EJBEA European Journal of Business, Economics and Accountancy (EJBEA) ISSN 2056-6018 is a peer- reviewed research journal published by Progressive Academic Publishing, UK. For this journal we accept manuscripts in the following areas: Accounting and Finance, Micro and Macro Economics, Development Studies, Micro-Finance, E-Business, E-Commerce, Entrepreneurship, Financial Management, Marketing, Business Economics, Research & Development, International Development, Economic Issues of Developing and Developed Countries, Policy Studies, Poverty Alleviation, NGOs and Poverty Alleviation, Banking and Finance, Innovations in Business, Investment, Public and Private Sector Investment, Online Business and other areas related to Economics and Business. Indexing: This journal is indexed with the following database: Google Scholar, ROAD Directory of Open Access Scholarly Resources, UK, Cabells Directories, USA, EBSCOhost, Gale’s Academic Databases, Norwegian Social Science Data Services (NSD), Open J-Gate, PKP Open Archives Harvester, ProQuest, Sherpa/Romeo, Ulrich’s Periodical Directory. How to Submit Manuscripts: Manuscripts typed on our article template can be submitted through our website. Alternatively, the manuscripts can be sent as an email attachment to: [email protected]Editor-in-Chief Progressive Academic Publishing Website: www.idpublications.org Email: [email protected]
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EJBEA European Journal of Business, Economics and Accountancy (EJBEA) ISSN 2056-6018 is a peer-
reviewed research journal published by Progressive Academic Publishing, UK. For this journal we accept manuscripts in the following
areas:
Accounting and Finance, Micro and Macro Economics, Development Studies, Micro-Finance,
E-Business, E-Commerce, Entrepreneurship, Financial Management, Marketing, Business
Economics, Research & Development, International Development, Economic Issues of
Developing and Developed Countries, Policy Studies, Poverty Alleviation, NGOs and Poverty Alleviation, Banking and Finance, Innovations in Business, Investment, Public and Private Sector
Investment, Online Business and other areas related to Economics and Business.
Indexing: This journal is indexed with the following database: Google Scholar, ROAD Directory of Open Access Scholarly Resources, UK, Cabells Directories,
USA, EBSCOhost, Gale’s Academic Databases, Norwegian Social Science Data Services (NSD), Open J-Gate, PKP Open Archives
EJBEA Vol. 4 No. 6, 2016 European Journal of Business, Economics and Accountancy (EJBEA): Accepted Papers
1. Metalla, O., Vyshka, E. & Nexhipi, O. (2016). Performance measurement: the case of Durres Port. European Journal of Business, Economics and Accountancy, 4 (6), 1-9.
2. Amata, E. O., Muturi, W. & Mbewa, M. (2016). The causal relationship between inflation, interest rate and stock market volatility in Kenya. European Journal of Business, Economics and Accountancy, 4 (6), 10-23.
3. Caliskan, N. (2016). Benefits of lean office. European Journal of Business, Economics and Accountancy, 4 (6), 24-27.
4. Caliskan, N. (2016). Teamwork the lean way. European Journal of Business, Economics and Accountancy, 4 (6), 28-31.
5. Mandic, B. V. (2016). Analysis of the macroeconomic indicators of Bosnia and Herzegovina. European Journal of Business, Economics and Accountancy, 4 (6), 32-39.
6. Agarwal, S. & Adjirackor, T. (2016). Impact of teamwork on organizational productivity in some selected basic schools in the Accra metropolitan assembly. European Journal of Business, Economics and Accountancy, 4 (6), 40-52.
7. Yuliarini, S., Ismail, K. N. I. B. K. & Othman, Z. (2016). Evaluation of environmental investment (EEI) for cost efficiency: case in Indonesia. European Journal of Business, Economics and Accountancy, 4 (6), 53-62.
8. Reddy, C. (2016). Emotional intelligence: implications on improving team performance at exact holdings located in Kwazulu-Natal. European Journal of Business, Economics and Accountancy, 4 (6), 63-92.
9. Ikeora, J. J. E., Nneka, C. A. & Andabai, P. W. (2016). The weak form efficient market hypothesis in the Nigerian stock market: an empirical investigation. European Journal of Business, Economics and Accountancy, 4 (6), 93-105.
10. Hassan, N. I. A. et al. (2016). External debt-gdp nexus in Ghana: an application of the autoregressive distributed lag (ARDL) model. European Journal of Business, Economics and Accountancy, 4 (6), 106-121.
European Journal of Business, Economics and Accountancy Vol. 4, No. 6, 2016 ISSN 2056-6018
Progressive Academic Publishing, UK Page 1 www.idpublications.org
PERFORMANCE MEASUREMENT: THE CASE OF DURRES PORT
Assoc. Prof. Dr. Osman METALLA
“Aleksander Moisiu” University, Faculty of Professional Studies
Eli VYSHKA
“Aleksander Moisiu” University, Faculty of Professional Studies
&
Dr. Olta NEXHIPI
“Aleksander Moisiu” University, Faculty of Business
ABSTRACT
Nowadays the most important studies for a port are developed in the field of performance.
Performance measurement it is not an easy task, and generally the question “How to measure it”
is one of the crucial questions. The aim of this paper is the identification and the measurement of
the main key performance indicators for the Port of Durres. This study will take in consideration
the data’s for three different years and each year will be divided in three different periods. The
first performance indicator taken in consideration is the berthing delay for incoming vessels. For
this we have observed the data of ship arrival times at pilot station and the berthing time in the
port. Data refer to ships calling port of Durres during year 2012, 2013 and 2014. The second
indicator is berth occupancy rate which will be will be evaluated and calculated for each of the
three years and will be compared to investigate the berth productivity each year. And the last but
not least important, is the indicator that will be measured specifically for the containers terminal
will be crane rates per hour. Number of ship visits (calls) in the port of Durres during the each of
the three years under the study will be evaluated and compared in order to observe the traffic
tendencies in years. Size of the ship and tonnage trend of the ships calling port of Durres will be
evaluated. The conclusions of this paper will be based on the findings for this indicators and the
impact they have on the port performance
Keywords: Key performance indicators, container terminal, Port of Durres, crane rate.
INTRODUCTION
Durres Port is situated in the western part of Albanian coast, 36 km far from the capital Tirana,
and well connected with national and regional markets. Because of its strategic position, this port
is becoming a very important transit point. Durres port is handling the 77% of imports and 89%
of Albanian exports, and this presents 78% of all cargoes that are being transferred by sea
nationwide. Its infrastructure is composed of 11 berths with water depths varying from 7,5m up
to 11m. The main commodities handled in this port are general cargoes, grains, minerals, and
containers and ferry boats.
On the framework of the reforms undertaken in the course of years in the port of Durres,
transforming the port from a public port into a landlord one, the port has been specialized and
divided in different dedicated terminals. This specialization of terminals has improved the
overall performance of the terminals, therefore increasing the overall handling capacity of the
port.
European Journal of Business, Economics and Accountancy Vol. 4, No. 6, 2016 ISSN 2056-6018
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This port is divided in four main terminals such as dry bulk cargo terminal, containers terminal,
general cargo terminal, and ferry terminal. All the three first terminals are being operated by
concessionaries, and the last one is being administered from Durres Port Authority.
The first terminal or the terminal of the general cargoes and grains has an overall wharf
length 600 – 900m and a complex of silos.
The containers terminal is situated in the northern part of the harbor. The overall length
of the wharf is 450m and there is a back up area of around 55.000m2
The ferry terminal is situated in wharf No. 8 and 9 and has a square of 10 ha.
The terminal of the dry bulk cargoes is situated in the eastern part of the harbor and has
an overall length of 250m. This terminal is mainly handling the exports of cement and
clinker, the imports of coal and the exports of different minerals, as well as the import of
scrap. This terminal is well connected with a rail line, and is the only terminal in the port
with such a connection.
The overall infrastructure of the port is in very good condition due to the intensive investments
performed during the last years. All terminals are reconstructed and that has had a positive
impact on the overall performance of the port. During 2014 the port handled 3,4 million tons of
cargoes. The most new development in Durres port is the containers container. Up to 15 years
ahead, containers were almost unknown for Durres port. Only a few boxes could be seen once in
a while. Today the port has a small containers terminal with an area of 55.000m2, and well
equipped with mobile rubber cranes, reach stackers, tractors, chases for containers, dedicated
slots for refrigerated containers. This new development has changed the way goods are being
transported through this port, turning containers as one of the primary cargoes handled here.
The general cargo terminal is the only terminal still under the administration of the Port
Authority, for all other terminals are being operated by concessioners. This is due to the reforms
that the port has undergone during the last years. According to these reforms, the aim of the Port
Authority (Eylul 2008) is to transform the port from a public port into a landlord port, where all
terminals, and port services will be privatized. The overall performance of the port has been
improved during the course of the years, and the aim of this paper is to evaluate the performance
improvements during the last three years.
METHODOLOGY
Measuring port performance is not an easy issue. First of all we should define which are the port
performance indicators. Depending on the nature of the port, kind of cargoes that are being
handled, volumes, infrastructure, connections, types of operations etc., varies the number and the
type of port performance indicators. Some of the port performance indicators are:
Total traffic handled (containers, general cargo, bulk cargo, passengers) (Metalla.O Oct
2015)
Waiting time
Ships dwell time in port
Size of vessel calling the port
Tonnage per ship
Ratio of full and empty containers
European Journal of Business, Economics and Accountancy Vol. 4, No. 6, 2016 ISSN 2056-6018
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Average productivity per hour per gang
Terminal area productivity
Equipment productivity
Labor productivity
Quay utilization rate
Storage utilization
This list can continue with different indicators depending on the scope of survey, in this list for
example we have not included the financial performance indicators.
In this paper we have not evaluated all the performance indicators, instead we are concentrated in
first five port performance indicators namely: total traffic handled, ship’s waiting time, ship’s
dwell time in the port, size of vessel calling the port and tonnage per ship. We have taken into
account data from four main port terminals respectively: general cargo terminal, containers,
passengers and the bulk cargo terminals. The period of time under our survey starts from January
1st 2012, up to December 31
st 2014. We have performed comparative analyses to better
understand the trends of port performance indicators and according to the results of this survey,
advise port authority on these findings.
Total traffic handled
In order to review trends of the traffic volumes in port and in different terminals we refer to the
statistics of Port of Durres. The overall port volumes handled in the port during the three years
2012 – 2014 are shown in the following table 1. This table shows the exports and imports of
goods handled in port during the above-mentioned period, followed by a comparison graphic. As
it can be observed from the chart and the table, there is a slight traffic growth. Comparing to
2012, during 2013 the port has experienced a slight growth of 1.015%, and in 2014 the port has
experienced a traffic growth of 1.026%. This traffic growth rate is the lowest in the course of the
10 years, and this do to the general economic situation of the country and the economic crises
that Albania and the region is going through.
Table1. Annual port traffic (2012 –14). Graph. 1. Annual port traffic (2012-14)
Another element to be observed here is the growth of exports during 2013-2014 comparing to
2012 and the fluctuation of exports. In 2013 we observe an export growth of about
20%compared to 2012, and a reduction of imports of 12.5%. In 2014 we have a slight reduction
of exports and a slight growth of imports comparing to 2013.
2012 2013 2014
Exports 1.341.531 1.665.841 1.640.099
Imports 2.174.914 1.903.881 2.023.529
Total 3.516.445 3.569.772 3.663.628
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Waiting time
In order to study the average ships wait time we have gathered data from Harbor Master’s office,
were are the records of ships movements. Once the ship arrives at the pilot station she has to
advise the above office and inform on the time and coordinates of anchorage. When the ship is
free to get access into the port, the harbormaster’s office advices her to take the anchor and
proceed into the harbor. The difference of time between the time the ship drops the anchor and
the time the ship finishes her mooring maneuvers to be tied up in the loading/unloading berth,
composes the waiting time of the ship.
The following table 2 offers data on ships waiting time for all 12 months of the surveyed years.
The figures represent the average waiting time for each month of the year. As it can be realized
from this table, months with bigger waiting time are January and November.
Table 2. Ships waiting time
Yea
r Jan Feb March
Apr
il
Ma
y
Jun
e July Aug Sept Oct Nov Dec
201
2 7,83 6,32 5,47 6,56
6,6
4
3,4
4
4,2
5 4,73 3,7 8,3 9 5,74
201
3 6,43 9,03 4,5 3,85
7,2
7
2,9
2
2,9
9 4,86 4,21 6,49 5,93 3,79
201
4 8,91 5,06 4,07 2,66
2,6
6
4,3
4
2,3
6 12,75 4,47 6,64 12,4 2,83
Mea
n
WT 7,72 6,8 4,68 4,36
5,5
2
3,7
7 3,2 7,45 4,13 7,14 9,11 4,12
This is due to the fact that January is the first month of the year and there are the New Year
celebrations, as well as the work starts on the first Monday of the year. This might create a little
congestion and increase the waiting time of the ships. If a ship arrives during the vacation, there
is a high probability she will wait at the anchorage due to these festive days.
Graph 2 clearly shows that the waiting time during these months is higher that the rest of the
year. In January the average waiting time is 7,72 hours, which is significantly higher compared
to the other months of the year apart of November. There is another period of the year when the
waiting time is higher. Referring to the figures of the table 2 as well as graphic 2, we can observe
that August is another time of the year with an increased waiting time. August is known as a
holiday period where a number of officials take their annual leave, and this explains the increase
in the waiting time.
European Journal of Business, Economics and Accountancy Vol. 4, No. 6, 2016 ISSN 2056-6018
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Graph 2. Ship waiting time
Another factor that affects the waiting time apart from holidays and celebrations is the
congestion of traffic in the port. Normally there is a correspondence of the number of ships with
the waiting time. In periods when we have a greater number of ships, there is an increase of the
waiting time.
Table 3.
Jan
Fe
b
Mar
ch
Ap
ril
Ma
y
Jun
e
Jul
y
Au
g
Se
p Oct
No
v
De
c
201
2 28 37 29 16 24 28 34 32 31 29 35 34
201
3 28 32 32 31 25 36 29 34 32 30 28 27
201
4 21 23 30 22 22 18 24 23 23 19 19 24
Graph 3.
Ship’s dwell time in the port
Ship’s dwell time in port is considered the time ship stays at the berth from time of mooring until
she leaves the berth. We have referred to the same period of times and have calculated the time
European Journal of Business, Economics and Accountancy Vol. 4, No. 6, 2016 ISSN 2056-6018
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ships have stayed in port during years 2012, 2013 and 2014. The data were taken from the
statistics sector of the Durres port Authority and are shown in table 4 below. In this table we
have presented the dwell time of ships and observe how this time is changing according to the
size of the ship, quantity of the cargo to be handled and the periods of the year. We have also
calculated the time the ship stayed at the berth and the working time for the ships is order to
define the effective working time or berth efficiency rate. The following table 4 shows the data
of the ship’s dwell time in the port of Durres.
Table 4 Ship’s dwell time Graph 4. Time of the ship in port
Year
N. of
ships DWT WT TTSHP
EFT
2012 129
289,5
6
216,0
9 488,51
44,23
%
2013 377
739,7
6
612,7
7
1075,0
6
56,99
%
2014 280
606,2
2
483,8
9 803,97
60,18
%
As it can be observed from Table 4 and graph 4, we can observe that the in three different years
we have different number of ships calling the port. In 2012 we have 129 ships calling the port, in
2013, there are 377, and in 2014, we have 280 ships calling the port. The total number of days
that these ships spend in the port is given in table 5 and graph 5 below.
Table 5. Total days of ships in port Graph 5
In this table we can observe that the number of total days the ship spend in the port (total time of
ship from time it arrives the pilot station until she leaves the port) has been reduced from 2012
up to 2013 and 2014. The average staying time of a ship in port of Durres during 2012 has been
3,79 days, a figure relatively high, considering that even the tonnage of ships in the following
years has been increased. In 2013 this time has been cut from 3,79 days in 2012 to 2,85 days in
2013. In 2014 we can observe a subtle difference with 2013, but in reality the average tonnage of
the ships that have called Durres Port has been bigger. The average tonnage of the ships during
2012 has been 2728 GT, and in 2014 the average tonnage as gone up to 3924 tons (Eylul 2008).
That has been reflected in the reducing the number of calls but the quantity of cargoes that has
been handled in port has been increased. Therefore we have an increased of the effective
working time of ships (table 4, column 6th
). During 2012 only 44,23% of the total time a ship
spent in Durres port was effective time or working time. The rest, 55,77% of the total time was
spent for access procedures, maneuvers, and clearance. The rate of the effective time versus the
Yea
r
No. of
ships
Dwell
time
Workin
g time
Total
time
2012 129 2,25 1,67 3,79
2013 377 1,96 1,63 2,85
2014 280 2,16 1,73 2,87
0
1000
2000 2012
2013
2014
European Journal of Business, Economics and Accountancy Vol. 4, No. 6, 2016 ISSN 2056-6018
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time spends for other issues, stands on favor of the latest. This performance indicator has been
improved in the two coming years. During 2013 the effective time has been increased to almost
57% of the total time improving this performance indicator significantly. This improvement has
continued during 2014 as well increasing the effective time to 60,18% of the total time. That has
improved the efficiency of the port in general and has avoided the traffic congestion as well.
Downsizing the waiting time of the ships and increasing the effective working time increases the
utility rate of berth, and makes the port more competitive. This is very important for all terminals
of the port, but in particular for containers and passenger terminal where time is very important
issue. Container ships have to be on schedule otherwise they will loose the market. The same is
valid for passenger vessels.
Average tonnage of vessels and tonnage per ship
Another performance indicator we have taken into account is the tonnage of the vessel and the
average tonnage loaded/unloaded in the port. Referring to the figures of the port statistics, we
observe that during 2012 there were 381 ships calling port of Durres. This number dropped down
to 349 calls during 2013, and during 2014 there were only 281 ships calling this port or 100 ships
less than 2012. The size of the vessel did not have any significant change. In 2012 the average
GT of the ship was 2859T, DWT was 3907T and the average length was 91,81m. These
dimensions remained more or less the same during the two consecutive years. Respectively,
during 2013 the average GT was 2835T, DWT 3953T and the average length was 93.63m and
during 2014 these dimensions were slightly decreased. Therefore, the average gross tonnage of
the ships was 2624 T, DWT 3790T and average length 92,79m. The following table and graph 6
Stock markets play a critical role in shaping a country’s economic growth and development.
Volatility of stock markets threatens economic growth and efficient allocation of resources. It
erodes investor confidence and has potential to slowdown the economic growth of a country.
Daly, (1999) opines that volatility of security markets affect liquidity and erodes confidence
in the capital market. According to Corradi et al. (2006), understanding the origins of stock
market volatility has long been a topic of considerable interest to policy makers and financial
analysts. This study was therefore, important to policy makers in providing knowledge,
through its findings on the relationship between inflation, interest rate and stock market
volatility in Kenya.
The sessional paper No. 10 of 2012 on Kenya Vision 2030 has outlined market volatility as
one of the problems facing the Nairobi securities Exchange. Statistics confirm that the NSE is
highly volatile. Records show that between July and December 2011 the NSE 20 share index
recorded a variance from a high of 4495 points to a low of 3733 points with market
capitalization declining from Sh1192.28 billion to Sh1049.56 billion (NSE, 2011). The
privatization Act 2005 was an attempt by the Kenyan government to address the problem of
market volatility. The aim of this policy was to deepen public participation in the stock
European Journal of Business, Economics and Accountancy Vol. 4, No. 6, 2016 ISSN 2056-6018
Progressive Academic Publishing, UK Page 11 www.idpublications.org
exchange with the goal of increasing participation and confidence in the Market. The
privatizations Act 2005 led to a significant increase in stock market participants who joined
the market through the initial public offerings. By 2008, the number of investors trading on
the Nairobi Securities Exchange grew to approximately 1.4 million of which, more than 87%
were registered as domestic individuals and 12% as domestic companies. Over the years
since the privatisation Act of 2005, the stock market has remained volatile.
The period after the global financial crisis of 2007, witnessed a depressing global economic
situation which raised concerns for policy makers and created a desire for proper
understanding of factors affecting the proper functioning of securities markets. Daly (1999)
opines that volatility of security markets is a disturbing concern to policy makers and market
players because it erodes confidence in the capital market; it affects the liquidity of the
market and also affects hedging techniques such as portfolio insurance. The Kenyan Capital
markets were equally affected by the global financial crisis. The sessional paper No 10 of
2012 on vision 2030 identified market volatility as a major problem facing the Nairobi
Securities Exchange.
The government of Kenya has put in place several measures to address market volatility and
boost confidence in the market through the vision 2030 development plan. The Kenyan
development plan, encapsulated in the vision 2030, aims to achieve an annual economic
growth rate of 10%, with an investment rate of 30% being financed mainly from mobilization
of domestic resources (Government of the Republic of Kenya, 2007). Knowledge of factors
causing stock market volatility is therefore critical to policy makers. It is also critical that
this knowledge enables policy makers to monitor stock market volatility levels through
policy. Stock market volatility should be contained within levels that are not detrimental to
the market and the economy large. According to Hongyu and Zhichao (2006) high volatility
beyond a certain threshold will increase the risk that brings investor losses and raises
concerns about the stability of the market.
Problem Statement
Volatility of stock markets threatens economic growth and efficient allocation of resources.
Available records indicate that the Nairobi securities exchange has witnessed persistent
volatility in stock prices and market returns generally. The financial sector stability report,
(2010), reported that the Nairobi Securities Exchange witnessed volatility in 2008 which
persisted through 2010. The report also indicates that in December 2009, the NSE market
volatility index stood at 56.93, rose to 150.16 in March 2010 and dropped to 67.84 in June
2010.
Volatility of the Kenyan stock market has affected investors’ confidence and led to instability
of stock prices which in turn has led to investor losses through price fluctuations. The
fluctuation in stock prices and the trend of changes are always of interest to the capital market
given their effect on the stock market stability and strategies adopted by investors (Wang,
2010). Knowledge of factors affecting stock market volatility would enable policy makers to
control the direction, magnitude and stability of the economy by adjusting macroeconomic
variables if the relationship between stock market volatility and economic activity has
predictive power to stimulate the growth of the economy. This study therefore aims at
contributing to the knowledge of the causes of stock market volatility by investigating the
causal relationship between inflation, interest rate and stock market volatility.
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Objectives of the Study
The study objectives were;
1. To establish the long run and short run causal relationship between inflation rate and
stock market volatility in Kenya
2. To examine the long run and short run causal relationship between interest rate and
stock market volatility in Kenya.
Scope of the Study
The study focused on the relationship between inflation rate, interest rate and stock market
volatility over a period of 14 year starting January 2001 to December 2014..
LITERATURE REVIEW
A number of theories in finance provide an explanation to the relationship between inflation,
interest rate and stock market volatility. Among the theories reviewed by this study include;
the arbitrage price theory (APT), the present value model (PVM) and fisher effect theory.
The arbitrage pricing theory was developed by Stephen Ross in 1976 as an alternative to the
capital asset pricing model. The APT proposes that, asset prices are driven by multiple
macro-economic factors. According to the APT theory, expected returns of a financial asset
or a share can be modelled as a linear function of various macroeconomic variables. As a
single-factor model, uncertainty in asset returns is caused by a common or macroeconomic
factor and a firm-specific cause, where the common factor has zero expected value
(McMenamin, 2005).
The APT can be mathematically expressed as (Kevin, 2015);
…………………………………………………………. (1)
Where;
is the return of the stock i at time t,
is the risk free interest rate or the expected return at time t
is a vector of the predetermined economic factors or the systematic risks and,
is a measure of the sensitivity of the stock to each economic factor included in
is the error term representing unsystematic risk or the premium for risk associated with
assets that cannot be diversified where;
………………………………………………… (2)
The APT though a one-factor model can be extended to a multifactor model by allowing for
other macro-economic factors that affect stock returns. These factors could include; interest
rates, inflation, gross domestic product and foreign exchange rate. The APT has not specified
macro-economic factors believed to contribute most to stock market return or volatility. A
consensus is yet to be reached on the effect of the various macro-economic factors on stock
market volatility. Ross et al. (1987) examined the effect of four factors namely; inflation,
gross domestic product, investor confidence, and the shift in the yield curve.
European Journal of Business, Economics and Accountancy Vol. 4, No. 6, 2016 ISSN 2056-6018
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The Present Value Model
The present value model has been empirically tested for predicting stock prices (Frydman et
al., 2015). The PVM explains the relationship between stock prices and macroeconomic
variables (Sarkar, 2012). Theoretically, the profit opportunities represented by the existence
of “undervalued” and “overvalued” stocks motivate investors to trade, and their trading
moves share prices toward the present value of future cash flows (Gorton and Allen, 1993).
Consequently, investment analysts’ search for mispriced stocks and their subsequent trading
makes the market efficient by causing prices to reflect intrinsic values.
In the present value model, stock prices are suggested to be a function of all the expected
future dividends discounted at a discount rate which is normally the prevailing average rate of
return in the market (Shiller, 1992). The interest rate prevailing in the market is therefore
expected to have a significant relationship with stock prices and market returns. This makes
the theory very important to this study.
The PVM can be expressed as follows (Semmler, 2006, & McMillan, 2010);
Where;
is the stock price
, is the expected stream of returns
is the factor associated with the discount rate of future cash flows.
Fisher Effect Theory
The Fisher effect theory states that nominal interest rates in two or more countries should be
equal to the required real rate of return to investors plus compensation for the expected
amount of inflation in each country (Dimand, 2003). Fama and Schwert (1977) explains the
fisher effect theory by stating that, if the market is efficient and reflects all the available
information at time t-1, the price of common stocks will get adjusted so that the expected
nominal return from t-1 to t is the sum of the appropriate equilibrium expected real rate and
the market’s assessment of expected inflation rate for the same time period. According to the
fisher effect theory, shares act as a hedge against inflation because they represent claims on
real assets, which suggest that a positive share price is correlated to expected inflation
(Dimand, 2003).
RESEARCH METHODOLOGY
Research Design
The study adopted a descriptive research design. It assumed a quantitative approach where
data was measured and analysed in a numerical form to give precise description. A
quantitative research often entails objectivism, positivism and deductive approach (Collis &
Hussey, 2009).
European Journal of Business, Economics and Accountancy Vol. 4, No. 6, 2016 ISSN 2056-6018
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Population
The population was made-up of companies listed on the Nairobi Securities Exchange
between January 2001 and December 2014 together with investors in shares of these
companies. The NSE had 60 listed companies and 866,835 individual investors as at
December 2004 (CMA, 2014).
Sampling and Sample Size
The study used the Krejcie and Morgan (1970) formula to arrive at a sample size of 385
respondents. A simple random sampling approach was used to distribute questionnaires.
According to Orodho (2005), simple random sampling ensures that each unit has an equal
probability of being chosen, and the random sample is the most representative of the entire
population.
Data Analysis
Qualitative and quantitative data analysis techniques were used to analyse the data. Time
series data was analysed using e-views version 8 software packages and qualitative data was
analysed using SPSS. Correlation and regression analysis were used to express the
relationships. The short run and long run causal relationships were established by carrying
out the Granger Causality test and specifying the Vector Error Corrections Model (VECM).
The multiple regression model specified for the study was;
…………………………………………… (i)
Where:
SMV is the stock market volatility
INF is the inflation rate
INT is the interest rate
is the error term.
RESEARCH FINDINGS AND DISCUSSIONS
Response Rate
A total of 385 questionnaires were distributed out of which 197 were completed and returned.
This translated to 51.12% response rate for primary data. In relation to time series data, a
total of 167 monthly observations were made translating to 99% of the 14 years data required
for the study. According to Mugenda and Mugenda (2003) 50% response rate is adequate and
representative. The response rate in this study was therefore adequate and satisfactory to
make conclusions.
Reliability and Validity Test
The validity and reliability of the questionnaire was tested using Cronbach’s alpha
coefficient. According to Nunnally (1978), a coefficient greater than or equal to 0.5 is
considered acceptable and a good indication of construct reliability. The Cronbach’s alpha
coefficients were; 0.9307 and 0.8759 for interest rate and inflation respectively having four
questionnaire items each. The questionnaire was found to be reliable.
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Multicollinearity Test
The time series data was tested for multicollinearity using the variance inflation factor (VIF).
The rule of thumb under this method is that if the VIF of explanatory variables is above ten,
then variables are said to be collinear. From the results, the multicollinearity factor for
inflation was 1.04633 and that of interest rate was 1.20108. Results show lack of collinearity
in the variables.
Auto Correlation Test
According to Koutsoyiannis (1993), autocorrelation, refers to the relationship, not between
two (or more) different variables, but between the successive values of the same variable. The
Lagrange Multiplier (LM) tests were used to test for autocorrelation. Result in table 1 shows
absence of auto correlation since the p-values were above 0.05 at lag 2.
Table 1: Auto correlation Lagrange Multiplier Test Results
Null Hypothesis: no serial correlation at lag order 2
Normality test
The Shapiro Wilk test for normality was used to test whether macro-economic variables and
stock market volatility follow normal probability distribution. Results in table 2 shows that
the variables were normally distributed.
Table 2: Normality Test Results
Macro Variable Mean Standard deviation Skewness Kurtosis
Stock Market Volatility 1.192 0.899 0.735 2.541
Interest Rates 7.735 3.650 0.560 4.371
Inflation Rate 8.300 4.917 0.638 2.340
Stationarity and Unit root test
A stationary time series data is one that exhibits near constant mean, variance and
autocorrelation. A stationarity test was conducted to determine the statistical properties of the
time series data using both Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests.
Results in table 3 indicate that the null hypothesis of unit root cannot be rejected for all the
variables in levels. However, it is rejected in first differences. Thus all variables become
stationary after differencing them once i.e. each of them is integrated of order one.
Lags LM-Stat Prob.
1 52.44605 0.0376
2 41.42835 0.2458
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Table 3: Unit Root Test Results
Variable ADF Test PP Test Order of
Integration
of Variable At Levels At First
Difference
At Levels At First
Difference
SMV – 2.50 – 6.30*** – 2.246 – 7.647*** I(1)
INF – 2.958 – 5.553*** – 2.956 – 7.575*** I(1)
TBILL – 3.053 – 4.613*** – 3.042 – 8.991*** I(1)
Note: *** indicates the rejection of the null hypothesis of unit root at 1% level of
Significance.
Descriptive Statistics
Table 4: Descriptive Statistics (Secondary Data Analysis)
Variable Obs. Mean Std. Dev. Min Max
INF 167 8.296331 4.917111 .4612105 19.71573
TBILL 166 7.73488 3.649142 .83 20.56
SMV 168 1.191787 .8990608 .0087774 3.624102
Inflation
Descriptive statistics in Table 4 show a total of 167 observations of monthly inflation
movements with a mean of 8.296331 and standard deviation of 4.917. The inflation trend in
Figure 4 indicates that inflation was low in January 2002, March 2007, August 2010 and
October 2012 and high in October 2004, May 2008, and in October 2011. The lowest
inflation rate was recorded in January 2002 and the highest in October 2011.
Figure 4: Monthly inflation trend from January 2001 to December 2014
Table 6 shows that 63.8% agreed that prices of shares have always dropped whenever there is
an increase in the inflation rate. Majority of respondents (67%) agree that rapid changes in
the inflation rate cause fluctuations in share prices, while 69% of the respondents agreed that
a change in the inflation rate causes fluctuations in the stock market volatility.
0
5
10
15
20
25
Jan
-01
Au
g-0
1
Mar
-02
Oct
-02
May
-03
Dec
-03
Jul-
04
Feb
-05
Sep
-05
Ap
r-0
6
No
v-0
6
Jun
-07
Jan
-08
Au
g-0
8
Mar
-09
Oct
-09
May
-10
Dec
-10
Jul-
11
Feb
-12
Sep
-12
Ap
r-1
3
No
v-1
3
Jun
-14
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Table 5: Respondents Perception of Relationship between Inflation and Stock Market
Volatility
Likert Item
Agree
%
Not Sure
%
Disagree
%
Prices of shares have always dropped whenever
there is an increase in inflation 63.08 17.44 19.49
Prices of shares have always increased
whenever inflation drop in the market 36.07 25.89 38.07
Rapid changes in inflation cause fluctuations in
share prices. 67.01 24.37 8.63
Changes in inflation causes fluctuations in
stock market returns 69.04 22.84 8.12
Interest rate
Descriptive statistics in table 4 show that a total of 166 observations were made of the time
series interest rate data. The 91 day Treasury bill rate had a mean of 7.73488 and a standard
deviation of 3.649142. The interest rate trend as per Figure 5, shows that the interest rate was
lowest in July 2007, May 2004 and June 2006 and highest in January 2001and January 2012.
Figure 5: T bill rate trend from January 2001 to December 2014
Table 7 shows respondents perception of the relationship between interest rate and stock
market volatility. From the table, we observe that 78% of the respondents agree that a change
in interest rates in the market has always affected share prices. Results in table 7 also show
that 75.63% of the respondents agreed that sudden changes in the interest rate have always
caused variations in the stock market return (stock market volatility).
0
5
10
15
20
25
20
01
M0
1
20
01
M0
7
20
02
M0
1
20
02
M0
7
20
03
M0
1
20
03
M0
7
20
04
M0
1
20
04
M0
7
20
05
M0
1
20
05
M0
7
20
06
M0
1
20
06
M0
7
20
07
M0
1
20
07
M0
7
20
08
M0
1
20
08
M0
7
20
09
M0
1
20
09
M0
7
20
10
M0
1
20
10
M0
7
20
11
M0
1
20
11
M0
7
20
12
M0
1
20
12
M0
7
20
13
M0
1
20
13
M0
7
20
14
M0
1
20
14
M0
7
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Table 6: Respondent’s Perception of the Relationship between Interest Rate and Stock
market volatility
Likert Item
Agree
%
Not Sure
%
Disagree
%
A change in the interest rates has always
affected shares prices 78.17 14.72 7.11
A rise in interest rates has always lead to a drop
in shares prices 48.22 25.38 26.4
An increase in interest rates has always led to
an increase shares prices 31.98 30.96 37.06
Sudden changes in interest rate have always
caused variations in stock market return 75.63 16.24 8.12
Stock Market Volatility
Descriptive statistics in Table 4 shows that a total of 168 observations were made on stock
market volatility. Stock market volatility had a mean of 1.1917, and a standard deviation of
0.899. The trend in Figure 5 shows that the NSE registered high volatility in June 2001, June
2002, December 2006 and December 2014 and low volatility in September 2003, August
2004, March 2005, October 2008, April 2010, May 2011 and July 2012.
Figure 5: Stock Market Volatility Trend from January 2001 to Dec 2014
Correlation Analysis
Correlation analysis was carried out to establish the association between inflation, interest
rate and stock market volatility. The study found interest rate and stock market volatility to be
positively and significantly correlated (r = 0.2402; p-value = 0.0018). Results also revealed
that there was a negative and significant association between stock market volatility and
inflation (r = -0.4535; p-value = 0.0000).
0
0.5
1
1.5
2
2.5
3
3.5
4
Jan
-01
Sep
-01
May
-02
Jan
-03
Sep
-03
May
-04
Jan
-05
Sep
-05
May
-06
Jan
-07
Sep
-07
May
-08
Jan
-09
Sep
-09
May
-10
Jan
-11
Sep
-11
May
-12
Jan
-13
Sep
-13
May
-14
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VECM Causality Test
Having established the correlation between the variables in the study, a long run causality test
was carried out between inflation, interest rate and stock market volatility by employing the
Vector Error Correction Model (VECM). Results in table 7 show that the t-statistics were greater than the critical five per cent value of 1.96 and therefore significant.
Table 7: VECM results
Variable Coefficient Standard error t-statistics
INF 0.239745 (0.04017)
[5.96881]**
TBILL -0.118562 (0.06231)
[-1.90268]**
KEY: ** Significant at 5 per cent
Granger Causality Tests
The Granger test (1969) is suitable for analysing the short-run relationship if no cointegration
exists among the variables. Granger Causality tests were performed to investigate the short
run causal relationship among the variables. The Granger test examines whether including
lags of one variable have predictive power for another variable. According to the concept of
Granger’s causality test (1969, 1988), a time series X is said to be causing Y when past values
of X can predict future values of Y. In this case we can say that X granger causes Y. The two
variables had a p-value less than 0.05 which was significant.
Table 8: Granger Causality Test Results
Dependent variable: (SMV)
Excluded Chi-sq. Df P-Value.
D(INF) 13.39024 3 0.0039
D(TBILL) 7.121743 3 0.0681
SUMMARY OF FINDINGS
The first objective of the study sought to establish the long run and short run causal
relationship between inflation rate and stock market volatility. Findings in Table 7 show that
in the long run the coefficient of inflation rate was 0.24 with t-statistic of 5.96 which is
greater than the critical five per cent value of 1.96. This implies that in the long run the
coefficient of inflation is positive and significant. Consequently, we interpret this finding to
suggest that an increase in inflation by one percentage point increases stock market volatility
by approximately 24 percentage points. The short run equation as shown by the Granger
causality test results in table 8 indicates that the test statistic had a chi-square value of 13.39
and a p-value of 0.0039 which is less than 0.05. This means that in the short run, inflation
and its lags jointly Granger cause stock market volatility at one per cent level of significance.
Results from primary data in table 5 confirm findings from the VAR models, where majority
of investors surveyed (69.04%) agreed that a change in inflation causes stock market
volatility. When asked whether a rapid change in the rate of inflation causes fluctuations in
prices of shares, 67.01% of respondents agreed. Additionally, 63.08% of the respondents
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agreed that share prices have always dropped whenever there was an increase in the rate of
inflation.
Findings on the relationship between inflation and stock market volatility were consistent
with theory and findings from other similar studies. Ouma et al. (2014) studied the impact of
macro-economic variables on stock market returns in Kenya using ordinary least squares and
found that there was a positive relationship between inflation and stock prices. Ochieng et al.
(2012) studied the relationship between macro-economic variables and stock market
performance in Kenya and found that inflation had a weak and positive relationship with the
stock market returns.
In theory, the fisher effect explains how in the long run, inflation and the nominal interest rate
should move one-to-one, implying that a higher inflation should increase the nominal stock
market return as the real stock market return remains unchanged and therefore compensating
investors fully. According to the fisher effect theory, equities serve as a hedge against
inflation because they represent claims to real assets, and therefore a positive stock price is
correlated to expected inflation and appreciation in stock prices (Dimand, 2003)
The second objective sought to examine the long run and short run causal relationship
between interest rate and stock market volatility in Kenya. Findings in table 7 show a T-bill
rate coefficient of 0.12 with t-statistic of -1.90 which is greater than the critical value of 1.645
at 10 per cent level and therefore negative and weakly significant. This could suggest that in
the long run a unit increase in interest rate decreases stock market volatility by approximately
0.12 per cent.
The short run relationship as shown by Granger causality test in table 8 indicates that a
change in T-bill rate and its lags had chi-square statistic of 7.1217 with a corresponding p-
value of 0.0683 and therefore significant at 10 per cent. This means that T-bill rate and its
lags Granger cause stock market volatility in the short run. Consequently, at 10 percent level
of significance, the study finds a significant causal relationship between interest rate and
stock market volatility.
Findings from the primary data in table 6 show that a majority of investors surveyed
(78.17%) agreed that a change in the interest rates has always affected share prices . When
asked if an increase in interest rates has always led to a drop in shares prices, 48.22 agreed.
Concomitantly, when this question was asked in the negative 37.06 per cent of the
respondents disagreed confirming the response in the first question. When asked if a variation
in interest rates causes variations in stock market returns 75.63% of investors surveyed
agreed.
Findings on the relationship between interest rate and stock market volatility are therefore
consistent with theory and confirm results from similar studies. Zakaria, (2012), Kadir et al.
(2011), Z. Chinzara, (2010), Omorokunwa et al. (2014), Olweny et al. (2011), Waweru
(2013) and Ochieng et al. (2012), found that a change in interest rate as measured by the 91
day T bill rate had a negative relationship with stock market returns and volatility.
Finance theory offers a number of explanations for the causal relationship between interest
rates and stock market volatility. According to Bernanke (2005), interest rates affect stock
market volatility due to the fact that investors value shares by discounting future dividends to
the present time and interest rates serve as a discount rate. Therefore, a high interest rate
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makes a given future dividend less valuable in today's money, implying that the value of that
share or stock will drop. Another explanation offered in theory is that, an increase in interest
rate causes investors to sell shares and invest proceeds in fixed income instruments causing
decreased demand for shares and a drop in stock prices.
CONCLUSION
Based on the findings, we conclude that inflation rate has a positive and significant long run
and short run causal relationship with stock market volatility in Kenya. Accordingly, an
increase in inflation, both in the short run and long run leads to an increase in stock market
volatility. Findings on the second objective makes the study conclude that there is a weak and
significant short run and long run causal relationship between interest rate and stock market
volatility.
RECOMMENDATIONS
In light of these findings, the study recommends a strict policy intervention to regulate factors
contributing to fluctuations in the rate of inflation in order to reduce the volatility witnessed
on the stock market. The government of Kenya through its fiscal and monetary policy
intervention can stabilize the rate of inflation to reduce volatility in the securities market.
This study recommends that policies on interest rate be observed closely to contain rapid
changes in the interest rate movement which is found to contribute weakly but significantly to
stock market volatility.
SUGGESTIONS FOR FURTHER RESEARCH
Further research should be done to investigate the nexus between other macro-economic
variables, especially those not used in this study, and stock market volatility. New studies can
be carried out using different methods to narrow the inconsistency in finding of similar
studies.
REFERENCES
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Daly, K. (1999). Financial Volatility and Real economic Activity. England: Ashgate
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Dimand, R.W. (2003). Irvin Fisher on the International Transmission of booms and
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Kadir, H. B.A., Selamat, Z., Masuga, T.,Taudi, R. (2011). Predictability Power of
Interest Rate and Exchange Rate Volatility on Stock Market Return and
Volatility: Evidence from Bursa Malaysia. International Conference on
Economics and Finance Research,Vol.4.pp 199-202.
Koutsoyiannis,A. (1993). Theory of Econometrics: an introductory exposition of
Econometrics Methods.(2nd
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McMenamin, J. (2005). Financial Management: An Introduction , NewYork:
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668–686.
Mugenda, O & Abel, G. Mugenda. (2003). Research Methods Quantities and
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ANALYSIS OF THE MACROECONOMIC INDICATORS OF BOSNIA AND
HERZEGOVINA
Bosko V. MANDIC, PhD, Docent
Independent University of Banja Luka
School of Security and Protection BOSNIA AND HERZEGOVINA
ABSTRACT
In this paper, I will try to present, analyze and explain, as clearly as possible, the movement of the economic trends in Bosnia and Herzegovina in the period from 2007. to 2013. The structure,
condition and characteristics of the economic trends will be discussed through the following macroeconomic indicators: the growth rate, the general government budget, the consumer prices growth rate, the balance of payments, the current accounts balance, the trade balance, the public
debt. The real picture of the economic developments in Bosnia and Herzegovina and its future prospects will be presented on the basis of these macroeconomic indicators.
Keywords: GDP, growth rate, general government budget, consumer prices, balance of payments, current account balance, trade balance, public debt.
INTRODUCTION
Bosnia and Herzegovina (BH) received its statehood with the Dayton Peace Agreement in 1995. The Agreement consists of the twenty-four documents, upon which BH operates. BH emerged
from the war torn and with numerous economic problems. The further course of its reconstruction and recovery went along with the wholehearted support of the international community, formed of the United States, Europe, Russia and other developed countries. Each of
them was pursing their own interest through the provided assistance.
METHODOLOGY
The financial data of the macroeconomic indicators were used for the research purposes of this
paper. The data for the research were used from the Central Bank of BH, the BH Statistics Agency, the Directorate for Economic Planning, and the Ministry of Finance and Treasury. The
analysis of the macroeconomic indicators will be presented according to the following financial indicators:
Growth Rate (% of GDP)
Gross domestic product comprises of the total value of the goods and services produced in an economy in a given period of time. The GDP can be measured as a nominal one and a real one. The nominal GDP is the value of the production of goods and services at current prices and the
real GDP shows the value of the production of goods and services at constant prices. The methodology for the calculation of the GDP in BH uses the approach by production, income and
expenditure. The three different approaches to calculate the GDP will yield the three different aspects of the overall economy.
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General Government Budget (% of GDP)
The general government, as defined by the OECD, comprises of the central government, the
local government and the extra budgetary funds. The total amount of the government expenditures is a part of this concept, which is financed with the tax revenues or by borrowing. The total expenditure at the level of the general government is equal to the expenditures of the
general government for the following categories: intermediate consumption, compensation for the employees, subsidies, social benefits and social transfers in kind, other current transfers,
property income, capital transfers, adjustment for the changes in the net equity of households in the reserves of the pension funds, gross capital formation and acquisitions of the non-financial non-productive assets. The total expenditures of the general government also include the taxes on
income and wealth, as well as all other taxes on production, which the government is obliged to pay.
Consumer Prices Growth Rate
The growth rate of consumer prices is a valid indicator of the inflation trend. It is measured by the price index in a way of the ratio between the price of a specific basket of goods and services
in a given time t and the price of the same basket of goods and services in any other chosen period 0. This raises two important questions: a) what period one should choose as the base period, and b) what goods and services one should select for the shopping basket. In order to
calculate the Consumer Prices Index in Bosnia and Herzegovina, a list of products, which consists of 599 products, is to be used. Each month, over 21,000 prices are being collected from
the previously defined sample of the outlets at twelve geographic locations. Balance of Payments (% of GDP)
Balance of payments is a summary of the transactions of the national econo my with the foreign
countries in a given period of time (usually, it is a period of one year, but it can be given for other periods: e.g. semi-annually, quarterly, and monthly). On one side, there is the item of deduction, or a debit, and on the other side, there is the item of proceeds. This indicator is of the
key importance for the national economy, because it allows for a snapshot view of the national income, national expenditure and the position of the national economy in the world. Thus, the
indicator of the balance of payments (% of GDP) shows the trends in the international competitiveness position of the country, i.e. its national economy.
Current Account Balance
The current account balance of the balance of payments is an indicator that reflects the results of the economic policy. The state of the current account balance represents a significant source of information for the economic policy makers. It tells about the inflows or outflows on the grounds
of the exchange of goods, services, income and current transfers between the residents and the non-residents, but also about the creation of the liabilities or receivables from abroad on the
grounds of the above stated transactions. The current account tells whether a country has a current account deficit, i.e. when it is spending more than it earns, and, on the grounds of that, it
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is a net borrower, and the difference must be covered by loans from abroad, or it has a current account surplus, when the country earns (produces) more than it consumes, and, therefore, it is a
net creditor in relation to the foreign countries.
Trade (Goods) Balance The trade balance is the ratio of all payments for the imports of goods (products) in a country,
and all the payments for the exports of goods (products) from a country in a given period (generally, one year). If the value of the imports coincides with the value of the exports, then it
can be said that the trade (goods) balance is good, i.e. that it is in balance. However, if the value of the imports is greater than the value of the exports, then the trade balance is in deficit, and if the value of the imports is less than the value of the exports, then the trade balance is in surplus.
The trade balance is part of the wider sub-balance - the current balance.
Public Debt (% of GDP)
Public debt is the sum of all liabilities in relation to the borrowed funds which a country accepts
as its own, and arranges for their payback. The public debt consists of the external and the internal debt. The liabilities may be based on the credit funds of the international financial
institutions (IMF, WB, EB, and other), and the funds in respect of borrowings for the old foreign currency savings, war claims, and general liabilities. It should be noted here that the foreign debt from the borrowing runs from Bosnia and Herzegovina to the Entities (the Republic of Srpska
and the Federation of Bosnia and Herzegovina) and the Brcko District.
ANALYSIS-RESULTS
Growth Rate (% of GDP)
Figure 1: The growth rate of the economy of Bosnia and Herzegovina in 2007-2013
Source: Statistics Agency of BH
The growth rate of BH (Figure 1) was fairly balanced and with a positive sign, until the
occurrence of the global financial crisis. However, with the occurrence of the global financial crisis, the economy of Bosnia and Herzegovina entered into a recession in 2009, because there had been a general decline in the economic activity. In 2010 and 2011, a weak economic growth
was felt, although it had a positive sign, and in 2012, the BH economy went back into the recession again. The positive trend in 2013 in Bosnia and Herzegovina (2.5%) was achieved
despite the unfavourable developments in the environment, mostly due to the recovery of the electricity production (following the encountered problems in the previous year), the growth of
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the manufacturing industry, tourism, retail, and public works, which, to a large extent, were funded from the foreign credit funds.
General Government Budget (% of GDP)
Figure 2: General Government Budget in 2007-2013
Source: Central Bank of BH
It should be noted that the general government budget in 2008 and 2009 (Figure 2) was affected
by the economic crisis, which had, to some extent, affected the scope and structure of the public expenditure. Yet, it must be emphasized here that the public expenditure in BH, expressed as a
percentage of the GDP, is at an extremely high level. If we bring the Wagner's Law in this research, according to which the countries which have a higher level of the economic development also have a higher public expenditure, based on the expansion of the government
activities, aimed at ensuring the necessary quantity and quality of the public services and the public service in general, then the amount of the public expenditure of BH requires a more
extensive study. Consumer Prices Growth Rate (% of GDP)
Figure 3: The growth rate of consumer prices in BH for 2007-2013
Source: Statistics Agency of BH
* Numbers from 1 to 7 on the abscissa show the period from 2007 to 2013
Figure 3 shows the trends in the consumer prices growth rate, on the basis of which the level of inflation is calculated. The average trend of the movements in the consumer prices in Bosnia and
Herzegovina has the oscillating dynamics, and it had its highest level in 2008 and 2011, while in 2009 and 2013 a deflationary movement of -0.4 and - 0.1% was recorded. The main impact on the growth of the consumer prices in 2008 and 2011 was exercised on the following products: oil
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and oil derivatives, alcoholic beverages, tobacco and cigarettes, as these are the excise goods from which the lack of the quality financial resources in the budget is being compensated for,
through a continuous increase of tax. If we look at the inflation rate in 2013, as compared to the one in 2012, on the grounds of the consumption, it can be observed "that the year of 2013 ended
with the drop of the prices in the following sectors: food and non-alcoholic beverages per 3.8%, clothing and footwear per 1.2%, furnishings, home appliances, household equipment and household maintenance per 0,4%, transport per 0,6%, health per 1,6%"
Balance of Payments (% of GDP)
Figure 4: Balance of payments in 2007-2013
Source: Central Bank of BH
Participation of the rate of the balance of payments of Bosnia and Herzegovina (Figure 4) in the
GDP is fairly balanced. Certain disorders, i.e. the growth of the percentage of the balance of payments in the GDP occurred in 2009 and 2010, following a major financial crisis. Already in
2011 and 2012, the percentage of the participation approached the level of that from 2008, and in 2013, its highest level was recorded.
The balance of current account (% of GDP)
Figure 5. Current account balance for 2007-2013
Source: Central Bank of BH
In the observed period, the balance of the current account balance (Figure 5) is constantly in the red. The biggest amount in the red for the current account was in 2008, and in 2009 and 2010 it
already had a significant increase; in 2011 and 2012 it came to the level it had in 2007. In 2013, it reached its maximum in respect to all the years in the given period.
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Trade Balance (% of GDP)
Figure 6. The trade balance for 2007-2013
Source: Foreign Trade Chamber of BiH
The percentage rate of the trade balance in the GDP (Figure 6) shows a different trend from year
to year. The highest level was recorded in 2008, and all until 2013 it showed a sustained recovery, i.e. a reduction in the negative sign; however, the deficit is still not even close to the desirable one. The causative agent for this situation in the foreign trade balance is the structure of
the traded products, which mainly tends to be that of the export of products of the low added value, while the structure of the imports shows that mainly the goods of the more added values
are being imported. It is necessary, and indispensable, that the government and the institutions of Bosnia and Herzegovina provide their maximum attention and support to the development of the existing and the new exporting products, as well as to continuously perform the adequate
promotion of the exports from Bosnia and Herzegovina.
External Debt (% of GDP)
Figure 7. The external debt of Bosnia and Herzegovina in 2007-2013
Source: Ministry of Finance and Treasury of BH
The external debt of Bosnia and Herzegovina (Figure 7) shows a steady growth trend. The inability of the authorities to create a high-quality and competitive economy led to a continuous growth of the imports of various goods and services, even those which the country has in its own
production such that can meet all the domestic needs (e.g. dairy products, organic agricultural products). Namely, the arrangements with the IMF, WB and other financial institutions have led
to an increased level of indebtedness, since the funds from these financial arrangements should be used for the repayment of the existing loans, and only then for the development of the economy (should there be anything left?).
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CONCLUSION
Bosnia and Herzegovina is the least competitive country in the South-Eastern Europe. According to the Global Competitiveness Index (GCI) 2011-2012, Bosnia and Herzegovina is ranked at the
position 100, out of the 142 countries of the world. It is at the last place in relation to the countries of the Balkans (Serbia is ranked 95, Croatia 76, Albania 78, etc.).
The main macroeconomic challenges in Bosnia and Herzegovina in the future period reflect in the following: high level of public expenditure, high budget deficit, high current account deficit,
negative balance of payments, negative current account balance, negative trade balance, high public debt.
If Bosnia and Herzegovina is to reduce or eliminate the negative indicators in the future, it is necessary to focus the activities on the reduction of the public expenditure through the reductions
in the public sector, i.e. by reducing the number of employees in the public sector in relation to the real sector, creating space for the influx of foreign investments, and then to work on removing the key disparities that are present in relation between the production and
consumption.
Bosnia and Herzegovina must provide space for the private sector investments, which primarily includes the reduction of the public sector, with the obligation to form a functional regulator that will have the required independence.
Directing the savings deposits of the population in the new investments, through the creation of a
more favourable legal framework for the creation of the small and medium-sized enterprises, would lead to the reduction in the number of the unemployed as compared to the number of the employed.
It is necessary to harmonize the tax legislation, reduce the tax burden and work specifically to
reduce the quasi- fiscal burdens in the entire territory of Bosnia and Herzegovina.
It is also necessary to work tirelessly on reducing and eliminating the corruption in all spheres of
the society, and especially in the state sector. Corruption and crime have permeated all levels of society, and especially so in the bureaucratic-party level in the public administration at the entity
levels and at the level of the joint bodies of Bosnia and Herzegovina. In order to have the economy of Bosnia and Herzegovina achieve the desired recovery, it is
necessary to undertake the following steps:
- support domestic production, and especially the export-oriented companies; - develop significant potentials in the field of food production; - provide full support to developing considerable potentials in the energy sector;
- take measures to increase the consumption of the local products; - restore, renew and develop old and create new tourist facilities;
- continue with the privatization process, especially in the enterprises where the state has a majority in the control package;
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- work on the development of the competitiveness of the state and elimination of the administrative barriers for the investors from abroad.
However, the most important precondition is the political stability, because without it, it is not
possible to put any of the above mentioned macroeconomic features in a state of recovery and progress.
BIBLIOGRAPHY
Bird, R.M. (1971) Wagner’s ‘Law’ of Expanding State Activity, Public Finance, 26 (2), 1-26. Indeks potrošačkih cijena u Bosni i Hercegovini 2013. Agencija za statistiku BiH (ISSN 1840-
104X ): www.bhas.ba
“National Accounts at a Glance 2009”. OECD 2009.: www.oecd- ilibrary.org/.../national- accounts-at-a-
Tematski bilten TB 09, Agencija za statistiku BiH, april 2014. (ISSN 1840-1066): www.bhas.ba Central Bank of Bosnia and Herzegovina: www.cbbh.ba
Directorate for Economic Planning of BH: www.dep.gov.ba/ Ministry of Finance and Treasury of BH: www.mft.gov.ba World Economic Forum (WEF) (2011) Global Competitiveness Report 2011–2012. Geneva:
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IMPACT OF TEAMWORK ON ORGANIZATIONAL PRODUCTIVITY IN SOME
SELECTED BASIC SCHOOLS IN THE ACCRA METROPOLITAN ASSEMBLY
Dr. Sonal Agarwal
1, 2, Theophilus Adjirackor
1, 3, 4
1Data Link University College, P.O. Box 2481, Tema, Ghana
2Presbyterian University College, Community 5, Tema , Ghana
3Ghana Institute of Management and Business Administration. Accra, Ghana 4Nuclear Regulatory Authority, P.O.Box AE 50, Kwabenya, Accra, Ghana
ABSTRACT
The study assessed the impact of teamwork on organizational productivity on the staff
members of Kwashieman Anglican Basic School of the Accra Metropolitan Assembly, Omanjor M/A Basic School under the Ga-West Assembly and Ablekuma Anglican Basic
School in the Ga-Central Assembly of the Greater-Accra Region. The study utilized quantitative techniques to analyze the relationship between the variables that is Teamwork, Esprit de corps (Team Spirit), team trust, recognition and rewards and organizational
productivity. The study shows that there is a significant positive impact of the predictors on the response variable with an adjusted R2 of 70.5%. The study recommends that teamwork
activities have to be adopted in order to enhance Organizational Productivity. Keywords: Employee performance, Teamwork, Team trust, Esprit de Corps & Recognition
& Rewards.
BACKGROUND
Teamwork is the process of working collaboratively with a group of people in order to
achieve a goal. The external factors of teamwork are the political, economic, social and technological factors that affect teamwork whiles the internal factors of teamwork constitute leadership style, diversity (culture, talent and personalities) communication, cohesiveness
etc. which affects teamwork.
Teamwork is as old as mankind, and many organizations use the term teamwork in either one sense or the other, such as in the production, marketing processes, etc. Management team, production team or an entire organization can be referred as a team. Cook (1998)
claimed that there is a growing consensus among scholars in the world that organizations may be getting works done through individuals, but his super achievement lies in the
attainment of set goals through teams (teamwork). It is a well-known fact that teamwork is not only the foundation of all successful managements, but the means of improving overall results in organizational productivity. Wage (1997) described Teamwork as an idea
of working together in a group to achieve the same goals and objectives for the good of the service users and organizations in order to deliver a good quality of service (productivity).
Ruth (2007) claimed that employees’ teamwork is seen as constituting a larger group of people than what job position describes. The essence of teamwork is that workload is reduced and broken into pieces of work for everyone to take part. Alan (2003) defined
teamwork as a grouping of professionals whose members work intensely on a specific, common goal using their positive synergy, individual mutual accountability and
complementary skills. Employees take many steps toward accomplishing key action items and nothing important is finished. Team work is the ability to work together towards a common vision. It is a fuel that allows common people to attain uncommon results.
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Collective action is widely recognized as a positive force for teamwork in any organization or institution to succeed. Teams enable individuals to empower themselves and to increase
benefits from cooperative work engaged on as a group. Getting together with others also can allow individuals to better understand the importance of teamwork and how the
organizations operate as well as promote the culture of teamwork success. Davis (2007) claimed that employers always stress the need for employing those
(Employees) that can be able to work with a team and they (Employers) generally talk of teamwork when they want to emphasize the need to various talents possessed by different
employees. The organizations however, coordinate the employees into different teams, such as management team, production team, etc.
Organization is a social unit of people that is structured and managed to meet a need or to pursue collective goals or organization is a systematic arrangement of people to accomplish
the same specific purpose. Every organization is composed of three elements i.e. people, goals and system. The purpose is expressed as goals generally. Each organization has a systematic structure that defines members and some members are managers and some are
operatives. Organization according Caroline (2008) is a social entity whose goal is directed, deliberately structured activity systems with a preamble boundary. Alan (2008) claimed that
productivity is the rate at which an employer, company or country produces goods and the amount, produced compared with how much time, work and money is needed to produce them.
Productivity is about how well people combine resources such as raw materials, labour,
skills, capital, equipment, land, intellectual property, managerial capability and financial capital to produce goods and services.
This study concentrated specifically on the use of the term teamwork which involves reshaping the way work is carried out. This includes organizing employees into teams based
on a distinct product, each team performing a particular task. These teams are given a high degree of responsibility and are expected to work with flexibility. The interest of the study is to understand or know how teamwork in organization has and can contribute to the
improved productivity such as Coca-Cola Bottling Company Ghana, Nestle Ghana Limited, Windows Cooperation, Apple cooperation just to mention a few. The impact of teamwork on
organizational productivity involves internal and external factors that contribute to high productivity. The internal factors have to do with team norms, ground rules, interpersonal and rational skills or qualities that determines how individual’s teams will function whiles
the external factors are the organizational culture, systems and structures within which all teams perform determines the level of teamwork within an organization. Various other
measures of organizational productivity are also included in the research study, which are esprit de corps (Team Spirit), team trust, and recognition & rewards.
STATEMENT OF THE ROBLEM
Every organization, either large or small, struggles to acquire productivity so as to achieve success and maintain a valuable image in this present world of organizational competitions and it is the wish of organizations to see the input they use (resources) and the output
(goods and services produced) they have at the end.
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The population of workers in an organization may be very large and yet that organization achieves a very low productivity and with no improvement in their products. This could
occur as a result of absence of teamwork in such organizations and if so, then there are other organizations that have teams and yet achieve little or no productivity at all. It may
be as a result of the following problems:
Lack o f Teamwork in the Organizat ion: That is the fa ilure o f an
organiza t ion to coordinate works into work groups in order to tap from the respective human resources the organization possesses.
Poor Leadership Styles in the Organization: It may be as a result of the leadership style of the organization possibly not favourable to teamwork.
Poor Leadership of the Work Teams: Different work teams may exist, but lacks the
persons with the team leading acumen to lead them. Lack of Motivation of the Workforce: The way in which organizations reward their
workforce may also lead to low organizational productivity even when their staff work in teams.
Prevailing Conditions that hinder growth in an Organization: The conditions
permanently occurring in an organization (lack of picking-up of innovative ideas) thus, absence of designing motivational programs, educational growth, bonuses,
job rotation and the use of old technologies, etc., may be the cause of low organizational productivity
OBJECTIVES OF THE STUDY
The general objective of this study is to investigate the contributions of teamwork on organizational productivity. The specific objectives of this study are as listed below:
Determine the effect of teamwork on organizational productivity.
Investigate the ways of leadership styles used by the organizations affect organizational productivity.
Determine the effect of poor leadership on work team’s leadership.
Investigate the benefits of motivation to the workforce.
Determine the prevailing conditions that hinder growth to organizational productivity.
HYPOTHESIS
The following hypothesis were formulated for the study
HO: Teamwork has no effect on employee performance H1: Teamwork has positive effect on employee performance
HO: Esprit de corps has no effect on employee performance H2: Esprit de corps has positive effect on employee performance
HO: Team trust has no effect on employee performance
H3: Team trust has positive effect on employee performance
HO: Employee rewards & recognition have no effect on employee performance
H4: Employee rewards & recognition have positive effect on employee performance
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Study Population
The population for this study comprised of upper, middle and lower staff members of Kwashieman M/A School, Omanjor M/A School and Ablekuma M/A School. The total
population of the study is 242 staff members which constitute 50, 62 and 40 staff respectively from Kwashieman M/A School, Omanjor M/A School and Ablekuma respectively.
Sample and Sampling Technique
The sampling technique that was adopted for this research was non- probability quota sampling. This was achieved by grouping each school into a quota and respondents from each school was selected using non probability convenience sampling giving a sample size
of 200. The total of 242 questionnaires were distributed among the staff members of the Kwashieman Anglican Basic School, Ablekuma, Anglican Basic School and Omanjor M/A
Basic School located in the Accra Metro, Ga-Central and Ga-West assembly of the Greater-Accra region. In the Kwashieman Anglican Basic School, 50 questionnaires were distributed and 50 usable questionnaires were returned giving a response rate of 100%. In
Omanjor M/A Basic School, a total 102 questionnaires were distributed and 84 usable questionnaires were returned giving a response rate of 82.35%. In Ablekuma, total 90
questionnaires were distributed and 66 usable questionnaires were returned giving a response rate of 73.3%.
Data Analysis
The data collected were coded and input into a computer software called Statistical Package for the Social Sciences (SPSS) version 16.0 for the analysis. Both quantitative and descriptive statistics were used in the analysis. The descriptive analytical tools include the use of cross
tabulation whiles the quantitative analytical tools include correlation coefficients, correlation matrix and regression equation model.
Regression Analysis
The research study uses multiple regression analysis in order to analyze impact of independent variables on dependent variable. The general multiple regression model is
given by Y = α+β1X1+β2X2+β3X3+ β4X4+ε . . . (1)
Where Y is Employee Performance (dependent variable), α is constant
X is other factors affecting Performance β is the regression coefficient which may positively or negatively affect the independent
variables.
EP = α + β1TW + β2EDC + β3TT + β4R&R + ε . . . (2) Where EP = employee performance (dependent variable) β1TW= teamwork (I.V) β2
EDC=
Esprit de corps (I.V), β3T&T = team trust (I.V) β4 R&R = rewards and recognition (I.V).
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DATA PRESENTATION, ANALYSIS & INTERPRETATION Data Analysis
Table 1: Age and Gender Cross Tabulation
Gender
Age Female Male Total
20 -28
29 -39
40 and Above
Total
69 13 82
77 11 88
24 6 30
170 30 200
The above table shows the cross tabulation of age and gender. The male and female respondents
represents 30 and 170 of the total sample respectively, thus majority of the employees of the school constituting 85% of the total sample are females between the age of 29-39 years.
Table 2: Teaching Staff Level and Gender Cross Tabulation
Gender
Age Female Male Total
Top Medium
Low Total
10 0 10
42 10 52
118 20 138
170 30 200
Table 2 shows the cross tabulation of teaching staff level of Kwashieman, Anglican Basic,
Omanjor M/A Basic and Ablekuma Anglican Basic School and staff gender. The staff level comprised of ranking according to years of service by the Ghana Education Service. Top level staff
are categorized as Principal Superintendent, middle level staff members as Senior Superintendent I and lower level members as Senior Superintendent II.
Top level staff members were 10 representing 5% of the total sample, medium level staff members were 52 of which 42 respondents were males and 10 females representing 26% of the total sample.
Low level staff members were 138 of which 118 are males 20 females representing 69% of the total sample.
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Table 3: Reliability Statistics
Variables
Cronbach’s Alpha
Number of Items
Teamwork 0.935
5
Esprit de corps 0.958
5
Team trust 0.913
5
Rewards & Recognition 0.94
3 5
Employee Performance 0.95
4 5
Inter- item reliability coefficient Cronbach’s alpha for different variables is used to delete an item from questionnaires, to delete an item Cronbach’s alphas have to range between 0.790 - 0.826
(Sekaran, 2003). The above reliability statistics value of t he five variables shows that there is no problem of deletion of questionnaire item, which confirms the reliability of information in this study.
Correlation Analysis
The research study finds out the P earson corre la t ion be tween emp loyee pe rfo rmance and teamwork, esprit de corps, team trust and recognition and rewards.
Table 4: Correlation Matrix
Teamwork
Employee
Performanc
e
Esprit De
corps
Team
Trust
Reward &
Recognition
Teamwork Pearson Correlation
1
0.819
0.427
0.710
0.439
Sig. (2-tailed) 0.000 0.000 0.000 0.000
N 200 200 200 200 200
Employee
Performance
Pearson
Correlation
0.819
1
0.475
0.647
0.471
Sig. (2-tailed) 0.000 0.000 0.000 0.000
N 200 200 200 200 200
Esprit
De corps
Pearson
Correlation
0.427
0.475
1
0.331
0.170
Sig. (2-tailed) 0.000 0.000 0.000 0.16
N 200 200 200 200 200
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Team Trust Pearson
Correlation
0.710
0.647
0.331
1
0.337
Sig. (2-tailed) 0.000 0.000 0.000 0.000
N 200 200 200 200 200
Reward &
Recognition
Pearson
Correlation
0.439
0.471
0.170
0.377
1
Sig. (2-tailed) 0.000 0.000 0.016 0.000
N 200 200 200 200 200
Correlation is significant at the 0.01 level (2-tailed). Correlation is significant at the 0.05 level (2-tailed).
Table 4 demonstrates the correlation matrix o f the employee performance (EP), emp loyee teamwork (TW), esprit de corps (EDC), team trust (TT) and recognition and rewards (R & R).
The correlation shows t ha t t he re is a positive and significant relationship between the variables, moreover there is a strong positive correlation between teamwork and organizational
performance and also there is a strong positive relationship between teamwork and team trust at 0.01 and 0.05 levels of significance. It can be deduced from the relationship tha t even though the independent variables have a positive effect on employee performance, teamwork influences
employee performance better (r = 0.819) and also teamwork works better with team trust (r = 0.710).
Table 5: Table summary of coefficient of teamwork, esprit de corps, team trust, rewards and employee performance.
Model
Unstandardized
Coefficients
Standardized
Coefficients
B
Std.
Error
Beta
t
Sig.
Constants -0.174 0.201 -0.866 0.387
Teamwork 0.615 0.059 0.620 10.494 0.000
Esprit De Corps 0.174 0.049 0.152 3.568 0.000
Team Trust 0.149 0.048 0.133 3.095 0.002
Reward and Recognition 0.111 0.057 0.107 1.941 0.050
a. Dependent Variable: Employee Performance @ 5% level of significance
Table 5 generated the specific regression equation as
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In equation 3 above the regression coefficient for teamwork of the employee (β1) = 0.620 implies
that one percent increase in employee teamwork increases employee performance by 62% if other variables are kept constant and its T value of 10.494 which is greater than the critical T at the 5%
level of significance shows that there is enough statistical proof that an increase in teamwork will lead to an increase in employee performance and vice versa, thus the null hypothesis has to be rejected to accept the alternative hypothesis.
The regression coefficient Esprit de corps (β2) = 0.152 or 15.2 % implies that one percent
in esprit de corps will lead to 15.2% increase in employee performance level if other variables are kept constant and its T value of 3.568 which is greater than the critical T at the 5% level of significance shows that there is enough statistical proof that an increase in esprit de corps will lead
to an increase in employee performance and vice versa, thus the null hypothesis has to be rejected to accept the alternative hypothesis.
The regression coefficient for team trust of the employees (β3) = 0.131 or 13.1 % explains that once percent increase in team trust increases employee performance by 13.1% if other variables are
kept constant and its T value of 3.095 which is greater than the critical T at the 5% level of significance shows that there is enough statistical proof that an increase in team trust will lead to an
increase in employee performance and vice versa, thus the null hypothesis has to be rejected to accept the alternative hypothesis.
The regression coefficient for employee rewards & recognition of an employees (β4) = 0.107 or 10.7 % explains that one percent increase in employee rewards increases employee performance
by 10.7% if other variables are kept constant and its T value of 1.941 which is greater than the critical T at the 5% level of significance shows that there is enough statistical proof that an increase in team trust will lead to an increase in employee performance and vice versa, thus the null
hypothesis has to be rejected to accept the alternative hypothesis. Finally, the omission of the constant value in the regression equation shows that employee performance cannot be achieved in
the study without the influence of the independent variables. Table 6: Model Summary
Model R R Square Adjusted R Square Standard Error of Estimate
1 0.843a 0.711 0.705 0.73264
a. Predictors: (Constant), Rewards & Recognition, Esprit De corps, Team Trust, Teamwork
Regression coefficient R = 0.843 explains that there is a strong positive relationship between the independent variables and employee performance, thus an increase in the independent variables will
lead to an increase in employee performance and vice versa.
The adjusted R2 = 0.705 shows that an increase in the independent variables will increase employee performance by 70.5% and vice versa. Thus, 70.5% variation in employee performance is
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explained by teamwork, esprit de corps, team trust and rewards and 29.5% could be due to other factors which were not considered in the study.
Table 7: Model summary of employee performance, teamwork, esprit de corps, team trust and rewards
ANOVAb
Model Sum of Squares df Mean Square F Sig.
Regression
257.950
4
64.488
120.140
0.00a
Residual
104.670
195
0.537
Total
362.620
199
a. Predictors: (Constant), Rewards & Recognition, Esprit De corps, Team Trust, Teamwork b. Dependent Variable: Employee Performance
Table 7 shows the influence of the independent variables are statistically significant at the 5% level of significance on employee performance with a calculated F value of 120.140 being greater tha n
the theoretical F value, thus there is enough statistical evidence to conclude that the independent variables have positive and significant relationship with employee performance.
Table 8: Multicollinearity d i a g n o s t i c b e t w e e n Dependent and Independent Variables collinearity Statistics
Variables Tolerance VIF
(Constant)
Teamwork 0.425 2.355
Esprit de corps 0.816 1.226
Team trust 0.490 2.041
Rewards & Recognition 0.798 1.253
The above table shows the multicollinearity statistics. The tolerance value of less than 0.20 or 0.10 indicates a multicollinearity problem (O’Brien & Robert, 2007). In the above table the tolerance values of all independent variables are 0.425, 0.816, 0.490 and 0.798 which shows that the
tolerance level is moderate and good and have no problem of multicollinearity. The reciprocal of the tolerance is known as the Variance Inflation Factor (VIF). The VIF o f 5 or 10 and above
indicates a multicollinearity problem (O’Brien & Robert,2007). In the above table VIF values of independent variables are 2.355, 1.226, 2.0411 and 1.253 which shows that the VIF level have no problem of multicollinearity, thus independent variables have no influence on each other and does
not affect or influence the outcome of employee performance in the study.
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Table 9 Eigen values and Variance proportions for Independent variables
Model Eigen Value Condition Index Variance Proportions
Constant TW EDC TT R&R
1 4.714 1.000 0.00 0.00 0.00 0.00 0.00
2 0.109 6.575 0.11 0.08 0.19 0.30 0.02
3 0.092 7.146 0.02 0.01 0.43 0.01 0.49
4 0.047 9.979 0.68 0.15 0.17 0.21 0.30
5 0.037 11.224 0.19 0.76 0.20 0.48 0.18
Eigen values close to 0 indicate dimensions which explain little variance. In above table Eigen
values of 0.109, 0.092, 0.047 and 0.037 are close to zero which shows little variance in these variables. The condition index summarizes findings thus, a condition index over 15 indicate a
possible multicollinearity problem and a condition index over 30 suggests a serious multicollinearity problem. In above table values of condition index are in range of 1.00 to 11.224 which shows that there is very little multicollinearity issue between independent variables
which confirms the genuine influence of the independent variables on employee performa nce.
DISCUSSION, CONCLUSION AND RECOMMENDATIONS Discussion
This study examines the relationship of teamwork, esprit de corps, team trust, recognition and rewards and employee performance. Hypothesis one states that teamwork has positive effect on
employee performance and was found significant in this study. The result of hypothesis one is consistent with previous study of (Cohen & Manion, 1999; Frobel & Marchington, 2005) which stated that those organizations which focus more on teams have results in increased employee
performance and greater productivity.
Hypothesis two states that esprit de corps has positive effect on employee performance and was found to be significant. The result of the hypothesis two is consistent with the study of (Lusch & Naylor, 2001; Boyt, Lusch & Mejza, 2005) which stated that team spirit will result in better
employee performance and contributes in organizations achieving a common goal. Hypothesis three states that team trust has positive effect on employee performance and was also
found to be significant and strongly correlated with teamwork in achieving organizational productivity. This finding also is in view with (Mickan & Rodger, 2000; Manz & Neck, 2002).
Hypothesis four states that employee rewards & recognition has significant positive effect on employee performance and found to be significant in this study. This result is supported by the
(Rabey, 2003) which states that recognition and rewards are the main focus of the individuals who are working in teams.
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Conclusion
The research shows a strong positive significant relationship between the independent variables namely teamwork, esprit de corps, team trust, recognition & rewards and employee
performance. However, teamwork was highly correlated with employee performance. The results show that an increase in teamwork, esprit de corps, team trust, recognition & rewards will contribute to a 70.5% increase organizational productivity and 29.5% may be due to other
factors that was not considered in this study. The independent variables thus teamwork, esprit de corps, team trust, recognition & rewards influenced employee performance by 62%, 15.2%,
13.3% and 10.7% respectively. The overall results revealed that teamwork w h ic h b r ings be ne f i t s in t e r ms o f h igher p rod uc t iv i t y , b e t t e r o r ga n iza t io na l performance, competitive advantage and increased product quality and quantity highly contributes to
organizational productivity compared to other factors.
Employers may be able to improve their performance by increasing the volume of teamwork and taking action to raise the performance level of the individual, but to succeed in this they need to pay attention to the quantity and type of teamwork offered. Teamwork activity
within the organization is very much beneficial and its effect is directly on employee performance. When an employee acquires adequate opportunities of teamwork his/her
performance automatically improves and he/she will be satisfied with the job and this could ensure that skills are better utilized. This might reduce the possibility of an employee quitting a job.
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EMOTIONAL INTELLIGENCE: IMPLICATIONS ON IMPROVING TEAM
PERFORMANCE AT EXACT HOLDINGS LOCATED IN KWAZULU-NATAL
Clinton Reddy
Management College of Southern Africa (MANCOSA)
16 Samora Machel Street Durban, KZN
SOUTH AFRICA
Supervisor: A. Bozas
ABSTRACT
Historically it was believed that a high Intelligence Quotient (IQ) was solely required for
optimum performance as a leader and thus organisations focused on recruiting and promoting
individuals with this attribute. Literature shows that a high IQ does not guarantee success as a
leader and some studies postulate that Emotional Intelligence (EI) could be the element missing
in unsuccessful leaders. This research aimed to determine if improvements in EI lead to
subsequent improvements in leader and team performance. Two phases were conducted in an
organisation in which a team had poorly performed in 2014. The pilot phase used Action
Research, an investigative tool, to establish issues/ concerns identified by leaders. The study was
then scaled up to include 200 team members, each of whom answered a baseline survey with
questions grounded in aspects of EI, linked to the causes of poor performance. A control and
intervention group was established based on survey results, and interventions linked to the EI
construct were then used accordingly to address identified issues concerning building EI within
leaders. Pilot results showed poor team leadership. This was attributed to a failure in key aspects
which could be linked to EI. Results from the second phase survey showed that there were
elements of leader inadequacies throughout the organisation. It was found that the EI of the
leader could be increased through interventions that focused on the five components of EI. to
solve problems through a structured methodology of diagnosis and identification of problems.
The EI of leaders did improve and there was an associated increase from underperformance to
acceptable performance in the leader and the team, whilst the control group showed no statistical
difference. There was an increase in the exceeding performance categories of leaders and
individuals, but the results were not statistically significant in this area.
Keywords: Emotional intelligence, leadership, team performance, performance management,
action research.
INTRODUCTION
Shortcomings in leadership that inevitably have a negative impact on the leader and team
performance are identified as related to aspects of emotional intelligence (EI). A department in
Exact Holdings. a corporate organisation, (which for confidentiality purposes will be referred to
as Exact Holdings), has an underperforming team. Exact Holdings is a large company which
focuses on the production of several products sold both locally and internationally. A pilot study
on a team of four people showed a hundred percent compliance to key issues relating to
shortcomings in leadership. The wider organisation was drawn into the study through a baseline
survey to understand the extent of the issues faced and to see if there was a similar trend. A
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controlled intervention study was designed with EI in mind specifically aimed at addressing the
issues trending in the baseline survey. The interventions worked to increase the performance of
the leader and team through the improvement of EI using Action Research (AR) methods.
Background to the Problem/Opportunity
The extent to which EI accounts for effective leadership is currently unknown. Despite much
interest in relating EI to effective leadership there is little research published that has explicitly
examined this relationship. This section sets the context for this study in which dissatisfaction
and poor performance is traced back to shortcomings in leadership within the organisation. The
focus of recruitment and promotion of personnel into leadership positions in large organisations
is based on the candidate’s ability to effectively and efficiently analyse information and make
decisions to get the job done timeously. Traditionally cognitive ability and IQ would be
important. However, there is another element to the role of leadership that gets less focus as an
element for recruitment and development. This element is the assessment of the EI of the leader
(Palmer, B. Gardner, L. and Stough, C. 2003). Emotional intelligence is defined as the ability to
reason emotions and to use these emotions to promote thought in order to enhance emotional and
intellectual growth and problem solving abilities (Higgs, 2000; Mayer, Caruso and Salovey,
2000). Goleman, Boyatzis and McKee (2013) support this view of EI and further suggest that the
EI attributes of self-awareness, empathy, and rapport with others directly impacts leadership
performance.
Why Leaders Fail, Implication on Team Performance
Studies have shown that EI impacts a leader’s ability to be effective (Rosete and Ciarrochi,
2005). Goleman (2002) stated that leaders who did not develop their EI would have difficulty in
building good relationships with peers, subordinate superiors and clients. This emphasizes the
need for EI in relationship development. Effective leaders, professionals, or persons, need to
understand and skilfully manage their emotions appropriately, based on each person or situation
and understand the emotional cues of others in order to effectively interact. (Goleman, et al.
2013). Leaders that do not actively pay attention to the motives, behaviours and interactions
between their staff and themselves, either because they do not possess the skill to do so, or they
do not recognise the importance of doing so, are unlikely to be in tune with the feelings of their
employees and hence would be incapable of achieving mutual comfort in sharing ideas,
knowledge and the creation of collaborative decisions.
Background to Exact Holdings and the Current Situation: New Leader Role with an
Underperforming Team
A team leader has worked for Exact Holdings for four years. The leader was recently promoted
into a leadership role in which he inherited four team members. Each of the four team members
was hired in the capacity of process engineers. A process engineer in EH is a qualified chemical
engineer, who works to increase laboratory formulations to factory scale in order to facilitate the
commercial production and distribution of products. This team underperformed in 2014 and a
focus group session was undertaken with this team in order to understand possible root causes. In
terms of the organisational hierarchy, the new leader held a work level two (WL2) leadership
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position, whilst his team held work level one (WL1) positions. The CEO holds a WL5 position.
The company employs personnel across the divisions of Research and Development (R&D),
Marketing, Finance, Human Resources and Supply Chain. In 2012 Exact Holdings underwent an
organisational restructure in which more focus was placed on performance than was done in the
past. As part of the change employees were rated on a performance scale of 1-5, and advised that
they would be rewarded with a fourteenth cheque if they achieved a rating of 3 and above
provided that the company made a profit. Every employee would be benchmarked against
candidates in his/her level in order to identify high performers. The rating ranged from 1 Gross
underperformance to 5 Outstanding performance with appropriate rewards at each level.
Rewards such as a 14th
cheque would start at level 3. Level 5 participants receive an automatic
promotion without requiring application. The team’s targets for 2014 were not achieved. Only
one team member achieved a three rating indicating that he had met his targets and delivered
them as expected. Two team members were put on performance review since they had not met
their targets and had not displayed any leadership qualities, whilst one team member was given a
two rating indicating borderline performance. In a focus group session with the team it was
determined that the root cause of under performance in the team was the poor leadership from
the previous team leader. This study will discuss methods utilised in order to understand and
address the root causes of underperformance. It will also discuss methods and techniques which
can be utilised to address or prevent similar issues in large companies/ organisations.
Problem Statement
Leaders may lack the skills or awareness to actively pay attention to the behaviours, motives and
interactions of themselves and their teams (emotional intelligence). This could affect the proper
functioning of teams and lead to:
Poor communication within and between teams
Misalignment of goals and roles and responsibilities between management and teams
Lack of motivation in the team due to poor performance
Lack of relevant skills sets within the team
Aim and Objectives of the Study
The aim of this study was to determine if leader and team performance can be improved through
a positive difference in leader EI. The objectives of this study were to determine if:
A leader’s EI could be improved through a leader-led AR process aimed at improving
team performance.
A leader EI has an impact on the leader’s performance.
A leader EI has an impact on team performance.
Research Questions
The overall research question of this study was:
“Is the performance of a team affected by the EI of the leader in charge of that team?”
Associated research question one:
“Does the EI of the leader have an impact on the leader’s performance?”
Associated research question two:
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“Does AR based on EI principles impact leader EI?”
The Significance of the Study
Performance culture is at the forefront of most international and national corporate
organisations. The basis of which is to drive performance of workers to deliver their
maximum potential to the business (growing themselves and growing the business) in
order to ensure increased profitability of the business in a competitive business
environment. In the instance when an employee underperforms it is imperative to isolate
the root cause and to develop interventions or strategies to prevent further occurrences in
order to drive employee morale and performance. Currently the most common
methodology utilised to address underperformance is performance management.
Performance management involves monitoring of the employee by his/her leader on a
weekly basis in order to ensure that weekly targets are met as opposed to monthly or
annual targets. The basis of performance management is time management of the
employee which is controlled and monitored by his/her leader. Action Research and
improvement in EI could offer an alternate to performance management since the root
cause of underperformance may not always be time management or lack of skill of the
employee, but could rather also include employee dissatisfaction and leadership
inadequacies.
An increase in EI obtained via the methodology of AR could be a very cost effective way
to build EI in new and experienced leaders.
Staff turnover could be reduced in organisations due to increased job satisfaction. This
study fits into the existing body of knowledge of EI and supports the works of Rosete and
Ciarrochi, (2005) and Goleman et al., (2013) which concludes that EI has an impact on
leader effectiveness and is therefore as important as IQ.
This study also adds to the existing EI knowledge by correlating leader and team
performance to an increase in leader EI ability. This provides a rationale for Human
Resources department to look for EI qualities when recruiting.
The study also supports Goleman et al., (2013) claim that EI can be improved in an
individual. It is apparent that poor leadership can have a negative effect on team
performance and that EI could be the missing link to leaders becoming more successful.
The study now considers leadership and the evolution in current thinking on the topic. It also
looks at the EI construct and if leadership requires EI. Literature on the implications of
leadership incorporating EI on team performance and job satisfaction is presented.
LITERATURE REVIEW
Three broad themes are covered; the first being the definition of leadership and its appropriate
theories which include the early trait theory to the more evolved dispersed leadership theory. The
second theme is that of Emotional Intelligence where the EI construct is explored. The final
theme is the link between EI and leadership and how EI is integrated into leadership. In this
theme the research findings on topics of emotions and the leadership process, as well as
influence of EI on team performance is explored.
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Definition of Leadership
William (2009) describes leadership as a means of lifting a person’s vision to higher sights and
raising the performance of a person to an evaluated status, or in other words to build a
personality beyond its normal limitations. Alvesson and Sveningsson (2003) raised some doubt
whether a common definition of leadership is practically possible. They argued that a common
definition of leadership would not be very helpful and may even obstruct new ideas and
interesting ways of thinking of leadership. Northouse (2007) however argues that based on a
review of various definitions of leadership common components do occur. A few aspects
include that leadership is a process, leadership involves influence, leadership occurs in groups,
and leadership involves common goals.
Leadership Theories
A review of the leadership literature has revealed an ever-evolving series of thought when it
came to leadership from the “Great Man” and “Trait” theories, to “Transformational” leadership
in recent years. This study reviews the evolutionary progression of the leadership theory from the
trait to action-centred models with emphasis on the styles of servant to transformational
leadership.
Trait Theory
Gordon Allport, an American psychologist considered a founding figure of personality
psychology, pioneered what is considered to be the first academic theory on leadership. His
theory described the various behaviour and personality tendencies associated with effective
leadership. The trait approach was the idea of the existence of leadership qualities. The theory
was based on certain identified personality traits or characteristics in an individual that would
lead to effective leadership (Bligh, 2011). Bligh (2011) mentions that a common criticism to the
trait theory was that there were far too many traits identified over the many years of research.
These traits were criticized for their lack of explanatory power and because they could not be
distinguished between leaders and non-leaders. An additional criticism of the trait theory was
that it was difficult to measure traits such as honesty, integrity, loyalty or diligence.
Behaviour Theory
The behaviour theory was established following the development of the trait theory. It focused
on what leaders actually did, instead of their qualities. Studies emphasising human relationships,
along with output and performance, were conducted and various patterns of behaviour were
observed. These observed patterns were then categorised as styles of leadership (Bolden,
Gosling, Marturano and Dennison, 2003). It was the use of models such as the Leadership Grid
Model and the Behavioural Leadership-Model, which suggested that there were five different
leadership styles, upon which behaviour patterns are characterised. Leadership strategies during
this time were influenced by a leader's assumptions about human nature/behaviour.
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Blake and Mouton's Leadership Grid
This model developed by Robert Blake and Jane Mouton identified five different leadership
styles based on either the concern for people (relationship), the concern for production (task), or
a combination of both. Concern for People was understood to be the degree to which a leader
considers the needs of team members, and areas of personal development when deciding how
best to accomplish a task. Concern for Production is understood to be the degree to which a
leader emphasizes concrete objectives, organisational efficiency, and high productivity, when
deciding how best to accomplish a task.
The Authoritarian Leader identified by high task and low relationship concern, is very task
oriented. This leader is hard on their workers (autocratic), has strict work rules, policies,
procedures, and views punishment as the most effective means to motivate employees. There is
little or no allowance for cooperation or collaboration between leaders and subordinates. When
something goes wrong they tend to focus on who is to blame, rather than identifying the issue
and developing a solution or preventative measure (Zeidan, 2009).
The Team Leader identified by high task and high relationship concerns is a type of leader that
leads by positive example and endeavours to foster a team environment in which all team
members can reach their highest potential, both as team members and as people. These leaders
stress in equal measure the production needs and those needs of the people respectively. The
premise here is that employees are involved in understanding organisational purpose and
determining production needs (Zeidan, 2009).
The Country Club Leader identified by low task and high relationship concerns is a leader that
predominantly uses reward power to maintain discipline and to encourage the team to
accomplish its goals. These leaders stress production needs and the needs of the people equally
highly. The premise here is that employees are involved in understanding organisational purpose
and determining production needs (Zeidan, 2009).
The Impoverished Leader identified by low task and low relationship concerns is a leader who
uses a "delegate and disappear" management style. This leader is mostly ineffective as there is no
emphasis on creating systems to get the job done, or ensuring a satisfying and motivating work
environment.(Zeidan, 2009).
The Organisational Man Leadership identified by medium task and relationship concerns is a
style that is a balance between two competing concerns. It is said that leaders with this style
settle for average performance and believe that this is the most anyone can expect (Zeidan,
2009).
Other leadership styles apart from the Organisational Man Leadership style may be required in
various situations. For example, an Authoritarian Leadership style may be required to instil
discipline in unmotivated workers and the Impoverished Leadership style would be required to
enable self-reliance.
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Situational Theory
The Situational Theory approach was the next stage in leadership thinking which sees leadership
as being specific to the situation in which it is being exercised. Situational theories embodied the
premise that the style of leadership used depended on factors such as the situation, people, task,
organisation, and other environmental variables. Four of the well-known models in Situational
Theory are presented below. These models include Fiedler’s Contingency Model, The Hersey-
Blanchard Model of leadership, and Adairs Action-Centered Leadership Model.
Fiedler's Contingency Model
Goleman, et. al., (2002) proposed that there was no single best way for leaders to lead people.
According to Fielder’s theory the situation would demand the type of leadership style required.
Fiedler considered three situations that could define the condition of a leadership task. The first
condition is the Leader Member Relations, concerning how well the leader and employee got
along. This relationship amounts to loyalty, dependability, and support that the leader receives
from employees. This style seeks to build interpersonal relations and extend extra help for the
team development in the organisation. The second condition is a task structure in which the job
can be highly structured, fairly unstructured, or somewhere in between. Leaders here take pride
and satisfaction in the task accomplishment for the organisation. Task-motivated leaders are at
their best when the group performs successfully such as achieving a new sales record or
outperforming the major competitor. The third condition is the power of position i.e. how much
authority the leader possesses. Fiedler believed that there was no good or bad leadership style as
each person tends to have their own preferences for leadership.
The Hersey-Blanchard Model of Leadership
This model proposes that the developmental level of an employee plays the greatest role in
determining which leadership style is most appropriate. The model is based on the amount of
direction (task behaviour), and socio-emotional support (relationship behaviour), a leader must
provide given the situation and the "level of maturity" of the followers/ team members (Bolden,
et al., 2003). The leadership behaviour will then follow one of two ways (directive behaviour or
supportive behaviour). In the Directive Behaviour one-way communication is the norm with
followers’ roles clearly communicated and their performance closely supervised. In the
Supportive Behaviour way there is two-way communication with listening, support and
encouragement thereby facilitating decision-making by the follower. Source: Bolden, et al.,
2003, p.9
Adair’s Action-Centered Leadership Model
Bolden et al., (2003) explain that this model proposes the concept of an ‘action-centered’ leader
who gets the job done through the work, team and relationships with fellow leaders and sub-
ordinates. According to Adair's explanation on action-centered leadership, leaders must:
structure the task to be done
support and review the individual people executing the task, and
co-ordinate and foster the work team as a whole
Source: Adair, 1973 cited in Bolden, et al., 2003, p.11
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The conclusion of the situational leadership models is that each variety model proposes
situational variables which are thought to have a higher weighting on the primary driving force
for leadership style. The theory also proposes that there may be differences in required
leadership styles at different levels in the same organisation.
Leaders and Followers
All models discussed thus far have shown the leader to be a frontline figure that stands out from
the rest of the crowd, as being somehow different (in terms of behaviours and character traits)
and capable of “leading” people. The school of thought had then shifted in a different direction
in recognition of the importance of the leaders’ relationship with his/her followers and an
awareness of the interdependency of the two roles. The view of leadership shifted from a hero-
like figure who is always in the frontline, to the leader who has the capacity to follow. Some
models that are well known and based on the leader and follower theory is that of Servant
Leadership, Team Leadership and Transactional leadership.
Servant Leadership
Carol (2005) explains that the notion of “Servant Leadership” is purposefully oxymoronic and
therefore makes people pause for thought, and to “challenge any long-standing assumptions that
might be held about the relationship between leaders and followers in an organisation”. It also
emphasises the leader’s duty to serve his/her followers. Leadership thus arises out of a desire to
serve rather than to be dominating.
Dispersed Leadership
According to Politis (2005) ‘dispersed’ or ‘emergent’ leadership found its roots in the realisation
of the importance of social relationships and the need for a leader to be accepted by his
followers, as well as the argument that no single individual can be the ideal leader in all
circumstances. Dispersed leadership is therefore a less formalised model for leadership. The
theory proposes that the role of the leader is dissociated from the organisational hierarchy. The
dispersed leadership model proposed that individuals at all levels of the organisation can exert
leadership influence on their colleagues and management of the organisation. The dissociating of
leadership from formal organisational power roles was supported by Western (2013) who argues
for and against some of the parallels drawn by Heifetz (1994) when he distinguished between the
exercise of “leadership” and the exercise of “authority” in his work. Western (2013) mentions
that the key notion to this model is the distinction between “leader” and “leadership”. The leader
in this case is seen as only being identifiable on the basis of his/her relationship with others in the
social group who are behaving as followers. The leader can therefore conceive to be emergent
rather than predefined and their role cannot be understood by their personal characteristics or
traits, but examining their relationships within the group. Leadership is seen as a process of
sense-making and direction-giving within a group.
Emotional Intelligence and Factors Associated with Failure in Leadership
It can be seen from the evolutionary progress of theories on leadership that earlier theories
focused on the characteristics and behaviours of successful leaders, while the theories that
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emerged later on were focused on the role of followers and the contextual nature of leadership.
The latest body of research brings to realisation the importance of social relationships and the
need for a leader to be accepted by his followers. Studies have shown that Emotional
Intelligence (EI) impacts a leader’s ability to be effective (Goleman, 1998). Goleman (2002)
stated that leaders who did not develop their EI would have difficulty in building good
relationships with peers, subordinate superiors and clients. This emphasizes the need for EI in
relationship development. The idea of leadership involving the emotions of followers/team
members and those emotional abilities are associated with effective leadership is evident to some
extent in all of the major theories on leadership (George, 2000). Dasborough (2006) has
empirically demonstrated that leaders evoke emotional responses in employees in workplace
settings. Goleman et al., (2002) has argued that EI is a critical component of leadership, in order
for leadership to be effective. It is now widely accepted that leadership is an emotion-laden
process, and a leader who can manage his/her own emotions and have empathy for others will be
more effective in the workplace.
Emotional Intelligence
Mayer, Caruso and Salovey (1999) defines EI as being the ability to monitor one’s own emotions
and the emotions of others, to discriminate among these emotions and use this information to
guide one’s thinking and actions. Emotional intelligence is also understood to be a person’s
ability to manage their own emotions through commitment, integrity, self-awareness, self-
confidence and self-control; to initiate change, influence, communicate and accept change
(Goleman, 2002). Saklofske, Austin and Minski, (2003) support the view of Mayer et al., (1999)
who view EI as being a “subset of social intelligence”. Increased evidence in recent years seem
to support the view that since EI is a subset of social intelligence and it has since emerged that EI
is one of the most notable social effectiveness constructs in modern literature. The emotional
intelligence construct was proposed by Goleman (2002). This framework illustrates that EI
consists of two major pillars. The first pillar being personal competence and the second being
social competence. The first pillar of personal competence is further broken down into Self-
Awareness and Self-Regulation, these two abilities are fundamental to the emotional intelligence
construct. Self-Awareness is the aspect of EI that allows individuals to show awareness of how
they behave and how they are perceived in a public space. Self-awareness allows one to
recognise a feeling/ emotion when it occurs. Accurately reading one’s own emotions is a basic
aspect of EI and helps guide the decision-making process. It underlies all other processing of
emotional information. Emotions include areas of beliefs and core values, as well as preferences,