The role of financial ratios on investment decision in the banking sector in Tanzania
Date
2020
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Mzumbe University
Abstract
The study assesses the role of financial ratios analysis on investment decisions within the banking sector. Specifically, the study assesses the role of financial ratios in investment decisions making on a number of branches and human resources. Independent variables involved in the study are liquidity ratios (liquid assets to deposit ratio,) profitability ratios (return on equity).The study used secondary data that was collected from Dar es Salaam Stock Exchange and from annual reports of sampled five selected commercial banks for the period of seven years from 2010 to 2016.The data included information contained in annual reports and financial statements. The study used Principle Component Analysis (PCA) of Factor Analysis to extract variables with high factor load which could clearly influence dependent variables. After that, Weighted Least Squire Regression (WLSR) analysis was used to identify independent variables (extracted financial ratios) with a significant relationship with dependent variables (investment decision). The results obtained indicated that liquid assets to deposit-borrowing ratio had negative insignificant power to predict investment in both numbers of branches and the number of human resources. Net Loans to deposit and borrowing has negative significant power to predict investment decision in both branches and human resources. Meanwhile, return on equity was found to have positive significant power to predict investment in both branches and human resources. The remained proxies/variables of financial ratios were noted to be unreliable in explain investment decision in the banking sectors since they were eliminated through PCA With these statistical results, the study revealed that financial ratios had both negative and positive significant effects on influencing investment decisions within the banking industry in Tanzania. Other prior studies on the Roles of Financial Ratio analysis in banking sector shows inconclusive or contradictory on the actual roles of the financial ratio analysis.The study recommends that the Bank of Tanzania (BOT) should deliberately speed up the sensitization campaign of the Tanzanian commercial banks to focus on ratios analysis as among the best tool in the effective decision.
Description
A dissertation submitted to Mzumbe University Dar-es-salaam Campus College in partial fulfilment of the requirements for the award of Master of Business Administration in Corporate Management (MBA-CM) Degree of Mzumbe University
Keywords
Banking-investment-Tanzania, Basic accounting theory, Human resource development, Modern portfolio theory
Citation
APA