The Determinants of Derivatives Market Growth in Botswana and Zimbabwe

This study examines the determinants of derivatives market growth in Botswana and Zimbabwe. This study is based on a quantitative research approach. This research used random sampling of non-financial firms in Zimbabwe and Botswana. The study was based on a sample of 32 companies listed on the Botswana and Zimbabwe Stock Exchanges. Unit root analysis, a test of normality, a test of random effects, and Granger cause effects were applied to evaluate the determinants of derivatives market growth. Logistic regression analysis was applied to investigate the determinants of the derivatives markets in Botswana and Zimbabwe. Granger causality was also applied to investigate the impact of short-term relationships on the propensity for derivatives market growth. The logit part of the study revealed a profound positive association between derivatives market growth in Zimbabwe and Botswana resulting from past dividends, investors’ preferences, leverage, board meetings, and Chief Financial Officer’s experience. Further, the logit model observed a significant negative influence of sustainability, firm size, and firm age on derivatives’ market growth. Past dividends, firm size, and liquidity were found to have a profoundly positive propensity for derivatives’ market growth policy in both Zimbabwe and Botswana. Firms that had paid dividends in the past year had odds of 7 times more likely to hedge risk by using derivatives. Moreover, firms with a CFO experience of more than 15 years were 21 times more likely to hedge with derivatives. Market makers in both countries are urged to consistently pay dividends, institutionalize derivatives trading, and introduce sustainability-linked derivatives instruments to enhance the derivatives market growth in both countries.