Dam, complex
Steelmaking software tracking keywords to prevent any connections
to websites deemed politically sensitive17 is typical of the
Concerning heavy industry, steel production, considered use of counterfeiting at the State’s highest level. In 2009,
as an indicator of the power of a national industry, because imposed on all manufacturers of computers working on the
of the use of this material in the composition of a large world’s largest market (since June 2009, the installation is
number of industrial products, brand the supremacy of the no longer mandatory but only recommended), this software
Asian giant, by far the largest producer of steel. Moreover, is actually derived from the piracy of a parental control
software belonging to American CYBERSITTER, based
15
The price-to-book ratio, or P/B ratio, is a inancial ratio used to compare a com-
in Santa Barbara, California. The company attacked, in
pany’s book value to its current market price. Book value is an accounting term
denoting the portion of the company held by the shareholders; in other words,
17
the company’s total tangible assets less its total liabilities. The Green Dam completes the censoring system already imposed on the Internet
16
Clive COOKSON, China scientists lead world in research growth, Financial in this country. It prevents access to websites reporting on the repression of the
Times, January 25, 2010. Tiananmen place riots, the Tibet crisis or the Falungong organization activities.
U.S. court, (the communist government of the country of suficient for the demand of electric cars to take off if they
dragons totally controlling the local judiciary) seven PC are not accompanied by massive public investment in
manufacturers and two local designers for hacking 3000 infrastructure adequate for their use (battery management
code lines. This has not been to slow the Asian giant, which terminals or loading points, or battery exchange stands).
plans to export its product.
Goods and Services
An extraordinary and unexpected development in the
environmental sector Comprehensive and systematic data on world trade are
known about 18 months apart from the current date. In
Five keys to understand the Solar Sector 2009, for example, igures for 2008 are published around
• Germany represented more than half of the world´s photovoltaic systems the middle of the year in the World Trade Report 2009 of
in 2009. the WTO. The irst data to be published are those of the
• Down last year, the global market should have its growth back in 2010, classiication of countries according to their total exports
with an increase of the sales volume worth at least 40% according to and imports. An early circulation of data is possible, but
experts. it carries the risk of a wrong recycling of data from the
• The actual production capacities (around 17 Gig watts) are already able previous year exploiting the difference between the date of
to cover market´s needs till 2012-2013, according to PwC. publication and the time of data.
• U.S. and China are considered as the next growth relay of this sector.
• This sector employs 5500 people in France. According to the renewable Goods International Trade In 2009
energies Union, it could have around 15000 employees the year 2012.
After studying the Chinese economy through its business
Taken not long ago as nasty polluters, as gravediggers activities, it is important to consider it on a bigger ield:
for the Copenhagen Summit of December 2009, the Asian International trade. It requires noting that the landscape of
giant is now poised to overtake the objectives of the Summit. global trade depends on how the EU-27 is processed in the
In fact, while in France the carbon tax, is sacriiced for distribution of trade lows, because of the centrality of the
economic growth, the land of dragons carved a very large EU. Thus, should be considered the case in which the main
place on the wind turbine market. Furthermore, world’s goods exporters and importers include the EU countries as
fourth solar panel manufacturer, the company Yingli Solar individual entities, then the case of the main goods exporters
produces good quality panels for a price 30% cheaper, and importers excluding intra-EU trade. In the table below,
bought by the biggest companies in the world, including each country of the EU-27 is treated separately. Several
GDF Suez, which has ordered 145,000 of them to build a interesting points emerge19:
large solar power plant in southern France. We must note
that four of the top 10 solar panels makers are Chinese: • In 2009, China became the world’s largest exporter,
Suntech (2nd), Yingli (4th), Trina Solar (6th) and Solarium overtaking Germany.
(8th). • Three major powers are clearly distinguishable from
It should be noted, however, that the largest population others, as regards both exports and imports: China,
of the world remains one of the biggest polluters in the Germany and the United States.
world, although progressing in the right direction while • Regarding China, it should be noted that a signiicant
many others, such as France, although prone to criticism, portion of Chinese exports are actually produced by
go down. And, indeed it was in June 2010 that Beijing Western and Japanese multinational irms operating in
launched its subsidy plan for electric cars in ive test the largest market in the world.
cities18. However, it is likely that these subsidies are not • The role of France in international trade, though
18
modest, is signiicant mainly as a consumer-importer
Dans un programme d’aides comparable à ceux expérimentés en Occident et au
Japon, le ministère des Finances a annoncé qu’il allait offrir aux habitants (6th exporter, importer 4th)
des villes de Shanghai, Shenzhen, Hangzhou, Hefei et Changchun un rabais • The bulk of world exports and imports is the result of a
allant jusqu’à 50000 yuans , soit 5800 euros lors de l’achat d’une automobile
hybride rechargeable et de60000 yuans (7200 euros) pour chaque inves- small number of countries.
tissement dans un véhicule tout électrique». This targeted strategy aims to help
local manufacturers, which are located differently in these ive cities: SAIC in
Shanghai, BYD is in Shenzhen, Geely is in Hangzhou, Chery is in Hefei and 19
Source: WTO, World Trade Report 2010
FAW in Changchun.

• The total of world exports and imports do not coincide Not existing as such, the commercial services category,
due to signiicant statistical error margins. deined by the WTO “as equal to services minus those
provided or received by public administrations”21, is
Dealing instead with the EU as a whole and treats divided into three categories: transportation, travel and
the intra-European as intra-regional trade, such as trade other commercial services.
between California and Texas in the United States, or Transportation category. Covering all transport
between Guangdong and Sichuan in China, draws a quite services (sea, air and others, including land and inland water
different picture20: transport, through space and pipeline) offered by residents
of an economy to those of another, it concerns transporting
• The EU-25 then appears as the leading exporter (unless passengers, goods carriage (freight), rental (charters) of
you add China, Hong Kong and Taiwan). carriers with crew and other linked services.
• The U.S. remains the largest importer before the EU Travel category. Covering goods and services purchased
and the Asian giant. for personal use by travelers - for health, educational or
• The disappearance of trade between EU countries other purposes - as well as those who travel for professional
“reduces” the total world trade and therefore increases reasons, it does not involve a particular kind of service,
the share of major countries. For example, the dragons’ but an assortment of goods and services “consumed” by
country’s share is 11.8% (excluding Hong Kong and travelers. The most common entries in this category are
Taiwan). housing, food and beverages, entertainment, transportation
• In both cases, we note that: (within the economy visited), gifts and souvenirs.
• Countries like India and Russia are also major emerging
economies; however, they remain far behind the world Other Commercial Services
three major goods exporters and importers.
• Japan remains a major exporting power, and it is more • Communication services: they include the
apparent if we look at the chart excluding intra-EU trade, telecommunications, postal services and courier
but it was surpassed by China in a decade, relecting services. Telecommunication services include the
the speed of the transformations characterizing global transmission of sound, images or other information by
economy. telephone, telex, telegram, radio and cable television
broadcasting, satellite, electronic mail, fax etc..,
The Dominance of Intra-Regional Over Inter- including communications networks, teleconferencing
Regional Trade and support services, but not the value of the transmitted
information. Are also included mobile telephone
Like the EU, “the regional blocs” are very important in services, Internet services and basic online access
the assessment of international trade, since, in general, the services, including the provision of Internet access;
largest share of world trade takes place within the blocks, • Building and public works services: they include work
especially within the EU. performed on construction and installations projects by
In addition to goods, there are, on the international employees of a company outside the economic territory
market, a sizeable low of other types of properties, less (the one-year rule used to determine the resident status
tangible than the irst, namely services. It is therefore is to be applied with lexibility). Furthermore, the
important to understand well the services international goods used for these projects are included, involving a
trade, given their increasingly important role in an economy tendency to overestimate these services.
more and more globalized. In the Balance of Payments • Insurance services related to various forms of insurance
Statistics, the various parts of the current account are titled to non-residents by resident insurance companies and
respectively: Goods, Services (including services provided vice versa, as freight insurance, direct insurance (eg life
or received by the government), Income (investment insurance) and Reinsurance;
income and wages) and Current transfers (operations • Computer and information services including data
without consideration). services (services related to hardware and software and
20
21
Detailed classiication source: WTO metadata, http://www.wto.org/french/res_f/
Idem
statis_f/its2007_f/its07_metadata_f.pdf pages 161-2.
data processing services), the news agency services exchange crisis. Finding itself desperately short of cash,
(provision of information, pictures and articles to the Chinese government was much more willing to embrace
the media) and other information services (services heterodox economic ideas that promised to deliver faster
database and web search); growth and higher revenues. The rest is history”22
• Royalties and license fees, including payment and It would thus be the realization that, during a severe
receipts pertaining to the export of non-inancial crisis, the former communist regime was at its loss, which
intangible assets and property rights such as patents, made the land of dragons to change course in addition to
copyrights, trademarks, industrial processes, and having a capable man in command.
franchises; In 2009, despite criticism of its recovery plan, this
• Other services to enterprises, namely trade-related country surprised the world by the effectiveness of its
services, operational leasing (leasing without response to the moderate decline in exports to the United
operators), and miscellaneous business, professional States and Europe, ensuring a record growth rate of 8.5%,
and technical services such as legal, accounting and triggering a good recovery of its exports after a relatively
management consulting, public relations services, short period of very strong decrease.
advertising, market research and opinion polling, Done in favor of domestic demand, but more towards
research and development services, architectural the infrastructure demand than in direction of consumer
services, engineering and other technical services, demand, the recovery plan has given birth to a fear of
agricultural services, mining and processing on site. overcapacity. In particular, the generosity of banks in
• Personal, cultural and recreational services subdivided granting loans to enterprises supported by the CPC (on
into two sub-categories: its request) has generated signiicant growth in the money
• Audiovisual services covering services and commissions supply.
relating to the production of ilms, radio and television Moreover, the latter continues to grow with the purchase
broadcasts and musical recordings. of dollars from the products exported by the Bank of China
• Other cultural and recreational services which cover, to maintain the ixed parity. However, there is doubt about
among other services associated with museums, the “sterilization” of this currency (i.e. the withdrawal of an
libraries, archives and other cultural activities, sports equivalent amount of trafic to avoid excess liquidity) that
and recreation. is not very likely, given the highly expansionary monetary
policy. The reserve requirement imposed on banks may
When providing services to foreign countries is done well have been raised (and is already among the highest in
through the establishment of a subsidiary or a branch, it the world, approximately 16%), this important liquidity, not
is excluded from international trade lows measured by necessarily quite appropriately invested causes imbalances.
the balance of payments, hence an under-estimation of the Since the entry of the Asian giant in the WTO in 2001
importance of the commercial services provided by foreign and especially since his claim as world’s top exporter
irms to a country. This is highlighted by data on foreign in 2009, thanks to the global crisis, some no longer
direct investment in companies operating in the services hesitate to speak of the “Beijing Consensus” to describe
sector showing an absorption in this sector of at least 50- the emergence of a new world economic order “fondé
55% of total foreign direct investment with, as a dominant sur la dissociation de la liberté politique et de la liberté
means of service providing, the establishment of foreign économique, la restriction de l’État de droit, le contrôle de
subsidiaries. l’information et de la société, le pilotage du développement
In this regard, marking a major turning point in et des investissements par la puissance publique, la gestion
international trade, the strategy initiated by Deng in discrétionnaire du crédit et du change”23. This term, coined
1978, generally considered to have borne fruit, despite in 2004 by Joshua Cooper Ramo, is quoted in a recent book
the signiicant imbalances and the major challenges by American scholar Stefan Halper, in its title: The Beijing
(environment, population, income disparities, and Consensus, How China’s Authoritarian Model Will
geographic inequalities) to meet in the coming decades, Dominate the Twenty-First Century.. However, in the land
hard to explain. However, in an article in the Financial
Times, Gideon Rachman writes: 22
Bankruptcy could be good for America, Financial Times, January 11, 2010.
“The background to Deng Xiaoping’s liberalisation of 23
See Nicolas BAVEREZ, “La bataille des Normes”, Le Monde de l’économie,
the Chinese economy in 1978 was a iscal and foreign April 20, 2010.

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2011 Asikhia, Olalekan 243
E-BANKING PATRONAGE IN NIGERIA: AN EXPLORATORY

STUDY OF GENDER DIFFERENCE
Dr. Asikhia Olalekan
Senior Lecturer, Department of Business Studies
College of Business and Social Sciences,
Covenant University, Ota, Canaan land,
Km.10, Idiroko, P.M.B.1023, Ota,
Ogun state, Nigeria.
Email: asikola@yahoo.com
Abstract
Although some studies had already been done concerning electronic banking yet there has been no study on gender differences
in e-banking patronage. The aim of this study is to determine if gender difference exist in electronic banking patronage in Nigeria.
The major attributes of electronic banking are used as measuring items using likert scale, which is subjected to factor and descriptive
statistical analysis. The study includes a survey on gender patronage of e-banking by individual customers in Abuja and Lagos, Nigeria
conducted in December, 2008. The results of the study indicate gender differences in e-banking patronage and also customer satisfaction
is found to be low in this respect which calls for improvement in service delivery in terms of timeliness and consistency in standards.
Key words: Electronic banking, Patronage, Gender differences, Nigeria.
There has been transformation of the Nigerian banking male and female customers, which may likely affect their
industry after the consolidation exercise in 2005 by the level of patronage; this involved the level of perceived
Central Bank of Nigeria (CBN). Akpan (2009) asserts that risks, user input factors, price factors, service product
maximizing returns and optimizing proitability became characteristics, and individual factors.
the focus of banks and these can only be achieved through Recent literature has established that communication,
enhanced patronages; that is increased customer base with information sharing, distant in electronic means, and
attendant satisfaction suficient to consolidate loyalty. level of perceived usefulness and innovativeness are
The banks are therefore confronted with delivering their major setbacks in E-banking acceptance and patronage by
services in the most eficient ways, using electronic means customers (Mukherjee and Nath, 2003; Rotchanakitumnuai
to deliver additional products and services. Thus, managing and Speece, 2004; and Arne and Horst, 2006) and gender
their assets of service delivery to customers became a major has been noted in the literature as a factor that affects
objective. customer patronage. Thus studying the gender differences
Electronic banking is the effective deployment of in e-banking patronage is a useful gap in literature that this
information technology by banks. Jun and Cai (2001) paper intends to ill, since the listed factors that are presently
identiies three dimensions of service quality in E-banking, seen as setbacks for e-banking may be perceived differently
they are banking service product quality, customer service by male and female customers alike. The research addressing
quality and online systems quality. Bank service product the issue of gender difference in e-banking patronage could
quality is related to product variety and the diverse features help bankers to ind better ways of communicating with
of the service products. Customer service quality is related both sexes which will guide electronic banking marketing
to the differences between customer expectations of service mix decisions.
providers’ performance and their evaluation of the services This research will contribute to the body of consumer
they received. Online systems quality is the quality that behaviour literature by examining the interrelationships
the customer perceived as the end-users of the information among observed variables and subsequently, a model of
system. They further identify the various dimensions of interrelationships will be created by means of exploratory
electronic banking that may be perceived differently by factor analysis.
Olalekan A. - E-banking Patronage in Nigeria: An Exploratory Study of Gender Difference
Literature review nine factor styles were common to both genders, they
concluded that male and female customers differ in their
Numerous studies have provided considerable evidence decision-making styles.
that gender relates to customers’ perceptions, attitudes, It is obvious that all these studies aligned with the fact
preferences and purchase decisions (Slyke, Comunale that males and females differ in their decision making styles,
&Belanger,2002; Mitchell & Walsh, 2004; Fischer & noting that e-banking has its inherent features as discussed
Arnold,2004; Bakewell & Mitchell,2006; Kwan,Yeung below, could it be possible for males and females disparity
and Au, 2008; Wan Omar, Ali, Hussin and Rahim,2009). in patronage? This is a gap to be illed by this study.
Sproles (1985) identiied some items that affect customers’ By accessing banking services from any place and at any
cognitive and affective orientation towards shopping moment, end users can beneit from increased convenience,
activities. These items were later reined by Sproles simplicity and fastness. Besides banks can reduce their
and Kendall(1986) and a scale consisting of eight mental transaction cost as e-banking is ive times cheaper than
customer style characteristics emerged. These include; traditional banking ways. They can strengthen their core
perfectionistic high- quality conscious consumer, brand business and broaden their customer scope by reaching
conscious “price equals quality” consumer, novelty-fashion valuable customers, selling new inancial e-services as an
conscious consumer; recreational, hedonistic consumer; attractive differentiating tool, (Ezio, 2008).
Price conscious “value –for-money” consumer; impulsive, Jun and Cai (2001) identiied bank customers’
careless consumer; confused by overchoice consumer, and perceptions of service quality dimensions using quantitative
inally habitual, brand-loyal consumer. These characteristics techniques. The authors’ conceptualized internet banking
differ from male to female (Mitchell and Walsh, 2004). service quality based on three quality perspectives; banking
Bakewell and Mitchell (2003) later investigated the service product quality, customer service quality and online
decision-making methods of adult female generation Y systems quality.
consumers in the UK and discovered ive meaningful and Perceived risk is considered an important risk attribute
distinct decision making groups; “recreational quality that impacts on the consumer decision-making process when
seekers “, recreational discount seekers”, “trend setting buying a product or consuming some services (Mitchell,
loyals”, “shopping and fashion uninterested” and confused 1998). Electronic banking is a technology-enabled channel
time/money conserving”. Similarly in studying the male and consumers’ perceive the use of electronic banking as a
decision making method they found that the male consumers risky decision because technology-enabled services exhibit
exhibited all the eight traits earlier outlined by Sproles and invasive technological, unfamiliar and indeinite stimuli
Kendall(1986) and four new traits were identiied namely; (Davidow, 1986). Therefore, when consumers decide to use
store loyal/low price seeking, time-energy conserving, electronic banking, they are exposed to uncertainties such
confused time restricted and store-promiscuity. This is a as the availability, the compatibility, and the performance
pointer to the point that apart from the fact that some of the of the complementary electronic banking channels (Sarin,
purchase characteristics differ on the basis of sex, they are Sego and Chanvarasuth, 2003). The degree to which
also product speciic. individuals accommodate these uncertainties may have
Mitchell and Walsh (2004) compared the decision- gender implications.
making method/styles of male and female shoppers in Consumers perceive greater risks when buying
Germany, they found that male individuals were slightly services than tangible goods (Zeithaml, 1981). Services
less likely to be perfectionists, less novelty and fashion are perceived as riskier than products because services are
conscious, and less likely to be confused when making intangible, non-standardized, and regularly sold without
purchases than their female counterparts. In a similar study guarantees or warrantees. Consumers can hardly ever
by Bakewell and Mitchell (2006) they established that nine return a service to the service provider since they have
decision-making styles were common to both genders, already consumed it, and some services are so technical or
and three new male traits; store-loyal/low-price seeking, specialized that consumers possess neither the knowledge
confused time-restricted and store promiscuity, and three nor the experience to evaluate whether they are satisied,
female traits; bargain seeking, imperfectionism and store even after they have consumed the service (Zeithaml,
loyal were also discovered. 1981).
Recently Hanzaee and Aghasibeig (2008) established Consumer Perceived risks identiied by literature of
10-factor style for males and 11-factor styles for females, electronic banking include;
• inancial risk still not operate this type of banking due to consumers’ low
• performance risk intention to use electronic banking.
• physical risk Price factors suggest that perceived relative economic
• social risk and advantages will motivate consumers to use electronic
• Psychological risk. banking (Sathye, 1999). For example, consumers using
electronic banking could lower the ixed and variable
Financial risk represents the inancial loss in using costs that are associated with the banking process, due to
electronic banking, as consumers may perceive that reductions in personal error and labour cost savings.
reversing a transaction, stopping a payment after discovering The Report(1997) indicated that for consumers to use
an error, or a refund may not be possible. Performance risk technologies, the price to use technologies needed to be
in electronic banking is less satisfying than non-electronic reasonable when compared to alternatives. Sathye (1999)
banking, as consumers may perceive that electronic banking argued that, in the context of internet banking, two kinds of
cannot be used to complete a transaction when needed due price were accounted for; the normal costs associated with
to the denial of access to their account. Physical risk in internet activities, and the bank costs and charges. Polatoglu
electronic banking refers to possible injury when personal and Ekin’s (2001) study further identiied that users of
information is accessed by a third party. Social risk refers to electronic banking were considerably satisied with the
the older generation who may object to the use of electronic cost saving factor through electronic banking. Contrarily,
banking due to their perception that non-electronic banking Sathye (1999) identiied that the costs associated with
is personal and friendly. Psychological risk represents electronic banking, such as the cost of electronic banking
consumer perceptions that the use of electronic banking activities and bank charges, had a negative effect on
would reduce the self-image of them, or have a negative electronic banking adoption. Bakewell and Mitchell (2003)
effect on their perceived image from other consumers. Time had earlier found that females tend to be money conserving
risk in electronic banking implies that it takes more time than males: this may also have an impact on the level of
to complete a banking transaction than a non-electronic patronage of e-banking by males and females.
banking transaction. Sathye (1999) and Polatoglu & In general, additional deinite service features, service
Ekin(2001) found that the reliability dimension was an speciications, targets of a service, and the core service
important determinant for consumers who used electronic comprised the service product characteristics. The service
banking. Furthermore, Sathye (1999) and Liao & Cheung, product characteristics of electronic banking including:
(2002) found that reliability was positively related to the consumers’ perception of a standard and consistence
use of electronic banking. They concluded that the more service, the time saving feature of electronic banking, and
secure the consumer perceived electronic banking to be; the the absence of personal interactions, have been empirically
more likely they were to use electronic banking, this can found to inluence consumers’ use of electronic banking
also vary with sex. which may have gender implications, (Polatoglu & Ekin,
Previous studies have identiied that user input factors 2001 and Karjaluoto, Mattila & Pento, 2002).
are a function of control, enjoyment and intention to use The electronic banking literature supports individual
(Ng and Palmer, 1999). Control could be described as the factors such as knowledge (Sathye, 1999), consumer
amount of effort and involvement required by consumers resources, such as money and information reception and
in electronic banking. Enjoyment is the perceived processing capabilities (Karjaluoto, Mattila and Pento,
playfulness and intrinsic value consumers experience from 2002; Gerrard and Cunningham, 2003), and lifestyle
the utilization of electronic banking. The intention to use (Polatoglu and Ekin, 2001) as having impacts on consumers’
is described as the level of resistance to change, which is adoption of electronic banking. Knowledge refers to the
associated with consumers’ intention to change from non- consumers’ responsiveness of each type of electronic
electronic banking to electronic banking. This may differ banking channel in the marketplace, their awareness of
with gender. Gerrard & Cunningham (2003) identiied the beneits associated with electronic banking, and their
that consumers who were more inancially innovative had knowledge of how to utilize electronic banking. The
a higher probability of adopting electronic banking than consumer resource money refers to the ease of access of a
less inancially innovative consumers. Similarly, Sathye Personal Computer (PC) and the internet. The information
(1999) found that even when consumers were aware of the processing and processing capabilities resource is
availability of electronic banking, some consumers might concerned with consumers’ computer expertise, aptitude of
internet, and the comprehensibility of electronic banking. computer skills. Acquisition of skills may vary with interest
Lifestyle refers to the social life in consumers’ banking which differs in gender.
patterns, such as the consumers’ value, the independence Al-Ashban & Burney (2001) identiied white-collar
of the electronic banking process, or values relating to the consumers as being most likely to use electronic banking.
personal interactions associated with the non-electronic It can be postulated that occupation status (namely white-
banking process which may have gender alignment. collar) is positively related to the choice of electronic
Consumers’ knowledge of electronic banking plays banking. They further showed that as consumers increased
an important role in their use of electronic banking. their educational qualiication level, their adoption of
Sathye (1999) and Polatoglu and Ekin (2001) empirically electronic banking would increase as well. Chan (1997)
supported the idea that consumer knowledge had an effect established that income was the single most important
on electronic banking adoption while Sathye (1999) found variable that inluenced a consumer’s use of a credit
that the lack of awareness about electronic banking and card. Empirical indings of income positively inluencing
its beneits, including the perception of it (being non- adoption of electronic banking can be found in Al-Ashban
user friendly) contribute to the non-adoption of electronic and Burney (2001) and Karjaluoto (2002) studies.
banking. Furthermore, Polatoglu and Ekin (2001) stated Bank management need to continuously assess the
that the more knowledge and skills a consumer possessed customers’ decision- making process as well as the
about electronic banking, the easier it was for the consumer formation of attitudes, preferences and satisfaction of
to utilize electronic banking. Colgate, Nguyen and Lee automated services. It is of little use for banks to attempt
(2003) coroborated the fact that when consumers made to position an offering to the female gender (for example)
decisions for different alternatives in the marketplace, the by emphasizing particular attributes that do not constitute
awareness of the existing alternatives was a determinant signiicant choice criteria (Delvin,2002).
for consumers to stay with their current banking provider The Nigerian banking industry has tried to take
and this is a function of the amount of knowledge they advantage of the productivity and customer service gains
already possess. The knowledge possessed may vary from that e-banking tend to offer. In spite of the advantages of
sex to sex depending on the level of commitment to such these new technologies, many customers are unwilling
endeavour. to adopt them (Asikhia, 2007). It is therefore important
Consumer resources also inluence the use of electronic to understand the customer preferences attitudes and
banking. Mols (1998), Sathye (1999) and Karjaluoto, adaptations of these services particularly in relation with
Mattila, and Pento’s (2002)’s studies showed that some adoption and such information could be used as marketing
consumers lacked access to a personal computer (PC) tools to attract new clients and retain the existing clients.
and this prohibited the adoption of electronic banking. Kolodinsky et al (2000) and Kolodinsky and Hogarth
Studies have also shown that consumer resources including (2001) studied the adoption of new innovations and services
computer proiciency inluence the consumers’ employment in banking in US. They concluded that gender differences
of electronic banking. Sathye (1999) demonstrated that existed for phone banking, electronic funds transfer and PC
consumers described incomprehensibility as a reason for banking.
not using electronic banking. Similarly, Karjaluoto, Mattila, It is pertinent to say that evidence abound that male and
and Pento’s (2002) literature suggests’ that non-electronic female consumers or customers differ in decision making
banking users considered electronic banking as dificult styles and obvious perceptions about a product or service,
to use because they found computers dificult to operate. it is believed that e-banking customers in Nigeria may
Gerrard and Cunningham (2003) found that consumers also have certain distinctive gender characteristics and
who were non-adopters of electronic banking could be alignment in their patronage. This study ills this gap by
differentiated by their lower computation proiciency and studying the differences in decision-making of e-banking
computer skills. Similarly, Karjaluoto, Mattila, and Pento’s patronage based on gender in the Nigerian context.
(2002) empirical results suggested that non-electronic
banking users considered electronic banking as dificult E – banking in Nigeria
to use because they found computers dificult to operate.
Gerrard and Cunningham (2003) found that consumers The competition train in the banking industry has
who were non-adopters of electronic banking could be shifted to technology and intensive delivery of services
differentiated by their lower computation proiciency and which has created paradigm shift in banking services in
Nigeria. Banks like Zenith Bank, and Guaranty Trust Bank If the account is a domiciliary account, then the foreign
used technology as a competitive weapon and successfully currency could be loaded on it. And it is essentially used
became one of the largest banks in Nigeria within four to operate the account that the customer is having with the
years post-consolidation era. Banking service delivery was bank, this has become important in the light of the fact that
re-engineered with the introduction of technology. Several most Nigerian banks now have branches in other parts of
new products were introduced, for example we have the world particularly in Britain and most West African
internet banking, Automated Teller Machines (ATMs), countries. Account balances are now being sent through
phone banking/ cell banking, debit cards, credit cards etc. phone and alerts are also sent when any money is deposited,
Integrated Banking Solutions (IBS) was also introduced transferred or withdrawn from an account. Virtual banks
in most banks. A central server replaced all branch level are on the horizon in Nigeria.
and controlling ofice level servers. Every transaction that
is taking place across any service point like a branch or Method
ATM is recorded in the server. This new operational method
helps customers to conduct normal banking transactions The research instrument was self-administered, it consist
like deposit/withdrawal of cash from account, account of 29- items e-banking characteristics features of service
transfers etc. from any branch of the twenty - ive banks in quality (5 items), perceived risk factors (5items), user input
Nigeria without the account being domiciled in that branch. factors(5 items), price and service product characteristics
Automated Teller Machines (ATM) are equipped to factor(5 items), individual factors(5 items) and customer
facilitate several transactions, customers can withdraw satisfaction factors (4 items). All scales are measured on
from the ATM of a bank that they don’t have an account. a 7-point Likert –type scales ranging from 1(very strongly
Other roles like account transfers, payment of bills, balance disagree) to 7 (very strongly agree). The reliabilities of
enquiry are all possible through ATM. Over 25,000 ATMs the items ranged from 0.79 to 0.97 as shown in Table
are currently in use in the country connected to Inter Switch 1.0. Order effects were reduced by random ordering of
Network. items, and the research instrument asked questions to also
Electronic banking is gaining patronage where draw information on the demographic background of the
information from central server is made accessible to the respondents. The questionnaire was self-administered to a
account holder using a PIN or PASSWORD. Account non-probability sample of 750 male and 750 female making
statements, account transfer facilities, bill payment a total of 1500 questionnaires that were distributed randomly
facilities, list of cheques to be cleared, loan facilities in amongst bank customers in Lagos and Abuja because these
form of assets, vehicle and mortgage, international bank cities are believed to have a near representation of all tribes
transfer are some of the facilities given by the banks to their and professional spheres in Nigeria (Nigeria Bureau of
customers. However, recent security threat to customers Statistics, 2007). The concentration in these two cities is
savings have made banks to be more careful in their online likely to reduce error within the measurement model being
transactions, customers are alerted from time to time on the inlated by situational factors inherent in diverse samples
secrecy of their password. All banks often communicate from the thirty six states of the federation. The banks used
relevant information through electronic mail (e-mail) or in each of the location were selected through convenience
short messages on phone to their customers. Banks also sampling method; customers of banks close to researcher’s
have their websites to promote their products and services location within these cities were used. A total of 375 male
as well as publicize information that is relevant to the public and 375 female customers were sampled randomly from the
about the bank. two locations (Abuja and Lagos) and the eventual spread
Credit and debit cards are gaining patronage; many of the customers according to banks and geographical
Nigerian banks have started providing these services. location is presented in appendix 1. Of 1500 questionnaires
Master and VISA are the most preferred companies with distributed, one thousand and sixty questionnaires (1060)
which banks make arrangements for providing credit/debit were deemed usable for data analysis, which is a 70.7
cards to clients. Many banks are also having their own percent response rate. The sample comprised of 54.7
debit cards on which the Nigerian currency could be loaded percent males and 45.3 percent females. The demographic
for transactions depending on the nature of the account. data of the respondents is represented in table 1.0.

Table 1: Demographic Data of Respondents The descriptive statistics of the male and female samples
are shown in table 2.
/N Items Male Female
1 Age: 18-25 150 220 Results and Discussion
26-35 290 140
36-45 110 80 The descriptive statistics of the samples (male and
46 and above 30 40 female) revealed a highest average score of 5.62 in Q7
Total 580 480 (i.e. In-branch banking involves too much queuing time) in
2 Educational qualiication: male samples and female samples has the highest average
WASCE 100 60 score in Q18 (i.e. Electronic banking is convenient). These
OND 30 60 two results tend to imply the same thing, while the male
B.sc/BA 330 340 customers denounced in-branch banking for its obvious
M.sc/PhD 110 20 disadvantage of inconvenience, the female customer
Others specify 10 -
upheld e-banking for being more convenient. Convenience
3 Duration of Patronage:
banking tend to be embraced by both male and female
customers (Q18 for male is 0.543). A further scrutiny of
0-2 years 210 100
the responses revealed that Q2, Q3, Q4, Q5, Q6, Q7, Q9,
3-5 years 250 280
Q10, Q11, Q12, Q13, Q14, Q15, Q16, Q17, Q18, Q20, Q21
6-8 years 70 80
had scores that ranged between 2.00 to 5.62 among males,
9 and above 50 20
while Q1, Q2, Q5, Q6, Q7, Q8, Q9, Q15, Q16, Q17, Q18,
4 Type of account:
Q21 had scores that ranged between 5.00 to 5.62 among
Current 340 200 females. The common factors where the male and female
Savings 240 280 customers had scores above 5.00 are Q2, Q5, Q6, Q7, Q9,
Others specify - - Q15, Q16, Q17, Q18 and Q21. These common factors are:
Source: Fieldwork by Author.
• Q2 : Transactions through electronic banking are
reliable
Analysis • Q5 : Electronic banking services are faster than in-
branch banking
Exploratory principal component analysis with a • Q6 : Travelling to a bank involves too much queuing
varimax rotation was used to summarize the items into time.
an underlying set of male and female decision-making • Q7 : In-branch banking involves too much queuing
factors because they are constructs of a number of directly time.
observable variables. Exploratory factor analysis helps in
clustering these variables into factors with unique underlying Table 2: Descriptive Statistics of the Samples
variables and it also helps to validate that respondents are
able to distinguish between the various variables despite Male Female
Variables Std Std
similarity of items questioned (De Vaus,2002). Mean N Mean N
Deviation Deviation
Kaiser-Meyer – Olkin measure of sampling adequacy
Q1 4.92 1.742 580 5.36 1.953 480
for both samples were higher than the acceptable limit of
Q2 5.29 1.643 580 5.18 1.652 480
0.5 (Hair et al, 2005) The measure for male is 0.875 and
Q3 5.12 1.618 580 4.77 1.828 480
for females is 0.675 and Barlett’s tests were signiicant
Q4 5.18 1.600 580 4.69 1.067 480
relecting the suitability of data for factor analysis.
To assess the internal consistency of each factor Q5 5.34 1.430 580 5.23 1.597 480
group obtained, a reliability analysis was conducted by Q6 5.17 1.478 580 5.33 1.644 480
calculating the Cronbach’s alpha for each factor (Table 3). Q7 5.62 1.434 580 5.05 1.716 480
For consistency, it was decided that reliability should not be Q8 4.95 1.501 580 5.05 1.654 480
lower than 0.4, the same level used by Sproles and Kendall Q9 5.16 1.664 580 5.10 1.465 480
(1986).
Male Female Items Factor Leadings

Variables Std Std All factors Male Female
Mean N Mean N
Deviation Deviation
Q7 In-branch banking involves too much .6924 .8545
Q10 5.09 1.450 580 4.82 1.760 480 queuing time.
Q11 5.17 1.756 580 4.97 1.993 480 Q8 Electronic banking services are faster than .6847 .8378
Q12 5.24 1.727 580 4.87 1.765 480 in-branch banking.
Q13 5.11 1.647 580 4.69 1.976 480 Q9 Switching from electronic banking to .6556 .6754
in-branch banking could be inconvenient
Q14 5.09 1.779 580 4.74 1.970 480 to me.
Q15 5.11 1.628 580 5.00 1.777 480 Q10 Going to a bank branch involves travel .6335 .5622
Q16 5.03 1.619 580 5.05 1.820 480 costs.
Q17 5.43 1.430 580 5.46 1.699 480 Factor 3 – User Input Factors (.519) (.557)
Q18 5.43 1.513 580 5.64 1.616 480 Q11 I like to use electronic banking because it .8966 .8151
Q19 4.99 1.669 580 4.44 1.818 480 ofers independence.
Q20 5.13 1.639 580 4.46 1.668 480 Q12 Electronic banking enables me to be fully .8032 .7408
involved in my transactions.
Q21 5.17 1.471 580 5.28 1.589 480
Q13 E-banking is enjoyable to use. .9313 .6106
Q22 4.82 1.680 580 4.38 1.955 480
Q14 E-banking is user friendly. .8080 .7256
Q23 4.83 1.720 580 4.41 1.956 480
Q15 I like to use new methods to conduct .7891 .6886
Q24 3.40 2.000 580 3.08 1.952 480 transactions e.g. ATM, telephone banking
Q25 3.74 1.957 580 4.05 1.946 480 and internet banking.
Q26 4.06 0.818 580 3.82 1.211 480 Factor 4 – Price Factor (.397) (.496)
Q27 4.17 0.783 580 4.13 1.151 480 Q16 Electronic banking charges are expensive. .5126 .4149
Q28 4.02 0.969 580 3.62 1.138 480 Factor 5 – Service Product Characteristics (.466) (.341)
Q29 3.84 1.218 580 3.64 1.135 480 Q17 Electronic banking is time saving. .7036 .7323
Q18 Electronic banking is convenient. .7267 .7261
Source: Field work by Author
Q19 Customer service in e-banking has .7836 .5852
consistent standard.
• Q9: Switching from electronic banking to in-branch Q20 Electronic banking has a wide variety of .
banking could be inconvenient to me. services available.
• Q15: I like to use new methods to conduct transactions Factor 6 – Individual Factors (.405) (.622)
e.g. ATM, telephone banking and internet banking. Q21 I have a regular access to a computer. .6017 .5526
• Q16: Electronic banking charges are expensive. Q22 I have regular access to the internet. .6894 .6173
• Q17: Electronic banking is time saving. Q23 E-banking is easy to use. .6829 .7319
Q24 I use e-banking because my friends use it. .1042 .1622
Table 3: Results of Factor Analysis for Males and Females
Q25 The use of e-banking relects my social .3299 .2711
status.
Items Factor Leadings
Factor 7 – Customers Satisfaction (.271) (.104)
All factors Male Female
Q26 How are you satisied with time saving? .3560 .2978
Factor 1 – Service Quality (.568) (.551)
Q27 How are you satisied with convenience? .2439 .6529
Q1 Transactions through electronic banking .7056 .7868
are accurate. Q28 How are you satisies with the consistency .3904 .4453
standards?
Q2 Transactions through electronic banking .6799 .7758
are reliable Q29 How are you satisied with the wide .4463 .4216
variety of services available?
Q3 I am familiar with e-banking .7913 .7593
Q4 I am comfortable with e-banking .7442 .7069 Source: Field work by Author
Q5 Electronic banking services are faster than .6068 .6855
in-branch banking
• Q18: Electronic banking is convenient.
Factor 2 – Perceived Risk Factors (.411) (.658)
• Q21: I have a regular access to a computer.
Q6 Travelling to a bank involves too much .6360 .7858
queuing time. The common reasons why both male and female
customers patronize e-banking in Nigeria is that it is
reliable, faster, does not involve travelling and queuing This implies that both customers are not using
time, it is time saving, and convenient. It is worthy to note e-banking because of their friends and social status. These
that an average customer sampled has access to computer. factors should not be used as a unique selling proposition
And electronic banking is both seen to be expensive by for e-banking. In addition, strangely, male and female
male and female customers. customers loaded low on the group factor of customer
The factors that are rated high by the male and not in satisfaction, which means there is room for improvement
female, which can be called male factors, are: Q3, Q4, Q10, by banks to satisfy the customers better; presently the
Q11, Q12, Q13, Q14, and Q20. They are represented thus: expectations of the customers whether male or female are
higher than the service received particularly as it concerns
• Q3: I am familiar with e-banking. time saving (Q26 : .3560 for male and .2978 for female)
• Q4: I am comfortable with e-banking. as well as consistency in standards (Q28 : .3904 for male).
• Q10: Going to a bank branch involves travel costs. The alignment of the male and female customer to some
• Q11: I like to use electronic banking because it offers of the factors of electronic banking is a signal to gender
independence. implied impact on e-banking patronage, this result concur
• Q12: Electronic banking enables me to be fully involved with the indings of Hanzaee and Aghasibieg (2008) who
in my transactions. established 10 – factors styles for males and 11 – factors
• Q13: E-banking is enjoyable to use. style for females, nine factors were common to both genders.
• Q14: E-banking is user friendly. However both studies differ in the number of factors to
• Q20: Electronic banking has a wide variety of services male and female, as well as common factors. This is so
available. because different product/service are being investigated
apart from using scale items peculiar to each study. For this
The male customers patronizes electronic banking paper, 8 factors were common to male customers, 2 factors
because of its familiarity, comfort, cost effectiveness, to female customers and 10 factors were common to both.
independence, high level of involvement, easy to use Furthermore, the alignment of different factors by sex
feature, friendliness, and wide variety of services. conirms the indings Kolodinsky et al (2000), Kolodinsky
The factors that are peculiar to the female customers are and Hogarth (2001) who found that gender differences
Q1 and Q8. They are represented thus: existed in the adoption of new innovations and services
in banking in the United States. Special appeals could be
• Q1: Transactions through electronic banking are communicated to male and female customers based on the
accurate. identiied factors for further patronage.
• Q8: Electronic banking services are faster than in- The banks in Nigeria scored low in customer
branch banking. satisfaction as it pertains to electronic banking, this calls
for improvement in service delivery in terms of timeliness
The female customer particularly patronizes the and consistency in standards.
electronic banking because of its accuracy and fastness.
Table 3 shows that the variables of service quality loaded Conclusion
high for both male and female customers, they both patronize
electronic banking for the quality of service rendered, which It is evident that the male and female customers perceived
ranges from accuracy to speed. It is however important to e-banking services differently and thus they patronize this
note that male customers loaded higher than the female service for different reasons. Hence for the different banks
customers on all male factors (i.e. Q3, Q4, Q10, Q11, Q12, to sustain their interest there is dire need to emphasize the
Q13, Q14, and Q20) while female customers loaded higher common factors to the particular gender whose patronage
than male customers on factors peculiar to the female is essential depending on the product. The result also help
customers as interpreted in table 2 (i.e. Q1 and Q8). Most to identify the particular unique selling proposition to be
of the factors are important patronage of both male and emphasized by the banks in the course of marketing any
female customers except two of the individual factors for gender inclined product, as their particular area of interest
both male and female customers; these are: Q24 – “ I use is important for emphasis.
e-banking because my friends use it”, Q25 – “The use of The issue of low satisfaction level of both genders is an
e-banking relects my social status”. obvious area of improvement to be pursued by the banks.
Some factors that are external to the operation of the banks Gerrard, P. & Cunningham, J. (2003). The diffusion
may be responsible for this, for example incessant power of internet banking among Singapore consumers.
failure. This means that banks may need to be proactive International Journal of Bank Marketing 21(1): 16-
to consistently keep their customers’ interest in a turbulent 28.
business environment like Nigeria by ensuring that nothing Hanzaee, K. H. & Aghasibieg, S. (2008) Generation
interrupts the low of service delivery. Investments Y female and male decision-making styles in Iran:
should be made in this area to keep abreast of the level of Are they different? International Review of Retail,
competition in the industry. Distribution and Consumer Research, 18(5):521-
537.
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2011 Omankhanlen Alex Ehimare 253
FOREIGN DIRECT INVESTMENT AND ITS EFFECT ON THE

NIGERIAN ECONOMY
Omankhanlen Alex Ehimare
Lecturer at the Department of Banking and Finance, Covenant University, Ota,
Ogun State, Nigeria.
Email: alexehimare@yahoo.com
Abstract
This research study deals with the effect of Foreign Direct Investment on the Nigerian economy over the period 1980-2009.It helped
examined empirically if the following growth determining variables in the economy-Balance on current account (Balance of payment),
Inlation and Exchange rate have any effect on Foreign Direct Investment. Also if Foreign Direct Investment have any effect on Gross
Domestic Product (GDP). Econometric models was developed to investigate the relationships between the aforementioned variables
and foreign direct investment. Based on the data analysis it was discovered that foreign direct investments have positive and signiicant
impact on current account balance in Balance of payment. While inlation was seen not to have signiicant impact on foreign direct
investment inlows. The exchange rate has positive effect on foreign direct investment. Therefore it is recommended that for Nigeria to
attract the desired level of FDI, it must introduce sound economic policies and make the country investor friendly. There must be political
stability, sound economic management and well developed infrastructure. Key words: Foreign direct investment, growth, human capital,
OLS, Nigeria, infrastructure, balance of payment, inlation, exchange rate.
Governments have been trying to lift the country out Foreign direct investment consists of external resources
of the economic doldrums without achieving success as including technology, managerial and marketing expertise
desired. Each of these governments has not focused much and capital. All these generate a considerable impact
attention on investment especially foreign direct investment on host nation’s productive capabilities. The success of
which will not only guarantee employment but will also government policies of stimulating the productive base
impact positively on economic growth and development. of the economy depend largely on her ability to control
FDI is needed to reduce the difference between the desired adequate amount of FDI comprising of managerial,
gross domestic investment and domestic savings. capital and technological resources to boast the existing
Jenkin and Thomas (2002) assert that FDI is expected production capacity. Although the Nigerian government
to contribute to economic growth not only by providing has being trying to provide conducive investment climate
foreign capital but also by crowding in additional for foreign investment, the inlow of foreign investments
domestic investment. By promoting both forward and into the country have not been encouraging.
backward linkages with the domestic economy, additional Given the Nigerian economy resource base, the country’s
employment is indirectly created and further economic foreign investment policy should move towards attracting
activity stimulated. and encouraging more inlow of foreign capital. The need
According to Adegbite and Ayadi (2010) FDI helps ill the for foreign direct investment (FDI) is born out of the under
domestic revenue-generation gap in a developing economy, developed nature of the country’s economy that essentially
given that most developing countries’ governments do hindered the pace of her economic development. Generally,
not seem to be able to generate suficient revenue to meet policy strategies of the Nigerian government towards
their expenditure needs. Other beneits are in the form foreign investments are shaped by two principal objectives
of externalities and the adoption of foreign technology. of the desire for economic independence and the demand
Externalities here can be in the form of licencing, imitation, for economic development.
employee training and the introduction of new processes An analysis of foreign low into the country so far have
by the foreign irms (Alfaro,Chanda,Kalemli- Ozean and revealed that only a limited number of multinationals or
Sayek 2006). their subsidiaries have made Foreign Direct Investment
Ehimare O. A. - Foreign Direct Investment and its Effect on the Nigerian Economy
in the country. Added to this problem of insuficient current account of Balance of payment will be used as the
inlow of FDI is the inability to retain the Foreign Direct dependent variables.
Investment which has already come into the country. Also
what effect have foreign direct investment have on such Literature Review
variables as- Gross Domestic Product (GDP) and Balance
of Payment(BOP).Moreover, what effect does inlation and The Changing international economic and political
exchange rate have on Foreign Direct Investment? Carkovic environment has led to a renewed interest in the beneits
and Levine (2002) in their study concluded that exogenous foreign direct investment (FDI) can offer to developing
component of FDI does not exert a robust positive inluence countries in achieving economic growth. The growing
on economic growth. interest in foreign direct investment (FDI), stand from
According to Ayanwale (2007). The relationship the perceived opportunities derivable from utilizing this
between FDI and economic growth in Nigeria is yet unclear, form of foreign capital injection into the economy, to
and that recent evidence shows that the relationship may be augment domestic savings and further promote economic
country and period speciic. Therefore there is the need to development in most developing economies (Aremu 2005).
carry out more study on their relationship. FDI is believed to be stable and easier to service than
Developing countries economic dificulties do not bank credit. FDI are usually on long term economic
originate in their isolation from advance countries. The activities in which repatriation of proit only occur when
most powerful obstacle to their development comes from the project earn proit. As stated by Dunning and Rugman
the way they are joined to the international system. Added (1985) Foreign Direct Investment (FDI) contributes to
to this problem is the poor external image Nigeria have the host country’s gross capital formation, higher growth,
and the concept of European Economic Community that industrial productivity and competitiveness and other spin-
include Eastern Europe. off beneits such as transfer of technology, managerial
This translates to the fact that investment lows that expertise, improvement in the quality of human resources
would normally come from western countries now go to and increased investment.
poor European Economic Communities which include According to Riedel (1987) as cited by Tsai (1994) while
Eastern Europe. the potential importance of FDI in less developed countries
Foreign direct investment (FDI) is a major component (LDCs) development process is getting appreciated, two
of capital low for developing countries, its contribution fundamental issues concerning FDI remains unresolved. In
towards economic growth is widely argued, but most the irst place what are the determinants of FDI? Speciically
researchers concur that the beneits outweigh its cost on the from LDCs point of view are there factors in the control of
economy. (Musila and Sigue, 2006). the host country that can be manipulated to attract FDI?
Mc Aleese (2004) states that “FDI embodies a package Or as some researchers claim that by and large LDCs
of potential growth enhancing attributes such as technology play a relatively passive role in determining the direction
and access to international market” but the host country and volume of FDI. This is the question about the demand
must satisfy certain preconditions in order to absorb and side determinants (or host country factors) of FDI which
retain these beneits and not all emerging markets possess are widely discussed in the literature.
such qualities. (Boransztain De Gregorio and Lee 1998, and There are also the supply side determinants or irm
Collier and Dollar, 2001). This paper is divided into ive speciic factors of FDI (Ragazzi 1973). The supply
parts. Part one above is the introduction. Part two reviews side factors are beyond the control of LDCs. A body of
the relevant literature, part three discusses the methodology theoretical and empirical literature has investigated the
employed in this study, and part four is data presentation importance of FDI on economic growth and development
and analysis while part ive discusses the indings and in less developed countries. For example see (Dauda 2007)
recommendation. (Akinlo 2004) (Deepak, Mody and Murshid 2001) (Aremu
This study will evaluate the low of FDI in Nigeria and 2005) e.t.c.
its Effect on the Nigerian Economy. The period 1980-2009 Modern growth theory rest on the view that economic
will be investigated in the study. Only FDI, Government growth is the result of capital accumulation which leads to
Expenditure and Gross Capital formation will be used investment. Given the overriding importance of an enabling
as the explanatory variables. While GDP and balance on environment for investment to thrive, it is important to

examine necessary conditions that facilitate FDI inlow. For example, Nadiri (1993) inds positive and signiicant
These are classiied into economic, political, social and effects from US sourced FDI on productivity growth of
legal factors. The economic factors include infrastructural manufacturing industries in France, Germany, Japan and
facilities, favourable iscal, monetary, trade and exchange United Kingdom. Borensztein, Gregorio and Lee (1998)
rate policies. The degree of openness of the domestic also ind a positive inluence of FDI lows from industrial
economy, tariff policy, credit provision by a country’s countries on developing countries’ growth. However, they
banking system, indigenization policy, the economy’s also report a minimum threshold level of human capital for
growth potentials, market size and macroeconomic stability. the productivity enhancing impact of FDI, emphasizing the
Other factors like higher proit from investment, low role of absorptive capacity.
labour and production cost, political stability, enduring In the neo-classical production function approach, output
investment climate, functional infrastructure facilities and is generated by using capital and labour in the production
favourable regulatory environment also help to attract and process. With this framework in mind, FDI can exert an
retain FDI in the host country. (Ekpo 1997). inluence on each argument on the production function.
According to the International Monetary Fund (1985) FDI increases capital, and may qualitatively improve the
foreign Direct Investment is an investment made to acquire factor labour and by transferring new technologies, it also
a lasting interest in a foreign enterprise with the purpose has the potential to raise total factor productivity. Therefore,
of having effective voice in management. While Dunning in addition to the direct, capital augmenting effect, FDI
(1993) describe it as an investment made by an investor also have additional indirect and thus permanent effects
based in a country to acquire assets in another country on output growth rate. Further, by raising the number of
with the intention to manage the assets. Mwillima (2003) varieties for intermediate goods or capital equipments, FDI
describe foreign direct investment as investment made so can also increase productivity (Borensztein, Gregorio &
as to acquire a lasting management interest (for instance Lee, 1998).
10% of voting stocks) and at least 10% of equity shares in Therefore, though FDI could produce a signiicant effect
an enterprise operating in another country other than that of on output growth through speeding up capital formation
the investor’s country. process, the effect tends to diminish in the long run because
Foreign Direct investment can also be describe as an of the principle of diminishing return.
investment made by an investor or enterprises in another As opposed to the limited contribution that the neo-
enterprises or equivalent in voting power or other means classical theory accredits to FDI, the endogenous growth
of control in another country with the aim to manage the literature points out that FDI can not only contribute to
investment and maximize proit. This investment involves economic growth through capital formation and technology
not only the transfer of fund but also the transfer of physical transfers (Blomstrom, Lipsey & Zejan, 1996) but also do
capital, technique of production, managerial and marketing so through the augmentation of the level of knowledge via
expertise, product advertising and business practice with labour training and skill acquisition (De Mello, 1997).
the aim to make proit.
In recent years due to the rapid growth and changes in Research Methodology Model
global investment patterns, the deinition of Foreign Direct Specification
investment have been broadened to include the acquisition
of a lasting management interest in a company or enterprise This study is based on the assumption that the inlow
outside the investor’s home country. of FDI affects economic growth in Nigeria (GDP) and
Generally, the theory that explains the nexus between Nigeria’s Balance of Payment (BOP). And again, that
FDI and growth in terms of output and productivity is inlation and exchange rate in turn affect the inlow of
signiicantly positive. However, empirical literature Foreign Direct Investment (FDI). In other-words, GDP and
yields varying results. Some research studies ind positive BOP are dependent on FDI, hence the model:
outcome from outward FDI for the investing country (Van,
Poffelsberghe, De La Potterie & Lichtenberg, 2001), but (1)
suggest a potential negative impact from inward FDI on GDP = f (FDI)
the host country. This results from a possible decrease in
indigenous innovative capacity or crowding out of domestic
irms. Other studies report more indings that are positive.
(2) Where:
BCA = f (FDI)
α0 = the intercept for equations (1) and (2)
(3) β0 = the intercept for equation (3)
FDI = f (INFL., EXR.) αI = the parameter estimate of FDI.
α2 = the parameter estimate of GOV.
Where: α3 = the parameter estimate of GCF.
βI= the parameter estimate of INFL.
GDP = Gross Domestic Product β2= the parameter estimate of EXR.
BCA = Current Account Balance e= the random variable or error term.
FDI = inlow of Foreign Direct Investment
INFL. = Inlation rate Annual time-series data on the variables under study
EXR. = Exchange rate covering thirty year period 1980-2009 are used in this study
for estimation of functions. Foreign Direct Investment
Considering the fact that the GDP and BOP of an inlow (FDI), Government Expenditure (GE) and Gross
economy are not determined by FDI alone, the inclusion ixed Capital Formation (GCF) are the relevant explanatory
of two more growth determining variables is made so as to variables. Equally, the Gross Domestic Product and Balance
get a more realistic model: Hence, equation (1) is extended on Current Account are the dependent variables. The Gross
thus: Domestic Product is the quantitative variable that measures
economic performance of a country and the Balance on
(4) Current Account measures BOP.
GDP = f (FDI, GOV, GCF)
Presentation of Results
(5)
BCA = f (FDI, GOV, GCF) The regression analysis and tests of hypotheses are
conducted at 5% signiicance level. After running the
(6) relevant regressions, the following results were obtained
FDI = f (INFL, EXR.) and are presented below:
Where: Estimated Results
GOV = Government expenditure Model 1

GCF = Gross ixed capital formation
GDP = αo + αI FDI + α2 GOV + α3 GCF + e
Equations (4) and (5) show that GDP and BCA are
GDP= 1.6709 + 4.0912FDI + 6.2835GOV. + 1.5457GFC
dependent on FDI, GOV and GCF.
The statistical forms of the models are thus: S.E.= (1.9847) (2.6086) (0.61381) (0.50454)
t 0.842 1.568 10.237 3.063
(7)
GDP = αo + αI FDI + α2 GOV + α3 GCF + e R2 = 0.989607 F-Statistic= 825.24 D.W.= 2.74
(8) Model 2
BCA = αo + αI FDI - α2 GOV + α3 GCF + e
BCA = αo + αI FDI - α2 GOV + α3 GCF + e
(9) BCA= -1.3500 + 7.0662FDI + -0.49248GOV. + 0.42403GFC
FDI = βo - βI INFL. - β2 EXR. + e S.E.= (1.1447) (21.5046) (0.35404) (0.29101)

t -1.179 4.696 -1.391 1.457
R2 = 0.919443 F-Statistic = 98.917 D.W.= 1.72

Model 3 Furthermore, the result obtained from the regression

shows that Gross Fixed Capital Formation has a positive
FDI = βo - βI INFL. - β2 EXR. + e impact on GDP. This is indicated in its positive coeficient
FDI= -14108. + -310.46 INFL. + 3731.5 EXR. of 1.5457. This coeficient is revealed to be statistically
signiicant by the standard error and t-values. Thus, from
S.E.= (58549) (1678.9) (538.18) this it implies that Gross ixed Capital Formation is elastic
t -0.241 -0.185 6.934 to GDP. The coeficient of Gross ixed Capital Formation
being positive conforms to the economic a priori expectation
R2 = 0.666903 F-Statistic= 27.029 D.W.= 0.453
of a positive impact of GCF on the growth of the economy
vis-à-vis GDP.
Model 1
Model 2
From the regressions result, the R-squared (R²) value of
0.989607 shows that at 98.96% the explanatory variables From the regressions result of model 2, the R-squared
explain changes in the dependent variable. This means that (R²) value of 0.919443 shows that at 91.94% the explanatory
at 98.96% the independent variables explain changes on variables explain changes in the dependent variable. This
the Gross Domestic Product (GDP). This simply means means that at 91.94% the independent variables explain
that the explanatory variables explain the behaviour of the changes on Current Account Balance (BCA). This simply
dependent variable at 98.96%. The calculated F-statistics means that the explanatory variables explain the behaviour
of 825.24 which is greater than the value in the F-table of the dependent variable at 91.94%. The calculated
(2.9751) implies that all the variables’ coeficients in the F-statistics of 98.917 which is greater than the value in the
regression result are all statistically signiicant to GDP. F-table (2.9751) implies that all the variables’ coeficients
The Durbin-Watson (DW) as shown in the regression in the regression result are all statistically signiicant to
analysis is 2.74 which shows that there is the presence of GDP.
autocorrelation. The Durbin-Watson (DW) as shown in the regression
The above model tested the effect of three different analysis is 1.72 which shows that there is the presence of
variables namely – Foreign Direct Investment (FDI), autocorrelation.
Government Expenditure (GOV) and Gross ixed Capital The above model tested the effect of three different
Formation (GCF) on Gross Domestic Product (GDP). In variables namely – Foreign Direct Investment (FDI),
order to obtain the regression result, the OLS technique Government Expenditure (GOV) and Gross ixed Capital
with the help of the PC Give software was used. Formation (GCF) on Current account Balance (BCA). In
The result obtained from the regression shows that there order to obtain the regression result, the OLS technique
is positive impact of Foreign Direct Investment (FDI) on with the help of the PC Give software was used.
Gross Domestic Product (GDP) with a coeficient of 4.0912. The result obtained from the regression shows that
However, this coeficient is not statistically signiicant as there is positive and signiicant impact of Foreign Direct
revealed by its corresponding standard error and t-values. Investment (FDI) on Current Account Balance (BCA)
Hence, FDI is inelastic to GDP. This positivity in the with a coeficient of 7.0662. This coeficient is statistically
coeficient of Foreign Direct Investment is in conformity signiicant as revealed by its corresponding standard
to the economic a priori expectation of a positive impact of error and t-values. Hence, FDI is elastic to BCA. This
Foreign Direct Investment on the economic growth of the positivity in the coeficient of Foreign Direct Investment
economy (GDP). is in conformity to the economic a priori expectation of a
Also, the regression result shows that the Government positive impact of Foreign Direct Investment on Current
Expenditure has a positive impact on GDP with a Account Balance of the nation.
coeficient of 6.2835. The standard error and t-values Also, the regression result shows that the Government
showed that this parameter is statistically signiicant. Thus, Expenditure has a negative impact on BCA with a
the Government Expenditure is elastic to Gross Domestic coeficient of -0.49248. The standard error and t-values
product. This positivity of the coeficient of GOV conforms showed that this parameter is not statistically signiicant.
to the economic a priori expectation of a positive impact of Thus, the Government Expenditure is inelastic to Current
Government Expenditure on GDP. Account Balance. This negativity of the coeficient of GOV
conforms to the economic a priori expectation of a negative Discussion of Findings

impact of Government Expenditure on BCA.
Furthermore, the result obtained from the regression The OLS regression analysis is carried out to determine
shows that Gross Fixed Capital Formation has a positive the impact of FDI, Government expenditure and Gross
impact on BCA. This is indicated in its positive coeficient ixed Capital Formation on GDP (proxy for economic
of 0.42403. However, this coeficient is revealed not to be performance) and Balance of Payment through Balance
statistically signiicant by the standard error and t-values. on Current Account (BCA), . Hence, GDP and BCA were
Thus, from this it implies that Gross ixed Capital Formation regressed on FDI, GOV and GCF. Though the impact of
is inelastic to BCA. The coeficient of Gross ixed Capital FDI is of primary concern here, the other two economic
Formation being positive conforms to the economic a priori variables were included to serve as “control variables” to
expectation of a positive impact of GCF on Balance of check the overstating of the estimated coeficient of FDI.
Payment vis-à-vis BCA. In model 3, the effects of two macroeconomic indicators,
inlation and exchange rates were also examined. Hence,
Model 3 FDI was regressed on inlation and foreign exchange rates.
The results of the indings show that FDI has positive
From the regressions result of model 3, the R-squared effect, though not statistically signiicant on GDP. In other
(R²) value of 0.666903 shows that at 66.69% the explanatory words, the inlow of FDI into the Nigerian economy for the
variables explain changes in the dependent variable. This stipulated period this research was carried out (1980-2009),
means that at 66.69% the independent variables explain showed that FDI was not a major contributor to economic
changes on Foreign Direct Investment (FDI). This simply growth of the nation. However, the indings show that FDI
means that the explanatory variables explain the behaviour has positive and signiicant impact on BOP through current
of the dependent variable at 66.69%. The calculated account balance during the same period of analysis.
F-statistics of 27.029 which is greater than the value in the The effect of inlation and foreign exchange rates on
F-table (3.3541) implies that all the variables’ coeficients FDI, brought under scrutiny, also showed that whereas
in the regression result are all statistically signiicant to FDI. inlation rate did not have major effect on the inlow of
The Durbin-Watson (DW) as shown in the regression FDI into the Nigerian economy, foreign exchange rate had
analysis is 0.453 which shows that there is the presence of great effect on the inlow of FDI into the Nigerian economy
autocorrelation. within the same period (1980-2009).
The above model tested the effect of two different From the foregoing discussion, it should be pointed
variables namely –inlation rate (INFL.) and Foreign out that although the government have made reasonable
Exchange Rate (EXR.) on Foreign Direct Investment (FDI). efforts in attracting FDI, certain economic and political
In order to obtain the regression result, the OLS technique circumstances prevalent in the country have hindered its
with the help of the PC Give software was used. inlow and its overall performance.
The result obtained from the regression shows that there The primary objective of this study was to determine the
is negative and non-signiicant impact of inlation on Foreign impacts and signiicance of FDI on the Nigerian economy
Direct Investment (FDI) with a coeficient of -310.46. and the nation’s Balance of Payment (BOP). This was
Hence, inlation is inelastic to FDI. This negativity in the achieved through the use of the OLS regression analysis of
coeficient of inlation is in conformity to the economic a data on the GDP, BCA, FDI, Government Expenditure and
priori expectation of a negative impact of inlation on FDI. Gross ixed Capital Formation sourced from the Central
Again, the regression result shows that foreign exchange Bank of Nigeria Statistical Bulletin.
has a positive effect on FDI with a coeficient of 3731.5. The study also gave an opportunity for the examination
The standard error and t-values showed that this parameter of the effects of inlation rate and exchange rate on FDI. The
is statistically signiicant. Thus, the foreign exchange rate is impact of Government expenditure on economic growth
elastic to FDI. This negativity of the coeficient of foreign was also examined. Therefore the following indings were
exchange rate does not conform to the economic a priori revealed:
expectation of a negative impact of foreign exchange rate First, it was discovered that, FDI have not contributed
on FDI. signiicantly to the economic growth of Nigeria in the
period under consideration.

Also, inlation was found not to have any major effect on the country’s education should be in favour of science and
the inlow of FDI into the country. But exchange rate was technology which would provide the economy with the
found to have major effect on FDI inlow into the country. required skills that FDI require.
In addition FDI contributed to Balance of payment iii. Competitiveness should be encouraged, and as a
position through Current account balance. While Gross result, the existing and ‘yet-to-exist’ export processing and
ixed capital formation is inelastic to Balance on current free trade zones should be equipped with state-of-the-art
account. infrastructures and technologies.
In conclusion after the OLS regression analysis had been iv. The infrastructures in the country need to be
carried out and with the study about the various factors enhanced to meet the needs/requirements of foreign
affecting FDI within the country, it is seen that: investors. For example, electricity should be provided at an
uninterrupted level to reduce the extra cost that investors
1. There is no empirical strong evidence to support the incur in the procurement of power generating sets coupled
notion that Foreign Direct Investment has been pivotal with their maintenance. Also, good network roads and
to economic growth in Nigeria; which could have adequate water supply should be provided so as to cut the
justify the effort of successive governments in the cost of investors doing business.
country at using FDI as a tool for economic growth. v. Appropriate measures should be placed to check
2. Governments direct involvement in the provision of economic and inancial crimes.
goods and services by establishing and controlling vi. The nation’s monetary authorities should develop
corporations, for example, has contributed little and implement measures that will ensure that both inlation
to economic growth in Nigeria. This justiies the and foreign exchange rates are sustained at levels that will
privatization policy of the various administrations in ensure increasing level of inlow of FDI.
our government to allow for the possible takeover by vii. The government and the private sector stakeholders
investors (both foreign and domestic) of the government of our economy should consider harnessing inlow of
corporations. FDI as a measure of improving the nation’s BOP through
3. Though FDI has contributed signiicantly to Balance current account balance, thereby ensuring the country’s
of Payment (BOP) through the nation’s current account international competitiveness.
balance. This is thus an effective measure of correcting viii. Policy consistency should be emphasized.
balance of payment disequilibrium in our economy.
References
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Appendix I
REGRESSION RESULT
PcGive 8.00, copy for meuller session started at 13:39:56 on 24th October 2010
Data loaded from: alexpr~1.wks
EQ( 1) Modelling GDP by OLS - The present sample is: 1 to 30
Variable Coeicient Std.Error t-value t-prob PartR2

Constant 1.6709e+005 1.9847e+005 0.842 0.4075 0.0265
FDI 4.0912 2.6086 1.568 0.1289 0.0864
GOV._EXP. 6.2835 0.61381 10.237 0.0000 0.8012
GFC 1.5457 0.50454 3.063 0.0050 0.2652
R2 = 0.989607 F(3, 26) = 825.24 [0.0000] s = 820013 DW = 2.74
RSS = 1.748293983e+013 for 4 variables and 30 observations
EQ( 2) Modelling BCA by OLS - The present sample is: 1 to 30

Constant -1.3500e+005 1.1447e+005 -1.179 0.2489 0.0508
FDI 7.0662 1.5046 4.696 0.0001 0.4590
GOV._EXP. -0.49248 0.35404 -1.391 0.1760 0.0693
GFC 0.42403 0.29101 1.457 0.1571 0.0755
R2 = 0.919443 F(3, 26) = 98.917 [0.0000] s = 472972 DW = 1.72
EQ( 3) Modelling FDI by OLS - The present sample is: 1 to 30

Constant -14108. 58549. -0.241 0.8114 0.0021
INFL. -310.46 1678.9 -0.185 0.8547 0.0013
EXR 3731.5 538.18 6.934 0.0000 0.6404
R2 = 0.666903 F(2, 27) = 27.029 [0.0000] s = 155120 DW = 0.453
ARTIFICIAL LEARNING AND SUPPORT VECTOR MACHINES:

DEFAULT RISK PREDICTION1
FABIO FRANCH, Ph.D.2
University of Trento (Italy)
471 4th Ave Apt F – Chula Vista, CA 91910
Email: ffranch@mix.wvu.edu
Abstract
The inancial crisis that started in 2008 has shown how much work has still to be done in order to precisely predict the bankruptcy
of those actors who ask for credit to their banks. In this paper I focus my attention on large companies, using a database kindly
provided by Unicredit, one of the most important European banking groups. The size and the complexity of the problem has required
the simpliication of the database and the use of Principal Component Analysis (PCA) in order to reduce the problem to a dimension that
is manageable by the Support Vector Machine (SVM) software chosen for this study. The best coniguration found allowed the correct
classiication of 84% of all companies and such results are found to be higher than many other reported in the literature. Key words:
Bankruptcy prediction, Basle 2, Default Risk, Principal Component Analysis, Support Vector Machines.
(…) it doesn’t matter whether the forecast of the future is 1. the corporate sector is the set of companies6 that is
true or not. If a mathematician should predict a long and affected by a relatively higher default rate7.
happy reign for me, a time of peace and prosperity for the 2. the prediction of the risk of default of large companies
Empire -- Eh, would that not be well? (Asimov, 1988) using data from the balance sheet is far from perfection.
In order to accomplish such objective, I decided to turn
Bankruptcy prediction has been studied by many to a big inancial group which already has at its disposal a
researchers from different ields3 and it is now getting large amount of information about its customers as required
more and more important due to the Basel 2 Agreement4 by the Basel 2 Agreement. According to this inancial
and the ongoing inancial and economic crisis. Despite agreement, banks commit themselves to store an amount
the relatively high precision achieved by more traditional of resources for each loan that relects as accurately as
statistical techniques, much more is needed to reach possible the risk connected to that particular operation.
perfection at predicting bankruptcy. Unicredit collects a large amount of information in
I decided to apply Support Vector Machines (SVMs) on order to decide whether they deserve a loan or not. These
the prediction of corporate defaults for several reasons5: data enable them not only to describe potential customers
1
Master thesis presented at the University of Trento, under the valuable supervi- 2005, Martin-del-Brio, Udo, G. 1993, Odom, M. & Sharda, R. 1990, Barniv
sion of Professor Alessandro Zorat of the University of Trento. Final grade: R., A. Agarwal, and R. Leach 1997, Bel et al. 1990, Rudorfer, Gottfried 1995,
110/110 cum laude. Ohlson, J. 1980, Kaski Samuel, Janne Sinkkonen, and Jaakko Peltonen 2001.
2 4
Fabio Franch earned his Ph.D. from West Virginia University and studied at Uni- The Basel 2 Agreement has been in force since 2007 for most banks in Europe.
versity of Trento, where he successfully completed his studies (BA and MA) in Countries members of the Basel 2 Agreement are Belgium, Canada, France,
2007. He was also an exchange student at the Abo Akademi in Turku, Finland. Germany, Italy, Japan, Luxemburg, Netherlands, Spain, Sweden, Switzerland,
His interests are machine learning and the dynamic analysis of economic phe- the United Kingdom and the United States of America. To know more on the
nomena. Basel 2 Agreement, see International Financial Risk Institute (IFRI) 2000,
3
For applications of artiicial learning techniques to inancial and economic Moody’s 2006, Panizzolo Davide 2006, Ronchino Beatrice 2005.
5
problems, see Zhang, G.Peter 2004, Deforche, Koen 2004, Fauci F. 2004, The Probability of Default (PD) is usually estimated for a homogeneous group
Fernandez-Rodriguez, F.,Gonzalez-Martel, C., & Sosvilla-Rivero, S. 2000, Fu- of borrowers (based on the type of loan and features of the borrowers) and rep-
kushima, K. 1975, Gencay, R. 1996, Kuoa R.J., P. Wub, C.P. Wangc 2002, Ro- resents an assessment of the percentage of borrowers that are going to bankrupt
driguez, Claudia P. 2004, Rosenblatt, F. 1962, Scarselli, Franco, Sweah, Liang within a year. It entails the assessment of an expected value and an unexpected
Yong, Markus, Hagenbuchner, Ah Chung Tsoi 2005, Tewoldeberhan, Tamrat value, which is used as safety margin.
W., Alexander, Verbraeck, Simon S. Msanjila 2005, Tortorella, Francesco 2002, 6
These companies are all Unicredit customers.
Viswanathan, Murlikrishna, Young-kyu Yang, e Taeg Keun Whangbo 2005, 7
Wan, H. A.,Hunter, A., & Dunne, P. 2002. For applications of artiicial learning These information is related to the business activity earlier than year 2007.
for default risk prediction, see Yongqiao Wang, Shouyang Wang, and K. K. Lai

2011 Fabio Franch 263
in quantitative terms, but also to track the change of the 10. total amount of managers;
inancial status of the borrowers over time. 11. legal expiry date of the bank loan;
However, the protection of such information is vital 12. operational expiry date;
for the survival of the inancial group in the competitive 13. legal structure;
arena of today’s markets. In other words, Unicredit has to 14. goods price/value (Euros/Italian Liras);
protect the identity of its customers from its competitors 15. budget type/form;
(for obvious reasons of maintaining its customer base), but
it has also to do it in order to avoid that its competitors The database presents also 40 columns that monitored
discover its market strategies and its policies and nulliies the conformity to some unknown criteria).
the advantage that comes with them. Another section follows (labeled as EL_FOND) which
Moreover, Unicredit protects the identity of the contains data about budget funds lows and has numerical
variables it has selected as most relevant to predict a values9. The section labeled as “EL_VOCERIC” is 300
correct value of the risk of default, in order to preserve its columns long and provides information about budget items
competitive advantage that comes from a better estimate and reclassiied budget items. Another section follows,
of the risk, which leads to a lower amount of resources to which deines the type of reclassiication used in the balance
be stored and to an increase of available resources which sheet and then 6 columns, labeled as “GPL_SEM” and an
can be invested in a more proitably way. From this it other set of columns called “GPL_SEM”10.
follows that the database I was presented does not contain At the end of the database it is possible to ind the
any label that provides a clear description of what those columns labeled as “SEZ_12”, the ones that describe the
variables represent. Thus, it is not possible to state whether typology of the borrowers (even though it is unclear how
that variable is about the net income, or gross sales, or any borrowers are classiied) and then a column that states
other variable that Unicredit deemed necessary to obtain a whether that particular borrower was able to comply with
better assessment of the probability that a particular record his/her inancial obligations11.
(company) will fulill his obligations.
Despite of the lack of information about the meaning of SVM: Implementation, Pre-Processing
each column, the database contains a wide large amount of And First Results
information for each client. In fact, it is possible to identify
registry, quantitative, and qualitative pieces of information, SVMs are artiicial learning techniques based on the
all of which refer to year 20038. linearity assumption in a multidimensional space and on
the optimization theory. This theory implements a learning
It is possible to ind data relative to: method which inds its origins in the statistical learning
theory. This learning method was irst introduced by Vapnik
1. the speciic industry of each borrower; and others (Burges 1998; Cristianini and Shawe-Taylor
2. place and date of foundation; 2000) and has enabled the resolution of different kinds
3. current year; of problems since its earlier adoption, offering a superior
4. bank account information of the registered ofice and of performance to other statistical techniques (Abbasi and
the local ofices; Chen 2005; Boyacioglu, et al. 2009; Drucker et al. 1999).
5. borrower’s county of residence; Once all observations (or examples) have been collected
6. county to which belong the Chamber of Commerce in for a speciic problem (including the outputs or labels, the
charge of taking care of each borrower; values to be correctly predicted), a researcher can make a
7. amount of employees (as of the end of the year); decision concerning the hypothesis regarding the speciic
8. total amount of employees; problem. Among these, linear hypotheses are the ones that
9. total amount of seasonal labor; can be more easily understood and used in order to explain
how SVMs work.
8
Unicredit kindly provided the same data also for year 2004. However, I decided
to focus only on year 2003 in order to see how much SVMs can be useful to 9
In this case (zero means that there are no funds, thus it is not a missing value.
predict a bankruptcy event using the inancial, economic data in a precise time
10
of the year (the end of the year), without considering their evolving over time. It is not possible to understand the meaning of the data reported in these col-
Please note that a longer time span is required to predict the Probability of De- umns.
fault (PD), as regulated by the Basel 2 Agreement. 11
Default or no default. It is a dummy variable.
Franch F. - Artiicial Learning and Support Vector Machines: Default Risk Prediction
((x , y ),..., (x , y ))
In a linearly separable sample S Figure 1: Example of Support Vectors
S= 1 l
1 l
where α
*
is the solution of the following quadratic

optimization problem
W (α ) = ∑α i −
2 i , j =1 i j α i α j
∑y y x ⋅x
l
1 l
max
i =1
i j
∑ yα =0
l
i =0
subject to i
i
α ≥ 0, i = 1,..., l WINSVM12 was chosen as the tool to be used in this
=∑ yα x
study thanks to its Windows interface and its optimization
* l function, which enables the generation of a random set of
i =1
the vector w is the maximum margin
i i i
parameters and the testing of the SVM13 with the generated
hyperplane with a geometric margin equal to: parameters.
The database presented several issues:
γ =
1
.
w 1. missing values: this issue was solved by deleting
2 records or columns that contained one or more of such
values;
α [y ( w ⋅ x + b )− 1] = 0,
According to the Karush-Kuhn-Tucker condition, the 2. redundancy of information: issue solved by deleting all
optimal solution needs to satisfy the condition the columns that had values which were equal for all
i = 1,..., l.
50,000 records;
* * *
3. redundant information: Unicredit itself reported the
i i i i
uselessness of using some pieces of information to
predict the risk of default;
4. mix of qualitative and quantitative values: issue
\which implies that only to input i for which the x solved through the binarization of qualitative variables
functional margin is equal to 1 and which are in the (columns).
proximity of the hyperplane, correspond values of α i

*
Given the size of the database and the insuficient

which are different from zero. computing power to delete/ilter records or columns of the
All the other parameters α i are equal to zero (Burges

*
entire database, I sorted all remaining records according to
the outcome of the bank loan operation (default/no default).
1998; Cristianini and Shawe-Taylor 2000).
It follows that in the expression of the weights vector 12
WINSVM is a Windows-based software which allows regression and classii-
only the points close to the hyperplane matter (see Figure cation. See http://www.cs.ucl.ac.uk/staff/M.Sewell/winsvm/ for instructions on
1), and it is for this reason that these points are termed how to use it. Other useful pieces of software are SVM and Kernel Methods
Matlab Toolbox (http://asi.insa-rouen.fr/~arakotom/toolbox/index.html), Near-
‘support vectors’. est Point Algorithm (http://guppy.mpe.nus.edu.sg/~mpessk/npa.shtml), SVM-
QP (https://projects.coin-or.org/SVM-QP), 2D Svm Interactive Demo (http://
www.learningwithkernels.org/software.html), and others (see http://www.ker-
nel-machines.org/software.html, http://www.support-vector.net/software.html,
http://www.support-vector-machines.org/SVM_soft.html).
13
See Cristianini, Nello, John, Shawe-Taylor 2000 for a detailed description of
the theoretical assumptions on which is based the learning of a Support Vector
Machine.

I then selected all the records regarding those borrowers both the regression and the classiication. Less than a second
that were not able to fulill their obligations and an equal was the time required to train and test the SVM using the
amount of borrowers that were able to repay the loan14. This selected parameters.
was done to reduce the size of the database and to balance The SVM performed really well on this small dataset
the amount of records of the borrowers that did not pay (see Table I).
back their loans15. The equal size of the two classes (default
and non default) is supposed to enhance the capability of Table I: output of the testing phase with 79 training samples and
the Support Vector Machine to understand the difference 11 testing samples.
between the two classes16.
Average loss : 0.12007405
The Unicredit database was further simpliied by:
1. deleting columns that the Unicredit Credit Risk
Avg. loss pos : 0.22013576 (6 occurences)
manager himself suggested as useless for our purpose;
2. keeping only columns whose values were expressed in Avg. loss neg : 0 (5 occurences)
Euros;
3. keeping only the records of borrowers that reside on the Mean absolute error : 0.5098412
Italian territory;
4. deleting records which contain one or more missing Mean squared error : 0.39600989
values;
5. deleting records that had more than 4 marks in the Accuracy : 0.90909091
section preceding the one labeled as “EL_FOND”17.
6. deleting of columns which presented constant values Precision : 0.83333333
for all records.
The Unicredit database, at the moment of its handing, Recall : 1
contained around 50,000 records, but only a small
percentage described companies which turned out to be in Predicted values:
inancial troubles. After the pre-processing phase and the
| + | -
simpliication mentioned above the database included 2254
records and 607 columns. I then labeled “0” all records
---+-----+-----
which refer to bankrupted enterprises and “1” to all the
remaining ones. +| 5 | 0 (true pos)
I went on testing the effectiveness of the SVM by
removing all registry data, which required the binarization - | 1 | 5 (true neg)
and therefore an explosion of the amount of columns. The
goal at this stage was to test the computing power needed
to process the entire database. I randomly chose 79 records Given this positive results, I then extended the dataset
for the training phase and 11 records for the testing. On to 1353 records, of which 60% for training and 40% for
an ASUS laptop, 2.8Ghz processor, 512Mb RAM the testing. However, this time the optimization process was
optimization phase lasted between 2 and 7 minutes, using more intensive than before; as a result, the system crashed.
Despite such an event, several conigurations have been
14
saved18: I decided then to run WINSVM on two computers
50% of the database constituted companies that paid back the loans after one
year, the remaining 50% were not able to do it. (similar to the computer described above), aiming at
15
A much larger amount of borrowers were able to fulill their obligations due to obtaining as many conigurations as possible. This is
the fact that customers that received the loans were those that Unicredit deemed
deserving and enough wealthy to borrow money.
possible thanks to the random generation of the parameters
16
This provides a better assessment of which company will default and which one and their accuracy testing process. This operation required
is not going to.
17
Some records had more than 4, which was against the rules that were set by Uni-
credit before creating the database. This is probably due to wrong data entries 18
Some of the conigurations lead to high accuracy predictions: accuracy is the
or misunderstandings within the organization itself. percentage of positive values and negatively values that were respectively pre-
dicted by the SVM as positive and negative out of the total of values.
6 to 7 hours, because the execution of SVM had to be 7. deleted all the columns that included the same value in
repeated several times in order to obtain a large amount of all records.
conigurations19.
I then tried several conigurations of parameters like C, Principal Component Analysis (PCA)
epsilon, nu, Kernel that led to a testing MSE that is less
than 0.01 and I located the one that returns the highest The original database was subject to a simpliication
accuracy value in the training phase. Such a coniguration process that only marginally reduced the amount of columns
has a radial Kernel, gamma equal to 0.3, C equal to 10 and due to the assumption that a lower amount of them will
epsilon equal to 0.0001. Although this one was the best enhance the performance of the SVM when it processes
coniguration, it performed poorly in the testing phase: new samples. However, the steps described in the previous
accuracy is in fact rather low, 69%. I concluded from this section results to be insuficient to signiicantly reduce the
analysis that using fewer training samples and even less complexity of the database.
testing samples made it easier for the SVM to recognize I therefore decided to use Principal Component Analysis.
the hyper-plane that correctly classiied 10 out of 11 testing This statistical technique generates new factors that are
items. Raising the number of training samples apparently then chosen as axis of bi-dimensional maps which are then
led the SVM to deine a hyper-plane that did not separate interpreted in order to understand the degree to which these
correctly the two classes of companies. It was plausible to factors can actually explain the underlying phenomenon.
assume that such an issue was due to the higher complexity Factors are generated by a correlation matrix; this
of deining a multi-dimensional hyper-plane, using a much matrix is then processed in order to have as many factors
larger amount of variables. In other words, the SVM seemed as the number of variables included in the process. Factors
to get confused by the excessive amount of data. have the property of being independent and are linearly
Thus, I proceeded further simplifying the database, constructed using the original variables (Bowler 2002;
looking for a meaningful criterion which would allow Bonifazzi 2006; Easton 2009).
the removal of a considerable amount of columns while Factors are then sorted according to their ability to
keeping the number of training and testing samples as high provide the highest amount of information, or, in other
as possible. words, to better explain the phenomenon. According to the
literature, a speciic amount of factors can be selected on
I then20: the basis of criteria like the following:
1. deleted every record (company) which operated in a
different industry21; 1. keep all factors which have an auto-value greater than
2. deleted the information about the industry to which 1;
belongs each borrower; 2. keep all factors that can explain at least 66% of the
3. deleted the data about the Chamber of Commerce and variability;
the statistical ID of each borrower: this information 3. keep all factors that can explain at least 75% of the
was deemed to be useless to predict the Probability of variability;
Default; 4. keep those factors that are located on the left part of
4. deleted all the columns that presented data that was the graph generated after choosing the variables to be
used only to identify in some way each record; processed to generate the new factors.
5. deleted all the columns about employees: too many 5. keep all factors that are deemed to hold important
missing values are in fact included in these columns; information (Mortara 2006).
6. added qualitative information that was removed in the
previous step; It is important to remember that the software used for
this purpose, INSTAMAP22:
19
200 conigurations were deemed suficient to proceed with the analysis.
20
After this simpliication, the database had 1799 records and 582 columns. We 1. cannot read column labels that are longer than 5
assumed that the SVM would have probably performed badly with such a high characters;
number of columns; thus, we deemed Principal Component Analysis necessary
to signiicantly reduce the amount of columns.
21
Unicredit provided data that was mostly about a particular ield it chose as the See Mortara V. (2006) for more information.
22
most troublesome given the relatively higher percentages of bankruptcy.

2. cannot process a large amount columns at a time: Accuracy was at this point even lower than the one
I therefore chose to split the database in several previously estimated. Thus, I decided to test all the other
subsets containing 19 columns each and a last one conigurations, but with no improvement in the testing
which included also the inal column containing the performance.
information about the occurring of the default event for At this stage, the average loss was rather high in any
each record. experiment conducted. Having an average loss equal to
In this study I decided to keep as many factors as were 0.5 means that predictions are greater than or less than the
needed in order to explain 66% of the variability of the correct value to be predicted by an average of 0.5. However,
data. Doing so reduced the size of the columns to 180 to the best coniguration appeared to be the irst one, to which
which I had to add the 75 columns of qualitative data that corresponds an average loss equal to 0.35784271.
were spared from the factor generation process given their Given the poor performance of regression, I decided
sparseness. to use classiication. I chose to keep the conigurations
All factors were then copied into a new spreadsheet, generated with regression, but I had to change the values
saved later in the TXT format which is needed in order of the last column of the database23 from “0” (no default
for WINSVM to read the data. I chose to use 80% of the occurred) to “-1” (a default event occurred in the short),
records for the training phase and the remaining 20% for while keeping all remaining labels the same.
testing. I started again from the coniguration of parameters that
WINSVM crashed again due to the large amount of performs the best in the training phase. The output of the
information presented, but only after having generated classiication procedure with the set of parameters with the
more than 300 possible optimal conigurations. I decided lowest MSE is presented in Table 4.
that such an amount of options was enough to have an idea
of which Kernel can perform the best. Table III: output of the classiication procedure with the best set
of parameters
Table II: testing with the optimal coniguration
*** mySVM version 2.1.4 *** Avg. loss pos : 0.18958699 (181 occurences)
---------------------------------------- Avg. loss neg : 0.92340542 (181 occurences)
Predicting Mean squared error : 0.99198794
Accuracy : 0.47513812
Precision : 0.40425532
Recall : 0.10497238
Avg. loss neg : 0.052091077 (181 occurences)
Predicted values:
Mean absolute error : 0.98534041
| + | -
Mean squared error : 0.99136138 ---+------+------
Accuracy : 0.62430939 + | 19 | 162 (true pos)
Precision : 0.57525084 - | 28 | 153 (true neg)
Recall : 0.95027624
Accuracy is at this point very low, less than 48%, with
Predicted values:
mostly negative value only predicted. Thus, I decided to test
| + | - the SVM performance using all generated conigurations.
Only one coniguration performed really well, with an
---+------+------
accuracy of 81.49%. I tried then to improve its performance
+ | 172 | 9 (true pos)
23
- | 127 | 54 (true neg) Default “yes” or default “no”.
by marginally decreasing or increasing one or more of its Change in parameter Testing results
parameters (see below). Values of epsilon equal to 0.01, Average loss : 1.6596905
0.2, 0.15, 0.17, 0.18, 0.19 generated an accuracy that never Mean squared error : 126.33603
exceeded 81%. Degree=2, C=0.0001 Accuracy : 0.70718232
I observed that with an epsilon value of 0.18 it was Precision : 0.69230769
possible to get the least average loss. I kept this value Recall : 0.74585635
of epsilon and changed C and gamma to optimize the Average loss : 1.6596905
performance of the SVM. However, it was not possible to Mean squared error : 126.33603
reine the predictions using as starting coniguration the Degree=2 Accuracy : 0.70718232
one whose MSE is equal to 0.2637. The best coniguration Precision : 0.69230769
using the Radial Kernel had therefore a C value that is Recall : 0.74585635
equal to 1000000, an epsilon value of 0.1 and gamma equal Average loss : 0.68685004
to 0.0124. In short, the performance of Radial Kernels was Mean squared error : 46.331544
usually very high in the training phase, but vey low in the
Degree=4 Accuracy : 0.70718232
testing phase, which led us to think that Radial Kernels
deine a hyper-plane that is overly based on the speciic
Recall : 0.77900552
training data it processed during the training. I needed to
ind a coniguration that is able to perform better in the
testing phase, which would support my claim of robustness I decided then to switch to an Anova Kernel, starting once
of the indings of this work. again from the best coniguration and trying to optimize its
Thus, I went on testing other Kernels, choosing again parameters in order to improve the accuracy in the testing
the conigurations to which corresponded a low error phase. The best coniguration seemed to be the one that had
(MSE). I chose to analyze the performance of Polynomial a MSE equal to 0.0691369, C equal to 100, epsilon equal to
Kernels. The best coniguration seemed to be the one that 0.0001, gamma equal to 0.9 and degree equal to 4. To such a
has a MSE equal to 0.85472, C equal to 1, epsilon equal to coniguration of the SVM corresponded an accuracy equal
0.0001, third degree. MSE was rather high, still it managed to 77%. Once again, I optimized the parameters, aiming at
to correctly classify all 1437 records in the training phase. inding a better solution. It turned out that a high value of
However, results in the testing phase were rather bad, with gamma (gamma=30) improved the prediction’s accuracy of
an accuracy of almost 64%. Once again, I tried to optimize 6 percentage points25 (see below).
the coniguration of parameters, but only reducing the
degree from 3 to 2 led to an improvement of results. Not Table V: testing with Kernel Anova
even raising the C value positively affected the performance
which was stationary around an accuracy level equal to Change in parameter Testing results
71% (see below). Average loss : 0.37226828

Table IV: accuracy in the testing phase with polynomial Kernel Avg. loss neg : 0.26999171 (124 occurences)
Gamma=1 Mean squared error : 1.396154
Change in parameter Testing results Accuracy : 0.77071823
Average loss : 1.6596905 Precision : 0.71875
Mean squared error : 126.33603 Recall : 0.88950276
Degree=2 Accuracy : 0.70718232
Recall : 0.74585635
24
This coniguration uses a very large Soft Margin, which is used to cope with 25
Accuracy is thus equal to 83%.
the outliers and the noise, all problems that probably affected the Unicredit
database.

Change in parameter Testing results Variation in a e b

Risultati del testing
values
a 0.1 Mean absolute error : 0.62960401
Accuracy : 0.79281768
b 0.1 Mean squared error : 0.5516383
Accuracy : 0.83149171
Recall : 0.91712707
Recall : 0.93922652
Accuracy : 0.82596685
Mean squared error : 0.55654285
Recall : 0.93370166
Accuracy : 0.83977901
a 0.1 Precision : 0.83606557
At this point I was not still satisied with the results b1 Recall : 0.84530387
obtained. I decided to see what the use of a Neural
Kernel entailed. I started from the coniguration to which
Predicted values:
corresponded a MSE equal to 0.314255, C equal to 0.01,
| + | -
epsilon equal to 0.00001, a equal to 0.4 and b equal to 0.9
---+------+------
and a prediction accuracy equal to 81%.
+ | 153 | 28 (true pos)
Such accuracy was already interesting in itself; however,
- | 30 | 151 (true neg)
I wanted to see if there was any way to further increase its
accuracy (see below). After having tried several options
by modifying only epsilon, I was unable to improve the I observed at this point the superior performance of
accuracy and only in one case the accuracy was as high SVMs with a Neural Kernel. Almost all randomly generated
as in the former coniguration. Thus I decided to increase/ conigurations led to very accurate predictions. Moreover,
decrease a and b and to keep all remaining parameters at the last prediction has an accuracy that is almost equal to
the same level (see below). 84%, the highest observed so far. To such a high accuracy
corresponds a low number of misclassiied records. This
Table VI: results in the testing phase modifying the reported high-performance coniguration was also characterized
parameters. C and epsilon are held constant. by a very low average loss and especially by the highest
precision level26. Such a high value of precision is due
Variation in a e b to the low amount of negative values that were predicted
Risultati del testing
values
as positive. Only the recall27 value was not the highest
among those I observed until that moment. This was due
to the relatively higher amount of positive values that
were predicted as negative. Thus, I concluded that such
a=1 a coniguration was the optimal one, given the highest
b 0.1 Mean squared error : 0.60010934 accuracy and precision achieved. The sharp decline of the
Accuracy : 0.8121547 accuracy level when testing for robustness of the results
Precision : 0.7627907 conirms the complexity of the problem under investigation
Recall : 0.90607735
26
Precision is deined as the positive values that have been predicted as such out
of all values that have been predicted as positive even if they were negative.
27
Recall is deined as the amount of positive values predicted as such out of all
“real” positive values.
in this work. In fact, when using 30% of the selected data the variables included in the database. Such an issue turned
for testing (up from 20%), the accuracy slightly drops to out to be irrelevant, if I consider that PCA and the SVM
79%. An additional ten percentage points in accuracy are processed the data in such a way that the most important
lost when using 40% of the data for testing purposes. variables were not rejected thanks to their informative
content.
Discussion Given an accuracy level equal to 84%, I can state that
SVMs can successfully be used to improve the ability to
It is important to understand the meaning of the predict their ability to fulill their obligations.
predicted values in order to measure the impact of using The results achieved here appear to be even superior to
such a model. I shall recall that, using classiication, those found in the literature (see below).
predicted values range from “-1” to “+1”, where “+1” is
given to records to which corresponds an event of default Table VII: prediction accuracy in Yongquiao Wang, Shouyang
and “-1” in all other cases (no default). That means that Wang, and K. K. Lai 200530
those 28 misclassiied records represented companies that
appeared to Unicredit as solid and deserving credit, but that
were at the end unable to fulill their obligations, which
is exactly what Unicredit aimed at minimizing28. I should
therefore conclude that, after all, I should not choose such a
coniguration, since I am only interested in having the least
number of companies possible that borrow money, even if
they cannot pay it back (a coniguration that misclassiies
28 companies is therefore not the best one).
In order to draw even better conclusions, I have to
understand what the fact of having only 30 misclassiied
Source: Yongquiao Wang, Shouyang Wang, and K. K. Lai 2005
companies implies. The 30 companies predicted as positive,
but negative in reality, represent in fact companies that
the model classiies as weak and therefore not deserving In conclusion, I believe that it is possible to further
credit, but which are actually solid enough to fulill their enhance the performance of the classiication process in
obligations. several ways, by:
A large banking group like Unicredit should minimize 1. performing again PCA, after having removed the most
also such an occurrence, since it represents a loss of inluential outliers. This would marginally reduce
customers. However, in a real world situation an important the amount of records, but it would also increase the
banking group like Unicredit has a rather wide customer variance of the data, making the task of ind a better
base, which enables it choose to lend money only to those hyperplane easier for the SVM. I chose not to go this
companies that are clearly able to pay their loans back. In way because I believed that the qualitative information
such a situation, the coniguration to which corresponded would have, in some way, justiied the values
an accuracy value of 84%29 appears to be the optimal in corresponding to the outliers.
order to minimize losses and maximize revenues. 2. performing again the PCA and reducing the informative
content to a lower level (less than 66%). I did not go
Conclusion this way because the literature advises against such an
option31.
The purpose of this paper is to determine whether SVMs
can be helpful to predict companies’ default risk. This study
had to deal with several issues, among which the most 30
These results are the best ones obtained by Yongquiao Wang, Shouyang Wang,
critical one was the lack of knowledge of the meaning of and K. K. Lai 2005. They used a dataset containing 653 records and 15 features.
31
As reported in Mortara V. 2006.
The rating class is the class a borrower belongs to given its ability to fulill its
28
This strategy is currently being pursued. obligations. The more solid a company is, the higher its ranking will be –AAA,
29
The coniguration which uses a Neural Kernel. BB and so on –.

3. processing as many records as possible, therefore Barniv R., A. Agarwal, and R. Leach (1997) Predicting
including a larger amount of records of companies that the outcome following bankruptcy iling: A
were actually able to pay their loans back. I believe three-state classiication using neural networks,
that such an option could lead to some interesting IntelligentSyst. in Accounting, Finance, and
results, after having observed that most of the times the Management, vol. 6.
amount of calculated Support Vectors was almost equal Bell, T., G. Ribar, and J. Verchio (1990) Neural nets vs.
to the amount of training samples. This means that the logistic regression: A comparison of each model’s
SVM “considers” each training sample as “special” ability to predict commercial bank failures, in Proc.
and calculates a Support Vector for (almost) each of (1990 Deloitte Touche/Univ. Kansas Symp. on
them. In other words the hyper-plane is very close to AuditingProblems, 29–53.
most of the training samples, which led us to think that Belli Giorgio (2004) Valutazione delle imprese e
increasing the amount of training samples would help merito creditizio alla luce del nuovo accordo di
the SVM deining a more accurate hyper-plane. Basilea, thesis written at the University of Rome
In conclusion, I have to point out that the predicted “La Sapienza”, Academic Year 2003/2004.
values cannot directly be interpreted as the Probability of Bonifazzi, C., M. Cinti, et al (2006) "Principal
Default (according to Basel 2 regulation, PD has also to Component Analysis." Physica Medica 21: 1.
be calculation on a 5-year base at least: I only used data of Bowler, S. and T. Donovan (2002) "Democracy,
year 2003). These values have rather to be interpreted as a institutions and attitudes about citizen inluence on
measure of reliability of stating that a particular company government." British Journal of Political Science.
will bankrupt or not. In particular, the closer the predicted 32(02): 371-390.
value to “-1” or “+1” is (or even greater than 1), the more Boyacioglu, M., Y. Kara, et al (2009) "Predicting
credible/reliable the statement about the possible default bank inancial failures using neural networks,
of that speciic company. The closer the predicted value to support vector machines and multivariate statistical
zero, the more unreliable such a statement. methods: A comparative analysis in the sample of
savings deposit insurance fund (SDIF) transferred
It would have been interesting to try to predict the rating banks in Turkey." Expert Systems with Applications
class of each borrower32, but to do so I would have needed 36(2): 3355-3366.
to: Burges, C (1998) "A tutorial on support vector
machines for pattern recognition." Data mining and
1. have the information of the rating class of each knowledge discovery 2(2): 121-167.
borrower, needed to train the SVM on them; Cristianini, Nello, John, Shawe-Taylor (2000) An
2. deal with multi-class classiication problem, which introduction to support vector machines and
involves the use of as many SVMs as the number of the other kernel-based learning methods, Cambridge:
rating classes. Cambridge University Press.
Given the high accuracy I obtained by using a Neural Deforche, Koen (2004) Bayesian Network Learning
Kernel, I can state that SVM can proitably be used to Università di Leuven per workshop The HIV Data
predict the inancial solidity of potential borrowers. SVMs, Management and Data Mining, South Africa.
in other words, offer themselves as an additional tool with Drucker, H., D. Wu, et al (1999) "Support vector
which to ight and avoid dangerous inancial crises like the machines for spam categorization." IEEE
one that been plaguing the international community since Transactions on Neural networks 10(5): 1048-1054.
the second half of year 2008. Easton, D (2009) "A re-assessment of the concept
of political support." British Journal of Political
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2011 Carlos Acosta-Calzado 273
REVAAM MODEL APPLIED TO MULTIPLE VALUATION

COMPARISON AMONG DIFFERENT WORLD REGIONS
Carlos Acosta-Calzado (MBA)
Business Intelligence Service
IBKAN Consultants, Investment Banking
Email: c.acosta@ibkan.com.mx
Abstract
This paper uses the REVAAM Model used to calculate adjusted multiples, through multiple linear regression, used commonly in
valuating companies such as the Price Earnings (PE) and/or the Enterprise Value to Earnings Before Interest, Taxes, Depreciation and
Amortization (EV/EBITDA). For this paper, we used REVAAM to calculate historical adjusted multiples for eight regions in the world:
Africa, Asia, Western Europe, Eastern Europe, Latin-America and the Caribbean, Middle East, Oceania and United States & Canada;
all the World; and the BRIC group (Brazil, Russia, India and China). We show the yearly obtained multiples, as well as the long term
multiples for each region and compared them. During our analysis, we found that although emerging markets do show higher multiples,
these are converging towards mature market multiples. When we compare long term multiples to those for each year we can distinguish
differences that could be consider bubbles due to speculation and to fundamentals (proitability factors). Key words: REVAAM, multiple
valuation, PE multiple, EBITDA multiple, EV/EBITDA
REVAAM1 model was created as a way to make the most used multiples and refer to the proitability of the
commonly used multiple valuation a true "comparable" company.
valuation tool, rather than just a mathematical averaging For purposes of our work, we constructed a database
method that could be applied to the company we are with historic information from thousands of companies
valuing. This model implies considering other fundamental around the world and grouped them in 10 proposed regions,
factors that truly affect valuation of a speciic company from years ending 2000 to 2010. We wanted irstly to use
and that are different from other companies even within REVAAM model to calculate adjusted multiples for these
the same industry. These parameters refer to proitability regions and compare them to see if there were differences
factors and are company speciic, but the methodology among regions, and secondly obtain and compare short term
of the model lets incorporate other parameters that could multiples (calculated each year) and long term multiples
include macroeconomic or industry speciic factors. (without differentiating each year).
Although there are several multiples used in relative
valuation: Price Earnings2 (PE), Enterprise Value to Earnings Hypotheses
Before Interest, Taxes, Depreciation and Amortization3
(EV/EBITDA), Price to Sales4 (PS), Price to Book Value As stated before, multiples vary among markets
of Equity5 (PBV), and variations to these, REVAAM model according to region speciic risks, economic conditions
concentrates in P/E and EV/EBITDA multiples as they are and risk-return parameters, as opposed to only fundamental
factors such as proitability at company level. Additionally,
1
we believe that markets are not rational in the short term
Relative Valuation Adjusted Model
2
Price Earnings ratio is calculated as the market price per share divided by net
and tend to overreact to region speciic or world events,
earnings per share thus making fair market value deviate from the theoretical
3
Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortiza- long-run value. Taking these arguments into consideration
tion ratio is calculated as the value of operating assets divided by operating
earnings before interests and taxes plus depreciation and amortization we will try to test the following hypotheses:
4
Price to Sales ratio is calculated as the market price per share divided by sales Hypothesis 1: Adjusted long term and short term
per share multiples for emerging or underdeveloped regions
5
Price to Book Value of Equity is calculated as the market price per share divided
by the book value per share
will be higher than those in mature markets.
Acosta C. C. - Revaam Model Applied to Multiple Valuation Comparison Among Different World Regions
Hypothesis 2: Adjusted yearly multiples will Where,

signiicantly differ from the adjusted long term EV/EBITDA = the EBITDA multiple calculated
multiples in each market. as the Enterprise Value or Value of the Net Operating
Assets divided by the Earnings before Interests, Taxes,
Methodology Depreciation and Amortization
αEVEBITDA = is the value of the intercept calculated by the
Model regression analysis
βROC = the value of the coeficient for ROC
REVAAM Model adjusts PE multiple by using the ROC = the return on capital, calculated as the after-tax
Return on Equity6 (ROE) and the Net Margin7 as the operating income (EBIT*(1-tax)) divided by the company’s
indicators of proitability for equity shareholders, and beginning equity value plus the debt balance
adjusts EV/EBITDA multiple by using the Return on βOM = the value of the coeficient for Net Margin
Capital8 (ROC) and the Pre-tax Operating Margin9. These Pre-tax Operating Margin = calculated as the pre-tax
adjustments are made using multiple regression analysis in operating income of year t divided by the sales of year
order to minimize errors, where the independent variables ε = the sum of errors derived from the regression analysis
are the multiples and the other factors are the dependent
variables. These relationships are shown in the equations As stated in the REVAAM Model, the basic linear
below: regression model assumes that the contributions of the
different independent variables to the prediction of the
P/E = α PE + β ROE * ROE + β NM * Net Margin + ε

(1) dependent variable are additive and they tend to follow
normal distributions. In our case, the relationships between
our variables may be multiplicative and also they have
Where, highly skewed distributions (positive values). Hence it may
P/E = the price earnings ratio calculated as the price per be possible to make their distributions more normal-looking
share divided by net earnings per share by applying the logarithm transformation, as shown in the
αPE = the value of the intercept calculated by the following equations:
regression analysis From equations (1) and (2), we apply natural logarithms
βROE = the value of the coeficient for ROE to obtain:
ROE = the return on equity, calculated as the net income
Ln(P/E) = α PE + β ROE * Ln(ROE) +

divided by the company’s beginning equity value (3)
βNM = the value of the coeficient for Net Margin
Net Margin = calculated as the net income of year t
β NM * Ln(Net Margin) + ε
divided by the sales of year
ε = the sum of errors derived from the regression analysis
Ln(EV/EBITDA) = α EVEBITDA + β ROC * Ln(ROC) +

(4)
EV/EBITDA = α EVEBITDA + β ROC * ROC + β OM * Ln(Pre - tax Operating Margin) + ε

(2)
βOM * Pre - tax Operating Margin + ε

Equations (3) and (4) will be used to obtain long-term
6
adjusted multiples for each region without considering
Return on Equity measures the rate of return on shareholders’ equity and is cal-
culated as the Net Income divided by the book value of equity differences among years.
7
Net Margin measures the proitability and is calculated as the net income divided For short-term or yearly adjusted multiples we need to
by revenues
8
differentiate samples for each year and, in order to simplify
Return on Capital measures the rate of return on the company’s capital and is
calculated as operating earnings after taxes divided by the book value of equity the number of equations, we decided to consider dummy
plus the book value of debt variables for each year, so that the value will equal to 1 for
9
Pre-tax Operating Margin or EBIT measures proitability before interests and the corresponding year and zero for all other years.
taxes and is calculated as operating revenues less operating expenses plus non-
operating income

Hence, from equations (2) and (3), we introduce dummy Where,

variables as follows: 20xx equals to 1 if it corresponds to the year and zero
for any other year
(5)
Ln(P/E) = αPE + βROE *Ln(ROE) + βNM Sample
*Ln(Net Margin) + β2000*2000 +β2001*2001 These regressions should be performed at company
level due to the incorporation of proitability factors and
+ β2002*2002 + β2003*2003 + β2004*2004 +
results could be grouped by industry, country, region,
β2005*2005 + β2006*2006 + β2007*2007 + etcetera. REVAAM Model could be applied to any sample
β2008*2008 + β2009*2009 + β2010*2010 + ε of companies where proitability factors are available.
Since information of private companies is limited, we need
(6) to use public information. For purpose of our analysis,
Ln(EV/EBITDA) = αEVEBITDA + βROC * we obtained information of public companies from 113
Ln(ROC) + βOM * Ln(Pre-tax Operating countries with one or more stock exchanges, from years
2000 to 2010, where available. The following table
Margin) + β2000*2000 +β2001*2001 + summarizes the number of companies we were able to
β2002*2002 + β2003*2003 + β2004*2004 + obtain for each region.
β2005*2005 + β2006*2006 + β2007*2007 +
β2008*2008 + β2009*2009 + β2010*2010 + ε
Table 1. Number of companies by sector per year
Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total
Africa 0 0 307 357 380 440 512 622 378 813 857 4,666
Asia 0 0 3,075 6,087 7,353 9,081 9,675 10,621 11,949 20,245 22,083 100,169
Europe_east 0 0 3 613 737 886 1,269 1,719 569 1,213 1,462 8,471
Europe_west 0 0 3,992 3,343 3,695 3,821 4,297 4,384 4,301 4,840 4,871 37,544
Latam&Carib 0 0 628 501 578 532 589 694 776 882 923 6,103
Middle East 0 0 320 399 463 580 721 818 549 1,123 1,154 6,127
Oceania 0 0 0 495 531 654 681 722 881 1,571 1,428 6,963
US&Canada 5,752 7,154 7,440 7,575 6,072 6,162 8,579 8,246 8,059 9,303 7,863 82,205
World 5,752 7,154 15,765 19,370 19,809 22,156 26,323 27,826 27,462 39,990 40,641 252,248
BRIC 0 0 1,353 2,118 2,339 3,079 3,643 4,447 3,434 8,615 10,119 39,147
From the total 252,248 companies, some could be b. we took out "outlier" companies with ROE or ROC
considered in several years but with data corresponding to higher or equal to 200% and those with Net margin or
each particular year. Pre-tax Operating Margin higher or equal to 100%, and
When applying the samples to the model, we found that c. some companies had missing information for some
the number of companies that can be used was reduced proitability factors.
because: Thus, the following tables summarize the number of
a. Negative igures and values equal to zero cannot be companies we used for each multiple after the adjustments
transformed to natural logarithms, on the samples.
Table 2. Final sample for P/E REVAAM calculation
Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total
Africa 0 0 237 269 301 361 390 475 231 277 339 2,880
Asia 0 0 2,516 4,843 6,340 7,819 8,029 8,764 8,154 6,789 8,939 62,193
Europe_east 0 0 0 281 284 343 865 1,355 316 369 462 4,275
Europe_west 0 0 2,707 2,197 2,471 2,580 3,032 3,178 2,853 2,127 2,385 23,530
Latam&Carib 0 0 411 364 442 445 519 574 562 515 604 4,436
Middle East 0 0 212 261 342 437 549 604 309 335 530 3,579
Oceania 0 0 0 330 346 392 429 428 482 496 462 3,365
US&Canada 2,826 3,285 2,902 3,328 3,342 3,554 3,744 3,551 3,613 3,100 3,031 36,276
World 2,826 3,285 8,985 11,873 13,868 15,931 17,557 18,929 16,520 14,008 16,752 140,534
BRIC 0 0 1,086 1,577 1,806 2,368 2,809 3,553 2,069 1,968 2,493 19,729
Table 3. Final sample for EV/EBITDA REVAAM calculation
Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total
Africa 0 0 255 268 288 338 385 411 184 226 263 2,618
Asia 0 0 2,561 4,958 6,297 7,772 8,007 8,570 7,708 9,425 11,607 66,905
Europe_east 0 0 0 389 462 577 880 1,242 266 388 460 4,664
Europe_west 0 0 2,648 2,514 2,802 2,866 3,076 3,223 2,713 2,281 2,481 24,604
Latam&Carib 0 0 500 430 456 456 519 558 515 544 586 4,564
Middle East 0 0 224 255 348 425 561 600 227 288 381 3,309
Oceania 0 0 0 338 380 428 401 395 438 458 454 3,292
US&Canada 3,382 3,752 3,615 3,951 3,929 3,969 4,179 3,892 3,914 3,811 3,654 42,048
World 3,382 3,752 9,803 13,103 14,962 16,831 18,008 18,891 15,965 17,421 19,886 152,004
BRIC 0 0 1,132 1,675 1,893 2,498 2,794 3,360 1,877 3,592 4,470 23,291
For both cases, the inal sample used for the REVAAM Africa
Model is substantially lower than the initial sample, but it
does contain suficient data points to run linear regression (7)
analysis.
For the case of Eastern Europe, both the original and the Ln(EV/EBITDA) = 1.71E+12+ -0.3623*
inal samples had few data points for year 2002; thus, we
Ln(ROC) + 0.1071* Ln(Pre-tax
decided no to include them for that particular year.
Results Operating Margin) -1.71E+12*2002 -
From the samples obtained we ran the linear regression 1.71E+12*2003 -1.71E+12*2004 -
model, irst using equations (5) and (6) to obtain the 1.71E+12*2005 -1.71E+12*2006 -
adjusted multiples per year for each region. The following 1.71E+12*2007 -1.71E+12*2008 -
are the resulting equations for each region. For additional
1.71E+12*2009 -1.71E+12*2010
parameters, please refer to appendices 1 and 2.

(8) For the Asian region, again we do not have information

Ln(PE) = 7.60E+12+ -0.117* Ln(ROE) + for years 2000 and 2001. The resulting F-tests for both
equations show that the linear regression model can be
-0.0752* Ln(Net Margin) -
used for the relationships we proposed and the T-tests also
7.60E+12*2002 -7.60E+12*2003 - show that all main factors are signiicantly different from
7.60E+12*2004 -7.60E+12*2005 - zero. The R2 was 15.24% for the EV/EBITDA multiple
7.60E+12*2006 -7.60E+12*2007 - and 14.39% for the P/E multiple, so both show similar
7.60E+12*2008 -7.60E+12*2009 - proportion of variability explained by the available data.
7.60E+12*2010 We need to remember that the Asian region has the highest
number of companies in the whole sample.
For the African region, we do not have information for Eastern Europe
years 2000 and 2001, and the coeficients for the intercept
and for each year are very high, and although using scientiic (11)
notation for this igures makes them appear equal among Ln(EV/EBITDA) = 0.9011 -0.2276*
them, the resulting numbers in the spreadsheet are different.
Ln(ROC) -0.0934* Ln(Pre-tax Operating
The resulting F-tests for both equations show that the linear
regression model can be used for the relationships we Margin) + 0.172*2003 + 0.1303*2004 +
proposed and the T-tests also show that our main variables 0.4316*2005 + 0.3527*2006 +
(ROC, ROE, Net margin, and Pre-tax Operating Margin) are 0.3464*2007 -0.03506*2008 +
signiicantly different from zero. The R2 was 26.23% for 0.3574*2009 + 0.5927*2010
the EV/EBITDA multiple and 4.73% for the P/E multiple,
which means that the former, with the data available, has (12)
an equation that explains better the corresponding multiple. Ln(PE) = 1.534 -0.4556*
Asia Ln(ROE) + 0.1702* Ln(Net
Margin) + 0.5978*2003 +
(9) 0.2182*2004 + 0.5321*2005 -
Ln(EV/EBITDA) = 8.37E+12 -0.3194* 0.6714*2006 -1.0663*2007 -
Ln(ROC) + 0.1527* Ln(Pre-tax Operating 0.2348*2008 + 0.4339*2009 +
Margin) -8.37E+12*2002 - 0.7888*2010
8.37E+12*2003 -8.37E+12*2004 -
8.37E+12*2005 -8.37E+12*2006 - For Eastern Europe we do not have information for
8.37E+12*2007 -8.37E+12*2008 - years 2000 and 2001, and as stated before we eliminated
8.37E+12*2009 -8.37E+12*2010 year 2002 because data points for that year were few. The
resulting F-tests for both equations show that the linear
(10) regression model can be used for the relationships we
Ln(PE) = -7.57E+11 -0.471* Ln(ROE) - proposed and the T-tests also show that all main factors are
signiicantly different from zero. The R2 was 7.14% for
0.0444* Ln(Net Margin) +
the EV/EBITDA multiple and 4.98% for the P/E multiple.
7.57E+11*2002 + 7.57E+11*2003 +
7.57E+11*2004 + 7.57E+11*2005 +
7.57E+11*2006 + 7.57E+11*2007 +
7.57E+11*2008 + 7.57E+11*2009 +
7.57E+11*2010
Western Europe Regression equations for Latin-America and the

Caribbean are for years 2002 to 2010, where information
(13) was available. F-tests show that both linear regression
Ln(EV/EBITDA) = 1.8465 -0.3479* Ln(ROC) + models can be used for the relationships we proposed and
0.1822* Ln(Pre-tax Operating Margin) - the T- tests also show that all main factors are signiicantly
0.0626*2002 + 0.0152*2003 + 0.1348*2004 + different from zero, except for Net Margin in equation (16)
0.2591*2005 + 0.4073*2006 + 0.1581*2007 - that suggests that this factor may not contribute to explaining
0.4386*2008 + 0*2009 + 0.1693*2010 P/E multiple in this region. For purposes of this analysis and
in order to keep all models consistent among them, we keep
the variable in the model. Additionally, the use of dummy
(14) variables for differentiating years could be misleading when
Ln(PE) = 1.4909 -0.3908* Ln(ROE) -0.1129* removing a critical factor such as Net Margin. The correct
Ln(Net Margin) + 0.0212*2002 + 0.1008*2003 procedure should be to run independent linear regression
+ 0.3085*2004 + 0.4554*2005 + 0.5943*2006 models for each year and determine when is the factor not
+ 0.2374*2007 -0.5214*2008 + 0*2009 + important. R2 was 17.41% for the EV/EBITDA multiple
0.2509*2010 and 5.48% for the P/E multiple. This difference may be the
result of using Net Margin in the P/E model.
In the case of Western Europe information starts in Middle East

2002 as well. In this case, the coeficient or year 2009 was
calculated as zero in both equations even though there is (17)
data for that particular year; this means that the model is Ln(EV/EBITDA) = 1.9015 -0.4348* Ln(ROC) +
using 2009 as the base year. The resulting F-tests for both 0.1815* Ln(Pre-tax Operating Margin) -
equations show that the linear regression model can be 0.0406*2003 + 0.2154*2004 + 0.3912*2005 +
used for the relationships we proposed and the T-tests also 0.0338*2006 + 0.1307*2007 -0.5468*2008 -
show that all main factors are signiicantly different from 0.2345*2009 -0.1019*2010
zero, including the intercept value obtained. The R2 was
32% for the EV/EBITDA multiple and 22.28% for the P/E (18)
multiple; a high correlation factor in inancial regression Ln(PE) = -1.91E+11 -0.4064* Ln(ROE) -0.1208*
models. Ln(Net Margin) + 1.91E+11*2002 + 1.91E+11*2003 +
1.91E+11*2004 + 1.91E+11*2005 + 1.91E+11*2006 +
1.91E+11*2007 + 1.91E+11*2008 + 1.91E+11*2009 +
Latin-America & the Caribbean
1.91E+11*2010
(15)
Ln(EV/EBITDA) = 1.5172 -0.3317* Ln(ROC) The Middle East region also has data available for years
+ 0.0895* Ln(Pre-tax Operating Margin) - 2002 to 2010. F-tests also show that the linear regression
0.2196*2002 -0.1945*2003 -0.0642*2004 + model is a good model for the proposed relationships. T-tests
0*2005 + 0.216*2006 + 0.2106*2007 - also show that all main factors are signiicantly different
from zero, except for the intercept with a high probability
0.4391*2008 + 0.249*2009 + 0.3912*2010
(95%) of being equal to zero. As in the equations for Latin-
America and the Caribbean we will keep this coeficient.
(16) The resulting R2 was 29.96% for the EV/EBITDA multiple
Ln(PE) = 1.4069+ -0.5303* Ln(ROE) + and 5.38% for the P/E multiple, which also shows that
0.0559* Ln(Net Margin) -0.95*2003 - maybe EV/EBITDA multiple for this region is better than
0.9394*2004 -0.1834*2005 -0.0044*2006 - P/E when using the proposed relationships.
0.5897*2007 -0.2693*2008 + 0.4695*2009 +
0.5748*2010

Oceania show that the linear regression model is a good model for
the proposed relationships and that all main factors are
(19) signiicantly different from zero, including the intercept.
Ln(EV/EBITDA) = 1.9298 -0.3244* Ln(ROC) The resulting R2 was 12.81% for the EV/EBITDA multiple
+ 0.0872* Ln(Pre-tax Operating Margin) - and 23.64% for the P/E multiple, being the latter higher.
0.0629*2003 -0.0168*2005 + 0.1463*2006 -
0.007*2007 -0.7868*2008 + 0.0083*2009 - World
0.1072*2010
(23)
Ln(EV/EBITDA) = 1.6362 -0.3283* Ln(ROC) + 0.1219*
(20) Ln(Pre-tax Operating Margin) -0.2074*2001 -0.0215*2002
+ 0.0957*2003 + 0.1519*2004 + 0.2482*2005 + 0.303*2006
Ln(PE) = 1.9966 -0.4642* Ln(ROE) -0.0399* + 0.275*2007 -0.4338*2008 + 0.1507*2009 + 0.3397*2010
Ln(Net Margin) -0.0576*2003 -0.0141*2005 +
0.1294*2006 -0.1522*2007 -1.1194*2008 -
0.0343*2009 -0.2005*2010 (24)
Ln(PE) = 1.6897 -0.4203* Ln(ROE) -0.0388*
Ln(Net Margin) + 0*2000 +0.0874*2001 +
Oceania region has data available for years 2003 to 2010.
0.0142*2002 + 0.0501*2003 + 0.1674*2004 +
As in the case of Western Europe, both resulting equation 0.2707*2005 + 0.2473*2006 + 0.0878*2007 -
calculate as zero the coeficient for the base year, which 0.4883*2008 + 0.1215*2009 + 0.2928*2010
in this case is 2004. Both F-tests and T-tests show that the
linear regression model is a good model for the proposed World includes all available information from all
relationships and that all main factors are signiicantly the previous regions, so data for years 2000 and 2001
different from zero, including the intercept. The resulting correspond to the US and Canada region only. In both
R2 was 30.17% for the EV/EBITDA multiple and 33.41% equations the base year is 2000. F-tests and T-tests show
for the P/E multiple, both high values that show similar that the linear regression model its the relationships for
proportion of variability explained by the available data. both multiples, including intercepts. The overall R2 was
17.31% for the EV/EBITDA multiple and 10.87% for the
US&Canada P/E multiple.
(21) BRIC
Ln(EV/EBITDA) = 1.6474 -0.2439* Ln(ROC) +
0.0492* Ln(Pre-tax Operating Margin) - (25)
0.2262*2001 -0.3049*2002 + 0.0087*2003 + Ln(EV/EBITDA) = 1.8929 -0.2861* Ln(ROC)
0.1285*2004 + 0.1135*2005 + 0.1723*2006 + -0.0305* Ln(Pre-tax Operating Margin) -
0.0908*2007 -0.5673*2008 -0.1257*2009 - 0.0319*2003 -0.2788*2004 -0.207*2005 -
0.0028*2010 0.0374*2006 + 0.2486*2007 -0.4303*2008 +
0.2656*2009 + 0.4456*2010
(22)
Ln(PE) = 2.0608 -0.4683* Ln(ROE) + 0.1005* (26)
Ln(Net Margin) -0.0359*2000 +0.0202*2001 Ln(PE) = -5.85E+11+ -0.5834* Ln(ROE) + 0.033*
+ 0.3556*2003 + 0.4529*2004 + 0.3781*2005 Ln(Net Margin) +5.85E+11*2002 + 5.85E+11*2003 +
+ 0.4028*2006 + 0.2765*2007 -0.524*2008 5.85E+11*2004 + 5.85E+11*2005 + 5.85E+11*2006 +
+ 0.0466*2009 + 0.2228*2010 5.85E+11*2007 + 5.85E+11*2008 + 5.85E+11*2009 +
5.85E+11*2010
US and Canada is the second region with more data

available and it covers all years from 2000 to 2010. The Finally, the BRIC region was constructed from a sample
base year in both equations is 2002, where the coeficient is including countries from several regions, so data was
calculated at zero in both equations. All F-tests and T-tests available for years 2002 to 2010. Except for the intercept
of equation (26) all other factors are statistically signiicant Now, for each year we apply the equations (7) to (25)
different from zero. We will keep this coeficient in our -those with odd number- to obtain the corresponding
formulas for purposes of our analysis. Also, coeficients multiples for each year. The factors (ROC, ROE, Pre-
for years and for intercept in equation (26) are very high. tax Operating Margin and Net Margin) used in each case
R2 was 13.57% for the EV/EBITDA multiple and 9% for correspond to the median values for each region in each
the P/E multiple. year. Table 4 shows the results for adjusted EV/EBITDA
multiples and Table 5 for adjusted P/E multiples.
Table 4. REVAAM EV/EBITDA multiples (short term)
Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Africa NA NA 7.33 7.84 8.33 10.42 13.96 13.29 4.93 6.93 7.92
Asia NA NA 12.98 11.14 10.45 11.39 11.86 12.72 5.73 10.45 12.07
Europe_east NA NA NA 6.05 6.18 7.77 7.44 7.28 5.03 7.44 9.24
Europe_west NA NA 8.35 10.06 11.25 12.38 14.16 10.87 5.49 8.04 9.31
Latam&Carib NA NA 7.10 7.03 7.72 8.16 9.94 9.99 5.05 9.31 10.17
Middle East NA NA 16.59 14.53 18.14 20.32 14.17 16.21 7.52 9.14 9.89
Oceania NA NA NA 11.55 11.86 11.41 13.62 11.65 4.98 9.94 9.25
US&Canada 7.57 5.91 5.53 7.75 8.68 8.41 8.87 8.17 4.25 6.53 7.53
World 7.60 5.90 7.98 9.39 9.82 10.55 11.16 10.82 5.20 8.89 10.42
BRIC NA NA 15.81 14.49 11.17 11.53 13.73 17.69 8.84 17.18 18.89
Table 5. REVAAM P/E multiples (short term)
Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Africa NA NA 7.33 7.70 6.85 13.06 16.15 18.83 7.16 11.15 15.03
Asia NA NA 16.85 16.68 18.22 18.89 19.51 19.55 10.08 19.70 20.99
Europe_west NA NA 15.14 15.18 18.51 20.76 23.81 15.79 7.76 14.60 18.13
Latam&Carib NA NA 11.25 4.45 4.23 8.40 10.18 5.56 7.81 15.74 16.04
Middle East NA NA 18.47 3.49 12.42 13.33 8.97 10.70 6.97 12.51 13.90
Oceania NA NA NA 19.14 19.41 18.72 21.54 15.80 6.42 19.34 17.65
US&Canada 14.31 16.10 16.56 23.51 25.84 23.50 23.75 20.82 9.42 16.32 20.97
World 13.86 15.98 15.62 16.45 18.02 19.13 18.62 15.55 9.09 17.23 19.77
BRIC NA NA 27.09 27.88 18.68 18.06 15.31 16.39 14.26 34.96 34.74
The following graphs show the multiples from tables 4 2. US and Canada region, show a decline in EV/EBITDA
and 5 for each region and for each year. From Graph 1 it multiples for 2001 and 2002 and then a recovery until
can be seen that: the fall of 2008.
3. From 2004 to 2007, the US and Canada region had
1. All regions reduced their multiples in 2008, in the adjusted P/E multiples above other regions, even higher
middle of the crisis than the BRIC region.

4. Middle East and BRIC regions have presented the 6. Except for the BRIC region, variability of EV/EBITDA
highest adjusted EV/EBITDA multiples. For the P/E multiple in 2002 has been reduced from 2002 to 2010.
multiples, BRIC was the highest for years 2002-2003, Ranges in 2002, excluding BRIC, were between 5.5
2008-2010. and 16.5, whereas in 2010 multiples were between 7.5
5. The BRIC region had the highest EV/EBITDA and and 12; that is a reduction in size of the range of 59%.
P/E adjusted multiples during the crisis of 2008 and 7. In the same token, variability of the P/E multiple was
recovered in one year and reached historical values in also reduced in the same period in size of range of
2010. 64.5%, excluding the BRIC region.
Graph 2. Adjusted REVAAM P/E multiples per region per year
40
Africa Asia Europe_east Europe_west Latam&Carib
Middle East Oceania US-Canada World BRIC
35
30
25
20
15
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
After we have obtained our adjusted multiples yearly and Net Margin) in each year. Although the formulas for
for each region, we will use equations (8) to (26) -those the long term multiples do not differentiate each year, we
with even number- to obtain the long term multiples of each apply the value of the factors to obtain the multiple of that
region. Then we calculate the multiples using the median year using the long term formulae. Tables 6 and 7 show
values of the factors (ROC, ROE, Pre-tax Operating Margin these results.
Table 6. REVAAM EV/EBITDA multiples (long term)
Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Africa NA NA 10.24 9.22 9.22 9.42 9.40 9.46 9.19 8.42 8.29
Asia NA NA 12.24 11.67 11.29 10.93 11.00 10.91 10.73 10.06 9.56
Europe_west NA NA 9.61 10.77 10.68 10.37 10.22 10.06 9.18 8.64 8.44
Latam&Carib NA NA 8.99 8.72 8.46 8.39 8.27 8.34 8.13 7.65 7.30
Middle East NA NA 17.27 15.72 15.20 14.29 14.24 14.78 13.38 11.72 11.06
Oceania NA NA NA 11.05 10.63 10.39 10.53 10.49 9.77 8.80 9.20
US&Canada 7.12 6.95 7.04 7.23 7.18 7.07 7.03 7.02 7.07 6.97 7.11
World 8.67 8.28 9.29 9.73 9.61 9.38 9.40 9.37 9.14 8.71 8.45
BRIC NA NA 16.43 15.79 15.67 15.21 15.25 14.80 14.69 14.46 13.49
Table 7. REVAAM P/E multiples (long term)
Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Africa NA NA 11.64 11.32 11.33 11.33 11.49 11.59 11.71 11.78 12.12
Asia NA NA 17.47 19.58 18.47 17.25 17.20 16.87 17.84 18.57 16.61
Europe_west NA NA 17.47 16.19 16.04 15.54 15.52 14.71 15.44 17.21 16.64
Latam&Carib NA NA 9.50 9.69 9.16 8.61 8.71 8.55 8.70 8.41 7.79
Middle East NA NA 12.05 11.16 10.71 9.98 9.38 10.13 9.62 11.44 11.42
Oceania NA NA NA 16.60 15.91 15.57 15.52 15.09 16.10 16.39 17.62
US&Canada 17.22 18.31 19.23 19.13 19.07 18.69 18.43 18.32 18.46 18.08 19.48
World 15.14 15.98 16.80 17.07 16.62 15.92 15.87 15.54 16.16 16.65 16.10
BRIC NA NA 25.50 25.48 23.81 20.35 20.51 19.33 20.35 21.02 18.15
1. All regions long term multiples are smoothed and with 3. Mature markets, such as Western Europe, Oceania,
little variability, even though each year we calculated the United States and Canada, and the World show a clear
corresponding multiple using that year's median values gap between long term multiples EV/EBITDA and
for ROE, ROC, Net Margin and Pre-tax Operating P/E, being the former lower than the latter. In contrast,
Margin. This means that the long term equations are emerging markets do show the same relationship, but
not taking into consideration other external factors not as clear, and for the case of Middle East and Eastern
rather than the fundamental and intrinsic aspects of Europe, P/E multiple is lower than EV/EBITDA
each company. Multiple.
2. Average long term multiples for each region are: 4. Average long term multiples for mature markets are 16
to 18 in the case of P/E and 7 to 10 for EV/EBITDA,
Table 8. Long term REVAAM average multiples whereas for emerging markets P/E ranges from 6 to 21
and from 7 to 15 in the case of EV/EBITDA.
Region EV/EBITDA P/E
Africa 9.21 11.59 5. All regions showed that for the crisis of 2007-2008
Asia 10.93 17.76 their short term or observed multiples were below the
Europe_east 7.18 6.17 long term multiples for that period, but all were above
Europe_west 9.78 16.08 the long term multiple in 2010. However, mature
Latam&Carib 8.25 8.79 markets' short term multiples for 2010 were slightly
Middle East 14.18 10.65 above the long term multiples for that year; contrasting
Oceania 10.11 16.10 with emerging markets whose observed multiples were
US&Canada 7.07 18.58 relatively higher than the long term multiples for 2010.
World 9.09 16.17 This may mean that investors cash was sent to emerging
markets seeking for better risk adjusted returns, but
BRIC 15.09 21.61
also means that these regions are overvalued according
to long term multiples.

Graph 3. Long and short term multiple comparison for African Graph 6. Long and short term multiple comparison for Western
region Europe region
Africa Western Europe

20 30
EV/EBITDA ST EV/EBITDA ST
EV/EBITDA LT EV/EBITDA LT
25
15 P/E ST P/E ST
P/E LT 20 P/E LT
10 15
10
5
5
- -
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Graph 4. Long and short term multiple comparison for Asian Graph 7. Long and short term multiple comparison for Latin-
region America and the Caribbean region
Asia Latin-America and the Caribbean

25 20
EV/EBITDA ST
EV/EBITDA LT
20
15 P/E ST
P/E LT
15
10
10
EV/EBITDA ST
EV/EBITDA LT 5
5
P/E ST
P/E LT
- -
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Graph 5. Long and short term multiple comparison for Eastern Graph 8. Long and short term multiple comparison for Middle
Europe region East region
Eastern Europe Middle East

20 25
EV/EBITDA LT EV/EBITDA LT
P/E ST 20 P/E ST
15
P/E LT P/E LT
15
10
10
5
5
- -
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Graph 9. Long and short term multiple comparison for Oceania Graph 12. Long and short term multiple comparison for BRIC
region region
Oceania BRIC
25 40
EV/EBITDA ST
EV/EBITDA LT
20
30 P/E ST
P/E LT
15
20
10
EV/EBITDA ST
EV/EBITDA LT 10
5
P/E ST
P/E LT
- -
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Graph 10. Long and short term multiple comparison for Us and Hypothesis 1 established that adjusted long term and
Canada region short term multiples for emerging or underdeveloped
regions should be higher than those in mature markets.
US and Canada When we compared the adjusted short term EV/EBITDA
30
EV/EBITDA ST multiples we obtained a high variability year by year and
25
EV/EBITDA LT
there is no suficient evidence that emerging regions have
P/E ST
higher multiples than mature regions, except for the BRIC
20 P/E LT
and Middle East region; being the latter converging to
15 mature markets multiples after 2008. Then, looking at the
long term adjusted multiples, we found that for the EV/
10 EBITDA multiple, only Asia, Middle East and the BRIC
region were above the mature regions (United States and
5
Canada, Oceania and Western Europe). Regarding the
- adjusted P/E multiple, indings are not the same. For the
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 short term P/E adjusted multiples, only the BRIC region was
above mature markets multiples for all years except from
2004 to 2007. In 2010, BRIC region multiples sky rocketed
Graph 11. Long and short term multiple comparison for World and also Asian multiples surpassed those of mature markets.
All other emerging regions' P/E multiple remained below
World those of mature regions, but began increasing after 2008.
25
EV/EBITDA ST Now, comparing long term adjusted P/E multiples, the
EV/EBITDA LT
20
only region above mature markets was the BRIC, which in
P/E ST
2010 converged to mature markets multiples. Additionally,
P/E LT
15
Asia's P/E adjusted multiple is within mature market range,
while the rest of the emerging regions are below mature
10 markets for all the period range.
Therefore, we could not ind enough evidence to support
5 Hypothesis 1, thus we reject it. However, in individual
cases, we could on accept it for the BRIC region which
- in all cases appears to have adjusted EV/EBITDA and P/E
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 multiples above those observed in mature markets.

Hypothesis 2 suggests that yearly multiples - those into consideration proitability parameters that in the end
calculated from equations with odd number (7) to (25) - will determine the free cash low for each speciic company,
signiicantly differ from the adjusted long term multiples in and those companies with higher proitability should be
each market. By looking at graphs 3 to 12, we can see that awarded a higher valuation, thus, higher multiples. In
adjusted short term multiples do vary more than adjusted appendix 5 we can see that using average multiples will
long term multiples. The following table shows the standard lead to higher values, even more for the P/E multiple.
deviation for each multiple per region.
Discussion and Conclusions
Table 9. Standard deviations for adjusted short and long term
multiples We used REVAAM model, with its limitations, to
calculate P/E and EV/EBITDA adjusted multiples for
regions of the world (some belong to emerging markets,
Short Term
Short Term
EV/EBITDA
EV/EBITDA
Long Term
Long Term
other to mature markets and few with countries in both
P/E
P/E
Region
markets) and compare them both in the short run (year by
year) and in the long run. The use of REVAAM, through
Africa 2.99 0.58 4.51 0.26 multiple linear regression, let us differentiate proitability
Asia 2.16 0.80 3.22 0.95 factors at level company which in the end are what
Europe_east 1.28 0.16 5.70 0.45 determine the cash low from each company, thus its value,
Europe_west 2.57 0.86 4.50 0.90 rather than applying just an arithmetic average of multiples.
Latam&Carib 1.73 0.51 4.44 0.58 General valuation literature suggests that multiples in
Middle East 4.35 1.93 4.34 0.92 emerging markets are higher than mature markets, mainly
Oceania 2.60 0.78 4.67 0.78 because risk-return analysis should award a better return in
US&Canada 1.47 0.09 5.02 0.64 economies that are not yet fully developed. However, as
World 2.00 0.49 2.97 0.57 we tested this hypothesis, we found that empirical evidence
does not support this proposal, except for the BRIC region.
BRIC 3.37 0.86 8.24 2.67 One may argue that in order to get a higher return, investors
buy assets whose prices (multiples) are low and then try to
sell them at higher prices. Nevertheless, results showed
So statistically speaking, deviations for adjusted short that emerging markets multiples were not higher than those
term multiples are remarkably higher than those for adjusted in mature markets, not in the short nor in the long term;
long term multiples, so we would accept Hypothesis 2 for actually, in the long term multiples for emerging regions
all regions. However, we need to notice that variability for were below those in mature regions.
EV/EBITDA multiples is considerably lower than that for We need to consider also that our time frame included
P/E multiples, both in the short term. Another important two crises, the one in 2001-2002 and the one in 20007-2008.
inding is that, theoretically speaking, EV/EBITDA If we analyze the short term multiples, we could see that
multiples are lower than P/E multiples, because EBITDA in both periods multiples plunged but made a recovery in
is higher than NI. In our adjusted multiples, we ind that all the following years; two years for recovery after the 2001-
mature, BRIC and Asia regions present a clear gap between 2002 crisis and just one year after that of 2007-2008, so
both multiples; nevertheless, for Latin-America and the investors are already assuming that valuations in crises do
Caribbean, and Africa the gap is small, and for Middle East fall, but eventually need to recover along with government
and Eastern Europe the relationship is inverse, adjusted P/E intervention (i.e. US government bailout of banks and
multiples are higher than EV/EBITDA multiples. European Central Bank funding to Greece inancial
It is important to mention that these analysis could have system). Additionally, variation in multiples was still high
been performed by using simple average for the multiples among regions after the 2001-2002 crisis, whether after the
used, however, using REVAAM model provides adjusted 2007-2008 crisis this variability decreased signiicantly,
multiples that should be more accurate than using simple suggesting that valuation ranges for most regions are based
average multiples. Besides, what determines the fair market more on fundamentals or similar to mature markets. This
value of a company is not just a multiple, but it should take is not true for the BRIC region which during the 2007-
2008 crisis had the largest fall in multiples but presented b. Regarding the last point, multiples should be used at
the highest multiples than any other region during recovery, company level, as industry or region multiples are the
even higher than past levels. This effect could be caused aggregated sum of all corresponding companies. For
by investors preference or current trend to invest in these our analysis, we ran regression models using raw data
countries due to their economic potential. from companies, not aggregated information.
Besides comparing emerging to mature regions in c. It is better to use adjusted long term multiples than short
terms of valuation multiples, we wanted to compare long term multiples, because the former are less inluenced
term multiples which are not differentiated by year, but by by speculation and do adjust in time with a trend.
proitability factors. The reason behind this is that although d. Prefer EV/EBITDA multiples over P/E multiples as the
inancial analysts believe that markets are rational there are latter present more variability than the former. The only
many external factors that affect valuations without really exception would be inancial institutions and some
affecting proitability factors of the companies. It is true service companies in which EBITDA is not a natural
that economical shocks due affect interest rates, inlation or easy measure.
and economic growth perspectives, and these variables e. If possible, use multiple valuation if free cash low
are also inputs in valuation; however, valuations should be valuation is not possible, as valuation is the present
performed in the long run and must include these shocks in value of actual and future cash lows.
the adequate short term frame. Actually, the most important It will be interesting to calculate multiples at the end of
driver in free cash low valuations is the terminal value 2011 for all these regions in order to see how the Middle
which takes into consideration long term proitability of the East conlicts affect valuations in nearby regions and in the
company matched with long term conditions. world, as it has affected oil prices and interest rates, but
Results showed that adjusted short term multiples had even more investors perspectives on risk and speculations
a considerably higher variability than adjusted long term about the future.
multiples. Since formulae for short and long term multiples Finally, I would like to mention that using REVAAM
are differentiated by speciic years, we can conclude that for adjusted multiples in the Middle East and Eastern
deviations from the adjusted long term multiple are more Europe resulted that P/E multiples were lower than EV/
speculation bubbles than true change in fundamental EBITDA multiples, but when looking at average raw data
value, and this is also supported by the fact that multiples the opposite is true. This is because distributions for those
recovered in two years, and recently in only one year after regions were skewed and regression analysis takes an
the crisis. Also, comparing short term to long term multiples average of the distribution, which is not necessarily at the
allows to somehow realize if a company, industry or region 50% of the sample.
is under or overvalued, so if we believe that in the long
run that company, industry or region should converge to the References
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Appendix 1
REVAAM Regression results for EV/EBITDA multiple for each region per year (short term)
Eastern West Latam& Middle US&

Parameter Africa Asia Oceania World BRIC
Europe Europe Carib East Canada
αEVEBITDA 1.71E+12 8.37E+11 0.9012 1.8465 1.5172 1.9015 1.9298 1.6474 1.6362 1.8929
βROC (0.3623) (0.3194) (0.2276) (0.3479) (0.3317) (0.4348) (0.3244) (0.2439) (0.3283) (0.2861)
βOM 0.1071 0.1527 (0.0934) 0.1822 0.0895 0.1815 0.0872 0.0492 0.1219 (0.0305)
β2000 0.0000 0.0000 0 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
β2001 0.0000 0.0000 0 0.0000 0.0000 0.0000 0.0000 (0.2262) (0.2074) 0.0000
β2002 -1.7E+12 -8.4E+11 0 (0.0626) (0.2196) 0.0000 0.0000 (0.3049) (0.0215) 0.0000
β2003 -1.7E+12 -8.4E+11 0.1720 0.0152 (0.1945) (0.0406) (0.0629) 0.0087 0.0957 (0.0319)
β2004 -1.7E+12 -8.4E+11 0.1303 0.1348 (0.0642) 0.2154 0.0000 0.1285 0.1519 (0.2788)
β2005 -1.7E+12 -8.4E+11 0.4316 0.2591 0.0000 0.3912 (0.0168) 0.1135 0.2482 (0.2070)
β2006 -1.7E+12 -8.4E+11 0.3527 0.4073 0.2160 0.0338 0.1463 0.1723 0.3030 (0.0374)
β2007 -1.7E+12 -8.4E+11 0.3464 0.1581 0.2106 0.1307 (0.0070) 0.0908 0.2750 0.2486
β2008 -1.7E+12 -8.4E+11 (0.0351) (0.4386) (0.4391) (0.5468) (0.7868) (0.5673) (0.4338) (0.4303)
β2009 -1.7E+12 -8.4E+11 0.3574 0.0000 0.2490 (0.2345) 0.0083 (0.1257) 0.1507 0.2656
β2010 -1.7E+12 -8.4E+11 0.5927 0.1693 0.3912 (0.1019) (0.1072) (0.0028) 0.3397 0.4456
2
R 0.2623 0.1524 0.0714 0.3139 0.1741 0.2996 0.3017 0.1281 0.1731 0.1357
N 2,618 66,905 4,665 24,604 4,564 3,309 3,292 42,048 152,005 23,291
d.f. 2,606 66,893 4,654 24,593 4,553 3,298 3,282 42,035 151,992 23,280
F value 84.2193 1,093.219 35.79 1,124.991 95.9562 141.1046 157.5764 514.4430 2,650.741 365.0390
Prob F = 0 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
t αEVEBITDA 0.5558 1.6562 0.6839 100.9945 32.0016 29.3768 44.0296 101.9062 109.1892 54.3584
t βROC (22.5541) (83.1291) (11.5578) (83.2199) (23.3648) (31.0492) (26.6464) (49.5357) (138.558) (36.248)

t βNM 6.0593 38.7113 -4.2165 41.8399 6.0297 12.5162 7.0948 11.3174 51.1871 (3.5417)
t2000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
t2001 N/A N/A N/A N/A N/A N/A N/A (12.6226) (10.6053) N/A
t2002 (0.5558) (1.6562) N/A (3.2943) (4.3463) N/A N/A (16.8566) (1.3046) N/A
t2003 (0.5558) (1.6562) 0.1358 0.7854 (3.7166) (0.5643) (1.3230) 0.4941 6.0027 (0.8401)
t2004 (0.5558) (1.6562) 0.1029 7.1434 (1.2448) 3.1926 N/A 7.2597 9.6603 (7.5224)
t2005 (0.5558) (1.6562) 0.3409 13.8234 N/A 5.9976 (0.3754) 6.4263 15.9548 (5.8450)
t2006 (0.5558) (1.6562) 0.2786 22.0669 4.3229 0.5403 3.2156 9.8756 19.5894 (1.0732)
t2007 (0.5558) (1.6562) 0.2737 8.6446 4.2859 2.1150 (0.1525) 5.1209 17.8437 7.3126
t2008 (0.5558) (1.6562) (0.0277) (23.2462) (8.7614) (7.3358) (17.6316) (32.0176) (27.7688) (11.5434)
t2009 (0.5558) (1.6562) 0.2822 N/A 4.9946 (3.3132) 0.1858 (7.0525) 9.7150 7.7845
t2010 (0.5558) (1.6562) 0.4680 8.8024 7.9484 (1.5135) (2.4138) (0.1566) 22.1371 13.2546
Prob(t αEVEBITDA) 0.5784 0.0977 0.4940 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Prob(t βROC) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Prob(t βNM) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0004
Prob(t2000 ) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Prob(t2001) N/A N/A N/A N/A N/A N/A N/A 0.0000 0.0000 N/A
Prob(t2002) 0.5784 0.0977 N/A 0.0010 0.0000 N/A N/A 0.0000 0.1920 N/A
Prob(t2003) 0.5784 0.0977 0.8920 0.4322 0.0002 0.5726 0.1859 0.6212 0.0000 0.4009
Prob(t2004) 0.5784 0.0977 0.9180 0.0000 0.2133 0.0014 N/A 0.0000 0.0000 0.0000
Prob(t2005) 0.5784 0.0977 0.7332 0.0000 N/A 0.0000 0.7074 0.0000 0.0000 0.0000
Prob(t2006) 0.5784 0.0977 0.7805 0.0000 0.0000 0.5890 0.0013 0.0000 0.0000 0.2832
Prob(t2007) 0.5784 0.0977 0.7843 0.0000 0.0000 0.0345 0.8788 0.0000 0.0000 0.0000
Prob(t2008) 0.5784 0.0977 0.9779 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Prob(t2009) 0.5784 0.0977 0.7778 N/A 0.0000 0.0009 0.8526 0.0000 0.0000 0.0000
Prob(t2010) 0.5784 0.0977 0.6398 0.0000 0.0000 0.1302 0.0158 0.8756 0.0000 0.0000
Appendix 2
REVAAM Regression results for PE multiple for each region per year (short term)

αEVEBITDA 7.60E+12 -7.6E+11 1.5345 1.4909 1.4069 -1.9E+12 1.9966 2.0608 1.6897 -5.8E+11
βROC (0.1170) (0.4710) (0.4556) (0.3908) (0.5303) (0.4064) (0.4642) (0.4683) (0.4203) (0.5834)
βOM (0.0752) (0.0444) 0.1702 (0.1129) 0.0559 (0.1208) (0.0399) 0.1005 (0.0388) 0.0330
β2000 0 0 0.0000 0 0 0 0 (0.0359) 0 0
β2001 0 0 0.0000 0 0 0 0 0.0202 0.0874 0
β2002 -7.6E+12 7.57E+11 0.0000 0.0212 0 1.91E+12 0 0 0.0142 5.8E+11
β2003 -7.6E+12 7.57E+11 0.5978 0.1008 (0.9500) 1.91E+12 (0.0576) 0.3556 0.0501 5.8E+11
β2004 -7.6E+12 7.57E+11 0.2182 0.3085 (0.9394) 1.91E+12 0 0.4529 0.1674 5.8E+11


β2005 -7.6E+12 7.57E+11 0.5321 0.4554 (0.1834) 1.91E+12 (0.0141) 0.3781 0.2707 5.8E+11
β2006 -7.6E+12 7.57E+11 (0.6714) 0.5943 (0.0044) 1.91E+12 0.1294 0.4028 0.2473 5.8E+11
β2007 -7.6E+12 7.57E+11 (1.0663) 0.2374 (0.5897) 1.91E+12 (0.1522) 0.2765 0.0878 5.8E+11
β2008 -7.6E+12 7.57E+11 (0.2348) (0.5214) (0.2693) 1.91E+12 (1.1194) (0.5240) (0.4883) 5.8E+11
β2009 -7.6E+12 7.57E+11 0.4339 0 0.4695 1.91E+12 (0.0343) 0.0466 0.1215 5.8E+11
β2010 -7.6E+12 7.57E+11 0.7888 0.2509 0.5748 1.91E+12 (0.2005) 0.2228 0.2928 5.8E+11
2
R 0.0473 0.1439 0.0498 0.2228 0.0548 0.0538 0.3341 0.2364 0.1087 0.0900
N 2,880 62,193 4276 23,530 4,436 3,579 3,365 36,276 140,535 19,729
d.f. 2,868 62,181 4265 23,519 4,425 3,567 3,355 36,263 140,522 19,717
F value 12.94 949.91 22.3593 674.16 25.63 18.44 187.07 935.48 1,428.50 177.20
Prob F = 0 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
t αEVEBITDA 0.46 (0.99) 0.4197 49.79 7.95 (0.06) 33.15 95.32 55.14 (0.13)
t βROC (2.90) (65.41) (6.8452) (46.55) (9.60) (8.05) (26.50) (73.84) (83.94) (29.81)
t βNM (1.98) (7.21) 2.8127 (16.02) 1.14 (2.99) (2.56) 17.58 (8.97) 1.77
t2000 N/A N/A N/A N/A N/A N/A N/A -1.44 N/A N/A
t2001 N/A N/A N/A N/A N/A N/A N/A 0.84 2.24 N/A
t2002 (0.4566) 0.9918 N/A 0.6915 N/A 0.0565 N/A N/A 0.4330 0.1287
t2003 (0.4566) 0.9918 0.1634 3.1325 (4.6847) 0.0565 N/A 14.8999 1.5742 0.1287
t2004 (0.4566) 0.9918 0.0596 9.8559 (4.8645) 0.0565 0.0000 18.9897 5.3303 0.1287
t2005 (0.4566) 0.9918 0.1455 14.6807 (0.9499) 0.0565 (0.2221) 16.0700 8.7124 0.1287
t2006 (0.4566) 0.9918 (0.1837) 19.8478 (0.0238) 0.0565 2.0834 17.3060 8.0144 0.1287
t2007 (0.4566) 0.9918 (0.2918) 7.9858 (3.2324) 0.0565 (2.4482) 11.7364 2.8571 0.1287
t2008 (0.4566) 0.9918 (0.0642) (17.1806) (1.4704) 0.0565 (18.4664) (22.3193) (15.7557) 0.1287
t2009 (0.4566) 0.9918 0.1187 N/A 2.5145 0.0565 (0.5692) 1.9188 3.8709 0.1287
t2010 (0.4566) 0.9918 0.2157 7.9523 3.1689 0.0565 (3.2785) 9.1156 9.4601 0.1287
Prob(t αEVEBITDA) 0.6480 0.3213 0.6747 0.0000 0.0000 0.9549 0.0000 0.0000 0.0000 0.8976
Prob(t βROC) 0.0038 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Prob(t βNM) 0.0483 0.0000 0.0049 0.0000 0.2537 0.0028 0.0107 0.0000 0.0000 0.0773
Prob(t2000 ) N/A N/A N/A N/A N/A N/A N/A 0.1487 N/A N/A
Prob(t2001) N/A N/A N/A N/A N/A N/A N/A 0.3989 0.0251 N/A
Prob(t2002) 0.6480 0.3213 N/A 0.4892 N/A 0.9549 N/A N/A 0.6650 0.8976
Prob(t2003) 0.6480 0.3213 0.8702 0.0017 0.0000 0.9549 N/A 0.0000 0.1154 0.8976
Prob(t2004) 0.6480 0.3213 0.9524 0.0000 0.0000 0.9549 1.0000 0.0000 0.0000 0.8976
Prob(t2005) 0.6480 0.3213 0.8844 0.0000 0.3422 0.9549 0.8242 0.0000 0.0000 0.8976
Prob(t2006) 0.6480 0.3213 0.8543 0.0000 0.9810 0.9549 0.0373 0.0000 0.0000 0.8976
Prob(t2007) 0.6480 0.3213 0.7704 0.0000 0.0012 0.9549 0.0144 0.0000 0.0043 0.8976
Prob(t2008) 0.6480 0.3213 0.9488 0.0000 0.1415 0.9549 0.0000 0.0000 0.0000 0.8976
Prob(t2009) 0.6480 0.3213 0.9056 N/A 0.0120 0.9549 0.5693 0.0550 0.0001 0.8976
Prob(t2010) 0.6480 0.3213 0.8292 0.0000 0.0015 0.9549 0.0011 0.0000 0.0000 0.8976
Appendix 3
REVAAM Regression results for EV/EBITDA multiple for each region for all years (long term)

αEVEBITDA 1.71E+12 8.37E+11 0.9012 1.8465 1.5172 1.9015 1.9298 1.6474 1.6362 1.8929
βROC (0.3623) (0.3194) (0.2276) (0.3479) (0.3317) (0.4348) (0.3244) (0.2439) (0.3283) (0.2861)
βOM 0.1071 0.1527 (0.0934) 0.1822 0.0895 0.1815 0.0872 0.0492 0.1219 (0.0305)
2
R 0.2623 0.1524 0.0714 0.3139 0.1741 0.2996 0.3017 0.1281 0.1731 0.1357
N 2,618 66,905 4,665 24,604 4,564 3,309 3,292 42,048 152,005 23,291
d.f. 2,606 66,893 4,654 24,593 4,553 3,298 3,282 42,035 151,992 23,280
F value 84.2193 1,093.219 35.79 1,124.991 95.9562 141.1046 157.5764 514.4430 2,650.741 365.0390
Prob F = 0 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
t αEVEBITDA 0.5558 1.6562 0.6839 100.9945 32.0016 29.3768 44.0296 101.9062 109.1892 54.3584
t βROC (22.5541) (83.1291) (11.5578) (83.2199) (23.3648) (31.0492) (26.6464) (49.5357) (138.558) (36.248)
t βNM 6.0593 38.7113 -4.2165 41.8399 6.0297 12.5162 7.0948 11.3174 51.1871 (3.5417)
Prob(t αEVEBITDA) 0.5784 0.0977 0.4940 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Prob(t βROC) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Prob(t βNM) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0004
Appendix 4
REVAAM Regression results for P/E multiple for each region for all years (long term)

αEVEBITDA 1.71E+12 8.37E+11 0.9012 1.8465 1.5172 1.9015 1.9298 1.6474 1.6362 1.8929
βROC (0.3623) (0.3194) (0.2276) (0.3479) (0.3317) (0.4348) (0.3244) (0.2439) (0.3283) (0.2861)
βOM 0.1071 0.1527 (0.0934) 0.1822 0.0895 0.1815 0.0872 0.0492 0.1219 (0.0305)
2
R 0.2623 0.1524 0.0714 0.3139 0.1741 0.2996 0.3017 0.1281 0.1731 0.1357
N 2,618 66,905 4,665 24,604 4,564 3,309 3,292 42,048 152,005 23,291
d.f. 2,606 66,893 4,654 24,593 4,553 3,298 3,282 42,035 151,992 23,280
F value 84.2193 1,093.219 35.79 1,124.991 95.9562 141.1046 157.5764 514.4430 2,650.741 365.0390
Prob F = 0 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
t αEVEBITDA 0.5558 1.6562 0.6839 100.9945 32.0016 29.3768 44.0296 101.9062 109.1892 54.3584
t βROC (22.5541) (83.1291) (11.5578) (83.2199) (23.3648) (31.0492) (26.6464) (49.5357) (138.558) (36.248)
t βNM 6.0593 38.7113 -4.2165 41.8399 6.0297 12.5162 7.0948 11.3174 51.1871 (3.5417)
Prob(t αEVEBITDA) 0.5784 0.0977 0.4940 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Prob(t βROC) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Prob(t βNM) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0004

Appendix 5
Comparison graphs among REVAAM multiples and Average multiples
Africa Asia
50 90
EV/EBITDA 75 EV/EBITDA
40 Average Average
P/E ST P/E ST
60
30 PE Average PE Average
45
20
30
10
15
- -
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Eastern Europe Western Europe

50 50
EV/EBITDA ST EV/EBITDA Average EV/EBITDA ST EV/EBITDA Average
P/E ST PE Average P/E ST PE Average
40 40
30 30
20 20
10 10
- -
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Latin-America & Caribbean Middle East

50 70
EV/EBITDA 60 EV/EBITDA
40 Average Average
P/E ST 50 P/E ST
30 PE Average PE Average
40
30
20
20
10
10
- -
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Oceania US and Canada

60 60
EV/EBITDA ST EV/EBITDA ST EV/EBITDA Average
EV/EBITDA P/E ST PE Average

50 50
Average
P/E ST
40 40
PE Average
30 30
20 20
10 10
- -
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
World BRIC
60 160
EV/EBITDA ST EV/EBITDA Average EV/EBITDA ST
P/E ST PE Average 140 EV/EBITDA Average
50
P/E ST
120
PE Average
40
100
30 80
60
20
40
10
20
- -
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2011 Monireh Panahi, Mohammad Pakeniat 293
MARKETING PRINCIPLES OF A NEGLECTED BANKING

SERVICE: SAFE DEPOSIT BOX RENTAL
Monireh Panahi
PhD candidate in Strategic Management in Shahid Beheshti University. Marketing consultant; author of
articles on marketing and strategic management in Iranian journals.
School of Management & Accounting, Shahid Beheshti University, Daneshjoo Blvd., Evin, Tehran.
Email: m.panahi@sbu.ac.ir
Mohammad Pakeniat
Researcher in SRRC, Sharif University of Technology. MBA from School of Management & Economics,
Sharif University of Technology. Business consultant and researcher in the fields of strategic
management in developing countries and service marketing.Shahid Rezaii Research Center,
Sharif University of Technology, Azadi Avenue, Tehran, Iran
Email: Pakniat@samasamaneh.com
Abstract
Purpose of this paper is identifying factors which hinder demand for Safe Deposit Box service and factors that are important for
customers when they want to get Safe Deposit Box Service. Methodology consisted of the use of literature review, interviews and focus
groups to form our questionnaires; then two surveys were conducted to extract our results. Findings show (a) customer perception
of lack of safety and privacy are the main causes of little demand for Safe Deposit Box Service; (b) making the customers feel safe,
by giving the information or insuring the boxes can be very useful in marketing Safe Deposit Box service; (c) Bank CRM, personnel
behavior and skills and proximity to home/ofice are also important factors for customers who demand SDBR service. There was no
prior formulation of SDBR service marketing practices openly published, so the use of general literature on bank marketing and focus
groups was performed. Focus groups take the ideas of some groups of people for granted; as few people can take apart in them. This
work provides a base for marketing Safe Deposit Box Rental Service. Although the direct income from this service may not seem to
be high, the effects of this service on customer satisfaction have been evaluated to be dramatic. Former research had focused on retail
bank marketing in general; we failed to ind a research aimed at marketing Safe Deposit Box Services. Our work has directly focused on
marketing this service. Key words: Safe Deposit Box Rental, Marketing, Customer needs, Safety, Banking Services
Financial institutions have prepared a safe place to keep 10%). Heavy investment and little sale have raised the
the valuables of their customers, called “Safe Deposit Box”. question about the reasons of low demand in the market and
This service is ought to respond to the need for safety. People the factors which are important for customers. Answering
use this service to protect their valuables from theft, ire, these questions can help banks market their SDBR service
etc. Today almost every important bank in the world and easier.
also some non-bank companies are delivering this service. In bank marketing literature former researchers have
This means that a huge sum of money has been invested in studied marketing related topics in retail banking in general
building boxes, delivering SDBR services, managing and (e.g., Rosenberg & Czepiel, 1983; Lewis, 1989; Smith and;
planning to develop them. Oliver, 1993; Avkiran, 1994; LeBalnc and Nguyen, 1998;
Most banks have built limited numbers of safe boxes Ndubisi, 2003; wang et al., 2003; Manrai and Manrai,
in their selected, mainly prestigious, branches. Iranian 2007); however, there has been little research about banking
banks, among others have pursued the same policy. In Iran services separately; and we have found no document to
state-owned as well as private banks provide this service in discuss the marketing side of Safe Deposit Box Rental
selected branches. These banks have been able to market (SDBR) service. To help inancial institutions to understand
few numbers of their boxes (in some cases only about the behavior of customers of this service better, we have
Panahi M., Pakeniat M. - Marketing Principles of a Neglected Banking Service: Safe Deposit Box Rental
conducted a research to answer the following questions: service for their customers (Heggestad and Mingo, 1976).
Why few people use Safe Deposit Boxes? And what is Although most banks spend a lot to offer this service to
important for customers when they think about having a their special customers, we failed to ind a research that
Safe Deposit Box? analyses the importance of this service.
To answer these questions, we reviewed pertinent To study the importance of this service we reviewed the
literature, interviewed with experts and formed an expert patents registered in this ield, and interviewed with experts
focus group; then we formed a SDBR customer focus group. from different banks.
We used the outcomes of interviews and focus groups to
form a questionnaire. We conducted a survey to answer a. Patent Analysis
each of the two questions in our inal step. This research
has been done in different cities in Iran. Although our Patent analysis is a method used for several reasons. One
respondents, especially in focus groups and surveys, were of the applications of this method is identifying the rate of
limited to Iranians, we expect our indings to bring about technological development of a particular product. High
ideas for other researchers who may try to ind answers for number of patents that have been registered in a period of
similar questions in other social and economic settings. time shows that there has been a high investment done in
Our paper is organized as follows: First, we discuss the building this product, which has yielded in many patents.
history and importance of this service to understand if this Low number of patents shows that there has been little
service is still valuable for banks and inancial institutions. investment done in that product. Higher investment implies
Second, we discuss our research method, and next we that investors have assumed future market favorable and
propose our indings and conclusion comes at the end. expect market growth. Low investment means that irms
are hopeless to have a lucrative business in that product in
Importance of the service future.
In this section, we have reviewed patents and applications
In Today’s banking sector SDBR service is delivered in United States Patent and Trademark Ofice (USPTO)
as a necessary banking service. Former research reveals since 1850 that included Safe Deposit Box in their title.
that in 1970’s about 97% of American banks provide this Figure 1 shows the number of patents registered in USPTO
from 1850 till 2010.
Figure 1. Number of patents registered in USPTO about Safe Deposit Boxes

As seen in Figure 1, the patents registered show two other security services (e.g. UK Security Services1) and
upward cones at around 1920’s, a gradual growth since some provid solely one service: Safe Deposit Box rental
1950, and a downward cone in 1990. Sharp growth at (e.g. metropolitan Safe Deposit Boxes2, safe deposit
1920’s could be attributed to the growth in the number of centers3). This evidence showed that this service makes
customers. It could be argued that the increasing number of enough income itself that one runs a business for.
patents related to Safe Deposit Boxes implies that investors
have estimated this product to be proitable. Literature Review
b. Interviews Intense competition has persuaded irms to put more
effective marketing methods into action. Studies performed
To identify the importance of this service for providers, based on this want reveal that the cost of serving a loyal
we carried out interviews with experts from different banks. customer is ive to six times less than the cost of inding
Interviewees were selected from globally recognized and serving a new customer (Rosenberg & Czepiel, 1983;
inancial institutions as well as Iranian banks. These banks Ndubisi, 2003). Therefore further research was carried out
included HSBC, Lloyds and Barclays in UK, Standarder to identify the reasons of customers’ satisfaction, loyalty and
and Banco Pastor from Spain and Melli (largest bank in switching behavior. (e.g., Smith and Lewis, 1989; Oliver,
the Muslim world), Mellat, Maskan, Saman and ENBank 1993; Avkiran, 1994; LeBalnc and Nguyen, 1998; wang et
in Iran. al., 2003; Manrai and Manrai, 2007). The need for customer
Results show that most banks do not identify this service satisfaction urged irms to increase their service quality.
important. All of the interviewees except one admitted that As irms in service sectors decided to increase customer
this service does not bring about direct beneits to banks. loyalty and satisfaction, they had to increase their service
More than half of them expressed that their banks identiies quality. Bolton and Drew (1991), Cronin and Taylor (1992)
this service as a means to increase customer satisfaction and Spreng and Mckoy (1996) have argued that service
rather than a separate service that is separately proitable. So quality is the main foundation of customer satisfaction for
these banks offer this service to their premium or superior service companies. Therefore the literature on customer
customers, even sometimes for free. Others, although said satisfaction in service sectors has emphasized service
that they treat this service separately, identiied it not very quality as the basis for customer satisfaction, especially
important to their banks. in banking sector. (Smith and Lewis, 1989; Oliver, 1993;
Some of the answers that have leaded us to this Avkiran, 1994; Levesque and McDougall, 1996; LeBalnc
conclusion are: and Nguyen, 1998; Newman, 2001; Caruana, 2002;
“This service is costly. I think the costs of providing this Kheng et al., 2010). Banks today identify service quality
service is more than its income; we need to allocate a large as the main objective that helps them survive in today’s
place for boxes, an operator for them, and run a 24 hour competitive market (Wang et al., 2003).
safeguarding, but the price of this service is very low”. Studying customer satisfaction in banking sector added
“We offer this service to our selected customers. We other factors to service quality. We propose a brief review
try to increase their satisfaction and we think this would of the literature on customer satisfaction in banking sector
be proitable for us. Can you imagine the income that here:
this service will cause by increasing the satisfaction of a There are related topics in banking sector being studied:
millionaire, even only a little?” customer satisfaction (e.g., Spreng et al., 1995; Levesque
“Today banks’ competition makes you to increase and Mcdougall, 1996; Fienberg, 1996; Mittal and Lassar,
customer loyalty. We don’t like to lose our customers, 1998; Mittal et al., 1998; Athanassopoulos, 2000; Yavas et
especially premiums, because of lack of SDBR service.” al., 2004), customer loyalty and switching behavior (e.g.,
This evidence questioned the proitability of delivering Jain et al., 1987; Moutinho and Brownlie, 1989; Manrai
this service, but there were other evidence that ensured us and Manrai, 2007). Colgate and Hedge (2001) have argued
this service is lucrative, even if treated as a separate service,
not just as a means to increase customer satisfaction. This 1
www.uksecurityservices.com
evidence was non-bank institutions that deliver SDBR 2
www.metropolitansafedeposits.co.uk
services. Some of these companies sell this service with
3
www.Safedepositcenters.co.uk
that there are three main reasons for customer switching: To answer the irst question we needed to understand
service failure, pricing and denied services. Chacravarty how people who don’t use this service think about it and
et al. (2004) argue that the higher the relationship of why they don’t use it. To gather their ideas we needed to
a customer with a bank (economic or other relations) conduct a survey. As there was no studies to show what
the lower the propensity of the customer to switch his may be the factors that affect people’s behavior in this
bank. Yavas et al. (2004) admit that service quality is the regard, we extracted the factors from:
foundation of customer satisfaction. Manrai and Manrai
(2007) conclude that dissatisfaction with service quality • A focus group session with people who don’t use this
is the main reason for switching banks. Financial offering service.
(interest rate) beside convenience and service are the main • A focus group session with bank experts.
parts of service quality identiied (Gwin and Lindgren,
1986; Manrai and Manrai, 1995, Chacravarty, 2004). In the irst focus group we tried to involve people from
Manrai and Manrai (2007) conclude that there are different demographic/occupational groups. Seven people
four overall dimensions that cause customer satisfaction were invited and the session lasted about 120 minutes.
with bank services: Financial offerings, environment and In the second focus group we invited experts from
atmosphere, convenience and personnel related issues Melli (largest bank in the Muslim world), Mellat, Maskan,
(Manrai and Manrai, 2007). Although there has been much Saman and EN banks. These included private as well as
debate about their priority (See for example Thwaites and state-owned banks, some of which had a small branch
Vere, 1995). network, and some a large one. All of these banks deliver
SDBR service. We invited these people as we thought they
SDBR service in Iran are exposed to retail banking customer behavior, and may
have ideas why few banks’ customers demand this service.
Before discussing our research, we propose some The session lasted about 120 minutes.
information about SDBR service in Iran, as most of our Results of focus group discussions were analyzed using
ield data has been gathered in Iran. content analysis techniques to identify the items of our
First openly known Safe Deposit Box in Iran was questionnaire. This open-ended structured questionnaire
delivered in early 1940’s in Melli Bank. This service was asked about factors that cause few people to use Safe
not openly promoted or used till 1980’s, during Iran-Iraq Deposit Boxes. Randomly selected people who said they
war; when most of the rich used this place to keep their don’t use this service illed out this questionnaire. We tried
valuables safe. The war increased the demand for SDBR to have different demographic groups in our respondents.
service, and this encouraged the banks to deliver this 784 people answered this questionnaire in 11 selected cities,
service. Today this service is provided in several banks in to reach the conidence level of 95% at conidence interval
Iran; they provide this service at their selected branches. of 3.5. This questionnaire had options based on Lickert
Most of them offer similar prices, due to Central Bank scale, ranking from “irmly agree” to “irmly disagree”.
regulation. Customers leave some money as a deposit and To answer the second question we needed to know
pay annual rent to get this service. In Iranian banks access is the idea of SDBR service customers to identify which
limited to working hours but banks follow different criteria factors are important for them when they want to select a
to evaluate suitable customers to deliver SDBR service to SDBR service provider. To gather their ideas we needed
them. Neither of Iranian banks provides insurance for the to conduct a survey. However, as we failed to ind any
contents of safe boxes. former research to study this phenomenon, we relied on
researches studying retail banking customer satisfaction
Research Design and marketing in general. We used the results of these
studies and checked the validity of these factors with bank
In this research we have tried to answer to two questions: experts. As a result we extracted a list of factors that affect
First, Why few people are interested in SDBR service? And customer satisfaction and successful marketing in retail
what is important for customers when they think about banking which were applicable to SDBR service. However,
having a Safe Deposit Box, in other words, what are key to complete the factors we added results from:
success factors in marketing Safe Deposit Box services?

• Interviews with bank experts service and bank experts. Here we present some quotes
• Bank experts focus group from our interviews and focus groups that we have found
• Customer focus group important to derive our results from:
Experts from HSBC, Lloyds and Barclays from UK, a. Experts’ Focus Group/interview:
Banco Pastor and Standarder from Spain and Melli, Mellat,
Maskan, Saman and EN banks from Iran were interviewed. “Few people know about the real price of this service;
These banks deliver SDBR service. We interviewed these they think this is a luxury service and should be costly”.
people as we thought they are exposed to customer needs “Even when we introduce this service to our selected
and expectations from SDBR service providers, and may customers, most of them think that this is a special service
have ideas about the factors which affect customer decision for very rich people and they can’t get it.”
when they want to select a bank to get this service from. “I heard that a customer had told she desired to use this
Each interview lasted about 90 minutes. service, but she thought this service is only for our special
In bank expert focus group experts from Melli, Mellat, customers”
Maskan, Saman and EN banks were invited. In this session “People may accuse banks of revealing customer
experts we asked to discuss about factors that are important information to government agencies. People don’t like this,
for customers and banks can success in marketing SDBR especially because of tax. Although this does not happen,
service by paying attention to them. The session lasted but people are concerned about it”
about 120 minutes. “Compared to other banking services, banks rarely
Seven customers of SDBR service from different banks introduce this service to their customers. This is because
were invited to participate in customer focus group. In they don’t identify it lucrative”.
this focus group we tried to involve people from different b) Non-customers’ focus group
demographic/occupational groups. The session lasted about “I don’t use this service; because I may need my
120 minutes. belongings on holidays, when banks are closed”.
Results of interviews and focus groups’ discussions “Safe Deposit Boxes are safe, but not my way to the
were analyzed using content analysis techniques to identify bank.”
the items of our questionnaire. This open-ended structured “One of my concerns about this service is my privacy.
questionnaire was aimed at understanding the key factors When I want to use my box, other customers may know
of success in marketing SDBR service. 784 current SDBR what I have there. As far as I know, one should use his
service customers illed this questionnaire in 11 selected SDB in front of others; there should be a private place for
cities to reach the conidence level of 95% at conidence customers”
interval of 3.5. This questionnaire had options based on “Insurance is utmost important for me. No bank provides
Lickert scale, ranking the importance from “very low” to insurance on boxes [in Iran].”
“very high”. “This service is for the rich. I prefer to keep my valuable
belongings in my house.”
Findings/Discussion “We use this service to increase the safety in keeping
our things, but banks have not assured us they can really
In this section we propose the indings of our research. increase safety.”
Findings would be proposed in two sections: why people “No bank in our neighborhood provides this service; I
may not use this service, and which attributes of this service will have to travel a long distance to get and use this service”
are important when they look for one. “Safe Deposit Boxes? I have nothing valuable to get
one”
Why few people use SDBR service? These were quotes we derived from our interview and
results of our focus groups. We then implemented a content
In this section we present our indings to answer the irst analysis method to analyze these indings. The factors that
question: The reasons of people’s little demand for SDBR were identiied could be classiied into: little awareness
service. To ind the reasons, as stated earlier we have used about the price, little trust to banks, little awareness, lack of
interviews and focus groups with people who don’t use this access on holidays, unsafe way to/from bank, little privacy,
not insured boxes, propensity to keep belongings in house, To analyze the results of table 1 we summed “irmly
customer imagination of lack of safety and having little disagree” and “disagree” percentages, and “irmly agree”
valuables. and “agree” percentages. Analysis showed that lack of safety
These were our most outstanding indings among many. (85%) and lack of insurance (60%) are the outstanding
To test our indings from interviews and focus groups reasons. Unsafe way (54%) is ranked third. 47% think that
and generalize them to the Iranian society, we designed a distance between their place and SDBR provider is a reason
survey based on our former indings. We ran our survey in they don’t use this service and 44% have claimed that they
11 selected cities in different parts of Iran. At conidence don’t think they have valuables. Other factors don’t seem
level of 95% and conidence interval of 3.5 we collected to be so important.
784 questionnaires. People that don’t use this service were The irst three important factors (bank safety, insurance
asked to ill out the questionnaire. Questions were ranked and safety of people’s way) have all targeted safety;
in their answers from one (irmly disagree) to ive (irmly in other words people’s image of service safety is the
support). Results are shown at table 2. most important factor that affects their decision towards
Asked “Why don’t you use Safe Deposit Box rental demanding this service. Our inding is in harmony with one
service?” respondents have answered as follows: of our customers’ claim:
“The main feature of this product is safety. We decide to
Table 1 . Results of our survey about the reasons of little demand use this because we need more safety”.
for SDBR service Geographic proximity is also important for people; as it
takes their time, and affects the safety of their ways to/from
bank. Assuming safety the value that SDBR service brings
Disagree
disagree
No idea
Firmly
Firmly
Agree
agree
Factor about for customers, one would identify the results of the
survey acceptable.
I don’t have access on holidays 9% 20% 36% 25% 10%
Less than half the respondents have said that other
My way to bank is not safe 7% 16% 23% 38% 16%
factors affect their decision. These factors include: people’s
Others may know what I have 21% 34% 26% 15% 4%
image of privacy of SDBR service, their trust to banks,
I don’t trust banks 27% 32% 18% 15% 8%
their propensity to keep valuables at home, and their need
There is no insurance 7% 11% 21% 28% 32%
to access boxes on holidays, and lack of valuables. This
I prefer to keep my valuables at home 14% 36% 18% 24% 8%
Banks are not safe 3% 3% 9% 46% 39%
shows that these factors are not as important as formerly
I have nothing valuable to use SDBR 8% 29% 19% 27% 17%
mentioned factors (safety and proximity of providers to
I cannot aford it 7% 28% 46% 15% 4%
home/ofice).
There is no SDBR in our neighborhood 4% 18% 31% 33% 14% Less than 20% have said that price is important for
them. This fact, beside the fact that most of the people
overestimate the price of this service shows that price does
Beside the factors reported in Table 1 we tested not hinder people’s demand for SDBR service.
customers’ awareness about this service. We asked them if
they know how to get this service. 15% of respondents Which attributes of SDBR service are
said that they are not aware about this issue at all; and 57% important for customers?
admitted they don’t know the conditions of getting this
service “exactly”. In this section we discuss the factors that affect that
In our focus groups we found out that people think are important for customers when they want to select a
SDBR service is a luxury service and should be expensive. SDBR service provider. Identifying these factors would
However, real prices of this service didn’t seem so high. help service providers to understand customer needs and
So we also asked customers’ image about the price of expectations to develop their services in harmony with
this service. Survey results recommend that only 27% of them.
respondents had answered the question about the price To ind these factors, we irst reviewed the literature, in
correctly; 19% estimated the price ive times more, and which we failed to ind a ine-tune literature about SDBR
11% estimated the price ten times more. This implies that service. We therefore decided to review the literature on
people may imagine this service an expensive service. retail banking as SDBR service is a retail banking service

(provided in the literature review section 3). From the We designed a questionnaire based on the mentioned
literature review we derived that: Financial offerings, factors. We conducted a survey in 11 cities in Iran. At
environment and atmosphere, convenience and personnel conidence level of 95% and conidence interval of 3.5 we
related issues are important factors in retail banking. collected 784 questionnaires. Cities were selected from
As these factors had not been developed speciically for different parts of the country. Respondents were customers
SDBR service, we checked the validity of these four main of SDBR service of different banks. We asked them to
groups with bank experts. Based on experts’ ideas we then evaluate the importance of the identiied factors. The
concluded that inancial offering in SDBR service might spectrum composed of “very low” to “very high” options.
not be the interest paid (similar to deposit services) but it
could be the price, which is composed of a deposit and an Table 2. Customer ideas about important factors in SDBR
annual rent. Environment and atmosphere in case of SDBR service delivery
service could be translated to branch safety. We assumed
Very High
Moderate
convenience to be geographic proximity of SDBR service
Very Low
provider to customers’ place. On personnel related issues, Factor
High
Low
we derived personnel skill and behavior (including friendly
behavior, caring customers’ needs, etc). Cost 4% 7% 25% 26% 38%
We then formed focus groups with customers and Proximity to home/oice 4% 5% 20% 32% 39%
Insurance 5% 3% 10% 21% 61%
experts to understand the expectations and important items
Branch safety 2% 3% 8% 22% 65%
for SDBR service customers. As participants in focus
Possibility of shared access 7% 11% 22% 31% 29%
groups are limited, they should be selected in a way to
Bank CRM activities 2% 2% 12% 37% 47%
represent the ideas of different customer groups (Patton,
Personnel skills 5% 8% 15% 33% 39%
2001); therefore participants in our focus group were from
Personnel behavior 5% 6% 11% 30% 48%
different demographic and occupational groups. Here we
Fixed SDB staf 7% 11% 25% 32% 25%
present some quotes we have found important to derive our
results from:
“To select a SDBR service, I looked for the one with It could be observed that bank branch safety and
insurance, but as I didn’t ind one [in Iran] I got an uninsured insurance are the most important factors for customers.
one, but if it was insured I would feel my belongings are This implies that safety is very important for customers.
much safer.” Therefore to succeed banks should assure their customers
“I selected this bank, because I felt it is the safest place.” that their valuables are kept safe.
“It is important to ind one close to your house or ofice.” Also another important factor for customers is banks’
“I want to share my box with my father; we keep our relation with them. As SDBR customers rarely go to bank,
valuables together. Our bank provides us only with one it is important to keep them in touch with their banks to
card. This means that every time the one who wants to use succeed in increasing customer satisfaction and marketing
the box should get the card from the other one. This is not this service.
easy always and takes a lot of time”. Table 2 shows that all the factors that have been
“The least expensive was my option.” evaluated are ranked above average. This shows that all of
“When I selected this bank, I thought this is the only the factors we have introduced are important. To identify
bank that provides this service.” which factors are more important than others, we used
“Every time I go to the bank, I meet a new guy. Bank’s Friedman test and ranked them. Results are shown below:
policy to rotate jobs causes me to feel unsafe.”
“We need the bank to inform us about things like the Table 3 . Friedman Test for factors identiied to affect SDBR
need to extend our contract, etc.” service marketing
We analyzed our indings using content analysis
techniques and added our indings from the literature to it. Test Statistics
We identiied the following possible factors: cost, proximity N 660
to home/ofice, insurance, bank branch safety, possibility Chi-Square 747.819

of shared access, bank CRM activities, personnel skill, Df 12
personnel behavior, ixed SDB staff. Asymp. Sig. .000
The results of Friedman test are reported in Table 4. Our research also showed that many people identiied
SDBR a luxury service. This could be derived from their
Table 4. Results of Friedman Test for important factors in imagination about the price of this service (as about notable
Marketing of SDBR Service proportion estimated the price ive or ten times more), and
that some think this service is dedicated to the very rich
Rank Factor Mean Rank class solely.
1 Branch safety 8.79 Other factors include propensity to keep valuables at
2 Insurance 8.40 home, lack of access on holidays and lack of valuables to
3 Bank CRM activities 7.67 use SDBR service.
4 Personnel behavior 7.33 To know which factors are important for customers in
5 Proximity to home/oice 6.87 marketing SDBR service (second question), our research
6 Personnel skills 6.63 showed that branch safety is ranked irst. This means that
7 Cost 6.59 banks should try to transfer a safe image of their boxes. This
8 Possibility of shared access 5.75 could be done by informing them about the construction
9 Fixed SDB staf 5.47 of boxes and their location and insuring contents of boxes.
As SDBR customers rarely go to bank (because they
rarely need what they have put in their safe boxes) bank
As the table shows the most important factors are: performance in customer relationship management (CRM)
Branch safety, insurance and bank CRM activities. This is important for customers and they have ranked this issue
ensures us that this service should assure customers that third. This could be achieved by informing customers about
their belongings are kept safe. Other important factors new pertinent services, termination of their contracts, etc.
include personnel behavior and proximity to home/ofice. by calling, sending mails and emails, etc.
Factors that ranked lower are: personnel skills, cost, Other important factors which can help banks attract
possibility of shared access and ixed SDB staff. customers are personnel related issues. This includes
personnel behavior (friendliness, courtesy, etc) and skill.
Conclusion Banks can strengthen these factors by educating their
personnel in areas like how to do the checking process
In this paper we tried to answer two questions that faster and following special customer needs whenever
can help bankers to market their Safe Deposit Box Rental possible. One other factor that was identiied to affect
Service. The irst question was about the reasons few people customer satisfaction in SDBR service delivery was ixed
use this service. Second question was to identify the factors SDB staff. However, results of our survey showed that this
that are important for customers to select a service provider. factor is not very important.
Results of our research showed that there are several Customers’ request to have this service close to their
factors that hinder people’s demand for SDBR service. One home/ofice could be answered by distributing the boxes
main reason was that people had doubts about the safety of in a number of branches instead of locating a high number
this service. That the majority doubted the safety of boxes of them in one branch. Another solution can be providing a
and identiied insurance as an important factor show that delivery service of boxes to customers’ place. This service
safety is an outstanding factor. Their concerns about the safe is being delivered in some banks, especially for small boxes.
way to/from bank also strengthen this assumption. Besides Cost does not seem to be very important for SDBR
people’s dissatisfaction with the long distance between customers; this implies that they are mostly above average
their place and bank implies that selecting branches to income people. Also the cost of this service (at least in the
locate Safe Boxes is an important issue that helps the bank Iranian case) is not very high; the rent of the small size
to market this service; this would also relieve customer is about 0.3% of the minimum labor income. Therefore
concerns about unsafe way, due to geographic proximity. offering lower prices does not seem to be very effective in
Some people think that the information about contents of marketing this service.
their boxes may be revealed to others (family, government, Some customers may need to use Safe Boxes together.
etc.), something they resent. Some also think that other In these cases banks provide one access card for them; and
customers may know what they have when they want to use the one who needs to use the box will need to get the card
their boxes and question the private environment in banks. from the other; although both have been introduced to the
bank as users and their information is registered. This could International Journal of Bank Marketing, Vol. 19
be solved by providing one card for each of them. Although (4/5), pp.201-212.
possibility of shared access (with family, colleagues, and Cronin, J. J. and Taylor, S. A. (1992), measuring
friends) is of very low importance factors identiied in our service quality: a reexamination and extension,
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It is worth noting that surveys were done in Iran and Fienberg R., 1996, Customer dissatisfaction and
the results of our research are based on Iran’s social, delays: the robust negative effects of service delays,
cultural and economic setting. This research has been done Journal of consumer satisfaction, dissatisfaction
in a developing country; due to similarities in banking and complaining behavior, Vol. 9, pp.81-85.
system, social, cultural and economic situations across the Gwin J. M. and Lindgren Jr. J.H., 1986, reaching the
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other countries. prices and concentration in commercial banking,
Journal of Money, Credit and Banking, Vol. 8 (1),
Acknowledgement pp. 107-117.
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We are grateful to Mr. Hashemi, Dr. Baseri, Mrs. loyalty as a construct in the marketing of banking
Mohseni, and Ms. Rezaeian from Maskan Bank Research services, International Journal of Bank Marketing,
Center for their support of this research. We would also Vol. 6, pp. 49-72.
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acknowledged for their cooperation in analyzing the results Study of Banks in Penang, Malaysia, International
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2011 Akinyele, S.T. 303
STRATEGIC MARKETING AND FIRMS PERFORMANCE: A

STUDY OF NIGERIAN OIL AND GAS INDUSTRY
Akinyele, S.T. (PhD)
School of Business, Covenant University,Ota-Nigeria.
Email: akinsamolu2000@yahoo.com
Abstract
The purpose of this paper is to investigate the impact of strategic marketing and irms performance of the Nigerian oil and
gas industry. This study adopted a survey research methodology to examine strategic marketing and irms performance of Nigerian
oil and gas marketing companies in an attempt to attain their desired level of performance. One hypothesis was formulated from the
statement of research problem. Analysis of Variance, Pearson Moment Correlation Analysis, Factor Analysis among other statistical
tools were used in testing the hypotheses. The overall results suggest that strategic marketing is a driver of organizational positioning
in a dynamic environment, and that it helps to enhance the development of new product/service for existing markets. These indings,
along with other interesting indings of the study, are discussed. From the empirical and anecdotal managerial evidence as well
as from the literature implications are drawn for the eficient and effective strategic marketing in the Nigerian oil and gas industry.
Key words: Strategic Marketing, Firms, Deployment, Resources, Performance
The sensitivity of petroleum resource is clearly relected gas resources are largely untapped and Nigeria’s gas
in the fact that it has remained or continued to be the goose reserves place it among the top ten countries in the world
that lay a golden eggs for the Nigerian economy as well in that category ( Ekpu 2004). Ekpu (2004) also observe
as the supreme foreign exchange earner contributing over that other energy resources such as hydro power, wind
80% of government revenues and helps the development energy, and coal, which is produced in Enugu and Benue
of Nigeria’s infrastructures and other industries (Chukwu States abound in the country. Energy consumption is in the
2002). However, due largely to the highly technical nature of area of petroleum products, which according to (Dixton et
exploration and production, the sector depends substantially al 2005), accounted for between 70% and 80% of total
on imported technologies and facilities for most of its energy consumed in Nigeria between 1970 and 1980, the
operations. In view of the critical importance of the sector major consumers being the transportation, household and
to the nation’s economy and its capacity to generate far- industrial sectors.
reaching multiplier effect, the grooming of highly skilled Marketing has been deined and conceptualized in
indigenous manpower to participate keenly in the activities various ways, depending on the author’s background,
of the sector to redress the foreign dominance becomes interest, and education (Osuagwu 1999). For example,
imperative (Baker 2006). With a current production capacity marketing can be seen as a matrix of business activities
of about 30 million barrels per day (bpd), Nigeria plans to organized to plan, produce, price, promote, distribute, and
increase her production capacity to about 40 million bpd megamarket goods, service, and ideas for the satisfaction
by 2010 (Mathiason 2006). Already, Nigeria is the leading of relevant customers and clients. Achumba and Osuagwu
oil and gas producer in Africa, currently ranked the seventh (1994) also posit that marketing is important for the success
highest in the world (The Guardian 2006). of any organization, whether service- or product-oriented.
In addition to the above, Nigeria which is widely Mathiason (2006) argues that the oil and gas service
referred to as a gas province, has natural gas reserves that sector constitutes a service industry that has currently
triple crude oil reserves, being estimated in excess of 187.5 been changed by aggressive strategic marketing behaviour.
trillion standard cubit feet(scf) (Africa Oil and Gas 2004). According to (Li et al 2000), indigenous Nigerian oil
Baker (2006) observes that Nigeria began exporting oil and gas marketing companies were not profoundly
in 1958 with crude oil production of 5000 barrels per day entrepreneurial at the beginning for the following reasons:
(bpd) rising by 1979 to a peak of 2.3 million bpd.. However, lack of trained manpower, poor infrastructural development,
Akinyele S. T.. - Strategic Marketing and Firms Performance: A Study of Nigerian Oil and Gas Industry
lack of adequate or suficient capital base on the part of the to microeconomic or macroeconomic factors (performance
indigenous oil and gas marketing companies and intense industry environmental factors indice coupled with the
competition from superior foreign companies. management of marketing content and product marketing).
This study is intended to expand the body of knowledge Garuba (2006) have, however, posited that oil and gas
in respect of the application of strategic marketing to the companies poor performance in Nigeria is a function of
oil and gas sector especially in a developing economy like industry environmental factor indices and marketing of oil
Nigeria that earns over 80% of her foreign exchange from and gas services. It evolves as a result of the interplay of
oil and particularly, as the Federal Government is putting the marketing mix elements and the environmental factors,
in place policies and strategies to improve the oil sector’s which impact on these elements (Li et al 2000 ; Mavondo
contributions to the Nigeria economy (Garuba 2006). 2000). Therefore, the function of marketing strategy
deals with determining the nature, strength, direction,
Statement of Research Problem and interaction between marketing mix elements and the
environmental factors in a particular situation (Osuagwu
The problem statement, describes the content for the 2001; 2001; 2004). However, achieving eficient and
study and it also identiies the general analysis of issues effective product marketing strategy by an organization
in the research necessitating the need for the study is dificult, as a result of the ambiguity and instability
(Osuagwu 1999). The research is expected to answer of environmental factors . Sound and robust marketing
questions and provide reasons responsible for undertaking commitment on the part of organization and sales-people
the particular research (Pajares 2007). Many research are important to the survival and growth of the oil and gas
efforts in the area of marketing practices in developing industry, considering the subtle, unstable and seemingly
economies have dealt with macro issues and emphasized hostile business environments in which contemporary
the management of company’s structure and strategies, business organizations operate (Osuagwu 1999). In order
conduct and performance of marketing activities as they to formulate and implement effective and eficient goal
relate to performance indices such as market share, growth, actualization and inter-industry marketing commitment in
eficiency and well being of consumers and clients (Samli product distribution, oil and gas companies should have
and Kaynak 1994) lament that the key defect with this static a thorough and continuous understanding of the relevant
and macroanalysis of marketing practices in developing environment that impacts on their marketing strategies.
economies is that it minimizes the impact of marketing
environment on the achievement of performance measures. Objectives of the Study
Also, although some research efforts have been undertaken
to explain marketing practices in developing economies at The main focus of marketing activities of oil and gas
the organizational level (Chukwu 2002), many of these marketing companies is the identiication and satisfaction
research efforts do not provide answers to issues pertaining of clients’ needs and wants. These objectives can be
to the impact of company’s structure and strategies on the attained by identifying the likely marketing mix variables
performance of mineral prospecting industries particularly and strategies, including relevant environmental impacts
the oil and gas marketing companies. The deregulation of on them. There is, therefore, the need to carry out this
the Nigerian economy through the Structural Adjustment research given the enormity of the problem facing the oil
Programme (SAP) affected the oil and gas sector in Nigeria and gas industry. Speciically the study sought to explore
in many ways . Consequently, the Nigerian oil and gas the possible differences in the organizational structure and
companies incorporated the usage of various market mix strategies adopted and how they affect the performance of
elements to improve their market outreach/ coverage, new Nigerian oil and gas marketing companies.
product ratio, price positioning, competitive orientation,
etc to survive and grow (Johne and Davies 2002). The Research Hypothesis
poor condition of some oil and gas marketing companies
in Nigeria is a function of some interrelated problems. The organizational structure and strategies adopted
According to (Li et al 2000 ), the causes of the oil and gas do not affect the market share of Nigerian oil and gas
marketing companies failure or poor performance, are due marketing companies.

Literature Review strategies of Nigerian oil and gas marketing companies are
expected to be adaptable to these environmental factors
A service may therefore be seen as an activity or beneit in order to achieve set performance goals. The oil and gas
which can be offered to an organization or individual by industry seems to have witnessed some form of corporate
another organization or individual and which is essentially performance over the years which can be attributed to their
intangible. It is a separately identiiable but intangible distinct level of market share (Akinyele, 2010 ).
offer which produces want-satisfaction to the client, and Marketing strategies and tactics are concerned
which may or may not be necessarily tied to the sale of with taking decisions on a number of variables to
a physical product or another service (Osuagwu 1999). inluence mutually-satisfying exchange transactions and
Services include a wide range of activities and form some relationships. Typically, marketers have a number of
of the growing sectors of the economies of developed and tools they can use, these include megamarketing and
developing countries. Services include professional services the so-called 4Ps of marketing , among others. Marketing
(legal, accounting, medical, management consulting, seems easy to describe, but extremely dificult to practice
etc), general services (insurance, postal, telephone, (Kotler and Connor 1997). Marketing is one of the salient
transportation, internet ,tourism, etc), maintenance and and important organic functions which help to service
repair services, and services from marketing researchers organizations to meet their business challenges and
and product manufacturers, among others. Oil and gas achieve set goals and objectives . The word “ service” is
service is not a tangible thing like food, clothing and car. used to describe an organization or industry that “does
Sound and robust marketing strategies are important to something” for someone, and does not “ make something”
the survival and growth of any business, including oil and for someone (Silvestro and Johnston 1990). “Service” is
gas business, considering the increasingly subtle, unstable used of companies or irms that meet the needs and wants
and seemingly hostile business environments in which of society such organizations are essentially bureaucratic .
contemporary business organizations operate . Therefore, “ Service” may also be described as intangible its outcome
in order to formulate and implement eficient and effective being perceived as an activity rather than as a tangible
marketing strategies, business organizations should have offering. The question of the distinction between services
a thorough and continuous understanding of the relevant and tangible products is based on the proportion of service
environment that impacts on their marketing strategies. components that a particular offering contains.
According to (Mavondo 2000), marketing strategy has
been a salient focus of academic inquiry since the 1980s. Definition of Strategic Marketing
There are numerous deinitions of marketing strategy
in the literature and such deinitions relect different The early strategic marketing - performance studies
perspectives ( Li et al 2000). However, the consensus is date from the time of rapid expansion of formal strategic
that marketing strategy provides the avenue for utilizing the marketing in the 1960s (Levie 2006). Although same studies
resources of an organization in order to achieve its set goals employed diverse methodologies and measures, they shared
and objectives. Generally, marketing strategy deals with a common interest in exploring the inancial performance
the adapting of markeing mix-elements to environmental consequences of the basic tools, techniques, and activities
forces. It evolves from the interplay of the marketing mix of formal strategic marketing i.e. systematic intelligence-
elements and the environmental factors (Li et al 2000). gathering, market research, SWOT analysis, portfolio
Therefore, the function of marketing strategy is to determine analysis, mathematical and computer model of formal
the nature, strength, direction, and interaction between the planning meetings and written long- range plans. Osuagwu
marketing mix- elements and the environmental factors in (2004) observes that strategic marketing is a disciplined
a particular situation . According to (Levie 2006), the aim effort to produce fundamental decisions and actions that
of the development of an organization’s marketing strategy shape and guide what an organization is, what it does, and
development is to establish, build, defend and maintain why it does it, with a focus on the future. Akinyele (2010),
its competitive advantage. Against this background, the reports that newly invented strategic marketing displaced
present research attempts to assess the marketing strategies long range planning because of the growing discontinuity of
of Nigerian oil and gas marketing companies, the impacts the environment. Strategic marketing on the other hand does
of environmental factors on such strategies and the not necessarily expect an improved future or extrapolatable
effectiveness of the marketing strategies. The marketing past. Grewal and Tansuhaj (2001), argued that a manager
is not necessarily a strategist and that a manager’s vision is standard for reliability. Speciically, Nunnally (1978)
also not an entrepreneurial vision. He explains that while recommended 0.70 Cronbach alpha value (internal
the manager would rather have an orientation point of consistency) for newly developed research instruments.
guiding a company in a speciic direction, an entrepreneur Therefore, subject to the speciic and usual limitations
having strategic competence should state his vision clearly, associated with this type of research, the research instrument
aggressively and in an optimistic manner. appears reliable and valid.
This study has provided empirical evidence pertaining
Methodology to the perception placed on oil and gas marketing strategies,
and oil and gas performance measures and impact of
A cross- sectional survey was selected for this study environmental factors on such strategies. The research
because it was easy to undertake compared to longitudinal indings show that product and mega marketing strategies
survey and the result from the sample can be inferred received relatively low perception. These indings have
to the larger population. In addition, some extraneous managerial and research implications.
factors could have manifested in the observed change
other than the independent variable concerned. The target Table 2: Descriptive Statistics of Effectiveness of Strategic
population in the study was the employees of product Marketing Using Qualitative Measures of Performance(n=
pipeline marketing companies in Lagos, Nigeria. The 286).
questionnaire was pre-tested with respondents in other
product marketing company, to authenticate reliability. Std.
Variables Mean Variance Skewness
Dev.
The pre-testing was done to avoid any possible inluence
Company makes proit by
on trial respondents before the actual survey. The analyzed selling large quantities of 5.17 .96 .89 -.1.27
data was presented using descriptive statistics, frequency goods/services
tables, Analysis of Variance, and Correlation coeficients. Experience to cut costs is an

4.67 .99 .99 -.79
important goal
Descriptive statistics allow the generalization of the data to
Sales executive move faster
give an account of the structure or the characteristics of the than competitors in responding 4.93 .98 .87 -.99
population as represented by the sample. to customers needs
Develops an exhaustive set
of alternatives before making
Data Analysis, Finding and Discussions improvement management
4.79 .89 .79 -.69
decision
Table 1: Reliability Coeficients of Research Measures Demands better services
4.17 1.23 1.29 -.39
provided by customers
(Cronbach’s Alpha)
Emphasize opening up new
4.69 1.23 1.27 -.32
branches
Cronbach’s Alpha
S/N Variable Measure Ability to gain market share is
Coeicients 3.57 1.39 1.79 -.34
high
1 Management of Marketing strategy 0.76
2 Oil and Gas Performance Measurement 0.73
3 Efect of Environmental factors on 0.65
marketing strategies Table 2 presents the descriptive statistics of the
4 Organizational structure and strategi 0.84 effectiveness of strategic marketing practices of the studied
oil and gas industry. The inding shows that strategic
marketing practices have been reasonably effective in oil and
Table 1 above shows Cronbach’s alpha coeficients of gas industry, with strategic marketing effectiveness being
the major research measures. “Management of marketing very high from the analysis above. The essence of strategic
strategy contructs” and “Oil and gas performance marketing is to achieve set objectives, and these objectives
measurements” met Nunnally’s (1978) internal consistency can be measured in terms of proit, market share, marketing
(reliability) standard for newly- developed research cost, gross earnings, capital employed, asset quality, quality
measures, while “Effect of environmental factors on of marketing management, liquidity, turnover of marketing
marketing strategies” failed to meet Nunnally’s (1978) staff, and management of departmental crisis. The

effectiveness of strategic marketing practices in the studied
Company D
Company A
Company B
Company C
oil and gas industry is encouraging. These are the CAMEL Dimension of the Environment
Texaco
Oando
Mean
mean
Mean
Mean
Total
Agip
measures of performance. According to (Osuagwu 1999),
the effectiveness of oil and gas strategies determines the Ability of labour market
survival and growth of downstream sector in Nigeria, For managers 3.64 1.79*** 3.11 3.23
especially in an ever- changing environment. Effective oil For technological experts 3.47 1.99*** 2.23 2.65
and gas management through strategic marketing assists
Notes: a. The higher the mean score, the more typical is the characteristics
in the employment of capital raised, and manages the oil
and gas asset portfolio in viable business options so that * Signiicant at 0.5 level by t-test of means
the assets are seen to be performing and yielding returns. ** Signiicant at 0.1 level by t-test of means
The marketing strategies of oil and gas, in order to show
*** Signiicant at.001 level by t-test of means
reasonable levels of effectiveness along the CAMEL
measures, have to emphasize a marketing management
team with foresight, experience, and commitment towards From the above table, there is also a signiicant difference
the survival and growth of the oil industry, among others. in labour market-ability between the four companies. Total
Osuagwu(2001), posit that the most widely accepted irms face a less mobile labour market than oando, Texaco
measure of performance of oil and gas industry is current and Agip irms. Not new, the indings is consistent with the
proitability, which is measured in terms of return on assets prevalent view that the Total labour market is less mobile
and return on equity. Nigerian oil and gas industry that because of its many tangible incentives incorporated
creates comparatively large amounts of value (in relation into their employment system. The strengths and range
to its equity) through it strategic marketing practices can of constraints imposed by interrelationships with other
be said to show high level of effectiveness. And as Table organizations are also different in Total and other oil and
3 shows, the studied oil and gas industry’s have shown gas companies under study. Oando and other oil and gas
appreciable levels of effectiveness using the identiied irms face stronger constraints imposed by government and
measures of performance. regulatory bodies, while Total irms feel the constraints
imposed by their relationships with distributors, customers,
Table 3: Comparison of Environmental Characteristic a suppliers and competitors to a greater degree than Oando,
Texaco and Agip irms. This result suggests that Total
companies create closer inter-organizational networks with
Company D
Company A
Company B
Company C
Dimension of the Environment various kinds of organizations. The networks, although

Texaco
Oando
Mean
mean
Mean
Mean
Total
Agip
constraining decisions within organizations, may have a

Markets number of beneits including risk-sharing and long term
Product diversity 4.64 4.29*** 3.22 3.12 stabilization of business. The strong constraints imposed by
Geographical diversity 5.40 4.22*** 2.34 3.21 the government upon oil and gas companies probably stem
Level of product information 4.89 4.80 4.33 4.02 from the relatively adverse historical relationship between
Diversity of promotional media 4.92 4.46* 4.06 3.42 business and government in Nigeria as well as from motives
Competition to protect the public and promote competition.
Intensity of rivalry 5.69 5.36** 4.34 4.54 To sum up, Total irms face a less diverse, less competitive,
Inability to inluence market 4.21 3.60*** 3.34 3.18 more volatile and high opportunity environment, and less
conditions
Average proitability of the principal 4.32 4.26 4.21 4.65
mobility of market. They are, moreover, constrained by
market interrelationships with other organizations to a greater
Entry barriers to the principal market 4.69 5.42*** 4.32 4.24 extent than the other oil and gas marketing irms under
Constraints imposed by inter-industry 2.84 3.09 3.33 3.24 study. A irm must set operational objectives, the priorities
relationships with major stockholders
of which are contingent upon the opportunities provided
With major distributors and customers 2.76 3.78*** 3.43 3.11
With major suppliers-subcontractors 2.49 3.71*** 3.34 3.54
and constraints imposed by its environment matched
With government 4.38 3.27*** 3.12 3.43
against the internal capabilities of the organization.
With competitors 2.14 2.64*** 2.42 2.56
Hypothesis Testing Source

TypeIII
Sum of Df
Mean
F Sig.
square
squares
The irst hypothesis tested in the study states that ‘ Error 581.174 283 .816
The organizational structure and strategies adopted do not Total 5758.000 285
affect the market share of Nigerian oil and gas marketing Corrected Total 667.984 286
companies.
Source: Field Survey, 2007.
Table 4: Mean and Standard Deviation on Company’s Structure

and Strategies Adopted and Market share Attained by Nigerian a
R Squared= .382 (Adjusted R Squared=.361)*
Oil and Gas Marketing Companies signiicant at 0.005 two tailed test.
The indings in Table 5 indicate that there was a
Questions Freq. Mean
Standard signiicant difference in performance at f (4,285)= 5.457, at
Deviation
Company’s structure and strategies adopted by
0.05 signiicant level. This implied that the irst hypothesis
286 70.40 2.18
Total irm was rejected and the alternative hypothesis retained, which
286 68.40 1.18 meant that the company’s structure and the strategies
Oando irm
adopted by Total yielded a better market share than that
286 42.64 1.22 of their counterparts in the industry.
Texaco irm
286 68.20 0.22
Agip irm
Discussion of the Findings
Oil and gas companies performance 286 64.40 1.16
As stated earlier, the discussion of this study followed

Table 4 above shows the difference between means of the hypotheses raised and tested and they are presented
company’s structure and strategies and resultant market below:
share of Nigerian oil and gas marketing companies. Total The organizational structure and strategies adopted
irm with a mean of 70.40 and standard deviation of 2.18 do not affect the market share of Nigerian oil and gas
had a better structure compared with other counterparts in marketing companies.
the industry with mean of 68.40 and standard deviation of The null hypothesis one which stated that” the
1.18 respectively. The Table also shows that with the mean organizational structure and strategies adopted do
of 64.40 and standard deviation of 1.16 when divided not affect the market share of Nigerian oil and gas
between the companies, the market share of Total was better marketing companies” was rejected. This implied that
than that of the other counterparts. The question then is, the organizational structure and strategies adopted by
was the difference signiicant enough or was it the result oil and gas marketing companies affect market share
of a sampling error? The answer is presented in Table 5. positively. Several empirical studies have concluded that
an organizational structure and strategies adopted is indeed
Table 5 Summary of Analysis of Variance on Company’s an important element in companies’ success. (Levie 2006),
Structure and Strategies Adopted and Market share Attained by gave evidence that the level of organizational structure and
Nigerian Oil and Gas Marketing Companies Respectively strategies is positively related to company effectiveness,
while (Grewal and Tansuhaj 2001 ) reported that more
TypeIII
Mean successful companies have well deined organizational
Source Sum of Df F Sig.
square structures, in sharp contrast to less successful companies.
squares
Corrected Model 294.808 9 32.644 35.415 .000 Focusing on large irms, (Ekpu 2004); found a positive
Intercept 1887.508 1 1887.508 1749.596 .000 relationship between the unstructured organizational
Company Types 20.014 1 5.654 6.240* .000 patterns and large irm inancial performance. The indings
Company’s structure
22.757 4 5.684 6.231 .000 by (Osuagwu, 2004; Akinyele 2010) underscore this
&strategies
inding, as they established that changes in the market
Company Types*
Company’s structure & 24.745 4 5.086 5.457 .001 environment, business strategy and organizational structure
strategies
have impact on companies performance.

Conclusions and reactions to the organizational’ moves may be the key

determinant of success for any marketing strategy. Fourth,
This section elaborates on the conclusion of the research. with the competitive downstream oil and gas industry of
Based on the indings of this research, the following today, participants can put more emphasis on relationship
conclusions are warranted: marketing to ensure effectiveness. This essentially entails
1. The evidence from indings suggested that oil and gas personalizing the oil and gas services offered to clients,
marketing companies have comparative advantages in attending to clients’ cultural and social activities, in relation
adopting various marketing strategies using different to other non- business activities, which are of interest to
technologies. Oil and gas marketing companies clients. Fifth, Nigerian oil and gas marketers should be
appeared to specialize in the use of traditional methods sensitized to the importance of their offerings to their
of marketing, which is based on “soft” information clients, including the impressions their clients have of
culled from close contacts by marketing and sales those offerings. As oil and gas clients are demanding more
department rather than the use of the specialized quality from their petroleum product marketing companies
strategic marketing methods that are based on “hard” (PPMC), it may be strategic to inject the idea of total
quantitative information. quality management (TQM) and its variants among product
2. Most of the indings of the research are consistent with marketers.
previous normative and empirical works. For instance,
the companies face a less diverse, less competitive, Recommendations, Limitations and
more volatile and high opportunity environment, and a Suggestions for Further Studies
less mobility of market. They are however, constrained
by interrelationships with other organizations to a This study indicates that strategic marketing have
greater extent. a signiicant impact on performance variables and that
3. The research instrument shows high validity and they interact with the different components to facilitate
reliability. performance. It also indicates that different performance
4. This study has provided empirical evidence pertaining factors moderate strategic marketing practice. Therefore,
to the perception of oil and gas marketing strategies, and organizations hoping to enhance corporate performance
the industry environmental factors on such strategies.. in a dynamic business environment should consider the
following:
Managerial and Research Implications
Recommendations
The indings of this study have several managerial
implications for Nigerian downstream oil and gas. First, a. The concepts and principles of total quality
Nigerian oil and gas managers are advised to place more management (TQM) are recommended for holistic study,
emphasis on the adoption of various marketing strategies in addition to contemporary marketing management issues
using different technologies. Second, all organizations such as relationship marketing, value analysis, business
face an external business environment that constantly process re-engineering, megamarketing, re-marketing, co-
changes. Changes in the business environment create both marketing, bench marketing, and permission marketing,
opportunities and threats to an organization’s strategic among others.
development, and the organization cannot risk remaining b. Efforts should be made by organizational marketers
static. It must monitor its environment continually in to understand the relevant factors that affect both clients’
order to: build the business, develop strategic capabilities behaviours, and the strategic options to be adopted to cope
that move the organization forward, improve the ways in with such behaviours.
which it creates products/services and develops new and c. Oil and gas marketing scholars or researchers
existing markets with a view to offering its customers should endeavour to study holistically the relevant business
better services. Third, anticipating competitors’ actions functions and activities which may enhance or hinder the
understanding and subsequently applicability of relevant Journal of Management and Business Research,
modern management concepts and principles to oil services vol.10(6):60-77.
marketing. African oil and gas(2004). Energy policy agenda
d. Firms that are not operating in a dynamic business .International energy services Ltd, Lagos.
environment need not adopt a strategic marketing practice Baker, M.(2006). Petroleum technology development
as this may cause the irm to look inconsistent in the eyes of fund: Intervention to discover and develop
its customers and eventually reduce effective performance. technocrats for the energy sector of tomorrow.
e. The need for the identiication of options and Petroleum Journal, Vol. 5(3),112-115.
resources and of capabilities of deployment constitutes an Chukwu, I.(2002). Crude oil development, The Post
impetus to effective strategic marketing implementation, Express, Lagos, Thursday, October 1, p. 24-25.
since the practice derives from capabilities in assembling Dixton, D. , Donald, F. , & Roger, A. (2005). Basic
and maintaining an appropriate resource portfolio and Marketing: Concepts, Decisions and Strategies,
coupling the resource portfolio with the identiication and Englewood Cliffs, N.J. : Prentice- Hall Inc.
recognition of options. Ekpu, R.(2004). Associated gas utilization, Nigeria’s
oil and gas, 3(8) August,pp.17-18.
Suggestions for further studies Garuba, D.S.(2006). Survival at the margins:
Economic crisis and coping mechanisms in rural
This research leads to some observations that might be Nigeria, Local Environment, Vol. 11, (1), p.17-36.
of interest to future researchers, as they represent the seeds Grewal, R. and Tansuhaj, P.(2001). Building
from which future research can be developed. organizational capabilities for managing economic
a. This same research can be carried out in other crisis: The role of market orientation and strategic
nations so that a broad comparison of the concepts of management. Journal of Marketing, 65: 67-80.
strategic marketing as it affects irm performance can be Johne, A. and Davies, R.(2002). Innovation in medium-
made. sized oil companies: How marketing adds value,
b. Research into the combined effects of strategic The International Journal of Bank Marketing, 18(1).
marketing practice and performance factors as mediators Lavie, D.(2006). Capability reconiguration: An
of irm performance relationship. analysis of incumbent responses to technology
c. Research into the effects of key characteristics of change. Academy of Management Executive,
industries environmental indices and marketing strategy 31(1):153-174.
could be carried out to further explain the differences in the Li, S. , Kinman, R., Duan, Y. and Edwards, J.S.(2000).
irm’s adoption of strategic marketing. Computer-based support for marketing strategy
d. Finally, future research works are to be undertaken development, European Journal of Marketing,
in order to reine the cobwebs found in the present research, 34(5/6).
and orient it to more speciic contexts (business, time, Mathiason, N.(2006). Oil delta burns with hate, The
location, etc) in Nigeria’s oil and gas industry. observer(UK), Sunday, January, 29(http://observer.
Guardian.co.uk/business.
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INTUITIVE MANAGERIAL DECISION MAKING IN MALAYSIA

AND THE UNITED STATES
Dr. Isola Oluwabusuyi (MBA, MA, DBA)
School of Business and Accounting
Brown Mackie College, Atlanta
Email: oluwabusuyi5@yahoo.com
Abstract
The purpose of this paper is to examine and compare the factors that inluence intuition as a decision-making tool for managers
in Malaysia and in the United States. The underlying study examined the relationships among gender, management level, country of
operation, and the reported use of intuition in decision making. Agor’s Intuitive Measurement Survey (AIM) survey was adapted (with
permission from copyright owner) from Weston Agor’s study to measure the relationship between a manager’s reported use of intuition
in decision making and the manager’s management level, the manager’s gender, and the manager’s country of operation. The research
shows signiicant relationship between research variables. Male managers in Malaysia’s reported use of intuition in decision making
was signiicantly lower than US managers reported use. Limitations of the study include the following: Samples were a combination of
criterion, maximum variation and convenience based selection of companies in Malaysia and the United States. United States samples
were selected from the East and West coast of the United States. The limitations could impact study’s external validity. Study’s indings
are quite signiicant to global business managers intending to shift more of their activities to Asia in the near future. Multinational
corporations would have to provide more data for their Malaysian managers. This Study had ive signiicant indings. Business schools
in the West may need to redesign their curriculum as more business managers feel more comfortable with intuitive decision making
techniques. Key words: Decision Making, Intuition, Global Management, Culture
Managerial decision making has always been a subject of believed that everyone had intuition and that it could be
passionate academic discussion. What is the most effective developed in individuals (Fields, 2001). Cappon’s request
way of choosing between alternatives? Should managerial to administer his research instrument was turned down by
decision making be intuitive or rational? Are managers many intuition-sensitive companies but companies in the
of companies facing relatively stable environments more manufacturing industry were quite receptive to his request.
intuitive in their decision making than their counterparts This might have skewed his indings. Cappon was a medical
managing companies facing more unstable environments? doctor and psychotherapist.
Are female managers more intuitive in their managerial Dane &Pratt (2007) in examining factors contributing to
decision making than their male counterpart? Is managerial effectiveness of intuitive decision making expatiated on the
decision making inluenced by a manager’s country of role of domain knowledge, implicit and explicit learning,
operation? and task characteristics on the effectiveness of intuition.
Khatri &Ng (2000) discovered that top executives They concluded that as tasks become more judgmental, the
of computer companies surveyed reported using more relationship between complex, domain relevant schemas
intuition than their counterparts in banks and utilities. and effective decision making becomes stronger.
The study also showed that computer industry was more
unstable than banking industry which was moderately Intuition and gender
unstable and utilities’ industry which was relatively stable.
Financial performance in the computer industry was also One widely-held view is that successful managers
positively related to the use of intuitive decision making by are aggressive, forceful, competitive, self conident,
top executives in the industry. independent and have a high need for control (Hayes et al,
Cappon (1993) tested over 3000 individuals and found 2004). Loden (1985) argued that women have a lower need
out that women did not have more intuition than men. He for control and are more cooperative than men. Green and

2011 Isola Oluwabusuyi 313
Cassell (1996) suggest that women are often characterized Country of Operation
as relatively submissive, nurturing, warm, kind and selless.
In a study of sex stereotypes and leader behavior; Brenner Merriam-Webster online dictionary (2007) had four
and Bromer (1981) reported that men are described as being different deinitions for a country: an indeinite usually
more analytical and logical and women as more intuitive. extended expanse of land, the land of a person's birth,
Sex differences have been cited as the reason why residence, or citizenship, a political state or nation or
women are under-represented in management; they lack its territory, the people of a state or district, and rural as
the qualities for success and cannot perform as effectively distinguished from urban areas. One of the variables
as male managers (Hayes et al, 2004). In agreeing with studied in this research is the country of operation. Research
this more compassionate and intuitive gendered¬ view of question four examined the impact of country of operation
women, Clare (1999), referred to intuition as one of the on reported use of intuition by executives. The literature
valuable contributions that women bring to management. review on country of operation is hence focused on culture
Studies conducted to investigate the validity of this as countries’ distinguishing factor.
stereotyping did not produce consistent results. Culture can be deined as the way of life of a group of
In a study by Wajcman (1996), successful women people. Damen (1987) also deined culture as “learned and
managers were found to be in most respects, indistinguishable shared human patterns or models for living”. These patterns
from men in equivalent positions. Alban-Metcalfe and West and models pervade all aspects of human social interaction.
(1991) found a remarkable similarity in the way female and The use of proverbs to study cultures is a well-known
male managers perceived themselves at work. Donnell and method in Anthropology. Lovell (2001) said “proverbs
Hall (1980) found no signiicant difference between male can be the eyes that provide a window to a culture’s soul.”
and female managers in their study of 1,000 matched pairs Prahlad (2001) did a study of Jamaican culture through
of female and male managers. However, Eagly and Johnson Jamaican Proverbs gathered from Reggae music. In
(1990) found support for the absence and presence of studying Malaysia and the United States as countries of
differences in their Meta analysis of studies of gender and operation, a review of literatures containing Western and
leadership style (Hayes et. al., 2004). Pacini and Epstein’s Malaysia proverbs was conducted.
(1999) study showed that women perceived themselves Malaysia is a country of three major ethnic groups;
as intuitive. They report that women are more likely than Malays, Chinese and Indians. The book of Analects is one of
men to identify themselves as engaging in experiential the most revered sources of information on Chinese culture.
processing and to judge themselves as being good at it The book contains most of the sayings of Confucius and
(Aarnio & Lindeman, 2005). other highly respected Chinese teachers. Relevant contents
In summary, the search for gender differences in of the book were contrasted with Hofstede’s (2003)
information processing style has so far produced mixed cultural universals to develop a comprehensive outlook
results. Self report studies produced results showing that on the Chinese culture. The same procedure was carried
men and women support the existence of gender differences out for Western, Indian and Malay cultures to develop a
in information processing; however some of the results are comprehensive view of those cultures.
actually contradictory. Some studies showed that women Hofstede (1980) deined culture as a kind of collective
see themselves as more intuitive than men while a few programming of the mind which distinguished members
self-report and in-depth studies showed men as being more of one category of people from another. In the 1970's, he
intuitive than women. In making sense of the results, Hayes measured elements of national cultural systems that impact
et al. (2004), suggested that observed pattern “appears to behavior in work situations. His studies produced a total
lend support to the utility of the structural (Kanter, 1977) of 116,000 questionnaires in two surveys held in 1968
and gendered culture (Green and Cassell, 1996) approaches and 1972 (Hofstede, 2003). The studies revealed four
to understanding behavior in organizations”. The fact that main dimensions on which country cultures differ. They
female managers showed more intuition than their non- were labeled power distance (PDI), uncertainty avoidance
managing counterparts was construed to be their way of (UAI), individualism (IDV), and masculinity (MAI). Later
adapting to a male dominated environment in which success research, which dealt with Asians as the subject, added
was determined by conformity to certain modes of conduct. the dimension called "long-term orientation”. These ive
Oluwabusuyi I. - Intuitive Managerial Decision Making in Malaysia and the United States
dimensions were used to compare the two cultures through are convinced of their own perfection, and closed off to
the eyes of their proverbs. anything else. How about you, what do you hate? Tzu
Power distance index (PDI) focuses on the degree of Kung said I hate those who take a little bit of clarity as
equality, or inequality, between people in the country's wisdom; I hate those who take disobedience as courage;
society. A high power distance ranking indicates that I hate those who take disclosing people's weak points to
inequalities of power and wealth have been allowed to grow be straightforwardness." (Lau, 1992, p.17) Confucius here
within the society. “Malaysia’s power distance score is 104 demonstrates the need to avoid exposing others weaknesses.
compared to the other Far East Asian countries average of The need to outdo others is almost non-existing in Chinese
60. This is indicative of inequality of power and wealth worldview. This is in sharp contrast to Western worldview
within the society (Hofstede, 2003)”. A review of the book of self before others.
of Analects revealed the following Chinese proverbs. Malay proverbs dealing with the topic of individualism
“Yu Tzu said: There are few who have developed are listed below:
themselves ilially and fraternally who enjoy offending If you have, give; if you lack, seek.
their superiors. Those who do not enjoy offending superiors The body pays for a slip of the foot, and gold pays for a
are never troublemakers. The Superior Man concerns slip of the tongue.
himself with the fundamentals. Once the fundamentals are A heavy load should be borne together as well as a light
established, the proper way (Tao) appears. Are not ilial load
piety and obedience to elders fundamental to the enactment As a bamboo conduit makes a round jet of water, so
of humaneness?" (Lau, 1992, p. 1) The concept of superiors taking counsel together rounds men to one mind. The need
practiced by the Chinese is a relection of the people’s belief for collectivism is emphasized by these Malay proverbs.
in power distance. Yu Tzu in this proverb demonstrates the Masculinity (MAS) focuses on the extent to which a
need to avoid offending those who occupy higher positions society reinforces, or does not reinforce, the traditional
in the power structure of the society. Parents are the most masculine work role model of male achievement, control,
prominent superiors in Chinese worldview. and power (Hofstede, 2003). A high masculinity ranking
Malay proverbs dealing with power distance are listed indicates the country experiences a high degree of
below: gender differentiation. In these cultures, males dominate
A lost wife can be replaced, but the loss of character a signiicant portion of the society and power structure,
spells ruin. A deep look at this saying reveals a stratiied with females being controlled by male domination. A low
society that values female fairly less than their male masculinity ranking indicates the country has a low level
counterparts. It is not of the characteristics of societies in of differentiation and discrimination between genders. In
which power distance is widely accepted. these cultures, females are treated equally to males in all
Individualism (IDV) focuses on the extent to which aspects of the society. Quotes relevant to masculinity in the
the society reinforces individual or collective achievement book of Analects are stated as follows:
and interpersonal relationships (Hofstede, 2003). A “Being robbed, Chi K'ang Tzu was upset, and
high individualism ranking indicates that individuality questioned Confucius about what to do. Confucius said, If
and individual rights are paramount within the society. you were desire less, they wouldn't steal from you, even
Individuals in these societies may tend to form a larger if you were to offer them a reward to do so." (Lau, 1992,
number of looser relationships. A low individualism p. 12) The authentic original Chinese culture does not
ranking typiies societies of a more collectivist nature with favor materialism. In fact, the society esteems peace and
close ties between individuals. Malaysia ranked low on harmony above competitiveness. Confucius here seems to
individualism with a score of 26, third highest for Far East convey the need to shun materialism.
Asian countries, behind Japan's 46 ranking, and compared “Do not wait for the rice to be served at the knee” is
to an average of 24 for Asian countries. Corresponding a Malay proverb that seems to extol hard work and shun
quotes from the book of Analects are stated as follows: laziness.
“Tzu Kung asked, ‘Does the Superior Man also have “He who works as a slave, eats as a king” is an Indian
things that he hates?’ Confucius said; He does. He hates proverb extolling the virtues of hard work.
those who advertise the faults of others. He hates those Uncertainty avoidance index (UAI) focuses on the level
who abide in lowliness and slander the great. He hates of tolerance for uncertainty and ambiguity within the society
those who are bold without propriety. He hates those who - i.e. unstructured situations (Hofstede, 2003). A high
uncertainty avoidance ranking indicates the country has a The inferior man does not know the decree of Heaven;
low tolerance for uncertainty and ambiguity. This creates a he takes great men lightly, and laughs at the words of the
rule-oriented society that institutes laws, rules, regulations, sages” (Lau, 1992, p. 16) Respect for tradition is implied by
and controls in order to reduce the amount of uncertainty. the reference to great men in this teaching. Malaysia’s score
A low uncertainty avoidance ranking indicates the country on this index is not available.
has less concern about ambiguity and uncertainty and has Only seven (7) countries in the Geert Hofstede (2003)
more tolerance for a variety of opinions. This is relected research have individualism (IDV) as their highest
in a society that is less rule-oriented, more readily accepts dimension: USA (91), Australia (90), United Kingdom
change, and takes more and greater risks. (89), Netherlands and Canada (80), and Italy (76). The high
Malaysia is relatively low in uncertainty avoidance. individualism (IDV) ranking for the United States indicates
The country’s (UAI) is only 36, compared to an average of a society with a more individualistic attitude and relatively
63 for the Far East Asian countries. A search through the loose bonds with others. The populace is more self-reliant
book of Analects revealed the following sayings about the and individuals look out for themselves and their close
dimension: family members. Review of Western proverb literatures
Chi Lu asked about serving the spirits. Confucius said, produced two groups of proverbs relating to individualism.
"If you can't yet serve men, how can you serve the spirits?" The irst group promotes individualism while the second
Lu said, "May I ask about death?" Confucius said, "If you group promotes cooperation. The two groups are presented
don't understand what life is, how will you understand below.
death?" (Lau, 1992, p. 11) Confucius in this teaching shows Every man must carry his own cross If you want a thing
how Chinese people are generally intolerant of ambiguity. done right, do it yourself If you want breakfast in bed,
The emphasis in this teaching is to focus on what you know sleep in the kitchen Paddle your own canoe Good fences
and leave the ambiguous for other people. make good neighbors You are responsible for you The
Malay proverbs dealing with this dimension are listed need for individuals to fetch for themselves is expressed
below: in these proverbs. The central theme of the six proverbs is
Do not empty the water jars just because you hear the that individuals should be prepared to solve their problems
thunder in the sky without relying on others for help. This is in line with the
Do not leave the tortoise at your feet and hunt for the USA’s high score of 91 on this cultural dimension. However,
turtle on the sea shore. These proverbs also demonstrate the the literature review also revealed some proverbs that
society’s disdain for uncertainty. promote cooperation more than individualism. Examples
Indian proverbs relevant to uncertainty avoidance index of proverbs in this category are presented below.
were also gathered and listed below: A bicycle can't stand on its own because it's two-tired.
Don't bargain for ish which are still in the water. Honey catches more lies than vinegar.
He who is a guest in two houses, starves. No man is an island
Long-term orientation (LTO) focuses on the extent to The nail that sticks out gets pounded
which the society embraces, or does not embrace long-term A big tree attracts the woodsman's axe
devotion to traditional, forward thinking values. High long- The central theme of these ive proverbs seems to be at
term orientation ranking indicates the country subscribe odds with the earlier six. They encourage cooperation rather
to the values of long-term commitments and respect for than individualism. The possibility of some of the proverbs
tradition. This is thought to support a strong work ethic being foreign is also real since the American society is not
where long-term rewards are expected as a result of today's entirely white. The most unusual of the proverbs is fourth
hard work. A low long-term orientation ranking indicates one that talks about nails getting pounded. The researcher
the country does not reinforce the concept of long-term, felt this particular proverb might have been imported from
traditional orientation. In this culture, change can occur Asia.
more rapidly as long-term traditions and commitments do The next highest Hofstede (2003) dimension for the
not become impediments to change. LTO related quotes United States is masculinity (MAS) with a ranking of 62,
from the book of Analects are stated below: compared with an average of 50 for all countries. This
“Confucius said: The superior man stands in awe of indicates the country experiences a higher degree of gender
three things: He is in awe of the decree of Heaven; He is in differentiation of roles. The male dominates a signiicant
awe of great men; He is in awe of the words of the sages. portion of the society and power structure. This situation
generates a female population that becomes more assertive reinforces a cooperative interaction across power levels and
and competitive, with women shifting toward the male role creates a more stable cultural environment.
model and away from their female role. A cat may look at a king.
The literature review for this section turned up proverbs Green leaves and brown leaves fall from the same tree.
that mostly support USA’s score on the dimension. The If you want to judge a man's character, give him power.
supporting proverbs are presented before those that are not Power corrupts; absolute power corrupts absolutely.
supportive of the position. The society’s disdain for power permeates through the
Half a loaf is better than none. four proverbs. This is also relected in the country’s very
If at irst you don't succeed, try, try again. low PDI score. Egalitarianism is one of the central tenets
It's the early bird that gets the worm. of the American society. The irst proverb relates human
Make hay while the sun shines. freedom to look to that of a cat. “If a cat may look at the king
The need to keep trying until success is achieved is - then I have a right to look where I please” Egalitarianism
expressed in the second proverb, this is indicative of the is also further stressed by the fact that we all emanate from
male achievement model valued by the culture. The essence the same source as expressed in the green leaf proverb. The
of timeliness in trying to achieve the desired societal status proverb implies that we are all the same inside regardless of
is emphasized by the third proverb. Two proverbs that are what we look like outside.
not supportive of the male dominant, achievement oriented The last Geert Hofstede (2003) Dimension for the US is
tendency are listed below. The two proverbs look more like uncertainty avoidance (UAI), with a ranking of 46, compared
what one would ind in Asian cultural literatures. to an average of 64 for all countries. A low ranking in the
Winning isn't everything. uncertainty avoidance dimension is indicative of a society
Health is better than wealth. that has fewer rules and does not attempt to control all
The United States was included in the group of countries outcomes and results. It also has a greater level of tolerance
that had the long term orientation (LTO) dimension for a variety of ideas, thoughts, and beliefs. Researcher’s
added. The LTO is the lowest dimension for the US at 29, review of Western proverb literatures produced two groups
compared with an average of 45 for all countries. This low of proverbs relating to uncertainty. The irst group promotes
LTO ranking is indicative of the societies' belief in meeting risk taking while the second group promotes the need to
its obligations. The irst group of proverbs gathered from exercise caution. The two groups are presented below.
the literature review supports the low score of the country It's easier to ask forgiveness than permission.
on the dimension, while the second group seems to suggest It is better to die on one's feet than live on one's knees.
that the score on the dimension should have been higher. He who hesitates is lost.
The supporting proverbs are presented hereby presented. He who dares wins
Never put off till (until) tomorrow what you can do Don't cross a bridge before you come to it.
today. A watched pot never boils.
No time like the present. A coward dies a thousand times before his death.
A stitch in time saves nine The valiant never taste of death but once.
The second proverb in this second group is actually This irst group of proverbs encourage risk taking.
more favorable towards long term orientation as people The ifth proverb claims fretting about future problems is
are encouraged to make attempts to understand the past in superluous and the seventh proverb decries cowardice. It
dealing with the future. The third is also similar in its theme teaches that worrying about a forthcoming disaster may
as people are encouraged to focus more on the long run. cause as much (or even more) pain as the disaster when it
All things come to him who waits. occurs (but does neither change it nor make it easier). The
He who fails to study the past is doomed to repeat it. central theme of this group of proverbs is that fretting is
History repeats itself. more destructive than risk taking. This position is afirmed
Nature, time, and patience are three great physicians. by the country’s low UAI score.
The next lowest ranking Dimension for the United The second group promotes cautious approach to risk
States is power distance (PDI) at 40, compared to an taking and the proverbs in this group are presented below.
average of 55 for all nations. This is indicative of a greater A bird in the hand is worth two in the bush.
equality between societal levels, including government, A picture is worth a thousand words.
organizations, and even within families. This orientation Cobbler, stick to thy last.
Don't burn your bridges before they're crossed. and supervisors as well as United States male and female
Don't count your chickens before they're hatched. business owners, executives, managers and supervisors.
It's better to be safe than sorry. Research Question 1: What is the relationship between
The irst proverb in this second group asserts that what management level and reported use of intuition in decision
you already have is worth more than what you dream about making?
and the third proverb tries to encourage people to stick to Research Question 2: What is the relationship between
what they know. The fourth proverb suggests that people country of operation and reported use of intuition in
should not act in ways that would leave them with no decision making?
alternatives. The mitigating effect of this second group of Research Question 3: What is the relationship between
proverbs might be responsible for the middle of the road country of operation and use of intuition in decision
ranking given to USA on the index. making?
Methodology Assumptions and Limitations
The quantitative research employed Agor’s Intuitive The following assumptions were formulated that were
Measurement Survey (with permission by copyright owner). central to the design of this research.
The AIM survey was administered to 100 participants from 1. Respondents understand the questions and are able
the US and 100 participants from Malaysia. Questions on to answer all of them in the questionnaire.
the survey were developed to measure all independent and 2. Answers to the questionnaire are given with the
dependent variables. respondent’s knowledge and that answers were truthful.
Questions on the survey measured the following 3. Data collection process was reliable.
variables: Gender, Management Level, Country of 4. Analysis tools were accurate
Operation, and Reported use of intuition in decision
making. Reported use of intuition in decision making was Below are some limitations that may inluence the
the only dependent variable in the study, the remaining results. These limitations include:
three variables were independent variables.
1. The samples were a combination of criterion,
Validity and Reliability of the Instrument maximum variation and convenience based selection of
companies in Malaysia and the United States.
AIM Survey (Agor’s Intuitive Measurement Survey) 2. The United States samples were selected from the
is a modiied MBTI (Myers-Briggs Type Indicator). The East and West coast of the United States.
instrument, therefore, uses the reliability and validity of
MBTI (Agor, 1984). Studies have found strong support Findings
for construct validity, internal consistency, and test related
reliability of MBTI instrument (Thompson & Borello, Research Question 1: What is the relationship between
1986). Further, the instrument was designed to best measure management level and reported use of intuition in decision
all the variables in this study. The questionnaire was making?
modiied and simpliied so it contained clear instructions, Finding 1.1: Malaysia’s male supervisors’ use of
questions, and possible answers. intuition is lower than US male supervisors’. Mean scores
of Malaysia’s male supervisors 6.40; US male supervisors
Research Questions 6.45. Signiicance is at the .000 level.
Finding 1.2: Malaysia’s male supervisors’ use of
The study’s three research questions explored the intuition is lower than US male managers’. Mean scores
relationship between the study’s independent and of Malaysia’s male supervisors 6.40; US male managers
dependent variables, using the following subjects and their 7.8889. Signiicance is at the .000 level.
respective management experience: Malaysia’s business Research Question 2: What is the relationship between
owners, executives, managers and supervisors; US business sex and reported use of intuition in decision making?
owners, managers, executives and supervisors; Malaysia’s Finding 2.1: Malaysia’s male supervisors’ use of
male and female business owners, executives, managers intuition is lower than US female business owners. Mean
scores of Malaysia’s male supervisors 6.40; US female Brenner, O.C., & Bromer, J. A. (1981) Sex stereotypes
business owners 7.0476. Signiicance is at the .000 level. and leaders behavior as measured by the agreement
Research Question 3: What is the relationship between scale for leadership behavior. Psychological
country of operation and use of intuition in decision Reports, 48, 960-962.
making? Cappon, D. (1993). The Anatomy of Intuition:
Finding 3.1: Malaysia’s male supervisors’ use of What's your Intuition Quotient? Psychology
intuition is lower than US female managers’. Mean scores Today, Retrieved August 15, 2006 from http://
of Malaysia’s male supervisors 6.40; US female managers www.psychologytoday.com/articles/199305/the-
6.8333. Signiicance is at the .002 level. anatomy-intuition.
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Conclusion MA: Addison-Wesley.
Dane, E., & PRATT M. G.(2007) Exploring intuition
The study discovered that United States managers and its role in managerial decision making Academy
were less rational in their managerial decision making of Management Review 32: 33–54.
than Malaysian managers in ive of ive categories. These Eagly, A. H., & Johnson, B. T., (1990). Gender and
indings can be quite signiicant to global business managers leadership style: a meta-analysis. Psychological
intending to shift more of their activities to Asia in the near Bulletin, 108, 233-256.
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This will make business schools more relevant to what Hayes, R. H., Pisano, G. P., Upton, D. M., &
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FRANCHISING AND ORGANIZATIONAL PERFORMANCE:

EMPIRICAL INVESTIGATION OF SELECTED FAST FOOD
RESTAURANTS IN NIGERIA
Olu Ojo
Department of Business Administration College of Management
and Social Sciences Osun State University
P. M. B. 2008, Okuku
Osun State, Nigeria
Email: oluojoe@yahoo.com
I. A. Irefin
Technology Planning And Development Unit Obafemi Awolowo University
Ile-Ife, Osun State, Nigeria
Email: iirefin@oauife.edu.ng
Abstract
This study tries to gain insight into the relationship between franchising and organizational performance using selected fast food
restaurants in Nigeria as case study. It speciically investigates the effects of franchising types and franchising ownership on organizational
performance. This research work was undertaken in order to ill the existing gap in literature with regards to the effects of franchising
types and franchising ownership on organizational performance. Thus, this study will add to the existing level of understanding on
the subject of investigation and add to the existing literature on the subject especially in underdeveloped countries where such study
is not popular. The survey research design was employed. Primary data were used and they were collected through the administration
of question to our respondents. Data collected were analyzed using descriptive method and simple percentage. Three hypotheses were
advanced and tested with the aid of correlation coeficient. The indings show that there is positive relationship between franchising types
and organizational performance and that positive relationship also exists between franchising ownership and organizational performance.
The author concludes by saying that franchising as a business form is fast becoming the in thing in Nigerian business arena and it is
therefore a good investment opportunity for upcoming entrepreneurs. Key words: Franchising, business organizations, franchising
relationships, organizational performance, franchising types, and franchising ownership.
Franchising occupies a prominent position in environment. The ownership of the franchise relationship
contemporary business world and increasingly provides a is also very important. Countries with centralized and rigid
common channel for irm growth, entrepreneurial wealth organizational system like France and China will prefer
creation, and national development. In a competitive that ownership be given to the franchisee and royalties be
market each business organization must strive to sell its paid to the franchiser periodically and this could lead to
products and/or services by creating a competitive edge lower quality levels or higher prices in franchised outlets.
over its competitors via multi product development, price The other which is ownership with the agent, will also
variation and market segmentation. increase contracting cost and thus costlier to write contracts
The various franchising types have their cost and beneit and enforce, than those with employed managers by the
owing to product differentiation, creation and afiliation franchiser. Therefore, this conlict in the moderate, total and
requirements and therefore, the most suitable type to be even non ownership of the franchise by either the principal
chosen by various interested parties becomes critical. or the agent has become a problem to be solved.
Therefore people seek to ind the most suitable and most Based on the above research problems, this study is
productive for their franchise business that will yield returns expected to provide answers to the following questions:
and improve quality and effectiveness in a competitive (i) How does franchising types affect the performances of
2011 Olu Ojo, I. A. Irein 321
both the franchiser and franchisee? (ii) Does franchising strategies that are commonly ignored by entrepreneurs
ownership model have effect on return on investment of in the new venture expansion is franchising (Ojo, 2008).
the franchiser and franchisee? And (iii) What is the effect Although, franchising is a remarkable organizational
of franchising relationship on organizational performance? form, in the common economic parlance, it is a hybrid
In order to answer the above research questions, the organizational form of business ownership (Ojo, 2009).
general objective of this research is to explore the extent Different deinitions have been given to franchising by
to which franchising relationship can affect organizational different people over time. Hisrich, Peters and Shepherd
performance. The speciic objectives of this study are (2005) see franchise as a form of new entry that can
(i) To examine the effect of franchise types on franchise reduce the risk of downward loss for the franchise. They
performance within a highly competitive environment. (ii) see franchising as an alternative means by which an
To ascertain ownership models of franchising relationship entrepreneur may expand his or her business by having
towards organizational performance. And (iii) To examine others pay for the use of the name, process, service etc. It
the effect of franchising relationship on organizations can be used as a growth mechanism by the organization
performance. (i.e. franchiser).
Franchising has received a great deal of attention over Franchising dates back to at least 1850’s; when Isaac
the past few years. Despite the plethora of research on Singer, who made improvements to an existing model of a
franchising, some important gaps exist in our understanding sewing machine, wanted to increase the distribution of his
of this important organizational form. Although some sewing machines. His efforts, though unsuccessful in the
studies provide a useful starting point for research, there long run, was among the irst franchising effort in the United
are other factors associated with success that are unique to States. Slightly later, yet much more successful, example
franchising that should be considered. These include the of franchising was John Pemberton’s franchising of Coca-
effect of franchising types on the performances of both cola. Early American examples include the telegraph
the franchiser and franchisee, and the effect of franchising system, which was operated by various railroad companies
ownership model on the return on investment of the but controlled by western union, an exclusive agreement
franchiser and franchisee? between automobile manufactures and operators of local
A number of studies provide support for the assumption dealership. Modern franchise came to prominence with the
of greater franchise success (for example, Castrogiovanni, rise of franchised-based food service establishments. This
Justis, and Julian 1993; Justis, Castrogiovanni, and Chan trend started as early as 1919 with quick service restaurants
1992). However, other recent studies are critical of this such as A&W Root Beer. In 1935, Howard Deering
position and argue that franchises exhibit higher rates of Johnson teamed up with Reginald Sprague to establish
irm discontinuance and lower mean proitability than the irst modern restaurant franchise. The idea was to let
independent businesses (Bates 1995). To date the evidence is independent operators use the same name, food, supplies,
mixed. Because of these contradictory results, the question logo and even building design in exchange for a fee. The
of whether franchising type and franchising ownership growth in franchises picked up steam in the 1930”s when
improves or worsens franchising performance is still worthy such chains as Howard Johnson started franchising motels.
of further research such as the one undertaken in this study. The 1950”s saw a boom of franchise chains in conjunction
Besides, most of the existing studies on franchising were with the development of Americans interstate highway
conducted in developed countries using archival data. This system. Fast food restaurant, motel chains exploded. In
means that there is a major gap in the relevant literature on regards to contemporary franchise chains, Mc Donald’s
developing and underdeveloped countries in which Nigeria is arguably the most successful worldwide with more
rightly belongs to that has to be covered by research. This restaurant units than any other franchise network (Ike-
research tries to ill this gap by studying the situation of Okoh, 2006).
Nigerian fast food industry and providing more empirical Business format franchising, a type of franchise in 19th
evidence on franchising performance. century, took off in 1850’s.
Business format franchising is the form of franchising
Literature Review most commonly associated with the franchise concept
(Alon, 2004). A franchiser licenses an entire way of doing
A number of strategies are available to the entrepreneur business under a brand name. This variety of franchising
for the expansion of his venture. However, one of these is prevalent in accounting services, auto accessories, auto
Ojo O., Irein I. A. - Franchising and Organizational Performance: Empirical Investigation of Selected Fast Food Restaurants in Nigeria
rentals, campgrounds, cleaning systems, fast food, food • Trade name or trade marks
retailing, motels/hotels, real estate, and schools. Business • Financial management system for controlling the
format franchising involves packaging a mode of business, inancial revenue
attracting a supply of capable and dedicated entrepreneurs, • Managerial advice from experts in the ield
selecting superior prospects, training them in the minute • Economies of scale for advertising and purchasing
details of the business operations, providing assistance in • Head ofice services
setting up the business at speciic outlets, and maintaining • A tested business concept
an ongoing business that is proitable for the franchisor and
the collective franchises. The relationship entails continued Methods and Materials
provision of beneicial services such as advertising and
new product development by the franchises and continued This section describes the research methodology used
provision of royalties from the franchisees to the franchisors. in the study. Survey research design was utilized in this
Business format franchising represents a complete study. The theoretical population of study consists of all the
package that allows the franchisee to use the format franchised fast food restaurants in Lagos State. The choice
provided by the franchiser, while retaining independence of Lagos State stems from the fact that it is the commercial
as a business. The franchiser typically sells the franchisee centre of Nigeria and that overwhelming majority of
a right to use his intellectual property in return for a lump franchised fast food restaurants were concentrated in Lagos
sum payment and an annual royalty fee based on sales State. The ofice in charge of regulating franchise business
for a speciied period of time (Miller and Grossman, in Lagos State reveals that there are about twenty ive
1990). In addition, the franchisee usually agrees to adhere (25) franchised outlets existing in Lagos State. Therefore
to franchiser requirements for product mix, operating these franchised outlets were the theoretical population.
procedures and site selection (Rubin, 1978). Business Our study population consists of the entire staff of 25
format franchising is a popular example of a hybrid registered franchised fast food restaurants in Lagos State.
organizational format that incorporates elements of both Both probability and nonprobability sampling methods
markets and hierarchies (Williamson, 1991). It is a hybrid were used. Stratiied probability sampling method was
alternative since the franchiser and franchisee both retain a used to classify the staff of the franchised restaurants
degree of ownership and authority over the use of the trade into three groups: lower level management, middle level
name, operating procedures and the location of outlets and management, and top level management. Combination
contracts with independent entrepreneurs to operate the of convenience and judgmental nonpropability sampling
units (Child, 1987). methods were used to select our sample elements. These
Franchising as a business seems to have achieved more methods allow a large number of respondents to participate
respectability in the fast food industry than ever before as in the research over a short period of time (Ojo, 2003).
some franchised brands command noticeable lead today in Primary method of data collection was used in this study.
terms of awareness, product strength and value. The growth The data consists of a number of items in structured
of the fast food industry in Nigeria has been energetic with questionnaire that was administered to the respondents. We
Tantalizer, Captain Cook, Sweet Sensation and Mr. Biggs also utilized 5-point Likert scale in our questionnaire. The
are among the most recognized franchise chains featuring decision to structure the questionnaire is predicated on the
more up from market local menu. It is important to note that need to reduce variability in the meanings possessed by the
the Nigerian fast food market is still in its infant stage, far questions as a way of ensuring comparability of responses.
from maturity. The questionnaire is titled “Franchising and Organizational
Performance Questionnaire.” Two hundred and seventy-
What May be Bought in A Franchise ive (275) respondents were selected for the study. However,
only 230 of them illed their questionnaire and returned it
According to Hisrich et al. (2005), what you may buy in and were used for inal analysis in the study. This means
a franchise as a franchisee includes: that the return rate of completed questionnaire was 83.6%.
To ensure the validity and reliability of the questionnaire
• A product or service with established market ad used for the study, even numbers of experts were consulted
favorable market, to look at the questionnaire items in relations to its ability
• A patented formula or design, to achieve the research objectives, level of coverage,
comprehensibility, logicality, and suitability for prospective Table two above presents the position of the respondents
respondents. Data collected from the questionnaire were on the organizational hierarchy. The table reveals that 17.4
analyzed with the aid of descriptive statistical techniques of the respondents are at the lower level management. The
such as total score and simple percentage, while inferential bulk of the respondents (78.3%) are in the middle level
statistics such as correlation coeficients was used to proof management, while the remaining 4.3% of the respondents
the level of signiicance in testing stated hypotheses. are in the top level rung of the organization. This shows the
highest responses came from the middle level managers in
Data Presentation, Analysis and Results the organization.
All the items in the questionnaire were analyzed. Table 3: This type of Franchising Relationship Increases proits
However, only the key ones featured in this section.
Cumulative
Frequency
Table 1: Age Distribution of Respondents
Percent
Percent
Percent
Valid
Cumulative
Frequency
Age of
Valid SD 10 4.3 4.3 4.3
Percent
Percent
Percent
Respondents D 40 17.4 17.4 21.7
Valid
U 10 4.3 4.3 26.0

Valid Below 20 Years 20 8.7 8.7 8.7 A 100 43.5 43.5 69.5
21- 40 Years 180 78.3 78.3 87.0 SA 70 30.4 30.4 100.0
41 - 60 Years 30 13.0 13.0 100.0 Total 230 100.0 100.0
Total 230 100.0 100.0
According to the table 3 above, 4.3% of the respondents
From the above table it can be observed that 8.7% of the strongly disagree with the statement. 17.4% of the
respondents fell within the age bracket of less than 20years. respondents disagree with the statement, and 4.3% of the
Overwhelming majority of the respondents (78.3%) are in respondents are undecided about the statement. Of the
the age bracket of 21 to 40 years. The remaining 13.0% remaining 73.9% of the respondents, 43.5% of them agree
of the respondents are within the age bracket of 41 – 60 with the statement and 30.4% of them strongly agree with
years. This clearly shows that the larger percentages of the the statement. This indicates that majority of the respondents
respondents are young persons in the middle of their career. are either agree of strongly agree with the statement.
Table 2: Respondents’ Position in the Organization Table 4: Type of Franchising has Effect on Money Invested in
the Business
Cumulative
Frequency
Respondents’ Position in the

Percent
Percent
Percent
Cumulative
Frequency
Organization
Valid
Percent
Percent
Percent
Valid
Valid Valid Lower Level 40 17.4 17.4 17.4

Management Valid SD 30 13.0 13.0 13.0
Middle Level 180 78.3 78.3 95.7 D 20 8.7 8.7 21.7
Management
U 20 8.7 8.7 30.4
Top Level 10 4.3 4.3 100.0
Management A 100 43.5 43.5 73.9
Total 230 100.0 100.0 SA 60 26.1 26.1 100.0
Total 230 100.0 100.0
Cumulative
Table 4 above reveals that 13% of the respondents
Frequency
Percent
Percent
Percent
strongly disagree that the type of franchising has effect on
Valid
money invested in the business, 8.7% of the respondents
disagree with the statement, while another 8.7% of the SA 60 26.1 26.1 100.0
respondents are undecided about the statement. Majority
Total 230 100.0 100.0
of the respondents (43.5%) agree with the statement while
additional 26.1% of the respondents strongly agree with Source: Field Survey, 2009.
the statement. The inference that can be drawn here is that
the type of franchising has effect on money invested in the According to the table 6 above, 4.3% of the respondents
business if we go by the respondents’ opinion. strongly disagree that proit is maximized when higher
ownership is vested with the franchisee. In addition,
Table 5: The Ownership by Franchisee Agents Increases Return another 4.3% of the respondents disagree with the
on Capital Employed statement. 13% of the respondents are undecided about the
statement. However, overwhelming majority (52.2%) of the
respondents agree with the statement while the remaining
Cumulative
Frequency
26.1% of the remaining respondents strongly agree with the

Percent
Percent
Percent
statement. Thus, we can conclude that proit is maximized
Valid
when higher ownership is with the franchisee.

Valid SD 10 4.3 4.3 4.3
D 20 8.7 8.7 13.0 Table 7: Franchising Leads to Positive Corporate Performance
U 40 17.4 17.4 30.4
Cumulative
A 100 43.5 43.5 73.9
Frequency
Percent
Percent
Percent
SA 60 26.1 26.1 100.0
Valid
Total 230 100.0 100.0
Source: Field Survey, 2009. Valid SD 30 13.0 13.0 13.0

D 20 8.7 8.7 21.7
U 20 8.7 8.7 30.4
In table 5 above, 4.3% of the respondents strongly
A 100 43.5 43.5 73.9
disagree that ownership by franchise agent’s increases return
SA 60 26.1 26.1 100.0
on capital employed. A total of 8.7% of the respondents
Total 230 100.0 100.0
disagree with the statement. 17.4% of the respondents are
undecided about the statement. 43.5% of the respondents Source: Field Survey, 2009.
agree with the statement. The remaining 26.1% strongly
agree with the statement. Based on the above data, we Table 7 above presents the respondents feedback to the
can conidently say that ownership by franchise agents effect of franchising on corporate performance. 13.0% of
increases return on capital employed. the respondents strongly disagree that franchising leads
to corporate performance, while another 8.7% of the
Table 6: Proit is Maximized when Higher Ownership is with the respondents disagree with the statement. Another 8.7% of
Franchisee the respondents are undecided about the statement. Among
the remaining respondents, 43.5% of them agree with the
Cumulative
statement while 26.1% of them strongly agree. Thus, we

Frequency
Percent
Percent
Percent
can inferred that franchising leads to positive corporate

Valid
performance.
Valid SD 10 4.3 4.3 4.3
D 10 4.3 4.3 8.6
Testing of Hypothesis
U 30 13.0 13.0 21.6
Our three hypotheses were tested using correlation
A 120 52.2 52.2 73.8
coeficient.

Hypothesis 1 The analysis above shows that there is a positive

correlation between the two variables, franchisee ownership
H1: There is a signiicant relationship between franchise and organizational performance [r = .570(**); N = 23],
types and organizational performance. meaning that the relationship is positively related.
Table 8: Correlation Between Franchising Types and Hypothesis 3

Organizational Performance
H1: Franchising relationship has effect on organizational
Types Performance performance.
Types Pearson 1 .363(**) In order to test the signiicant relationship between
Correlation
franchising relationship and organizational performance
Sig. (2-tailed) .089
the Pearson product moment correlation was used. Our
N 230 230
data were combined and analyzed to check the relationship
Performance Pearson .363(**) 1
Correlation and strength of the relationship between franchising and
Sig. (2-tailed) .089 organizational performance. The analysis is as presented
N 230 230 below:
(**) Correlation is signiicant at the 0.01 level (2-tailed).
Table 10: Correlation Between Franchising Relationship and
Organizational Performance
The analysis above shows that there is a positive
correlation between the two variables: franchising types Types Performance
and organizational performance [r = .363(**); N = 230], Franchising Pearson 1 .535(**)

Relationship Correlation
meaning that the relationship between them is positive.
Hypothesis 2 N 230 230

Correlation
H1: The franchisee ownership has effect on organizational
performance.
N 230 230
Here franchisee ownership was correlated against
corporate performance. The outcome is presented in table (**) Correlation is signiicant at the 0.01 level (2-tailed).
9 below.
From the above table, the analysis shows that there is a
Table 9: Correlation Between Franchisee Ownership and positive correlation between the two variables, franchising
Organizational Performance. and organizational performance [r = .535(**); N = 230),
meaning that franchising and organizational performance
Types Performance are positively correlated.
Owners hip Pearson 1 .570(**) In all the three instances, we accept our hypotheses.
Correlation
N 230 230
Discussion of Findings
Correlation As said earlier, this study focused on a research into
Sig. (2-tailed) .005 franchising and how it affects the proits of an organization
N 230 230 operating it. Based on analyzed data, the indings in this
study include the followings:
(**) Correlation is signiicant at the 0.01 level (2-tailed).
i. The larger percentage (78.3) of the respondents
are young persons in the middle of their career. Their age
bracket is 21to 40 years.
ii. The bulk of the respondents (78.3%) are in the
middle level management of the organization..
iii. Majority of the respondents either agree (43.5%) Bates, T. (1995). Analysis of Survival Rates among
or strongly agree (30.4%) with the statement that business Franchise and Independent Small Business
format type of franchising relationship has effect on money Startups. Journal of Small Business Management
invested in the business and also increases proits. 33(2), pp. 26-36.
iv. In addition, 43.5% of the respondents agree while Castrogiovanni, G. J., R. T. Justis, and S. D. Julian
another 26.1% of the respondents strongly agree that (1993). Franchise Failure Rates: An Assessment of
ownership by franchisee agent’s increases return on capital Magnitude and Inluencing Factor. Journal of Small
employed. Business Management 16: pp.105-114.
v. It is also discovered that 52.2% of the respondents Child, J. (1987). Information Technology, Organization
agree and 26.1% of the respondents strongly agree that and the Response to Strategic Challenges, California
proit is maximized when higher ownership is with the Management Review, 30, pp. 35-50.
franchisee. Hisrich, R. D., M. P. Peters, D. A. Shepherd (2005).
vi. Besides, 43.5% of the respondents agree and Entrepreneurship, New York: McGraw-Hill/Irwin.
another 26.1% of the respondents strongly agree that Ike-Okoh, C. (2006). Franchising: Forwarding-
franchising leads to positive corporate performance. Looking Form of Entrepreneurship, Businessday
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in their industry even in the face of great competitors. Arrangement for Firm Growth and National
The conclusion that is drawn from this study is that Development, Lex et Scientia International Journal,
organizations that are currently operating franchising Nr.XV, Vol. 2, pp. 113-120.
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are gaining even stronger brand names through it. By Management, Lagos: Standard Publications.
maintaining the same standards operated in the parent Rubin, P. H. (1978). The Theory of The Firm and The
company, in all their franchises they stand a greater chance Structure of The Franchise Contract, Journal of
of maintaining their customer loyalties. Franchising is fast Law and Economics, 21, pp. 223-234.
becoming the thing in the business arena in Nigeria as more Welsh, D.H.B., Alon, I. and Falbe, C.M. (2006), “An
and more companies are being drawn to it as a good strategy Examination of International Retail Franchising
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2011 Nadia Sajjad Haiza, Syed Sohaib Shah, Humera Jamsheed, Khalid Zaman 327
RELATIONSHIP BETWEEN REWARDS AND EMPLOYEE’S

MOTIVATION IN THE NON-PROFIT ORGANIZATIONS OF
PAKISTAN
Nadia Sajjad Hafiza, Syed Sohaib Shah, Humera Jamsheed

MS Scholar, Department of Management Sciences, COMSATS Institute of Information Technology,
Khalid Zaman (Corresponding author)

MS Scholar, Department of Management Sciences, COMSATS Institute of Information Technology,
Email: khalidzaman@ciit.net.pk, Khalid_zaman786@yahoo.com
Abstract
This study empirically examines the relationship between rewards and employee’s motivation in the non-proit organizations
of Pakistan. Employees of three organizations (PERRA, World Vision and SUNGI Development Foundation) working in Khyber
Pakhtonkhuwa province of Pakistan were taken as sample of the study. Self designed questionnaire was used for data collection. 125
questionnaires were distributed and 107 were returned, hence the response rate was 85.6%. The data was analyzed using the techniques
of rank correlation coeficient and multiple regression analysis. All the indings were tested at 0.01 and 0.05 level of signiicance. The
result concludes that there is a direct relationship between extrinsic rewards and the employee’s motivation. However, intrinsic rewards
found an insigniicant impact on employee motivation. Key words: Rewards, Employee motivation, Non-Proit Organization (NGO),
Correlation, Regression, KPK province, Pakistan.
In today’s competitive business environment companies This study will examine the employee’s motivation of an
are facing many challenges and among those challenges organization with the rewards (both extrinsic and intrinsic)
acquiring right workforce and retaining it, is of utmost given to them. For the study, particularly employees
importance. Nowadays, human asset is considered to be of non-proit organizations of Pakistan will be selected,
the most important asset of any organization. In order to and as a sample employees would be taken from three
get the eficient and effective result from human resource, non-proit organizations of Abbottabad, KPK, Pakistan,
employee motivation is necessary. namely, PERRA, World Vision and SUNGI Development
Employee will give their maximum when they have a Foundation.
feeling or trust that their efforts will be rewarded by the Rewards can be extrinsic or intrinsic, extrinsic rewards
management. There are many factors that effect employee are tangible rewards and these rewards are external to the job
performance like working conditions, worker and employer or task performed by the employee. External rewards can
relationship, training and development opportunities, job be in terms of salary/pay, incentives, bonuses, promotions,
security, and company’s over all policies and procedures job security, etc. Intrinsic rewards are intangible rewards or
for rewarding employees, etc. Among all those factors psychological rewards like appreciation, meeting the new
which affect employee performance, motivation that comes challenges, positive and caring attitude from employer, and
with rewards is of utmost importance. Motivation is an job rotation after attaining the goal. Frey (1997) argues that
accumulation of different processes which inluence and once pay exceeds a subsistence level, intrinsic factors are
direct our behavior to achieve some speciic goal (Baron, stronger motivators, and staff motivation requires intrinsic
1983). rewards such as satisfaction at doing a good job and a sense
of doing something worthwhile.
Haiza N. S., Shah S. S., Jamsheed H., Zaman K. - Relationship Between Rewards and Employee’s Motivation in the Non-Proit Organizations of Pakistan
Desired performance can only be achieved eficiently Literature Review

and effectively, if employee gets a sense of mutual gain
of organization as well as of himself, with the attainment Human resource is one of the most important resources of
of that deined target or goal. An organization must gaining competitive advantage over competitors for a irm.
carefully set the reward system to evaluate the employee’s And this resource can be retained and optimally utilized
performance at all levels and then rewarding them whether through motivating it using different techniques among
visible pay for performance or invisible satisfaction. The which reward is of signiicance importance. Carraher et al
concept of performance management has given a reward (2006) advocates that there should be an effective reward
system which contains; needs and goals alignment between system to retain the high performers in the organization
organization and employees, rewarding employees both and reward should be related to their productivity. A lot of
extrinsically and intrinsically. The system also suggests work has been done on evaluating the relationship between
where training and development is needed by the employee rewards and employee motivation and there exist a large
in order to complete the deined goals. This training or number of studies in the literature describing impact of
development need assessment of employee gives them an reward on employee motivation. In order to maximize the
intrinsic motivation. performance of the employees organization must make
The objective of this study is to ind out the relationship such policies and procedures and formulate such reward
between rewards and employees’ performance in non-proit system under those policies and procedures which increase
organization in Pakistan. More speciic objectives are to employee satisfaction and motivation. Bishop (1987)
ind out: suggested that pay is directly related with productivity and
reward system depends upon the size of an organization.
• The effect of intrinsic rewards on employee’s Organizations in today’s competitive environment want to
performance. determine the reasonable balance between employee loyalty
• The effect of extrinsic rewards on employees' and commitment, and performance of the organization.
performance and The existing literature on individuals’ innovative
• The effect of both intrinsic and extrinsic rewards on performance reveals a wide array of individual and
employees' performance organizational antecedent factors. Among many individual
antecedents that inluence employees’ innovative
Based on the above objectives, the present study seeks performance are attitudes (Williams, 2004), cognitive styles
to test the following hypothesis: (Scott and Bruce, 1994), personality and demographic
characteristics such as age, education background, and
H1: There is a direct relationship between intrinsic rewards prior R&D experience (Roberts, 1991 and Rothwell, 1992).
and employee motivation. In terms of organizational antecedents, expenditure on
R&D (Hadijimanolis, 2000), cooperation with external
H2: There is a direct relationship between extrinsic rewards technology provider, leader’s inluence (Hage and Dewar,
and employee motivation. 1973), and reward system (Eisenberger and Cameron,
1996; Janssen, 2000; Mumford, 2000) are commonly cited
The signiicance of the study would be an idea about as factors that affect individuals’ innovative performance.
relative importance of extrinsic and intrinsic rewards. Eficient reward system can be a good motivator but an
Management can get a better idea while preparing its reward ineficient reward system can lead to demotivation of the
system that what kind of reward would be given the most employees. Reio and Callahon (2004) concludes that both
importance and at what stage through such a type of study. intrinsic and extrinsic rewards motivates the employee
This paper is organized as follows: after introduction resulted in higher productivity.
in section 1, literature review is carried out in section 2. Most of the organizations have gained the immense
Research framework and methodology is mentioned in progress by fully complying with their business strategy
section 3. Result and discussion is provided in section 4. through a well balanced reward and recognition programs
Final section concludes the study. for employee. Deeprose (1994) argued that the motivation of
employees and their productivity can be enhanced through

providing them effective recognition which ultimately manufacturer. A positive relationship was found between job
results in improved performance of organizations. The insecurity and intentions to turnover, and a small negative
entire success of an organization is based on how an correlation was found between measures of job insecurity
organization keeps its employees motivated and in what and organizational commitment. Tosti and Herbst (2009)
way they evaluate the performance of employees for job discuss about behavior systems approach which can be
compensation. used to achieve a customer centered organization through
Sometimes management pays more attention to extrinsic examples and reports from consultation cases. Johnson et
rewards but intrinsic rewards are equally important in al (2010) establish the effects of presenting organizational
employee motivation. Intangible or psychological rewards information through implicit and explicit rules on sales-
like appreciation and recognition plays a vital role in related target behaviors in a retail setting. Results indicated
motivating employee and increasing his performance. that when organizational information was presented in a
Andrew (2004) concludes that commitment of employees is speciic form, productivity was increased and maintained
based on rewards and recognition. Lawler (2003) argued that longer than when presented in other forms.
prosperity and survival of the organizations is determined
through how they treat their human resource. Ajila and Research Design and Methodology
Abiola (2004) examine that intrinsic rewards are rewards
within the job itself like satisfaction from completing a As this study examines the impact of extrinsic and
task successfully, appreciation from the boss, autonomy, intrinsic rewards on employee motivation, the employees
etc, while extrinsic rewards are tangible rewards like pay, of the non-proit organizations working in KPK has been
bonuses, fringe beneits, promotions, etc. Filipkowski taken as population. Employee motivation is taken as
and Johnson (2008) examined the relationships between dependent variable and extrinsic and intrinsic rewards are
measures of job insecurity, organizational commitment, taken as independent variable. The framework of the study
turnover, absenteeism, and worker performance within a is given in Figure 1, 2 and 3 respectively.
Figure 1: Intrinsic Rewards and Employee´s Motivation
Empowerment
and Autonomy
Recognition and Employee

Appreciation Motivation
Challenging
Tasks
Source: Self Construct
Figure 2: Extrinsic Rewards and Employee’s Motivation
Pay/Salary
Fringe Benefits
Employee
Motivation
Bonuses
Promotions
Source: Self Construct
Figure 3: Research Framework
Intrinsic Rewards
Employees’ Motivation
Extrinsic Rewards
Sampling construct were obtained by summing across all the item

scores of the individual variables. The Cronbach’s Alpha
Using convenience method of sampling, 125 reliability coeficients for the sample are given in Table 1.
questionnaires were distributed among the employees of
three selected non-proit organizations namely, PERRA, Table 1: Cronbach’s Alpha Reliability Coeficients
World Vision and SUNGI working in Abbottabad. 107
questionnaires were returned, so the response rate was Items Cronbach’s Alfa
85.6%. Extrinsic Rewards 0.83

Intrinsic Rewards 0.90
Data Collection
Self Designed questionnaire has been developed Results and Discussion

for data collection. Self-designed questionnaire was
divided into two parts; one containing socio-demographic Frequency Distribution
questions and the second part containing questions related
to variables that are extrinsic and intrinsic rewards and Table 2 shows the demographic information of the
employee motivation. Parameters for measuring extrinsic respondents. Most of the respondents are falling in the age
rewards are pay, bonuses, fringe beneits, and promotions group of 26-30 year with the percentage of 50% and then 31-
while parameters for measuring intrinsic rewards are 35 years of age with 21%. The demographic characteristics
empowerment and autonomy, recognition and appreciation, also show a gender division of the respondents, majority
and challenging tasks. Five point Likert Scale ranging of the respondents’ are males, i.e. 80% representing a
from 1 (strongly disagree) to 5 (strongly agree) was used bigger part of the sample group. However, 20% percent
to measure responses. The respondents’ scores for each respondents are females.

Table 2: Frequency Distribution of Demographic Variables Correlation Analysis
Variables Frequency Percentage Spearman’s Correlation was performed to study the size
Age and magnitude of the relationship between the variables.
21-25 10 9.3 The relationship between extrinsic, intrinsic and employee
26-30 55 51.4 performance are shown in the Table 4.
31-35 25 23.3 Table 4 shows that all extrinsic rewards i.e., pay,
36-40 09 8.4 fringe beneits, promotions, bonuses are positive and
41-45 05 4.6 signiicant related with employee motivation, whereas
46-50 02 1.8 intrinsic rewards i.e., empowerment appreciation and
51-55 01 1.2 challenging task have a negative but insigniicant impact
Gender with employee motivation. Correlation coeficient between
Males 77 71.9 fringe beneits and motivation (0.319) is the highest among
Females 30 28.1
all the variables and is signiicant at 99%. Pay (0.281) and
Education
promotions (0.254) are also signiicant at 99%. Bonuses
have a weakest correlation among extrinsic rewards but
Under graduate 03 2.8
it is signiicant at 95%. Among intrinsic rewards all are
Graduate 42 39.2
insigniicant relationship with employee motivation.
Masters 61 57.0
Others 01 1.0
Variables Table 4: Correlation Matrix
Descriptive Statistics MOT
BON
EMP
CHA
PRO
APP
PAY
FB
Table 3 explains that majority of the responses regarding
pay, fringe beneits, appreciation and challenging tasks MOT 1.000
PAY .281** 1.000
were neutral i.e., mean value is less than 3.5. The responses
FB .319** .342** 1.000
of promotions, bonuses, empowerment and motivation
PRO .254** .328** .317** 1.000
show that employees consider this factor slightly more
BON .190* .076 .423** .330** 1.000
important than other factors as mean value is greater than EMP -.042 .070 -.114 .074 .240* 1.000
3.5. Standard deviation of challenging tasks and pay shows APP -.019 -.179 -.172 .155 .116 .451** 1.000
that these variables have extensive responses than its mean CT -.023 -.250* -.289** -.166 .100 .683** .829** 1.000
as value indicates 1.33 and 1.24 respectively. One of the
reasons for this deviation could be the selection of three
** Correlation is signiicant at the .01 level.
different organizations in the sample having different pay
packages. * Correlation is signiicant at the .05 level.
Table 3: Descriptive Statistics Incremental Regression
Variables Mean Std. Deviation The incremental regression is performed by removing

Pay (PAY) 3.2857 1.2411 individual independent variables from the model and by
Fringe Beneits (FB) 3.3571 .8934 checking the effect on the value of R-squared. Among all
Promotions (PRO) 3.5714 .7086 the variables removed, fringe beneit has altered the value
Bonuses (BON) 3.3714 .8456 of R-squared to a highest degree i.e., 8.4% decreases in the
Empowerment (EMP) 4.0500 .7668 portion of the dependent variable explained by independent
Appreciation (APP) 2.9464 .8511 variables as the value for the R-squared changes from
Challenging Task (CT) 2.9089 1.3373 54.2% to 45.8%. This importance is also highlighted in the
Motivation (MOT) 3.9857 .4761 regression result as the value of coeficient of the variable
is highest among all the variables in their three models
respectively. The result is presented in Table 5.
Table 5: Incremental Regression Dependent Variable: Employee Motivation
Variables OLS1 OLS2 OLS3 OLS4 OLS5 OLS6 OLS7 OLS8

Pay .145 _ .240*** .188 .131 .077 .140 .108
FB .347* .387* _ .364* .380* .374* .355* .346*
PRO .203 .236*** .235*** _ .220*** .180 .154 .134
BON .097 .077 .214*** .129 _ .039 .076 .060
EMP -.286** -.246*** -.324** -.268** -.263** _ -.272** -.205
APP -.217 -.205 -.263 -.071 -.184 -.163 _ .069
CH .377 .316 .374 .233 .337 .154 .176 _
R square .542 .528 .458 .516 .535 .494 .533 .519
F-value 3.680* 4.056* 2.786* 3.817* 4.221* 3.381* 4.162* 3.877*
D-W 1.773 1.799 1.611 1.753 1.789 1.716 1.740 1.712
*, ** and *** indicates signiicance at 0.01, 0.05 and 0.09 percent level.
The result further shows goodness of it in the H2: There is a direct relationship between extrinsic rewards
incremental regression after removing fringe beneits in and employee motivation.
Table 6. This decrease in the value of the R-squared shows
the importance of fringe beneits in the model. The results of correlation matrix have supported the
hypothesis that there exist a positive/direct relationship
Table 6: Results of Incremental Regression removing Fringe between extrinsic rewards and employee motivation.
Beneits Incremental regression analysis also conirms the
hypothesis, as the most signiicant variable is fringe beneit
Models Values which is an extrinsic reward.
R-squared (original) 0.542
R-squared (after the removal) 0.458 Conclusion
Hypothesis Testing Human resource is considered to be the most important
resource of an organization to remain competitive in today’s
H1: There is a direct relationship between intrinsic rewards competitive business world. Acquiring the right workforce
and employee motivation. and then retaining that force is one of the challenges faced
by organizations and their management. The results from
The results of correlation matrix rejects the hypothesis as this study reveal that there is a signiicant and positive
it gives a negative and weaker relationship of empowerment relationship between extrinsic rewards and employee
(-0.042), appreciation (-0.019) and challenging tasks motivation but it has been observed that organizations are
(-0.023) with employee motivation. Intrinsic rewards are not offering right amount of inancial rewards (extrinsic
insigniicant relationship with employee motivation. rewards) to their employees in this sector. Pay is a signiicant
Incremental regression also rejects this hypothesis, which factor which affects employee motivation but the results
shows that empowerment and appreciation has a negative moderately supports the hypothesis due to difference
impact on employee motivation. And only empowerment between the pay packages of three different organizations.
is signiicant among intrinsic variables. Chris and Awonusi Fringe beneits are very important in motivating employees
(2004) supports that extrinsic rewards have a signiicant according to this study, so organizations must have to
impact on employee motivation while intrinsic rewards provide all the essential fringe beneits to their employees,
don’t have any signiicant impact on employee motivation. it also increase their job eficiency.

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2011 Ali Ebrahimi Kordlar, Nader Nikbakht 335
COMPARING BANKRUPTCY PREDICTION MODELS IN IRAN

Ali Ebrahimi Kordlar, Nader Nikbakht
Faculty of management, Tehran university, Tehran, Iran
Email: Nikbakht1389@gmail.com
Abstract
This paper compares the predictive power of a number of previous research models on bankruptcy prediction in Tehran Stock
Exchange (TSE) from 2001 to 2009. To compare the predictive power of these models, the adjusted R2 (as In-sample metric) and
root mean squared error (RMSE), mean absolute error (MAE) and mean absolute percent error (MAPC) (as out-of-sample prediction
metrics). Finally, based on the estimation results of previous models in Iran, we present a inal version logit type model that has higher
performance than other models. The empirical results of In-sample and out-of-sample prediction power indicate that our presented model
has higher adjusted R2 and lower RMSE, lower MAE and lower MAPC, too. Key words: Bankruptcy prediction model, Logit model,
Voung test, Tehran Stock Exchange
Since Beaver (1966), an expanded literature on both accounting and market variables. The main difference
bankruptcy prediction has emerged, and its impact has between this model and the static logit ‎ model is that the
spilled into the commercial world, where it has been used hazard model can be estimated within the logit ‎ framework
in the development of several commercially employed while using the entire life span of information (all irm-
bankruptcy prediction models. Out of this literature have years) for each irm. By contrast, the static logit ‎ model
come a number of competing empirical models with can only incorporate one irm-year for each observation
alternative explanatory variables and alternative statistical (i.e., each observation consists of a single set of variables
methodologies for model estimation. observed at a single point in time).
The dependent variable in these models is commonly a Another stream of the bankruptcy prediction literature
dummy variable where ''irm iled for bankruptcy" is set to focuses on market-based information. For example,
1 and other is set to 0. The independent variables are often Hillegeist et al. (2004) have developed a BSM-Prob
accounting ratios extracted from inancial statements and bankruptcy prediction model that is based on the Black-
include measures of proitability, liquidity, and leverage. Scholes-Merton option-pricing model. Their results
Some studies also include market-based variables such indicate that the BSM-Prob model outperforms the models
as the volatility of stock returns and past excess returns. of Altman (1968) and Ohlson (1980) in a series of tests.
The accounting-based models developed by Altman (1968) There are also a number of papers that propose various
and Ohlson (1980) have emerged as the most popular irm-characteristics that may be useful to future bankruptcy
bankruptcy prediction models and are often used by prediction. For instance, Rose (1992) presents a model of
empirical accounting researchers as indicators of inancial irm diversiication in which managers use diversiication
distress. to reduce the risk of bankruptcy, particularly where the
Altman (1968) employs multivariate discriminate ratio of the manager's irm-speciic human capital to his
analysis (MDA) on a list of inancial ratios to identify non-irm-speciic human capital is high. Denis et al. (1997)
those ratios that are statistically associated with future measure corporate diversiication by the number of business
bankruptcy. Ohlson (1980) uses a logit ‎ model, which uses segments. Beaver et al. (2005) propose that, other things
less restrictive assumptions than those taken by the MDA equal, large irms have a smaller probability of bankruptcy
approach. Zmijewski (1984) adopts a probit approach that and that a part of this explanation is related to corporate
is also based on accounting data but uses a different set diversiication. That is, corporate diversiication and irm-
of independent variables. All of these approaches predict size are two irm-characteristics that may help to predict
future bankruptcy based on accounting ratios drawn from future bankruptcy.
irm’s inancial statements. Hillegeist et al. (2004) compare the performance of their
More recently, Shumway (2001) has proposed a discrete- BSM-Prob model against the Altman and Ohlson models in
time hazard ‎ model to predict a irm's bankruptcy using a series of in-sample and out-of-sample tests, concluding
Kordlar A. E., Nikbakht N. - Comparing Bankruptcy Prediction Models in Iran
that the BSM model outperforms the accounting-based techniques. Moreover, the results conirm that the accuracy
models. Similarly, Chava and Jarrow (2004) examine the of ANN model is higher than the discriminant analysis and
relative performance of Shumway's hazard model against logistic regression techniques for predicting of bankruptcy.
the Altman and Zmijewski models, concluding that the The analysis also shows that none of the irms will bankrupt
hazard model outperforms static logit models. in the year after the period covered in this study. Komijani
Wu, Gaunt and Gray (2010) build a new model and Saadatfar (2007) ind that in comparison with other
comprising key variables from each of the previous models models, applying neural network models can improve
(Altman 1968; Ohlson 1980; Zmijewsky 1984; Shumway the potentials of inancial managements to stand against
2001; and Hillegeist et.al 2004) and add a new variable that economic luctuations and bankruptcy.
proxies for the degree of diversiication within the irm. The rest of paper is organized as follows. Research
The degree of diversiication is shown to be negatively models and data collection process are described in section
associated with the risk of bankruptcy. This more general 2. Section 3 presents descriptive statistics, correlation
model outperforms the existing models in a variety of in- analysis and regression results. The last section of study
sample and out-of-sample tests. provides conclusion remarks.
Base on Zmijewski and Shirata models, Mehrani,
Mehrani, Monsei and Karami (2005) present a new Methodology
prediction model to bankruptcy prediction in Tehran
Stock Exchange (TSE). To reach this model, research Research models
hypotheses are divided to two groups. The irst group is on
the power of classifying corporations in to bankrupt and There are a number of key models that have been
non-bankrupt irms. These hypotheses conirm the power developed by various researchers and presented in the
of correct classifying corporations in two bankrupt and bankruptcy prediction literature over the last three decades.
non-bankrupt groups. The second group is on the difference A number of the most prominent models in bankruptcy
between importances of inancial ratios as an independent prediction models are as follows:
variable. These hypotheses conirm the difference between
importances of independent variables in predicting a. Altman (1968) multiple-discriminate analysis model
corporate failures.
Failing it = α + β1 X 1it + β 2 X 2it + β 3 X 3it + β 4 X 4it + β 5 X 5it + ε it

Etemadi, Anvarirostami and Dehkordi (2009) (1)
investigate the application of Genetic Programming
(GP) for bankruptcy prediction modeling. They use GP
to classify 144 bankrupt and non-bankrupt Iranian irms Where:
listed in Tehran stock exchange (TSE). Then a multiple
discriminant analysis (MDA) was used to benchmarking Failing: is 0 for failed irm-years and 1 for other irm-years.
GP model. Genetic model achieved 94% and 90% accuracy X1: Net working capital/total assets.
rates in training and holdout samples, respectively; while X2: Retained earnings/total assets.
MDA model achieved only 77% and 73% accuracy rates in X3: Earnings before interest and taxes/total assets.
training and holdout samples, respectively. X4: Market value of equity/book value of total liabilities.
Rahnamai Roud Poshti, Alikhani and Maranjouri (2009) X5: Sales/total assets.
compare the results of prediction power of Altman and
Fulmer models and ind that there is a signiicant difference b. Ohlson (1980) logit model
between the performances of two models and show that
Altman model has done more conservatively than Fulmer (2)
  α + β1OLSIZEit + β 2TLTAit + β 3WCTAit  
−1
   
Failing it = 1 + exp − + β 4CLCAit + β 5OENEGit + β 6 NITAit
model as well.
Makian, Almodaresi and Karimi (2010) ind that an  
   β FUTL β INTWO β CHIN ε  
Artiicial Neural Network (ANN) model performs much    7 + it + 8 it + 9 it + it   
better than the discriminant analysis and logistic regression

Where: Now, Based on previous models, we present a logit ‎ type

combined model as follows:
OLSIZE: Log (total assets/GNP price-level index). The index
assumes a base value of 100 for 1988.
e. Combined model
TLTA: Total liabilities divided by total assets.
WCTA: Working capital divided by total assets.
  
(5)
 α + β1 X 2it + β 2 X 3it
−1
   
CLCA: Current liabilities divided by current assets.

Failing it = 1 + exp − + β 3OENEGit + β 4 INTWOit  
OENEG: 1 if total liabilities exceed total assets, 0 otherwise.
    
NITA: Net income divided by total assets.
   + β + β + ε it −1   

FULT: Funds provided by operations (income from operation
after depreciation) divided by total liabilities. 5 NITLit 6 CACL it
INTWO: 1 if net income was negative for the last 2 years, 0

otherwise.
CHIN: (NIt-NIt-1)/(|NIt|+|NIt-1|), where NIt is net income for Where, all variables are deined in previous models. We
the most recent period. The denominator acts as a level expect that the predictive power of this model is higher than
indicator. The variable is thus intended to measure the that of other models.
relative change in net income.
To compare the predictive power of research models
to future bankruptcy, we use the adjusted R2 and related
The variable of Failing is deined similar to previous Voung (1989) test (as In-sample prediction metric) and root
models. mean squared error (RMSE), mean absolute error (MAE)
and mean absolute percent error (MAPC) (as out-of-sample
c. Zmijewski (1984) probit model prediction metrics)
Failing it = Φ(α + β1 NITLit + β 2TLTAit + β 3CACLit + ε it )

(3) Data
We use the 2009 version of Tadbirpardaz (the Iranian

Where: database of Tehran Stock Exchange) annual data iles and
sample all irms in Tehran Stock Exchange between 2001
NITL: Net income divided by total liabilities and 2009 with suficient data available to calculate the
CACL: Current assets divided by current liabilities. research variables. In some cases whereby the required
and TLTA is deined in Ohlson’s model.
data is incomplete, we use the manual archive in the TSE’s
library. We eliminate banks and inancial institutions from
d. Shumway (2001) hazard model sample. Imposing all the data-availability requirements
yields 1,532 irm-years over the period 2001–2009. This is
(4) the full sample that we use for testing research hypotheses.
  α + β1 NITLit + β 2TLTAit + β 3RESIZEit  
−1
   
Failing it = 1 + exp − + β 4 LEXRETURN it −1  
Research results
   β LAGSIGMA ε  
   5 + it −1 + it 
Descriptive statistics
Where:
Table 1 provides descriptive statistics of research
RESIZE: Log (the number of outstanding shares multiplied variables in failed and continuous irm-years. There are
by year-end share price then divided by total market
value). 142 failed irm-years and 1390 continuous irm-years. In
LEXRETURN: Cumulative annual return in year t-1 minus the our available statistical population the mean (median) of
value-weighted TSE index return in year t-1. X1, X2, X3, X4 and X5 in failed irms are -0.50 (-0.38),
LAGSIGMA: Standard deviation of the residual derived from -0.63 (-0.42), -0.07 (-0.05), 0.40 (0.27) and 0.61 (0.53). The
regressing monthly stock return on market return in mean and median of all these variables for failed irms are
year t-1.
lower than the mean and median of mentioned variables
for continuous irms. The mean (median) of OLSIZE for
and other variables are deined in previous models. failed irms, -0.71 (-0.77) is lower than that of OLSIZE
for continuous irms, -0.07 (-0.15), too. Failed irms on mean of mentioned variables for continuous irms (0.13,
average have a higher debt ratio (1.31) than continuous 0.22, 0.03, 0.23 and 1.19, respectively). Furthermore, the
irms (0.65). Also, the mean of ratio of current assets on mean (median) of LEXRETURN and LAGSIGMA are -0.05
current liabilities (CLCA) for failed irms (1.77) is greater (-0.02) and 0.10 (0.03), respectively and are lower than
than this ratio for continuous irms (0.95). On average, the mean (median) value of these variables for continuous
failed irms (-3.72) are smaller than the continuous irms irms, 0.18 (0.15) and 0.12 (0.10), respectively.
(-3.10). The mean of WCTA, CLCA and TLMTA for failed
irms (0.67, 1.77 and 0.77, respectively) is higher than the Correlation analysis
mean of these variables for continuous irms (0.60, 0.95,
and 0.50, respectively). The Pearson correlation coeficients between research
The mean of NITA, FULT, CHIN, NITL and CACL (-0.14, variables are provided in Table 2. In this table, the
0.01, -0.05, -0.10 and 0.68) for failed irms is lower than the coeficients that are marked with asterisk (*), are not
signiicant at the ordinary signiicance level.
Table 1. Descriptive statistics
Failed irms: 142 Obs. continuous irms: 1390 Obs.

Mean Median Maximum Minimum St.Dev Mean Median Maximum Minimum St.Dev
X1 -0.50 -0.38 0.21 -2.63 0.52 0.04 0.04 0.49 -0.69 0.17
X2 -0.63 -0.42 -0.05 -2.97 0.59 0.11 0.08 0.50 -0.20 0.11
X3 -0.07 -0.05 0.17 -0.43 0.10 0.16 0.14 0.55 -0.19 0.10
X4 0.40 0.27 5.47 0.03 0.64 1.68 0.93 15.51 0.03 2.05
X5 0.61 0.53 1.85 0.02 0.34 0.83 0.78 2.59 0.04 0.37
OLSIZE -0.71 -0.77 2.69 -3.20 1.16 -0.07 -0.15 4.41 -3.20 1.32
TLTA 1.31 1.19 3.34 0.57 0.51 0.65 0.66 1.20 0.19 0.15
WCTA 0.67 0.70 0.93 0.20 0.17 0.60 0.62 0.94 0.11 0.19
CLCA 1.77 1.52 5.49 0.64 0.91 0.95 0.88 4.95 0.26 0.39
NITA -0.14 -0.12 0.19 -0.62 0.13 0.13 0.11 0.53 -0.19 0.10
FUTL 0.01 0.00 0.41 -0.26 0.11 0.22 0.17 1.53 -0.36 0.26
CHIN -0.05 -0.02 0.94 -1.00 0.43 0.03 0.05 1.00 -1.00 0.31
NITL -0.10 -0.10 0.25 -0.26 0.09 0.23 0.16 1.52 -0.24 0.23
CACL 0.68 0.66 1.57 0.18 0.27 1.19 1.14 3.84 0.20 0.42
RESIZE -3.72 -3.76 -2.25 -4.67 0.48 -3.10 -3.13 -1.35 -4.70 0.66
LEXRETURN -0.05 -0.02 0.57 -1.00 0.22 0.18 0.15 1.46 -1.77 0.33
LAGSIGMA 0.10 0.03 0.68 0.00 0.13 0.12 0.10 0.74 0.00 0.09
TLMTA 0.77 0.79 0.97 0.15 0.15 0.50 0.52 0.97 0.06 0.21
Table 2. Pearson correlation coeficient

LEXRETURN
LAGSIGMA
OLSIZE
RESIZE
WCTA
CACL
CLCA
FUTL
CHIN
NITA
TLTA
NITL
X1
X2
X3
X4
X5
X2 0.74
X3 0.42 0.60
X4 0.18 0.26 0.54
X5 0.17 0.15 0.29 0.01*
OLSIZE -0.04* 0.15 0.09 -0.08 -0.15
TLTA -0.80 -0.86 -0.56 -0.35 -0.07 -0.07

LEXRETURN
LAGSIGMA
OLSIZE
RESIZE
WCTA
CACL
CLCA
FUTL
CHIN
NITA
TLTA
NITL
X1
X2
X3
X4
X5
WCTA 0.31 -0.12 -0.11 -0.24 0.26 -0.17 0.24
CLCA -0.90 -0.61 -0.37 -0.18 -0.23 0.08 0.67 -0.39
NITA 0.51 0.68 0.91 0.55 0.20 0.12 -0.68 -0.18 -0.44
FUTL 0.19 0.36 0.61 0.57 0.12 0.02* -0.43 -0.32 -0.20 0.56
CHIN 0.06 0.09 0.29 0.16 0.09 0.01* -0.07 0.00* -0.07 0.33 0.10
NITL 0.39 0.52 0.81 0.64 0.13 0.04* -0.59 -0.23 -0.37 0.86 0.69 0.28
CACL 0.76 0.44 0.35 0.29 0.16 -0.15 -0.57 0.31 -0.77 0.39 0.28 0.07 0.51
RESIZE 0.09 0.28 0.45 0.43 -0.07 0.76 -0.26 -0.27 -0.04* 0.48 0.30 0.10 0.40 -0.01*
LEXRETURN 0.10 0.16 0.27 0.21 0.01* 0.15 -0.09 0.04* -0.09 0.29 0.03* 0.09 0.20 0.06 0.34
LAGSIGMA 0.10 0.05 0.05 0.02* 0.03* 0.05 -0.06 0.03* -0.10 0.07 -0.04* 0.06 0.01* 0.04* 0.11 0.09
TLMTA -0.34 -0.41 -0.67 -0.79 -0.07 0.10 0.54 0.28 0.30 -0.71 -0.56 -0.16 -0.73 -0.37 -0.51 -0.28 -0.08
This table presents Pearson correlation coeficient. The coeficients that are marked with asterisk (*), are not signiicant but others are signiicant at
the 5% level or lower.
The results of Pearson correlation coeficients show are presented in Table 3. The estimation results of Altman
that the most of coeficients between research variables are (1968) model indicate that X1 (-0.12), X2 (-0.48) and X3
signiicant at the 5% level or better. (-0.52) have a negative and signiicant relationship with
dependent variable (Failing) at the 1% level and X4 (0.01)
Model estimation has a positive relation with dependent variable at the 5%
level but X5 has no signiicant relationship with dependent
The regression results of models and In-sample and variable. The F-statistic of this model (468.16) is signiicant
out-of-sample prediction metrics to compare the models at the 1% level.
Table 3: The results of regression models
Altman (1968) Zemijewsky (1984) Shumway (2001)

Ohlson (1980) model Combined model
model model model
Panel A: Model estimation results

Intercept 0.18** -12.87** -8.00** -16.94** -2.22**
X1 -0.12** -0.95
X2 -0.48** -13.40**
X3 -0.52**
X4 0.01*
X5 0.00
OLSIZE -0.14
TLTA 14.58** 8.21** 17.75**
WCTA -2.92
CLCA -0.60
OENEG -0.17 1.73**
NITA -1.40
FUTL -2.60
INTWO 3.79** 0.25

Altman (1968) Zemijewsky (1984) Shumway (2001)

Ohlson (1980) model Combined model
model model model
CHIN -0.25
NITL -3.21* -9.88* -0.91
CACL -0.03 0.01
RESIZE 0.01
LEXRETURN -1.25
LAGSIGMA -0.60
TLMTA
Panel B: In-sample prediction power metric
Adj. R2 51.25 Pse. R2 83.21 72.71 76.07 87.83
F stat. 468.16** LR stat. 904.61** 1272.92** 1083.25** 1384.16**
Voung Z 11.48** 2.21* 4.81** 3.22**
Panel C: Out-of-sample prediction power metrics
RMSE 0.21 0.14 0.16 0.14 0.12
MAE 0.14 0.03 0.06 0.05 0.03
MAPE 4.96 1.64 2.69 2.05 1.41
*, ** signiicant at the 5% and 1%, respectively
In the Ohlson (1980) model, TLTA (14.58) and the than (or equal to) that of Altman model, 0.14 (4.96), Ohlson
dummy variable of INTWO (3.79) are signiicant at the model, 0.03 (1.64), Zemijewsky model, 0.06 (2.69) and
1% level and in Zemijewsky (1984) model TLTA (8.21) Shumway model, 0.05 (2.05). Thus, the results indicate that
and NITL (-3.21) are signiicant at the 1% and 5% level, the In-sample and out-of-sample prediction power of our
respectively. The results of Shumway (2001) model presented model in predicting failed irms is higher than that
indicates that TLTA (17.75) and NITL (-9.88) are signiicant of other previous models. Thus, our logit type bankruptcy
at the 1% and 5% level respectively. Finally, our presented prediction model signiicantly outperforms other models.
model show that X2 (-13.40) and OENG (1.73) are both
signiicant at the 1% level. Conclusion
The results of likelihood ratio (LR) for Ohlson model
(904.61), Zemijewsky model (1272.92), Shumway model In this paper, we examine the predictive power of a
(1083.25) and our presented combined model (1384.16) number of bankruptcy prediction models. The models use
show that all models are signiicant at 1% level, generally. a range of different independent variables (accounting
The In-sample prediction power (adjusted R2) of our information and market and irm-characteristic data) and
combined model (87.83%) is higher than that of Altman a range of different econometric speciications (multiple-
model (51.25%), Ohlson model (83.21%), Zemijewsky discriminate analysis, logit ‎, probit models). We ind that
model (72.71%) and Shumway model (76.07%). the results irms are more likely to experience bankruptcy if they
of Voung (1989) test show that the differences between the have relatively lower earnings before interest and tax to
prediction power of combined model and Altman model total assets, a larger decline in net income, relatively low
(11.48), Ohlson model (2.21), Zemijewsky model (4.81) working capital to total assets, or high total liabilities to
and Shumway model (3.22) are all signiicant at the 1% total assets.
level. We compare the empirical performance of a range of
The results show that the root mean squared error bankruptcy prediction models using a series of in-sample
(RMSE) of our combined model (0.12) is lower than that and out-of-sample performance metrics. Across all of these
of Altman model (0.21), Ohlson model (0.14), Zemijewsky metrics, both in-sample and out-of-sample, we ind that, our
model (0.16) and Shumway model (0.14). The results combined model signiicantly outperforms models from the
also indicate that the mean absolute error (mean absolute extant literature.
percent error) of our combined model, 0.03 (1.41) is lower
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2011 Adebisi Sunday A., Babatunde Bayode O. 343
STRATEGIC INFLUENCE OF PROMOTIONAL MIX ON

ORGANISATION SALE TURNOVER IN THE FACE OF STRONG
COMPETITORS
Adebisi Sunday. A (Ph.D)

Department of Business Administration, Faculty of Management sciences
University of Ado Ekiti, P.M.B 5363, Ekiti State Nigeria.
Email: yommysun@yahoo.com
Babatunde Bayode .O
Department of Business Administration, College of Management and Social Sciences,
Osun State University, P.M.B 2008, Okuku, Osun State, Nigeria
Email: bayoogoga@yahoo.com
Abstract
This paper aim at study strategic inluence of promotional mix on organisation sale turnover in manufacturing organisation.
The research data were gathered through the use of secondary data and primary data, secondary data included 6years annual report
comprising the sales turnover (2005-2009) and questionnaire which is an instrument of primary data collection. The questionnaires
were administered to the workers of 7up Company and some customers in Solebo Estate in Lagos. The researcher adopted the simple
percentage and regression model for the analysis of the collected data.. The result of the indings revealed that strategic promotional
mix inluences the sale turnover with little 25% while other variable not included in the variable tested takes the larger 75% that will
rapidly lead to organisation growth. Since promotional mix constitute few % of variable that can push an organisation to the highest
level, therefore other factors of marketing mix such as product development, effective pricing, distribution of right quality and quantity
to the consumers should be appropriately considered. Key words: Strategic promotional mix, marketing mix, regression model, push
and pull strategy.
It is not enough for a business to have good products to the organization for communicating the message
sold at attractive prices. To generate sales and proits, the constitute the promotion mix. It includes advertising, sales
beneits of products have to be communicated to customers. promotion, and public relations. The paper examines the
In marketing, this is commonly known as “promotion”. different elements of the promotion mix and discusses the
Although promotion is not done only for these factors but issues involved therein. It also delves into the advantages of
for other such as to build brand loyalty, to reminds and using the Internet as a selling medium.
reassure costumers, to launch a new product and maybe It is very important for every product to be promoted,
to defend market share by responding to competitors’ that is to say it needs to be drawn to the attention of the
campaigns with their own advertising A business’ total market place and it’s beneit be identiied. The aim of an
marketing communications programme is called the organization promotional strategy is to bring existing and
“promotional mix” and consists of a blend of advertising, potential customers to a state of relative awareness of the
personal selling, sales promotion, public relation stool sand organization’s product and a not just that but also to a state
direct marketing. of adoption.
The organization has to convey the message about the The promotional mixes (sales promotion, publicity,
product on offer to its consumers. This helps in sustaining a personal selling, advertising, public relation) have a stage
perennial demand for the product and in suitably positioning at which it will be most effective. Advertising and publicity
it among the target audience. The process of communicating are suitable for all stages while the remaining mix can be
the message is called promotion. It inluences the purchase effective from stage three.
decision of the consumer. The different channels available
Sunday A. A., Bayode O. B. - Strategic Inluence of Promotional Mix on Organisation Sale Turnover in the Face of Strong Competitors.
Literature review Advertising
Cole (1996) deines promotional mix as “the means use Advertising is the process of communication, persuasive
in bringing customers from a state of relative unawareness information about a product to the markets by means of the
to a state of actively adopting the product”. It means of written and spoken word. There are ive principal media of
communicating with individuals, groups, or organizations advertising as follows; The press, commercial television,
to directly or indirectly facilitate exchange of informing and direct mail, commercial radio and outdoor.
persuading one or more audience to accept an organization’s
product. Objective of Advertising
Ross (2001) sees promotional mix as “the total marketing
communication programme of a particular product”. A company’s objective for embarking on advertisement
Adebisi (2006) deined promotional mix as “any can therefore be on any of the following objectives
marketing effort whose function is to inform or persuades enumerated below;
actual or potential consumers about the merit a product i. To introduce a new product or service; here
possess for the purpose of inducing a consumer to either advertisement attempt to present to the prospective buyers
start buying or continue to purchases the irm’s product.” a new product or service and this usually near a costly and
dramatic launching of a new product or service.
Elements of Promotional Mix ii. To expand the market to new buyers; advertisement
is done to introduce a product to new buyers who might
Every product needs to be drawn to the attention of ind interest or usefulness of it.
the target market, and its beneit identiied. The principal iii. To announce modiication; a product that is already
methods are; in the market might want to be given a new face, and then
• Advertising there is need for advertisement to highlight to the consumers
• Personal Selling that modiications had been done.
• Sales promotion iv. To announce a price change; advertisement can
• Publicity be done if the organization’s product or service price
• Public relation is increased or decreased so that the consumer might be
informed.
The aim of an organization’s promotional strategy v. To introduce a new packaging; packaging
is to bring existing or potential from a state of relative identiication at the point of sales is always important and
unawareness of the organization’s product to a state of is a reason why packages are shown in advertisement.
actively adopting them. Several stages of customer’s vi. To stimulate sales promotion; advertising maybe
behaviours have been identiied. This has been described make special offer when business environment is static. It
in several ways, but in summary can be stated as follows; could be a gift of cup or biro etc at the purchase of such
product.
Stages Behaviours vii. To educate consumers; the educational
One Unawareness of product advertisement is necessary when a commodity, service or
Two Awareness of product an offer needs careful explanation.
Three Interest in product viii. To maintain sales; customers product which had
Four Desire for product been in the market use advertisement to maintain sales.
Five Conviction about value of product ix. To challenge competition; the purpose of some
Six Adoption/purchases of product advertisement are to challenge the competitors in the
presence of buyers.
Source: Ross (2001) Stages of Product Awareness

Personal Selling is “news about the organization or its products reported in

the press”. Publicity sometimes cost but its cost is always
This is the process by which the seller sells to the related with advertisement. Publicity is a very necessary
consumer face to face.The personal selling consists of a tool because it creates the good will of an organization.
selling process, which is illustrated below.Personal selling
is the most expensive form of promotion. Company that Use of publicity
use more of personal selling are said to be adopting push
strategy while that of advertising are using pull strategy. Publicity when properly managed by the Public Relation
Oficer of an organization can serve the following purposes;
Sales Promotion it can be used to attract public attention, it can also be used
to maintain public visibility and used for the provision of
Sales promotion activities are a form of indirect information to the public. Publicity often takes the form of
advertisement, designed to stimulate sales mainly by the use news released or press conferences, appearance or event
of incentives; Free sample, Twin-pack bargain, Temporary sponsorship.
price reduction, Special discount bonus.
Public Relation
Publicity
Public relation is another form of promotion. It is the
Publicity differs from other promotional mix in that it is means by which the organization related or communicates
costless most of the time. Publicity according to Cole (1996) with the environment. Public relation is aimed at better
customer relations and immediate feedback.
Personal Selling Advertisement Sales Promotion Direct Marketing Public Relation

Permit measurement of Reaches a large group Produces an immediate Generates an immediate Creates a positive attitude
efectiveness. of potential buyers for a consumer response. response. towards a product or
Advantages
Elicit an immediate relative low price. Attracts attention and Covers a wide audience with company.
response. Allows strict control over the creates product awareness. targeted advertising. Enhances credibility of a
Tailors the message to it inal message. Allows easy measurement Allows complete, customized, product or company.
the customer. Can be adapted to either of result. personal message.
Personal contact mass audience or speciic Provides short time sales Produces measurable results.
audience segment. increase.
Relies almost exclusively Does not permit total Is non-personal in nature. Sufers from image problem. May not permit accurate
Disadvantages
upon the ability of the accurate measurement of Is diicult to diferentiate Involves a high cost per reader. measurement of efect on
sales person. result. from eforts. Depends on quality and sales.
Involve high cost per Usually cannot close sales accuracy of mailing lists. Involves much efort directed
contact. towards non-marketing
oriented goals.
Promotional Mix Strategy

b. Pull strategy: In this strategy the produce the inal
Marketing managers may choose between two consumers to induce them to buy the product. If the
alternative strategies to use when promoting their product, strategy is effective, the consumers demand for the
which are; Push strategy and Pull strategy. product from channel members (middlemen). This is
the most used strategy.
a. Push strategy: When a market uses the pull promotion,
it means that the product involves “pushing” through In this strategy, consumer’s demand pulls the product
distribution channel till it gets to the inal consumers. through the channel.
The strategy involves the producer directing his The two strategies can be applied simultaneously.
marketing activities towards channels members to However the B2C (business to consumer) use more of pull
induce them to bring the product or promote the product strategy while the B2B (business to business) use more of
to the inal consumers. One major promotional mix use the push strategy.
in this strategy is advertising and sales promotion.
Push strategy versus Pull strategy
Producer’s marketing Resellers’ Marketing

Activities Activities
Producer Middlemen Consumers
Push Strategy
Source: Cole (1996) “Push Strategy”.
Demand Demand
Producer Middlemen Consumers
Producer’s marketing activities.

Pull Strategy
Source: Cole (1996) “Pull Strategy”.
Developing an optimal Promotional Mix be potential buyers or current users, it may be individuals,
group, special public or the general public. The target
The blending of all mix of promotion (personal selling, audiences are one of the major determinants of what mix
advertisement, public relation, sales promotion and is to be used?
publicity) is what leads to the achievement of marketing Step 2; determine the needs: after having identiied the
objectives. Qualitative measures can be used to determine target audience, the next thing to do is to know what their
the effectiveness of a mix components in a given market basic needs are and is the product relevant for the audience?
segment. The choice of a proper mix of promotion elements Step 3; determine the promotional objectives: the
present one of the most dificult tasks for a marketer. promotional activities should have a target to be meant
which is referred to as objective. Is it to increase sales? Or
Steps to developing optimal Promotional Mix is it to just create awareness? It should be clearly stated.
Step 4; choose the mix: after the expected response is
An organization must make sure that is promotional mix determined, then the marketer can look critically at all mix
is effective, if it will beneit from it. The following are the and identify which can best satisfy their objectives.
steps involves in having an optimal promotional mix. For a promotional mix to lead to purchase, it must have
Step 1; identify the audience: a marketing promotion pass through some stages which is illustrated in the diagram
starts with clear target audiences in mind. The audience may below:

The buying readiness stages
Brand Ignorance Awareness Knowledge
Conviction Purchase Liking Preference
Source: Cole (1996) “The Buying Readiness Stage”
Measuring The Effectiveness Of Promotional Population of the Study

Mix
The case study of this organization has many plants in
If an organization cannot measure it’s effectiveness in Nigeria in places like Ibadan, Ijora, Kano, Ikeja and so on.
terms of promotion, it cannot say precisely if the activities The researcher therefore picked the Ikeja plant as the case
had been successful. For an organization to measure the study. Marketing department personnel were sampled in the
effectiveness of it promotional activities, this can be done organization since it is related with the topic under study.
in either of the following ways; The number of employees in the marketing department is
forty two as given by Mr. Wemimo the sales manager.
• Direct sales result; this method reveals the sales revenue
for each amount input into promotion. That is, it Sampling Procedure
measures the rate of sales to the expense on promotion.
• Indirect evaluation; this method focus on quantitatiable Sampling method is the study of a fragment of the entire
indicators of effectiveness. For instance, the population when it is not feasible to carry out the study on
effectiveness is measured based on the organization the entire population. The study used the random sampling
study of the number of audience that actually heard method because it allows equal chance for every element
about the product during the promotional activities. of the population and therefore the sample size was thirty
• Returns method; this method is the work of Professor while the consumers were ifty.
Don Schutz. He said promotional effectiveness should
be measured based on the returns of the period of Data Collection Instrument
promotion. What is the proit like during promotion
and when there is no promotion? This research work is both qualitative and quantitative
• Direct response method; this method is concentrating in nature, and as such data were collected via the use of
on having a way of getting response from the targeted both primary data and secondary data.
audience and this response should be used to measure
the effectiveness of promotion. Regression Method of Analysis
Methodology Adebisi (2006) deined regression as “the statistical

method of predicting and determining the probable value
Methodology is a vital process of carrying out empirical of dependent (α) given the value of independent (β).The
study. It forms the background in which the procedures hypothesis gathered for this study will be tested at 5% level
employed in carrying out a research are designed. It is the of signiicance.
procedure that follows a step after one another of which The regression formular is:
data gather for a research is being analyzed”.
α =a + bβ + ui
Where; Selling and % taken as

Years Turnover Distribution promotional
Expenses expenses
α = dependent variable 2004 14937371 2931311 1319089.95
2005 17346662 2207731 993478.95
β = independent variable 2006 22071731 4557690 2140960.5
2007 27309123 5576791 2509555.95
a = intercept 2008 30572218 6364557 2864050.65
2009 34022650 8230830 3212302.50
b = slope
Source: Data analysis 2010.
ui = error term.
Regression analysis showing the strategic inluence of
The regression model will build on, promotional mix on sales turnover.
Model B Std. Error T Sig. t R R2 F

Hypothesis One
Constant
1.2E +08 8.6E + 07 1.416 .230
α (dependent variable) sales turnover
.173a .030 .123
β (independent variable)Strategic promotional mix.
Promotional mix
-6.752 19.268
Hypothesis Two Strategic

-.350 .744
α (dependent variable) market share and growth

Source: Data analysis 2010
β (independent variable)Strategic promotional mix
Table 1. The estimated regression model is given as:
Years Turnover
Selling and Distribution α=f(β)
Expenses
2004 14937371 2931311
α = a + bβ + ui
2005 17346662 2207731
2006 22071731 4557690
=0.000000012+6.752 β + ui
2007 27309123 5576791
2008 30572218 6364557
Std. error = (0.00000086) (19.268)
2009 34022650 8230830
Source: 2003-2009 7up Nig Plc statement of income and expenditure
bulletin, t =(1.416)(.350)
Hypothesis one The result of the regression analysis shows that the
regression coeficient (R) is .173a. It implies that there is
Ho- Strategic promotional mix does not inluence sale positive and strong inluence between strategic promotional
turnover rate positively in the face of full competition. mix and sales turnover in 7up manufacturing company. The
result also reveals that the coeficient of determinant (R2) is
H1- Strategic promotional mix inluence sale turnover .030, it connotes that about 3% variation in sales turnover
rate positively in the face of full competition. could be explained by promotional mix. The remaining 97%
were largely due to other variables outside the regression
For this hypothesis the six years inancial report of model that also affects sales turnover.
7up was used and 45% of selling expenses was taken as Testing the effect of independent variable ( strategic
promotional mix. promotional mix) on dependent variable (sales turnover)
the result shows that t-value is .350 at 0.05 level of mix, market share and organisation growth. The result also
signiicant (t=.350: p<0.05).Therefore the null hypothesis reveals that the coeficient of determinant (R2) is .250,
accepted while the alternative is rejected. Hence, strategic it connotes that about 25% variations in market share
promotional mix has signiicant inluence on sales turnover, and growth could be explained by promotional mix. The
since the t-tabulated (2.571) is greater than t-calculated. remaining 75% were largely due to other variables outside
The overall regression model is not signiicant in terms the regression model that also affect the market.
of its goodness of it (f=.123 p<0.05) since f-tabulated Testing the effect of independent variable (Strategic
(7.71) is also greater than f-calculated. promotional mix) on dependent variable (market share and
growth) the result shows that t-value is .577 at 0.05 level
Hypothesis two of signiicant (t=.577: p<0.05), there is positive inluence.
The overall regression model is not signiicant at 5% since
Ho- Strategic Promotional mix used by a irm does not it signiicant is 69.2% and in terms of its goodness of it
determine the market share and growth. (f=.333 p<0.05) since f-tabulated (7.71) is also greater than
f-calculated.
H1- Strategic Promotional mix used by a irm determine the
market share and growth. Findings
Regression analysis showing the impact of promotional mix on From the above result, the inding reveals three major
sales volume. hypotheses tested. The result of hypothesis one shows
that, the t-test calculated is lower to the result of the
Model B
Std.
Error
T Sig. t R R2 F t-test tabulated and not signiicant at 0.05, therefore,
promotional mix has signiicant inluence on sales turnover.
2.050 3.898 .526 .692
Constant
In this case appropriate choice of promotional mix will

perfectly enhance the sale and boost the good image of an
.500a .250 .333 organisation.
The inding also revealed that proper application of
Promotional mix
promotional mix will increase the market share and improve

Strategic
.500 .866 .577 .667 organisation growth in the face of strong competition.
Though with the level of 25% variation from the table,
there are still other strong variation that can seriously and
rapidly increase the market share and organisation growth
Source: Data analysis 2010
which are silent with in the model.
Having discovered all these therefore, strategic
α=f(β) promotional mix has positive inluence on sales turnover
in manufacturing company especially where competition is
α = a + bβ + ui the order of the day.
=2.050+.500β + ui Conclusion
Std.error= (3.898)(.866) Every organization that must continue to survive in its
operating environment must be able to adequately promote
t=(.526)(.577) its product. For the organization to achieve its aim of proit
making as a manufacturing organization, it must make sure
The result of the regression analysis shows that the that, its promotional activities achieve its aim of making the
correlation coeficient (R) is .500a. It implies that there is product acceptable and bought by the targeted market. The
positive and strong inluence between strategic promotional promotion of any product must be accessible to the people
that the product will be useful for and at the same time, Aluko, T (2002). “Marketing Research and Material
must be able to encourage new customers to purchase and Management, 2nd Ed.” Ado: Afusco Printer and
repurchase the products. Publishers.
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and well monitor promotional activities and must be able Lagos: Libra Publishers.
to tailor it in such a way that it will increase it sales thereby Akpoyomare, B (1991). “Introduction to Management”
increasing the proit of the organization. Lagos: Pancf Press.
Best, S (2000). “Principle of Marketing” New York:
Recommendations Prentice Hall.
Boone, L and Kurty, D (1980). “ Contemporary
In view of the indings, the following recommendations Marketing” Hinscdale, Illinofs Dry Press.
are provided. Chris, F (2006). “Simply Marketing Communication”
New York: Prentice Hall.
1. The management of an organisation should ind out Crimp, M (1985). “The Marketing Research Process
the actual choice of promotional mix that will be 2nd Ed.”, UK: Prentice Hall.
appropriate for the survival of their business. Engel, B and Kollat, G (1978). “Consumer Behaviour”
2. Organisation should carry out periodic measurement Hinsdale Illions: The Dry Press Reliable Publishers.
of the impact of its promotional activities in order to Eunice, A (2001). “Practical Guide to Research
correct it to earn more gain. Writing”. Ibadan: Might Babs Production.
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for adverts knowing fully well the importance of Pitman Publishing.
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room for other strategies to be put to test to see if their New York: Pretice Hall.
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strategies. Ed.”. New York: McGraw Hill Book Company.
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can push an organisation to the highest level, therefore Strategies, 2nd Ed.” USA: Mcgraw -Hills.
other factors of marketing mix should be appropriately Ross T (2001) Marketing as a concept; New York
considered. practice Hall press.
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Lagos: Tunbuk venture. www.africainancial.com
www.inanceonnet.com

2011 Ahmed Audu Maiyaki 351
THE PRACTICABILITY OF ACTIVITY-BASED COSTING (ABC)

IN THE NIGERIAN RETAIL BANKS
Ahmed Audu Maiyaki
Department of Business Administration
Bayero University Kano, Nigeria
P.M.B. 3011, Kano, Nigeria.
Email: aamaiyaki@yahoo.com
Abstract
The rapid growth and development of information and communication technology leads to a keen competition in the business
environment globally. This compels businesses to discover more eficient ways of doing business. The shortcomings of traditional
costing method led to the emergence of Activity – Based Costing. This study assesses the practicability of implementing ABC in First
Inland Bank Plc of which three branches using non-probability method were selected as the sample size. The study revealed that ABC
can be implemented as an effective costing method in the bank, but presently the bank does not practice the system. It was recommended
that accounting professional bodies should educate management staff of banks about the importance of the new accounting system. Key
words: Retail banking, Activity-Based Cost.
During the last two decades, substantial changes in irms so far are scanty to some extent. The main focus has
the services sector have been witnessed. This is due to been on manufacturing irms, even though the use of ABC
emerging of new competition as a result of deregulation, in manufacturing irms is not common, most of the irms
which has also given companies greater freedom in setting in this sector stick unto traditional cost accounting system
prices and determining the mix of products to offer. Well- (Kock 1995; & Hussain and Gunasekaran, 2001).
managed services irms with a good understanding of their ABC can be deined as a method of costing activities
markets, customers and information technologies can that are necessary for the production of products or
become much more proitable in a deregulated and more services (i.e. activities being undertaken) (Dandago, 2003).
competitive environment. In manufacturing companies, According to Turney, ABC is a method of measuring the
marketing, selling, distribution, service research and cost and performance of activities and cost objects. Hence,
development and general administration functions have the system assigns cost to activities based on their use of
become more signiicant expense categories than in the past. resources, and assigns cost to objects based on their use
Conventional cost accounting systems, which emphasize of activities. Furthermore, ABC was described as a full
inventory valuation, have neglected the huge investments absorption costing method that gain more and more ground
and expenses in an organization’s service functions. Again, than conventional methods, due to more correct cost
conventional cost system cannot accurately assign the assessments and superb tracing of the costs (Emblemgrag,
costs of non-volume-related overhead activities. Assigning 2001). ABC was also deined (Drive, 2001) as a system
overhead costs by using only volume as a basis can supply that allows organizations to track the cost associated with
management with an incorrect picture of how costs are activities performed to produced products or to deliver
established. Similarly, products cost can be distributed services.
if the non-volume related overhead costs are signiicant ABC can be a powerful tool for industrial decision
proportion of total overhead costs. The solution to this makers (Lere, 2000).
problem in service irms, as well as in manufacturing is Global competition and rapid advancement of
to implement activity based cost management (Hussain & information and communication technology have made the
Gunasekaran, 2001). irrelevance of conventional management accounting system
Research works that have been carried out on the in providing useful information for managerial decision
activity-based costing (ABC) system in respect of service making, in both service and manufacturing organizations
Maiyaki A. A. - The Practicability of Activity-Based Costing (ABC) in the Nigerian Retail Banks
(Hussain & Gunasekaran, 2001). The shortcomings of activities, resources and cost object, including when
traditional costing system, in terms of validity, accuracy, appropriate, overhead costs. ABC captures organizational
consistency and relevance, increased the need for modern costs for factors of production and administrative expenses,
management accounting system, hence, ABC can be used and applies them to the deined activity structure. It was
as a tool for planning, control and decision making in designed to provide more accurate ways of assigning the
service management. costs of indirect and support resources to activities.
Banking sector is one of the key sectors in the Nigerian Several beneits derivable from adopting ABC system
economy. And the sector keeps on growing and evolving have been identiied. For instance, Adeniyi (2004) describes
from one stage to the other. For instance, in 1980s the sector ABC as “a method of, charging overheads to costs units
was dominated by few old generation banks, there was little on the basis of beneits received from a particular indirect
competition if any. At this moment, the armchair banking activity”. Additionally, adopting activity-based cost systems
was the order of the day. However, with the establishment within services irms can beneit from using ABC as they
of new generation banks in 1990s, the banking business and have the same set of issues as manufacturing irms, e.g.
customer relationship changed signiicantly. Aggressive analysis operating expenses, activities being performed,
marketing and deposit mobilization replaced the armchair which services demand resources (Kaplan and Cooper,
banking. 1992).
The effect of deregulation in the banking sector resulted In a similar fashion, same principle can be used to
in large number of banks with marginal capital base, asset develop relevant cost systems for service irms. However,
quality problems, thinning spreads, uncompetitive ROE, implementation of ABC systems in service irms may
corporate governance lapses among others. cause some problems as it suggests that average costs
Consequently, the Governor of Central Bank of Nigeria should be determined for each activity in an organization.
(CBN) announced the banking sector reform on 06/07/2004 Thus, product costs will be built up based on the various
of which was designed to ensure a diversiied, strong and combinations of activities required to produce each product
reliable banking sector. CBN required that all commercial (Hussain and Gunasekaran, 2001).
banks should raise at least N25billion as their new capital Implementing ABC systems in service irms calls for
base through mergers and acquisitions. dividing overhead costs into various homogeneous cost
By January 2006 the number of commercial banks pools. A homogeneous cost pool is a collection of overhead
decreased from 89 to 25 that met the requirement. With this costs for which cost driver is computed for that pool and it
development, there are a number of challenges in the areas is known as a pool rate.
of: Technology and process integration; human resources Secondly, the cost of each overhead pool is traced to
upgrade; culture clashes; lower Return on Investment products. This is done using the pool rate computed in
(ROI) in the short-run; requisite experience for managing the irst stage and the measure, the quantity of the cost
large business among others. driver used by each product of the amount of resources
In view of the above therefore, this study focuses consumed by each product. And the inal step is to attribute
attention on the practicability of ABC in First Inland Bank the expenses of the unit, batch and the product sustaining
(Nig) Plc, serving as a sample representing other banks in activities to individual product using bases that relect the
the Nigerian banking industry. underlying behaviour of the products demand for analyzing
activities.
Conceptual Framework and Literature From the above it could be seeing that ABC involves the
Review process of analyzing activities, gathering costs, tracing costs
of activities, establishing output measures and analyzing
Activity-Based Costing (ABC) traces costs to activities activities. These sequential processes can be adopted and
rather than products and this provides a more accurate practiced by organizations providing services like banks.
and correct picture of the cost consumption (Hussain and Although, ABC is a system that is still evolving, it
Gunasekaran, 2001). ABC measures process and activity presents a lot of advantages over the traditional methods.
performance, determines cost of business process outputs, Thus, ABC is a more representative distribution of resource
process eficiency and effectiveness. ABC is a technique used since the costs allocation are based on the direct cost
to quantitatively measure the cost and performance of drivers inherent in each of the work activities that make up

2011 Ahmed Audu Maiyaki 353
the organizational structure. The results from irms that have Results and Discussion
implemented ABC have shown that the system is effective.
Those companies achieved a competitive advantage as they Very close observation into the sample of the study
are more certain about their costs and consequently they reveals that each branch of First Inland Bank is a cost
can correctly price their products in a market with keen center, meaning that each branch incurs some operational
competition (Knock, 1995). costs and of course in return the branch generates some
While most of the studies on ABC were done with revenues to the bank. For instance, in a typical branch there
respect to manufacturing companies, it should be realized are two units namely credit & marketing and operations.
that system is applicable to the service sector. According to Each of these units performed some peculiar activities upon
Zimmernan (1997), while a manufacturing selling is chosen which costs can be traced to, taking the main activities in
to describe ABC, this technique has also been applied in the credit and marketing unit, credit appraisal for example
insurance and banking institutions, nonproit organizations, we will see the costs involve in carrying out the activity.
and the marketing and distribution department of irms. First of all, the cost attributed to the credit oficer doing
Traditional cost accounting methods are not useful for the appraisal; stationery cost; secretariat cost of typesetting
inancial institutions that must cope with the new intense the report and also the communication and postage cost
competitive environment (Hussain & Gunmasekaran). of sending the report to the Head Ofice for approval.
The aforementioned studies however, show that ABC These costs as well as the cost of funds when the credit is
is needed and can be implemented in the service sector, disbursed to customer can be used as the basis for charging
particularly in the banking industry. It is most likely that management and processing fees in respect to a particular
the system will enable the banking business to be more credit given to the bank’s customers.
eficient in order to cope with keen competition from all Furthermore, by analysing marketing activity, various
over the place. costs are traced to it, while marketing mainly involves
Despite all the advantages and beneits highlighted, bank’s staff moving around sourcing for new clients; the
there are some dificulties faced in the implementation costs here include the staff costs for both the marketing
of ABC system. For example, obtaining full information oficer as well as for the car driver, depreciation costs of the
of cost with respect to each activity, the cost of shared vehicle used, fuel cost etc.
resources proves dificult (Cobb, Innes & Mitchell; 1993). Similarly, when analyze other remaining activities are
The problem of “jointness” has continued to prevail in the analysed, it will be revealed that different costs are attached
implementation of the system. This impinges upon activity to each activity. For example, other activities in the branch
cost pooling and also on the cost driver rates (Maskell, operation such as: cashiers, customer relationship function,
1988 & Cobb 1993). Additional expense discourages some funds transfer, cash movement, clearing works have speciic
organizations particularly the smaller ones to adopt the costs involved.
system (Dabor and Eragbhe, 2005). Similarly, it has been The investigation also shows that about 90% of the
observed, that the inancial beneits of ABC have not yet employees do not know about ABC system. On whether the
been established (Innes & Mitchell 1993). system is practicable, most of the responses are positive.
However, they consider the implementation of the system
Methodology to be dificult because according to them, some tasks/
activities overlap and involve more than a unit/department.
Using non-probability sample, three branches of First On the part of the customers, the study shows 100%
Inland Bank were purposely selected out of the total of the respondents do not know any thing about ABC.
brancehes of the bank. The branches are (Ilorin, Bauchi Nevertheless, the customers are satisied with the costs of
and Kano- I/Taiwo). The purposive sampling method was services they are being charged at the moment. In some rare
used because information related to costs and salaries are occasions, customers contest the bank charges whenever
not easily available in other branches. Additionally, the they perceived it to be high.
author used his working experience and observation in the
sourcing of information. Besides, non-structured personal COST POOL SUGGESTED COST DRIVER
interview was used. Credit Number of credit appraisal report
Maiyaki A. A. - The Practicability of Activity-Based Costing (ABC) in the Nigerian Retail Banks
COST POOL SUGGESTED COST DRIVER Asika, N. (2005). Research Methodology in the
Marketing Number of customers called Behavioural Sciences, Longman Nigeria Plc.,
Customer relationship Number of customers attained to Lagos.
Funds transfer
Number of transfer sent and/or Cobb, I., & Mitchell, F. (1993). Activity-Based Costing
received Problem – The British Experience. Advances in
Number of cheques processed and sent Management Accounting, Vol. 2 pp. 63-83.
Clearing
to and/or received from CBN
Dabor, E. L. and Eragbhe, E. (2005). Implementing
Cashier Number of customers answered
Activity-Based Costing in the Service Industry
A Survey of Some Private Clinics in Benin City,
Major Findings Nigeria. Bayero International Journal of Accounting
Research, Vol.1 pp. 56-65.
Consequent to the analysis, the author discovers the Emblemsvag, J. (2001). Activity-Based Lifecycle
following major inding with regards to the practicability Costing. Managerial Auditing Journal 16/1 pp. 17-
of ABC in First Inland Bank Plc: 27.
• Although the system has not been adopted by the bank Hussain, M. M. and Gunasekaran, A. (2001).Activity-
yet, but it can be adopted and practice effectively. Based Cost Management in Financial Services
• Majority of the staff as well as the customers of the Industry. Managing Service Quality, Volume II,
bank are not aware of the system, however, they can be No.3 pp.213-226.
adequately educated and enlightened about the system. Innes, I.C.J, and Mitchell, F. (1993). Activity-Based
• Customers of the bank are satisied with the bank’s Costing Problems: The British Experience,
charges; however, they complain anytime they notice Advances in Management Accounting, Volume 2,
overcharges. pp.63-83.
• Clear identiication of cost pool and the cost driver is Innes J. and Mitchell, F. (1995). A Survey of Activity-
dificult due to the fact that most of the bank’s activities Based Costing in the U.K’s Largest Companies,
are related and interdependent. Management Accounting Research, 6, 137-153.
Kaplan, R.S and Cooper, R. (1992). The Design of
Conclusion Cost Management System, Englewood, Cliffs
Prentice Hall.
First Inland Bank Plc is presently using traditional Kock, S (1995). Implementation Considerations for
method of costing, but the bank can adopt Activity-Based Activity-Based Cost Systems in Service Firms: The
Costing as an effective way of cost management. Majority Unavoidable Challenges, Management Decision,
of both the staff and customers of the bank are not aware of Vol.33, pp. 57-63.
ABC because it is a relatively new system. To implement Lere, J.C. (2000). Activity-Based Costing: A Powerful
ABC in the bank differentiation and identiication of cost Tool for Pricing. Journal of Business and Industrial
pool/cost driver will be a great challenge. Marketing, Vol. 15 pp. 23-33.
Maskell, B. (1988), Relevance Regained – An
Recommendations Interview with Robert S. Kaplan, Management
Accounting (UK), pp. 38-42.
Mass enlightenment campaign should be embarked The Electronic College of Process Innovation,
upon by accounting professional bodies with a view to ABC Guide Book, Retrieved from http://www.
educate banks executive and directors about the importance defencelink.mil 24/9/2000.
of ABC. This in turn will enable the management of banks Turney, P.B.B (1996). Activity-Based Costing, The
to educate their staff and customers. Performance Breakthrough. Kogan Page Publishers
UK.
References Zimmerman, J.L. (1997). Accounting for Decision
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Adeniyi, A. A. (2004). An insight into – Management Hill.
Accounting 3rd ed. Value Analysis Consult, Lagos.

2011 Jocelyn Sackey, Mohammed-Aminu Sanda 355
SOCIAL SUPPORT AS MENTAL HEALTH IMPROVER FOR

MANAGERIAL WOMEN IN THE ORGANIZATIONAL WORK
ENVIRONMENT
Jocelyn Sackey, MPhil

Department of Business Administration, Technology and Social Sciences
Luleå University of Technology
Mohammed-Aminu Sanda, PhD

Division of Industrial Work Environment, Department of Business Administration,
Technology and Social Sciences, Luleå University of Technology, SE-971 87 Luleå Sweden.
Email: mohami@ltu.se
Abstract
This study assessed the relationship between social support and mental health (depression, anxiety and somatic anxiety) relative to its
impact on managerial women in Ghana. The objective is to seek answers to the question as to whether the availability of social support in
the work environment can help improve the mental health of women. This is because the lack of spousal support for working women is
found to have a direct connection to diminished mental health. The indings show that spousal support provided women with a sense of
security and stability at home and also reduced their possibility of being confronted with role conlict. It is thus, concluded that the career
progression of women managers can be greatly enhanced when they receive spousal support, encouragement and guidance in addition to
those from superiors and co-workers. Key words: Managerial women; social support; mental health; organizational work environment.
Depression disorders are found virtually in all support network comprising of co-workers, spouses as
countries in the world, but their incidence, intensity and well as family members, especially parents and in-laws.
components vary across cultures (Marsella, 1980). Cross- Again, how individuals manage with dificult situations
cultural psychologists describe the cultures in many non- depends not only on their internal resources but also on
western countries as more collectivist than individualistic external resources – our social support system. It has been
(Kagigtcibasi, 1988). As such, not all psychological established that at anyone time in the USA, approximately
concepts translate easily to other cultures. Gove and 8 to 10 per cent of the workforce are experiencing disabling
Tudor (1973) considered historical and cultural factors emotional or somatic ill-health; that 30 per cent suffer from
in explaining the different rates of mental illness in luctuating array of minor psychological ailments and that
different communities. Gove and Tudor (1973) related the stress-related symptoms contribute to absenteeism, lost
cohesiveness of traditional communities to an overall lower productivity and company health costs to the tune of $50-
incidence of mental illness with even lower rates for women. 75 billion annually (Brodsky, 1984).
The Ghanaian managerial woman is therefore expected to Based on review of the relevant literature, there is ample
have more social support with greater connectedness and evidence that there has been very little research conducted
relatedness. The issue whether this is the case or this situation on, and little attention devoted to women’s research in
has been eroded by rapid social changes will be the question Africa, and Ghana is no exception. Hence this study
that this study will seek to answer. Ghana has experienced examined and explored the prevailing pattern of Ghanaian
changing family structure and urban lifestyle, with many women’s experience of social support and to identify
now living in nuclear families and are functioning less like the inluences of these factors on managerial women’s
extended families and therefore the support networks seem mental health. In Ghana, mental health partly or indirectly
to be shrinking. The question is therefore asked whether related to work is dificult to assess due to the paucity of
managerial women in Ghana enjoy a well-integrated statistical data. The goal of all concerned with industry,
Sackey J., Aminu S. M. - Social Support as Mental Health Improver for Managerial Women in the Organizational Work Environment
it is widely agreed, is the improvement in the quality of The concept of mental health has over the years been
working life. There is therefore the need to identify and a subject of discussion among researchers because of its
study the variables that play important role in determining complex nature. There is however no accepted deinition
the health of women in managerial positions. It is against of mental health. According to Menninger (1945), mental
this backdrop that the present study was undertaken. This health is the adjustment of human beings to the world
study assessed the relationship between social support and and to each other with a maximum of effectiveness and
mental health (depression, anxiety and somatic anxiety) happiness. Hilgard (1957) also argued that a mentally
in managerial women in Ghana. The objective is to seek healthy individual is an adjusted individual. By implication,
answers to the question as to whether the availability of a person is duly distressed by the conlict they encounter.
social support in the work environment can help improve The individual faces problems headlong and in a realistic
the mental health of women. manner, accepts the inevitable and understands and accepts
his or her own shortcomings. As noted by Farahbakhsh
Literature Review (2004), there are six characteristics of a mentally healthy
individual: Environmental mastery, understand perception
Numerous researchers have proposed deinitions of of reality, integration, autonomy, growth and development
social support and these many deinitions share several and attitude toward self. Thus, mental health is a state
similarities. A principal similarity is that the deinitions of mind characterized by emotional well-being, relative
emphasize a prime role of social support as emotional freedom from anxiety and disability symptoms, and a
support, when individuals feel they have other people to capacity to establish constructive relationship and cope
turn to for comfort during dificult times. An additional with the ordinary demands and stress of life (Farahbakhsh,
similarity is that these models emphasize social integration, 2004). Depression is a state of feeling unhappy. It is believed
when people feel they are part of a larger group where their that it is not a solitary stress factor but any two or multiple
interests and concerns are shared. Also support can operate stressors occurring simultaneously and accumulating over
as tangible support, where our requests for money, tools, a period of years that add up to depression (Markush and
assistance with a task and other activities are positively met. Favero, 1974; Coleman, 1973). It was reported by Olff
Support can provide informational support, where we can (1999) that prolonged exposure to chronic stressors may
depend on others for advice concerning a problem. There diminish one’s coping resources and lead to depression.
is also esteem support, where social relationships serve to Depression may also result due to various undesirable events
help people feel better about themselves and their skills and social losses. Daily stressors like strainful day-to-day
and abilities. Weiss (1972) added an extended provision occurrences, painful physical symptoms and psychological
of social support by noting that the social relationships distress (Eckenrode, 1984), and lack of social support
people the opportunity to nurture others. Social support (Brown et al., 1975) have been found to cause depression.
has beneicial effect on health as social support is generally Around the world, depression occurs more frequently
seen as a buffer for stressors (Cohen and Wills, 1985). That among women than among men. The female-male ratio
is, individuals who receive social support may be more ranges from 2:1 to 3:1 in most countries (Nolen-Hoelskema,
resistant to the negative effects of exposure to stress. Again 1990). Depression is so widespread that it has been called
support has a direct effect for everyone, especially for the common cold of mental disorders. Everyone can be
women managers. These deinitions emphasize the positive affected by depression – students, professionals, managers,
effects of support provided by a large network of social executives and labourers alike – no one is immune to
relationships and the accompanying set of social roles in depression. A man’s lifetime risk of developing major
work and other life domains. They also would suggest that depression is about 10%; however, the risk is much greater
support is positively related to health since support provides for a woman – almost 25 per cent; and the most common
everyone, especially the managerial woman, with a sense psychiatric diagnosis for women is depression (Russo,
of well-being, some degree of predictability and stability in 1985). This sex differences may mean that women are more
life, the ability to avoid negative outcomes or experiences, biologically prone to depression; their socialization also
and the emotional support and encouragements of close and makes them particularly prone to depression. However,
intimate friends. psychosocial factors such as different rearing environments,

different social roles, and less favourable economic and women were selected for in-depth interviews. This method
achievement opportunities, for example, may produce has been used successfully by Korabik et al. (1993) in studies
greater depression in women than men (Culbertson, 1997). on work stress and coping among managers. The interview
Anxiety is also one of the most signiicant problems faced sessions were aimed at supplementing the survey responses
by women, which disrupts their day-to-day adjustment to as well as obtaining information not directly elicited in the
the external and internal process. Other studies have shown questionnaire. Respondents were also probed further about
that friendships are an important source of social support their responses on the survey. The data collection took four
for both employed and unemployed women. Women have (4) weeks.
a strong interest in developing close, dyadic relationships,
whereas men tend to be more group-oriented, including Results
three or more people. Work is an important source of close
relationships for both men and women, often producing The analysis examined the extent to which social support
intimate and lasting friendships that individuals frequently can attenuate the mental health (depression, anxiety and
do not have access to outside of the work environment physical symptoms) of women in the work environment.
(Duck, 1998). The social support available at work has The hierarchical multiple regression analysis is used to
a direct effect on psychological well-being, with working analyze the relationship between the mental health indices
women reporting greater levels of social support than those and the social support indices. The data analyses were
who were either unemployed or non-working (Pugleisi, conducted in two steps. In the irst instance, the means,
1998; Bolton and Oatley, 1987). These social links are standard deviations, correlations and internal consistency
particularly important to women, with the “company of estimates (Cronbach’s alpha) were computed for each of
others” being cited as the main non-inancial reason for the variables. Secondly, a series of multiple (hierarchical)
working by both employed and unemployed women (Dex, regression analyses were conducted. The multiple regression
1988). analysis allows for more complicated investigation of the
interrelationships among the set of variables examined
Materials and Method (Pallant, 2001) while controlling for other relating
variables, thus, allowing for investigation into the effects
The focus of the study is Ghanaian managerial women’s of the independent variables and their interactions on the
social support and mental health in three organizational dependent variable. The Statistical Package for the Social
groupings. The data on social support and mental health Sciences (SPSS) software was used. In each instance,
were gathered using questionnaires. The target population the model provided a good it to the data. The results of
was managerial women. Participants in this study were analyses based on both quantitative and qualitative data
a sample of women in managerial positions from 25 on social support and health indicated that the women
organizations in Accra. Accra was chosen as the primary reported normal levels of anxiety, (M = 6.94, SD = 1.46);
setting for this study due to its high concentration of major and depression, (M = 7.75, SD = 1.72). This interpretation
and key organizations and institutions which engage highly is based on the fact that the minimum score that can be
skilled women in Ghana, and also due to its cosmopolitan obtained from the mental health and social support scales
atmosphere. Stratiied and simple random sampling are (0-7) and (0-9) respectively. The women also reported
procedure was used to select the individual women who normal levels of physical symptoms, (M =10.15, SD =
participated in the study. Overall, the sample consisted of 2.03). Spousal support (M = 15.53, SD = 3.34); co-worker
170 female managers employed from three organisational support (M = 7.39, SD = 1.51); supervisory support (M
settings. Of the respondents 51 (30 percent) were from = 14.41, SD = 3.60) and friend support (M = 7.86, SD =
private organizations, 59 (34.7 per cent) were from 1.82) were combined and standardized into a mean support
Public organizations, and 60 (35.3 per cent) were from (M = 3.76, SD = 0.53). The composite mental health index
multinational organizations. A total of 200 questionnaires was also regressed on the mean social support and control
were distributed and 175 were returned. Of the 175 variables using the hierarchical multiple regression analysis
questionnaires returned, 170 were usable. This constitutes (Enter method). The results are shown in Table 1 below.
a response rate of 85 per cent of respondents. Fifteen (15)
Table 1: Hierarchical Multiple Regression Analysis of Mental Variables R-squared

Changed
P F
R-square
Health on Stress, Support and control variables
Co-worker support -.015
Changed Standardized Friend support 0.07
Variables R-Square F
R-Square Beta (β)
Control Variables 0.05* .05* 3.11* *p<.05; **p<.01
Age -0.12
Type of org. -0.08
From Table 2 above, the multiple hierarchical regression
Education 0.18
analysis (Enter Method) revealed that a signiicant model
All variables 0.13** 0.08** 5.13** emerged (F(8,125) = 4.02, p<0.01). The R-square was 0.20, an
Age -0.11 indication that the model as a whole explained 20% of the
Type of org. -0.07 variance, with the four social support sub-scales explaining
Education 0.16 12% (changed R-square = 0.12) of the variance when age,
Social Support -0.16* type of organisation and education were controlled. In
this model spousal support was a signiicant contributor
*p<.05, **p<.01
to the model, (β = -0.23, p <0.01) indicating that spousal
support was a signiicant predictor of mental health. This
From Table 1 above, the hierarchical multiple regression meant that spousal support was signiicantly and negatively
analysis (Enter method) indicated that a signiicant model related to mental health. Looking at table 2 again, it can be
emerged (F(5.164) = 5.13, p<.01). The contribution of the seen that supervisory support (β=.04), co-worker support
social support to the model was signiicant and the resulting (β=0.15) and Friend support (β=0.07) were not signiicant
coeficients are in the predicted direction. (β = -.16, p <.05), contributors to the model and hence were not signiicantly
that is mean support was a signiicant predictor of mental related to mental health (insigniicant predictors of mental
health. Stated differently, social support was signiicantly health). However, the control variables; age (β=0.17, p =
related to mental health when age, type of organisation and 0.05) and education (β=0.19, p <0.05) were statistically
education were controlled. signiicant for this model and were signiicant predictors of
The sub-scales of social support were examined by mental health.
regressing the composite mental health index on each of the
support subscales; co-worker support, supervisory support, Discussion
spousal and friend support, while controlling for education,
age and type of organisation. The results are shown in The results have shown that social support was
Table 2 below. negatively and signiicantly related to managerial women’s
mental health. Work-related social support was included in
Table 2: Hierarchical Multiple Regression Analysis of Mental the model as a particularly salient aspect of the Ghanaian
Health on Support Sub-scale, Stress and Control Variables managerial woman’s social environment. This is because, in
the course of performing her duties, the managerial woman
Changed interacts and works in interdependent teams. Jobs are carried
Variables R-squared P F
R-square
out within a framework of formal communication by those
Control Variable 0.08 0.08 3.90*
with whom she regularly interacts on the job, mutually
Age -0.19*
dependent co-workers. These individuals are in a situation
Type of organisation -0.09
to offer help that may divert the gravity of organizational
Education 0.20*
demands. The better the managerial woman’s informal
All Variables 0.20 0.12 4.02** relations with these individuals (as indexed, for example
Age -0.17* by social support), the more likely this is to be true. By
Type of organisation -0.07 this formulation one might expect co-worker support to
Education 0.19 be important in the improvement of mental health. But, as
Spousal support -0.23** found in this study, supervisory support, co-worker support,
Supervisory support 0.04 and friend support were not signiicantly related to mental
health. In other words, support from supervisor, co-workers
and friends were not signiicant predictors of mental health. work-related problems more than men did. These indings
Therefore the hypothesis that co-worker support will be seem to suggest that women are willing to articulate their
signiicantly related to mental health was not supported. The feelings about their problems.
results have shown that that although the women ind co- The results of this study are consistent with that of
worker support helpful, this support has nothing to do with Facione (1994) in which he studied role overload and
their mental health. As much as they ind it helpful, if a co- health among married mothers in the waged labour force. It
worker decides to prove dificult they can still move on with emerged from the indings that lack of spousal support had
their jobs unlike their immediate supervisors. Taken together a direct connection to diminished mental health. Consistent
with the results of other researchers, this inding bolsters the with the current indings is that of Beatty (1996) who also
arguments of numerous theorists that social support does found that a lower level of spousal support was associated
reduce the detrimental effects of strain. These results are with depression, but correlations for other outcomes were
consistent with numerous conceptualizations and indings insigniicant although in the expected direction. Thus,
of many researchers. As hypothesized by Cohen and Wills spousal support indeed played a role in depression levels
(1985), lack of support in the face of acute stress engenders of married women. As it has also been indicated by Rao et
negative psychological states such as anxiety, helplessness, al. (2003), spousal support provided women with a sense of
and depression. The original conceptualization of LaRocco security and stability at home and also reduced role conlict
et al. (1980) and House (1981) also viewed the buffering in working women. Some conclusions of research studies in
impact of social support as moderating the effect of work the 1990’s (e.g., Diener et al., 1999; Misra, 1998; McBride,
demands upon measured outcomes. This study found that 1990) indicate that role strain is decreased when husbands
though the women reported high levels of strain, meaning approve of and support their wife’s decisions, and mental
that Ghanaian managerial women operate in high strenuous health seems to be more affected by marital satisfaction
environments, they were under moderate rather than heavy than by job satisfaction. As it has been shown by Moos and
pressure psychologically. A woman’s tendency to use Schaefer (1993) as well as Cronkite and Rudolf (1984), and
problem-focused (social support) coping was shown to be also in this study, social support acted in an additive role
a signiicant predictor of health outcomes. Thus the women (as a suppressor) among managerial women in Ghana. This
who had social support exhibited higher mental well-being means that the women need more work-related support
than those who did not have support. systems, such as spousal support to buffer their overall
The results also showed that spousal support was mental well being.
signiicantly and negatively related to mental health.
This result indicates that spousal support appears to be Conclusion
especially important to married women. Two-thirds of
the women reported that they had the active support and Based on the discussion, it is concluded that spousal
encouragement to work from their spouses. Spousal support, encouragement and guidance are crucial in
support provides a sense of security and stability at home assisting women managers to get ahead in their careers.
and reduces role conlict in Ghanaian working managerial In the same vein, management should make a conscious
women. The women in the present study pointed out that effort to ensure that women managers receive the support
they enjoyed a well-integrated support network, especially and guidance they need from their superiors as well as co-
spousal support. By implication, the women believe that workers as reinforcement to the spousal support. The study
in the Ghanaian working environment, they enjoy a good provides a useful insight into the sources of social support
deal of social support because the environment is a kind and mental health, which has important implications for
of collectivistic society in which everyone is each others’ the well being of Ghanaian managerial women. Also, the
keeper. This kind of situation has helped them in coping concept of social support examined in prior researches in
quite well with their stress through sought support they relation to mental health has produced inconsistent results.
receive from friends. These results are consistent with The major contribution of the present study has provided
the indings of previous studies. For example, Lim (1996) added evidence that when support exists, it does improve
found that females were more likely to talk to others the quality of women’s mental health. Thus the indings
about their problems and sought social support when they have important implications for programmes intended to
experienced stress. Broadbridge (2000) also found that improve physical and psychological health of managerial
women tended to talk to their friends and family about women.
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subjective wellbeing in women with multiple roles. disease. Sci. Am. 226: 104-113.
J. Soc. Psychiat. 49(3): 175-184.
THREE CASE STUDIES ON BANK NAGARI PADANG

(INDONESIA) HEADQUARTERS AND MAIN BRANCH
Heryanto, (PhD)
Chief of RfD of the Chamber of Commerce and Industry;
Professor of Mangement Science in Indonesia.
Jalan Pemuda 21, Postbox 111, Padang 25117,
West Sumatra, Indonesia.
Email: dr_heryanto@yahoo.com
Case Study 1: Activity Analysis of Control for Micro Lending
Abstract
The purpose of this study was to determine whether control activities affect the provision of micro credit in Bank Nagari Pasar
Raya Branch Padang. The object of this research is to control activities on the implementation of the provision of credit at PT. Regional
Development Bank Pasar Raya Branch Padang, in particular regarding the use of documents, accounting records are used, the relevant
organizational units and procedures for granting credit. Data was collected through secondary data. Logistic Regression data analysis
technique was adopted for analysing. This study shows that the control activities (policies / procedures) has a signiicant inluence on
total micro-credit. Key words: Activity, Control, Micro Credit, Bank Nagari, Pasar Raya.
The extension of credit is one of the very many services NYEAR

No Type of Microcredit
that attract people and become a mainstay of a bank. Because 2005 2006 2007 2008 2009
it is not surprising if some say is the heart of business loans 3 KUMK Sup 005 - 1 1 - 1
bank. It is the people, whether individual or corporate 4 KUKI - - - 6 8
/ business groups are no doubt to borrow from banks, to 5 KPUM - - - - 1
meet all the necessities of life or accelerate the business. Total Customer 12 14 21 36 42
But sometimes reality does not match the expectations of

Source: Bank Nagari Padang Pasar Raya Branch Padang (processed
the bank itself. Many banks in general have dificulty with data)
the credit arrears, meaning that the money lent experience
congestion in the billing (Sutarno, 2003: 2). With the risk
assessment and control activities which are components of Bank Nagari Padang Raya Pasar Branch provides
the internal control of credit security which will occur will services to customers, one of these services is the provision
be useful to minimize the risk - credit risk so that banks can of credit in various facilities. Types of loans offered are
overcome bad credit. Personal Loans and Credit Commercial that in this study
the author focuses more on micro credit. With the aim to
Table 1 List Total Customer Bad Debt (Micro) On Bank agari empower people economically weak or small business
Pasar Raya Branch Padang Year 2005 - 2009 sector is to provide an affordable source of business
inancing. One of the inancing strategy for this group is a
NYEAR micro-enterprise credit (Sabirin, 2007: 125).
No Type of Microcredit
2005 2006 2007 2008 2009
1 KMK Multipurpose 7 8 6 10 11
2 KMK Multipurpose Longterm 5 5 14 20 21

2011 Heryanto 363
From table 1 above we can see that the Bank Nagari Type of Management Control
Padang Raya Pasar Branch has increased bad debts for the
last 5 years. This is evident from the data obtained in 2009 According to the COSO (the Committee of the
showed that the number of customers have bad credit as Sponsoring Organizations) reports, management control
many as 42 customers. The problem faced by the Bank is systems can be divided into 5 (ive) types:
What control activities affect the provision of micro credit 1. Prevention control
in Bank Nagari Raya Pasar Branch Padang? 2. Control detection
Referring to the problems mentioned above, then the 3. Control correction
goals will be achieved in this study is to determine whether 4. Control direction
control activities affect the provision of micro credit in 5. Control kompensatif
Bank Nagari Raya Pasar Branch Padang.
Based on the description above writer is interested Details of the above ive types of control can be
to analyze the extent of control activities can affect the explained as follows:
provision of credit, especially in micro-credit in Bank 1. Preventive controls
Nagari Raya Pasar Branch Padang. Prevention controls intended to prevent the occurrence
of a fault. Control is designed to prevent unwanted
Literature Review outcome before it happened. Control of prevention is
effective when the function or personnel carrying out its
Control Activities role. Examples of preventive controls include: honesty,
competent personnel, segregation of duties, reviews
Definition of Control Activities the regulatory and dual control. However, preventive
controls can not guarantee no errors or iniquity, and
According to Arens and Loebbecke (2000:295), Control other controls are still needed to complete it.
Activities are the "Policies and procedures other than the 2. Detective controls
four other components to help provide assurance that As the name implies detection controls are intended
the actions which must be completely implemented in to detect an error that has occurred. Reconciliation of
achieving the goals of the organization in question". bank balances on the books match the bank with the
According to the COSO (the Committee of the cash balance is the key organization book detection
Sponsoring Organizations) reports, control activities must control over cash balances. Control of detection is
involve the entire staff of the Bank, including Directors. usually more expensive than preventive controls,
Therefore, control activities will be effective if planned and but still needed on the grounds:
implemented in order to control the identiied risks. Control a. Control detection to measure the effectiveness of
activities include establishing policies and procedures for prevention. b. Some
control and veriication process early to ensure that policies mistakes can not be effectively controlled through a
and procedures are consistently adhered to, and is an system of preventive controls should be treated with
integral activity of any functions or activities of daily Bank. the control of detection when the error occurred.
As components of the control procedures in the internal 3. Corrective controls
control structure categories according to IAI is also an Corrective control the problems identiied by the
additional control procedures, control activities can be detection control. The goal is to make errors that have
anything, but usually associated with one of the ive general occurred do not happen again. Problems or errors can
categories as follows: be detected by its own management or by auditors. If
1. Proper authorization of transactions and activities. the problem or error is detected by the auditor, then the
2. The existence of adequate segregation of duties. correction is a form of control in the form of follow-up
3. The existence of adequate documentation and records. implementation of auditor recommendations.
4. The existence of adequate controls over access to and 4. Directive controls Directive
use of company assets and records. controls are carried out at the time of controlling the
5. The existence of checks on the performance conducted ongoing activity in order for the activities carried out in
independently. accordance with the policies or regulations. Examples
Heryanto - Case Study 1: Activity Analysis of Control for Micro Lending on Bank Nagari Pasar Raya Branch Padang
of this control is the supervisory activities undertaken 4. Micro-credit lending program amounted to little for the
directly by superiors to subordinates or supervision by poorest citizens to inance projects that he is working
the foreman of the workers' activity. on its own to generate income, allowing them to care
5. Compensating controls for themselves and their families (Microcredit Summit
Conpensating controls intended to strengthen controls 1997)
for neglect of a control activity. Direct supervision
of business owners against their employees activities Procedure
on small businesses because of lack of separation of
functions is an example of kompensatif control. Understanding Procedures
Understanding Micro Business Loan Deinition of procedure according to Mulyadi (2001:

5) that "A sequence of clerical activity, usually involving
According to the deinition used in the Microcredit several people in one department or more, are made to
Summit (1997) in Wijono (2005), Micro Credit is a "small ensure uniform handling corporate transactions that occur
amount lending program to the poor to inance productive repeatedly."
activities which he did himself in order to generate income,
allowing them to care for themselves and their families. " Related Functions
Grameen Banking (2003) deines micro-credit as the
"Development of small amounts of loans to entrepreneurs In the procedures for granting credit for not centered
who are too weak to qualify for access to loans from only one part only, then formed several functions. These
traditional banks. functions will coordinate with each other to achieve the
In granting loans to micro businesses conducted in stages. goals set by the bank. The related functions include:
Starting from the stage of rescue (emergency), recovery 1. Secretariat functions, this function is responsible for the
(recovery), and development (development). However, in acceptance of credit application and mail notiication.
its development and then adapted to ield conditions and 2. Billing functions, this function is responsible for
in order to meet the demand for developed members of collection of accounts receivable directly to the debtor
the fourth stage, named entrepreneur (entrepreneurial). based on a list that will be billed receivables.
Customers can not directly get a loan at this stage of the 3. Cash function, this function is responsible for receiving
entrepreneur, but must go through the rescue, recovery, and spending money.
development, can the new entrepreneur. And that's to be 4. Accounting Function, this function is responsible
seen installment notes and business development. for cash receipts and disbursements, and organizing
inancial reports.
Micro Business Lending Criteria 5. Internal Audit function, this function is responsible
for checking the accuracy of cash records held by the
Micro business loans are loans granted to businesses, accounting function.
where business has criteria for small businesses. Criteria
for micro-enterprises and micro credit are: Documents Used
1. Productive micro-enterprises are family-owned
business or individual Indonesian citizen, the sale of at Documents are the forms used to record the transactions.
most Rp. 300,000,000.00 per year. Documents used in the lending system (Mulyadi, 2001: 3)
2. Micro-enterprise is a business that has a net worth of at among others
most Rp. 50,000,000.00 not including land and building 1. Credit application form
and has annual sales revenue of Rp. 300,000,000.00 This form contains the writing ability of the borrower
(Law No.20 of Chapter IV of Article 6 of the micro, and the signature of the board (Kasubsi Credit) as proof
small, and medium) of delivery that the loan application in accordance with
3. Microcredit is lending under the USD. 50,000,000.00 demand and working conditions.
(Deinition of Bank Indonesia)

2011 Heryanto 365
2. Receipt can do it by gathering information from other bank

Made in triplicate receipt by the treasurer as proof of reference. Capital (capital), it is a concern in terms
savings and loans have to spend money. of this capital is about the large and capital structure,
3. Evidence of cash including the performance results from the capital itself
Created as a proof of cash from the bank after the loan from the company if the debtor is a company, and in
disbursement. terms of revenue if the debtor is an individual.
4. Evidence of cash receipts 2. Capacity (ability), attention is given to the debtor that is
As proof of cash receipts from debtors when pay credit concerning leadership abilities and performance within
installments. the company.
5. Credit card 3. Collateral (collateral), namely the ability of borrowers
Credit card was made to record the loan installment to provide collateral which is good and has value both
every month. legally and economically.
4. Conditions of economy (economic conditions), ie
Accounting records Used the condition that is rapidly changing, now that his
concern include government policy, political, social,
Accounting records are all records relating to all cultural and other aspects that can affect the economic
accounting transactions that occur, such as journals, condition itself.
ledgers, ledger and inancial statements. The accounting 5. Personality or the personality of the debtor is a
records used in credit delivery system, among others: subjective aspects, but an important one in determining
1. Public Journal the provision of credit, and thus need to be collected the
Accounting records were used to record the reduction data on the prospective borrowers.
in accounts receivable from the elimination of 6. Purpose or objectives, which became the spotlight of
transactions that are no longer collectible. this aspect that is concerning the intended use of the
2. Cash Expenditure Journal loan whether to use the activities that are consumptive
Used to record the granting of loans and transactions, or productive or used for activities that are or contain
cash disbursements. speculative elements.
3. Cash Receipts Journal 7. Prospect or future inancing of the activities that get the
Cash receipts journal is used to record cash receipts credit, while the elements that can be an assessment of
from the return credit. the prospects are among the areas of business, business
4. Card receivables management, government policies and so forth.
To record the receivable balances to each debtor. 8. Payment or method of payment, it is a concern for the
example on the smooth low of funds (cash low). Return
Meanwhile, according Djumhana (2000: 394), a or reversal means that outcomes will be achieved from
reference in the framework of analysis and research in the activities that get the inancing.
getting the conidence that the debtor has a bankable 9. Repayment or refund calculation of activities that get
classiication, including 5C, 4P and 3R. inancing or credit.
1. Character (the properties of the prospective borrower 10. Risk Bearing Ability of the calculation of the ability of
such as honesty, behavior danketaatannya), in order to the debtor in the face of unexpected risk.
obtain the data on the character of the debtor, the bank
Figure 1: Implementation Procedures Lending Procedures that form the network lending system,
among others:
1. Credit application procedures:
Start
a. Applicant to contact the bank executive.
b. Applicants ill out a credit application.
2. Application veriication procedures:
1 a. Credit application is inserted into the credits for
veriication.
b. Investigated by oficers of credit analysis.
2 c. Head of Credit Department approval.
3. Rejection notiication procedures: a. Credit
analysis oficer considers that the loan application is
considered not feasible. b. Oficers went
to the credit applicant to notify the reason for rejection
3 of credit.
4. The procedures for processing approval
4 a. Part administrative type of credit slips.
b. Requested veriication of the credit administration
5 staff.
c. Requested authorization of directors and the Head.
Finish Marketing.
d. Customers hand over the terms of the completeness of
6 credit.
e. Customer signed a loan agreement and supporting
documents.
7 5. Credit disbursement procedures
a. The terms of credit completeness investigated truth
by the administration.
b. The administration submitted the necessary
Finish documents to the cashier.
c. Part cashier create and issue money receipt.
d. Customer signed a loan receipt, accept the money and
Note: The average time used is 21 working days Source: Faried Wijaya
(1996: 288) documents submitted.
Description: Review of Recent Research

These steps can be identiied by crediting see picture
below lending procedures. From the results of previous research conducted by
1. Contact the credit Applicants express intent Executing Shahputra on the analysis of the internal control structure
Bank orally. of the credit delivery system and return to the West Bank.
2. Examine the application executing bank credit. When analyzing the existing internal control structure
3. What is the executing bank's decision: in West Bank, more discussion centered on the control
3.1 Rejecting the loan application environment and control activities undertaken by the Bank
3.2 Process credit applications of West Kalimantan, especially in terms of granting and
4. Executing bank sends a rejection. repayment of credit. From the analysis, the study revealed
5. Bank executive to discuss the loan application from the basically the West Bank has been implementing sound
applicant. internal control structure in accordance with the guidelines
6. Executing bank approved the loan application. COSO (the Committee of the Sponsoring Organizations),
7. Implementing the bank's decision notiied to the only difference may lie in the ield. In this case seen some
customer. strengths and weaknesses of internal control processes that
2011 Heryanto 367
have been conducted by the West Bank, both in terms of the Regional Development Bank Pasar Raya Padang Branch,
control environment and control activities. in particular concerning:
1. Documents used
Relationship control activities with the 2. The accounting records used.
provision of micro credit 3. Unit-related organizations
4. Lending procedures
Control activity is the establishment of policies and
procedures In addition to four other components of the Measurement Variables
dimadsudkan to help provide assurance that the actions
which must be completely implemented in achieving the The variable is the object of research or something that
goals of the organization in question (Arens and Loebbecke, becomes a focal point of research (Arikunto, 2002: 96).
2000: 295). Variables are divided into two independent variables and
Lending (credit) is one of very many services that attract dependent variable. Veriabel free (x) are the variables that
people and become a mainstay of a bank.Karena it is no inluence and the dependent variable (y) is a variable that
wonder if some say business credit is the heart of this bank. is affected. The variable in this study are: Activity Control
Saat society, both individuals and corporate / business (Y1)
groups are no doubt to borrow from banks, to meet all the Control activities are policies and procedures other
necessities of life or accelerate the business. Provision of than the four other components that dimadsudkan to help
micro credit loans are loans granted to businesses that are provide assurance that the actions which must be completely
categorized middle class who meet the criteria. In lending implemented in achieving the goals of the organization
these types of loans also establish procedures and policies concerned (Arens and Loebbecke, 2000: 295). Control
set by the bank concerned. activities are dependent variables where measurement
One component of the system of internal control is a is measured by indicators of policy / procedures for the
control activity that contains the policies and procedures to provision of micro credit.
provide reasonable assurance that corporate objectives will To measure how important the inluence of variable
be achieved. Control activities aim to ind the mistakes, but control activities in the provision of micro credit, so the
more aimed at the prevention and reduction of risk of error writer took the data from changes in policies / procedures
in order to improve the effectiveness of the company / bank, established by the bank in the last 5 years ie from 2005 to
especially in the provision of credit. So that can reduce the 2009 by the Bank Nagari Padang Raya Pasar Branch.
risks that arise if there are arrears of credit or bad credit
opportunities, the control activity has positive inluence on Micro Business Lending (X1)
provision of micro credit.
Ha 1: Control activities have positive inluence on the Provision of micro credit loans are loans given to
provision of micro credit. entrepreneurs who are categorized middle class who meet
the criteria. In lending these types of loans also establish
Method procedures and policies set by the bank concerned.
The system of credit by the banking world in general
Research Sites inter-bank that one with the other banks are not much
different. The difference may only be located from the
The author conducted research at PT. Regional enactment of procedures and requirements with their
Development Bank Pasar Raya Padang Branch, located at respective considerations. Lending procedures in general
2nd Floor Market Plaza Koppas Raya Padang. can be distinguished between personal loans with a loan by
a legal entity. While in the provision of micro credit in Bank
Object of Study Nagari Padang Raya Pasar Branch intended as development
loans to entrepreneurs in small quantities that are too weak
Study object is the object that be a focus of research. The qualiications to be able to access the loans from traditional
authors focus the object of research on control activities banks. Provision of micro credit is an independent variable
on the implementation of the provision of credit at PT. in which the measurement is taken from the total data
provided in micro-credit banks in the last 5 years and the 1. The presence or absence of changes in policies /
data bank’s asset quality in the last 5 years ie from 2005 procedures established by the bank for each type of
until 2009 at Bank Nagari Padang Raya Pasar Branch. micro credit in the last 5 years.
2. What is the total disbursed microcredit bank for each
Data Collection type of credit in the last 5 years.
3. Data quality earning assets ratio (KAP) of banks in the
Data used in this research is secondary data is the data last 5 years.
obtained from the object of research. The data obtained
from the documents concerning the micro-credit delivery The data above is that it can be viewed in the following
system. table:
Data Analysis Techniques Tabel 2 Data Perubahan Kebijakan/Prosedur dalam Pemberian

Kredit Usaha Mikro Bank Nagari Cabang Pasar Raya Padang
The data analysis technique that is used as follows: Dari Tahun 2005 -2009
Descriptive Analysis Jenis Kredit Usaha TAHUN

No
Mikro 2005 2006 2007 2008 2009
This analysis is a description or explanation by making 1 KMK Multiguna 1 0 1 1 1
the tables, organize and analyze data. Descriptive statistics 2 KUMK Sup 005 1 0 1 1 1
to explain or describe the various characteristics of the 3 KUKI 1 1 1 1 0
data. This method is used to assess the variables that exist 4 KPUM 0 0 0 1 1
in this study may thus be known level of effectiveness of

Sumber : Bank Nagari Cabang Pasar Raya Padang
control activities in the provision of micro credit for the
variable measuring credit control activities. In order to ind
the best model to be used in the study, the authors tested the From table 2 above explained that there are 4 types of
hypothesis by Binary Logistic Regression. micro-credit disbursed by banks, namely:
1. KUMK Multifunction (Micro Business Loans
Data Analysis Techniques Commercial Multipurpose)
2. KUMK Sup 005 (Micro Small Credit and Small Sup
Binary Logistic Regression 005)
If pi declare an individual an opportunity to-i has a 3. KUKI (Informal Small Business Credit)
value of Y = 1, then the logistic regression model with k 4. KPUM (Micro Care Credit)
independent variables can be written as: Inside there are tables of probability value of each type
of credit in 2005 until 2009, where 0 means no change in
logit ( pi ) = β o + β1X1 + β 2 X 2 + ... + +β k X k

(1) policy / procedure, while 1 means there are changes in
policies / procedures.
Logistic regression model is a linear model of logit (p)

with explanatory variables X. Just as in linear regression,
we can get the values of intercept and slope of the model.
Analysis & Discussion
Descriptive Analysis
Data used in this study is micro credit data within the

last 5 years ie from 2005 to 2009 on each type of micro-
credit, which is described in the data about:

2011 Heryanto 369
Tabel 3 Data Total Kredit Usaha Mikro Yang Disalurkan Pada Bank Nagari Cabang Pasar Raya Padang dari Tahun 2005 – 2009
(dalam ribuan rupiah)
Jenis Kredit Tahun

No
Usaha Mikro 2005 % 2006 % 2007 % 2008 % 2009 %
1 KMK Multiguna 354,000 58.51 385,000 47.24 392,501 36.72 422,000 29.35 525,250 44.62
2 KUMK Sup 005 251,000 41.49 276,000 33.87 179,000 16.74 250,000 17.39 190,000 16.14
3 KUKI 0 0 153,988 18.89 497,504 46.54 765,984 53.27 452,000 38.39
4 KPUM 0 0 0 0 0 0 0 0 10,000 0.85
Total 605,000 11.85 814,988 15.97 1,069,005 20.94 1,437,984 28.17 1,177,250 23.06
Sumber : Bank Nagari Cabang Pasar Raya Padang
Furthermore, table 3 in explain that the total micro-credit conducted on the provision of micro credit in Bank Nagari
on each credit type from 2005 to 2008 as a whole continued Pasar Raya Branch in the last 5 years.
to increase in the distribution of credit, except in 2009 which
decreased by Rp.. 260 734 000, - while the percentage Descriptive Statistics
increase that is in 2005 with a total microcredit Rp. 605
000 000, - at 11.85%, in 2006 with a total microcredit Rp. Descriptive statistics provide information about the data
814 988 000, - amounting to 15.97%, in 2007 with a total being processed is the number of samples, the minimum
microcredit Rp. 1,069,005,000, - at 20.94%, in 2008 with value, maximum value, mean value and standard deviation
a total microcredit Rp. 1,437,984,000, - at 28.17%, in 2009 where the standard deviation is a deviation from the
with a total microcredit Rp. 1,177,250,000, - at 23.06%. independent variable. Descriptive statistical results are
Means it can be said that the provision of microcredit in presented in Table 5 below:
the last 5 years at Bank Nagari Pasar Raya Branch Padang
is good. Tabel 5 Hasil uji Statistik Deskriptif Descriptive Statistics
Tabel 4 Data Kualitas Aktiva Produktif (KAP) Kredit Usaha N Minimum Maximum Mean Std. Deviation
Mikro Bank Nagari Pasar Raya Padang dari Tahun 2005 – TKM 5 .1185 .2817 .199980 .0631782
2009 KAP 5 .0236 .0353 .028340 .0048840

KP 5 .00 1.00 .8000 .44721
No Tahun Rasio KAP TKM 5 .1185 .2817 .199980 .631782
1 2005 2,36 % KAP 5 .0236 .0353 .028340 .0048840
2 2006 2,37 % KP 5 .00 1.00 .8000 .44721
3 2007 2,97 % Valid N

5
(listwise)
4 2008 3,53 %
5 2009 2,94 %
Descriptive statistical test results for 5 samples in the
form of measurement is the average value of total micro-
From table 4 can be seen that the ratio of bank accounting credit (TKM) = 0.199980 with a standard deviation =
irm from 2005 until 2008 continued to increase this, except 0.0631782 lowest value of total micro-credit to 5 samples
in the year 2009. Because the bank's rating as stipulated by = 0.1185 and credit scores micro for 5 samples = 0.2817.
Bank Indonesia if the ratio of asset quality (KAP) is smaller This means the value of microcredit to total micro-credit
than a health assessment criteria for banks that is equal to per year on average for the sample of 5 years amounted to
10.35%, banks are categorized in the healthy group. So to 0.199980 with a homogeneous size distribution (below the
say the Bank Nagari Pasar Raya Branch in the last 5 years average value) that is equal to 0.0631782 of 5 years that
is healthy. happened.
Thus, the data is processed above will produce how much The average value of the test results of descriptive
inluence the level of effectiveness of control activities statistics for the variable quality of productive assets ratio
(KAP) amounted to 0.028340, the standard deviation of The test results Binary Logistic Regression on SPSS
0.0048840 with the lowest score is 0.0236 and the highest output results can be seen from the table below:
value = 0.0353. This means earning assets to total earning 1. Binary Logistic Regression Model
assets by an average of 0.028340 with a homogeneous
size distribution (below the average value) that is equal to Variables in the Equation
0.0048840 of 5 years that happened.
The average value of the test results of descriptive B S.E. Wald df Sig. Exp(B)
statistics for the probability variable policies / procedures Step 1a TKM 4.825 2.115 5.204 1 .036 7.591
amounted to 0.8000, with standard deviation of 0.44721, Constant -1.546 .819 3.563 1 .042 .143
the lowest score is 0.00 and the highest score is 1.00.

a. Variable(s) entered on step 1: TKM
This means an average probability of 0.8000, with a
homogeneous size distribution (below the average value)
that is equal to 0.44721 from 5 years to happen. Results of testing the binary logistic regression model
with dependent variable control activities in the form of
Partial Correlation Test Analysis policies / procedures (Y) obtained the following equation:
In the hypothesis stated that there are signiicant control Y = In( 1π-π ) = β 0 + β1X1
activities on micro lending means for each independent
variable is the total micro-credit and asset quality (KAP) Where :
is inluenced by control activities in the form of policies /
Y = bound binary variable (Y = 1 and Y = 0) which indicates the variable
procedures in the provision of micro credit itself. For that control activities (policies / procedures) were coded 1 = no change
variable correlation table above will be explained by the and 0 = no change
following: In( 1π-π ) = Log odds
Control Variables TKM KAP

β 0 + β1 = regression coeicient logit model
KP TKM Correlation 1.000 .977 X1 = independent variable
Signiicance (2-tailed) . .023

df 0 2 β0 = – 1,546
KAP Correlation .977 1.000
β1 = 4,825
Signiicance (2-tailed) .023 .
df 2 0 X1 = total micro-credit
Based on the above analysis of the correlation table can Jadi:

be valued at 0.977 signiicant variable is the total micro-
lending micro-credit and asset quality (KAP) has a positive Y = In( 1π-π ) = – 1,546
relation to control activities (policies / procedures). This Or
means that in the presence of control activities (policies / Y = ( 1π-π ) = 4,825
procedures), the greater the total micro-credit banks, which
are distributed and also the quality of productive assets
(KAP), the bank will get better, so vice versa. While the 1. Accuracy Test Binary Logistic Regression Model
result of a signiicant level of correlation coeficient of
0.023 <0.05 sig which means the total micro-credit and Chi-square df Sig.
asset quality (KAP) has a signiicant relationship to the Step 1 Step 4.786 1 .041
activities of bank control. Block 4.786 1 .041

Model 4.786 1 .041
Binary Logistic Regression Analysis of Test

Probability Influence Policy / Procedure to Step
-2 Log Cox & Snell R Nagelkerke R
likelihood Square Square
Total Micro Credit
1 4.325a .527 .801

2011 Heryanto 371
=( )2 = (4,825/2,115)2 = 5,204., − value = 0,036 lebih kecil dari α = 0,05,

Step Chi-square df Sig. B
SE
1 3.711 3 .029
maka koeisien regresi untuk variabel total kredit

From the above data can be output omnibus test states mikro signiikan.
that the results of chi-square goodness of it is 0.041, which
means less than 0.05 indicates that Ho is rejected which b. untuk constant :
means if a signiicant difference between control activities
=( )2 = (-1,546/0,819) = 3,563. P - value = 0,042 lebih kecil dari α = 0,05,
B
(policies / procedures) to total micro-credit disbursed by
SE
banks.
The result of Cox and Snell R Square is the size of
R2 in multiple regression based on likelihood estimation maka koeisien regresi untuk variabel constant
techniques with a maximum value of less than 1 so it is signiikan.
dificult to interpret. Nagelkerke R Square is a modiication
of the Cox and Snell coeficient to ensure that its value Jadi, dari penjelasan hasil pengolahan data di atas dapat
varies from 0 (zero) to one (one). This is done by dividing disimpulkan bahwa variabel dependent yaitu kegiatan
the value of Cox Snell R square with its maximum value. pengendalian (kebijakan/prosedur) mempunyai pengaruh
Nagelkerke R2 value can be interpreted as the value of yang signiikan terhadap variabel independent (total kredit
R2 in multiple regression. Viewed from SPSS output with mikro).
a value of Cox Snell R Square of 0.527 and Nagelkerke In binary logistic regression, t test was replaced with a
R2 value is 0.801, which means the variability of control Wald test. Signiiknasi Wald reported in the SPSS printout.
activities (policies / procedures) in the provision of credit In the results above Wald value for the variable X (the total
that can be explained by the variability of total micro-credit micro-credit) = 5.204 to 0.036 or 3.6% signiiknasi. This
amounting to 80.1% and the remaining 19.9% inluenced means the possibility of receiving 3.6% Ho and accept Ha
by other variables outside the research model. likelihood of 96.4%. It could also be said the effect of X on
While the results of the Hosmer and Lemeshow Y logistics variables signiicant at α = 5%.
Goodness-of-Fit Test is a signiicance of 0.029 which a. coeficient for variable X (the total micro-credit):
indicates that 0,029 <0.05 sig so that Ho is rejected which = 2 = (4.825 / 2.115) 2 = 5.204. P-value = 0.036 is
means a signiicant difference between control activities smaller than α = 0.05, regression coeficient for the variable
(policies / procedures) to the total micro-credit disbursed total microcredit signiicant.
by banks . b. for constants:
= 2 = (-1.546 / 0.819) = 3.563. P-value = 0.042 is smaller
2. Binary Logistic Coeficient Test than α = 0.05, then the regression coeficients for signiicant
variables constant.
Variables in the Equation Thus, the explanation of data processing results can be
concluded that the dependent variable ie control activities
B S.E. Wald df Sig. Exp(B) (policies / procedures) had a signiicant inluence on the
a
Step 1 TKM 4.825 2.115 5.204 1 .036 7.591
independent variables (total micro credit).
Constant -1.546 .819 3.563 1 .042 .143
Pengaruh Probability Kebijaksanaan/

Dalam regresi logistik biner, uji t digantikan dengan Prosedur Terhadap Kualitas Aktiva Produktif
uji Wald. Signiiknasi Wald dilaporkan dalam print out (KAP)
SPSS. Pada hasil di atas nilai Wald untuk variabel X (total
kredit mikro) = 5,204 dengan signiiknasi 0,036 atau 3,6 Hasil pengujian Regresi Logistik Biner pada hasil output
%. Ini berarti kemungkinan menerima Ho sebesar 3,6 SPSS dapat dilihat dari table berikut ini :
% dan kemungkinan menerima Ha sebesar 96,4 %. Bisa 1. Model Regresi Logistik Biner
juga dikatakan pengaruh X terhadap variabel logistik Y
signiikan pada α = 5 %. Effect of Probability Policies / Procedures on the Quality
a. untuk koeisien variabel X (total kredit mikro): of Productive Assets (KAP)
The test results Binary Logistic Regression on SPSS Where:

output results can be seen from the table below:
Y = bound binary variable (Y = 1 and Y = 0) which indicates the
1. Binary Logistic Regression Model variable control activities (policies / procedures) were coded 1 =
no change and 0 = no change
Variables in the Equation In = Log odds
= independent variable
β0 + β1
B S.E. Wald df Sig. Exp(B) X1, X2,....Xk
Step 1a KAP 9.385 4.112 5.210 1 .042 6.266 = regression coeicient logit model.
Constant -43.750 21.586 4.107 1 .048 .583

β0 = - 43.750
a. Variable(s) entered on step 1: KAP
β1 = 9.385
Hasil pengujian model regresi binary logistic dengan X1 = KAP (asset quality)
variable dependen kegiatan pengendalian berupa kebijakan/
prosedur (Y) diperoleh persamaan sebagai berikut:
Y = In( 1π-π ) = β 0 + β1X1

So:
Y = In = −43.750 + 9.385KAP
Dimana: Or
Y = variable terikat biner (Y = 1 dan Y = 0) yang menunjukkan Y == exp(−43.750 + 9.385KAP)

variabel kegiatan pengendalian (kebijakan/prosedur) diberi kode
1 = ada perubahan dan 0 = tidak ada perubahan
In( 1π-π ) = Log odds 2. Uji Ketepatan Model Regresi Logistik Biner
X1 , X 2, X 3 ....X k = variabel bebas
Accuracy Test Binary Logistic Regression Model
β 0 + β1 = parameter koeisien regresi model logit. Chi-square df Sig.

Step 1 Step 7.121 1 .015
β0 = – 43,750
Block 7.121 1 .015
β1 = 9,385 Model 7.121 1 .015
X1 = KAP (kualitas aktiva produktif )
Cox & Snell R Nagelkerke R

Step -2 Log likelihood
Square Square
Jadi:
1 2.883a .680 .897
Y = In( 1-ππ ) = −43,750 + 9,385 KAP
Step Chi-square df Sig.

Atau
Y = ( 1-ππ ) = exp(−43,750 + 9,385KAP)

1 4.103 3 .045
Results of testing the binary logistic regression model Dari data diatas dapat dilihat output omnibus test
with dependent variable control activities in the form of menyatakan bahwa hasil uji chi-square goodness of it yaitu
policies / procedures (Y) obtained the following equation: 0,015 yang berarti lebih kecil dari 0,05 ini mengindikasikan
Y = In = β0 + β1X1
bahwa Ho ditolak yang diartikan jika terdapat pengaruh
yang signiikan antara kegiatan pengendalian (kebijakan/
prosedur) terhadap kualitas aktiva produktif (KAP) bank.
Hasil Cox and Snell R Square merupakan ukuran R2 pada
multiple Regression yang didasarkan pada tehnik estimasi
Likehood dengan nilai maksimum kurang dari 1 (satu)
2011 Heryanto 373
sehingga sulit diinterpretasikan. Nagelkerke R Square Variables in the Equation

merupakan modiikasi dari koeisien cox and Snell untuk
memastikan bahwa nilainya bervariasi dari 0 (nol) sampai B S.E. Wald df Sig. Exp(B)
Step 1a KAP 9.385 4.112 5.210 1 .042 6.266
dengan satu (satu). Hal ini dilakukan dengan cara membagi
Constant -43.750 21.586 4.107 1 .048 .583
nilai Cox Snell R square dengan nilai maksimumnya. Nilai
Nagelkerke R2 dapat diinterpretasikan seperti nilai R2 pada
a. Variable(s) entered on step 1: KAP.
multiple Regression. Dilihat dari Output SPSS dengan nilai
Cox Snell R Square sebesar 0,680 dan nilai Nagelkerke R2
adalah 0,897 yang berarti variabilitas kegiatan pengendalian Dalam regresi logistik biner, uji t digantikan dengan
(kebijakan/prosedur) dalam pemberian kredit yang dapat uji Wald. Signiiknasi Wald dilaporkan dalam print out
dijelaskan oleh variabilitas kualitas aktiva produktif (KAP) SPSS. Pada hasil di atas nilai Wald untuk variabel X (KAP)
sebesar 89,7 %. dan sisanya 10,3% dipengaruhi oleh = 5,210 dengan signiiknasi 0,042 atau 4,2 %. Ini berarti
variabel lainnya diluar model penelitian. kemungkinan menerima Ho sebesar 4,2 % dan kemungkinan
Sedangkan hasil dari Hosmer and Lemeshow menerima Ha sebesar 95,8 %. Bisa juga dikatakan pengaruh
Goodness-of-Fit Test adalah signiikannya sebesar 0,045 X terhadap variabel logistik Y signiikan pada α = 5 %.
yang mengindikasikan bahwa 0,045 < sig 0,05 sehingga a. untuk koeisien variabel X (total kredit mikro) :
Ho ditolak yang diartikan jika terdapat pengaruh yang
=( )2 = (9,385/4,112)2 = 5,204. P - value = 0,042 lebih kecil dari α = 0,05,
B
signiikan antara kegiatan pengendalian (kebijakan/ SE
prosedur) terhadap kualitas aktiva produktif (KAP) bank.
From the above data can be output omnibus test states maka koeisien regresi untuk variabel KAP signiikan.
that the results of chi-square goodness of it is 0.015, which
means less than 0.05 indicates that Ho is rejected which b. untuk constant :
means if a signiicant difference between control activities
=( )2 = (-43,750/21,586) = 4,107. P - value = 0,048 lebih kecil dari α = 0,05,
B
(policies / procedures) to quality productive assets (KAP) SE
bank.
The result of Cox and Snell R Square is the size of
R2 in multiple regression based on likelihood estimation maka koeisien regresi untuk variabel constant
techniques with a maximum value of less than 1 (one) signiikan.
so it is dificult to interpret. Nagelkerke R Square is a
modiication of the Cox and Snell coeficient to ensure Jadi, dari penjelasan hasil pengolahan data di atas dapat
that its value varies from 0 (zero) to one (one). This is disimpulkan bahwa variabel dependent yaitu kegiatan
done by dividing the value of Cox Snell R square with its pengendalian (kebijakan/prosedur) mempunyai pengaruh
maximum value. Nagelkerke R2 value can be interpreted as yang signiikan terhadap variabel independent (KAP).
the value of R2 in multiple regression. Viewed from SPSS
output with a value of Cox Snell R Square of 0.680 and In binary logistic regression, t test was replaced with a
Nagelkerke R2 value is 0.897, which means the variability Wald test. Signiiknasi Wald reported in the SPSS printout.
of control activities (policies / procedures) in the provision In the results above Wald value for the variable X (KAP)
of credit that can be explained by variability in the quality = 5.210 to 0.042 or 4.2% signiiknasi. This means the
of productive assets (KAP) of 89.7%. and the rest 10,3% possibility of receiving 4.2% Ho and accept Ha likelihood
inluenced by other variables outside the research model. of 95.8%. It could also be said the effect of X on Y logistics
While the results of the Hosmer and Lemeshow variables signiicant at α = 5%.
Goodness-of-Fit Test is a signiicance of 0.045 which a. coeficient for variable X (the total micro-credit): =
indicates that 0.045 <0.05 sig so that Ho is rejected which 2 = (9.385 / 4.112) 2 = 5.204. P-value = 0.042 is smaller
means if a signiicant difference between control activities than α = 0.05, regression coeficient for KAP variables
(policies / procedures) on the quality of productive assets signiicant.
(KAP) bank. b. for constants:
= 2 = (-43.750 / 21.586) = 4.107. P-value = 0.048 is
3. Uji Koeisien Logistik Biner Binary Logistic smaller than α = 0.05, then the regression coeficients
Coeficient Test for signiicant variables constant.
Thus, the explanation of data processing results can be the quality of productive assets (KAP) in Bank Nagari
concluded that the dependent variable ie control activities Padang Raya Pasar Branch.
(policies / procedures) had a signiicant inluence on
independent variables (KAP). Suggestion
Conclusions & Suggestions In the banking activities of credit is one important activity
for the bank and make a signiicant contribution, especially
Conclusion in micro, then based on discussions and observations of the
author in Bank Nagari Padang Raya Pasar Branch there are
Based on the research and discussion on this research, it a few suggestions to be conveyed, among others:
can be concluded as follows: 1. In this research shows that the presence of control
1. The existence of control activities conducted in activities that have a signiicant effect on the total
the form of changes in policies / procedures in the provision of microcredit and quality of productive
provision of micro credit have a signiicant effect on assets (KAP), Bank Nagari should further enhance
total micro credit which the Bank Nagari Padang Raya control activities in micro-lending bank's inancial
Pasar Branch. Where the contribution of variability in performance for the better.
control activities (policies / procedures) in the provision 2. Improving control activities such as the precautionary
of credit that can be explained by the variability of total (prudential banking) in micro-lending procedures
micro-credit amounting to 80.1% and the remaining because it is very important in the assessment of
19.9% are inluenced by other variables outside appropriate creditor to give credit to bad credit can be
the research model. Meanwhile, if viewed from a overcome by the bank.
signiicant level of coeficients in the test via t test or 3. Conducting traning (training) speciically to bank
Wald test also called for the variable X (the total micro- employees involved in micro credit delivery system of
credit) = 5.204 with signiiknasi 0.036 or 3.6%, which how to control activities that can run effectively is to
means the possibility of receiving 3.6% Ho and accept increase understanding and skills of bank employees so
Ha possibility amounted to 96.4%. It could also be said that later will automatically improve the performance
the effect of X on Y logistics variables signiicant at α = of the employees themselves.
5%, where Ho is denied the means to control activities 4. Intense competition in the world of business including
(policies / procedures) signiicantly inluence the total banking, then you should Bank Nagari innovations on
micro credit in Bank Nagari Padang Raya Pasar Branch. the type of micro credit which will actually help people
2. The existence of control activities conducted in the so that middle to lower economic growth, the better.
form of changes in policies / procedures in the provision 5. For other researchers who want to conduct similar
of micro credit have a signiicant effect on the quality research using a broader population so the results will
of productive assets (KAP) which is in Bank Nagari be dipertangungjawabkan.
Padang Raya Pasar Branch. Where the contribution of
variability in control activities (policies / procedures) References
in the provision of credit that can be explained by the
variability of KAP of 89.7% and the remaining 10.3% Anonim. 2003. Grameen Banking for the Poor:
are inluenced by other variables outside the research Microcredit. Dalam http://www.grameeninfo. org/
model. Meanwhile, if viewed from a signiicant level of mcredit/index.html
coeficients in the test via t test or Wald test also called Anonim. 2008. “Undang-Undang Republik Indonesia
for the variable X (KAP) = 5.210 with signiiknasi 0.042 No. 20 Tentang Usaha Mikro, Kecil, dan
or 4.2%, which means the possibility of receiving 4.2% Menengah”. Dalam http://www.umkm-ekon.org
Ho and accept Ha possibility of 95 , 8%. It could also be Anonim. 2009 . “Bono and Bobby Shriever Launch
said the effect of X on Y logistics variables signiicant (RED) TM in the U.S “. Dalam http://www.
at α = 5%, where Ho is denied the means to control cosmoworld.com/product red.htm Pada 13 Juli
activities (policies / procedures) signiicantly inluence 2009

2011 Heryanto 375
Anonim. 2009. “Grameen Bank at A Glance”. Dalam Mulyadi. 2001. Sistem Akuntansi. Universitas Gajah
http://www.grameen-info.org Pada 13 Juli 2009 Mada. Yogyakarta : Salemba Empat
Arikunto, Suharsimi (2002), Prosedur Penelitian: Produk Kredit, 2006, PT. Bank Pembangunan Daerah
Suatu Pendekatan Praktek, Jakarta: Rineka Cipta Cabang Pasar Raya Padang
Badan Pengkajian Ekonomi, Keuangan Dan Kerjasama Prosedur Pemberian Kredit, 2006, PT. Bank
Internasional. Departemen Keuangan Pembangunan Daerah Cabang Pasar Raya Padang
Bank Indonesia, Data Statistik dan Indikator Moneter Republik Indonesia.1998.Undang-undang No.10
Indonesia, Berbagai edisi, BI, Jakarta tahun 1998 Tentang Perubahan Undang-undang
Bank Indonesia. 2006. Statistik Ekonomi - Keuangan No.7 Tahun 1992 Tentang Perubahan Perbankan.
Daerah Sumatera Barat. Januari 2006 Jakarta
Buku Pedoman Pengelolaan Kredit Mikro. Bank Rivai Veithzal dan Veithzal Permata Andria. 2006.
Nagari Cabang Pasar Raya , 2006 Credit Management Handbook. Bandung
Djumhana, Muhamad. 2000. Hukum Perbankan di Sabirin, S. 2001. Pemanfaatan Kredit Mikro untuk
Indonesia. Bandung : PT. Citra Aditya Bakti Mendorong Pertumbuhan Ekonomi Rakyat di
Ghozali, Imam. 2006. Aplikasi Analisis Regresi dalam Era Otonomi Daerah. Orasi Ilmiah Lustrum
Logistik Biner dengan Program SPSS. Semarang: IX Universitas Andalas, Padang, 13 September
Badan Penerbit Universitas Diponegoro 2001
Harfadila Shahputra, “Analisis Struktur Pengendalian Suhardjono. Manajemen Pengkreditan: Usaha Kecil
Intern Terhadap Sistem Pemberian dan dan Menengah, Jogjakarta: UPP AMP YKPN, 2003
Pengembalian Kredit Pada Bank Kalbar”, Skripsi Sutarno, 2003, Aspek-Aspek Hukum Perkreditan Pada
Sarjana, Fakultas Ekonomi, Universitas Islam Bank, CV. Alfa Beta, Bandung
Indonesia, Yogyakarta, 2005 Suyatno, Thomas. 1993. Dasar-Dasar Perkreditan.
H. Rachmat Firdaus, Drs., Msi & Aryanti, maya., Jakarta : PT. Gramedia
Manajemen Perkreditan Bank Umum, Bandung: Wijaya, Faried. 1996. Perkreditan & Bank dan
Alfabeta, 2003 Lembaga-Lembaga Keuangan Kita. Edisi 1.
Ikatan Akuntan Indonesia. 2007. Standar Akuntansi Yogyakarta : BPFE
Keuangan. Jakarta: Salemba Empat Wijono, W. 2005. Pemberdayaan Lembaga Keuangan
Kasmir ( 2004 ), Bank dan Lembaga Keuangan Mikro Sebagai Salah Satu Pilar Sistim Keuangan
Lainnya, Edisi Keenam, Pinjaman yang Diberikan, Nasional: Upaya Konkrit Memutus Rantai
PT Raja Graindo Persada, Jakarta Kemiskinan. Kajian EkonomiDan Keuangan (Edisi
Malayu S. P. Hasibuan. 2002. Dasar-Dasar Perbankan. Khusus). Pusat Pengkajian Ekonomi Dan Keuangan
Jakarta : Bumi Aksara www.bank nagari .com
Case Study 2: Effect of Interest Rates to Credit Customers

Delivered
Abstract
The purpose of this study was to analyze the inluence of interest rates on credit extended to customers cookies in Bank Nagari Pasar
Raya Branch. The research object is the Bank Nagari Pasar Raya Branch. Population is a customer using credit facility KUKI credit in
Bank Nagari Pasar Raya branch. A sample is a customer using KUKI credit facility in Bank Nagari Pasar Raya branch. The sampling
technique used is random random technique. The size of the sample of 100 people. The analysis technique used in the regression
analysis. Simple regression model is signiicant; Y = 21.78362832 + 0.384955752x. KUKI lending is inluenced by interest rates. This
is evident from the calculated t test (7.672) and F-count (7143), which is larger than t-table (6.3137) and F-table (3.92) at level α = 5%.
This regression model is good, because it looks great determinant coeficient that is 96%. This means that 96% independent variables /
interest rate determine the dependent variables / credits KUKI Key words: KUKI, Interest Rate, Bank Nagari Pasar Raya Branch.
Heryanto - Case Study 2: Effect of Interest Rates to Credit Customers Delivered

The Bank is a business entity which collects funds from Table 1 Development of Informal and Small Business Loan
the public in the form of deposits and distribute to the Interest Rate Period of 2004 s / d in 2009 Bank Nagari Pasar
public in the form of credit in order to improve the standard Raya Branch
of living of the people. Through its lending activities and
the various services provided by banks and inance minister Credit KUKI which KUKI Loan Credit Improvement
Year is distributed Interest (Thousan
launched a payment system mechanism for all economic (Thousand Rp) Rate %
Rp)
factors. The main activities of banking by Sri Susilo (2000) 2004 379.734.000 21%
is collecting funds from people with excess funds and 2005 843.390.000 21% 463.656.000 122.10
channel these funds back in the form of loans to people 2006 1.211.062.700 19% 367.672.700 43.59
who lack the funds, so banks occupy a strategic position 2007 1.829.570.000 19% 618.507.300 51.07
in the development and economy of the country and the 2008 1.730.040.000 18% -99.530.000 -5.44
distribution of income within society. 2009 1.289.684.000 18% -440.356.000 -25.45
In Indonesia there has long been serving the community
Source : Bank Nagari Pasar Raya Branch
banks on economic class, middle, bottom or small
communities. The Bank is a very important institution to
help improve the welfare and socio-economic improvement From the above table can be seen the number of loans
of economically middle class society. One type of banks granted from 2004 until 2007, there was improvement.
that provide credit services to the community is Bank In 2004 the number of credits that can be channeled Rp.
Nagari. As a inancial institution operating in West Sumatra, 379.734 million in 2005-then the amount of loans amounting
Bank Nagari required to take an active role improving the to Rp.843.390.000 means an increase of Rp.463.656.000, -
economic sector in West Sumatra in order to perform its a rise of 122.10%. If compared to 2006 the amount of loans
function as an intermediary institution. In addition, Bank amounting to Rp. 1,211,062,700-an increase of 43.59%
Nagari is also challenged to be able to grow and develop from the previous. In 2007 the amount of loans amounting to
naturally with intense competition. Economic situation in Rp. 1.82957 billion, up by Rp. 618 507 300, - an increase of
Indonesia is currently a highly competitive and uncertain 51.07% from 2006. In 2008 the amount of loans amounting
conditions that lead to commercial banks race to increase to Rp. 1,730.040.000 -. Or a decline in lending cookies by
the bank's funding sources which is then channeled back in 5:44%. And inally in 2009 the credit can be channeled Rp.
the form of credit. 1289684000 or decreased by USD. 440 356 000. When
Bank Nagari as a bank owned by the community of West compared to the previous year occurred 5 times from the
Sumatra are expected to play an active role improving the previous / decreased by 25.43%. From the data in Table 1
economic sector in West Sumatra. To meet these demands, above shows that interest rates tend to decline, the number
one of the efforts of Bank Nagari is to help overcome the of loans disbursed tend to decline KUKI. This condition is
problems faced by the capital of West Sumatra Micro to clearly contrary to the law of demand, where interest rates
distribute credit in the form of Informal Small Business declined, on the contrary the number of credits required
Loans are abbreviated with the cookies to the perpetrators KUKI should be increased. This would seem the paradox
of Micro. KUKI are given in the form of investment loans of the KUKI products of Bank Nagari. For it is a problem
and working capital loans. Raya Pasar Branch of Bank in this research is how much inluence the interest rate on
Nagari one branch that operates class A market center credit extended to customers KUKI?
ield that gave credit KUKI. From the bank's annual report
illustrated that the number of loans in the last 5-year period Literature Review
showed an increase, it can be seen from the table following
the growth of total credit: Credit
According Rahmi (2005) states that a signiicant

inluence between interest rates on lending branch in
Simpang Four Bank Nagari West Pasaman. Lending also
consider the principles of lending that the banks really get
a conviction that the credit to be disbursed is really going
back with interest.
2011 Heryanto 377
The principle is often used by the bank that is the concept interest paid can be higher or lower than bersangkutan.
of 5C (Sinungun: 1991) as follows: Bunga months of credit is an a “Contra Achievements”
1. Character; an assessment concerning the debtor's on the transfer of money that is returned from the
attitude about the willingness and responsibility for customer service / borrowers of loans granted by banks.
any liability that had been promised.
2. Capacity: a description of the ability of debtors to seek Credit interest rate charged to debtors is inluenced by
gain or proit from business that was involved so it can various factors as follows:
pay all the liabilities. 1. Government policy; for loan rates and deposit rates set
3. Capital: amount of funds / equity capital owned by by the bank may not exceed the interest rate set by the
prospective borrowers. Capital directed at the debtor's government.
inancial condition, especially in terms of liquidity, 2. Target desired proit; if large proits to be achieved then
solvency and proitability as well as comparison of all the interest rate established by also getting larger and
debtors with debt capital. vice versa.
4. Collateral; concerning the value of property pledged 3. Duration: the longer the loan term the higher the
as collateral by the debtor as collateral for the credit interest rate, this is due to the risk of loss in the future.
application. And vice versa shorter loan period then the interest rate
5. Condition of the economy; the conditions that affect the is relatively lower.
state of the economy of a country. This will affect the 4. Competition; in getting the deposit of funds in addition
ability of business borrowers in the face of economic to the promotion of factors, most notably the banks
luctuations and the business still has a prospect for a should pay attention to competition. In a sense if
loan is still enjoyed by the debtor. you need quick funds should be raised above deposit
interest rate competition, and if you want to do the
Interest credit expansion can be cultivated with melakukam
decline in lending rates.
Flowers are important for banks in the withdrawal of 5. Quality assurance; more liquid collateral given the lower
savings and credit disbursement. Withdrawal of savings and the loan interest charged to borrowers and increasingly
loans are always associated with its interest rate. Flowers illiquid collateral given the greater the loan interest
for banks could be a cost to be paid to depositors, but on the charged. The reason is related to the disbursement of a
other hand, interest may also be the revenue received from loan guarantee if problematic. Guarantee a liquid such
the debtor's bank due to bank loans as certiicates of deposit or checking account will be
The smoothness of the credit repayment is also easier for thawed compared with land security.
determined from the large and small lowers given to 6. Third party guarantees; in this case those who give
customers. The calculation of loan interest charged by a guarantee to loan recipients. Usually if the party
the bank on its customers to follow a number of ways. providing bona ide loans, both in terms of ability to
According to cashmere (1998) there are 3 methods of pay, good name and his loyalty to the bank then the
calculation are used: interest rate set is also different.
1. Sliding rate; the imposition of interest each month is 7. Rapport; usually classify bank customers among the
calculated from its lending services so that the amount major customers (primary) and regular customers
of interest paid each month the customer declines with (secondary). This classiication is based on the
the decline in loan principal. But the principal payment activeness and customer loyalty related to the bank.
each month equal, customers installments (principal Main Customers usually have a good relationship with
plus interest) automatically from month to month the bank so that in determining the interest rate is also
decreases. different from regular customers.
2. Rate plate; loading ixed interest every month than 8. Corporate reputation; bonaides of a company that will
the amount of the loan, as well as the loan principal obtain credit so that will determine the interest rate
each month are also to be paid the same, so that equal charged. Because the company is usually a bona ide
monthly installments until the loan is paid off. risk of potential bad debts in the future are relatively
3. Flooting Rate; this type of interest charge associated smaller and vice versa.
with money market rates existing in the amount of
9. Competitive products, meaning products that will be where, n = sample size, N = population size, e = Percent
funded is selling products on the market. To obtain leeway carefully situations lack of sampling error can
competitive mortgage interest charges are relatively still be tolerated in this study, population size, N = 140,
modest compared to the products less competitive. percentage; e = 5%. So the number of samples taken in this
10. Funding requirements; if banks short of funds, while research is
loans increased pemohom then made by the bank for
n= = 100people
140
1 + 140(0.05) 2
these funds can be met is by increasing savings rates.
However, if the funds are much less then the loan
application while deposit interest rates will fall.
then based on the results above, the sample size of 100
Method people.
Research Object Types and Sources of Data
The research object is the Bank Nagari Pasar Raya Data used in this study:
branch. This bank is located in an easily accessible location a. Primary Data Primary
and surrounded by traditional traders. In addition, this bank data is data obtained directly from respondents, through
is a pretty good development banks in West Sumatra. questionnaires at random.
b. Secondary data
Operational Definition Secondary data is data obtained through the publication.
There are two variables used in this study are: Technical analysis
Independent variables ie Interest Rate (X). Interest Rate
is the weight given by banks to customers who borrow in The analysis technique used in the regression analysis.
the amount of money. This analysis is used to measure the effect of interest rates
Dependent Variable Lending ie (Y). Credit is: an on loans extended to customers of Bank Nagari Kingdom
agreement between a lending institution or bank legal entity Market Branch. Form formula that is used as follows:
y = a + bx
with another party that requires the borrower to repay the
debt after a certain period with the amount of interest that
have been promised.
Population, Sample & Data Collection y = Distribution Cookies

a = constant Numbers
Population and Sample b = coeicient
x = Interest Rate
Population is a customer using credit facility KUKI in
Bank Nagari Pasar Raya branch. A sample is a customer
using credit facility KUKI ini Bank Nagari Pasar Raya Research Results & Discussion
branch. The sampling technique used is random random
technique. Profile of Respondents
To select respondents used the method of random
sample, and to determine the sample size of a population Demographics of Respondents
was used Slovin formula approach quoted by Umar (1997)
as follows: The data was collected by giving questioner to the
respondent directly without using the postal service. The
n=
N
1 + Ne
number of questionnaires that have been deployed as many
as 100 questionnaires. Of the total questionnaires were
returned questionnaires that all that is 100%.

2011 Heryanto 379
Table 2 Questionnaire Distribution and Return Rate Table 5 above shows that customers work more
dominant is the trader P & D that is equal to 70%. While
Questionnaire distributed 100 sheets ranking second and third of the jobs customers are in the
Questionnaires returned 100 sheets work of textile traders and merchants Apparel.
The questionnaire did not return 0
Rate of return 100% Customer Perceptions on Interest Rate
Total questionnaires that can be processed 100 sheets and Loan Disbursement
Source: questionnaire prepared
Interest Rate
Respondents who used the study sample is the customer
who become customers of cookies that can be sorted by Based on questions asked to customers who take the
age, gender and occupation. This can be described in tables credit cookies through the questionnaire, it appears that
3, 4 and Table 5. the interest rate on bank holiday village markets lower
branches from other banks. The majority of Bank Nagari
Table 3 Tabulation of Respondents by Age Pasar Raya branch customer feel strongly agree, except that
there are also a feeling of agree, undecided and disagree.
Information Total Persentage Customer KUKI on Bank Nagari Pasar Raya branch was
Age 21-27 years 16 people 16 % also there who feel really strongly disagree, although only a
Age 28-34 years 60 people 60 % small part. For the moment can be estimated that customers
Age 35-40 years 20 people 20 % KUKI of Bank Nagari Padang Raya branch could more
Age> 40 years 4 people 4% agree if interest rates affect the proposed credit.
Source: questionnaire prepared
Loan disbursement
The table above the age of respondents is dominated by
customers between the ages of 28-34 years of age with the Before customers apply for credit, banks will always
percentage of 60%. Customer age range 35-40 years with do the assessment themselves in terms of the ability of our
a percentage of 20%. And is followed by 21-27 year-old customers seek. Customers always pay off the loan at the
customer by 16%. The lowest percentages are found in the due date of payment. Bank to audit the inancial statements
customer who was 40 years old and over 4%. of the business customer. Goods must be given assurances
of credit has been received. Customers in the proposed
Table 4 Tabulation of Respondents by Gender credit will have an exemption if the customer's business
prospects are very good. Because of national economic
Information Total Persentage conditions that are less good, the bank always assess the
Male 75 people 75 % price of goods provided collateral on loans diterima.Bank
Female 25 people 25 % the classiication of customers as prospective borrowers into
Source: questionnaire prepared a classiication based on the capital, loyalty and character in
a different get credit facilities from banks, both in terms of
Furthermore, table 4 above the dominant gender is male amount of interest and requirements. Loans and advances
that is equal to 75% (75 people), while female customers as by the bank to provide beneit to the customer. Guarantee
much as 25% (25 people). that customers do not give the desired affect of the credit.
The majority of bank customers Nagari supermarket
Table 5 Tabulation of Respondents Based Work branches feel strongly agree, except that there are also a
feeling of agree, undecided and disagree. Customer cookies
Information Total Persentage on supermarket branch of Bank Nagari was also there who
Textile Merchants 20 people 20 % feel really strongly disagree, although only a small part.
P & D Traders 70 people 70 % For the moment can be estimated that customers of Bank
Draper 10 people 10 % Nagari cookies in Padang Raya Pasar Branch could not
Source: questionnaire prepared agree if there is an assessment of credit application made
by customers KUKI.
Research Results independent variables / interest rate determine the credits

KUKI.
Simple Regression
Conclusion
Research on effects of interest rate on loans to customers
of Bank Nagari Padang Raya Branch using simple linear KUKI lending is inluenced by interest rates. It means
regression model as follows: lending KUKI credit will increase if interest rates also
increase and vice versa. As soon as the amount of working
Y = 21.78362832 + 0.384955752x
capital loans KUKI has increased from year to year.
t-count = (4.099752753) (7.672824939)
Although mortgage interest rates rise, customers are still
r = 0.960662335
using credit facilities provided.
rScuare = 0.921644853
Adjusted rScuare = 0.958434086 References
From the calculation it can be in the know the inluence Hasibuan, Melayu S. P, 2002, Dasar-Dasar Perbankan,
of interest rates on loans to the Bank Nagari Raya Pasar PT. Bumi Aksara, Cetakan Kedua: Jakarta
Branch. Obtained a constant value of 21 784 which shows Kasmir, 2003, Bank dan Lembaga Keuangan Lainnya,
changes in KUKI credits amounting to 21,784 which is PT. Raja Graindo Persada, Edisi Revisi: Jakarta
caused by other factors. The coeficient of interest rate loan Supranto, J 2001, Statistik Teori dan Aplikasi, PT.
obtained for 0385, meaning that any increase in interest Penerbit Erlangga, Jilid Dua: Jakarta
rates (X) of 1% will increase lending (Y) equal to 0384%. Suyatno, Thomas, 1993, Kelembagaan Perbankan, PT,
Here we can see that the relationship is directly proportional Gramedia Pustaka Utama, Edisi Pertama: Jakarta
(Positive) where the decrease of credit interest rate, then a Suyatno, Thomas, 1994, Kelembagaan Perbankan, PT.
reduction in lending experiences with Bank Nagari Pasar Gramedia Pustaka Utama, Edisi Kedua: Jakarta
Raya branch. Suyatno, Thomas, 1993, Dasar-Dasar Perbankan, PT.
Simple regression model is signiicant. This is evident Gramedia Pustaka Utama, Edisi Pertama: Jakarta
from the calculated t test (7.672) and F-count (7143), which UU. Perbankan 1967, Tentang Perbankan, PT. Sinar
is larger than t-table (6.3137) and F-table (3.92) at level α Graika: Jakarta
= 5%. This regression model is good, because it looks great UU, Perbankan No. 7, tahun 1992, Tentang Perbankan
determinant coeficient that is 96%. This means that 96% PT. Sinar Graika: Jakarta
Case Study 3: Effect of Service Quality on Customer

Satisfaction With Bank Nagari Branch Main Padang
Abstract
The objectives of the research are to know an inluence of service quality to customer satisfaction on Main Branch of Bank
Nagari, Padang. The population size amount 155.264 saving customer. The sample size amount 100 saving customers. Collecting data
through questionnaire with using the accidental technique of random sampling. Data analysis technique is used consisted of simple
regression. The study shows that there was an inluence of service quality to customer satisfaction signiicantly. Service quality are
very important consisted easily in opening account, quick and on the right time, to give the right service, commitment, staff available,
polite, campentency and capability, complaint solusion, customer attention, complete facility, and staff performance.. Meanwhile service
quality are important consisted of accurate, relax in taking compliance, customer need and modern facility. Key words: Quality, Service,
Satisfaction & Customer.

2011 Heryanto 381
The development and improvement in banking services activities with output than products in the physical sense,
from year to year is a concern of society. This can be seen consumed and produced at the same time, provide value-
increasing competition in service quality in banking. Quality added and intangible principle for the buyer irst. Payne
of care is a top priority in creating customer satisfaction. (2001: 8) service is an activity which has some elements
In accordance with the bank functions as a collection ketakberwujudan (intangible) associated with it, which
of public funds, Bank Nagari in this case has the kind of involves some interaction with customers or with property in
product that can compete with other bank products. For this its ownership, and does not produce a transfer of ownership.
type of savings Bank Nagari have some type of savings Changes in conditions may occur and the production of
among Simpeda Savings, Savings Tabanas, Savings and services may be related or not is also related to the physical
Savings Haji Sikoci Mabrur sun. With these facilities is product. Tjiptono (2001: 6) services are intangible goods
expected to attract people to save their money in Bank (intangible) that is an act, performance (performance) or
Nagari, and improve service to customers. The better the business and can only be consumed but not owned, meaning
service provided will have an impact both on customer can be seen, felt, kissed, heard, or touched before purchase.
satisfaction of products offered. These services include the So, services are activities, beneits or satisfaction offered
reliability and responsiveness of Bank staff in addressing for sale. focus in the process of service is to provide the
customer issues, customer friendliness and menghilanghkan results (beneits) that meet and or exceed the needs, desires,
ignorance of the product or service they want. and expectations of customers.
In this research, the problem is how the inluence
of service quality to customer satisfaction at the Main Dimenesi Services
Branch of Bank Nagari Padang?. Besides increasing the
number of bank customers there are things that also must According to Parasuraman et al (1994) there are ive
be considered by the Bank Nagari in improving customer main dimensions that have been aggregated, used to assess
satisfaction among which accommodate and respond the quality of service or service provider companies,
to complaints submitted by the customer. Usually the including:
complaints that frequently arise are complaints against the a. Reliability (reliability)
service and delays in transactions. The purpose of this study An ability to provide the desired services with accuracy
is to determine the effect of service quality to customer and credibility and reliability. In other words, reliability
satisfaction at the Main Branch of Bank Nagari Padang. means the extent to which the provision of services to
provide what has been promised to consumers.
Literature Review b. Responsiveness (responsiveness)
A policy to assist and provide fast service to customers.
Understanding services This dimension emphasizes the attitude of providing
a caring service, fast, precise in dealing with requests,
One trend is happening today is the growth of service questions, complaints, and consumer issues.
sector is so fast and rapidly. Many business opportunities c. Assurance / certainty (assurance)
are engaged in services like insurance, hotels, hospitals, The knowledge and friendliness of employees and
education, transport and banking. Service is an act or acts, the ability to perform tasks that can spontaneously
the performance of appearance, intangible and quickly guarantee good performance, giving rise to the trust
disappear only to be consumed, can be felt but not owned and conidence of customers.
in which customers can participate actively in the process d. Empathy (empathy)
of consuming these services. Giving individual attention to customers and seeks to
Deinition of services according to Kotler (2002), understand the consumer.
service is any act or activity that can be offered by one e. Tangible (tangibles)
other party, essentially intangible and does not result in Appearance and physical infrastructure capabilities
any ownership. Zeithalm (2000), service is all economic that can be relied upon.
Heryanto - Case Study 3: Effect of Service Quality on Customer Satisfaction With Bank Nagari Branch Main Padang
Customer satisfaction 4. Customer Satisfaction Survey

Through the survey, companies will get responses and
The definition and concept of customer feedback directly from customers and give a positive
satisfaction sign that companies pay attention to them.
According to Kotler (2002) satisfaction is the level of Previous research

one's feelings after comparing the performance (results) are
perceived as compared with expectations. Each company Lesta (2006) and Lindawati (2006) conducted research
directs its business activities to produce goods and services at the Head Ofice of Bank Mandiri Padang and Bank
that can provide satisfaction to consumers. Customer Negara Indonesia (BNI). By using the technique of simple
satisfaction through service quality can be improved by regression analysis of the research that the impact of service
several approaches as follows: quality is a signiicant level of customer satisfaction.
1. Minimize gaps that occur between management and
customers. Method
2. Companies must be able to build a shared commitment
to create vision in improving the service process. Population and sample
3. Provides the opportunity for customers to complain.
4. Develop and implement a responsibility, pro-active The research object is the main branch of Bank Nagari
and marketing partnership in accordance with the ield. The population is saving customers on Main Branch
marketing situation. of Bank Nagari Padang. Population size (N) of 155,264
people. Using standard assumptions of sampling error is
Measurement of satisfaction still tolerated (e) by 10% the size of the sample size can
be calculated with the formula slovin approaches cited in
According to Kotler (2002) & Tjiptono (2001) to Umar (1997) as follows:
measure customer satisfaction there are 5 methods used:
1. Complaints and suggestions system (1)
n=
N
1 + N .e 2
Each customer-oriented service organization should
provide the widest opportunity to its customers to
submit suggestions, criticisms, opinions, and their
complaints. Information obtained through this method where n = number of samples, N = total population; e
can provide new ideas and input are valuable to the = standard error of sampling is still tolerated. By entering
company making it possible to react quickly and each value of the variable into the formula (1) above,
respond in overcome the problems that arise. obtained large sample size of 100 respondents.
2. Ghost Shopping | In this study the data collected through questionnaires
One way to get a picture of kepusan customers is to using the random sampling technique was accidental.
employ some of the Ghost Shopper to act as a potential This means that samples taken are found in the location of
customer and competitor services. The Ghost Shoppers customers of Bank Nagari Main Branch ield.
can also observe how the company and its competitors
in serving customer demands, answering customer Operational Definition and
questions, answering customer questions and menagani Measurement of Variables
any problems or customer complaints.
3. Lost Customer Analysis Level of satisfaction
The company should contact those customers who
have stopped buying or replacing suppliers, in order to Customer satisfaction level is how much value
understand why this happens and in order to understand consumers lie received from the services provided by the
and take policies to further improve or reine. company whether it has to meet consumer expectations or
not.

2011 Heryanto 383
Service quality is how well the companies in introducing a. The Bank gives special attention to its customers
products that they offer to consumers in this case is the regardless of their social status (x12).
service provided by the Bank's Nagari main branch Padang. b. Bank employees treat customers with courtesy when
receiving phone (x13).
Variables and measurement variables c. Understanding the Bank of complaints and needs of its
customers (x14).
Variable quality of service and customer 5. Tangibles / Tangible
satisfaction That appearance and physical infrastructure capabilities
of the company, including the appearance of employees,
Variable services the state space and physical facilities that support the
activities of the company.
1. Reliability / Reliability. a. Bank Nagari has a building / buildings, equipment
That is the company's ability to provide the promised and modern equipment (X15).
services accurately and reliably, including the b. Complete facilities, cleanliness, neatness and comfort
implementation of activities to serve customers in terms room service provided by Bank Nagari (x16).
of handling complaints from customers / customer. c. Bank karyaawan a neat appearance and polite (X17).
a. Ease of registration process to new customers (x1).
b. Speed and accuracy of time in customer service (x2). Variable satisfaction
c. Providing services right the irst time (x3).
d. Having a commitment to service and transaction 1. Speed
records are free from error (x4). a. Speed and accuracy of time in customer service
2. Responsiveness / Responsiveness (y1).
That is the company's ability to provide fast service to b. Quick response in resolving customer complaints
customers, covering about fast service and accurate. (y2).
a. Bank employees' willingness to respond to requests 2. Accuracy
and provide services that nimble on you (x5). a. Bank Nagari employees providing services in a
b. Responsiveness of recording oficers in its recording timely manner on its customers (y3).
(x6). b. Oficers pecatatan meticulous and precise in
c. Bank employees are never too busy to respond to recording transactions (Y4).
your complaint (x7). 3. Safe
3. Assurance / Confidence Namely a. Employees of Bank Nagari provide security against
knowledge and friendliness of employees, giving rise customer funds (y5).
to the trust and conidence of customers, covering about b. The Bank provides trust and maintain customer
employee behavior, employee courtesy, knowledge conidence in the (Y6).
and skills of employees in accordance with the job in a 4. Suave
professional manner. a. Treating customers well and polite when picking up
a. Bank employee attitudes are friendly, respectful, and the phone (Y7).
courteous in providing services to its customers (x8). b. Giving a smile and sincerity in serving customers
b. Bank employees' ability to generate customer conidence well (Y8).
(x9). 5. Comfortable
c. Bank employees' skills in handling the payment process a. The availability of complete facilities, cleanliness,
savings (x10). neatness and comfort of room service provided by
d. Bank employees are able to directly and quickly in Bank Nagari (y9).
handling customer complaints (x11). b. Getting good service the irst time to open savings
4. Empathy / empathy account (y10).
That seriousness of employees to give special attention c. Providing ease of obtaining information guide about
to the individual or to the customer include the attention services (y11). d. Level
of employees to customers, satisfy customer needs and of satisfaction by customers who thought (y12).
employee work hours.
Measurement Variables of the matrix. An item is declared invalid to the value of

loading factor> 0.40 and not having ambiguous. Ambiguous
The analyzed variables are calculated with the scores is a situation where a column there are two factors loading>
on each questionnaire answers. Determination score using 0.40.
a 5-level Likert scale (Nazir, 1988). The ive assessments Here is a table validity test on the variable quality of
were scored as follows: service and customer satisfaction as follow:
1. For the level of service quality
• It's important to value scores of 5 Table 1. Testing the validity of the quality of service (X)
• It is important to the value score of 4
• Somewhat important to the value score 3 Item Question Loading Value Information
• Less important with the score 2 X1 0,757 Valid

• It does not matter with the score 1 X2 0,767 Valid
2. For the level of customer satisfaction X3 0,824 Valid
• Very pleased with the scores of 5 X4 0,795 Valid
• Satisied with the score 4 X5 0,803 Valid
• Quite satisied with the score 3 X6 0,711 Valid
• Not satisied with the score 2 X7 0,830 Valid
• Not satisied with the score 1 X8 0,751 Valid
X9 0,913 Valid
Feasibility Testing Variables X10 0,810 Valid
X11 0,863 Valid
Before the models are estimated, and realibel valid
X12 0,904 Valid
test of the independent variable (service quality) and the
X13 0,768 Valid
dependent variable (customer satisfaction). After these
X14 0,802 Valid
variables deserve then estimate the simple regression
X15 0,769 Valid
model, using SPSS (Statistics Social Science Program) as
X16 0,799 Valid
follows:
X17 0,722 Valid
1. Test validity
The validity of validity that comes from the word From the results of testing the validity of the variables
meaning the extent to which precision and accuracy of in measuring service quality with 17 instruments which
a measuring instrument in performing the function of produce the level of the validity of> 0.40, which means
measuring. A test or measuring instrument can be said to that 17 question instrument for measuring service quality
have high validity if the appliance is running the measuring variables declared valid and can be used to estimate the
function, or measuring results in accordance with the model.
intention of doing such measurements. Another deinition
is the aspect of precision measurement validity, a valid Table 2. Testing the validity of customer satisfaction (Y)
measurement tool is not only capable of expressing the data
correctly, but also must provide a thorough overview of the Item Question Loading Value Information
data. accuracy in this case means being able to provide a Y1 0,756 valid
picture of the smallest differences between subjects with Y2 0,746 valid
each other. Measuring results that are less careful and Y3 0,780 valid
meticulous can cause errors in the form of results that are Y4 0,585 valid
too high or too low (Saifuddin 1997: 5). Y5 0,793 valid
Before testing the hypothesis further advance the Y6 0,851 valid
validity of the test. According to Santoso (2001: 15) deines Y7 0,792 valid
validity test is a test used to assess the truth of the items Y8 0,811 valid
used to measure an instrumental variable that seen from the Y9 0,838 valid
coeficient of loading factor resulting in a simpliication
2011 Heryanto 385
Item Question Loading Value Information the regression model to meet the assumption of
Y10 0,812 valid normality.
Y11 0,780 valid 2. If the data are spread far from the diagonal line,
Y12 0,705 valid the regression model did not meet the assumption
of normality.
From the results of testing the validity of the variables in
measuring satisfaction with 12 instruments which produce Figure 1: Normality Test
the level of the validity of> 0.40, which means that 12
question instrument for measuring satisfaction variable
declared valid and can be used for model estimation phase.
2. Test Reliabialitas
Relaibilitas test was conducted to see whether an
instrument is suficient to dipertanya or not to be used
as a data collection tool. Whether the instrument is good
or not, so it will produce reliable data as well. In other
words, reliability is used to indicate the extent to which a
relatively consistent measurements when the measurement
was repeated two times or more. In general, the criteria say
reliable if alpha coeficient alpha> 0.6. Reliability testing
performed by combining the formula alpha (Arikunto,
1998).
Table 3. Reliability Testing Technical Analysis
Information Cronbach Alpha Conclusion Based on data collected by using questionnaires as

Reliability 0,773 Reliable many as 100 pieces of questionnaires, the total tabulasinya
Responsiveness 0,894 Reliable obtained from the questionnaire are processed. Further
Certainty 0,791 Reliable analysis will be done by testing the effect of service quality
Empathy 0,611 Reliable to customer satisfaction.
Tangible 0,794 Reliable 1. Simple regression
To mempekirakan inluence of service quality to
customer satisfaction at the main branch of Bank Nagari
From the above table can be seen all the variables used in Padang used simple regression analysis as follows:
this research has cronbach alpha> 0.60. Therefore it can be
Y = α + βx
concluded that all items are valid questions that are reliable (2)
and can be variable to use the estimates on the next model.
3. Normality Test Data
According to the central limit theorem, the assumption Values a and b are obtained by the formula as follows
(n.∑ XY ) − (∑ X .∑ Y )
of normality would be affected if the number of samples
(n.∑ X 2 ) − (∑ X )
used for more than 1 or equal to 30 (Mendenhall and β=
Beaver: 1992). The purpose of the normality of data to test
∑Y − b ∑ X
in a regression model, the dependent variable, independent
variables or both are normally distributed or not, that will α=
be used to determine whether to use parametric or non n
parametric statistics. To detect normality by looking at the
spread of the data (dots) on the diagonal axis of the graph. where:
Basic decision-making (Santoso: 2001): X = indicator of service quality
1. If the data are spread around the diagonal line Y = indicator of customer satisfaction
and follow the direction of the diagonal line, then n = number of sample
α = constant Table 4. Characteristics of Respondents by Sex

β = regression coeficient
Sex Total Persentage ( % )
to obtain the results of the regression coeficient in terms Male 51 51

of percentage, then the equation (2) above be changed in Female 49 49
logarithmic form as follows: Total 100 100
log Y = log α + β log x

Source: Processed Data
(3)
From the table above shows that the male sex by 51%
where: and the female sex by 49%. Mean sex dominant male in
Y = indicator of customer satisfaction this study.
X = indicator of service quality
α = constant (in percentages) Table 5. Respondents Based on Age Character
β = regression coeficient (in percentages)
Age of Respondents Total Percentage ( % )
2. T-test analysis 18 to 25 years 38 38

To test whether the model is partially signiicant then 26 s/d 35 years 18 18
test t-test with the following formula: 36 s/d 45 years 27 27
46 s/d 55 years 8 8
t-account=r √( n – 1 ) (4) 56 years or older 8 8
√(1 - r² )
Total 100 100
where:
n = sample Furthermore, customer characteristics of age can be seen
r = correlation coeficient that the characteristics of respondents age 18 to 25 years as
many as 38 people, age of respondents 26 to 35 as many as
decisions taken if: 18 people, age of respondent 36 s / d 45 years as many as
t count> t-table table then the quality of service 27 people, age of respondent 46 s / d 55 years as many as
signiicantly inluence customer satisfaction. 8 people, and respondents aged 56 years and over as many
t-count <t-table then the quality of service no signiicant as 8 people. So it can be concluded that the characteristics
impact on customer satisfaction. of respondents by age dominated by respondents aged 18
3. Test F-anova to 25 years. This means savers in the Main Branch of Bank
This test is performed to determine the signiicant Nagari Padang dominated school age and those who irst
inluence of the free variable together against dependent enter the job market.
variable. If the F-count> F-table or F. sig <α = 0.05 then
the model is signiicant, whereas if the value of the F-count Table 6. Respondents Character Based Work
<F-table or F.sig> α = 0.05 then the model is not signiicant.
Occupation Total Percentage ( % )
Research Results & Discussion Private Employees 39 39

PNS / BUMN 13 13
Characteristics of Respondents Student 17 17
Entrepreneur 13 13
Demographic Profile of Respondents Teachers / Lecturers 8 8
Other 10 10
In this study the respondent in question is the Customer Total 100 100
Bank Main Branch Nagari Padang with the characteristics
of the respondents as follows:
2011 Heryanto 387
Table 6 along with table 5 above explains that the age Perceptions of
No Question Respondents
of respondents 18 to 25 years predominantly working on
1 2 3 4 5
private sector employees by 39% and students by 17%.
11 Able and quick to handle complaints 0% 2% 22% 30% 46%
12 Giving attention regardless of social 1% 4% 20% 36% 39%
Table 7. Character Respondents Based on Income status
13 Treat with courtesy when receiving 0% 2% 18% 38% 42%
calls from customers
Type of Income Total Percentage ( % )
14 An understanding of and its 1% 1% 22% 40% 36%
Do not have a steady income 32 32 customers' needs
Rp 1.000.000 s/d Rp 2.000.000 34 34 15 Having a modern building 0% 5% 16% 40% 39%
Rp 2.000.000 s/d Rp 3.000.000 25 25 16 Facilities, cleanliness, neatness and 1% 3% 16% 32% 48%
comfort room
> Rp 3.000.000 9 9
17 A neat appearance and courteous 0% 2% 20% 38% 40%
Total 100 100
Source :Processed Data Source: Processed Data
From Table 7 shows that the dominant income of From table 5, the # 17 indicators of service quality is
respondents ranged from Rp. 1.000.000, - s / d Rp. perceived indicator # 14 is very important, while # 3 is an
2.000.000, - by 34%. This means income ranging between important indicator. # 3 of this important indicator consists
Rp. 1.000.000, - s / d Rp. 2.000.000, - are the new customers of (1) responsiveness in recording-x6 (2) an understanding
who enter the job market / the people who are just starting of and needs of its customers-x14 and (3) has a modern
to work. building-X15. While the # 17 indicators of quality of service
that is not the greatest importance is in focus in response
Profile perceptions of service quality and to a complaint-x7. This means for the main branch of Bank
customer satisfaction Nagari Padang for concentration in improving especially
x7 and x6, x14, and X15.
Perceptions of service quality consists of # 17 indicators
and perceptions of customer satisfaction # 12 indicators. Table 9. Perceptions of customer satisfaction
With the number of respondents of 100 respondents,
the visible perception of service quality and customer Perceptions of
No Question Respondents
satisfaction as in table 8 and table 9 below.
1 2 3 4 5
1 Speed and Timeliness 1% 0% 25% 45% 29%
Table 8. Perceptions of service quality 2 Quick response 1% 2% 21% 48% 28%
3 Providing timely service 2% 2% 24% 48% 24%
Perceptions of
Respondents 4 Thorough and accurate in recording 0% 3% 21% 41% 35%
No Question transactions
1 2 3 4 5
5 Providing security of customer funds 1% 3% 12% 40% 44%
1 Ease of registration 1% 0% 20% 30% 49%
6 Providing trust and maintain 0% 0% 12% 43% 45%
2 Speed and accuracy 0% 3% 13% 30% 54% customer conidenc
3 Providing the right service 0% 1% 17% 32% 50% 7 Good and polite when receiving 1% 3% 20% 44% 32%
phone
4 Commitment to service, and free 2% 4% 18% 35% 41%
from error 8 Giving a smile and sincerity in serving 2% 5% 23% 33% 37%
5 Responding to requests and deft 0% 1% 17% 39% 43% 9 Facilities, cleanliness, neatness and 0% 3% 20% 36% 31%
comfort room
6 Responsiveness in recording 1% 2% 21% 42% 34%
10 Serve when you irst open a savings 0% 2% 25% 37% 33%
7 The focus in responding to 32% 31% 28% 31% 32% account
complaints
11 Providing ease of obtaining 1% 1% 26% 31% 41%
8 Friendly, courteous, and respectful 0% 0% 17% 31% 52% information guide service
in serving
12 The perceived level of satisfaction 2% 3% 22% 42% 31%
9 Inspire conidence 0% 4% 13% 38% 45%
10 Skilled handle payment processing 0% 1% 18% 38% 43% Source: Processed Data
savings
From Table 9 above shows that # 12 indicators # 9 The correlation coeficient r of 0.981. This means that the
indicators perceived satisfaction, while # 3 indicators is correlation relationship between service quality to customer
perceived very satisied. # 3 indicators are perceived very satisfaction and vice versa for 98.1% (xy). This indicates a
satisied consists of providing trust and maintain customer strong relationship between both variables (98%> 75%).
conidence-x6, give a smile and sincerity in serving-x8 Further discrimination coeficient of 0.962 is obtained,
and provide convenience in obtaining information guide meaning that the contribution of variable of service quality
service-x11. # 9 indicators of concern x1 s / d x5, x7, x9, x10 to customer satisfaction of 96.2% (xy). This indicates the
and x12 can be increased from satisied to very satisied. contribution of service quality to customer satisfaction is
great. Tests on the simple regression model of equation (5),
Descriptive Statistics as seen from the test t test, it can be concluded that the t-count
for the constants of -4.134 is greater than t-table 12.706 and
Descriptive statistics describe the data in the form of t test for coeficient of 49.771 obtained service quality is
summary information about the amount of data and the greater than t Table 12.706. This means that service quality
standard deviation of the data is processed, the result can signiicantly inluence customer satisfaction.
be seen in the table below as follows: Furthermore, to obtain the results of simple regression
where the regression coeficients directly in terms of
Table 10. Descriptive Statistics percentage, then the simple regression takes the form of
logarithms. The regression result is obtained as follows:
logY = -0,333 + 1,091 logx

Mean Std. Deviation N
t - account = (-7,493)(45,407)
CUSTOMER SATISFACTION (Y) 48.68 6.484 100 (6)
r = 0,977
SERVICE QUALITY ( X ) 70.85 8.481 100
From the table above we can see the mean and standard r 2 = 0.955
deviation of each variable. Customer satisfaction variables
had an average (mean) of 48.69 with a standard deviation From equation (6) above obtained by the constant
of 6.468, then the variable quality of service has a mean coeficient -0.333 means that customer satisfaction by
70.85 with a standard deviation of 8.481. This indicates that -0.333%, which is caused by other factors. While service
the data used is feasible, so it can be used in this study. quality coeficient of 1.091 means the percentage change
in customer satisfaction by 1.091% as a result of the
Test Simple Regression Analysis percentage change in the quality of services at 1%.
Furthermore, how much the relationship between
Research on the impact of service quality customer variables and the contribution of customer satisfaction and
satisfaction in the Main Branch of Bank Nagari Padang service quality, can be seen from the r and. The correlation
using simple linear regression method. Simple regression coeficient r of 0.977. This means that the correlation
results obtained as follows: relationship between service quality to customer satisfaction
Y = −4,444 + 0,750 X
and vice versa for 97.7% (xy). This indicates a strong
t − account = (−4,134)(49,771)
(5) relationship between both variables (97.7%> 75%). Further
r = 0,981
discrimination coeficient of 0.955 is obtained, meaning that
r 2 = 0,962
the contribution of variable of service quality to customer
satisfaction of 95.5% (xy). This indicates the contribution
of service quality to customer satisfaction is great. Tests
From equation (5) above obtained by the constant on the simple regression model of equation (6), as seen
coeficient of -4.444. Means that customer satisfaction from the test t test, it can be concluded that the t-count for
changes by -4.444 caused by other factors. While the the constants of -7.493 is greater than t-table 12.706 and
coeficient of 0.750 for service quality, customer satisfaction t test for coeficient of 45.407 obtained service quality is
means a change of 0.750 as a result of changes in service greater than t Table 12.706. This means that service quality
quality by 1 unit. Furthermore, how much the relationship signiicantly inluence customer satisfaction.
between variables and the contribution of customer From the model equation (5) and equation (6) above
satisfaction and service quality, can be seen from the r and. shows a simple regression model is better than linear
2011 Heryanto 389
regression of logarithms. This can be seen from derterminan From the results of simple regression estimates can be
coeficient () is greater. concluded that there is a signiicant contribution of service
quality to customer satisfaction (97.7%> 75%). Quality of
Test F-anova care is very important, such as x1 s / d x5, x8 d 13 and X16
s / d X17 can be maintained. While service quality x6 s / d
The test is to determine whether simultaneous x7 and x14 s / d X15 to be upgraded to very important.
independent variable signiicant to dependent variable.
Testing was performed using signiicance α = 0.005, F test Suggestion
performed from the results obtained as follows:
Suggested further research to deepen the study, and
Tabel 11. ANOVA b
expand the scope of the research. Because in this study was
the existence of deiciencies and weaknesses like the lack
Sum of Mean of sampling of its scope only to customers who save.
Model df F Sig.
Squares Square
1 Regression 4003.378 1 4003.378 2.477E3 .000a
Residual 158.382 98 1.616
References
Total 4161.760 99
Kotler, Philip ( 2002). Manajemen Pemasaran Jilid I.
Penerbit : Indeks Kelompok Gramedia, Jakarta.
a. Predictors: (Constant), SERVICE QUALITY
Lesta, Hengki (2006), Pengaruh Kualitas Pelayanan
b. Dependent Variable: CUSTOMER SATISFACTION Terhadap Tingkat Kepuasan Nasabah Pada Bank
Mandiri Kantor Pusat Utama Padang, Skripsi.
Based on Table 11 above, simultaneous regression Parasuraman, A., Valarie A Zeitham & Leonard L
coeficient signiicance at 5% conidence level. From the Berry (1994). Alternative Scales for Measuring
above table obtained F.sig = .000 <α = 0.05 then the model is Service Quality : A Comperative Assessment Based
signiicant. This means that there is signiicant relationship on Psychometric and Diagnostic Criteria. Journal
between service quality to customer satisfaction. of Retailing, 70(3), 201-230.
Santoso, Singgih (2001). Buku Latihan SPSS Statistik
Conclusions and Suggestions Parametrik, Edisi Kedua, Penerbit PT Elex Media
Komputindo, Jakarta.
Conclusion Tjiptono ( 2001). Pengukuran Tingkat Kepuasan
Unstuck Menaikkan Pangsa Pasar. Jakarta.
ORGANIZATIONAL COMMUNICATION AS AN IMPORTANT

FACTOR OF COMPANY SUCCESS: CASE STUDY OF BOSNIA
AND HERZEGOVINA
Kenan Spaho
Center for Techological and Economical Development.
Sarajevo, Bosnia and Herzegovina
Email: spaho@energoinvest.com
Abstract
It is not possible to have good human relations without communication. On the other hand effective communication is required not
only for human relations but for a good and successful business. In practice there is no organization without communication. There are
organizations with bad communication and these cannot be considered successful organizations. Managers spend the majority of their
time communicating in several forms: meeting, face-to–face discussion, letters, emails etc. Also more and more employees realize that
communication is a very important part of their work because a lot of work activities are based on teamwork among workers in different
functional groups. This is the reason why communication has become more important in companies. Organizational communication as a
scientiic discipline is not new but recently it has been recognized as a ield of academic study. The reasons for this are needs and concerns
of modern business because managers of new age must be good speakers in order to build trust among their employees which will later
result in conidence in the company. In this paper we will deal with the problem of communication between top management of the
company and trade union in company. Key words: Communication, Organizational Communication, Management.
It is not possible to have good human relations without Organizational Communication –

communication. On the other hand effective communication Theoretical Aspects
is required not only for human relations but for a good and
successful business. In practice there is no organization Before problem analysis we will present some theoretical
without communication. There are organizations with bad aspects of communication in general and organizational
communication and these cannot be considered successful communication as one segment of communication. For the
organizations. Managers spend the majority of their purpose of this case study we will present two deinitions
time communicating in several forms: meeting, face-to– of communication:
face discussion, letters, emails etc. Also more and more
employees realize that communication is a very important Deinition 1: Communication is sending and receiving of
messages by means of symbols and in that context
part of their work because a lot of work activities are organizational communication is a key element of
based on teamwork among workers in different functional organizational climate (Drenth et al, 1998).
groups. This is the reason why communication has become Deinition 2: Communication is transfer of information from
more important in companies. sender to receiver under the condition that the
receiver understands the message (Weihrich,
Organizational communication as a scientiic discipline
Koontz, 1993).
is not new but recently it has been recognized as a ield
of academic study. The reasons for this are needs and
concerns of modern business because managers of new Business communication can be inside the organization
age must be good speakers in order to build trust among (internal communication) and outside the organization
their employees which will later result in conidence in the (external communication) (Fox, 2006). Internal
company. In this paper we will deal with the problem of communication is a process where all employees take
communication between top management of the company part unlike external communication where only some
and trade union in company. employees take part (Fox, 2006). For the purpose of
this paper we will focus on internal communication or

2011 Kenan Spaho 391
as it is called in some literature sources organizational , holidays, and two week’s notice period . These elements
communication. For the purpose of this paper we will depend on law terms as well as on the collective agreements
deine organizational communication as the process by which are result of trade union activities (Kohl, 98).
which individuals stimulate meaning in the minds of other On the other hand employers are obliged to inform
individuals by means of verbal or nonverbal messages in employees about the situation in the company. In Republic
the context of formal organization (Richmond et al, 2005). of Croatia, in accordance with the Working Law, employers
In further text we will clarify some parts of this deinition are obliged to inform the employees about the situation
(Richmond et al, 2005): in the company and the development of the company
• The word process indicates that communication twice a year (Jolić, 2003). Unfortunately, in Bosnia and
is dynamic and ever changing. As we change as Herzegovina, this kind of communication is not deined in
individuals over time and from one organizational the Working Law.
event to another our communication is changed in the
organizational environment. Definition of the Problem
• The words stimulate meanings are intended to suggest
that it is through communication with others that we The problem of this case study is bad communication
develop an idea entirely on our own. Many of our ideas between the top management and the trade union in the
are formed or created by meanings that others have company. The company chosen for this case study is a large
stimulated. engineering company in Bosnia and Herzegovina. The
• By verbal message we mean the language common employees are organized in a company trade union which
to the culture and organization. These messages are is branch of the general trade union of metal industry. The
transmitted in spoken or written form. We will pay problem started on 15th Octobe r when head manager
attention to this problem in further text. made the decision to close the internal restaurant. The
• By nonverbal message we mean messages other then closing of the restaurant was planned for 01.11.2010 and
verbal such as eye behavior, touch, hand gestures, body on 28.10.2010 the president of the trade union sent a letter
movements, and facial expression and so on. to the top management asking for shifting the closing date.
The reason was simple; there were ive people who were
Since the focus of this paper is the trade union we working there part time. The reply from the top management
will present some theoretical aspect of trade unions and was forming of a working group for the starting of a new
communication between the top management and the restaurant and the task for the trade union was to prepare
trade union in an organization. Trade union is a legal entity the business plan. Since the trade union was not able to
consisting of employees or workers having a common prepare the business plan, the working group proposed
interest (http://www.wordiq.com/deinition/Trade_union, a solution of donating 2 convertible marks (2 KM) per
accessed 15.12.2010). Trade unions are generally classiied day from employees. Trade union presidency organized
as: (a) Company union that represents interest of one voting among employees. The result was as follows: 325
irm and may not have any connection with trade union employees voted for donation of 2 KM 188 voted against
movements. (b) General union that represents workers and 187 employees did not vote at all. These results were
from several irms from the same industry. (c) Craft union sent to the working group with a cover letter that the trade
that represents skilled workers in particular ield (http:// union does not insist on the restaurant anymore because
www.businessdictionary.com/definition/trade-union. there was not the necessary 50% in favour of donating 2
html, accessed 15.12.2010). In Bosnia and Herzegovina, KM.
company unions are branches of general or industrial trade On the other side, the top management prepared a
unions. decision for decreasing salaries of employees. That decision
Every employee has gained work contract which is came out on 15.11.2010 and the reason was lack of money
obligatory for both sides with clearly deined terms such since there had not been any new business contracts. The
as working hours, working period, job description, salary, trade union was not prepared for this decision.
Spaho K. - Organizational Communication as an Important Factor of Company Success: Case Study of Bosnia and Herzegovina
Mistakes Instead of Conclusion

In this problem, we can identify mistakes from both The most important role of organizational communications
sides, the trade union and the top management. In this part is relationship building. Relationship building will provide
we will present these mistakes. strong basis in case of crisis management and help in facing
Firstly, we will present the mistakes of the trade union. the changes in the organization. This will raise moral of
The irst mistake was trade union’s involving in the employees and make contribution to strategic goals of
business policy of the company, because decisions of the the organization. Deinitely, it is not possible to make any
top management must be obeyed. The second mistake was business without good organizational communication and
starting the action about the restaurant illegally without the employees who are the most important stakeholders of
consulting the members of the trade union. On the other any organization.
hand, the trade union must be focused on upcoming Effective communication is very important for
problems and not to deal with past problems. the creation of a successful company. If there is no
Now we will present the mistakes of the top communication in the company, the company can be
management. The irst mistake was letting the trade union considered as a bad and un successful company. Bad
start any action concerning the restaurant because every communication between managers and employees will
decision of the top management must be the last act in the result in conlicts inside the company which will farther
company and it must notbe taken into adopt . The second lead to moral decline and in the end it will not be possible
mistake was unfair relationship with the trade union. That to reach company’s strategic goals. On the other hand,
unfair relationship was obvious later after the decision of regular communication, especially with young employees
decreasing salaries because the constitution of the working will stimulate employee’s creativity and experience shows
group was a trap for drawing attention away from the main that it is better to work with creative employees.
problem, the lack of business contracts. All processes in company are based on people’s behavior
and communication among them. The communication
Problem Solution process is the representation of a company - from
leadership style to team work among employees. Every
This problem can be solved in one way, by creating top management has the task to develop consciousness
a communication plan. We distinguish two types of about the effective communication and its importance in
communication plan, general communication plan and the company and to impact employee’s career development
special communication plan. General plan is deined for through that communication, his/her enjoyment in the job,
every day communication and special plan is deined for and what is most important to motivate employees to be
special situation (Holtz). If there is no communication devoted to sharing the values of the company.
plan in the company it must be created and it must follow Communication is a complex process and in order to
strategic plan in the company because it is not possible to survive in a company, we must know all communication
reach strategic goals of a company without good internal lows as well as how it works.
communication.
In the EU there is a clearly deined social policy which References
includes: improvement of environment in order to protect
health and security of workers, working conditions, Drenth, P.J.D., Thierry H., De Wolff, C.J., (1998),
consulting and informing workers, equality between men Handbook of Work and Organizational Psychology
and women at the workplace, integration of people who (2nd Edition), East Sussex, Psychology Press Ltd.
are out of labor market. From this deinition it is clear Fox, R., (2006), Poslovna Komunikacija, Hrvatska
that in our case study we have breaking one of the most Sveučilišna Naklada, Pučko Otvoreno Učilište
important worker’s rights, the right on information, which Zagreb
is completely against EU principles. It means that this Holtz, S., Corporate Conversations: A Guide to
problem has also new dimension on state level because it Crafting Effective and Appropriate Internal
is obvious that Bosnia and Herzegovina needs better social Communication, HUOJ, Zagreb
policy in its process of joining the EU.

2011 Kenan Spaho 393
Jolić S., (2003), Interno informiranje i komuniciranje Weihrich, H., Koontz, H., (1998), Menedžment, Mate,
u sindikatu i poduzeću, Press Data, Zagreb Zagreb
Kasagić R., (2005): Pravo Evropske Unije, Ekonomski http://www.wordiq.com/definition/Trade_union,
fakultet Banja Luka, Banja Luka accessed 15.12.2010
Kohl, H., (1998), Prava zaposlenika – zaposleničko http://www.businessdictionary.com/deinition/trade-
vijeće – sindikat, Firedrich Ebert Stiftung – Ofice union.html, accessed 15.12.2010
Zagreb, Zagreb
Richmond, V.P., McCroskey J.C., McCroskey L.L.,
(2005), Organizational Communication for
Survival: Making Work, Work, Allyn and Bacon,
Needham Heights MA
Spaho K. - Organizational Communication as an Important Factor of Company Success: Case Study of Bosnia and Herzegovina
A SHORT COMMUNICATION ON - HOW A LEADING POWER

DISTRIBUTION COMPANY EFFECTIVELY TRACKS BUSINESS
AREAS LIKE SAFETY, FINANCE AND OPERATION FOR REGION
AND BUSINESS WISE FOR EVALUATING THEIR KPI’S - USING
BUSINESSOBJECTS XCELSIUS DASHBOARDS
Rakesh Tej Kumar Kalahasthi and Benson Hilbert
SAP BI Practice, Bangalore, India
Email: rakeshtej@gmail.com, benhilbert.hilbert@gmail.com
Abstract
Management Reporting has traditionally been completed manually. On a monthly basis, information is collected from various disparate
systems, summarized, analysed, aggregated, formatted and presented to the EMEA Regional Management Team by the 20th of each
month, based on the prior month results. Currently, management reporting in the organization consists of Safety, Operational and Financial
plus qualitative discussions and commentary. The goal of the Reporting Solution is to deliver and implement a consistent, personalized
information delivery system that includes performance data (key performance indicators) which are relevant, accurate and transparent for
use by regional management and executives to enable decision making each month. The solution should be delivered progressively whilst
being “portable” to other regional businesses. This business requirements document refers to the long term reporting strategy objectives.
Key words: Management reporting, KPI, SAP BI 7.0, Xcelsius, Commentary, EP.
About Customer Business Objective
• The Company is a global power company with Our Service will facilitate and support the IT activities
generation and distribution businesses. related to the Companies effort to deine the technical
• Through our diverse portfolio of thermal and design, construct and deliver an executive dashboard
renewable fuel sources, company provides affordable reporting solution (EXECDASH) based on the Business
and sustainable energy in 30 countries. Requirements Document (BRD).
• Its workforce of 27,000 people is committed to
operational excellence and meeting the world's Document Audience
changing power needs.
The intended audience of the document includes:
Reporting Solution Goal • Senior Vice Presidents
• Chief of Staffs
The goal of the Reporting Solution is to deliver and • Technical Director of EMEA
implement a consistent, [1] personalized information • Regional CFOs
delivery system that includes performance data (key • Vice President of Global Applications
performance indicators) which are relevant, accurate and • Regional Directors of Accounting
transparent for use by regional management and executives • Regional FP&A Managers
to enable decision making each month. The solution should • Regional IT Director
be delivered progressively whilst being “portable” to other
regional businesses. This business requirements document
refers to the long term reporting strategy objectives.

2011 Rakesh Tej Kumar Kalahasthi, Benson Hilbert 395
Functional Requirements • Interactive BI Dashboards through a lexible and easy

to use point and click interface.
Process • Extensible library of visualization components.
• Many Data connectivity options XML, Web Service,
• The [2] Management Reporting Project is designed to etc with SAP & Non-SAP databases.
present information on a consolidated basis, or business • Can deploy easily to many environments, Microsoft
for a pre-determined series of metrics. Ofice tools, Adobe, WebPages and Portals.
• Release 1 scope metrics are presented from the • Transform Excel spreadsheets into interactive data
following areas – which form the basis for the pages visualizations.
in the model; • Ability to perform Planning & Analysis.
• Safety
• Operations System Landscape
• Finance
An Information Mapping document will be prepared to • Operation data from Comshare system.
document the businesses deinition of how certain metrics • Safety data from Company Online system.
are measured and the source of the information plus the • Finance data from Flat iles and BPC cubes.
target page. This table will become the basis of information • Data lows to BW system into respective Infocubes on
for further development. Business workshops will identify top Multiproviders are created.
the source of information. • BEx Queries with multiple formulae are created and
used as infoproviders for dashboard development.
About Xcelsius • Dashboard visualization is broadcast to users via email.
• Allows rapid development of [3] dashboard

visualizations, based on drag and drop interface.
Figure.1 System Landscape
Execdash Architecture The 3 sources Company online (Safety), BPC (Finance),

Comshare (Operations) will be extracted and loaded to SAP
EXECDASH architecture is based on creating a central BW. As shown below, the SAP BW environment will have
data store that will house all metrics related information a staging area where extracts from the sources are staged.
from the Safety, Finance and Operations source systems.
Kumar K. R., Hilbert B. - A Short Communication on - How a Leading Power Distribution Company Effectively Tracks Business Areas Like Safety, Finance and
Operation for Region and Business wise for evaluating their KPI’s - Using BusinessObjects Xcelsius Dashboards
Figure.2 Architecture diagram
The staging area schema will have a set of reference data from 2 or more sources. The KPIs are loaded into
tables to align Hierarchy master data from all source a BW Star Schema with the following dimensionality:
systems. Further the staging area will also serve as a place Region, Sub-Region, Country, Business and Plant, Time.
to add ETL logic for KPIs that are calculated by combining
Data Flow for Safety
Figure.3 Safety Data low

Data Flow for Finance

Figure.4 Finance Data low
Data Flow for Operations
Figure.5 Operations Data low
Solution Diagram
Figure.6 Solution low

Key Performance Indicators

Figure.7 KPI list
Infoproviders • Universes are build on these BEx queries and pulled

into XCELSIUS through LIVE OFFICE.
• Safety Multiprovider for EXECDASH
• EHS Audit Xcelsius
• Safety Pyramid
• Proactive Safety • Text Box
• SMS Action Plan • Combo Box
• Finance Multiprovider for EXECDASH • List Box
• BPC EXECDASH DSO • Tab Set
• EXECDASH MASTER DSO • Combination Chart
• Business_ EXECDASH Masterdata • Bar Chart
• OperationMultiprovider for EXECDASH • Etc…
• Comshare EXECDASH DSO
• Comshare EXECDASH DSO YTD Figure.8 Dashboard
• FX Rate DSO
• Finance Data DSO
• Plant Business direct update
• Plant Business direct update (Attribute)
• Plant Business direct update (Texts)
Bex Queries
• Comprises of queries based on business areas

• Safety
• Operation
• Finance
• Separate queries are built based on [4] Business areas
for dashboard development.
Final Output and Demo
Figure.9 Final output 1a. Figure.9 Final output 1c.
Figure.9 Final output 1b. Figure.9 Final output 1d.
Security
Entry point to the EXECDASH dashboard is via a link the comments database will be through a single user ID.
on portal. This link will launch the [5] SAP EP portal that The currently requirements allows for all users to see all
will have the Dashboard as well as the commentary capture data. However, the commentary function data while visible
capability. The User is automatically authenticates using to all users is only editable by the respective level, function
the ourcompany.com credentials and will not need to re- and Hierarchy (plant, business, sub-region, and region)
authenticate for EXECDASH. For release 1, since total users. For all other users that fall outside this context, the
integrated security is not in scope, the access to BW and commentary function appears in read-only mode.

Best Practices • Have a Legend tab to maintain above details and more
Designing Xcelsius Visualizations [6] Conclusion
• Use Colors, Labels, and Borders to Identify Data Types This work delivers a very high level decision making
(Input and Out Put) dashboards which are used to evaluate KPI's of different
• Organize the Data in a Logical Fashion business areas. Xcelsius dash boarding provided most
• Place Frequently Used Data and Logic at the Top of effective way of analysing business across different regions
the Sheet which provided relevant, accurate and transparent reporting
• Use Multiple Tabs for use by regional management and executives to enable
• Dashboard Design decision making each month. The loading of comments
• Design on paper by the users and retrieving them from the data warehouse
• Start with and Empty Spreadsheet played a huge role by the effective coordination build
• Try to Keep the Data and Logic to minimum between Xcelsius, Enterprise Portal and SAP BI system.
• Add Components
• Add some dummy data to check the Chart and References
interactivity
• Add Dynamic visibility Logic h t t p : / / w w w. s a p . c o m / s o l u t i o n s / s a p b u s i n e s s
• Remove the Dummy Data objects/large/business-intelligence/dashboard-
• Export and Test the [7] Visualization Preparing the visualization/xcelsius-enterprise/ featuresfunctions
Xcelsius Workbook /index.epx
• Use Multiple Tabs R. Kimball (1996), “The Data Warehouse Toolkit”,
• Group logical data sets together John Wiley & Sons, Inc., New York (1996).
• Master Data Query output in one tab Ingo Hilgefort (2008), "Xcelsius 2008 with SAP
• Use Colors & Column & Row Labels to identify NetWeaver BI"
datasets The Need for Speed: Faster BI Means Better Business
Decisions New business intelligence tools enable
Figure.11 Color coding users to leverage data in more productive ways-
An exclusive report from Business Week Research
Services.
SAP Enterprise Portal Security Guide, "http://www.
sdn.sap.com/irj/scn/go/portal/prtroot/docs/library/
uuid/59bba290-0201-0010-468b-cd12efda573a?Q
uickLink=index&overridelayout=true"
http://www.xcelsiusbestpractices.com/landingZone/
articleReprints.html
Tom Turchioe with contributions by Jay Thoden Van
Velzen and Ingo Hilgefort (2010), “Performance
& Scalability Best Practices and Tuning
Recommendations for SAPBO XI 3.1 on BW"
MODELING STRATEGIES FOR FINANCIAL HEDGING

José Carlos Arias (PhD, DBA)
Professor of Management Science at the European Business School, Cambridge, UK
Email: josecarlosarias@saycocorporativo.com
Abstract
The predominance of existing research related to hedging strategies relative to the futures markets is typically concerned with
agricultural, foreign exchange (forex), and petroleum products. This brief research attempts to offer some insight relative to the mathematical
modeling techniques which inancial hedging strategists employ in order to be successful at mitigating risk. Modeling volatility within the
inancial markets has not received a great deal of academic attention. Siddique and Harvey undertook a study of autoregressive conditional
skewness which utilized GARCH techniques wherein they concluded that autoregressive models might be successful at modeling time-
series variations relative to asset pricing such as stock returns but not necessarily for futures and related hedging strategies.1 Their use
and application of GARCH (1,1,1)-M models successfully modeled skewness in a given inancial market and this has some application in
the futures market both long and short strategies exist as well. Key words: Financial Hedging, Strategy, Models, Finance, Econometrics
Garch Modeling well as spot market prices and allow better management of
inancial or commodities portfolios. The following model
GARCH or Generalized Auto Regressive introduces the basis for a hypothetical GARCH model:
Conditional Heteroskedasticity is a modeling technique
that allows researchers to predict for variances. According • GARCH (1, 1) model
to the GARCH Toolbox, GARCH, “…is a mechanism
(S − S ) = ϖ +ϖ (F − F ) + ε
that includes past variances in the explanation of future The model for traditional hedging techniques
variances”.2 GARCH is a time-series modeling device to
N (0 ,σ )
t −1 t −1
measure heteroscedacity which is time related variance
εφ
t 0 1 t t
and this model is effective at predicting volatility in a
2
given market. Volatility in the futures market is always ~
t +1
σ t2 = α 0 + ∑ β jσ t2− j + ∑ α iε t2−1
t t
associated with risk. GARCH methodology is very
ρ q
effective at examining and determining the nature of risk in
the inancial markets and certainly in the futures markets.3
j =1 i =1
GARCH models and techniques are particularly useful in
commodities markets, for example, because commodity Spot price
St
prices are subject to excessive amounts of volatility in
ways that other inancial markets are not. S t −1 Time elapsed spot price
Predicting, managing, and leveraging the uncertainty
Ft Future price
in futures market is however vital if a comprehensive
market strategy is going to be developed that enables an Ft − Ft −1 The price diference of the future after 3 months
β j ,α i
entity to eficiently control, or at least manage, the cost-
Beta, Alpha
basis of its investments or operating expenses. GARCH
techniques can be used to construct models that control, ϖ0
ϖ1
to some degree, conditional variances related to futures as
hedging ratio
εt
1
Siddique, A. and Harvey, C. Autoregressive Conditional Skewness. National Bu-
reau of Economic Research, Cambridge; 1999: 17. Standard error
2
Garch Toolbox. The Math Works, Inc; Natick, MA; 2006: 15.
3
Ibid, 15

2011 José Carlos Arias 403
φt −1 let f represent a inancial instrument, in this case it could
σ t2
be any form of currency, commodity or otherwise, and
the variable, D=(a,b, etc…) deines the domain of F.
These researchers manage risk according to the Omega
function by determining a return level, r=L in (a,b, etc…)
Clearly, the GARCH model allows for a high degree which becomes their loss threshold.7 While their model
of risk mitigation in the futures market because of its is extensive, the application and relevance to managing
predictive capacity. risk within the inancial markets relative to exchange
rate risk is clear in that by determining loss thresholds in
Durban-Watson advance, certain limiters on purchase instruments can be
predetermined. This work on the Omega function has led to
The Durban-Watson test is the standard method for other extended research on Omega as it applies to inancial
predicting or measuring auto-correlation phenomena instruments where Shadwick, Cascon, and Keatings’
which are important in futures markets that are so critical original deinition of Omega is reworked into a new model
to hedging strategies. Various techniques are used in the termed the Sharpe-Omega:8
Durban-Watson test to correct for autocorrelation such as
applying a parameter to address this factor in the data before Sharpe-Omega = Expected Return – Threshold
regression is performed.4 However, weighted regression ---------------------------
lines often fail this test. That said then the Durban-Watson Put Option Price
test is effective in forecasting through its standard time
series analysis when appropriate conidence levels have These researchers essentially redeine Omega in the
been established. Additionally, the Durban-Watson test inancial risk management model to represent:
is just as effective at modeling predictive behavior of
markets when beset by events that affect change in the time Ω(L) = C(L)
series such as sudden exchange rate luctuations.5 This ----
application of the Durbin-Watson test can be used to factor
P(L)
in risk for independent market variables such as interest
rates or currency exchange rates by predicting the effect
that certain scenarios might have on the particular industry C(L) represents a call option device while P(L) would
being hedged both in terms of the relative spot markets and be a put option.
the futures markets.
These and other statistical models are able to offer greater
Omega Function in Modelling insight into the inancial hedging strategies employed by
both private and public irms in order to mitigate market
The Omega function has several uses in mathematics and investment risks. These models indicate that a model
but in hedging speciic applications, its f=Ω(g) wherein speciically designed for and customized to each particular
f expresses constraints g in a given manner has some market and accounting not only for price luctuations
relevance to risk determination in both inancial and but also for market variables such as interest rates and
commodities markets where hedging typically takes place. exchange rates is plausible for every industry competitor
Shadwick, Cascon, and Keating make some use of the that employs hedging strategies.
Omega function where they develop a working model Other researchers have applied the GARCH(1,1) model
to display cumulative distribution based on a inancial to forecasting volatility with some success in the futures
application of the Omega function.6 In their model they market. One such model that has been demonstrated
4 7
Myers, J. L., & Well, A. D. Research Design and Statistical Analysis. Mahwah, Shadwick, W., Cascon, A. and Keating, C. The Omega Function. The Finance
NJ: Lawrence Erlbaum Associates; 2003: 18-22. Development Centre, London; 2003: 2-3
5 8
Kim, S., In, F., & Viney, C. “Modelling Linkages between Australian Financial Kazemi, H., Schneeweis, T. and Gupta, R. “Omega as a Performance Measure.”
Futures Markets.” Australian Journal of Management, 26/1(2001): 19. CISDM, University of Massachusetts, 06/15(2003).
6
Shadwick, W., Cascon, A. and Keating, C. The Omega Function. The Finance
Development Centre, London; 2003: 2.
Arias J. C. - Modeling Strategies for Financial Hedging
effectively is the following volatility model of Watkins and Kazemi, H., Schneeweis, T. and Gupta, R. “Omega
McAleer:9 as a Performance Measure.” CISDM, University of
Massachusetts, 06/15(2003).
Kim, S., In, F., & Viney, C. “Modelling Linkages
between Australian Financial Futures Markets.”
Australian Journal of Management, 26/1(2001):
19.
Myers, J. L., & Well, A. D. Research Design and
Statistical Analysis. Mahwah, NJ: Lawrence
Erlbaum Associates; 2003.
Siddique, A. and Harvey, C. Autoregressive
These researchers successfully applied this model to Conditional Skewness. National Bureau of
daily returns volatility of two separate futures markets Economic Research, Cambridge; 1999.
in commodities. Their success proves that every hedging Shadwick, W., Cascon, A. and Keating, C. The Omega
entity can adapt these models to develop a functional Function. The Finance Development Centre,
model that can accurately incorporate intervention related London; 2003.
to exchange rate luctuations into a futures volatility model Watkins, C. and McAleer, M. “Modelling Time-
that works to effectively hedge each entities particular Varying Volatility in Non-Ferrous Metals Markets.”
needs and constraints. The International Modelling and Software Society,
(2002): 1-6.
References
Garch Toolbox. The Math Works, Inc; Natick, MA;

2006.
9
Watkins, C. and McAleer, M. “Modelling Time-Varying Volatility in Non-
Ferrous Metals Markets.” The International Modelling and Software Society,
(2002): 1-6.

SRRNet
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Business Intelligence Journal

July, 2011 Vol.4 No.2

Business Intelligence Journal

Editorial Note 202

Proile of Authors Included in this Number 204

Information for Contributors 206

Articles Banking Proitability Determinants 209

James W. Scott, José Carlos Arias

Walter Gerard Amedzro St-Hilaire

Omankhanlen Alex Ehimare

Monireh Panahi, Mohammad Pakeniat

Ali Ebrahimi Kordlar, Nader Nikbakht

Continued on back cover

Business Intelligence Journal - July, 2011 Vol.4 No.2

Rakesh Tej Kumar Kalahasthi, Benson Hilbert

Dr. Katherinna Kurlenko Editor: Dr. Anne Surrey

Dr. Mathew Bock Publisher

Business Intelligence Journal - July, 2011 Vol.4 No.2

Words from the Board of Editors

The Editorial Board

Business Intelligence Journal - July, 2011 Vol.4 No.2

Business Intelligence Journal

Profile of authors included in this number

Article 1: Banking Proitability Determinants

Business Intelligence Journal - July, 2011 Vol.4 No.2

Business Intelligence Journal - July, 2011 Vol.4 No.2

INFORMATION FOR CONTRIBUTORS

Business Intelligence Journal - July, 2011 Vol.4 No.2

Business Intelligence Journal - July, 2011 Vol.4 No.2

Short Communications Costs for Authors

Business Intelligence Journal - July, 2011 Vol.4 No.2

BANKING PROFITABILITY DETERMINANTS

José Carlos Arias (PhD, DBA)

Scott J. W., Arias J. C. - Banking Proitability Determinants

Scott J. W., Arias J. C. - Banking Proitability Determinants

1. Accessibility of geographical arenas;

Financial intermediaries are clearly sensitive to

Source: Based on tabular data cited in Gup, 2003 at p. 2.

Scott J. W., Arias J. C. - Banking Proitability Determinants

60 In general, the consolidation involves large banks

Business Intelligence Journal - July, 2011 Vol.4 No.2

Table 2.Recapitulation of Proitability Determinants in the Banking Industry.

Scott J. W., Arias J. C. - Banking Proitability Determinants

Rank Institution Name Location Total Assets

Source: Federal Reserve National Information Center, 2007.

Business Intelligence Journal - July, 2011 Vol.4 No.2

Scott J. W., Arias J. C. - Banking Proitability Determinants

Business Intelligence Journal - July, 2011 Vol.4 No.2

Date of Filing Organization Key Performance Metric Highlights Comments

Scott J. W., Arias J. C. - Banking Proitability Determinants

Date of Filing Organization Key Performance Metric Highlights Comments

Stock Performance of Top Five Bank Holding Key:

Description of the Study Approach

This study used a mixed methodology to achieve the

of the numbers it is calculated from than others. It is Return on Assets

Scott J. W., Arias J. C. - Banking Proitability Determinants

Per Capita Growth Rate* Per Capita Growth Rate*

Business Intelligence Journal - July, 2011 Vol.4 No.2

Summary and Conclusions factors concerning innovations in technology that relate

Scott J. W., Arias J. C. - Banking Proitability Determinants

Business Intelligence Journal - July, 2011 Vol.4 No.2

Scott J. W., Arias J. C. - Banking Proitability Determinants

United States' Largest Bank Holding Companies (as of June 2007)