The Impact of the 2007/2008 GFC on Investment Ability and Corporate Performance: Evidence from Sub-Sahara Africa

Abstract

The objective of this studyis to test the of the 2007/2008 global financial crisis on investment abilityand corporate financial performance. The study measured the impact of thecrisis by comparing the investment ability and corporate performance of firmsthat were financially flexible at the onset of crisis against those that werenot. A sample of 86 listed manufacturing firms was drawn from Tanzania, Kenya,South-Africa and Nigeria. The results however, reveals that FF is a valueenhancing strategy and that firm’s management should consider this strategywhen making decisions with regard to finance and investments. This conclusionhas been reached after observing firms that were financially flexible prior tothe GFC performed better than less financially flexible firms during and afterthe crisis than their peer firms that were identified as less financiallyflexible. Our analysis suggests that the advantages of financial flexibilitymay not be significantly pronounced during the crisis itself as most of thefirms may still be struggling to learn and understand the shocks brought by thecrisis, but after a short time, financially flexible firms may react by makinguse of their flexibilities to access credit facilities and/or make use of theavailable internal funds to cope and perform better than less flexible firms.Theoriginality of the author’s approach is to evaluate the impact of the 2007/2008GFC on firms listed in the Sub-Sahara Africa. Keywords:keywords, financial flexibility, global financial crisis,financial performance, investment ability