1. Stock market participation: Is it really an issue of information asymmetry? A paper presented at the 10th ORSEA annual International conference held at the University of Nairobi School of Business, Lower Kabete Road, Nairobi October 16-18, 2014 By Zainabu Tumwebaze Laura Orobia (PhD) Assoc. Prof Nixon Kamukama (PhD) 1 OPERATIONS RESEARCH SOCIETY OF EASTERN AFRICA

2. Structure of presentation Introduction Methodology Results Discussion and conclusions Implications 2

3. Introduction The stock exchange markets are a vital source of capital for organizations (Alam et al., 2011; Jaswani, 2008; Zuravicky, 2005). However, even as opportunities exist for accessing cheap financial resources through the Uganda Securities Exchange (USE), local firms in Uganda face challenges in obtaining long-term finance Existing evidence indicates that the market size and activity at USE is still low (Katto, 2013) – untapped alternative 3

4. Introduction Contd... Only 14 companies are listed on the USE with market capitalization of $5.18bn as compared to Nairobi Securities Exchange (NSE) with 60 listed companies with market capitalization of $ 13.15bn. (Kato, 2013) Previous studies also report that private firms that are privy to the benefits of stock exchanges seem to have avoided the stock market as means of raising capital (see Sejjaaka, 2011). The main question therefore is why the low stock market participation on the USE? 4

5. Methodology Quantitative and cross sectional survey design Study population – 164 private firms with chargeable incomes of above 50m shillings (business tax- payers, URA register, 2013) Sample – 118 (Krejcie & Morgan, 1970); stratified simple random sampling Data exploration - 107 usable observations Sample characteristics Unit of inquiry Gender – Males (58%), Females (42%). Age – 31 – 40 years (37%) Education – Bachelors degree (38%) Unit of analysis Business age– over 10 years(75%), 5-10 years(25%) Business type – Service (67%), Industry (30%), Agriculture (3%) Annual income (U Shs) – 50m-100m(41%); 100m- 500m (27%). 1/15/20165

6. Methodology cont… Measurement of variables – scales developed by previous scholars: Information asymmetry Information asymmetry– item questions generated were to capture the quality and quantity of information provided to enable accessing funds through the stock market exchange, thus, information quality and information quantity (Griffins, 2002; Nott, 2003; Afzal, Roland & Al- Suqri, 2008). Stock market participation Stock market participation – item questions generated were to capture firms ‘going public/ trading shares’, thus, market capitalization and volume of trade (Dariusz, 2008) Data processing, presentation and analysis - Statistical Package for Social Science (SPSS) Correlation analysis – to test associations between the study variables Regression analysis – test the contribution of the IVs to the DV. 6

7. Correlation results Variables123456 Information quantity [1]1 Information quality [2].320**1 Information asymmetry [3].780**.842**1 Market capitalization [4].443**.580**.635**1 Volume of trade [5].313**.400**.442**.279**1 Stock market participation [6].475**.617**.677**.815**.784**1 **. Correlation is significant at the 0.01 level (2-tailed). 7

8. Regression results _IA Unstandardized Coefficients Standardized Coefficients tSig. BStd. ErrorBeta (Constant)1.2360.1796.9010.000 Information asymmetry 0.5730.0610.6779.4370.000 R =.677; R 2 =.459; Adj R 2 =.454; F Stat= 89.01; Sig=.000, Durbin Watson = 1.943 Dependent variable_stockmarket participation 8

9. Regression results_IQlty_IQty Unstandardized Coefficients Standardized Coefficients tSig. BStd. ErrorBeta (Constant)1.273.181 7.017.000 Information quantity.230.056.3094.092.000 Information quality.332.048.5186.843.000 R =.683; R 2 =.466; Adj R 2 =.456; F Stat= 45.42; Sig=.000, Durbin Watson = 1.925 Dependent variable _Stockmarket participation 9

10. Discussion and conclusion Relation between information asymmetry and stock market participation (Afzal et al, 2008; Chemmanur et al., 2010; Ekumah & Essel, 2003; Sejjaaka, 2011). Information quality included items such as ‘companies ensuring consistency in preparing financial statements’, the firms’ financial information being neutral and free from errors’ etc. Information quantity included items such as availing detailed information required to be listed on the USE, companies having adequate information about the opportunities at the USE etc. Conclusion; information asymmetry cannot be ignored if we are to see improvement in stock market participation. 10

11. Study implications Theoretical Theoretical – add to stock market literature that information quality more than information quantity is highly correlated with stock market participation. Practical Practical – managers’ perspective - need to develop capacity to provide clear information; CMA’s perspective – increase awareness about its operation. Study limitations and areas for further research o Lacks cross-validation o Cross-sectional survey o Kampala specifics 11

12. Thank you for Listening 12