Linking globalization to commercial banks’ performance in Ethiopia

Abstract

Globalization promotes profitable global progress, creates jobs, makes enterprises more competitive, and lowers consumer prices. However, little attention was given to the relationship between globalization and banks’ accounting-based performance, and the issue has not yet been studied in Ethiopia. Thus, the purpose of this study is to empirically examine the effect of globalization on the banks’ accounting-based performance in Ethiopia from 2012 to 2019. This study used a descriptive survey research design to investigate the effect of globalization on the banks’ accounting-based performance in Ethiopia using the ordinary list squire estimation technique. The study used ROA and ROE as the dependent variables, economic, social, political, and financial globalization as the major independent variables, and asset size, liquidity, real GDP, and inflation as control variables. The result showed that economic globalization, social globalization, political globalization, asset size, liquidity, and real GDP have a significant positive effect on the banks’ accounting-based performance as measured both by ROA and ROE in Ethiopia. However, financial globalization and inflation have a significant but adverse impact on banks’ accounting-based performance as evaluated both by ROA and ROE. Policymakers should develop policies and plans to make Ethiopia a member of organizations like the European Free Trade Association (EFTA) and the Africa, Caribbean, and Pacific European Union (ACPEU). Additionally, policymakers should strengthen and improve the financial systems, trade in goods and services, the diversity of trade partners, personal relationships, information flows, close cultural ties, and international travel, and banks should get ready to expand their operations into new markets.