Corporate Finance

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Assessment of Corporate Governance for Ipo Readiness: The Case in The Ethiopian Financial Sector
(Addis Ababa University, 2025-09) Natnael Hailu; Dakito Alemu (PhD)
This study examines corporate governance within Ethiopia's financial sector, with a specific focus on the context of initial public offerings (IPOs). Effective governance is essential for maintaining company integrity and operational efficiency, as it helps build long-term value for stakeholders by establishing clear regulations, ensuring accountability, and fostering transparency. An IPO signifies a company’s shift from private to public ownership, which can be successfully navigated through robust governance practices and examines key factors, including board structure and diversity, the educational background of board members concerning IPOs, clarity in financial reporting, risk assessment strategies, the effectiveness of audit committees, and corporate social responsibility initiatives. These elements are all critical for assessing the readiness of public companies in Ethiopia. To conduct this analysis, a combination of quantitative and qualitative methods was utilized within a descriptive framework. Data was gathered from both primary and secondary sources using structured and open-ended questionnaires, as well as published materials. The sampling technique involved selecting 22 banks from a pool of 32 operational banks, intentionally excluding new entrants, commercial, and development banks. Additionally, the study included 17 out of 18 insurance companies, with the Ethiopian Insurance Corporation and the Commercial Bank of Ethiopia omitted from the sample due to a strategic policy decision, rather than any governance-related issue tied to their IPO readiness. The analysis of microfinance institutions concentrated on the top 10 organizations with the strongest capital bases, using performance metrics such as return on equity and revenue growth over the past five years. The data analysis involved descriptive statistics, including frequency counts, percentages, tables, mean scores, and standard deviations, using SPSS version 27. The findings revealed that several areas received moderate ratings, underscoring a need for strategic enhancements in corporate governance practices. These improvements are crucial for enhancing IPO readiness in Ethiopia’s financial sector, ensuring that organizations are well-prepared to navigate the complexities of going public and meet the expectations of prospective investors
Assessment of Ethiopia's Foreign Exchange Reform Policies: Successes, Challenges and Opportunities
(Addis Ababa University, 2025-09) Jebessa Merga; Dakito Alemu (PhD)
This study An Assessment of ethiopian foreign exchange reform policy evaluates the recent foreign exchange reform policies adopted in Ethiopia, focusing on its successes, challenges, and potential opportunities. The reform was introduced in July 2024, aiming to equalize the official exchange rate with black-market exchange rates, improving foreign currency reserves, and enhancing export competitiveness and attracting foreign direct investments (FDI). The study adopted A qualitative and descriptive research methods, the primary data for this study were collected through structured questionary from key stakeholders like, Importers/Exporters investors and National bank of ethiopia (NBE) employees based on their relevance’s and experiences on foreign exchange reforms, and secondary data were collected from institutional reports and macroeconomic indicators published by the National Bank of Ethiopia and international agencies., the study compared the trends of a key economic indicator before and after the reforms to measure the impact of the reforms. The data analysis after the implementation of reform shows a significant improvement in foreign currency reserves, Similarly, there was a tangible reduction in the gap between the official and Black-market exchange rates, Foreign direct investment shows dramatical change which nearly doubled. However, the reform implementation also faced substantial challenges. including, initial foreign currency shortages, limited access to foreign currency for importers and weak institutional capacity which undermine the reforms’ effectiveness. In addition to the challenges, the study also identified potential Opportunities that help long term economic transformation including leveraging digital financial technologies to modernize foreign currency transactions and expanding public-private partnerships to boost export diversification are among the opportunities. The study concludes that whereas the reform shows significant improvements in all aspects, its sustainability depends on complementary actions, including strengthening institutional capacities, enhanced export diversification, adopting digital financial technologies and strengthened financial sector governance.
Assessment of Factors Influencing Bond Market Development in Developing Countries: The Case of Ethiopia
(Addis Ababa University, 2024-10) Awgichew Abiye; Dakito Alemu (PhD)
The development of a robust bond market is crucial for the advancement of the financial sector and the overall economic growth of a country. The aim of this research was to explore the key factors influencing the development of bond market in Ethiopia. The study employed a quantitative research approach to examine and describe the political, economical, regulatory, infrastructure and intermediaries and investors’ base dimensions based on the data collected through survey method. The study was conducted over 130 respondents from government organizations, national and international financial institutions and bond market consultants. The data was collected using 5-point Liker scale questionnaire and purposive sampling technique. The findings highlight that political instability, macroeconomic volatility, and inadequate infrastructure are unfavorable for the development of the bond market in Ethiopia. The study also reveals positive aspects, such as the presence of regulatory frameworks promoting market integrity and transparency, but emphasizes the need for further reforms and investments. Specific recommendations include implementing political and economic reforms, enhancing regulatory independence, investing in modern market infrastructure, and promoting a diverse investor base. By addressing these challenges and leveraging identified opportunities, Ethiopia can create a vibrant bond market that contributes to economic stability and growth. This paper provides policymakers, regulators, and market participants with actionable insights and strategies for fostering a resilient bond market in Ethiopia. Key Words: Bond market, Bond market development, Bond market in Ethiopia, Factors influencing bond market development
Assessment of Internal Control Effectiveness of Commercial Banks in Ethiopia
(Addis Ababa University, 2025-08) Moa Kedida; Dakito Alemu (PhD)
This study assesses of the internal control in Ethiopian commercial banks, emphasizing their role in ensuring financial sustainability. Focusing on 10 out of 30 banks categorized by size, the research employed a descriptive design and collected primary data via questionnaires from 226 staff (91% response rate) across key departments, analyzed using SPSS version 27. Findings revealed that while internal controls aligned with the COSO Framework were generally effective, effectiveness varied among banks, offering insights for improvement in enhancing overall effectiveness of internal control due to the nature of the riskiness of the banking sectors and its impact on financial performance.
Assessment of Operational Functions of the Ethiopian Deposit Insurance Fund
(Addis Ababa University, 2025-09) Mekdes Gizaw; Dakito Alemu (PhD)
This study is done for assessment of Operational Functions of the Ethiopian Deposit Insurance Fund which was established in 2023 to strengthen financial stability and protect depositors. By Focusing on four core functions of the fund—premium setting mechanism, fund management, fund sufficiency, and public awareness—the research employed a quantitative research approach by collecting data via structured questionnaires from 80 banking, microfinance, and EDIF professionals in Addis Ababa and an interview was done with one of EDIF Director. The researcher used descriptive and narrative analysis methods to analyze the data collected. The results of the descriptive analysis reveals moderate confidence in EDIF’s premium setting mechanism with mean score: 3.24, though concerns persist about its capacity to discourage risky bank behavior. Fund management practices (mean: 3.12) are viewed carefully, with transparency and governance independence flagged for improvement. Fund sufficiency (mean: 3.08) faces skepticism regarding adequacy for crisis response. Critically, public awareness (mean: 3.15) is underdeveloped, with weak communication on coverage limits (mean: 2.47) undermining trust. As per the interview with one of the directors, the EDIF has involved in its operations since its establishment, elaborated why it has employed flat rate of premium settings. Points out its strengths and weaknesses and has planned to by a pay box plus role in the near future to protect the financial sector of the economy and take part in the developing the country’s economy. The study concludes that while EDIF aligns broadly with its mandate, strategic enhancements in risk-based premiums, governance transparency, crisis funding strategies, and public outreach are imperative to strengthen its role in Ethiopia’s financial sector safety. Recommendations include adopting dynamic premium models, proactive disclosure protocols, and nationwide awareness
Determinants of Agricultural Loan by Commercial Banks in Ethiopia: A Case of Three Selected Commercial Banks
(Addis Ababa University, 2025-10) Ayenew Negusse; Dakito Alemu (PhD)
This study examines the key factors influencing agricultural lending by commercial banks in Ethiopia, a sector vital to the economy yet underserved financially. Using survey data from credit officers and analysts, it analyzes seven dimensions—ranging from bank-specific and borrower-specific factors to broader economic, regulatory, and environmental conditions—through multiple linear regression. The findings show that bank-specific factors, risk assessment and management, political and institutional conditions, and environmental and climate factors significantly impact lending decisions, while borrower characteristics, regulatory frameworks, and economic indicators are less influential. The study concludes that institutional capacity and external macro-level factors play a greater role in shaping agricultural finance than individual borrower attributes, highlighting the need for stronger institutional frameworks, risk-sharing mechanisms, and targeted policy reforms to enhance credit access in the agricultural sector
“Drivers of Merger and Acquisition Decision in Ethiopian Private Banks”
(Addis Ababa University, 2025-09) Lidia Samuel; Dakito Alemu (PhD)
Mergers and acquisitions refers to where two or more financial entities combine corporate resources to operate as a unit with an aim of improving their performance. Despite recent developments in every sector of the economy, the practice of mergers and acquisitions is a fairly new concept to the Ethiopian banking industry. This research aims to investigate the factors driving merger and acquisition (M &A) activity in Ethiopian Banks. With the Ethiopian government's push toward liberalization, including increased minimum capital requirements and the entry of foreign banks, local banks face heightened regulatory and competitive pressures which may lead banks to consider mergers and acquisitions. Hence, understanding the factors that may drive it is crucial. The study employed quantitative approach, using structured questionnaire to gather comprehensive insights into the perception of Ethiopian Commercial Banks towards M&A drivers. Primary data was collected from Management members of 16 private banks selected using stratified random sampling. With a response rate of 92%, 221 questionnaires have been returned and were valid for data analysis. The quantitative data was analyzed employing descriptive and inferential analysis (i.e. correlation analysis and multiple regression analysis) and using SPSS. The findings of the multiple regression indicated that only four of the predictor variables i.e. financial performance improvement, compliance with regulatory requirements, market expansion, and cost-saving synergies are the most influential factors motivating M&A decisions. Conversely, branding, diversification, and survival were not found to be statistically significant. These findings highlight regulatory compliance and financial synergies as pivotal for policymakers during sector liberalization. With an adjusted R² of 0.788, the model explains approximately 78.8% of the variance in M&A decisions, indicating a strong explanatory power. The study offers important insights for policymakers, regulators, and bank executives in planning for strategic consolidation to build a resilient and competitive banking sector in Ethiopia. Finally recommendations are made based on the findings of the study.
Factors Affecting Institutional Investors Participation in Ethiopian Capital Market
(Addis Ababa University, 2025-08) Natnael Tesera; Dakito Alemu (PhD)
The study aims to investigate the key factors affecting the participation of institutional investors in the Ethiopian capital market. Employing a mixed research design, the study integrated descriptive and explanatory components to provide a comprehensive understanding of the institutional investors' readiness to engage with this emerging market. The research employed a mixed-methods approach, combining quantitative and qualitative data collection and analysis. The target population for the study included a diverse range of institutional investors seeking to participate in the Ethiopian capital market such as insurance companies, microfinance institutions, federal and regional government entities, state-owned enterprises, and pension and retirement funds. For the qualitative component, a purposive sampling technique was utilized to gather in-depth insights from key informants. The quantitative phase of the study employed a stratified random sampling approach to ensure representation from the different types of institutional investors. Descriptive analysis revealed a moderate perception of the legal and regulatory framework, with concerns about compliance and enforcement. However, inferential analyses showed a significant positive correlation and influence of these factors on investor readiness, emphasizing the need for improved clarity and harmonization. Knowledge factors (human capital and information access) were perceived negatively descriptively, yet inferential analysis highlighted their significant positive impact on readiness, indicating a need for enhanced financial literacy and information availability. Resource factors showed mixed perceptions descriptively, but inferential analysis identified them as the strongest positive predictor of readiness. While overall investor readiness was moderately positive descriptively, inferential analyses confirmed the significant positive influence of the legal and regulatory environment, knowledge, and resources. The study concludes that effective institutional investor participation hinges on a supportive legal and regulatory framework, enhanced knowledge and information access, and adequate resources, particularly technological infrastructure and human capital. Recommendations include an immediate focus on strengthening the legal and regulatory environment, a mid-term priority on enhancing knowledge and access, and a long-term strategy to facilitate resource development through collaborative efforts
Factors affecting the financial performance of manufacturing companies in Ethiopia The Case of Selected Manufacturing, Ethiopia
(Addis Ababa University, 2025-06) Meron Kebede; Dakito Alemu (PhD)
The manufacturing industry in Ethiopia is currently underdeveloped, contributing only 11.7% to the country's Gross Domestic Product (GDP). The objective of this study was to investigate the various factors affecting manufacturing companies in Ethiopia. To achieve this, the study utilized panel data collected from selected manufacturing firms over the period of 2019 to 2023. A combination of descriptive and explanatory research designs was employed. Secondary data were sourced from the Ethiopian Revenue Customs Authority's large taxpayer branch office, ensuring the reliability and accuracy of the data used in the analysis. To analyze the data, the study utilized panel data regression and Spearman correlation to test the relationships and effects of independent variables on dependent variables. The study's findings reveal several significant relationships: The analysis indicated a significant negative relationship between leverage and financial performance, specifically measured by Return on Assets (ROA). This finding suggests that as leverage increases, the return on assets tends to decrease, consistent with the pecking order theory. This theory suggests that firms prefer internal financing over external financing and that higher debt levels can be unfavorable to financial performance due to increased costs and financial risk. In contrast, liquidity demonstrated a significant positive relationship with ROA. This indicates that companies that effectively manage their liquid assets can enhance their financial performance, capitalizing on investment opportunities and maintaining operational flexibility. Additionally, the analysis revealed that firm size and age had a negative relationship with ROA. In conclusion, the study recommends that manufacturing companies focus on optimizing liquidity to effectively capitalize on investment opportunities and manage their operations
Formulating Anti-Money Laundering (AML) Regulations for Cryptocurrency Trade in Ethiopia: Opportunities and Barriers for Banks
(Addis Ababa University, 2025-09) Kidist Berihu; Dakito Alemu (PhD)
This study explores the absence of Anti-Money Laundering (AML) regulation for cryptocurrency transactions in Ethiopia and how it affects the banking sector. With the widespread international use of online currency, Ethiopia maintains a legal ban on cryptocurrency trading, resulting in a significant regulatory gap. This lack of a clearly defined AML system limits banks from establishing relationships with or responding to growing uses of cryptocurrencies. It also subjects the financial system to possible dangers such as money laundering, fraud, and regulatory risk, yet restricts institutions from being in a position to have the potential benefits of cryptocurrency such as greater financial inclusion, reduced remittance cost, and digital cross-border payments. To study these research, a mixed-methods approach was employed. Primary data were collected through questionnaires distributed to 45 professionals from banking, regulatory experts, fintech and academia and were analyzed using descriptive statistics. Thematic analysis of in-depth interviews with major stakeholders was conducted with 6 professionals from regulatory, banking and fintech. Results showed that Ethiopian banks are constrained by inflexible legal frameworks, lack of appropriate technology capabilities, and institutional uncertainty with regard to crypto-related AML compliance. However, participants recognized the potential of blockchain and digital assets to transform financial services if properly regulated. The study concludes that Ethiopia's present regulatory approach toward cryptocurrencies restricts both innovative processes and risk control methods. The study recommends that Ethiopia should change its prohibition stance by implementing an organized regulatory framework which can adapt to new developments. Through improvements in institutional frameworks and technology integration with fintech advancements Ethiopia can establish an advanced banking system which is both inclusive and secure and forward-thinking.
Impact of Partnership Attributes on Audit Quality: Evidence from Private Audit Firms in Addis Ababa
(Addis Ababa University, 2025-09) Nardos Worku; Dakito Alemu (PhD)
This study examines how partner rotation, industry specialization, competence, and workload management influence audit quality in private audit firms in Addis Ababa, Ethiopia. Motivated by conflicting global evidence, limited empirical research in the Ethiopian context and Ethiopia’s ongoing efforts to establish a capital market which demands for high-quality, transparent financial reporting, this study responds to concerns about audit quality in a profession dominated by sole practitioners, who often face limited resources, expertise, and peer review opportunities. The study adopted a descriptive explanatory survey research design and quantitative research approach. A total of 122 questionnaires were distributed to audit partners, principals, and managers using random sampling from the 176 private certified firms registered in Addis Ababa, yielding 110 usable responses. Data were collected using a structured Likert-scale questionnaire and analyzed through descriptive statistics, Pearson correlation statistics, and multiple regression analysis. Regression analysis revealed that partner workload management had the strongest impact, followed by partner rotation and industry specialization. Although partners' competence showed a positive coefficient, it was not statistically significant. The model’s R² indicates that significant portion of the variance in audit quality was explained by the predictors. The findings underscore the importance of structural practices in audit firms, especially managing partner workloads, promoting rotation and industry specialization, to enhance audit quality. While competence remains relevant, it appears to require reinforcement from other factors. This research contributes to audit quality literature and offers practical recommendations for improving audit standards in Ethiopia’s evolving regulatory environment.
Initial Public Offering (Ipo) Readiness in Ethiopia: Assessing Regulatory Framework, Corporate Governance, Financial Literacy & Technological Challenges
(Addis Ababa University, 2025-08) Mohammed Ahmed; Dakito Alemu (PhD)
This study investigates the IPO (Initial Public Offering) readiness of companies in Ethiopia, focusing on the regulatory framework, corporate governance practices, financial literacy levels, and technological barriers that may impact their ability to successfully undertake an IPO. Employing a mixed-methods approach, the research combines quantitative data collected through questionnaires and analyzed using descriptive statistics (frequency distributions, percentages, means, and standard deviations) in SPSS 20, with qualitative data gathered from semi-structured interviews. The target population comprises Chief Finance Officers (CFOs), Chief Executive Officers (CEOs), General Managers, Deputy General Managers, Finance Managers, and Chief Accountants from selected large taxpayer share companies and private limited companies within the manufacturing, banking, and insurance sectors in Ethiopia. A stratified random sampling technique, using Yamane's formula, was used to determine a sample size of 129 respondents. Primary data was collected through questionnaires with both open and closed-ended questions, and face-to-face interviews. Secondary data was obtained from sources such as the National Bank of Ethiopia, the Capital Market Authority, academic journals, and relevant financial proclamations and policies. The result of this study revealed the lack of compliance with international IPO standards, insufficient transparency in financial discloser, weak investor protection mechanisms, lack of independent oversight on board of directors, limited understanding of investment process among potential investors, insufficient education on risk and benefit of IPOs, lack of integration between technological platforms used in the IPO process, cyber security concerns that jeopardize sensitive information. The study recommended regulatory reform, enhancing corporate governance, improving financial literacy, addressing technological barrier and strengthening the IPO ecosystem. The research contributes to the understanding of factors influencing IPO decisions in emerging economies and provides practical guidance for companies considering going public in Ethiopia
Operational and Strategic Readiness of Ethiopian Commercial Banks for The Emerging Capital Market: A Multi-Dimensional Assessment
(Addis Ababa University, 2025-09) Moges Abera; Dakito Alemu (PhD)
Globally, commercial banks play a crucial role in capital markets by offering asset management, structured finance, and leveraging digital and fintech innovations. In Africa, countries like South Africa, Nigeria, and Kenya have seen active bank participation in capital markets despite challenges such as regulatory uncertainties and market volatility. In Ethiopia, the enactment of the Ethiopian Capital Market Proclamation No. 1248/2021 marked a significant milestone in Ethiopia's financial landscape, setting the stage for a robust capital market that can drive economic growth by attracting investments and enhancing market efficiency. The readiness of commercial banks is vital for the success of the emerging capital market. This study examines the operational and strategic readiness of Ethiopian commercial banks, focusing on senior managers' perceptions, competitive strategies, capital adequacy, workforce capabilities, and leadership. A mixed-methods approach was employed, integrating qualitative insights with quantitative data for a comprehensive analysis. The findings reveal that while Ethiopian banks are optimistic about the potential of the capital market, their readiness is moderate due to gaps in strategic planning, risk management, and workforce skills. Competitive strengths such as partnerships and innovation are evident, but weaknesses in pricing strategies and digital infrastructure limit effectiveness. The study recommends targeted training programs, improved risk management frameworks, investment in technology, and leadership development initiatives to enhance banks' preparedness. By addressing these gaps, Ethiopian banks can play a pivotal role in the success of the capital market, contributing significantly to the country's economic development and financial integration
Operational Risk in Ethiopian Commercial Banks: A Case Study with Emphasis on Financial Fraud
(Addis Ababa University, 2025-08) Zemichael Tesfamariam; Dakito Alemu (PhD)
This study evaluates the operational risks and financial fraud faced by Ethiopian commercial banks, focusing on internal, human, and external factors that contribute to these issues. It also examines the most prevalent types of fraud and the countermeasures in place. This study employed a mixed-methods research approach to gather data via questionnaires from 236 employees working in 31 commercial banks. A descriptive research design was used to explore and characterize the subject under investigation. Data were sourced exclusively from primary sources, ensuring direct relevance to the research objectives. Ethical considerations were rigorously upheld throughout the data collection process. Additionally, reliability and validity were assessed on a sample basis before analyzing the complete dataset using SPSS. The research identified key internal processes and systems factors that contribute to operational risk. These include inadequate IT systems and infrastructure, weak transaction authentication protocols, a lack of segregation of duties, poor documentation practices, and insufficient real-time monitoring systems. Human factors also played a significant role, such as a weak ethical culture within the organization, a lack of accountability and oversight, a lack of employee training, insufficient background checks during hiring, and employee misconduct. External factors were identified that include cybersecurity threats, political and economic instability, lack of specialized oversight for emerging technologies, weak enforcement of compliance standards, and inconsistent enforcement of anti-fraud regulations. The study documented prevalent types of fraud committed by customers, such as mobile banking fraud, cheque fraud, money laundering, and identity theft, which were identified as the most common. Among employees, the most prevalent types of fraud included debits from dormant accounts, embezzlement, bribery, and collusion with external parties. Additionally, the findings highlighted critical measures for mitigating operational risk and preventing fraud, such as strengthening internal controls, conducting regular audits and monitoring of high-risk accounts, implementing strict access control for sensitive systems, implementing advanced real-time fraud detection systems, and providing regular employee training on fraud prevention. These insights emphasize the importance of a multifaceted approach to mitigate operational risk and prevent financial fraud in the banking sector.

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