Untitled

Current Topics on Business,
Economics and Finance

Vol. 3
Current Topics on Business,
Economics and Finance
Vol. 3
India . United Kingdom

Editor(s)
Dr. Maria Ciurea
Associate Professor,
Department of Economics Sciences, Faculty of Sciences, University of Petroșani,
Romania.
Email: mariamacris2011@yahoo.com;
FIRST EDITION 2023
ISBN 978-81-19102-57-0 (Print)

ISBN 978-81-19102-56-3 (eBook)
DOI: 10.9734/bpi/ctbef/v3
__________________________________________________________
© Copyright (2023): Author(s). The licensee is the publisher (B P International).
Contents
Preface i
Chapter 1 1-33
A Quantitative Study on the Role of Leadership in Facilitating
Healthcare Service Delivery
Sagaren Govender, Cecile Gerwel Proches and Abdul Kader
Chapter 2 34-68
Economic Theory under the Lens of Sustainability: A Simple
Start
Giovanni Antonio Cossiga
Chapter 3 69-98
Determining Personality Traits, Organizational Commitment and
Self-Efficacy of Saving and Credit Co-operative Societies
(SACCOS) Employees of Kathmandu, Nepal
Dess Mardan Basnet, Mahima Birla and Murari Prasad Regmi
Chapter 4 99-111
Developing Capabilities for the Workforce to Embrace
Technological Change at a Logistics Company in Durban,
South Africa
Neville Chinniah, Simon Taylor and Cecile Gerwel Proches
Chapter 5 112-134
Does Internal Governance Govern Intraday Corporate Bond
Liquidity? Evidence from Corporate Earnings Announcements
Yankuo Qiao
Chapter 6 135-152
The Application of Planning Model to the Rating of Villages with
the Potential of Tourism (Case Study: Bandar Anzali City, Iran)
Pari Mosapour Miyandehi and Alireza Estelaji
Chapter 7 153-164
Performance of Employees and Leadership Style in Parastatals
in Transport Sector
Chavunduka M. Desderio, Nyemba Piason and Thomas Bhebhe
PREFACE
This book covers key areas of business, economics and finance. The
contributions by the authors include leadership, service delivery, healthcare
services, economic theory, sustainable economy, fiscal and monetary policies,
personality traits, social enterprise, technological change, logistics, fourth
industrial revolution, data processing, internal governance, corporate bond,
intraday liquidity measure, market microstructure, bond liquidity, financial
securities, rural tourism, Gutman model, planning model, consumers behaviour;
brand image. This book contains various materials suitable for students,
researchers and academicians in the field of business, economics and finance.
i
ii
Chapter 1
Print ISBN: 978-81-19102-57-0, eBook ISBN: 978-81-19102-56-3
A Quantitative Study on the Role of

Leadership in Facilitating Healthcare
Service Delivery
Sagaren Govender a*, Cecile Gerwel Proches a

and Abdul Kader a
DOI: 10.9734/bpi/ctbef/v3/4641E
ABSTRACT
The Department of Health in South Africa has a constitutional mandate to provide

effective, efficient and quality healthcare to all citizens who reside in the country.
However, the country’s healthcare system is impacted by various negative
factors that hamper service delivery, particularly at regional hospitals.
Consequently, the healthcare system in South Africa is in urgent need of reforms
in order to provide optimal healthcare. This research examined the key service
delivery challenges and the role of leadership in addressing these challenges at
four public hospitals in the province of KwaZulu-Natal in South Africa. The
literature review focused on current public healthcare leadership in South Africa
and also attempted to draw insights from international studies. A quantitative
research approach was employed in the study and stratified random sampling
was used, with mid-level managers and employees constituting the sample. The
results indicated that the majority of respondents agreed that leadership plays an
important role in optimising organisational performance at regional hospitals.
Leading with a purpose was found to be particularly important since the
healthcare needs of the population are dependent upon effective and efficient
healthcare service delivery. The recommendations emanating from the study
could benefit healthcare leaders in that these leaders will be able to develop a
better understanding of the relevance of effective leadership in public healthcare.
Keywords: Leadership; service delivery; healthcare; public hospitals; South

Africa.
1. INTRODUCTION
Although the KwaZulu-Natal (KZN) Department of Health (DoH) has defined levels
of healthcare provision for the population, complex and ever-changing challenges
dominate the sector. Healthcare managers need to be focused on improving the
________________________________________________________________________
a
Graduate School of Business and Leadership, University of KwaZulu-Natal, Durban, South Africa.
*Corresponding author: E-mail: sagaren.govender2@gmail.com;
Current Topics on Business, Economics and Finance Vol. 3
A Quantitative Study on the Role of Leadership in Facilitating Healthcare Service Delivery
performance of their institutions in order to contribute to rendering effective,

efficient and quality health services. It is against this background that this study
examined the key challenges that are hampering healthcare service delivery at
four selected regional hospitals in KZN, South Africa. In conducting the study, the
researcher aimed to develop leadership-related interventions that could enhance
healthcare service delivery at these regional hospitals.
1.1 Problem Statement
The DoH has a critical role to play in achieving its stipulated Millennium
Development Goals (MDGs), which include reducing child mortality; improving
maternal health; and combating and eradicating HIV/AIDS, malaria and other
diseases [1]. This, therefore, requires an intensive effort from the executive
leadership of the DoH and other relevant stakeholders involved in the rendering of
healthcare to the public at large. Naidoo [2] argues that although weaknesses
prevail in the DoH, the challenge is the inability of the Department’s leadership to
mobilise and focus its efforts towards the achievement of its healthcare goals.
Naidoo [3] stresses that “… critical action is necessary to redress service delivery
imbalances and inequities in the provision of health services to the South African
society”. Public healthcare in post-apartheid South Africa faces major challenges in
ensuring the provision of quality, efficient and professional services to the vast
majority of people in the country. This study therefore aimed to develop leadership-
related interventions to enhance healthcare service delivery in regional hospitals in
South Africa. There needs to be renewed emphasis on leadership at regional
hospitals in order to ensure optimal healthcare service delivery for the population
of the country.
1.2 Research Aim and Study Objectives
The aim of this study was to provide guidelines for improved healthcare service
delivery within the current healthcare legislation in South Africa. The study was
informed by the following research objectives:
 To determine the leadership challenges/gaps at regional hospitals;

 To explore the leadership capabilities at regional hospitals;
 To determine what capacities are required for optimal service delivery at
regional hospitals; and
 To develop leadership-related interventions that could enhance healthcare
service delivery at regional hospitals.
2. LITERATURE REVIEW
The South African government has a primary responsibility to ensure that all
citizens can access their fundamental rights to quality healthcare. According to
Ricks, van Rooyen, Gantsho and Ham [4], the public sector is faced with the
challenge of delivering services to the population in a seamless, effective, efficient
and simplistic manner. However, Ricks et al. [4] assert that the government has
limited financial resources at its disposal and is therefore compelled to explore
2
alternative, viable solutions that could aid to fulfil its mandate of ensuring that
public services satisfy the needs and expectations of the people. This research
therefore focused on the varying perspectives of leadership principles and
practices in public healthcare, particularly at the targeted hospitals in the province
of KZN.
In South Africa, there is increasing emphasis on the crisis relating to leadership in

a number of religious, corporate, governmental and political institutions, specifically
regarding financial scandals, bankruptcies, fraud, corruption and mismanagement.
st
In the 21 century, ever-changing and increasingly complex challenges have been
witnessed in public healthcare, which necessitates more responsiveness and
competitiveness. It is particularly important to recognize that leaders need to be
better prepared to contribute to leadership in public healthcare [5], as effective
leadership qualities are critical for improving service delivery, adjusting to the
changing demands of communities, as well as addressing the imbalances of the
past.
Jooste [6] comments that “Accordingly, leaders and followers in the healthcare
setting desire a shared purpose of quality healthcare delivery that motivates them
towards achieving it in the future”. For this reason, it is crucial that healthcare
professionals espouse strong commitment and responsibility in order to achieve
their desired healthcare goals. Thornhill [7] maintains that the key function of
supervisors is to provide leadership to followers in order to achieve the
organisational objectives that would support the implementation of policies. Good
leadership opens up new possibilities, sets direction and helps people to achieve
their goals.
Naidoo and Xollie [3] argue that an integrated leadership approach would be more
beneficial for South African public sector organisations; however, this should allow
for public sector managers to adopt multiple leadership approaches in order to
resolve complex problems. Ekaterini [8], in a similar line of thought to Naidoo and
Xollie [3], asserts that leaders should not be reliant on a single leadership style in
order to achieve optimal results, since leadership styles do have an impact on
organisations and the work climate and atmosphere. Research has also suggested
that the combination of transformational and managerial leadership approaches
will have a greater impact on organisational effectiveness than adopting a single
approach [3]. Therefore, in the context of the South African public service, a
combination of leadership approaches is crucial for improving service delivery.
According to Fre˛czkiewicz-Wronka, Austen-Tynda and Wronka [9], an

organisation’s success is related to leadership, and different leadership styles
influence group performance in various ways. The applicability of different
leadership styles in the complex healthcare context is gaining popularity and is
becoming increasingly useful. Transactional leadership is considered more
appropriate in bureaucratic organisations with its rooted traditional, rule-bound and
mechanistic ways of working, where the leader does not question the status quo.
Transformational leadership emerges in environments such as healthcare
3
organisations where rapid changes and high levels of uncertainties are

experienced [9].
A study by Stoller [10] found that healthcare organisations are inundated with
various unique forms of leadership challenges such as the complexities that
permeate the industry, often characterised by numerous silos and professional
workforces. Other challenges can include: the character traits of physicians; their
training and their ability to engage and collaborate with followers; the increasing
demands by physicians to develop their academic skills as opposed to mastering
their leadership competencies; as a well as a myriad of pressing challenges
relating to access, quality and affordability [10]. In a study by Morris, Seguin,
Landon, McKee and Nolte [11], it was found that effective leadership, including
both political and clinical, is critically important for improving the outcomes of
cancer patients notwithstanding the challenges and complexities that are
associated with the disease. The nursing education and practice also demands
effective leadership in order to accelerate the integration of genomics and
building nursing capacity through the use of a maturity matrix that assist nurse
leaders for benchmarking achievements and guiding strategic planning [12].
Healthcare, therefore, demands effective and great leadership in order to ensure
the provision of sustainable and quality health services.
3. RESEARCH METHODOLOGY
A quantitative research approach was followed which relied exclusively on

statistical evidence emerging from the study and was significant in measuring the
behaviours, emotions, attitudes and thinking patterns of mid-level managers and
employees regarding leadership and the associated impact on healthcare service
delivery. The strata of the samples that were used in this study included lower-
level managers and employees from different occupational categories such as
medical, nursing, finance, systems, supply chain management, pharmacy, human
resource management, radiology, physiotherapy, occupational therapy, speech
and audiology, and dental.
Questionnaires were used as a method for data collection. Yilmaz [13] explains
that quantitative researchers use surveys, questionnaires and systematic
measurables that involve numbers as a means for data collection, and such data
are analysed by way of statistics and mathematical models. The questionnaire
employed in this study was developed primarily for conducting a survey on the
views, opinions and feelings of the targeted respondents (middle managers and
operational staff) towards various aspects of leadership in relation to healthcare
service delivery in the targeted regional hospitals. The questionnaire for this study
comprised of two sections. The data segments for Section A of the questionnaire
were designed to determine the demographic profiles of respondents. Personal
details such as gender, race, age, home language, marital status, job title,
qualifications and experience were included in this section of the questionnaire.
Section B was designed to measure the respondents’ views of leadership
effectiveness and their perceptions of leadership in regional hospitals in KZN. The
data segments on this section of the questionnaire included the following:
4
• Leading to enhance healthcare

• Leading with a purpose
• Developing leadership capabilities
• Capacities for optimal service delivery
• Management versus leadership
• Leading with a shared vision
• Leadership and governance
• Human resource planning
• Healthcare service delivery
A five-point Likert-type scale was used in the questionnaire, whereby respondents

could rate their responses regarding leadership effectiveness and perceptions of
leadership in regional hospitals in KZN. According to Welman and Kruger [14], the
Likert-type scale gained popularity in the social sciences due to its simplicity, and
is predominantly used in measuring multi-dimensional behaviours and attitudes.
The rating scale was arranged numerically from 1 to 5 according to Strongly
Disagree, Disagree, Uncertain, Agree and Strongly Agree. The researcher
administered 380 questionnaires to the respondents during the period
1 March 2016 to 15 April 2016. The use of questionnaires as a form of quantitative
methodology in this study broadened the scope of the investigation into the
phenomenon being studied. Table 1 below indicates the occupational categories
and the number of respondents from each category that the questionnaire survey
was administered to.
Table 1. Respondents for the questionnaire survey
Hospital Occupational Categories No. of Respondents

RK Khan Medical: Medical Officers 6
RK Khan Dental: Dentists 5
RK Khan Pharmacy Manager 1
RK Khan Pharmacists 2
RK Khan Nursing: Unit Managers 5
RK Khan Nursing: Professional Nurses 10
RK Khan Nursing : Staff Nurses 10
RK Khan Nursing Educators 4
RK Khan Human Resources: Assistant Manager 1
RK Khan Human Resources Officers 5
RK Khan Systems: Assistant Manager 1
RK Khan Administration Clerks 5
RK Khan Radiography: Assistant Director 1
RK Khan Radiographers 5
RK Khan Physiotherapy: Manager 1
RK Khan Physiotherapists 5
RK Khan Occupational Therapy: Manager 1
RK Khan Occupational Therapists 3
RK Khan Speech and Audiology: Manager 1
RK Khan Audiologists 3
King Medical: Specialists 2
5

Edward
VIII
King Medical: Medical Officers 13
Edward
VIII
King Dental: Chief Dentist 1
Edward
VIII
King Dental: Dentists 5
Edward
VIII
King Pharmacist Manager 1
Edward
VIII
King Pharmacists 3
Edward
VIII
King Nursing: Unit Managers 5
Edward
VIII
King Nursing: Professional Nurses 10
Edward
VIII
King Nursing: Staff Nurses 10
Edward
VIII
King Nurse Educators 5
Edward
VIII
King Human Resources: Assistant 2
Edward Managers
VIII
King Human Resource Officers 3
Edward
VIII
King Systems: Assistant Manager 1
Edward
VIII
King Systems: Administration Clerks 5
Edward
VIII
King Supply Chain Management: Manager 1
Edward
VIII
King Supply Chain Clerks 5
Edward
VIII
6

King Radiography: Assistant Director 1
Edward
VIII
King Radiographers 6
Edward
VIII
King Physiotherapy: Manager 1
Edward
VIII
King Physiotherapists 5
Edward
VIII
King Occupational Therapy: Manager 1
Edward
VIII
King Occupational Therapists 4
Edward
VIII
King Speech and Audiology: Manager 1
Edward
VIII
King Audiologists 4
Edward
VIII
King Health Technology Technicians 3
Edward
VIII
Greys Medical: Specialists 3
Greys Medical Physicist 2
Greys Pharmacy Manager 1
Greys Pharmacists 9
Greys Nursing: Unit Managers 10
Greys Nursing: Professional Nurses 20
Greys Nursing: Staff Nurses 20
Greys Human Resources: Assistant 2
Managers
Greys Human Resource Officers 3
Greys Supply Chain Management: Manager 1
Greys Supply Chain Officers 2
Greys Finance: Manager 1
Greys Finance: Senior Finance Officers 3
Greys Finance Services Officers 6
Greys Radiography: Assistant Director 1
Greys Radiographers 12
Greys Physiotherapy: Manager 1
Greys Physiotherapists 4
Greys Occupational Therapy: Manager 1
7

Greys Occupational Therapists 2
Greys Speech and Audiology: Manager 1
Greys Audiologists 3
Greys Health Technology Technicians 4
Prince Medical Specialists 1
Mshiyeni
Memorial
Hospital
Prince Medical Officer 1
Mshiyeni
Memorial
Hospital
Prince Dental: Chief Dentist 1
Mshiyeni
Memorial
Hospital
Prince Dental: Dentists 5
Mshiyeni
Memorial
Hospital
Prince Pharmacy: Manager 1
Mshiyeni
Memorial
Hospital
Prince Pharmacists 6
Mshiyeni
Memorial
Hospital
Prince Nursing: Unit Managers 6
Mshiyeni
Memorial
Hospital
Prince Nursing: Professional Nurses 10
Mshiyeni
Memorial
Hospital
Prince Nursing Staff Nurses 5
Mshiyeni
Memorial
Hospital
Prince Nurse Educators 10
Mshiyeni
Memorial
Hospital
Prince Human Resources: Assistant Manager 1
Mshiyeni
Memorial
8

Hospital
Prince Human Resource Officers 14
Mshiyeni
Memorial
Hospital
Prince Supply Chain Management: Manager 1
Mshiyeni
Memorial
Hospital
Prince Supply Chain Officers 3
Mshiyeni
Memorial
Hospital
Prince Finance: Assistant Manager 1
Mshiyeni
Memorial
Hospital
Prince Finance Officers 4
Mshiyeni
Memorial
Hospital
Prince Administration Clerk 1
Mshiyeni
Memorial
Hospital
Prince Radiography: Assistant Director 1
Mshiyeni
Memorial
Hospital
Prince Radiographers 4
Mshiyeni
Memorial
Hospital
Prince Physiotherapy: Manager 1
Mshiyeni
Memorial
Hospital
Prince Physiotherapists 1
Mshiyeni
Memorial
Hospital
Prince Occupational Therapy: Manager 1
Mshiyeni
Memorial
Hospital
Prince Occupational Therapists 1
Mshiyeni
9

Memorial
Hospital
Prince Speech and Audiology: Manager 1
Mshiyeni
Memorial
Hospital
Prince Audiologists 2
Mshiyeni
Memorial
Hospital
Prince Maintenance: Artisan Foremen 11
Mshiyeni
Memorial
Hospital
Prince Librarian 1
Mshiyeni
Memorial
Hospital
Total 380
Data collected from the questionnaires were analysed using the Statistical
Package for the Social Sciences (SPSS). The reliability and validity of the
questionnaires used in the quantitative phase of the study was assessed using
the Cronbach’s (1951) Coefficient Alpha correlational test. This test measures the
internal consistency of the data emerging from the questionnaires (reliability) and
“...is designed to measure the degree to which instrument items are homogenous
and reflect the same underlying construct(s)” [15].
4. RESULTS
In considering the response rates to the self-administered questionnaires at each

of the targeted regional hospitals, it was found that they were adequately and
reasonably representative of the middle managers and operational staff at each
facility. A total of 380 questionnaires were handed out to the respondents and 364
were returned, indicating a response rate of 96%. Of the 364 questionnaires
received, 323 were considered usable for the statistical analysis at a response
return rate of 85%; 26 questionnaires were incomplete and 15 were completed
with multiple answers. Mung’omba [16] drew on Bowling’s (2009) assertion that
the acceptable response rate for a survey should be 75% and above. Table 2
below indicates the number of usable responses, incomplete responses, and
responses with multiple answers.
The data were captured, cleaned, coded, and analysed using SPSS version 23.
Initially, a reliability test was conducted to determine the reliability of the data, and
descriptive statistics such as frequency distribution were undertaken to determine
the distribution of answers for all the variables. Factor analysis was conducted to
identify the most important variables for each of the dimensions. The variables
10
that were important were then aggregated to find an overall score for the
dimension. Thereafter, the overall scores were tested for normality using the
Kolmogorov-Smirnov test. A Kruskal-Wallis or Mann-Whitney test was carried out
to compare the median value for each of the dimensions with regards to
demographic variables. Spearman’s rank correlation was conducted among all
the dimensions; P-values <0.05 were considered to be statistically significant.
Table 2. Statistics of the responses
Hospital Usable Incomplete Multiple answers

responses responses
King Edward 75 7 2
Prince Mshiyeni 88 3 1
Memorial
Hospital
RK Khan 70 10 8
Greys 90 6 4
Total 323 26 15
A Cronbach’s Alpha value was calculated to determine the reliability of the data.
The result of the test shows that the data were reliable as the value was 0.984
(Table 3).
Table 3. Reliability test output
Reliability Statistics
Cronbach's Alpha N of Items
.984 112
4.1 Section A: Demographic Profiles of the Respondents

4.1.1 Respondents’ work locations
The respondents were almost equally distributed across the four hospitals (22%
to 28% at each hospital respectively (Fig. 1).
4.1.2 Distribution of age
It was found that almost two-thirds of the respondents (63%) were between the
ages of 31 years and 55 years old (Fig. 2).
4.1.3 Distribution of gender
The findings revealed that most of the respondents (78%) were female (Fig 3).
11
Greys RK Khan
28% 22%
King Edward PMMH

23% 27%
Fig. 1. Respondents’ working locations
32.2
31.0
19.5
Percent
17.3
18-30 years 31-40 years 41-55 years 56-65 years

Age group
Fig. 2. Distribution of age
12
22%
Female
Male
78%
Fig. 3. Gender distribution
4.1.4 Distribution of race
It was found that virtually half of the respondents were African (49.8%) followed
by Indian (39.3%), White (5.9%) and Coloured (5%) (Fig. 4).
4.1.5 Marital status of respondents
The findings reflected that more than half of the respondents were married (56%)
and 35% were single, whilst 6% were in the divorced/separated category and 3%
were widowed (Fig. 5).
White 5.9
Coloured 5.0
Race
Indian 39.3
African 49.8
Percent
Fig. 4. Distribution of race
13
3%6%
Single
35%
Married
Widowed
56% Divorced/Separated
Fig. 5. Marital status of the respondents
4.1.6 Job titles of respondents
With regards to the respondents’ job titles, 63.5% indicated they were
professionals, followed by management (18.9%), administrative (13%) and
technical and other related (4.6%) (Fig. 6).
4.1.7 Educational qualifications of respondents
Just less than half (48%) of the respondents had a degree or higher qualification,
whilst 37.2% had diplomas, 6.8% had certificate courses, 7.4% had matric and
0.6% had Grade 8 passes (Fig. 7).
70.0
60.0
50.0
Percent
40.0
30.0
20.0
10.0
0.0
Technical
Administrati Managemen
Professional and other
ve t
related
Series1 13.0 18.9 63.5 4.6
Job title
Fig. 6. Job titles of the respondents
14
37.2
29.1
Percent
18.9
7.4 6.8
.6
Qualification
Fig. 7. Educational qualifications of the respondents
4.2 Section B: Responses Regarding Leadership Effectiveness and

Perceptions of Leadership
4.2.1 Frequency distribution for the variable - leading to enhance
healthcare
Ten statements were put to the respondents to investigate ‘Leading to enhance

healthcare’, all of which were 5-point Likert-style statements. The results showed
that all of the statements had a mean value greater than three, which indicates
that more respondents positively responded to these statements. For example,
75% agreed or strongly agreed that their manager promotes teamwork in order to
maximise productivity and organisational performance, while 73% said that
leadership plays an important role in optimising organisational performance at
their hospital. A summary of all the statements is presented in Table 4 below.
4.2.2 Frequency distribution for the variable - leading with a purpose
To investigate the respondents’ views regarding leading with a purpose, 10

statements were presented. All the statements had a mean score of 3.65 or
higher, i.e. the majority of the respondents positively responded to these
statements. For example, 65% of the respondents agreed that their manager
ensures that he/she understands what is expected of them in their role, whereas
23% strongly agreed that leadership plays a crucial role in enhancing healthcare
service delivery at the regional hospital where they are employed. Table 5
summarises all the statements regarding leading with purpose.
15
4.2.3 Frequency distribution for the variable - developing leadership

capabilities
To determine developing leadership capabilities, 15 statements were put to the

respondents. All the statements had a mean score of 3.65 or higher, i.e. the
majority of the respondents positively responded to all these statements. For
example, 24% strongly agreed that clinicians must be considered for leadership
development programmes in order to improve their leadership capacities, and
69% agreed that their immediate manager informs them when they do not
perform according to the required standards. A summary of all the statements is
shown in Table 6 below.
4.2.4 Frequency distribution for the variable - capacities for optimal

service delivery
Fourteen statements were put to the respondents to investigate capacities for

optimal service delivery. It was found that all the statements had a mean value of
three or higher, which indicated that more respondents positively responded to
these statements. For example, 79% positively highlighted that clinicians should
advance their leadership roles in this hospital in order to contribute to enhancing
service delivery, and 60% agreed that management espouses commitment
towards enhancing healthcare service delivery. A summary of all the statements
is shown in Table 7 below.
4.2.5 Frequency distribution for the variable - healthcare service delivery
Table 8 summarises the statements regarding healthcare service delivery. The

results showed that most of the respondents responded positively to all 20
statements, which indicates that healthcare delivery is generally good in the
institutions. For example, 67% positively indicated that their hospital has a
complaints procedure in place to deal with all complaints from the patients, and
65% indicated that their hospital strives to achieve quality and optimal healthcare
for all its patients.
5. DISCUSSION
Section A of the survey questionnaire allowed for the personal demographic

characteristics of the respondents to be established. The variables under
discussion included age, gender, race, marital status, job title, educational
qualification and years of experience in the institution. The demographic profile of
the respondents was included in the study in order to gain insight into the
relationship between the respondents’ demographics and the responses elicited
from them.
The results in Table 9 below show that all the dimensions were significantly
moderately correlated to one other (p<0.05).
16
Table 4. Summary of statements regarding leading to enhance healthcare
Statements Strongly disagree Disagree Uncertain Agree Strongly agree Mean

1. Management demonstrates effective 6.2 15.5 14.9 52.0 11.5 3.47
leadership in enhancing healthcare
service delivery at this hospital.
2. Management consults staff members 6.5 19.8 15.2 47.1 11.5 3.37
when implementing changes that affect
their area of operations.
3. Management involves staff members 5.6 19.2 20.4 47.7 7.1 3.32
when deciding on introducing changes
in their respective units.
4. Managers encourage staff to suggest 5.6 19.2 19.5 47.1 8.7 3.34
new and innovative ideas for improving
services.
5. Managers in the hospital are good 5.3 20.4 27.6 40.2 6.5 3.22
leaders and always lead by example.
6. Managers focus on resolving 3.1 10.5 30.3 49.2 6.8 3.46
strategic issues through collaboration
with all key stakeholders in the hospital.
7. Managers create robust awareness of 2.2 11.8 16.1 59.4 10.5 3.64
the Batho Pele principles in order to
enhance healthcare service delivery.
8. Leadership plays an important role in 2.8 8.4 15.8 57.3 15.8 3.75
optimising organisational performance
at this hospital.
9. My manager promotes teamwork in 4.6 10.5 9.3 55.4 20.1 3.76
17

order to maximise productivity and
organisational performance.
10. My manager sets high expectations 3.1 11.8 17.3 50.5 17.3 3.67
for achieving the organisational goals.
Table 5. Summary of statements regarding leading with purpose

1. Management demonstrates effective 6.2 15.5 14.9 52.0 11.5 3.47
leadership in enhancing healthcare
service delivery at this hospital.
2. Management consults staff 6.5 19.8 15.2 47.1 11.5 3.37
members when implementing changes
that affect their area of operations.
3. Management involves staff members 5.6 19.2 20.4 47.7 7.1 3.32
when deciding on introducing changes
in their respective units.
4. Managers encourage staff to 5.6 19.2 19.5 47.1 8.7 3.34
suggest new and innovative ideas for
improving services.
5. Managers in the hospital are good 5.3 20.4 27.6 40.2 6.5 3.22
leaders and always lead by example.
6. Managers focus on resolving 3.1 10.5 30.3 49.2 6.8 3.46
strategic issues through collaboration
with all key stakeholders in the
hospital.
18

7. Managers create robust awareness 2.2 11.8 16.1 59.4 10.5 3.64
of the Batho Pele principles in order to
enhance healthcare service delivery.
8. Leadership plays an important role 2.8 8.4 15.8 57.3 15.8 3.75
in optimising organisational
performance at this hospital.
9. My manager promotes teamwork in 4.6 10.5 9.3 55.4 20.1 3.76
order to maximise productivity and
organisational performance.
10. My manager sets high expectations 3.1 11.8 17.3 50.5 17.3 3.67
for achieving the organisational goals.
Table 6. Summary of statements regarding developing leadership capabilities

1. Management encourages the 4.6 17.6 22.3 46.7 8.7 3.37
involvement of staff members in the
decision-making process.
2. Managers are open and transparent 4.3 16.4 18.9 51.1 9.3 3.45
when communicating with staff
members.
3. My immediate manager informs me 1.2 5.6 9.6 69.0 14.6 3.90
when I do not perform according to the
required standards.
4. My immediate manager praises me 5.9 12.1 14.9 52.9 14.2 3.58
for above average performance.
19

5. My manager ensures that clear lines 2.2 6.5 15.8 64.7 10.8 3.76
of responsibilities are established and
communicated to all stakeholders in the
hospital.
6. Managers are readily available to 3.1 13.0 14.2 57.3 12.4 3.63
provide advice and guidance during an
emergency or crisis situation.
7. My manager will ensure that the 1.9 11.8 18.6 56.3 11.5 3.64
competencies and skills of staff
members are adequate and they will
forecast for future needs.
8. Managers will encourage the 2.2 12.4 20.1 57.3 8.0 3.57
development of their staff on leadership.
9. My manager understands the 1.2 6.8 15.5 62.5 13.9 3.81
importance of skills development and
the associated impact on organisational
performance.
10. My manager strives to build capacity 2.8 15.2 18.3 53.6 10.2 3.53
in our organisation through the annual
training development plans.
11. Managers provide opportunities for 3.1 14.6 13.0 57.9 11.5 3.60
staff development through formal and
informal training in the organisation.
12. My manager supports employee 2.5 12.1 14.2 60.1 11.1 3.65
development primarily through on the
job training, mentoring, coaching and
20

problem solving.
13. My manager provides regular 3.1 16.4 19.2 50.2 11.1 3.50
feedback regarding our developmental
needs.
14. Clinicians are appointed to drive 3.1 11.1 31.6 45.8 8.4 3.45
process improvement initiatives in this
hospital.
15. Clinicians must be considered for .6 2.8 24.8 48.3 23.5 3.91
leadership development programmes in
order to improve their leadership
capacities.
Table 7. Summary of statements regarding capacities for optimal service delivery

1. Management espouses commitment 1.2 5.3 23.5 59.8 10.2 3.72
towards enhancing healthcare service
delivery.
2. Communication between senior 4.3 19.2 18.0 51.7 6.8 3.37
management and staff members is
effective.
3. Managers encourage the involvement of 3.4 18.6 22.0 50.2 5.9 3.37
staff members when improving processes
at this hospital.
4. Managers at this hospital understand 3.4 10.8 24.1 55.1 6.5 3.50
the importance of leadership in relation to
21

organisational efficiency.
5. Managers will ensure the availability of 11.8 25.4 13.3 43.0 6.5 3.07
adequate resources such as equipment,
office furniture, computers, etc. for staff
members.
6. Management ensures that the work 12.7 25.4 18.3 38.7 5.0 2.98
environment is conducive to promoting
staff motivation.
7. Management ensures that the work 13.0 23.2 16.7 42.4 4.6 3.02
environment is conducive to enhancing
staff performance.
8. Managers are proactive in implementing 3.7 12.4 19.2 53.3 11.5 3.56
new policies and procedures.
9. The implementation of new policies and 3.1 11.8 21.4 53.6 10.2 3.56
procedures is improving work processes.
10. Management informs staff members 3.1 13.0 16.7 57.6 9.6 3.58
timeously of any changes in policies and
procedures.
11. Managers apply policies and 3.1 14.2 22.6 51.7 8.4 3.48
procedures consistently in the hospital.
12. My manager will give credit and 4.6 13.6 17.0 55.1 9.6 3.51
recognise the contribution of the individual
or team for the organisation’s success.
13. Clinicians play a critical role in the 3.4 11.1 29.1 44.6 11.8 3.50
strategic decision-making process at this
22

hospital.
14. Clinicians should advance their .9 2.2 18.0 56.0 22.9 3.98
leadership roles in this hospital in order to
contribute to enhancing service delivery.
Table 8. Summary of statements regarding healthcare service delivery
1. This hospital is easily accessible to 4.6 12.7 12.7 55.4 14.6 3.63
patients.
2. Signage at the hospital is clearly 6.5 13.6 9.3 58.8 11.8 3.56
visible to patients indicating different
areas of the hospital (admitting,
outpatients, pharmacy, wards, etc.).
3. Staff members at the hospital 4.0 14.9 22.0 51.7 7.4 3.44
communicate with patients in a polite,
friendly and courteous manner.
4. The staff members at the hospital treat 2.2 14.6 20.7 54.2 8.4 3.52
patients with respect and dignity.
5. The nurses at this hospital check the 5.9 10.8 34.7 41.2 7.4 3.33
patients thoroughly before the doctor’s
consultation.
6. Doctors inform the patient of his/her 2.2 12.4 34.4 46.4 4.6 3.39
condition subsequent to a medical
examination.
7. Doctors provide sound advice to 1.2 9.9 35.6 47.1 6.2 3.47
patients on how to improve their health
23

status.
8. Medicine and drugs are readily 5.6 18.0 23.5 48.6 4.3 3.28
available to patients when prescribed by
doctors.
9. The pharmacy staff communicates the 2.2 12.4 36.8 44.9 3.7 3.36
instructions regarding medication to
patients in a language that they can
understand.
10. The hospital has clean linen in the 7.7 13.6 26.9 48.3 3.4 3.26
wards and theatres.
11. The hospital has modern medical 13.3 22.0 19.8 40.9 4.0 3.00
equipment for diagnosis, treatment and
care of patients.
12. The food service to in-patients of this 7.1 12.1 33.1 44.9 2.8 3.24
hospital is generally good.
13. The health professionals are 3.4 10.2 29.1 52.6 4.6 3.45
thorough in their examination and
treatment of patients at this hospital.
14. The administrative support staff 4.6 12.4 38.7 40.9 3.4 3.26
ensures that adequate arrangements are
made with family members when patients
are discharged from the hospital.
15. There are sufficient healthcare 28.2 25.1 19.2 24.1 3.4 2.49
professionals to manage the patient load
24

at this hospital.
16. Management prioritises the filling of 16.1 18.9 27.2 34.1 3.7 2.90
all critical vacant healthcare professional
posts.
17. The clinicians are consulted by 6.2 9.9 39.0 42.1 2.8 3.25
management when changes are
introduced in their areas of operation.
18. This hospital has a complaints 2.5 3.1 15.2 66.9 12.4 3.84
procedure in place to deal with all
complaints from the patients.
19. The patient flows in the outpatients 4.0 9.9 33.7 48.6 3.7 3.38
and pharmacy departments are seamless
and well managed.
20. This hospital strives to achieve quality 2.8 3.7 15.5 64.7 13.3 3.82
and optimal healthcare for all its patients.
25
Table 9. Spearman’s rank correlation analysis output
Section Section Section Section Section Section Section Section Section

A B C D E F G H I
** ** ** ** ** ** ** **
Spearman'srho Section 1.000 .595 .414 .397 .428 .456 .517 .426 .282
A . .000 .000 .000 .000 .000 .000 .000 .000
** ** ** ** ** ** ** **
Section .595 1.000 .417 .417 .370 .486 .559 .500 .281
B .000 . .000 .000 .000 .000 .000 .000 .000
** ** ** ** ** ** ** **
Section .414 .417 1.000 .416 .338 .497 .469 .449 .230
C .000 .000 . .000 .000 .000 .000 .000 .000
** ** ** ** ** ** ** **
Section .397 .417 .416 1.000 .296 .430 .383 .407 .443
D .000 .000 .000 . .000 .000 .000 .000 .000
** ** ** ** ** ** ** **
Section .428 .370 .338 .296 1.000 .372 .392 .453 .359
E .000 .000 .000 .000 . .000 .000 .000 .000
** ** ** ** ** ** ** **
Section .456 .486 .497 .430 .372 1.000 .698 .607 .280
F .000 .000 .000 .000 .000 . .000 .000 .000
** ** ** ** ** ** ** **
Section .517 .559 .469 .383 .392 .698 1.000 .663 .314
G .000 .000 .000 .000 .000 .000 . .000 .000
** ** ** ** ** ** ** **
Section .426 .500 .449 .407 .453 .607 .663 1.000 .313
H .000 .000 .000 .000 .000 .000 .000 . .000
** ** ** ** ** ** ** **
Section .282 .281 .230 .443 .359 .280 .314 .313 1.000
I .000 .000 .000 .000 .000 .000 .000 .000 .
26
According to the results of the dimension ‘Leading to enhance healthcare’, all

statements relating to this dimension had a mean value of three or higher, i.e.
more respondents responded positively. The findings showed that 73% of the
respondents responded positively to the statement, ‘Leadership plays an
important role in optimising organisational performance at this hospital’.
The mean score for each statement relating to the construct ‘Leading with a
purpose’ was 3.65 or higher, meaning that the majority of the respondents
responded positively to most of the statements. An overwhelming majority
(84.8%) of the respondents responded positively to the statement, ‘My manager
ensures that I understand what is expected of me in my work’. Armstrong [17]
notes that “Line managers play a vital and immediate part in increasing levels of
job engagement”. In order to achieve increased job engagement, such line
managers need to exercise leadership and ensure that their teams have a clear
direction of what they are expected to do. They must also make sure that team
members acquire the prerequisite skills for their jobs, and ensure that they
recognise and appreciate the value of their contribution [17]. The literature review
highlights the significance of leaders who fulfil designated roles in organisations
in order to provide vision and direction to the team, where they can manage the
work situation with confidence [18].
The construct also focused on developing leadership capabilities in regional

hospitals. Fifteen statements were posed to the respondents to rate their
perceptions, opinions and views with regard to the aspects of developing
leadership capabilities in regional hospitals. The results showed that the mean
score for all statements relating to this construct was 3.65 or higher, implying that
the majority of the respondents either agreed or strongly agreed with the
statements provided. A substantial number of respondents (71.8%) agreed with
the statement, ‘Clinicians must be considered for leadership development
programmes in order to improve their leadership capacity’. According to the
literature, Jooste [6] found the same, suggesting that leadership development in
healthcare must be aimed at continuously encouraging healthcare professionals
to develop their leadership skills and competencies, and ensuring that this is an
on-going and fully integrated process within the healthcare environment. Another
study conclusively found that “…managers in hospitals should focus on the
business aspects of a hospital, in particular financial performance, organisational
restructuring, succession planning, and the development of leadership
capabilities” [19]. In this regard, it is particularly important that the leaders in the
current healthcare system in South Africa provide opportunities for clinicians to
develop leadership capabilities that could contribute towards improving
healthcare at their respective hospitals.
The data for the dimension, ‘Capacities for optimal service delivery’, revealed
that most statements had a mean score of three or higher, with the exception of
the statement, ‘Management ensures that the work environment is conducive to
promote staff motivation’, which had a mean score of 2.98. This means that more
respondents were in agreement with these statements relating to capacities for
optimal service delivery. The mean score for the item, ‘Clinicians should advance
27
their leadership roles in this hospital in order to contribute to enhancing service

delivery’ was 3.98, which indicated that an overwhelming majority of the
respondents (78.9%) supported this statement. The literature review notes
Dowtown’s [20] assertion that medicine as a discipline needs capable leaders
who can provide a clear trajectory and influence in a continuously evolving
healthcare system. In the South African context, the healthcare system is
experiencing rapid and profound changes at all levels, therefore clinicians are
expected to adapt to and cope with such changes in order to satisfy the
healthcare needs of the population. There is an increasing need for healthcare
leaders to adopt contemporary leadership roles and behaviours due to the
emerging models of healthcare service delivery [21].
Generally, the respondents agreed or strongly agreed with most of the

statements relating to healthcare service delivery in regional hospitals. The
majority of the respondents responded positively to the statements, ‘This hospital
has a complaints procedure to deal with all complaints from the patients,’ and
‘This hospital strives to achieve quality and optimal healthcare for all its patients’,
with mean scores of 3.84 and 3.82 respectively. The literature mentions that all
citizens should be given equal opportunities to improve their well-being and
maintain optimal health by accessing equitable healthcare [22], and the South
African government is mandated by the Constitution of the Republic to deliver
accessible, equitable and quality healthcare to all its citizens. In terms of Section
195 (1) of the Constitution of South Africa, public institutions must render
services to citizens based on democratic values and principles that promote
effectiveness, efficiency and economy, and also ensure that services are
rendered in an equitable and impartial manner [23].
The results showed that only 44.9% of the respondents responded positively to
both the statements, ‘The clinicians are consulted by management when
changes are introduced in their areas of operation’ and ‘The hospital has modern
medical equipment for diagnosis, treatment and care of patients’. This implies
that there are more uncertainties and disagreements with regard to the
aforementioned statements. From the review of the literature, numerous scholars
argue that the rising costs of healthcare and the increasing need to improve the
quality of care with limited resources pose serious challenges to engaging
clinicians to provide leadership and management in the healthcare setting [24].
Budhoo and Spurgeon [25] emphasise the urgent need for strong leaders at all
levels of the healthcare sector, and highlight the necessity of recognising the
importance of developing clinicians in management roles. Clinicians play a
crucial role in leading and managing healthcare organisations, therefore they
should become more involved in motivating for resources such as medical
equipment, human resources and so forth, in order to advocate for effective,
efficient and quality healthcare.
The workforce is critically important in the healthcare sector for the provision of
effective, efficient and quality health services to the population. According to
George et al. [26], the South African healthcare sector is experiencing critical
staff shortages at a time when the population is increasing and the country is
28
facing an increase in the burden of disease, primarily due to HIV, Aids and
tuberculosis. Since the mid-1990s, the country has experienced a rapid decline in
health outcomes, exacerbated by the freezing of vacant posts, posts becoming
redundant, and drastic cuts in education and training in the public service [26].
Kachingwe [27] notes that remuneration is critically important for staff motivation
and low remuneration demotivates staff, resulting in high attrition rates. During
2007, the South African government implemented the Occupational Specific
Dispensation to improve the conditions of service and salaries of the health
workforce, but this strategy was not satisfactory in its implementation and health
workers continue to exit the sector, both internally and externally [26].
6. CONCLUSIONS
This study attempted to examine the effectiveness and perceptions of leadership

in regional hospitals in KZN. Some key elements of leadership, such as leading
to enhance healthcare, leading with a purpose and developing leadership
capabilities and capacities were evident during this phase of the study. The
findings of the study, therefore, suggested that the current leadership framework
in regional hospitals must improve in order to address the myriad service delivery
challenges and backlogs that are inundating these facilities in order to accelerate
the pace of service delivery.
Regional hospitals require competent public officials in order to adopt a service

ethos culture. The top management of the DoH must focus on accelerating the
training and development initiatives available to managers in all public hospitals.
The study findings indicated that a decline in the delivery of effective and quality
healthcare in regional hospitals is directly related to ineffective leadership.
Leadership training programmes should focus on building the skills and
competencies of all managers in regional hospitals, such that they will be able to
inspire and operationalise the organisational vision and mission. The leadership
framework should promote inclusivity within the organisation and create solidarity
such that the team will have a sense of belonging, which would encourage a
culture that is fully representative in regional hospitals. It is important that leaders
are able to identify and manage the capabilities of team members, focusing on
motivating them to achieve more than their original expectations.
The research highlighted the increasing complexities and challenges that are
dominating healthcare services in regional hospitals, which necessitate the
implementation of innovative strategies that could contribute to improving
healthcare service delivery. The healthcare environment in which health workers
operate is dynamic, complex and continually evolving, therefore it is crucial that
the healthcare leaders in regional hospitals are innovative and creative in order
to cope with and adapt to change. Every healthcare leader in the regional
hospitals has a shared responsibility of managing and adapting to change, as
well as creating innovative strategies that will contribute to meeting the
increasing healthcare needs of their patients. Therefore, it is critically important
that the respective leaders in regional hospitals focus on encouraging team
29
members to develop innovative thinking skills that will contribute to improving

performance in healthcare service delivery.
COMPETING INTERESTS
Authors have declared that no competing interests exist.
REFERENCES
1. Budget policy statement of the Department of Health. KwaZulu-Natal

Department of Health; 2014.
2. Naidoo G. Leadership and governance for a sustainable public service.
The case for selected South African public service organizations [doctoral
thesis]. University of Pretoria; 2005.
3. Naidoo G, Xollie T. The critical need for an integrated leadership approach
to improve service delivery by the South African public service. J US
China Public Admin. 2011;8(1):(1-15).
4. Ricks E, van Rooyen D, Gantsho MP, ten Ham W. Experiences of
managers and healthcare personnel involved in a functional healthcare
Public Private Partnership. J Psychol Afr. 2013;23(2):(297-301).
5. Gerwel Proches C, Dorning A, Govender S. How leadership matters in
healthcare–especially in a crisis. The conversation; 2020.
Com/how‐leadership‐matters‐in‐healthcare‐especially‐in‐a‐crisis‐141321.
6. Jooste K. Leadership in health services management. Lansdowne: Juta
Publications; 2003.
7. Thornhilll C. South African public administration and management. 10th
ed. Pretoria: Van Schaik Publishers; 2012.
8. Ekaterini G. The impact of leadership styles on four variables of
executives workforce. Int J Bus Manag. 2010;5(6):(3-16).
9. Fre˛czkiewicz-Wronka A, Austen-Tynda A, Wronka M. An empirical
research on the leadership and effectiveness in public healthcare
organizations: Lesson from transition economy. Journal of US-China
Public Administration. 2010;7(52):(1548-6591).
10. Stoller JK. Developing physician-leaders: A call to action. J Gen Intern
Med. 2009;24(7):(876-8).
11. Morris M, Seguin M, Landon S, McKee M, Nolte E. Exploring the role of
leadership in facilitating change to improve cancer survival: an analysis of
experiences in seven high income countries in the international cancer
benchmarking partnership (ICBP). Int J Health Policy Manag. 2021;11(9
(1756–1766).
12. Tonkin E, Calzone KA, Badzek L, Benjamin C, Middleton A, Patch C et al.
A maturity matrix for nurse leaders to facilitate and benchmark progress in
genomic healthcare policy, infrastructure, education, and delivery. J Nurs
Scholarsh. 2020;52(5):583-92.
13. Yilmaz K. Comparison of quantitative and qualitative research traditions:
epistemological, theoretical and methodological differences. Eur J Educ.
2013;48(2):(311-25).
30
14. Welman JC, Kruger SJ. Research methodology for the business and
administrative sciences. Cape Town: Oxford University Press; 1999.
15. Naong MN. Impact of skills development training on employee motivation,
perceptions of organisational climate and individual performance [doctoral
thesis]. University of KwaZulu-Natal; 2009.
16. Mung’omba B. Core competencies of radiographers working in rural areas
of South Africa [doctoral thesis]. University of South Africa; 2016.
17. Armstrong M. Armstrong’s handbook of management and leadership. 3rd
ed. London: Kogan Page Limited; 2012.
18. Burns H, Diamond-Vaught H, Bauman C. Leadership for sustainability:
theoretical foundations and pedagogical practices that foster change. Int J
Leadersh Stud. 2015;9:(88-100).
19. Schmitt M. Leadership and healthcare performance [doctoral thesis].
Virginia University; 2012.
20. Dowton SB. Leadership in medicine: Where are the leaders?. Medical
Journal of Australia. 2004;181(11-12):(652-4).
21. Porter-O’Grady T. Quantum mechanics and the future of healthcare
leadership. J Nurs Adm. 1997;27(1):(15-20).
22. Marais DL, Petersen I. Health system governance to support integrated
mental health care in South Africa: Challenges and opportunities. Int J
Ment Health Syst. 2015;9(14):(14).
23. Republic of South Africa 1996. Constitution of the Republic of South Africa
act No. 108 of 1996. Pretoria: Government Printers.
24. Swanwick T, McKimm J. What is clinical leadership and why is it
important? Clin Teach. 2011;8(1):22-6.
25. Budhoo MR, Spurgeon P. Views and understanding of clinicians on the
leadership role and attitude to coaching as a development tool for clinical
leadership. Int J Clin Leadersh. 2012;17:123-9.
26. George G, Gow J, Bachoo S. Understanding the factors influencing
health-worker employment decisions in South Africa. Hum Resour Health.
2013;11(15):(15).
27. Kachingwe LK. Action strategies for enhancing the implementation of
performance improvement initiatives within the health sector in Botswana
[doctoral thesis]. University of KwaZulu-Natal; 2013.
31
Biography of author(s)
Dr. Sagaren Govender

He has attained various post graduate qualifications from the University of KwaZulu-Natal which
includes a Postgraduate Diploma in Leadership and Management (2013), Master of Commerce in
Leadership Studies (2014) and Doctor of Philosophy in Leadership Studies (2017). He has published
articles pertaining to his research. He is also a contributing author for the book publication titled: Insights
on Doctoral Research (2019). He served as External Examiner for Master’s Students at the Graduate
School of Business and Leadership, University of KwaZulu-Natal, and is currently a Supervisor for
Honours and Master’s students at the Management College of South Africa (Mancosa). He has
presented his research both nationally and internationally: Business Management Conference: UKZN
(17-19 September 2014), Business Management Conference: UKZN (24-26 August 2016), IRES
International Conference: Cape Town (28-29 June 2017), KwaZulu-Natal Department of Health:
Research Day (31 October 2017), West East Institute Academic Conference: Barcelona, Spain (22-24
January 2019). His area of research includes Leadership and Management. He is a Member of the
Golden Key International Honour Society and Assistant Director of the KZN Department of Health.
Prof. Cecile Gerwel Proches

She is an Associate Professor in the Graduate School of Business and Leadership (GSB&L) at the
University of KwaZulu-Natal (UKZN) in Durban, South Africa. She holds a PhD (Leadership Studies),
MCom (Leadership Studies), BCom Hons (Industrial & Organisational Psychology) and BCom (majoring
in Business Management, and Industrial & Organisational Psychology). She teaches the Leadership
module on the Postgraduate Diploma in Leadership (PGDip Leadership), as well as co-lectures the
Leadership module on the Master of Commerce in Leadership Studies (MCLS), as well as MBA
Leadership module, and the MBA Research Methodology module. She served as Programme
Coordinator of the Postgraduate Diploma in Leadership for several years. She also taught on the
Management Development Programme (MDP) and the Managing for Impact (MFI) programmes, and is
actively involved in facilitating on short courses and executive education programmes aimed at
developing leadership capabilities. She has successfully supervised several Master’s students (MBA
and Leadership Studies) and doctoral students (PhD in Leadership Studies and Doctor of Business
Administration). Her research, supervisory and consulting interests include leadership, change
management and organisational culture, organisational behaviour, VUCA, leading in complex and
disruptive times and environments, systems thinking, and complexity theory. She has presented at
various national and international conferences, and published a number of papers in academic journals.
Her area of research includes Leadership, Management, and Organisational Behaviour. She has
published 40 research articles in several reputed journals.
32
Prof. Abdul Kader

Research and Academic Experience: He has experience in Research and quantative methods,
Change management, Corporate Strategy, Entrepreneurship and supervision of masters and doctoral
students.
Research Area: He has a keen interest on the Future of Work, 4IR tools and application, Business
Modelling, and design thinking.
Number of Published papers: He has published 14 research articles as co-author in several reputed
journals.
Any other remarkable point(s): He is leading the charge to redefine Industry-Academia Nexus within
the context of South Africa by leveraging opportunities for both industry and academia within Nedbank.
He also serves as a board member in the Faculty of Engineering and built-up environment at the
University of Johannesburg. He has conducted master class and webinars.
___________________________________________________________________________________
Peer-Review History: During review of this manuscript, double blind peer-review policy has been followed. Author(s) of
this manuscript received review comments from a minimum of two peer-reviewers. Author(s) submitted revised
manuscript as per the comments of the peer-reviewers. As per the comments of the peer-reviewers and depending on the
quality of the revised manuscript, the Book editor approved the revised manuscript for final publication.
33
Chapter 2
Economic Theory under the Lens of

Sustainability: A Simple Start
Giovanni Antonio Cossiga a*
DOI: 10.9734/bpi/ctbef/v3/18778D
ABSTRACT
The topic of the article is to emphasize controversial aspects or those that may
appear to be controversial in the conduct of the economy in the light of the
principles of sustainability. From this point of view, the economic cycle is not an
ordinary movement of the economic scenario, but an anomaly, a disease of the
economic system due to errors in the management of government programs.
According to this point of view, they are not even a penalty but an imposed
attempt from the natural orientation for a return of the economic system to the
classic growth, constant and with less damage to nature. In this rectification
process, an important role belongs to the majority of the community who are the
spokesmen of nature, from which they receive general guidelines on the correct
line of development. Therefore, it is a model of care that develops between the
community and the government leadership on the issue of the economy, with the
aid of the natural constants. For the return to the state of grace on the path of
development, the cure is the recession. Recession intended as a tool to bring the
deviated system back to the natural condition of stability. According to this point
of view, the recession is a sin to be paid in the economy management and there
would be no way to avoid paying this price. Therefore, attempts to avoid the
penalties imposed to correct the system may be reckless. Trying to avoid the
penalty means only to refuse now that damage, which would allow the following
return to the serenity of natural stability. In the scenario under treatment, two
handmaids of the conjunctural cycle can move in the scenario: Inflation or
Deflation. They are indicators of greater malaise. Going against the cycle and its
handmaids can mean going against the grain, postponing growing damage to the
economy to the future. Better to follow the natural orientation and indications of
the majority in the community, which is the arbiter of changes in the state of the
economy. In such a complex framework, monetary policy must correct the market
and curb the logic of speculation which goes against the interests of the
community. Unchecked, speculation can accentuate the two formidable monetary
anomalies that have long raged on the markets.
________________________________________________________________________
a
Università Sapienza, Rome, Italy.
*Corresponding author: E-mail: g.cossiga@gmail.com;
Economic Theory under the Lens of Sustainability: A Simple Start
Keywords: Sustainability; economic theory; deflation; inflation; fiscal and

monetary policies.
1. INTRODUCTION
In the setting of a sustainable economy, the scenario of a stable economy

always follows a consistent trend, slightly rising depending on the system's
potentials. In a stable system, therefore, the expectation of a tomorrow like
today in terms of economic expectations is quite reasonable. This strategy
should come as no surprise. It is sufficient to state that the communities carry
in their collective DNA the expectation of a tomorrow that is no different from
today in terms of economic viewpoints. Not otherwise, we can explain the
disillusionment taking individuals and communities when the economy turns
more or less rapidly towards recession and cyclical involution. In this regard,
we can argue that the expectation of a linear growth represents a collective
aspiration in harmony with the stability universe. Of which, therefore, it’s a
sort of “echo” able to receive information, even informal, on the path followed
by the economy.
In fact, it is reasonable to think that the long permanence of humanity on the

planet is somehow assisted by a fundamental law concerning the economy’s
path. A law that over time must safeguard the compatible use of natural re-
sources, for the benefit of future generations who should be able to count on
them for their own survival. It follows that sustainability can be defined as the
rule to preserve natural resources over time. A mission that is certainly not
subject to the rules of selfishness but must find a substantial support in a
fundamental law, not so different from those governing the world of physics
[1,2]. In short, the rule of stability and sustainability understood as possible
growth inside a context of natural resources conservation.
According to this approach, the norm for good economy management cannot
allow deviations from the stability of economic systems. And if this deviation
actually occurs, the rule of stability must therefore involve models for the
correction of systems that become unstable, which necessarily operate
without any guidance but the natural law. Anyway, it’s acting with an operational
gradualism allowed by the times of nature [3,4,5]. Therefore, even long times
that may not be compatible with the time of a human generation.
Therefore, the natural rule oversees the stability of the economy course.
Obviously, the relationship between humanity and nature doesn’t qualify as a
stable equilibrium [6-8]. The balanced situation is instead the result of
corrections on the instability path, which unfortunately is actually the norm in
the current economic landscape. It’s like saying that the even marked
deviations from the stability path are characterized by pauses in the natural
development mechanism [9,10]. To hang up the balance of economic systems
or at least to reduce the excessive waste of Natural resources, the economy
suffers a pause or a regression in terms of development, in this way, is thus
attenuated the gap between the sustainability pathway and the potential
35
degradation resulting from the excesses and from forcing the economy
development.
Therefore, the balance of economic systems is always in fieri, in the sense that
any deviation from the natural path would impose slowdowns, blockages or
regression of natural development since the rule of balance between economy
and nature cannot be forced. It follows that the economy in pause or recession
is always the consequence of a natural corrective process, which appears in
the sub-world of instability [11,12]. It can be deduced that the most loyal
behavior in the economy management should be always to have the positive
expectation that theforces of natural correction will do their job [13,14].
In other words, the conjuncture cycle reversal and the recession are not to be
considered evils in themselves, but instead real treatments imposed by the
corrective system, in the attempt to resolve the errors produced by the
deviated development inside the economic structure. If this is a self-care,
anyway a doubt remains about the consequences produced by measures to
hinder or even just mitigate the strength of the economic crisis.
Perhaps the inactivity of those responsible for the economy management may
also be inappropriate, because the social stability must be considered a
relevant factor during the adverse phases of the economic conjuncture.
Meaning that the balance between economy and nature should also include a
balance in the distribution of resources within a community as well as in all
countries and continents [15-19]. So, within a community a wealth and
income distribution in favor of a small circle of lucky people must be
considered an aberration that the corrective system will try to correct over
time. The times of the humanity-nature relationship may not be exactly
compatible with the times of one or more generations. But we should consider
them unequivocal and inevitable.
Equally we can think that a distribution of wealth and incomes among nations
and continents just for the benefit of restricted privileged countries, as
happened for the major European countries in the nineteenth century, is
destined to change under the sign of a greater distribution equity. According to
this point of view, the rise of the Asian continent and namely of China and
India, in the following century should be interpreted in the sign of the
distribution correction at a global level. Therefore, we can expect a similar
phenomenon would concern Africa, which remained on the fringe of the
redistribution process of global resources.
Just to say that the social and economic rebalancing of the most advanced
countries, of Asia and later of Africa, is to be considered a phenomenon of
natural correction in the redistribution of resources. A phenomenon that
has led G. A. Cossiga and will lead to a transfer of resources, consistent with the
real essence of the natural law of balance between humanity and nature.
Rebalancing occurs with historical times, but it is unequivocal and inevitable.
Therefore, it makes no sense to oppose this natural process that is deeply
36
rooted in the special relationship that ties all living beings to the nature around
us.
2. THE TENDENCY TO STABILITY OF ECONOMIC SYSTEMS AND

HOW TO PRESERVE IT
2.1 If We Hinder the Natural Correction Process, There Could Be

Consequences
What to do in the event of a recession, or worse of a financial crisis? The

answer seems quite difficult. At least under the point of view of the
sustainability economy and, therefore, of the sub-world of instability for an
economic system. The problem, of course, is the balance of the economy and
therefore the return of altered systems to the correct sustainability ratio in the
economy. First of all, because the growth of the economy is to be considered
constant and without cyclical alternations when an economic system is
maintained in the orbit of sustainability.
This is to say that a long period of constant and regular economic

development can be assured if the economy management does not yield to
the temptation to support growth, so forcing the relationship between economy
and nature. Not only that, indeed, because it’s highly probable that in a
balanced condition would prevail the tendency to maximize the development
potentials. Exactly the opposite of what happens in the sub-world of instability,
where the economic situation is always trying to curb the potentials and to
propose the recession, to let the overloaded system have a much needed
pause.
It goes without saying that, when we are at the center of a sudden economic
reversal, it’s almost unavoidable to resort to neo-Keynesian maneuvers and
to the accommodative monetary policy, in order to mitigate social damages. In
fact, in the case of a strong reversal of the economic conjuncture, the greatest
damage is felt by the weaker social categories, thus increasing the already too
wide gap in the income range. Notwithstanding, falling into a ravine, even if it’s
Saturday, we should do everything to minimize damage. However, the fact
remains that we could witness as a result of supportive measures as it happens
in fact a mitigation of recessionary phenomena and a relatively quick return to a
slow recovery. However, the interruption or décalage of the phenomenon will
have some consequences, since the action was somehow opposing the
correction natural mechanism.
It must be said that we can identify or at least estimate the quantum of the re-
cession that could depend directly on the mechanism of natural correction
and also the quantum of the conjunctural drop that instead could be due to
errors above all of a monetary nature arising from the desire to give
immediately some breath to the economy in crisis. The ‘29 great crisis was
the final outcome of an incredible and irrational speculative wave that dragged
the Stock Exchanges to a continuous upward. The reaction of the Central
37
1
Banks and in particular of the FED was the control over the money quantity .
In a sort of ho- mage to a monetarist conception, the great nations at the time
protagonists, then decided to hang up their currencies to gold, according to
2
the ratio before the Great Crisis [20].
These were decisions that essentially reduced the quantity of money available
for the markets, actually exacerbating and emphasizing the underlying effect
of the post-speculation crisis. It can be argued that the addition of monetary
exasperation over the markets contributed a lot to the collapse of production
and incomes in the 1930s. So much that the decision progressively adopted
by the various states to abandon the Gold Standard was followed by a rapid
improvement at the industrial and commercial level, while those who delayed
unhooking the currency (Italy and France) suffered longer the serious
repercussions of the economic crisis [20].
This brief glimpse is just to say that it’s possible and seems even appropriate
to distinguish between the natural correction and the correction for technical
errors. The first one, if blocked, can produce medium-long term effects.
Other- wise, we should not expect a negative legacy from solutions
unblocking the effects produced by technical errors of the monetary and
financial management. It must be said, moreover, that the management of the
economy, according to sustainability rules, requires the ability to listen to the
aspirations of the community. And, even more, the ability to remove the
1
In 1933 Roosevelt removed independence of the Federal Reserve, then ordered to print money, left the
gold standard, devalued the dollar. And here are the reactions of his advisors: “Feis made a gesture as if
he wanted to give up everything. Douglas was completely in horror. Warburg declared clearly that this
decree was demented and irresponsible. Douglas took leave with a Well, this is the end of western
civilization”. Instead, Keynes wrote to Roosevelt that he was the only hope of the liberal democracy: if he
would fail, on the political scene only revolution and reaction would remain, fighting each other ... And he
did not ask to give back the independence to the FED. John Maynard Keynes, by Giorgio La Malfa.
2
During the correction phase of an unstable system, the link between the economy and the price system
is usually one-way. The relationship between the economy and inflation (deflation) is always proceeding
from the conjuncture (in deep depression during the financial crisis) to the falling prices. It is neither
possible nor acceptable that there could be feedback from the falling prices towards the economic
conjuncture, which accentuates the economy depression. Prices are the image of the conjuncture
situation and they follow her destiny in a neutral way, not being able to interfere in any way with the state
of the economy. This absolute rule allows however an exception, as demonstrated during the ‘29 crisis.
During the severe deflation following the Stock Market collapse and the financial crisis, the deep
depression of the economy was accentuated and extended by the rigidity of Gold Standard Interwar
(again adopted by the world’s major economies after World War I). On that occasion, monetary rigidity
has tragically accentuated the depression. This has created a vicious circle that is powered between the
economy and deflation, tied to the economy, on one side, and between the fall in nominal prices, tied to
the Gold Standard Interwar, and the economy, on the other side. A specific monetary factor (the
monetary rigidity), which therefore made bidirectional the relationship between economy and deflation,
relationship usually going one-way from the economy to the prices. An error that from the currency
(linked to the Gold Standard Interwar) has moved sic et simpliciter to the economic level, thus inhibiting
also the normal economy correction entrusted to the natural mechanism. Therefore, not only the
monetary error has exhausted the economy for a ten-year period, but also blocked the natural correction
action, so extending forward in time the system trouble fighting against an unsolved financial crisis. A
perverse link that only dissolved when the (late) decision was taken by USA and European countries, to
abandon the Gold Standard. A decision adopted by UK only in 1933, followed by the United States the
year after. However, France resisted until 1935 because was strong the attraction of that country to the
world gold movements and this assured in fact large gold reserves (G. A. Cossiga, 2017).
38
widespread ambitions in the economy management, like to pretend to be

able to overcome the limits imposed by the economy-nature relationship.
In a state of quiet and moderate management of the economy, first and fore-
most, it’s necessary to listen to the prevailing orientations within the
community. In fact, it must be strongly stated that the sentiment of a
community is quite capable to express in its majority what the real condition
of the economy may be. Not only that, because is also able to indicate, at
least in its general lines, the path to follow to bring the economy back to the
lost stable condition. Indeed, it should be argued that the proven ability of the
community to have a reasonable idea of the economy general state is to be
linked to the collective capacity to capture the negative signals (see for
instance the price trends) that the markets send directly or indirectly.
So that the tendency of the economy towards recession uncovers the

presence of errors in the management of economic systems and the
consequent need for market activity to pause in search of stability and
sustainable balance. We must therefore accept that this tendency to
recession is somehow perceived by the community, which represents a sort
of special terminal connecting humankind and nature. We cannot in fact
exclude that the natural law regulating the sustainable balance of economic
systems has its own tools, which we have called natural correction system.
An equipment that not only has the inductive force to cause the corrective
recession but also is provided with alert warnings and signals to
communicate the deviation of the economy from the stability path. Believing
that the community is a sensitive terminal of this humanity-nature
relationship, seems confirmed by the research on the collective sentiment
about economy, market and consumption trends, orientation on saving use.
This is why even simply our neighbor has a vision quite clear on the economy
condition, especially if things don’t go well. At this point, it cannot be
excluded that the community, understood as a large majority, would be able
to discern between the strategies useful to resolve the economy swamped. It
follows that the natural corrective procedure, intended as a tool to restore the
stability of the altered systems, should be shared by the majority of a
community.
Now, since the natural corrective system proceeds with pauses and
slowdowns in the development mechanism for the economy rebalancing, it
follows that the conjunctural tensions imposed to the correction system could
and should be shared by the majority in a community. In other words, the
community should be aware that the treatment requires a temporary pause of
the economic growth and share, therefore a sort of resignation to wait that
the restoring process would take place.
It’s like saying that the concern of the leaderships who fear the consent col-
lapse, due to the imminent or ongoing recession, could be out of place. In
fact, also the community members would like to share the market’s new
39
horizon. In other words, it wouldn’t be the eventual pace fall of natural

development that would create imbalances in the political context, but rather
the possible attribution of political responsibilities for the mistakes made in
the past and the responsibility for the economic recession.
This is to say that a government facing the problems linked to the recession
can maintain its justified consensus. Unlike then those leaderships who,
surprised by the changing economic situation, are trying to do their best to
put upward the cycle profile, because otherwise they would suffer a
progressive loss of social acceptance. This is because inside the community’s
DNA there is the natural hope that tomorrow wouldn’t be different from today,
because the economy’s growth follows a constant path without cyclical
alterations. When the economy cycle is created, this means that the economy
is already inside the instability sub-world. This fall involves the growth
arrhythmias and a slowing or a pause of the development constant process,
which instead belongs only to a balanced and sustainable economy.
These linear concepts involve the risk that at least some of the strategies to
bring the altered cycle back to the desired pace, may be instruments that, in the
end, could move in contrast with the natural orientation of the economy. In the
sense that they could be developed to fight the recession trouble and its social
consequences, identifying the economic malaise in the conjuncture and
especially in the recession. Hypothesis, by the way, that sees evil in the result
(decline of the economy), without going back to the real causes that led to the
interruption of the development process.
Now, clearly the malaise is not in the symptoms, which are the conjuncture
cycle and its involution, but in the cause: the instability of the economic
system that derailed from the stability and sustainability path. Instead, we see
attacked the symptoms of the disease, which in the end are the treatment
autonomously self-inflicted by the system, to recover within possible times the
path of stability and development, constant and gradual.
2.2 We Have Tools to Contain the Recession Symptoms. But What

Are the Effects on the Instability of the Systems?
The long season of creeping deflation, which has become the common
scenario of the global economy, holds the characteristic of a blocked or
3
declining growth .
3
Incoming information since the last Governing Council meeting in early June indicates that, while
further employment gains and increasing wages continue to underpin the resilience of the economy,
softening global growth dynamics and weak international trade are still weighing on the euro area
outlook. Moreover, the prolonged presence of uncertainties, related to geopolitical factors, the rising
threat of protectionism and vulnerabilities in emerging markets, is dampening economic sentiment,
notably in the manufacturing sector. In this environment, inflationary pressures remain muted and
indicators of inflation expectations have declined. Therefore, a significant degree of monetary stimulus
continues to be necessary to ensure that financial conditions remain very favorable and support the
euro area expansion, the ongoing build-up of domestic price pressures and, thus, headline inflation
developments over the medium term. Accordingly, the Governing Council adjusted its forward guidance
40
Even the great exceptions such as China and India are only apparently moving
away from this common scenario, even if the economy growth, though
4
declin-ing, is still strong. Even in the United States, the inflation decline —despite
the repercussions on prices within the duties imposed by the White House—is
a clear signal that the tension towards deflation is advancing and growing. It’s in-
evitable that the price downward trend would be accompanied by a decline in
development potentials [21].
Even in the USA, the aggressive policy of the White House has led to the
choice of supporting the economic situation through a tax measure, approved
in 2017 and entered into force in 2018, with the aim of cutting taxes that
advantaged especially the privileged categories, but loading in this way the
public debt. The attempt to force an economy that already grows over 2%
with ultra-Keynesian maneuvers, can produce an anticipation of the cycle and
5
therefore a drop of potential in the near future [22].
As saying that the global economy travels towards a sort of homogenization of

development or regression perspectives, as an unexpected outcome of the
globalization long story. A long road that is bringing closer the economic
conditions of the Western countries and the Asian continent and which today
sees Africa as the new protagonist: the continent, late to the globalization
appointment, is in fact reshaping the global economic landscape.
The long run of the economies of Southeast Asia and above all of China allowsa
reading of the globalization process, still in progress and not completed, as an
inevitable evolution—which continues over time—of the harmonization process
on policy interest rates and underlined its determination to act if the medium-term inflation outlook
continues to fall short of its aim. BCE, Economic Bulletin 8 August
2019.
4
4Inflation. Consumer price inflation, as measured by the 12-month change in the price index for
personal consumption expenditures, moved down from a little above the FOMC's objective of 2 percent
in the middle of last year to a rate of 1.5 percent in May. The 12-month measure of inflation that
excludes food and energy items (so-called core inflation), which historically has been a better indi- cator
than the overall figure of where inflation will be in the future, was 1.6 percent in May down from a rate of
2 percent from a year ago. However, these year-over-year declines mainly reflect soft readings in the
monthly price data earlier this year, which appear to reflect transitory influences. Survey-based
measures of longer-run inflation expectations are little changed, while market-based measures of
inflation compensation have declined recently to levels close to or below the low levels seen late last
year. FED-Monetary Policy Report-July 2019.
5
5The largest effects on GDP over the decade stem from the tax act. In CBO’s projections, it boosts the
level of real GDP by an average of 0.7 percent and nonfarm payroll employment by an average of 0.9
million jobs over the 2018-2028 period … In CBO’s projections, real GDP expands by 3.3 percent this
year and by 2.4 percent in 2019 (see Summary, Table 1). It grew by 2.6 percent last year. CBO The
Budget and Economic Outlook: 2018 to 2028-April 2018. Output. Real GDP is projected to grow by 2.3
percent in 2019 and by an average of 1.7 percent per year from 2020 through 2023. Most of the growth
of output in CBO’s forecast over the next few years is driven by consumer spending and, to a lesser
extent, business and residential investment and exports. Compared with the robust pace of output
growth in 2018—3.1 percent, the fastest annual growth since 2005—output growth is projected to slow
in 2019. That projected slowdown largely results from an anticipated slowdown in the growth of business
fixed investment, as the positive effects of recent tax legislation on investment growth begin to wane,
and from a sharp reduction in federal purchases starting in the fourth quarter of 2019 that would occur
under current law. CBO The Budget and Economic Outlook: 2019 to 2023-January 2019.
41
of the relationship between humanity and nature. A reading that therefore

understands the harmonization of global development processes as a need
moving in line with the nature evolution and that requires a greater
synchronization of global development.
Also, the globalization processes have evolved and are taking place without an
apparent direction and are carried out outside the jurisdiction of states and
governments. As saying that also the social aspects linked to the income
distribution on a global scale are to be considered as factors that participate in
the relationship linking humanity to the planet. In the sense that excessive
deviations in the income distribution within a community or even at a global
level are to be considered as phenomena adverse to the correct relationship
between humanity and nature and, therefore, an important signal that the
development line has taken the road towards the instability sub-world.
It’s like saying that the social and economic evolution of human communities
follows, according to times uncoordinated with those of one or more
generations, a development trend coordinated instead with the evolution of
our natural environment. So that with the globalization of social and
economic development, is reduced the fragmentation of the economic events
and the evolutionary process is increasingly played on global landscapes or is
anyway moving in this direction.
On the other hand, we must admit that the trend towards the stability of
economic systems has allowed the growth and evolution of humankind,
despite thousands of calamities and adversities throughout the history.
Therefore, we must admit also that the force pushing towards the stability is
linked to the sustainability relationship between humanity and nature.
Moreover, it also seems unavoidable that the exit from the stability relationship
would involve a series of penalties, which are essentially the natural tools to
promote the return of an altered system to its stable condition. The stability
path offers the advantage of the constant and gradual growth, in accordance
with the sustainability. Leaving the circuit of stability would change the
development landscape, which would move within a sub-world of instability,
different and unrelated to the stability world.
The current global landscape, pervaded by the tendency to price deflation and
by a fall in development potential, confirms that the single and global
economies have been traveling for some time within an unstable context, and
that the conjuncture cycle therefore tends to the recession, in order to fight
the errors responsible of the economy deviation. The normal reaction in this
context is to use all the tools of fiscal and monetary policy to curb the
phenomenon and to reinvigorate the weak economy. Now, there is no doubt
that the goal to reinforce the pale economy is certainly acceptable. On the
other hand, in the human DNA there is the idea that tomorrow could be not
so different from today, precisely because the stable condition guarantees a
linear and stable growth.
42
The problem therefore concerns what to do to achieve this shared goal. To

answer this question, it’s necessary to evaluate carefully the dangers related
to the current condition of tendential deflation. This stage is reached when the
instability has become chronic, that is it lasted a long time. In today’s world, we
shouldn’t forget that just a decade ago a speculative bubble burst, not so
different from that of ‘29, which caused a heavy financial crisis extended to the
entire global economy. The apparent exclusions concerned, by the way,
China where there was only a drop in an outstanding development rate. China
at the time of the speculative storm was seen as a sort of free zone, with the
result of accelerating the globalization to the benefit of the developing areas
inside the Asian continent.
The issue to be examined is that in the aftermath of the 2008 great crisis, the
industrialized world and gradually also the other players fell into the grip of the
deflation tendency and the economy development opacity. The response to
the extraordinary and partially unexpected event of the great financial crisis
has been somewhat customary. In other words, the defenses offered by
fiscal and monetary policy have been mobilized to control at least partially the
great tsunami started by the crisis. Most industrialized countries have
initiated ultra-Keynesian policies, above all to reduce the cascade-effect that
the crisitriggered within commercial industrial activities and (firstly) to recapitalize
the large banks that were facing a possible bankruptcy [23].
We should say that faced with the danger of a global recession like the one
experienced in the 1930s, the use of exceptional measures in terms of size
and quantity to mitigate the effects of the crisis was an inevitable necessity.
However, it cannot be overlooked that though the exceptional dimension of
the interventions has given appreciable and necessary results, nevertheless
has been interrupted the natural corrective action that we can presume is
basic for the speculation-financial crisis paradigm.
We can talk a lot about the multiplier effect that the financial crisis produces
and goes far beyond the recessive wave induced by the correction. The
recession in fact has the mere purpose to give a pause to the economy, in
order to bring the economic system back on the stability path. Having made
this distinction between the natural correction and the cascade-drop of excess
activity due to the falling equilibrium, it appears even more evident the urgency
to contain the crisis excesses not motivated by structural factors.
However, the fact remains that the trouble provoked ten years ago by the
financial tsunami has implemented and increased the response on the front of
active policies, so limiting however the expected effects of the curative
recession. The problem now is not so much to discriminate between the
quantum of active policies useful to contain but not to contrast the cure
and the quantum that acted instead in opposition. The problem is to assess
whether at present there are symptoms that the correction of the global
economy instability has been insufficient and that, therefore, we could expect
new events like those experienced during the first decade of the 2000s.
43
Now, the instability state inside the global economy has not been solved and
the main symptom is the deflation tendency that is gripping the current
economy. This deflation tendency can be used as a sort of thermometer in
the economic condition precariousness, so that the declining prices are more
significant in the countries most exposed to the economic turnaround, as in
the case of the Europe of Euro area [24]. However, even the United States,
which is traveling at a rate of 2% of GDP growth (but decreasing next year),
is witnessing an unexpected (though not so much) inflation, well below the
6
“magic” number close to 2% . The phenomenon is not absent even in China,
despite the support to the economy growth that travels in fact around 6%.
As can be seen from Fig. 1, the phenomenon of deflation tendency in

economic systems is global. The signal of the drop in the inflation rate is more
evident for countries and continents that are experiencing a greater financial
fragility, such as some countries in Mediterranean Europe and Southeast
Asia, including Japan. It’s interesting to note that the inflation eclipse was
merciless during the recent financial crisis, thus marking a sharp negative
price rate. In the post-financial crisis, the inflation rate then began to re-
emerge, always remaining in a range between 0% and 2%, despite the up
and down of international prices, especially for oil, and the geopolitical events
in the Middle East. The curve now tends to contract again, essentially in the
countries most exposed to financial risk [25].
2.3 The Monetary Policy Is under Siege. Why?
Even in Trump’s America there is a decline in the inflation curve, even more
worrying in a country that implemented a tax reform since 2018 and dragged
the public debt to over 100% of GDP. Unfortunately, once again favoring an
income distribution less equitable and far from solidarity. An inflation trend
against the economy’s main variables, which are traveling at the highest levels
of the period.
In this context, the FED decision—during the meeting held on 31 July last—
toreverse the US monetary policy direction, and also to lower the target range
for the federal funds rate until 2 to 2-1/4 percent, has created some perplexities
specifically because of the obvious imbalance between the good (only
6
6Information received since the Federal Open Market Committee met in June indicates that the labor
market remains strong and that economic activity has been rising at a moderate rate. Job gains have
been solid, on average, in recent months, and the unemployment rate has remained low. Although
growth of household spending has picked up from earlier in the year, growth of business fixed in-
vestment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and
energy are running below 2 percent. Market-based measures of inflation compensation remain low;
survey-based measures of longer-term inflation expectations are little changed. Consistent with its
statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of
the implications of global developments for the economic outlook as well as muted inflation pressures,
the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent. This
action supports the Committee's view that sustained expansion of economic activity, strong labor market
conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely
outcomes, but uncertainties about this outlook remain. Federal Reserve issues FOMC statement-July
31, 2019.
44
apparent?) economic trend and the decision to give anyway a sign about the
cost of money.
Fig. 1. (a) Inflation 2000-2019 in great countries; (b) Inflation 2000-2019

in Italy, Denmark, Portugal, Korea. Source: Elaborations on OECD and
IMF data
On the issue of the potential influence of political choices on Federal Reserve

decisions, the previous governors of the Central Bank Board made their
point. With a note signed by Bernanke, Yellen, Greenspan and Volker [26],
the former governors feared the potential political interference with the Central
7
Bank’s deliberative process .
Apart from the issues related to the Central Bank’s independence, the
controversy raised by the decision of the FED on July 31st shows at least
that the symptoms offered by inflation on the prospects of the economy are
partially reduced, to the advantage of values expressed by the GDP and
unemployment trend. I would say that this inattention is not a good symptom,
because the prevailing characteristic of the 2000s great financial crisis was
the sudden drop in prices that then turned to be negative [27].
The tsunami affecting prices is certainly the sign that the crisis could be wide
and would still act on the financial front. Therefore, we cannot underestimate
the importance that the hyper-financialization of the economy can have in the
near future. The deflation-finance combination is the point of view from which
it’s necessary to look at the current situation to assess the risks deriving, by
the way, from the constant tendency of the economy to deflation and, at the
same time, from the enormous growth of financial wealth (and of global debt).
A financial wealth growth that is increasingly incompatible with the resources
of real economy.
7
7As former chairs of the Federal Reserve Governors’ board, we are united in the belief that the Fed
and its president should be allowed to act independently and in the best interests of the economy, free
from short-term political pressures and, in particular, without the threat of removal or demotion for
political reasons ... History has repeatedly taught that an economy is stronger and works better when the
Central Bank acts independently of short-term political pressures and relies solely on sound economic
principles and data. America Needs an Independent Fed From. Wall Street Jour-nal-August 5. 2019.
45
From this point of view, the dangers of the excessive financialization of the
economy should have suggested monetary policies oriented towards caution
and control of excesses. The problem in fact is not to maximize the potentials
of the economy with the active support of monetary policy, but rather to control
a disorderly growth, which is fed by the liquidity excess and the credit
generosity farbeyond the economy’s actual capability. From this point of view,
the possible option for monetary policy wouldn’t be to lighten the money cost
and above all to stop the reduction program, increasing in perspective, of the
Central Bank as-sets.
A possible decision not to follow the accommodating trend required by the

market “is in accordance with its mandate from Congress: to promote
maximum employment, stable prices, and moderate long-term interest rates
in the U.S. economy” (not so different from the mandate of the European
Central Bank and of the main Central Banks). First of all, because it wouldn’t be
a task of monetary policy to stimulate the markets’ growth, but rather to
ensure a compatible (sustainable) growth to the economy in the medium
term. The attention of monetary policy shouldn’t be aimed to support short-
term benefits, but rather to guide the economy’s course towards a stable and
constant growth over time.
In other words, the monetary policy makes autonomy to be its flag in order to
play a complementary and moderating role with respect to the political
maneuvers promoted by governments. In some ways, therefore, the Central
Banks look to the medium-long term even diverging from the politics of the
governments in daily life, always struggling with the problems of consensus
and acceptance of their economic management programs.
That said, the deflation tendency, which becomes stronger over time,
essentially confirms that the great financial crisis of the 2000s first decade
has left a poisoned tail: the economy weakness and the recession tendency.
These are more direct symptoms that the instability of the systems has not
been overcome and that the natural corrective mechanism is still working.
How to reduce the risks of a future spread of a new financial crisis, while a
speculative climate is recharging again? This is the current issue that
monetary policy has to deal with, even dissenting from the demands of
leadership governing the economy.
Well, the 2008-2010 financial crisis was, at least in part, mitigated through
heavy ultra-Keynesian interventions. Since the recession is to be considered
a treatment to reduce the deviations from the stability path, we must admit
that the start of the “unreasonable excitement—financial crisis” paradigm is to
be considered an alternative system when the roads leading to a corrective
recession are precluded.
In other words, the uncertain battle against inflation, in a world still suffering for
instability, has been the reason why the deflation appeared on the world
scene. Well, the creeping tendency to deflation should be considered a tool
46
of natural correction to contain the persistent instability. This remedy does

not seem to be understood in its intrinsic quality. The deflation, by the way, is
not aninflation’s companion and they cannot exist together.
However, just like inflation, the deflation is a signal and a promoter of

correction, to bring back an altered economic system on the stability and
sustainability path. It is inexorable that, when this monetary signal appears,
the economy would give signs of weakness so tending gradually to contract.
Consequently, the appropriate action in terms of economy sustainability is
certainly to let the conjuncture cycle perform its corrective function.
We can add that the laissez-faire is certainly costly at a social level, so it’s
necessary that the public budget would get the appointment with the cycle
correction with enough resources reserved for interventions—even in
deficit—to contain and mitigate the inevitable damages due to the income
decline and rising unemployment. A function of economy management,
therefore, inspired by moderation, with a view to the medium-long term and to
the protection of dis- G. A. Cossiga advantaged minorities, which are most
affected by the economic reversal.
At this point we can make some observations on the potential behavior of the
economic system when the recession path is partially precluded. We have al-
ready observed that the persistence of inflation is somewhat put in a corner
with a policy of support to conjuncture partly offset by a less accommodating
monetary policy. This could lead to a stalemate that could turn over time the
economy towards deflation. All this would happen if the long struggle against
inflation (see the eighties) didn’t solve the instability problem, which is the
cause of inflation. An unstable condition, matured in the seventies, which has
not been eradicated by the contradictory mix of a permissive fiscal policy and a
less accommodating monetary policy. The natural correction system
therefore seems to change strategy and follows the way out offered by the
inflation decline, so falling towards negative or almost negative values.
At the deflation stage, which is the prevailing condition afflicting today the
global economy, there remains the problem of accompanying the altered
system towards a controlled recession, which would help the economy to find
again the stability path and a constant and gradual growth. Now, it could
happen, and indeed it happened, that this opportunity to find again the
natural correction path, would be barred or made anyway difficult by the
political intervention, which sees the recession as the nightmare driving
consensus away from government and leadership.
Well, we can certainly understand that the recourse to public budget is in the
faculties of the leadership and that another reproposal of ultra-Keynesian
measures is part of the normal package of resources available. Yet this
resource can become anything but convenient. Because with the public debt
increase, as soon as this reaches and exceeds 90% - 100% in terms of GDP,
the expected results of relief of the weak economic conjuncture are of no
47
value or just temporary. Especially when the system is already under the
deflation hard grip. It is surprising that the stainless confidence in the merits
of ultra-Keynesian measures wouldn’t be placed at this point in a sort of past
memories’ shelf!
The fact that the widespread use of ultra-Keynesian interventions has

achieved some good results to mitigate the harshness of the 2008-2010
financial crisis, does not detract from this last observation. As a result of the
massive intervention of public budget at the time, the majority of the most
advanced countries now suffer from the suffocating weight of public debt,
which on average exceeded 100% in terms of GDP. On the other hand, we
should note that a heavy public and private indebtedness is causing the
economy degradation towards deflation. Then every action using public
resources, is only worsening the economy trend. That is, it’s only further oil
poured on the fire …
The problem remains, therefore, of the unstable economic system reaction, ifit
doesn’t find the way open towards the controlled recession. At this point it should
be noted that any exhaustion of the usual fiscal policy interventions obviously
would increase the focus on monetary policy behavior. As we have said, the
issue of a monetary policy independent from the government’s position about
economy is of substantial importance. In fact, starting from this assumption,
the monetary policy cannot be a mere instrument of support for the
conjuncture to be used when are lacking the resources available to the
economy management.
The monetary policy cannot and shouldn’t be a sort of maid of the

government policy but should support instead a political vision covering the
range from medium to long term, and not just the short period. The function
of the Central Bank can be described somehow as the guardian of the
stability of economic systems and guarantor of the economy development
sustainability.
From this point of view, it’s clear that the Central Bank must act like Ulysses,
plugging his ears against the siren song of governments and of markets
alwaysasking for new liquidity. The ultimate goal of economic policy is therefore
to listen to the community’s voice that at least in its majority can be considered
a sort of sensible economy thermometer and a terminal of the implacable
stabilitytendency that is inside the economy’s DNA.
2.4 The Monetary Policy Is Not a Guide but Should Correct the
Markets
Paul Volker, appointed on July 25, 1979 as chairman of the Board of

Governors of the Federal Reserve System and confirmed in the second round
in 1983, to disarm rapidly the rising inflation did not hesitate to raise the
federal funds rate, which averaged 11.2% in 1979, to a peak of 20% in June
1981. The combination of the Fed’s tight money policies and the expansive
48
fiscal policy of the Reagan Administration (large tax cuts and a major increase
in military spending) produced large federal budget deficits and significant
macroeconomic imbalances in the US economy. After the severe recession of
1980-1982, the US economy recorded a decade of sustained growth, 3.5%,
on average also seizing the opportunity of the oil counter-shock in the 1980s.
Basically, the incongruity between the abruptly restrictive monetary policy

and the accommodating fiscal policy has conspired causing a recessive
trouble for the US inflationary economy during the early 1980s, thus playing the
role of the natural correction. An exemplary case of monetary policy that
ranged over the medium-long term, thus gaining a broad consensus and an
undoubted resultalso at the economic level.
It must be said that monetary policy shouldn’t have any implication with the
economy development. First of all, because an economy moving within
sustainability field follows a line of constant and linear development. Moreover,
the monetary policy must supervise the correction and control process of
economy, as it doesn’t have among its goals the economy support, which is
syn- onymous with instability and balance seeking.
Going back to the global economy context, the tendency towards deflation is
accentuated by the high public debt burden, which strains the public finance.
Ergo any attempt to support the cycle with Keynesian maneuvers essentially
aggravates the monetary problem. On the other hand, once closed the door to
other maybe winning options of fiscal policy in managing the economy, the
markets strongly appeal to the monetary policy responsible to make them
play the unusual role of economy managers. At this point, the adjustments in
the cost of money to make the credit option and the new liquidity more
available through the announced reopening of the QE or even by the block of
the Central Bank’s asset reduction program are pretending to be substitutes
for the function of economy management. In place of or in addition to
resources available for the government function to support the economic
cycle.
The problem could be exactly the willingness of the Central Banks to make
actions to stop the slowdown in the economic cycle. At this point could be
configured a new obstacle to the natural correction, to which in fact is
precluded the corrective recession path within the altered economic systems.
The economic picture therefore denounces a growing development difficulty,
which becomes increasingly creeping, while is intensified the tendency to
deflation in the economy. What are the developments in such a situation,
briefly outlined and that closely recalls the present global economy?
A potential answer comes from the experience we have lived during the first
decade. Even at the time, the prevailing signal was the moderate or declining
inflation. A signal that obviously was conflicting with the gradual but constant
turnaround for an unmotivated and unstoppable development of some
sectors, running without any connection with the real economy. It can be
49
argued that the stubborn closure to the corrective recession option and the
political synergies have at least partly hindered the way to a healthy
economic decline. Therefore, these may have been the premises to start the
speculative turnaround.
As saying that the speculative bubble of the last decade was essentially a
sort of exceptional response to the delay in the recession course, contained
as a sort of economy nightmare to be absolutely blocked. In other words, the
tendency to price deflation can therefore be interpreted as a sign of a
potential near recession. If this corrective action is somehow delayed and
postponed, a new potential enemy may appear on the economy’s horizon.
Elusive and ambiguous, because tensions would arise in certain sectors of
the economy, though without valid reasons to justify them.
The system seems to be acting somewhat in the wrong direction. From the
inertia and weakness state accompanying the tendential deflation, we pass
abruptly, at least in some sectors, to a progressive acceleration without any
valid motivation, also for the rapid change of perspectives. The speculative
tension would therefore be a sort of reaction, indirect and natural, to the
obstacles placed in the system instability corrective process, when the
instability would be prolonged in time and there wouldn’t be any sign of a
turnaround.
At this point it’s evident that a routine recession, which can periodically
appear due to an exit from the stability path, is mistaken for an Armageddon
of the economy! And this for the usual crazy desire to make the economy run
beyond its potential, which is objectively impossible. Because the present
acceleration will be paid with the future deceleration and recession. In short,
the scrupulous and intransigent denial to suffer the consequences for the
entry into the instability sub-world, can be the cause of a great tsunami in the
economy, due to the collapse and annihilation of all the virtual developments
triggered by speculation. A tsunami that would carry with it not only the
natural correction of the unstable system but also all the ballast created by the
absurd process of irrational speculation. The terrible wave of the post-
speculation super-financial crisis would therefore be an excess not only just
announced but also caused and triggered by the behavior of policy managers.
The ultra-Keynesian response given during the evolution of the 2008-2010

financial crisis was certainly necessary to correct the negative outcomes of the
super-correction, but it is also the obvious symptom of a standard behavior.
That is, the use and abuse of cycle correction tools through fiscal and monetary
policies.
That’s why, during the formation phase of the hyper-speculative cycle, we

must carefully observe the behavior of monetary policy and, above all, the
deriving consequences in terms of money cost and new currency creation.
Because during the hyper-speculative phase there is the anomaly of an almost
normal economic growth of around 2%. This would suggest a normal growth
50
trend, basically, without any concern. Nevertheless, it isn’t normal at all, and in
fact it’s a totally abnormal bluff. It follows that in these extraordinary
circumstances, an accommodating policy made with low money cost and wide
monetary availabil ity could create the basis for accelerating and emphasizing the
speculative crisis, which is now overheating the markets.
I would just like to consider that once the basic conditions for speculative
acceleration are started by means of a very accommodating monetary policy,
even a slowdown (but too late) in terms of block for interest rates and currency
could not be enough to contain the development of the speculative emphasis.
Because the speculative mechanism itself would be able to accelerate the
money speed and to maintain exuberance.
3. THE POLICIES TO CONTROL INSTABILITY COULD INSTEAD

JUST DELAY THE SOLUTION OF THE ECONOMIC PROBLEMS
3.1 The Tensions Running through the Economy Appear Once

Again Repressed
The tensions in the economy seem once again repressed. In the sense that
the apparent market health, despite the troubles of the hegemonic policy in
Trump’s America, can be misleading and could hide the unstable market state,
unresolved after the 2008-2010 financial crisis. It must be said that an
apparent calm within the markets is the foggy dreamlike scenario created with
the birth or the development of a speculative tension. In an atmosphere
somehow narcotized by the speculative fumus, a collective undervaluation
takes the shape which can justify the apathy and the strange presumption
involving also the operators.
Well, in a context so altered, a decisive contribution to the persistence of the

quiet expectation feeling can come unexpectedly from the Central Banks
and from monetary policy. In this regard, it’s to be considered that in the
current climate the main instability symptom is given by the declining inflation
rate. A mechanism that overloads the concern about the damage caused by
deflation, mainly due to the difficulty of fighting it with the monetary tools
available to the Central Banks. All this creates within the market a tension
tending to stifle the symptom of malaise (deflation) rather than to fight it.
Now it’s clear that to silence the general and immediate source of information
on the economy state, what basically are the nominal prices, is different than
to remove from the economic scenario the underlying reasons causing the
regression of inflation. Looking at the current scenario, an aggressive
monetary policy pushing the money cost down until the zero level, and
promoting at the same time the creation of new money, can contain and partly
remove the symptom of declining prices. But the basic problem, namely the
instability promoting the slow fall in prices, remains untouched despite the
good reaction of the markets.
51
The great liquidity availability accompanied by deflationary phenomena

creates not only the negative result of underestimating the real economy
state, due to the fictitious drop of the deflation symptom. But it also produces
the consequence to resolve, though just apparently and temporarily, the
difficultieslinked to the decline of nominal prices (Fig. 2).
Deflation, instead, if allowed to act, tends to depress the credit upward trend,
because the debt increase over time worries operators and families. The return
to positive values of the inflation rate essentially eliminates this concern and, in-
stead, stimulates the search for new credit, being so low the money cost.
In other words, the extraordinary instruments of monetary policy, such as the

Quantitative Easing, can become the hidden mediators of that feeling of
apparent calm stagnating within the markets during the formation of a
speculative bubble. At the same time, they can become instruments to
promote cheap creditwhich, in turn, is the tool that can fuel the expansion of the
speculative bubble.
Facing inflation, the monetary policy is pushing interest rates upwards.

Therefore, it moves in harmony with the natural correction maneuver that al-
ways aims to promote the return of the altered economy to stability. Even in
the case of an inflationary economy, the monetary policy doesn’t appear able to
play an active role in the recovery process. But at least it’s moving in the wake
of the natural correction program, with the interest rate increase which in turn
contains the inflation emphasis.
Differently, in case of deflation the monetary policy is not called to play an ac tive
role to promote development; however, there is a real risk that it would boost
the virtual economy that is moving and growing, so that over time it could fuel a
speculative bubble. The problem is the closed door against the attempt to
reverse the economic cycle, continuously offered by the natural correction
but unsuccessfully. In this referral game, unfortunately there is the serious
risk that the irrational quid loaded by the speculation time clock would not
only remain unresolved but could instead be loaded again. Because the
stability trend for economic systems imposes to the economic systems, though
gradually and flexibly, to converge towards a stable sustainability structure.
Therefore, if we do not reduce the control over the natural mechanism of the
economic cycle, the prospect of a new post-speculation financial crisis will
become quite strong (Fig. 3).
It can be deduced that any claim of monetary policy to have a decisive role in
the process of developing economic systems, must be abandoned. Because
the role of monetary policy is not to give impulses, but rather to put the
economic systems back on the sustainable development path. From this point
of view, the maneuver should measure some possible steps to reduce interest
rates; rates that, in any case, should never become negatives in real terms. In
the event of a prolonged tendency to deflation then, the decrease of rates,
wherever applied, should never lead to key interest rates lower than 2%.
52
Fig. 2. FED: Recent balance sheet trends
Fig. 3. BCE Reinvestment phase of the asset purchase program. Corporate

Sector purchase programme (CSPP); Public Sector purchase programme
(PSPP); Asset-backed Securities purchase programme (ABSPP); Covered
Bond third purchase programme (CBPP3)
53
In fact, we should consider that the equilibrium rate for the inflation sample
accepted by the Central Banks, is close to 2%. An exact measure of the base
rate is unlikely because it’s just an ideal measure. In fact, this is the value that
nominal prices can assume when the economy would have long been in
conditions of stability and sustainability with the natural world around us.
It’s therefore a measure that can be just touched but not achieved, because
the conditions of economic stability over time are still a sort of utopia.
Therefore, when the inflation rate has reached or is approaching the decisive
2% share, we can only say that we are still struggling with deflation, partly
because its expression is partly suffocated by an overly accommodating
monetary policy.
We may also add that the rate close to 2% is the measure of a stable
economy, which is therefore not subject to changes in inflation and jumps in
the economic cycle. An ideal condition of an economy constantly developing
and growing, which therefore does not register variations in prices, except
those produced by the economy’s movement itself. In fact, a rate close to zero
in the price movement would make no sense. Because the rhythm of the
economy—though constant—must somehow be reflected like a sort of echo
on the economic activity register.
Therefore, if the conditions of the economy would recommend a drop in

interest rates to give a boost to production, the drop in the reference rates of
the Central Banks should not fall below the base rate close to 2%. A drop in
interest rates that would be projected even below this lower limit could take,
indeed, the meaning of an economic policy intervention indirectly supporting
the credit and the conjuncture. That is, in this case the monetary policy would
tend to overlap with the fiscal support policy aimed to contrast the economic
crisis [28].
As already said, the economic conjuncture with its growing rhythms is not a
character of the stable economy but is a tool to correct the instability of
economic systems. If the correction process would take place at its own
natural pace, we should see a gradual return to a stable steady growth of the
sustainable economy.
The problem, however, is complicated by the delays suffered by the corrective

motion, so that the anomalies imposed by the instability sub-world are
multiplied. As in the case of the tendency to deflation, which is not recognized as
a sign of a malaise calling for a recession, although it’s a symptom of adjustment
and pause of the exhausted system. Instead, it’s prevailing the urgency to avoid
the social troubles created by the recession and therefore to support the
economic policy, which would act as a sort of crutch for the economic cycle.
Mistaking signals, such as deflation, understood as instruments of the
expected recession (though deflation is and remains just a signal) is the
cause of an activism of monetary policy, which contrasts with the actual
nature of an intervention made on the money behavior.
54
But money is a “transparent body” in the economy running. It participates to

the economic affair just as a handmaid, and it is a symbol easing the
economic activity course. If the monetary policy moves so much to finally
interfere with the functioning of the economy mechanism, then we have the
basic conditions on which could start a speculative crisis and the development
of its irresponsible paradigm.
3.2 The Paradox of the Ultra-Accommodating Monetary Policy
Well, since the money is a “transparent” instrument of the economic affair, it

shouldn’t in any case enter as a protagonist in the competition, especially
when the tendency towards deflation is accompanied by an economy in
recession.
It seems reasonable to believe that the tensions started inside the markets
when the tendency to deflation becomes stronger, may represent a
motivation for the Central Banks to ratify a progressive decline in the main
reference rates, until they reach and even go below the base rate of 2 %. In
this case, as already mentioned, the distance separating the zero from the
basic equilibrium rate is occupied by the background noise created by the
economic activity. We are therefore within a border area, in which there isn’t
a real price movement but only a sort of resonance produced just by the
economic motion [29].
It follows that should the monetary policy decides to proceed beyond this
border and to lower the reference rates to almost zero, the action of the
Central Banks would lose its function as market regulator and balancer and
then would enter into an unknown territory.
The attempt it’s quite obvious is to support the weakness of prices, on the
assumption that the money cost drop, even to the point of becoming
negative, could in some way emphasize and reinvigorate prices. However,
this is an attempt relying on the idea that we can challenge the image
instead of the real subject, that is, that we could directly attack the exhausting
deflation by balancing it with a progressive decline in the money cost.
As already said, the deflation is a symptom of the economy malaise and not its
cause. On the other hand, it’s certainly no accident that the evil symptom, the
image of the economy instability, is reflected precisely in the currency which, as
we said, is in turn the image of the economy affair. An image in which all its
anomalies are reflected, without being part in any way of the continuous
motionof the economic system.
It follows that the interest rate fight against deflation can be a weak weapon;
therefore, we cannot expect any real advantage from this défaillance of the
money cost. But not only that. Because an extremely low money cost is an
alteration of the market rules, which can occur only if the conditions for a
liquidity excess had been created and there would be therefore a strong
55
willingness to credit and indebtedness. In other words, it would be the market

conditions, with a great liquidity availability and debt readiness, the basis on
which the conditions are created for a further drop of the key interest rates
adopted by the Central Banks.
It would somehow seem that what is facilitating the decline in key interest
rates, are not only the values of the balance base rate, but also and above all
the market condition, which draws on the large liquidity excess and credit
availability to make credible the operation. In other words, the market shows
that it’s hungry for more liquidity and new credit to revive the weak economy
and the lethargic prices. A sort of strategy to support the hypothesis that an
aid at the level of money cost, could achieve the expected result for the
economy recovery.Now it seems clear that, in these conditions, any successful
possibility would beunlikely.
However, it’s necessary to distinguish. Because the forcing of a pro-cyclical

monetary policy may not simply give the expected effects in terms of rising
economic cycle and inflation recovery. But it could also start a sick
development, inconsistent on the real level of the economy. In other words,
two outcomes can be presumed for an endless drop in the key interest rates
of the Central Banks. The simplest and less alarming is an inconsistent
response, in the sense of a stagnant inflation even after a temporary rise.
Equally on the economic side that could maybe avoid a tightening of the
declining economic cycle.
The second outcome is more intriguing. In fact, the market’s response to a

further decrease in the money cost may meanwhile have the effect to
revitalize the stock exchanges, which applaud to the new credit and
speculation possibilities offered by the ultra-accommodating monetary policy.
Let us note that the decision not to allow other maneuvers on interest rates,
which are already low, may cause a negative market reaction and a sharp fall
in stock market prices. This reaction is certainly not positive because it
testifies that the development circuit is distorted and relies on the liquidity
availability and on credit opportunities. In other words, we are facing a market
blocked in almost recessive conditions.
Under these conditions now, subsidizing the already excited market with
monetary policy instruments can only mean that poor growth and weak prices
are in any case linked to the ultra-accommodating conditions of monetary
poli-cy. It follows that even this minimal trend cannot be maintained over time.
However, we should also consider that the natural corrective system always
remains in search of a way to put the economy again into the stability and
sustainability area. From this point of view, we should admit that any
downward pressure on the key reference rates of the Central Banks doesn’t
seem able to reduce and contain the system instability and, at best, it can only
prolong the status quo.
56
Therefore, it’s quite evident that the correction system remains in search of
balance, even if the reaction times would be long or probably very long.
However, staying within the positive hypothesis, the system’s reaction to a
possible new downward correction of interest rates will be most probably
bland or inconsistent. In this case, we could have a prolonged instability of
economic system that, moreover, would be facing the economy weak growth and
the tired prices.
The problems can get complicated, by the way, if the economy thermometer
marks an expected, though unlikely, revival of the economic cycle. We cannot
hope for a positive final result, because the unstable state of the economic
system doesn’t allow this hypothesis to get real. Therefore, if we have an
improvement in the economic climate, it may not be good news. In the
instability sub-world, it’s not expected a vibrant economic cycle, because the
goal is the gradual fall into recession in order to recover the stability natural
state. Therefore, we have to think that the new unexpected vivacity is just how
the sub-world expresses its search for a way out of protracted instability.
The symptoms of this new reality, no longer positive, are therefore not only a
renewed apparent strength of the economy, but also an intensification of the
market dependence on aid requested from politics with increasing intensity.
As already said, the dark side of monetary policy, in the shadow of deflation, is
given by the danger represented by the decline in interest rates, especially if
they go next to lowest until zero level. In this perspective, the disincentive to
credit anddebt created by the deflation fear is annihilated (Fig. 4).
With the cost of money falling to the minimum and approaching the zero lev el,
become stronger the temptation to increase the debt position in order to
participate in the apparent market upturn. The result of this injection of
confidence in the prospects is a gradual increase in the market tension,
which shows a sort of discontinuity. In the sense that the dynamic deriving
from speculative tension doesn’t spread in all directions but focuses only in
some large sectors. During the previous speculative crisis, in the second half
of the last decade, the Real Estate sector was the environment in which the
worst financial crisis since ‘29 was smoldered and developed.
Now, in the case of a tendency to global deflation, the growing debt

phenomenon can spread if all the conditions promoting growth are aligned,
that is when the reference rates of the Central Banks are unnaturally low.
We are not yet at the irreversible start of the speculation-financial crisis

paradigm. Because in the absence of new interventions, the brief blaze will
die out and the development potential will be reduced [30-32]. The problem
becomes more pressing if the tension created by the improper relationship
between the market and the low money cost, doesn’t decrease. It’s
interesting to note that even in similar circumstances of market tension, the
deflation continues to be soft; we can note just a brief accentuation of the
cost of living, which anyway does not exceed 2% - 2.5%. At the same time,
57
the great tension developed in those sectors subject to speculation doesn’t

seem capable to push the general growth of the economy, which remains
medium-low (Fig. 5).
We can imagine a sort of no-return point, beyond which the speculative

mechanism can go on, then proceeding until the end of the financial crisis. In
other words, it can be argued that even the speculative emphasis may fall
within the context of the actions available to the correction mechanism, which
is looking for a way to rectify the unstable system deviated path. As to say that if
should fail all other ways to put back on track the unstable system, there would
be no other option but to initiate the speculation-financial crisis paradigm. An
extreme resource with effects so disruptive that, precisely because of these
terrible effects, we must imagine that the economic system would always
dispose of some alternative exits to avoid the implosion.
Fig. 4. Debt in percentage of GDP for China and for some advanced
countries
3.3 Escape Ways Are Possible. It Might Be Better to Go Unarmed to

the Appointment with Deflation
Beware, however, to no-return threshold. At that point, the instruments of

financial and monetary policy become just useless tools. The story is now
driven by the “black hole” of the imminent financial crisis. So imminent yet totally
unexpected. Institutions and companies are attracted by the speculative vortex
58
that drives forward the quotations in the sector pushed by speculation. A sort of
dreamlike indolence takes the operators, who seem somehow fascinated by the
vortex created by virtual motion. So much virtual that it will be destroyed by the
upcoming financial crisis.
Fig. 5. Inflation and GDP for quarter at the dawn of 2008-2013 financial
crisis
Source: Elaborations on OECD data
But if we aren’t at the point of no-return, each option obviously remains open and
available. Because the problem is that the forming speculation vortex is fueled
by proactive fiscal or monetary policies, which the market is continuously
demanding to contain the economy’s pressure towards recession. And then a
limit must be imposed: there is no alternative. At least in order to prevent the
whole degrading course of speculation-speculative crisis paradigm.
The scenario of the public and private indebtedness excess finds its possibility
to grow, beyond the limits allowed by the real economy and by the capability to
honor the commitments made, in the large liquidity available and in the
parallel reduction of the money cost at historic lows. Not only: the trend can go
forward because even the expiring debt creates new debt, in a context of low
remunera tion.
On the other hand, we shouldn’t forget that the global economy is just
emerging from a very serious financial crisis, which after ten years is still
spreading its negative legacy. The current problems may also depend on the
fiscal and monetary policy choices made at the time to mitigate the
repercussions of the severe recession. We have no doubts about the results
that allowed, during the acute phase of the crisis, to reduce the serious social
damages. Nevertheless, let us not forget that the debt excess created in the
2000s with the speculation emphasis was simply transferred—at least in
part—to the future through new debts.
Like to say that the problem was only apparently solved, because the natural
correction mechanism cannot be tricked with operations, such as the cost of
money below zero or the great availability of liquidity on the market. More
59
correctly, we should talk then of postponement for the future of potential

recession,which is therefore only temporarily mitigated.
At such a stage, which resembles so much to the current scenario, it’s now
essential to close the flow of monetary policy to avoid the progress of
speculative phase. The key interest rates of the Central Banks shouldn’t fall
below the basic 2% threshold. If then this threshold has already been exceeded
downwards, every option to further cut should be excluded, while we should
consider the possibility of an upward adjustment, which would allow us to
check the market behavior. Therefore, not the instinctive and reactive
movement of the speculative market, but instead the most cautious and
reasoned action that would consider the orientation of families and
companies, in terms of trust in the near future. Now, a possible reaction of
operators and families, just moderately pessimistic on the economic side, can
be a signal that the direction taken is the right one.
We should understand that the exit from deflation is not a gift, because it
involves a cost that cannot be postponed and then should be addressed as
soon as possible. Unfortunately, the choice to favor the position of leadership
continuously in the spasmodic search for a result, to which hang up their
political consensus, might be a dramatic approach. Only in appearance and
temporarily the usual options based on the most accommodating policy can
meet the desired purpose. But the game of postponing sine die the accounts
of an indebtedness excess, which cannot find relief, unfortunately can favor the
speculative phase ingerm, because the economy world remains in deflation.
Certainly, it seems easier or even more convenient, to listen to the “siren

songs” coming from the market, also because the tension seems to fade. But
we shouldn’t fall into the trap prepared by the speculation-crisis paradigm.
Certainly not for a sort of revenge toward a natural system of extremely hard
and cruel correction, but because of that obstinate optimism leading us to
believe we can carefully act in a deteriorated landscape, such as the instability
world. That is, to believe we can bypass the conjuncture, which is a tool to
correct instability and not a sort of economic snake that we can transform into
8
a straight stick, like Abraham and Aaron in the Bible .
The idea of an economy growing according to a straight and slightly rising

movement is innate in our mind, but this could become real only if and when
the economy would finally convert to the balance and sustainability.
Nonetheless, it’s useful also to point out that the current approach aiming to
fight deflation with the cut in interest rates and the ultra-accommodative
policy, doesn’t seem to give results in terms of price weakness. On the other
hand, also the expectation of an improvement in the economic cycle has no
response, as we continue to persist with the monetary policy easing.
8
Exodus 7: 8-13.
60
We must somehow admit that there is no alternative when the economy is

struggling with deflation. We shouldn’t follow the instinct towards an easy but
non-existing solution. It shouldn’t be forgotten, however, that economic
systems show a great elasticity and are always looking at very long-time
horizons. The economy instability comes from afar. Untreated, it passed from
the long decade of great inflation to the equally long phase of deflation; a cure
that has proven inadequate. The attempt to treat inflation, which is a sign and
not the reason for the inappropriate price run, has launched us into an
apparently inverse horizon of falling prices. We cannot continue to believe
that the enemy is the image of evil and not the evil itself, that is the instability.
In the 1970s, the great global inflation was due to the attempt to live together
with inflation. But the inflated prices follow a constant acceleration that with its
progress depresses and suffocates every development. The same is true in
the case of deflation, which is also depressing and suffocating the economic
development. The remedies offered by monetary policy are all temporary and
can fuel an abnormal development of public and private debt, which are the
fire that cantrigger the speculative crisis.
Instead, we need to have confidence in the capability of communities to select

the right program for the return to a natural balance in the economy. A trust
that is well placed, indeed. Because we must admit that, if it’s true that the
global economic system is tending to stability, the keystone that is able to
bring the economy back on the right path of a rectilinear growth must
necessarily be inside the humanity itself, which is the recipient of the
resources offered by the nature.
As saying that the way that can lead back to the correct path of natural balance
in economy must be placed inside the DNA of humanity. A natural path of
equilibrium that should be perceived by the majority of people as perceptions
and sensations, which materialize in the form of implicit messages coming
from the economic and natural environment. It can therefore be admitted that
a serious, and above all sustainable, management of the economy should
meet over time the consensus of the community’s majority. Which should
therefore be willing to accept the possibility of a temporary cycle reversal in the
economy.
The singular willingness shown by the Italian electorate during the latest
decades toward welfare-based interventions, despite the very high level of
public spending and public deficit, should not be qualified as a deviation from
the natural orientation. It’s justified, in fact, by the great gap in the income and
wealthdistribution that required a revision in favor of the lower classes.
This is to say that the alterations produced by instability are translated into
increasing social tensions. Therefore, the economy management must
always take charge of these social alterations. Above all in order to make
possible the social acceptance of a period with zero or even negative growth.
So, having some mediation capability, it can be argued that a leadership could
61
meet the consensus of the community, at least from its major part, even when
it’s proposed a program requiring sacrifices and further renunciations, at least
in a first period. At the same time, envisaging a more stable world and a more
responsible economy for the tomorrow world and above all for the new human
generations.
This is a potentiality already available, it’s true. As it’s true that, in the absence of
interventions or (even worse) for other monetary and fiscal policy incentives,
become inevitable the slow formation of the speculation-financial crisis paradigm.
At the same time, it must be presumed that an escape from the growing trouble
of the deviated market, therefore, would always be possible.
Certainly, against this courageous and virtuous behavior, there are the never
dead hopes that it would always be possible to make some actions against
the recession with some success, even in the case of deflation and weakened
economy. Moreover, the monetary policy adjustments over time are no
longer virtuous. Indeed, they can be somewhat misleading, because the
advantages are temporary and unequal. And, above all, they are unable to
deal in any way with the danger of instability, which in fact may be
ambiguously hidden to reappear soon, then accentuating the tendency of
deflationary prices and weak economy.
Therefore, the problem is not about the escape from a recession that now follows
the destiny of the global economy; but above all there shouldn’t be any
doubt about the capability of a community to perceive over time the correct
direction in the economy management, in line with the balanced and sustainable
growth.
4. CONCLUSIONS
The economy of sustainability can be represented as a methodology to make a

connection between the real economy and the environment affecting the
economic activity and the life of human beings. Sustainability cannot be
definedonly as the relationship between the use of the planet’s resources and the
natural potential for their recovery. Because, if we admit that this relationship
balance is essential and has conditioned the long history of humanity over
the millennia, then we have to ask ourselves: How and to what extent?
We can then accept that the sustainability economy is dominated by a physical

law, just like all the laws governing the universe motion and, in the same way,
assuring the life development on our planet. A law is apparently simple at
least in its formulation, but complex indeed in its practical execution. As already
mentioned, it’s the stability trend of economic systems which more or less
postulate the human survival through the preservation over time of the
resources made available for the whole life on the Earth, not just for the
humankind. Now this rule, to be practiced, postulates that there are tools with the
mere task of maintaining the balance between resources and their use.
62
As saying that there are tools to discipline the behavior of human beings in
the economic environment: these tools are giving messages and news on the
possible deviation from the balanced state of the economy, both locally or
globally. The first tool that humanity has at its disposal, in order to stay on the
almost balanced level of sustainability, is inside the human nature itself. The
enormous neverending curiosity that has always led humanity to investigate and
to study the nature around us, is the main instrument of the equipment that
oversees the sustainability balance maintenance. We can presume that
studying the mother Earth and her complexity and completeness, is therefore
the best requisite to approach the innate predatory and selfish logic to the
growing acknowledgment of the compatible use of natural resources,
compatible use whichis an advantage but also a reward, indeed.
Therefore, the science is increasingly the main driving force of the tendency to
stability and the main mediator in the relationship between humankind and
creation. This is obviously a relationship progressing over time and inevitably
following the long times typical of the evolution of nature and its laws.
Nevertheless, these long times are inexorable and will allow us to tighten the
relationship between the human evolution and the nature supporting its
development.
Of course, this relationship between science and nature is an expanding force,

which has not yet the governance power and above all don’t have
predominance in the past. Therefore, it’s clear that, during the long time of life
on the planet, the tendency to stability has found the strength to promote and
direct the development, over time, in a balanced form through the market’s
own behaviors.
The first message coming from the market is double: the constant and long-term
development that rewards the balanced growth conditions and, on the contrary,
the uncertain and unstable growth weakness of those systems that have derailed
from the sustainability path. It’s singular that the economic science, which could
be the board on which the human knowledge moves in sync, seems in practice to
be delayed on the path of the correct relationship between economy and nature.
A problem that seems to lay in the inexhaustible presumption of the ruling

classes in the economy management about the possession of the tools able to
keep the economy constantly growing. A claim that overlooks the fact that the
economy is able to follow a path of constant and growing development, provided
that it doesn’t deviate from the line of stability and natural sustainability. In other
words, to obtain the reward of a constant and linear growth, we need to follow the
relationship linking mankind and nature.
On the other hand, it seems the “Wizard of Oz” whoever would try to revive the
exhausted economy, because so many errors were made in the common good
management. But there’s no magic at all. Because, although responsible for the
economy poor performance, we are trying to revitalize the market, but without
first trying to right the ship of the unstable economy, which therefore risks the bad
63
waves of uncertainty and instability. Actually, the economy weakness is due to

the fact that the economic system travels inside the instability sub-world and the
conjuncture waves are the clearest symptom of the mistakes made in the
economy management.
Insisting in the attempt to promote an improvement to obtain the expected

results, however, could mean the postponement to the future of the natural
corrective mechanism, which sooner or later will emerge despite fiscal or
monetary policy maneuvers. The problem is that the tension toward stability is
like a rubber band that can be pulled even for a long time but up to a certain limit.
This indicates that the relationship between humankind and nature certainly
tends to stability. However, this relation admits a reasonable degree of elasticity
to compensate the movements created during the mutual relationship. This
elastic relationship allows a partial dissymmetry between the nature evolution
and the somehow rough path of the economic and social history of humanity.
Now this tolerance cannot be misinterpreted to the point of believing that we can
force the relationship terms. More reasonable, instead, it’s to argue that the
possibility of a deviation is also contemplating the need, at some unspecified but
not endless time, to simply go backwards in order to return on a sustainable path.
As saying that the road bringing the economy back to balance is not free of
charge. And the charge is paid in the case of inflation, with the accelerated
nominal prices forcing over time to worsen the alteration of the economic cycle.
Following these reflections, we could believe that the time plays an essential role
in the relationship between humanity and the environment around us. In the
sense that we can imagine a continuous adjustment of the relationship, mediated
by the science and perceived as a sort of catalyst solving the difficulties of the
relationship. This means that over time we can expect a greater social balance,
with the achievements resulting from a growing care towards the sustainable use
of natural resources.
From the sustainability economy point of view, it must be said that the face to
face struggle with the sinuous economic cycle may not make sense. In fact, the
appearance of the economic cycle is due to the economic system fall into the
instability sub-world. In this different context, the transformation of the stability
constant cycle into the instability sinuous cycle is due to the recession arrival in
the economic horizon. The recession would be nothing, but the correction tool
adopted by the economic system to try to correct the economy management
errors, responsible for the instability.
Therefore, it’s just a cure adopted by the natural correction mechanism to re-
store balance. Then, blocking or braking and altering the cycle direction wouldn’t
seem an appropriate choice. It must be said that fiscal and monetary policy
maneuvers could weaken the cycle and delay the cycle adverse wave, so giving
the feeling that we are able to control the economic conjuncture evolution. It’s
probably a short-sighted vision, because we can only transfer to an unspecified
64
future the inevitable choice to re-establish the links with the sustainable economy
path.
According to this point of view, even more singular would seem the choice to
fight against the nominal price movements. Both inflation and deflation are like
ectoplasms awakened because of the economic instability and are neutral about
the economy’s motion. It is rather the economy’s cycle that badly changes and
accelerates due to the instability permanence, which is the cause altering the
economy. It is only apparently that the course of nominal prices would affect the
economy movement, while it is the cycle deterioration that changes the market
trends and expectations.
In practice, both inflation and deflation are just messages that the system offers
to the community to make us aware about the distance degree that separates us
from the economic balance. It is consequently a formal deviation, without effects
on the economic context, except what comes from the mere alteration of nominal
values. Just a malaise signal and not a malaise itself. A disease fever and not a
disease.
Now it’s clear that being unaware messengers of the unstable condition, families
and companies would change their expectations towards the market and would
act accordingly even anticipating some economy’s complaints. Thus, it’s
achieved a sort of convergence of the operators’ intentions that anticipates or at
least follows the diverging tension of the conjuncture. This is how is produced the
“optical” sensation that the movement in nominal prices is the cause of the
economic malaise. But this is just a sort of mirage which doesn’t alter the basic
issue. Both inflation and deflation are messengers without any power on the
basic economic motion and they give signals to the community in order to under-
stand that we are walking inside the instability sub-world and not inside the
stability world.
Because of their nature as instability ectoplasms, we can also say that the fight
against the actions of nominal prices may not make sense. That is, it might
make sense only if we realize that the true objective is the economy state and
the conjuncture trends and, above all, that we are inside the instability sub-
world. And in this instability sub-world the real enemy is not the nominal prices
or the con-juncture destiny, but the deviation from the sustainability path.
COMPETING INTERESTS
Author has declared that no competing interests exist.
REFERENCES
1. Geithner TF. Stress Test: Reflections on Financial Crises. Published May

5th, 2015 by Broadway Books Paperback. 592. ISBN: 0804138613
2. Friedman M, Savage L, Becker G. On economics; Selected Papers -
University of Chicago Press Journals. 2008;198.
65
3. Kindleberger CP. The World in Depression: 1929-1939. (History of the

World Economy in the Twentieth Century, Berkeley and Los Angeles:
University of California Press. 1973;4:336.
DOI: https://doi.org/10.2307/3112872
4. Lindberg, L. N.; Maier, S.; Barry, B. - The Politics of inflation and economic
stagnation: theoretical approaches and international case studies-
Washington, D.C.: Brookings Institution. 1985;xviii:612.
5. Mirrlees JA. Welfare, Incentives, and Taxation. Oxford University Press.
2006:584.
6. Temin P. Lessons from the Great Depression. The MIT Press –
Cambridge – Massachusetts, – Paperback ISBN: 9780262700443,
1989;211.
7. Washpot N. KEYNES - HAYEK. The Clash that Defined Modern
Economics – New York: W.W. Norton & Company. 2011:400 ISBN
9780393083118
8. Zhao X, Mahendran M, Ma X, Rao A, Shang Y. Impacts of environmental
regulations on green economic growth in China: New guidelines regarding
renewable energy and energy efficiency. Renewable Energy. 2022;
187:728-42.
9. Shilling AG. Deflation. How survive and thrive in coming wave of deflation.
McGraw-Hill Education; Reprint Edition. 2001;342.
10. Roach SS. The next Asia. Opportunities and challenges for a new
globalization – John Wiley & Sons Inc. 2009;432.
11. Kane, Gordon L, Malcolm J. Perry, e Anna N. Zykov, "The Beginning of
the End of the Anthropic Principle". (arxiv.org)
12. Money and Market - Volcker, Bernanke, Greenspan, Yellen Beg for Fed
Independence https://moneyandmarkets.com/paul-volcker-ben-bernanke-
alan-greenspan-janet-yellen-federal-reserve/
13. Schumpeter J. - Business Cycles: A theoretical, historical and statistical
analysis of the Capitalist Process. New York Toronto London: McGraw-
Hill Book Company; 1939.
14. Stiglitz JE. The EURO. How the common money threatens the future of
Europe. W W Norton & Co Inc; Updated edition. 2017;459:ISBN-10:
0393354105
15. OECD - OECD Stat Database, various years
16. IMF - International Financial Statistics - Database, various years
17. IMF - World Economic Outlook Update, July 2018
18. European Central Bank - Press Conference. Mario Draghi, President of
the ECB; Luis de Guindos, Vice-President of the EC. Riga; 2018.
19. Office of Medio banca Studies -Cumulative Data of the Main International
Banks; 2018.
20. Bernanke BS. Essays on the Great Depression. Princeton University
Press – Princeton, New Jersey, January 2000 - ISBN: 9781400820276
21. Raines JP, Leathers CG. Debt, Innovation and Deflation: The Theories of
Veblen, Fisher, Schumpeter and Minsky. Edward Elgar, Massachusetts;
2008.
22. Krugman PR. The return of depression economics and the crisis 2008.
W.W. Norton & Company, Inc. New York; 2009.
66
23. Inquiry Report. The Financial Crisis: Final Report Of The National
Commission on the causes of the financial and economic crisis in the
United States – Official Edition; 2011
24. Reinhart C, Rogoff KS. The Time Is Different – Eight Centuries of
Financial Folly. Princeton, New Jersey: Princeton University Press; 2009.
DOI: 10.2307/j.ctvcm4gqx
25. Roubini N, Mihm, Stephen - Crisis Economics: A crash Course in the
Future of Finance – Penguin Press HC, The; 2010.
26. Cargill TF, Hutchison M, Tadayoshi, Ito - The political Economy in
Japanese Monetary Policy”. The MIT Press; First Edition (August 8, 1997)
ISBN-10: 0262032473
27. Sargent TJ. The Ends of Four Big Inflation. in Inflation: Causes and
Effects. Robert E. Hall. Published in by University of Chicago Press.
1982:41 – 98.
Available:http://www.nber.org/books/hall82-1
28. Cardoso, E. - Inflation and Poverty. in NBER Working Paper # 4006, year
1992 National Bureau of Economic Research 1050 Massachusetts
Avenue Cambridge, March 1992.
Available: https://www.nber.org/papers/w4006.pdf
Cossiga GA. Stability and Instability of an Economic System:
Considerations. Review of European Studies. 2017;9(3). Cossiga GA.
The Search for Inflation on a Constant Basis at 2%. International Journal
of Science, Social Sciences. 2018lX(X),
29. Cossiga GA Signals from the World of Economics. The Price Constant
and the Democratic Issue. International Journal of Social and
Administrative Sciences. 2018;3(1):1-21,
30. Cossiga GA. A New financial crisis could start again from the USA -
Advances in Social Sciences Research Journal. 2018;5(11).
DOI:10.22158/jar.v3n2p162
31. Cossiga GA. The Instability of Economic System and the Errors in
Economics Journal of Asian Research. 2019;3(2):162.
DOI:10.22158/jar.v3n2p162
32. Dornbusch, Fischer -Moderate Inflation. World Bank Economic Review.
1993;7(1):1-44.
67
Giovanni Antonio Cossiga

Università Sapienza, Rome, Italy.
He was born in the province of Frosinone and lived in ROME from an early age, he followed the classical
studies course and graduated from the "Sapienza" University of Rome in Economics and Management.
He started working at the Ministry of Posts and then moved on to the Ministry of Economy. Having
become a manager, he held various positions of management of offices with auditing duties. For a brief
interlude he was interested in union problems and held representation positions. Appointed general
manager he was for over ten years at the Presidency of the Italian Republic. He has held positions at
institutions and universities, among which we recall the Presidency of the auditors of the Policlinic
Umberto I - "Sapienza" University of Rome and of the "Teatro alla Scala of Milan". He is a member of the
Order of Journalists and is an Official Auditor. The passion for the Economy has matured over the years,
especially deepening the issues of sustainability. He has published in international journals such as TEL
(Theoretical Economics Letters), Review of European Studies, Applied Economics and Finance, and so
on, many publications on the subject of "Sustainability in the Economy" which are partly summarized
online - at the following link: https://www.researchgate.net/scientific-contributions/Giovanni-Antonio-
Cossiga-2084250762
___________________________________________________________________________________
DISCLAIMER
This chapter is an extended version of the article published by the same author(s) in the following journal.
Theoretical Economics Letters, 9: 3034-3064, 2019.
68
Chapter 3
Determining Personality Traits,

Organizational Commitment and Self-
Efficacy of Saving and Credit
Co-operative Societies (SACCOS)
Employees of Kathmandu, Nepal
Dess Mardan Basnet a*, Mahima Birla b*

and Murari Prasad Regmi c
DOI: 10.9734/bpi/ctbef/v3/9658F
ABSTRACT
This chapter is about the study of the Saving and Credit Co-operative Societies
(SACCOS) employees’ personality traits, self-efficacy, and organizational
commitment of Kathmandu district. The five-factor Mini-IPIP personality model
was employed by the researchers. The 20-item short form of the 50-item IPIP-
FFM makes up the scale. Employee agreeableness, conscientiousness,
emotional stability, extraversion, and intellect have been measured using the Big
Five personality traits. The affective, normative, and continuance commitment of
the employee are assessed using the organizational commitment scale. No one
could have imagined the current digital world without the contribution of the
employees, who represent human capital. The Self-efficacy scale is used to
identify employees' confident beliefs in their ability to handle a range of stressful
situations effectively. There are 260 workers in the total sample size (127 men
and 133 women). The samples were only taken from the district of Kathmandu's
sixty-three SACCOS. This study uncovers the connections between the
personality traits, commitment, and self-efficacy of SACCOS employees in order
to effectively manage their behavior for an organization's overall productivity.
Keywords: Personality traits; self-efficacy; affective; normative and continuance;

employees.
1. INTRODUCTION
The term "co-operative," which comes from a social enterprise or community-
based organization, refers to an organization that works to meet the needs and
________________________________________________________________________
a
Nepal Open University (NOU), Lalitpur, Nepal.
b
Pacific Academy of Higher Education and Research University, Udaipur, India.
c
Central Department of Psychology, Tribhuvan University, Kirtipur, Kathmandu, Nepal.
*Corresponding author: E-mail: dmbasnet@worldwithoutanger.org;
Determining Personality Traits, Organizational Commitment and Self-Efficacy of Saving and Credit Co-
operative Societies (SACCOS) Employees of Kathmandu, Nepal
aspirations of its members on an economic, social, and cultural level through a

business that is jointly owned and democratically run.
It demonstrates that cooperative societies help to improve the living standards,

and quality of life, along with good educational outcomes for their children in the
semi-urban and rural areas and improve the living standards of low-income and
marginalized groups in Nepalese societies. There are about 6,030,857
cooperative members and 56,475 employees with more than 34,500 Co-
operative institutions (Co-operative Statistics, 2016, p. 7), involving in operation
successfully.
In human resource behavior, personality traits, organizational commitment and

self-efficacy are widely studied topics in numerous disciplines, but they pose a
deep concern in organizational psychology. Personality traits have significant role
in the testing in employee’s selection and implementing various personality
assessments in the workplace [1]. The concept of commitment in the workplace
is still one of the most challenging and researched concepts in the fields of
management, organizational behavior and HRM. A great deal of research has
been devoted to studying the antecedents and outcomes of commitment in the
work setting. The conceptual and operational development of organizational
commitment has affected the conceptualization and measurement of other
commitment forms such as commitment to the occupation, the job, the
workgroup, the union and the work itself [2-4]. This study is helpful to explore the
knowledge about links with many employees’ behaviors and attitudes that may
influence the organization like “Big Five” which means five personality traits:
agreeableness, conscientiousness, emotional stability, extraversion and intellect
that serve as the focus for personal characteristics [5], absenteeism [6], turnover
[7,8], and organizational citizenship behavior [9] and job satisfaction [10]. Carl
Gustav Jung (1926-1994) [11] believes the self as an archetype propelled men to
search for unity, harmony, and wholeness among all elements of the personality.
He gave a start for the studies about personality types and models. Goldberg’s
list of the best measure of personality trait being used as Big Five, originally
consisting of 100 items (Big Five Factor Markers); or the 20-item Mini-IPIP
inventory being used short version of the 50-item questionnaire for scaling the
Big Five Personality Traits [12]. The 20-item Mini-IPIP is derived from
International Personality Item Pool (IPIP). Lawrence describes that personality
refers to the pattern of behaviors consistently exhibited by an individual. This
study explores the personality traits and their relationship with self-efficacy and
organizational commitment in SACCOS’s employees. The study also explores
the relationships with the inter co-relationships among the personality traits.
Gelade, Dobson, and Gilbert [13] have examined organizational commitment in a
sample of 49 countries. Affective commitment (AC) varies significantly by
country, and it is strongly related to the dimensions of personality. AC is high in
countries where the population is extravert and low in the countries where the
population is neurotic. Extraversion is a personality trait associated with the
positive effect, correlated (0.22) with organizational commitment and emotional
stability.
70
Personality shows the individual differences in characteristic patterns of thinking,

feeling and behaving. A galaxy of personality traits are needed for the success in
the context of job. The traits are self-awareness, resilience, motivation,
interpersonal sensitivity, influence, decisiveness and integrity. According to
Church [14] traits are comparatively stable in individual differences in thoughts,
feelings and behaviors. Personality has central role in this research. Its accuracy
of measurement depends on the selection of empirically reliable tools. Effective
management of emotion is the key part of emotional intelligence. An employee
should understand emotional messages in the regulation process of emotions
and one’s own and others’ emotions. This model combines emotional self-
perceptions and emotional traits describe person’s own traits. This model of
emotional intelligence can only be viewed in conjunction with a comprehensive
exploration of person’s personality. The Mini-IPIP personality scale was
developed as a 20-item short form of the 50-item IPIP-FFM. The noted
psychologist, like Goldberg pioneered the researches in IPIP Big Five.
Allen and Meyer [15,16] define that organizational commitment as a

“psychological link between the employee and his or her organization makes it
less likely that the employee will voluntarily leave the organization.
Organizational commitment is not only a significant factor in human resource
management but also a widely studied topic, and a deep concern in
organizational psychology due to its connection with many employees’ behaviors
and attitudes. Numerous definitions of the organizational commitment state that
all commitments are like a psychological state that describes an employee’s
relationship with organization and a tendency to continue the relationship with the
organization [17]. The loyal and committed employees of an organization create
values, dedication and strong belief among the team members. The employees
have commitment to foundational roles to achieve the specific organizational
goals. The organizational commitment exists in the three types of the
commitment in organization. Meyer and Allen furthermore, have developed a
three-dimensional model encompassing affective, normative, and continuance
commitment. Affective commitment defined by Meyer and Allen, as the
“emotional affection to an organization; a strong belief in and reception of the
organizations’ goals and values which result in willingness to exercise most
favorable effort to attain the organizational goals”. Normative commitment is “an
employee’s feeling of compulsion to carry on working for an organization”. The
third component, continuance commitment refers to “the longing to continue
membership in an organization for the fright of forfeiting values as rewards”.
Bandura [18-20] defines the self-efficacy as a personal belief, that influences

one’s behavior, way of thinking and emotional reactions in a difficult situation. He
further states that theories and researches of self-efficacy create a difference in
how people feel, think, and act. In terms of feeling, a low sense of self-efficacy is
associated with depression, anxiety, and helplessness. Luszczynska, &
Schwarzer [21] describe that self-efficacy affects every area of human endeavor.
Gungor, Kurt, and Ekici [22], explain that personality factors have an effect on
personal traits of the students. Some qualitative studies define that there is a
relationship between personality types and sense of expression of the
71
respondents’ efficacy. [23] found positive self-efficacy in employees because of

the availability of resources and high levels of self-efficacy in employees.
Similarly [24] describes entrepreneurs and employees are often more engaged,
motivated and, consequently, successful in their tasks due to the high levels of
self-efficacy and sufficient amount of resources in the organization. Kossowska,
and Laguna [25] found that the result of hierarchical regression analyses have
shown conscientiousness, skill variety and self-efficacy are statistically significant
predictors of volunteer non-profit organization of Poland.
Recently, Farrukh, Ying, and Mansori [26] have expressed that extroversion,
agreeableness, and conscientiousness are positively associated to affective
commitment and openness or intellect and emotional stability are negatively
linked with affective commitment. Farruk et al. [27] have found that emotional
stability negatively correlated with continuance commitment. Likewise, there was
no relationship between continuance commitment with conscientiousness and
openness personality trait. Furthermore, extraversion, and agreeableness were
found to be negatively associated to continuance commitment. The previous
study of Basnet (2019b) has reported similar result as emotional stability is
negatively correlated with affective commitment. Similarly, agreeableness,
conscientiousness, and intellect trait are highly correlated to affective
commitment. These results showed that personality traits as a whole are
significantly associated with organizational commitment. Agreeableness trait is
the strongest predictor of both affective and continuance commitment.
Agreeableness trait is especially relevant to predict employees’ outcomes which
are subject to strong interpersonal or social relationships. Such outcomes are
vital for the survival of more and more employees’, group and for their
organizational effectiveness.
Some personality traits either positively or negatively correlated with the

organizational commitments and self-efficacy. This study also examines the
impact of personality on the self-efficacy of the SACCOS employees. This
research analyses the differences between male and female of SACCOS’s
employees. The personality traits are consistent and durable of an individual who
makes him or her different from each other. The loyal and committed employees
are able to exhibit values, dedication and strong beliefs among the fellow workers
at workplace.
2. REVIEW OF THE LITERATURE
Many literature reviews have discussed the various dimensions about the
personality traits but still the five-factor model (FFM) is the most prominent model
to assess human behavior in workplace in anytime, place, and culture. FFM
consists of five factors such as extraversion (sociable vs. introverted)
agreeableness (cooperative vs. competitive), emotional stability (emotional
stability vs. instability) openness (intellectual curiosity vs. preference for routine),
and conscientiousness (organized vs. careless) personality trait.
72
The “Five Factor Theory” has developed by Norman [27]. Goldberg, McCrae and,
John [28] have conceptualized that FFM was one of the best tools to assess the
employees personality traits, but FFM is actually first introduced by the noted
scholar Thurstone. McCrae, and Costa have said that the personality traits are
dimension of individual differences in tendencies to demonstrate consistent
patterns of thoughts, feelings, and actions”. The Big Five personality traits are
five broad domains that used to describe personality of Nepali Civil Servant
Employees [29]. FFM has been developed into one of the most established
avenues extensively that elaborate the most significant factors of individuals’
personality. People’s cognitive, affective, and motor responses are important to
the organizational change determined by their personalities.
The extraversion trait indicates individuals’ tendency to be socially more active,

and reactive as they develop more social networks compared to those who are
low in this dimension [30,31]. The previous empirical studies recognized that
higher levels of interaction pose the frequency and scope of using more
networking behaviors [32]. Therefore, individuals who score high in extraversion
are expected to establish high in social networks with other organizations [33].
John, and Srivastava [5] have explained that the degree, to which an individual is
tense, means their worries are more than others and they tend to be moody.
Many past studies have showed employees scoring high in emotional stability
are highly motivated by and attracted to their hygiene factors, such as job
security, benefits, pay, work conditions [34]. Becker [35] has already explained
that employees’ remuneration, specific skills, work security, and work friends are
helpful fundamental reasoning for continuing their job. If they made a decision to
quit their existing job, all of these will be sacrificed including their previous work
background, hard work, and experiences. Thus, it creates a positive relationship
between neurotic tendency, and continuance commitment. Erdheim et al. [30]
have viewed that neurotic experience of higher anxiety about facing a new work
environment that leads to harsher experiences when negative events exhibit in
their jobs.
In Nepal, researches in personality psychology were pioneered by M.P. Regmi

[36-38]. FFM has been practicing in various organizational programs such as
emotional intelligence, selection, and recruitment, and performance. Personality
traits help to develop people’s characteristic patterns of feelings, thoughts, and
behaviors defined as psychological aspects. Personality traits become one of the
main factors that affect human behavior due to the impact on controlling the
people’s reaction to bring changes in the organization. People’s behaviors, as
well as cognitive and affective responses to the organization are determined by
their modification in their personalities.
According to Ying, and Ahmad, personality traits are associated to link with
employees’ attitude within the organization. The personality factors of employees
were tested during their recruitment and practicing of the various assessments or
roles in the organizations. The personality dimensions are used to assess in the
organizational development and applied in the multiple levels of analysis, beside
that human resource practices are commonly used as an individual variable. The
73
interesting fact was found in an empirical study by Spagnoli, and Caetano [39].
The trait of the extraversion was correlated positively to the normative,
continuance, and affective commitment. Thus, the personality factors of
openness to experience, Emotional stability, and conscientiousness are
significantly correlated to the continuance, while commitment and agreeableness
are significantly related to the normative commitment. Meanwhile, a study
identified by Tziner et al. [40] have found positive strong relationship with the
conscientiousness, agreeableness, and openness to experience are significant
and positively related to organizational commitment.
Choi, Oh, and Colbert [41] observes the relationships between the Five-factor
model (FFM) of personality traits and three forms of organizational commitment
(affective, normative, and continuance) and their variability across individualistic
and collectivistic cultures. All FFM traits have positive relationships with affective
commitment, and normative commitment. The traits of emotional stability,
extraversion, and openness to experiences have negative relationships with
continuance commitment. In particular, affective, and normative commitment
have strongly related to agreeableness trait.
Subedi [29] explains that the trait of emotional stability in the Big Five personality
dimensions showed significant differences between the two ranks of the officer
level (M = 61.33, SD = 9.787) and the non-officer level (M = 69.99, SD =12.170),
t (298) = 6.79, p ≤ 0.001. He further indicates that the emotional stability level of
non-officer is higher than that of the officer level. His further study has identified
that except for the emotional stability trait, all the other personality traits found
higher mean scores for non-officers than officers. The results of this study are
helpful to relate the Nepalese SACCOS employees for further investigation of the
researchers. Subedi [29] observes that there is a relationship between Big Five
personality traits and job satisfaction of the Nepalese Civil Servants, where the
beta coefficient was positive (p = 0.021 < 0.05), is significant at 0.05 level.
Farrukh, Ying, and Mansor [26] have found extraversion, emotional stability,
conscientiousness, intellect, and agreeableness show significant effect on
employees’ job satisfaction. The above studies of job satisfaction with big five
personality traits exhibit similar results. Stewart, and Nandkeolyar [42] state that
employees, with a greater degree of openness deserve opportunities to deal with
uncertain situations and to learn new beliefs, are likely to achieve higher job
efficiency. Ganu, and Kogutu [43] studies are more insightful into the degree to
which these personality traits are correlated with job satisfaction and
organizational commitment in the healthcare industry. Donnellan et al. [12]
observe that the Mini-IPIP Scale in the various series of studies have shown
acceptable reliability and facilitate similar constructs of relationships. Mini-IPIP
scale is developed from the Big Five Factors of Personality Traits have to meet
the time constraints and short assessments. Michaud [44] defines that the
individual’s personality traits indicated by an employee who perceived the
aspects of the work that determined employee’s response to the situation in the
organizational settings.
74
The concept of self-efficacy was pioneered by Albert Bandura in early 1977. It

refers to one’s perceived capabilities to execute the courses of action, with
emphasis placed on performing skills rather than possessing skills, to achieve a
given mission. Hellervik et al. have noted effectively that to achieve a mission for
better use of various kinds of skills and acquire a belief in self-efficacy theory.
Bandura [19] further developed four major sources: inactive mastery, vicarious
experience, verbal persuasion, and psychological, & affective states. An
individual can fail to achieve a given mission due to over estimation of this self-
efficacy. Various studies reported about the significant role played by self-
efficacy as an important antecedent in the formation of entrepreneurial intentions
[45].
Organizational commitment is multifaceted concept [15,16]. Finegan [46] argues

that absenteeism, job quitting, job satisfaction, job involvement, performance and
relationship between supervisor and supporting staff are all relevant to the
situation of the organizational commitment. Shrestha has found that demographic
variables exhibit no significant differences on employees’ marital status, job
position, service year, education and organizational status, except ageing of the
employees. This study reveals that female employees of Nepalese financial
institutions have no significant difference in the level of organizational
commitment between the married and single employees. However mean values
of single employees are more committed to job than the married employees.
Moreover, regression analysis shows organizational commitment of employees
are not found significantly affected by the communication, career development,
role-play working conditions, their recognition and rewards.
Agrawal [47] shows that public-sector jobs are more highly valued than the jobs
of private sectors because the security of their jobs in the government sectors,
even though the organizational climates in both public and private sectors are
similar in nature. Nepalese employees are committed to their works but they
show low levels of morale and participation. Gautam [48], Koirala [49], and
Upadhyay [50] observe that the employees are dissatisfied with their jobs are
common attribution to the Nepalese employees. The report of Gautam, Van Dick,
and Wagner [51] show the difference in each component of antecedents of
commitment leading to reduce intention to leave the organization and resulted in
different outcomes for employees’ affirmation with their extra-role behavior.
Luthans views that organizational commitment (OC) is an attitude that shows

strong desire to remain as a loyal member in a particular organization, where the
employees express their concern for consolidation of the organization. Morrow
views it as a “Multidimensional Construct”. Meyer, and Allen [16] further indicated
that commitment is characterized by suitable “Mind sets”. There are affective,
continuance and normative commitment that show their self-confidence and self-
efficacy. The study of Muriuki, and Gachungais highly important in the field of
emotional intelligence and organizational commitment. The organizational
commitment is potential to predict the organizational outcomes such as
performance, turnover, absenteeism, tenure, and the goals of the organization
[15]. Many factors influence employees’ commitment, including strong
75
commitment to their manager’s occupation, and profession as supported by the

important study of Meyer, and Allen [15].
Some researchers [52-58] indicate the significant relationships between

extraversion/introversion, and organizational commitment. They show the
negative relationship between emotional stability, and organizational commitment
[52-54]. Kumar, and Bakhshi [52] view a significant strong relationship between
openness to new experience, and organizational commitment. Similarly, some
studies indicate agreeableness, and organizational commitment found to be
significantly correlated. The review of the literature indicates that personality
traits or attributes influence the decision, and organizational behavior of
employees. Multiple studies have found that personality factors generally
influence the way of people decide, and behave. A range of studies investigated
the relationship between personality factors, and organizational commitment of
employees. A similar type of study in Indonesia among educators, teachers and
lecturers by Izzati, Suhariadi, and Hadi [57] finds that shows a high amount of
agreeableness shows high emotional attachment to their organization. Likewise,
agreeableness, and consciousness trait contribute significantly high level of
affective organizational commitment. The studies of Shabahang, and Amani [58]
have found no gender difference between female, and male principals for
organizational commitment in the organization.
3. OBJECTIVES
1. To find the gender (Male/Female) differences in personality of the

SACCOS employees.
2. To study the relationship between personality traits, and self-efficacy of
the SACCOS employees.
3. To study the relationship between personality traits, and organizational
commitment of SACCOS employees.
4. HYPOTHESES
The following three null hypotheses will be tested during this research:
1. There will be no difference in the total personality traits of male, and

female employees.
2. There will be no relationship between personality traits, and Self-efficacy.
3. There will be no relationship between personality traits, and organizational
commitment.
5. METHODS
5.1 Participants
This study group comprises of N = 260. The total sample is collected from
selected SACCOS employees of Kathmandu District dated from July, 2017 to
December, 2017. See Table 1. The average age of these employees range
76
between 18 to 75 years. The samples are collected from the former Village
Development Committee (VDC) (Now Municipality) and Kathmandu Metropolitan
City.
5.2 Measures
The questionnaires are translated into a Nepali version and back-translated by

two prominent professors independently and then equivalence was established
[59]. The Nepali translation is further simplified by Professor M. P. Regmi. The
entire analysis of data is performed with the help of SPSS Version 23.00. The
Descriptive statistics, Pearson’s correlation coefficient, and t-test were applied in
this study (Fig. 1).
5.3 Instruments
The Mini-IPIP dimension scale has 20 items derived from 50-item IPIP-Five
Factor Model (FFM) test. This scale is used for measuring personality traits of the
person as the independent variables in terms of extraversion, agreeableness,
conscientiousness, emotional stability, and intellect developed by Donnellan,
Oswald, Baird, and Lucas [12]. The researchers have used a 5-point Likert-type
scale ranging from (1 strongly disagreed to 5 strongly agreed) with a neutral
midpoint at 3 (neither disagree nor agree). The scores for the individual items
from each scale are summated to find the total scores for each of the five
constructs (FFM). The scale has Five Factor Model (FFM) or Constructs. The
Cronbach’s Alphas of the five constructs are 0.77, 0.70, 0.69, 0.68, and 0.65
sequentially.
(Theoretical model developed by Prof. Dr. M.P. Regmi & D.M. Basnet’s doctoral
research proposal has presented at Pacific Academy of Higher Education and
Research University, Rajasthan, Udaipur, India on November 11, 2016).
Fig. 1. Theoretical framework of this study
77
Table 1. Sample structure (N = 260)
Total Employees Males Females

260 127 133
Percentage 48.85% 51.15%
The construct of self-efficacy scale is introduced by Bandura as Social-Cognitive

Theory [18-20]. Later Ralf Schwarzer, and Matthias Jerusalem revised the scale
in 2000 as Generally Perceived Self-efficacy Scale and unidimensional. It
consists of Ten-item version with 4 Point-Likert type scales. Its high scores
reflected higher levels of self-efficacy and aimed to deal efficiently with a variety
of stressful situation. The scale is translated into 33 languages and tested in 23
countries and widely used in numerous research projects. The Cronbach’s
alphas ranged from 0.76 to 0.90 with the majority in the high 0.80 .
This study uses the organizational commitment questionnaire developed by

Meyer, and Allen [16]. It consists of 24 items and 5 Point-Likert type scale. It has
three categories: affective, continuance, and normative commitment. In this
study, the high scores reflect higher levels of organizational commitment of the
employees. Researchers have deleted 3 items from normative commitment, so
the total functional items are 21 only. The reported Cronbach’s alphas for the
three subscales were 0.87, 0.75, and 0.79 respectively [16].
5.4 Procedure
First, the researcher requested the head of the SACCOS office with the written
request letter of researcher along with the recommendation letter of Division Co-
operative office, Kathmandu district, after taking the consent from employees, the
researcher requested the employees to be seated in a room of the SACCOS and
distributed the questionnaires package to each subject and they were instructed
by the researchers before filling-up the questionnaires. They filled the
questionnaire package within 15 to 20 minutes. In the similar procedure, each
SACCOS office was visited by the researcher/s for data collection. Entire data
collection took approximately Five-month time.
5.5 Data Analysis
In the trait of extraversion, the span of mean scores range from highest in the
item No. 1 and lowest in the item No. 16. Similarly, agreeableness trait has the
highest mean score in the item No. 12 and lowest value in the item No. 13. In
case of conscientiousness trait, the mean score is highest in the item no. 18 and
then the mean score of lowest item No. 13. Emotional stability trait in item No. 9
is the highest mean score and lowest mean score is found in 14 item. Similarly,
the trait of intellect shows the highest mean score in item No. 20 and lowest
mean score falls in item No. 15. The agreeableness trait has highest reliability(r
=30.9) and the lowest reliability exhibited by extraversion trait (r = 0.06).
Furthermore, the above table shows 14 negative skewed scores value 14 and
78
kurtosis is found 16 in Mini-IPIP FFM personality. This proves the lack of

normality in the MINI-IPIP Scale (See Table 2).
Table 3(a) exhibits, the Mean (M = 31.68), SD (31.68) scores and Cronbach’s
Alpha (0.818) of Self-efficacy, respectively.
Table 2. Statistics for the Mini-IPIP-FFM Personality Scale
Item/Symbol N Mean Deviation Skewness Kurtosis Alpha

1 (EMO) 260 3.92 1.163 −1.126 0.604
2 (AGR) 260 4.39 0.979 −1.925 3.483
3 (CON) 260 3.16 1.593 −0.256 −1.525
4 (EMO) 260 3.31 1.305 −0.523 −0.873
5 (INT) 260 3.18 1.385 −0.238 −1.198
5 (EMO) 260 2.64 1.431 0.376 −1.211
7 (AGR) 260 3.95 1.308 −0.967 −0.367
8 (CON) 260 3.58 1.430 −0.464 −1.290
9 (EMO) 260 3.36 1.422 −0.188 −1.410
10 (INT) 260 3.62 1.329 −0.519 −0.986
11 (EMO) 260 3.71 1.457 −0.772 −0.854
12 (AGR) 260 4.58 0.890 −2.644 7.015
13 (CON) 260 4.12 1.225 −1.328 0.698
14 (EMO) 260 2.66 1.452 0.156 −1.444
15 (INT) 260 2.21 1.260 0.749 −0.557
16 (EMO) 260 2.13 1.359 0.907 −0.481
17 (AGR) 260 2.78 1.517 0.243 −1.446
18 (CON) 260 3.99 1.472 −1.079 −0.454
19 (EMO) 260 2.73 1.381 0.315 −1.200
20 (INT) 260 3.66 1.336 −0.576 −0.948
Total Scores:
Extraversion
(EXT) 12.4 5.41 6%
Agreeableness 15.7 4.694 30.9%
(AGR)
Conscientiousne 14.85 5.72 29.9%
ss(CON)
Emotional 12.06 5.56 23.2%
Stability(EMO)
Intellect (INT) 12.67 5.31 12.1%
Table 3(b) exhibits, the Means (30.26), (25.32), (18.43), SD (9.004), (10.134),
(5.769) scores and Cronbach’s Alpha (0.644), (0.737), (0.549) of affective,
continuance, and normative commitment respectively.
79
Determining Personality Traits, Organizational Commitment and Self-Efficacy of Saving and Credit Co-operative Societies (SACCOS) Employees of Kathmandu, Nepal
Table 3. (a) Statistics for the Self-efficacy Scale. (b) Statistics for Affective, Continuance and Normative Commitment Scales
(A)
Scale N Mean Standard Deviation (SD) Cronbach’s alpha
Self-efficacy 260 31.68 8.598 0.818
(B)
Scale N Mean Standard Deviation (SD) Cronbach’s alpha
Organizational
1) Affective 30.26 9.004 0.644
2) Continuance 260 25.32 10.134 0.737
3) Normative 18.43 5.769 0.549
Table 4. T-test, gender differences in the total personality traits
Group Statistics(Male/Female) Decision

Personality trait Gender N Mean Std. Std. Error of Effect
Deviation Mean(SEM)
Extraversion Male 127 12.3701 2.66608 0.23658 Lower
Female 133 12.4211 2.88993 0.25059 Higher
Male 127 15.748 2.84513 0.25246 Higher
Agreeableness Female 133 15.6767 2.64446 0.2293 Lower
Male 127 14.9449 3.46481 0.30745 Higher 1.0135* Sig. Difference
Conscientiousness Female 133 14.7444 3.03927 0.26354 Lower
Emotional Male 127 11.5354 3.03889 0.26966 Higher
stability Female 133 12.5489 3.00622 0.26067 Lower
Male 127 12.6535 2.78994 0.24757 Lower
Intellect Female 133 12.6842 2.81061 0.24371 Higher
80
 Hypothesis Testing-1
Table 4 exhibits the emotional stability trait of the Mini-IPIP dimension, females’
Mean (M = 11.5354) & males’ Mean (M = 12.5489) score is 1.0135 higher (or
significantly different) (see Table 4). It proves that female employees have higher
emotional instability than the male employees of SACCOS. Magnus et al.
claimed that the neurotic employees experience more negative life situations
than the other individuals. Similarly, neurotics experience higher anxiety while
facing a new work environment that may lead to harsher experiences. The above
findings seem to be affected by the female employees specifically to the
comparison of the male employees.
In the remaining other four personality dimension (extraversion, agreeableness,

conscientiousness, and intellect), Mean scores are nearly the same and
statistically remain significant between male and female employees.
 Hypothesis Testing-2
Table 5 shows that the significant high correlations among four personality traits:
The self-efficacy value correlates with four personality traits: agreeableness (r =
0.297), conscientiousness (r = 0.218), emotional stability is negatively (r
=−0.199), and intellect (r = 0.274). Thus, the extraversion (r = 0.061) trait has no
significant correlation with self-efficacy. This proves the four traits have
significant positive relationship with self-efficacy. In conclusion, the trait of
extraversion has no any relationship with self-efficacy. Talkativeness, energetic,
and emotionally expressive are the contents of the extraversion trait, but these
behaviors do not correlate with self-efficacy of SACCOS employees. It concludes
that self-efficacy has no relation with extraversion trait in the area of SACCO’s
employees.
Table 6 exhibits that agreeableness trait highly correlates with conscientiousness

(r = 0.303), and intellect (r = 0.202). Similarly, agreeableness negatively
correlates with emotional stability (r = −0.160). The conscientiousness highly
correlates with the agreeableness (r = 0.303) and correlates with intellect (r
=0.132) and correlates with the conscientiousness (r = 0.132). The extraversion
trait has no any relation to the rest of the personality traits.
 Hypotheses Testing-3
Table 7 exhibits that there is no significant correlation between extraversion trait

and all the three variables (affective, continuance, and normative) of the
organizational commitment. The extraversion trait is related to talkativeness, full
of energy and emotionally expressive [5]. The analysis proves that employees
who scored low in the extraversion have poor degree of social networks and
socially inactive. The individual who scores high in extraversion shows low
continuance commitment. This proves that there is a negative relationship
between extraversion, and continuance commitment. The agreeableness trait
highly correlates (r = 0.309) with the affective commitment and significantly
81
correlates with the normative (r = 0.179) commitment. But the agreeableness trait
shows no relationship with the continuance commitment (Erdheim et al. 2006)
prove that agreeableness trait has no relationship with the continuance
commitment (r = 0.02, p > 0.05) in a sample of American employees.
Similarly, the conscientiousness trait highly correlates (r = 0.166) with the

affective commitment and correlates with normative commitment (r = 0.213). It
does not have relationship with continuance commitment (r = −0.043). The
empirical research, [60,61] shows the positive correlation between
conscientiousness, and affective commitment. The increasing character of the
conscientiousness trait leads to the degree of employees’ involvement and
attachments affectively to the organization. A regression analysis of the
Indonesian School teachers samples by Izzati, Suhariadi, and Hadi [57] have
shown that there is a significant relationship between agreeableness(r = 0.000, p
> 0.05) & conscientiousness (r = 0.000, p > 0.05) with affective commitment.
The emotional stability trait correlates negatively (r = −0.143) with the affective
commitment. The employees scoring high in emotional stability trait shows higher
continuance commitment. This research tries to prove (r = 0.06) in comparison to
normative commitment (r = −0.11). Positive relation between emotional stability
and continuance is expected. Similarly, intellect trait highly correlates (r = 0.261,
p < 0.01) with the affective commitment. This result of an association between
openness, and affective commitment is consistent with the similar result as
shown by Erdheim et al. [30]. The previous researches are found to be similar,
and that trait of the intellect has positive relationship with the affective
commitment which lowers down the turnover behavior of the employees. The F-
ratio 3.997 which is significant at 0.05 levels (2 tail test). Please see Table 8.
6. FURTHER STATISTICAL ANALYSIS
Fit-Statistics for the Mini-IPIP Model and Organizational Commitment: The

alphas in the normative commitment and all the IPIP subscales are indeed low
and the researchers have to run an alternative method of checking the scaled
reliability called the Tau Equivalent. The Cronbach’s alpha has been criticized by
some researchers as being too conservative—that is, as showing low reliability
where the reliability is actually higher. The Tau Equivalent is a more robust
method based on Structural Equation Modeling—researchers run these analyze
on the AMOS software. It is found that with the exception of extraversion, the rest
of the scales have from excellent to acceptable reliability. Researchers use the
following fit indices:
Chi square: This needs to be as close to zero and non-significant CFI, IFI, and
NFI: ideally these need to be 0.95 or over, but 0.9 or over is acceptable by most
researches.
The Root Mean Square Error of Approximation (RMSEA): Ideally this needs to be
below 0.06 but 0.08 or below is acceptable by most researches.
82
Table 5. Correlation among the personality dimensions and self-efficacy
Correlations
Self Extraversion Agreeableness conscientiousness Emotional Intellect
efficacy stability
Pearson Correlation 1 0.061 0.297** 0.218** −0.199** 0.274**
Self-efficacy Sig. (2-tailed) 0.324 0 0 0.001 0
N 260 260 260 260 260 260
**Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed).
Table 6. The Inter-correlations within the five personality traits

Correlations
Self-efficacy Extraversion Agreeableness Conscientiousness Emotional Intellect
stability
Pearson Correlation 0.061 1 0.111 −0.082 −0.047 0.033
Extraversion Sig. (2-tailed) 0.324 0.073 0.187 0.454 0.598
N 260 260 260 260 260 260
Pearson Correlation 0.297** 0.111 1 0.303** −0.160** 0.202**
Agreeableness Sig. (2-tailed) 0 0.073 0 0.01 0.001
N 260 260 260 260 260 260
Pearson Correlation 0.218** −0.082 0.303** 1 −0.076 0.132*
Conscientiousness Sig. (2-tailed) 0 0.187 0 0.219 0.033
N 260 260 260 260 260 260
Pearson Correlation −0.199** −0.047 −0.160** −0.076 1 −0.081
Emotional stability Sig. (2-tailed) 0.001 0.454 0.01 0.219 0.193
N 260 260 260 260 260 260
Pearson Correlation 0.274** 0.033 0.202** 0.132* −0.081 1
Intellect Sig. (2-tailed) 0 0.598 0.001 0.033 0.193
N 260 260 260 260 260 260
**Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed)
83
Table 7. The Inter-correlation of Personality Traits and Organizational Commitment
Correlations
Personality traits Extra_ Agree- conscienti Emotional Intellect Affective Continuance Normative
version ableness ousness stability commitment
Pearson 1 0.111 −0.082 −0.047 0.033 0.091 −0.022 0.026
Correlation
Extraversion Sig. (2-tailed) 0.073 0.187 0.454 0.598 0.145 0.722 0.676
N 260 260 260 260 260 260 260 260
Pearson 0.111 1 0.303** −0.160** 0.202** 0.309** 0.089 0.179**
Correlation
Agreeableness Sig. (2-tailed) 0.073 0 0.01 0.001 0 0.153 0.004
N 260 260 260 260 260 260 260 260
Pearson −0.082 0.303** 1 −0.076 0.132* 0.166** −0.043 0.213**
Correlation
Conscientiousness Sig. (2-tailed) 0.187 0 0.219 0.033 0.007 0.486 0.001
N 260 260 260 260 260 260 260 260
Pearson −0.047 −0.160** −0.076 1 −0.081 −0.143* 0.06 −0.119
Correlation
Emotional Sig. (2-tailed) 0.454 0.01 0.219 0.193 0.021 0.334 0.055
stability N 260 260 260 260 260 260 260 260
Pearson 0.033 0.202** 0.132* −0.081 1 0.261** 0.004 0.088
Correlation
Intellect Sig. (2-tailed) 0.598 0.001 0.033 0.193 0 0.945 0.158
N 260 260 260 260 260 260 260 260
Pearson 0.091 0.309** 0.166** −0.143* 0.261** 1 0.331** 0.523**
Correlation
Affective Sig. (2-tailed) 0.145 0 0.007 0.021 0 0 0
commitment N 260 260 260 260 260 260 260 260
Pearson −0.022 0.089 −0.043 0.06 0.004 0.331** 1 0.245**
Correlation
84
Correlations
Personality traits Extra_ Agree- conscienti Emotional Intellect Affective Continuance Normative
version ableness ousness stability commitment
Continuance Sig. (2-tailed) 0.722 0.153 0.486 0.334 0.945 0 0
N 260 260 260 260 260 260 260 260
Pearson 0.026 0.179** 0.213** −0.119 0.088 0.523** 0.245** 1
Correlation
Normative Sig. (2-tailed) 0.676 0.004 0.001 0.055 0.158 0 0
N 260 260 260 260 260 260 260 260
**Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed).
Table 8. t-test: (Independent Sample Test)
Independent samples test

Levene’s Test for t-test for Equality of Means
Equality of Variances
Personality traits F Sig. t Df Sig. Mean Std. Error 95% Confidence
(2- Difference Difference Interval of the
tailed) Difference
Lower Upper
Equal variances 0.948 0.331 −0.15 258 0.883 −0.05097 0.34526 −0.73087 0.62892
Extraversion assumed −0.15 257.7 0.883 −0.05097 0.34462 −0.7296 0.62766
Equal variances
not assumed
Equal variances 1.844 0.176 0.21 258 0.834 0.07134 0.34048 −0.59913 0.74181
Agreeableness assumed
Equal variances 0.209 254.39 0.834 0.07134 0.34105 −0.60031 0.74299
not assumed
Equal variances 3.997 0.047 0.497 258 0.62 0.20052 0.40372 −0.59449 0.99553
Conscientiousn assumed
ess Equal variances 0.495 250.23 0.621 0.20052 0.40494 −0.59701 0.99805
85
Independent samples test

Levene’s Test for t-test for Equality of Means
Equality of Variances
Personality traits F Sig. t Df Sig. Mean Std. Error 95% Confidence
(2- Difference Difference Interval of the
tailed) Difference
Lower Upper
not assumed
Equal variances 0.041 0.839 −2.7 258 0.007 −1.01344 0.37496 −1.75181 −0.27507
Emotional assumed
stability Equal variances −2.7 257.16 0.007 −1.01344 0.37505 −1.75201 −0.27487
not assumed
Equal variances 0.028 0.868 −0.09 258 0.93 −0.03067 0.34746 −0.71488 0.65354
Intellect assumed
Equal variances −0.09 257.61 0.93 −0.03067 0.3474 −0.71477 0.65343
not assumed
86
Fig. 2. Model diagram for normative commitment
Fig. 3. Model diagram for extraversion
The findings are:
For normative commitment, excellent reliability: Chi sq = 17.97, p = 0.598, df
87
= 20; The CFI (Comparative Fit Index): 1, IFI: 1, NFI: 1, RMSEA 0.00.
For extraversion, poor reliability: Chi sq = 4.59, p = 0.101, df = 2; CFI = 0.5, IFI =
0.8, NFI = 0.69, RMSEA = 0.098.
For agreeableness, good reliability: Chi sq = 2.68, p = 0.261, df = 2; CFI = 0.94,
IFI = 0.96, NFI = 0.87, RMSEA = 0.05.
For conscientiousness, acceptable reliability: Chi sq = 3.28, p = 0.193, df = 2; CFI
= 0.94, IFI = 0.96, NFI = 0.89, RMSEA = 0.07.
For emotional stability, marginally acceptable reliability: Chi sq = 1.91, p =
0.166, df = 1; CFI = 0.76, IFI = 0.93, NFI = 0.86, RMSEA = 0.08.
For intellect, very good reliability: Chi sq = 1.876, p = 0.391, df = 2; CFI = 1, IFI =
1, NFI = 0.87, RMSEA = 0.00.
Fig. 4. Model diagram for agreeableness
Fig. 5. Model diagram for conscientiousness
88
The problems in scale reliability may come from various sources. For example,
some participants may not have understood some of the items, or there may be
some issues in translating the items and/or cultural differences in interpreting the
items. Researchers would not be surprised if there were cultural differences
given that openness to others, socialization, and expressiveness captured by
“extroversion” notions and understood very differently across cultures. Perhaps
scholars need to look at reliability of the same instrument in other related
countries of South East Asia. Now the researchers have found all 6 figures and
outputs by the use of AMOS-21 version. These figures are sequentially
presented in the following pages.
Fig. 6. Model diagram for emotional stability
Fig. 7. Model diagram for intellect
Paths Analysis for Organizational Commitment and Personality Traits (Figs. 2-7).
Organizational Commitment: Personality Traits (Mini-IPIP Model).
89
7. RESULTS AND DISCUSSION
The female employees Mean score 1.0135 is higher and significantly different
from male employees. The three personality traits (agreeableness,
conscientiousness, and intellect) highly correlate with self-efficacy, but the
emotional stability trait negatively correlates with self-efficacy. The trait of
agreeableness highly correlates with affective and normative commitment. The
trait of conscientiousness highly correlates with affective and normative
commitment. This research also supports researches by Erdheim, et al. [30],
Matzler & Renzl [61] and Lzzati, U. A, Suhariadi, F., and Hadi, C. [57] have found
that the positive correlation between conscientiousness, and affective
commitment.
However, the emotional stability trait negatively correlates with affective

commitment. Likewise, the intellect trait highly correlates with affective
commitment. The continuance commitment of SACCOS’s female employees is
due to their nearness of dwelling and their emotional instability is little higher than
the male employees. When the employees found highly correlated with affective
commitment that results employee’s turnover rate will be low in the organization.
8. CONCLUSIONS
It can be concluded that three personality traits (agreeableness,

conscientiousness, and intellect) are correlated positively with self-efficacy. The
emotional stability trait is significant difference between male and female
employees and level of female employees emotional instability is higher than that
of male employees.
In the result, affective and normative commitments have simply negative

correlation with emotional stability. The affective, and normative commitment is
highly correlated with agreeableness. The normative, and affective commitment
highly correlates with conscientiousness. Likewise, the affective commitment
highly correlates with the intellect.
Aryal, and Panta [62] reported in their study that the Nepalese Co-operative
members have inadequate knowledge about financial literacy and depend only
on internal sources of information while making the plans and policies by their
Co-operative employees and adopting the traditional decision making process.
9. RECOMMENDATIONS AND SUGGESTIONS
Male employees should have positive regards to the female employees

(colleagues). The Saving and Credit Co-operative employees tend to have strong
desire to shift their existing job into alternative job. The SACCOS employees
ought to develop cooperation in the work setting to improve working environment,
and to build-up the constructive relationship with workplace. The SACCOS
employees exhibited less efficiency in their work. It is also highly recommended
that the efficiency of the future studies should relate to personality traits,
90
organizational commitment, and self-efficacy. It can be conducted in the different

natures of the Co-operatives in the country and World. The government of Nepal
has given priority since restoration of democracy since 1990 to develop the
overall socio-economic through Co-operative sectors. The Co-operative should
consider researches, training & development to the human resources and
members through Education Sub-committee of the respective nature of Co-
operatives. These Co-operative sectors seem to be helpful to develop
sustainable economic growth in the country in micro level by proper utilizing
human resources and members of the Co-operatives. To some extent, the Co-
operative sector should consider their employees’ benefits like working in the
Nepalese commercial &development banks and finance companies to increase
their personality, organization citizenship behavior (OCB) and efficacy. In the
present scenario, the majority of SACCOS are transacting Saving and Credit
locating in prime area of the locality and consumer market place to serve their
members. The Nepalese Co-operative Act, 2017 has given priority for inter-Co-
operative transactions among the Co-operatives. Basnet, Birla, and Regmi [63]
defined that the graduate level employees of SACCOS’ self-efficacy shows
negative correlation with continuance commitment. Therefore, graduate level
employees are not interested to use their knowledge, skills, and interest to
accomplish their assign tasks and responsibilities. Basnet et al. [63] prove that
the Kathmandu Metropolitan City (KMC), Municipality and Village Development
Committee (VDC) SACCOS employees’ self-efficacy levels remain same.
10. LIMITATIONS
This survey research is conducted in limited research area of Kathmandu district

only. There have been very few researches conducted in the area of
commitment, personality traits and self-efficacy in Nepal. However, no study has
been found in analyzing the relationship among the personality traits, self-
efficacy and organizational commitment in the Nepalese Co-operatives
employees. In this respect, this study will be helpful for shedding a light in the
field for further studies to the related areas of human resources management.
Recently theory testing researches are coming up [64,65]. These types of
researches are not facing by the respondents in the population areas. This may
cause to answer properly in the standardize scales.
The researchers have collected the samples for the study of the doctoral
research.
11. IMPLICATIONS
There are several practical implications for reducing turnover, job search
behaviors, increasing commitment to organizations, efficacy and right emotional
behaviors and cognitions of the individual/s. Employees found with positive
association between agreeableness, extroversion & conscientiousness and
affective commitment are referred more likely to be committed to the organization
and decreasing the cost of turnover and which costs organizations huge amounts
of expenditure every year in several ways and disturbs in general for an organiza
91
tion/s when an employee/s leaves. While an organization able to recruit or select

employee/s considerably that score moderate to high on aforesaid personality
traits and employees with high level of emotional stability, self-efficacy, and
organizational commitment tend to be significant for the practitioners.
FUNDING
This research was supported by NCDB Co-operative Research Fellowship, the

Co-operative Research Fellowship Management Committee, National Co-
operative Development Board (NCDB), Ministry of Co-operative and Poverty
Alleviation, Government of Nepal, Pulchowk, Laitpur, Nepal.
COMPETING INTERESTS
REFERENCES
1. Sears GJ, Rowe PM. A personality-based similar-to-me effect in the
employment interview: Conscientiousness, affect-versus competence-
mediated interpretations, and the role of job relevance. Canadian Journal
of Behavioural Science/Revue Canadienne des Sciences du
Comportment. 2003;35:13-24.
2. WeiBo Z, Kaur S, Jun W. New development of organizational
commitment: A critical review (1960-2009). African Journal of Business
Management. 2010 Jan 1;4(1):12.
3. Cohen A. Multiple commitments in the workplace: An integrative
approach. Psychology Press; 2003 Oct 17.
4. Gordon ME, Philpot JW, Burt RE, Thompson CA, Spiller WE. Commitment
to the union: Development of a measure and an examination of its
correlates. Journal of Applied Psychology. 1980 Aug;65(4):479.
5. John OP, Srivastava S. The big five trait taxonomy: history, measurement,
and theoretical perspectives. Handbook of Personality: Theory and
Research. 1999;2:102-138.
6. Somers MJ. Organizational commitment, turnover and absenteeism: An
examination of direct and interaction effects. Journal of Organizational
Behavior. 1995;16:49-58.
DOI:https://doi.org/10.1002/job.4030160107
7. Jaros SJ. An assessment of Meyer and Allen’s (1991) three-component
model of organizational commitment and turnover intentions. Journal of
Vocational Behavior. 1997;51:319-337.
DOI:https://doi.org/10.1006/jvbe.1995.1553
8. Jehanzeb K, Rasheed A, Rasheed MF. Organizational commitment and
turnover intension: Impact of employee’s training in private sector of Saudi
Arabia. International Journal of Business and Management. 2013;8:79-90.
DOI:https://doi.org/10.5539/ijbm.v8n8p79
9. Zayas-Ortiz M, Rosario E, Marquez E, Colón Gruñeiro P. Relationship
between organizational commitment and organizational citizenship
92
behaviour in a sample of private banking employees. International Journal

of Sociology and Social Policy. 2015;35:91-106.
DOI:https://doi.org/10.1108/IJSSP-02-2014-0010
10. Akinbobola OI. Conflict in human capital relationships: the effect of job
satisfaction on job involvement in a workplace. International Journal of
Social Science and Humanity. 2011;1:92-95.
DOI:https://doi.org/10.7763/IJSSH.2011.V1.16
11. Jung G. Analytical psychology and education: Three lectures. In: Jung,
C.G., Ed., Collected Works, The Development of Personality, Pantheon,
New York. 1926-1954;17:65-132.
12. Donnellan MB, Oswald FL, Baird BM, Lucas RE. The Mini-IPIP Scales:
Tiny-Yet-effective measures of the big five factors of personality.
Psychological Assessment. 2006;18:192-203.
DOI:https://doi.org/10.1037/1040-3590.18.2.192
13. Gelade GA, Dobson P, Gilbert P. national differences in organizational
commitment: effect of economy, product of personality, or consequence of
culture? Journal of Cross-Cultural Psychology. 2006;37:542-556.
14. Church AT. Culture and personality: Toward an integrated cultural traits;
2000.
15. Meyer JP, Allen NJ. Commitment in the workplace: Theory, research, and
application. Sage; 1997.
16. Allen NJ, Meyer JP. The measurement and antecedents of affective,
continuance and normative commitment to the organization. Journal of
Occupational Psychology. 1991;63:1-18.
DOI:https://doi.org/10.1111/j.2044-8325.1990.tb00506.x
17. Hackney CW. Personality, organizational commitment, and job search
behavior: A field; 2012.
18. Bandura A. Self-efficacy in changing societies. New York: Cambridge
University Press. Banking Employees. International Journal of Sociology
and Social Policy. 1995;35.
DOI:https://doi.org/10.1017/CBO9780511527692
19. Bandura A. Self-efficacy: Toward a unifying theory of behavioral change.
Psychological Review. 1977;84:191-215.
DOI:https://doi.org/10.1037/0033-295X.84.2.191
20. Bandura A. Self-efficacy: The exercise of control. Freeman, New York;
1997.
21. Luszczynska A, Schwarzer R. Social cognitive theory. In: Conner, M. and
Norman, P., Eds., Predicting Health Behavior, 2nd Edition, Open
University Press, Buckingham. 2005;27-169.
22. Gungor F, Kurt H, Ekici G. The relationship between personality types and
self-efficacy perceptions of students teachers. Procedia Social and
Behavioral Science. 2013;116:786-790.
23. Bakker AB, Demerouti E, Brummelhuis LL. Work engagement,
performance and active learning: the role of conscientiousness. Journal of
Vocational Behavior. 2012;80:555-564.
DOI:https://doi.org/10.1016/j.jvb.2011.08.008
24. Laguna M, Razmus W, Aliski A. Dynamic relationships between personal
resources and work engagement in entrepreneurs. Journal of
93
Occupational and Organizational Psychology. 2017;90:248-269.

DOI:https://doi.org/10.1111/joop.12170
25. Kossowska M, Laguna M. Personality, job resources, and self-efficacy as
preditors of volunteer engagement in non-governmental organizations.
Journal for Perspectives of Economic Political and Social Integration.
2018;24:69-89.
DOI:https://doi.org/10.2478/pepsi-2018-0003
26. Farrukh M, Ying C, Mansori S. Organizational commitment: an empirical
analysis of personality traits. Journal of Work-Applied Management.
2017;9:18-34.
DOI:https://doi.org/10.1108/JWAM-12-2016-0026
27. Norman WT. Toward an adequate taxonomy of personality attributes:
replicated factor structures in peer nomination personality ratings. Journal
of Abnormal and Social Psychology. 1963;66:571-583.
DOI:https://doi.org/10.1037/h0040291
28. McCrae RR, Costa PT. A five-factor theory of personality. In: Pervin, L.A.
and John, O.P., Eds., Handbook of Personality, 2 Edition, The Guilford
Press, New York; 1999.
29. Subedi KP. The study of personality traits, job involvement and job
satisfaction of the civil service employee of Nepal. Unpublished PhD
Thesis, Pacific University, Udaipur; 2015.
30. Erdheim J, Wang M, dan Zickar MJ. Linking the big five personality
constructs to organizational commitment. Personality and Individual
Differences. 2006;41:959-970.
DOI:https://doi.org/10.1016/j.paid.2006.04.005
31. Zimmerman J. At GE and Intel. Journal of Business Case Studies. 2010;6:
77-82.
32. Eckhardt A, Laumer S, Maier C, Weitzel T. The effect of personality on it
personnel’s job related attitudes: Establishing a dispositional model of
turnover intention across IT job types. Journal of Information Technology.
2016;31:1-19.
DOI:https://doi.org/10.1057/jit.2014.27
33. Zimmerman RD. Understanding the impact of personality traits on
individuals turnover decisions: A meta-analytic path model. Personnel
Psychology. 2008;61:309-348.
DOI:https://doi.org/10.1111/j.1744-6570.2008.00115.x
34. Furnham A, Forde L, Ferrari K. Personality and work motivation.
Personality and Individual Differences. 1999;26:1035-1043.
DOI:https://doi.org/10.1016/S0191-8869(98)00202-5
35. Becker HS. Notes on the concept of commitment. American Journal of
Sociology. 1960;66:32-40.
DOI:https://doi.org/10.1086/222820
36. Regmi MP. Interpretation of the gurung dreams. Psychologia. 1982;28:
35-45.
37. Regmi MP. The personality structure of nepalese gurungs. Unpublished
Doctoral Thesis, University of Saugar, Saugar; 1982.
38. Regmi MP. The gurungs: Thunder of himal. Nirala Publications,
Daryaganj, New Delhi; 1991.
94
39. Spagnoli P, Caetanom A. Personality and organizational commitment: the

mediating role of job satisfaction during socialization. Career Development
International. 2012;17:255-275.
DOI:https://doi.org/10.1108/13620431211241081
40. Tziner A, Shultz T, Fisher T. Justice, leader-member exchange, and job
performance: Are their relationships mediated by organizational cultures?
Psychological Reports. 2008;103:516-526.
Available:https://ssrn.com/abstract=1311260
41. Choi D, Oh IS, Colbert A. Understanding commitment at work: a meta
analytic examination of the roles of the five-factor model of personality and
culture. Journal of Applied Psychology. 2015;100:1542-1567.
42. Stewart GL, Nandkeolyar AK. Adaptation and intra individual variation in
sales outcomes: exploring the interactive effects of personality and
environmental opportunity. Personnel Psychology. 2006;59:307-332.
DOI:https://doi.org/10.1037/apl0000014
43. Ganu D, Kogutu C. Effect of the big five personality traits on job
satisfaction and organizational commitment in the healthcare industry: the
case of Kenya. American Journal of Health Sciences. 2014;5:145-154.
DOI:https://doi.org/10.19030/ajhs.v5i2.8964
44. Michaud M. Personality a key factor in healthcare use; 2013.
Available:http://www.urmc.rochester.edu/news/story/index.cfm?id=3939
45. Wilson K, Kickul J, Marlino D. Gender, entrepreneurial self-efficacy, and
entrepreneurial career intentions: Implications for entrepreneurship
education. Entrepreneurship Theory and Practice. 2007;13:387-406.
DOI:https://doi.org/10.1111/j.1540-6520.2007.00179.x
46. Finegan JE. The impact of person and organizational values on
organizational commitment. Journal of Occupational and Organizational
Psychology. 2000;73:149-169.
DOI:https://doi.org/10.1348/096317900166958
47. Agrawal GR. Management and development. CEDA, Kathmandu; 1977.
48. Gautama T. Organizational commitment in Nepal. Unpublished PhD, The
sis, Faculty of Management, Tribhuvan University, Kathmandu; 2004.
49. Koirala U. Workers participation in management. Unpublished PhD
Thesis, University of Allahabad, Allahabad; 1989.
50. Upadhyay NP. Personnel management in manufacturing public
enterprises in Nepal. Unpublished PhD Thesis, Panjab University, Panjab;
1981.
51. Gautam T, van Dick R, Wagner U. Organizational commitment in
nepalese setting. Asian Journal of Social Psychology. 2001;4:239-248.
DOI:https://doi.org/10.1111/1467-839X.00088
52. Kumar K, Bakhshi A. The five-factor model of personality and
organizational commitment: Is There Any Relationship. Humanity and
Social Sciences Journal. 2010;5:25-34.
53. Cui C. The Relationship among personality traits, job design
characteristics and organizational commitment: An empirical study of
organizations in China. Master Thesis, The University of Waikato,
Waikato; 2010.
95
54. Chandel JK, Sharma SK, Bansal SP. Linking the big five personality
domains to organizational commitment. International Journal of Research
in Commerce, IT and Management. 2011;1:19-24.
55. Sharma L. Introduction to co-operative, Divya Deurali Prakashan Pvt. Ltd,
Bagbazar, Kathmandu, Nepal. Statistics of Cooperative Enterprises,
Department of Cooperative, Ministry of Cooperative and Poverty of
Alleviation, Government of Nepal; 2012.
56. Panaccio A, Vandenbergh C. Five-factor model of personality and
organizational commitment: The mediating role of positive and negative
affective states. Journal of Vocational Behavior. 2012;80:647-658.
DOI:https://doi.org/10.1016/j.jvb.2012.03.002
57. Lzzati UA, Suhariadi F, Hadi C. Personality trait as predictor of affective
commitment. Open Journal of Sciences. 2015;3:34-39.
DOI:https://doi.org/10.4236/jss.2015.36008
58. Shabahang MJ, Amani M. The Relationship between Personality Factors
and Organizational Commitment of Iranian Primary School Principals.
International Journal of Psychology and Educational Studies. 2016;3:50-
59.
DOI:https://doi.org/10.17220/ijpes.2016.03.006
59. Brislin RW. Back-translation for cross-cultural research. Journal of Cross-
Cultural Psychology. 1970;1:185-216.
60. Choi D, Oh IS, Colbert AE. Understanding organizational commitment: a
meta-analytic examination of the roles of the five-factor model of
personality and culture. Journal of Applied Psychology. 2015;100:1542-
1567.
DOI:https://doi.org/10.1037/apl0000014
61. Matzler K, Renzl B, Mooradian T, Von Krogh G, Mueller J. Personality
traits, affective commitment, documentation of knowledge, and knowledge
sharing. The International Journal of Human Resource Management.
2011;22:296-310.
DOI:https://doi.org/10.1080/09585192.2011.540156
62. Aryal N, Panta SB. Financial literacy and co-operatives sustainability: A
study among the executive members of the co-operatives. International
Journal of Community and Co-operative Studies. 2015;3:17-29.
Available:http://www.encyclopedia.com/people/medicine/psychology-and-
psychiatry-biograp hies/carl-gustav-jung
63. Basnet DM, Birla M, Regmi MP. Impact of emotional stability on self-
efficacy and organizational commitment of employees’ at nepalese saving
& credit co-operative societies (SACCOS) Financial Institutions. Global
Journal of Human Social Sciences: Arts & Humanities-Psychology.
2019;19:17-29.
64. Adhikari DR, Gautam DK. Human resource development for per formance
management. International Journal of Productivity and Performance.
2010;49:306-324.
DOI:https://doi.org/10.1108/17410401011038883
65. Adhikari DR, Gautam DK. Employees commitment and organizational
performance in Nepal: A typological framework. SEBON Journal.
2011;5:1-17.
96
Dess Mardan Basnet

Nepal Open University (NOU), Lalitpur, Nepal.
Mr. Dess Mardan Basnet, Ph.D., recently received his Doctor of Philosophy in Management from
Pacific Academy of Higher Education and Research University, Udaipur, India. . He received his Master
of Business Studies (MBS) from Tribhuvan University in Nepal. He has served as an Administrative
Officer for Junior Achievement (JA) Nepal as INGOs, a member of JA Worldwide, the USA. He worked
as Academic Administrative Officer, MBS Program at People’s Campus, Tribhuvan University. He has
served as Chief Executive Officer for Bachan Saving and Credit Co-operative Ltd. since 2008 till date.
Dr. Basnet has had 10 professional papers published, won 6 awards, and organized/participated in
numerous international conferences. Dr. Basnet is a lecturer at Nepal Open University (NOU). He has
also performed extensive philanthropic work as the Founder/President of World Without Anger(WWA)
since 2007 till date. He is the Founder/Board of Director Member of EQ4Peace Worldwide Inc., the USA
from 2019 to date. Dr. Basnet lives in Dharmasthali, Kathmandu, Nepal, with his wife (Minu Pathak), a
son (Sansar Mardan Basnet), and a daughter(Prashamsa Singh Basnet).
Mahima Birla
Pacific Academy of Higher Education and Research University, Udaipur, India.
She has been the Conference Director/ Organizing Secretary of 11 International Conferences conducted
by the Faculty of Management since 2011 prominently in the areas of global changes in business,
economy, society and culture. She has guided 14 doctoral researches in the area of banking, financial
inclusion, knowledge management emotional intelligence and so on.
She has been nominated as the advisory board member of the WWA International Journal: cross-
cultural peace journal on emotional intelligence.
She is a life member of the Indian Commerce Association, Indian Accounting Association and Quality
Circle Forum of India.
97
Murari Prasad Regmi

Central Department of Psychology, Tribhuvan University, Kirtipur, Kathmandu, Nepal.
Professor Murari Prasad Regmi, DPhil, received his post-doctoral advanced research training from Freie
University Berlin, Germany, I 1992, and previously served as Head of the Central Department of
Psychology at Tribhuvan University, Nepal, and as Visiting Professor at Auburn University, USA, in
1999. He was inducted into the Hall of Fame of the American Biographical Institute for “Distinguished
Accomplishment in Clinical Psychology” in July 2011 by its president J.M.Evans, Chief Advisor of World
Without Anger(WWA) since 2007 till date. Chief Editor of WWA International Journal.
___________________________________________________________________________________
DISCLAIMER
Open Journal of Business and Management, 7: 455-479, 2019.
98
Chapter 4
Developing Capabilities for the Workforce

to Embrace Technological Change at a
Logistics Company in Durban,
South Africa
Neville Chinniah a*, Simon Taylor a

and Cecile Gerwel Proches a
DOI: 10.9734/bpi/ctbef/v3/4640E
ABSTRACT
The purpose of this study was to examine how the workforce in a logistics
company in Durban, South Africa, transitioned from a manual to an automated
process, to manage short shelf-life inventory stock. The previously implemented
manual inventory control system to monitor shelf-life was replaced with the
Systems Applications and Products in Data Processing (SAP), which
automatically reported stock approaching shelf-life expiry dates. To understand
the process of change, Kotter’s 8-step model of change was utilised in
conducting this study. A qualitative research approach was applied due to the
exploratory nature of the research. Interviews and focus groups were conducted,
and data were analysed using thematic analysis. The study findings contribute to
broadening the understanding of the emerging development opportunities to
enhance the capabilities of the logistics workforce.
Keywords: Change management; manual processes; technological change;

logistics; South Africa.
1. INTRODUCTION
Change management refers to a process to achieve desired business or

organisational outcomes and to develop certain employee competencies once a
need for change has been identified [1]. The intent of the change management
process is to transform the business in terms of the systems that may be in place
by replacing them with alternative, more efficient methods. Referring to change
management as a process implies that once effectively implemented it can be
repeated and the emphasis on competencies implies that it also results in
positive and effective outputs for employees [2]. Change management thus
________________________________________________________________________
a
*Corresponding author: E-mail: neville.chinniah@gmail.com.
Developing Capabilities for the Workforce to Embrace Technological Change at a Logistics Company in
Durban, South Africa
involves transitioning from a present practice to a future state. The choice of an

appropriate change management framework is crucial in reinforcing the intended
changes, thereby ensuring the effectiveness and sustainability of the
implementation [3].
Change management is one of the key challenges for any company or

organisation regardless of its magnitude, or its social and economic
orientation [4]. In developing countries like South Africa, the rapidly changing
context in many industries is a key challenge. These changes are underpinned
by the necessity of transforming organisations and driving efficiencies [5]. The
aim of this study was to examine how a logistics company transitioned from a
manual process to an automated system-guided process, underpinned by the
Fourth Industrial Revolution (4IR) digital technology, for managing short-dated
inventory. The focus of this study was a logistics operational site in Durban,
KwaZulu-Natal, South Africa, which initially had a manually driven
operational process for managing short-dated inventory. This study
explored the company’s shift from this manual process to using the Systems
Applications and Products in Data Processing (SAP) enterprise resource
planning system.
The research question emanating from this objective was: How effective was the
implementation of Kotter’s 8-Step Process model for Leading Change [6] in
developing the competencies of the logistics workforce at the study site in
Durban, KwaZulu-Natal, South Africa, to embrace technological change related
to the 4IR?
Organisations need to remain competitively positioned in their market

segment. To maintain competitiveness companies must evaluate their
capacities, strategic direction, culture, and skill sets to advance inventiveness.
Furthermore, in modern economies, they should also consider digitalisation to
realize consumer demands [7]. In initiating the change management
journey its important to adopt the apprproriate change management model
[8].
The key challenge for a company, irrespective of its size and sector, or whether it
is capitalist or community driven, is change management [4]. Humans may be
negative and averse to anything related to change [4]. With change comes
numerous issues that have an impact on different tiers of a company as well as
on management structures. There are certain aspects of the change
management process that are apparent, which have been confirmed in
researched publications. Irrespective of change management being well-
documented in the research literature, processes must be repeated in business
practice.
Transformation of processes within a company inevitably presents challenges [9]

World renowned change management author, John Kotter, confirms that the
difficulty with change management effectiveness is that it goes beyond process
100
changes and operational changes of a company – the behavioural aspect of the

workforce also needs changing, which is the most challenging of changes [10].
Reluctance and scepticism in change management is normal with all forms of
implementation. Wentworth et al. [4] maintain that there are several reasons for
resistance to change. These reasons, according to Wentworth et al. [4] are:
1) the feeling of losing something valuable; 2) not understanding the need for
change and outcomes; 3) employees who may be of the view that change is not
necessary and does not make sense for the company; and 4) little interest in
change [11]. It must be noted that many of these impediments are surmountable
when companies and the change management leadership plan the
implementation of changes using appropriate change management frameworks
or models [9].
2. LITERATURE REVIEW
The magnitude of change varies from organisation to organisation due to

variability of internal factors, hence the leadership should apply the appropriate
change management model given the context [12]. Change management models
that emanate from these are based on different theories. Due to various
personalities, as well as divergent corporate cultures of various organisations,
different views regarding how change should be managed in an organisation may
exist [2]. Early studies on managing change were underpinned by the goals of
effectively transforming an organisation and driving efficiencies [5]. Based on
these early studies, numerous models have been developed that can be
implemented to manage change [13,14,6,15-18]. These include the following:
Lewin’s Change Management Model, McKinsey’s 7S Model, Nudge Theory, the
ADKAR Model, Bridges’ Transition Model, and Kotter’s 8-Step Process for
Leading Change Model.
The choice of a change management model, as indicated by Senge in his book

‘The Fifth Discipline’, should take account of the fact that people may be afraid of
change, yet change may be necessary [19]. It is not about the resistance to
change but rather the resistance to changing behaviour. Hence, the inherent
challenge for an organisation is to choose a change management strategy
that will be instrumental in achieving its objectives through the process of change
[9].
Choosing the most appropriate change management model is imperative for the
organisation in achieving its goals [2,3]. Tactical and functioning transformation
must remain ongoing to guarantee an organisation’s competitiveness. A two-way
approach from management to the shop floor and vice versa is crucial. Defined
and structured objectives will assist the transformation process [2]. Effective
implementation of change management must be fully supported and is a cardinal
reference point in managing change [20].
It is imperative for the change management process to be defined without

ambiguity in order for it to be understood easily. In the change process, it is
101
suggested that it is wise for an organisation to acquire information about the

competition and related sectors; any challenging situations; possible crises and
opportunities; as well as case studies of other organisations. In bringing together
a powerful team to spearhead the transformation, attention of the leadership
should be drawn to the need for leaders to show their excitement and
commitment. Leaders should foster unity within the teams to achieve the
objectives [21].
Kotter’s 8-Step Process for Leading Change model is considered to be

one of the most widely known and effective models to manage the successful
implementation of changes in an organisation [4]. The emphasis is on
attracting the interest of the workforce to buy into the changes, a factor which is
critical to efficient implementation [22]. In order for change to be compelling,
it is crucial that the changes to be made are supported by change
management agents. From a review of prior research, it has been determined
that the model is inherently significant and has not been disproved of in literature
since its initial development in the 1990’s [20]. After the first publication of his
change management model in the book ‘Leading Change’ in 1996, Kotter
expanded and reiterated his blueprint in his subsequent published
literature [11,23,10]. Kotter’s change management model is a pragmatic user-
friendly and simplified guide to effect transformation in companies and
organisations.
Kotter’s change management model spearheads the implementation of changes

that are carefully planned [20,24,25]. The emphasis on the careful planning of
change was realised by Kotter through his studies of companies that were
unsuccessful in their implementation of change [26,6]. Kotter advocated that the
leader should create sustainable change for a globally successful and
competitive organisation [6]. Kotter’s research resulted in the development of a
model that involves eight steps for effective change based on his observation of
unsuccessful implementation of change which revealed pertinent factors for
implementing change in an organisation [20].
There are eight steps involved in implementing changes in a company and

maximising the potential for the achievement of meaningful change, as outlined
by Kotter [6]. These are: (i) creating urgent reactions; (ii) forming a team to give
guidance; (iii) outlining strategic intent; (iv) disseminating the aim of
transformation; (v) ensuring that the workforce is empowered for practical
application; (vi) achieving quick positive achievements; (vii) aggregating wins and
increasing changes; and (viii) reinforcing effective changes in the operations
[5,27]. Table 1 depicts the eight steps of Kotter’s change management model
with the associated change in behaviour of each step.
102
Table 1. The eight steps for achieving the objectives in change

management
Step Action New Behaviour

One Creating urgent People communicate with each other, “Let’s
reactions go, we need to change things!”
Two Forming a team to A group strong enough to facilitate a big
give guidance change is formed and they begin to function
together well.
Three Outlining strategic The guiding team develops the right vision
intent and strategy for the change effort.
Four Communicate for People start to buy into the change, and this
buy-in is evident in their behaviour.
Five Empowerment for More people feel enabled to act, and do act,
action on the vision.
Six Create short-term Momentum builds as the workforce try to fulfil
wins the vision, while lesser and lesser resist
change.
Seven Don’t let up The staff make wave after wave of changes
until the vision is achieved.
Eight Reinforcing effective New and winning behaviour continues
changes despite the pull of tradition and the turnover
of change leaders, etc.
Source: Kotter & Cohen [10]
2.1 Aim of the Study
The aim of this study was to examine how the workforce in a logistics company in
Durban, South Africa, transitioned from a manual to an automated inventory
process, underpinned by Fourth Industrial Revolution digital technology. Kotter’s
8-step model of change was utilised to understand the process of change.
In as much as companies currently use increased levels of digital technology and

automated systems influenced by the 4IR [28], there are systems in place that
are based on manual labour and rely on various human skills, for example,
cognitive abilities and problem-solving which are still irreplaceable [29]. The
research intent was for the increase of knowledge, learnings extracted, and
historical references of change management frameworks as they apply to the
logistics industry. These detailed insights were intended to add to the body of
knowledge of the different factors impacting on change management in the
logistics sector.
The study was intended to assist in solving pragmatic issues as well as to

increase the existing body of knowledge on the topic of change management in
the logistics industry [30-33]. This research was undertaken using the qualitative
research approach as the study was exploratory and no previous studies have
103
focused on this particular study context. A purposive sampling method was

utilised in this research. Data was collected using semi-structured interviews as
well as by conducting focus groups. This enabled the participants to respond
without limiting their contributions and allowed them to express themselves
freely. Fourteen participants from the various departments at the logistics study
site were interviewed. Three focus groups were also conducted. Participants
were from the following functions: administration, warehousing, distribution,
forklift drivers, reach truck drivers, clerk stock controllers, and supervisors.
A gatekeeper letter was obtained from the organisation, and thereafter, ethical
clearance approval to conduct the study. Participants were informed that they
were under no obligation to participate and that they could withdraw at any time if
they desired to do so. Ethical considerations were considered, and the
researcher confirmed that their participation was for research purposes only and
that the data would be confidential and anonymous. The interviews were
transcribed, and data were analysed using thematic analysis.
4. FINDINGS
4.1 4IR Technology
The workforce faced the challenges of being re-skilled and up-skilled on SAP
ES01 (expired stock 01) storage location, on EWM ES01 BREAK (picking up of
less than full pallet quantities which is break bulk) and EWM ES01 FULL (full
pallet of product) storage location receiving an automated task for the ES01
BREAK on the arm-mounted terminal (AMT).
“Once the processes were developed, we had a standard operating

procedure to follow on the automated driven process flow. This process flow
was communicated in the training session with the staff. … the warehousing
department and the secondary/primary despatchers, despatching
departments, the Argon team, the co-ordinators, the pickers, the forklift
drivers and the stock controllers. We did a full exercise in the training
session on how to handle this new system driven process.” (Participant 12)
4.2 Transformational Emotions
There were emotions of resistance, concern, and apprehension at the outset.

The team leader had the challenge of obtaining buy-in and of ensuring that the
workforce change in behaviour was aligned to the new process of transitioning
from a manual to an automated system-guided process.
“… resistance because they were used to the old systems.” (Participant 7)
“According to what I had noticed; most people are scared of technology.”

(Focus Group 2_2)
104
4.3 Up-skilling and Re-skilling
The workforce needed to be trained to handle the new process, the SOP, and the
SAP-EWM system changes.
“I think everybody is capable of doing such things, if the necessary training is

provided for them. Then they should be able to change from manual to
technology…” (Participant 6)
4.4 Transitional Challenges
The initial challenge was accepting the changes. The subsequent challenge was
obtaining buy-in and change in behaviour to align with the new vision. Thereafter,
the challenge experienced was with the break bulk order which needed system
and process redesigning which was subsequently achieved.
“The departments involved were taken through the intervention and training
to get the right vision, …communicated how we wanted the stock…this is
how we want the storage locations… this is when and how we want the
stock to be able to communicate for buy-in, this is when we communicated
… stock clerks and how we intend to have this started off, how it was going
to help them and having the stock picked up and the time spent picking the
stock. The empowerment action was enabled by training that we had with
our stock clerks, forklift drivers and pickers. In the training we had to guide
them through starting from where the orders came through, how they were
going to make sure that it is short-dated stock, and how they were going to
receive the tasks on their scanners. The forklift drivers had to be shown how
they were to go to ES01 storage location to pick. From that training, when a
process was successfully completed, we were creating the short-term wins.”
(Participant 13)
4.5 Change Management Opportunities
The challenge of re-skilling and up-skilling the skill set of the workforce led to
opportunities for improved knowledge of technology, systems, and processes.
They acquired the ability to trouble-shoot and to contribute to problem-solving.
“…we have the skills; we have the ability to change the way the process has
been run. …we have a capable team, that is capable of handling any new
challenge that is coming through. Also, the aim of this is to improve those
individuals to develop their skills for them to become a better person in the near
future.” (Participant 2)
“Our team here will definitely embrace technology.” (Focus Group3_1)
105
4.6 Impact of Change Intervention
The workforce at the logistics site had to unlearn the process of the manual
inventory system and learn the new inventory standard operating procedure
(SOP), process and system. Kotter’s 8-step model was used to assist in helping
management stay focused on the vision and objectives [2]. There was a need for
change in behaviour and to adapt to the vision and to the new way of working.
The focus was on facilitating the progressive logistics processes and functions,
as well as in attempting to integrate actions from the floor upward. The workforce
was involved and contributed to streamlining the processes with the aim of
effectively implementing the changed process of managing a manual short-life
span inventory to an automated inventory SAP-EWM system-guided process.
Evaluation involved measuring the impact of the actions implemented and

stimulating continuous learning through different learning mechanisms (cognitive,
structural, and procedural). The researcher and team leader evaluated the
results together with the team after the implementation of the automated system-
guided process in managing short-life inventory. Changes had to be made on the
system to distinguish between break bulk (fine picking – less than full pallets of
product) and bulk (full pallet of product) within the ES01 (expired stock) storage
location to automate the process of fine picking up (less than full pallet orders) to
eliminate the error experienced in the process while executing the changes. This
systems error inhibited any further action hence the picking process could not be
completed, which ultimately resulted in the order not being completed.
There had to be two storage bins created within the ES01 storage location which
had a physical demarcation in the warehouse. These bins were used for all short-
life inventory pallets from a bulk storage bin (full pallets of products) to be
removed and stored separately from the good stock (product more than sixty
days of shelf-life expiry date (SLED), and the second bin, that allowed for partial
quantities to be picked which was less than a full pallet of product. The SLED
should always be included, particularly for fast moving consumer goods (FMCG).
Reconfiguration of the system which needed the break bulk process to be

amended was undertaken in the extended warehouse management (EWM)
system, and the process was amended accordingly. The SOP was also
subsequently amended. Once the changes were confirmed, the process was
reactivated. The workforce was empowered after trouble-shooting the challenges
encountered and thereafter they completed the process effectively after the
appropriate changes were effected.
“We have been making use of the system-guided process effectively. I would
say it was definitely a positive feedback.” (Participant 12)
“It was successful. Everyone is more comfortable.” (Participant 13)
“… the process followed was successful. The staff were very excited, all
stakeholders were excited.” (Participant 14)
106
5. DISCUSSION
Kotter’s 8-Step Process for Leading Change Model has been described as an
approach to implement change to achieve the objectives in an organisation [22].
The emphasis of the model is on attracting the interest of the workforce which is
critical to effective implementation [22]. It is believed that Kotter’s model is still a
key resource in facilitating change [20].
The effective implementation of change management as well as the ability to

redesign the system architecture and process flow were challenges that were
experienced at the logistics company under investigation in this study. Also, the
workforce was re-skilled and up-skilled through training on the job, applying the
SOP, trouble-shooting and effecting the appropriate change in process to ensure
the break bulk sales order for the short-life stock was effectively executed, which
also attested to competencies that they developed.
6. CONCLUSION
The study sought to examine the process of transitioning from the manually
operated process of managing short-life products from a sales, warehouse, and
distribution perspective to a 4IR technology-driven automated system-guided
process. From a theoretical perspective, this study, undertaken at a logistics
operation, has indicated how Kotter’s 8-step change management model [6] was
applicable and relevant to the logistics operational environment.
There are limitations to most studies and this research was no exception. Due to
the focus being only on a defined facet of the business process, namely short-life
inventory management, the limitations are as follows: (a) The small sample size
included the workforce members that were directly involved in the area of the
study; (b) the workforce included in the study had a lack of exposure to change
management models; (c) the scope of research was limited to short-life inventory
management; and (d) the study drew on the qualitative research approach, in
one company, and thus the results are not generalizable.
With reference to future research, a mixed methods study should be conducted

with a larger sample, and the influence of leadership in the area of change in the
logistics environment, could be explored. Reverse logistics is another possible
focus area of investigation for other researchers. Reverse logistics is the process
of routing products from the organisation’s various customers to a consolidation
hub or back to the original delivery point in order to recover their value and to
minimise their environmental impact. Logistics organisations may need to set up
a specific return logistics network and create consolidated return centres to
facilitate reverse logistical flows which will have an impact on the cost and
management of products. Reverse logistics will still need to be planned and
monitored; hence automation is needed for the reverse logistics processes. Proof
of delivery (POD) automation and real time visibility will also enable the
organisation to have visibility of request for credits, rejection of products, failed
107
deliveries and any other discrepancies in real time. This will impact the
organisation’s debtors’ collection.
COMPETING INTERESTS
REFERENCES
1. Creasy T. An introduction guide to change management [cited Apr 2

2018]. 2018; 2
Available: http://www.prosci.com
2. Joseph Galli BJ. Change management models: A comparative analysis
and concerns. IEEE Eng Manag Rev. 2018;46(3):124-32.
3. Holloway SD. Leading and engaging sustainable change: achieving
organizational transformation through the transformative methodologies of
the change acceleration process and lean Six Sigma. Miwaukee. WI:
Cardinal Stritch University; 2015.
4. Wentworth DK, Behson SJ, Kelley CL. Implementing a new student
evaluation of teaching system using the Kotter change model. Stud Higher
Educ. 2020;45(3):511-23.
5. Chappell S, Pescud M, Waterworth P, Shilton T, Roche D, Ledger M et al.
Exploring the process of implementing healthy workplace initiatives:
mapping to Kotter’s leading change model. J Occup Environ Med.
2016;58(10):341-8.
6. Kotter J. Leading change. The leadership challenge. San Francisco,
Boston: Harvard Business School Press; 1996.
7. Chuang S, Graham CM. Embracing the sobering reality of technological
influences on jobs, employment and human resource development: a
systematic literature review. Eur J Train Dev. 2018;42(7/8):400-16.
8. Loyola A. Transformational change to face the 4th Industrial Revolution.
Igniteorganizations.com
[Cited Jul 28 2019]. 2018;1-5.
Available: https://igniteorganizations.com/transformational-change-to-face-
the-4th-industrial-revolution/
9. Banerjee Y, Tuffnell C, Alkhadragy R. Mento’s change model in teaching
competency-based medical education. BMC Med Educ. 2019;19(1):472.
10. Kotter J, Cohen D. The heart of change: real-life stories of how people
change their organizations. Boston: Harvard Business School Press;
2002.
11. Kotter J, Schlesinger L. Choosing strategies for change. Harv Bus Rev.
2008;86(7/8):1-11.
12. Schech-Storz MD. Organizational change success in project
management: A comparative analysis of two models of change [PhD
thesis]. Capella University; 2013.
13. Bridges W, Mitchell S. Leading transition: A new model for change. Lead
Lead. 2000;16(3):30-6.
14. Kanter RM. Change masters. New York: Simon & Schuster; 1984.
108
15. Lewin K. Frontiers in group dynamics: II. Channels of group life; social
planning and action research. Hum Relat. 1947;1(2):143-53.
16. Moran JW, Brightman BK. Leading organizational change. J Workplace
Learn. 2000;12(2):66-74.
17. Pfeifer T, Schmitt R, Voigt T. Managing change: quality‐oriented design of
strategic change processes. TQM Mag. 2005;17(4):297-308.
18. Quinn JB. Organizational development, change and transformation. In:
Armstrong M, editor. A handbook of human resource management. 10th
ed. London: Cambridge University Press. 2006;337-48.
19. Senge P. The fifth discipline. New York: currency; 1990. Senge PM.
Mental models. Plan Rev. 1992;20(2):4-44.
20. Appelbaum SH, Habashy S, Malo JL, Shafiq H. Back to the future:
revisiting Kotter’s 1996 change model. Back to the Future. J Manag Dev.
2012;31(8):764-82.
21. Kuo YL, Chen IJ. Facilitating a change model in age-friendly hospital
certification: strategies and effects. PLOS ONE. 2019;14(4):e0213496.
22. Kotter J. Leading change: why transformation efforts fail. Harv Bus Rev.
2007;86(1):97-103.
23. Kotter J. Accelerate: building strategic agility for a faster‐moving world.
Boston: Harvard Business Review Press; 2014.
24. Brisson‐Banks CV. Managing change and transitions: a comparison of
different models and their commonalities. Libr Manag. 2010;31(4/5):241-
52.
25. Mento A, Jones R, Dirndorfer W. A change management process:
grounded in both theory and practice. J Change Manag. 2002;3(1):45-59.
26. Kotter JP. Leading change: why transformation efforts fail. IEEE Eng
Manag Rev. 73(2). 1995;37(3):59-67.
27. Kotter J. The 8-Step process for leading change. Boston: Harvard
Business Press; 2015.
28. Beilby J. Workforce innovation: embracing emerging technologies. Aust J
Gen Pract. 2018;47(8):522-4.
29. Bortolini M, Faccio M, Galizia FG, Gamberi M, Pilati F. Adaptive
automation assembly systems in the Industry 4.0 era: A reference
framework and full–scale prototype. Appl Sci. 2021;11(3):1256.
30. Smith I. Continuing professional development and workplace learning 11:
managing the ’people’ side of organizational change. Libr Manag.
2005;26(3):152-5.
31. Kotter J. A sense of urgency. Boston: Harvard Business Press; 2008.
32. Mørk A, Krupp A, Hankwitz J, Malec A. Using Kotter’s change framework
to implement and sustain multiple complementary ICU initiatives. J Nurs
Care Qual. 2018;33(1):38-45.
33. Pollack J, Pollack R. Using Kotter’s eight stage process to manage an
organisational change program: presentation and practice. Syst Pract
Action Res. 2015;28(1):51-66.
109
Mr. Neville Chinniah

Research and Academic Experience: He is a National Logistics Manager with a demonstrated history
of working in the FMCG food & beverages industry. He holds a Master of Business Administration (MBA)
from the Graduate School of Business & Leadership, University of KwaZulu-Natal, South Africa. He is
completing his Doctoral research, “From a manual to a system-guided process: Implementing change in
a Fast-Moving Consumer Goods company in KwaZulu-Natal, South Africa”. He has also obtained
competence in SAP, Extended Warehouse Management (SAP-EWM), Cohesive Team Building,
Mentoring & Development of people, Warehouse & Distribution Operations, Reverse Logistics, and
Diversity Management.
Research Area: Change management, logistics, leadership, management.
Dr. Simon Taylor

Research and Academic Experience: He has 15 years’ experience in higher education having
graduated from Rhodes University with a PhD in Management. He has spent six years at the Graduate
School of Business and Leadership at UKZN. He worked for several years at Rhodes University
Business School before moving to work in London at Bloomsbury Business School. He relocated to
UKZN in 2017 as project manager for the UKZN- EDTEA rledi project. He has taught on the MBA
program and Postgraduate Diploma in LED. He has supervised a number of PhD and Masters students.
He supervises Masters and PhD students.
Research Area: LED, Leadership and Supply Chain Management
Number of Published papers: 18
Any other remarkable point(s): LED Project Manager for the UKZN-EDTEA project.
110
Prof. Cecile Gerwel Proches

Research and Academic Experience: She is an Academic in the Graduate School of Business and
Leadership (GSB&L) at the University of KwaZulu-Natal (UKZN) in Durban, South Africa. She holds a
PhD (Leadership Studies), MCom (Leadership Studies), BCom Hons (Industrial & Organisational
Psychology) and BCom (majoring in Business Management, and Industrial & Organisational
Psychology). She teaches the Leadership module on the Postgraduate Diploma in Leadership (PGDip
Leadership), as well as co-lectures the Leadership module on the Master of Commerce in Leadership
Studies (MCLS), as well as MBA Leadership module, and the MBA Research Methodology module. She
served as Programme Coordinator of the Postgraduate Diploma in Leadership for several years. She
also taught on the Management Development Programme (MDP) and the Managing for Impact (MFI)
programmes, and is actively involved in facilitating on short courses and executive education
programmes aimed at developing leadership capabilities. She has successfully supervised several
Master’s students (MBA and Leadership Studies) and doctoral students (PhD in Leadership Studies and
Doctor of Business Administration). Her research, supervisory and consulting interests include
leadership, change management and organisational culture, organisational behaviour, VUCA, leading in
complex and disruptive times and environments, systems thinking, and complexity theory. She has
presented at various national and international conferences, and published a number of papers in
academic journals.
Research Area: Leadership, Management, Organisational Behaviour.
Number of Published papers: Minimum 40 published papers.

___________________________________________________________________________________
111
Chapter 5
Does Internal Governance Govern

Intraday Corporate Bond Liquidity?
Evidence from Corporate Earnings
Announcements
Yankuo Qiao a,b*
DOI: 10.9734/bpi/ctbef/v3/5792A
ABSTRACT
Extensive studies in the extant literature of market microstructure explore the
informational efficiency of the specific financial market and the relative
efficiencies across different markets. However, relatively less research has
accumulated to date regarding whether or not institutional details of firm and
management team are related to the liquidity of financial securities. Accordingly,
this study strives to investigate whether and how the intraday corporate bond
liquidity is associated with corporate internal governance, a governance
mechanism stemming from the structure of the top management team. In
particular, it is focused on the time window shortly before earnings
announcements when the information asymmetry is heightened. Consistent with
the implications of the theoretical model of internal governance, the paper
uncovers a hump-shaped relationship between internal governance measure and
corporate bond liquidity before earnings announcements. The empirical results
are generally persistent across a battery of robustness checks such as sensitivity
check by trading frequency and window size, subsample test by corporate bond
rating, and firm level aggregation analysis. Specifically, it is found that the hump-
shaped functional form becomes more salient for shorter windows, non-
investment level bonds, and bonds of higher trading frequency. As the primary
identification strategy, I use the 2008 financial crisis. The hump-shaped
relationship persists in the face of exogenous shock to internal governance
measures. This novel study contributes to the literature of financial economics,
corporate governance and market microstructure. The research also supports the
claim that the corporate bond market is informationally efficient.
Keywords: Internal governance; corporate bond; intraday liquidity measure;
market microstructure.
JEL Codes: D82, G14, G30, G32
________________________________________________________________________
a
Financial Research Center, Fudan Development Institute (FDDI), Shanghai, China.
b
The George B. Delaplaine Jr. School of Business, Hood College, Frederick, USA.
*Corresponding author: E-mail: Qiao@hood.edu;
Does Internal Governance Govern Intraday Corporate Bond Liquidity? Evidence from Corporate
Earnings Announcements
1. INTRODUCTION
According to Malkiel and Fama [1], there are three types of market efficiency.
Extensive studies in the extant literature of market microstructure are mainly
focused on verifying the informational efficiency of the individual market and
exploring the relative efficiencies across different markets. However, little
research has been conducted to determine whether institutional details of the
firm and management team are related to financial security liquidity. In this study,
I investigate the beneficial effect of internal governance on the liquidity of
corporate bonds facing earnings announcements, a significant market
informational innovation. Internal governance, as first proposed in (Acharya et al.,
2011), is a mechanism by which lieutenant managers effectively constrain the
CEO's myopic behaviors, that also represents the overall efficacy of the top
management team. As such, the key research question of paper is whether and
how the degree of efficacy of the management team is associated with the bond
liquidity measures shortly before earnings announcements when the information
asymmetry is heightened. Specifically, utilizing the bond turnover measure, the
paper uncovers a hump-shaped relationship between internal governance and
corporate bond liquidity before earnings announcements, which is aligned with
the functional form of internal governance in the theoretical development by
Acharya et al. [2]. The main findings of the hump-shaped relationship are robust
to the sensitivity test of using different event windows for bond liquidity measure
as well as to the sample splitting by bond characteristics such as trading
frequency and credit rating, thereby validating the statistical inferences. The
salutary effect of internal governance mechanism upon the corporate bond
liquidity preserves even when the bond level sample is aggregated to firm level in
the econometric specification, which arguably obscure the degree of
informational granularity conveyed by the data. In addition, I further confirm the
robustness of the hump-shaped relationship whereby utilizing a quasi-exogenous
shock, the 2008 financial crisis, as the identification strategy. In particular, the
quadratic functional form holds in face of the exogenous shock. The change of
bond turnover measure and the change of internal governance are positively
related when originally the internal governance measure is in the range of
upward sloping part of the hump-shaped functional form before the shock.
Similarly, the change of bond turnover measure and the change of internal
governance are negatively related when originally the internal governance
measure is in the range of downward sloping part of the hump-shaped functional
form before the shock. As such, the exogenous shock identifies the casual
relationship between internal governance and corporate bond liquidity.
The paper distinguishes from other two papers in a similar vein, Kanagaretnam
et al. [3] and Jain et al. [4] both conceptually and methodologically. Firstly, Jain et
al. [4] focus on the equity market and use firm-year average liquidity measures.
Based on the pricing parity of equity and credit, I pay particular attention to the
corporate bond market through a lens of greater accuracy at the intraday level.
Secondly, albeit using short event window, Kanagaretnam et al. [3] only
considered traditional corporate governance mechanism such as board
characteristics whereas I concentrate on the marginal effect of internal
113
governance which is conceptualized in 2011 by Acharya, Myers and Rajan. To

my best knowledge, this is the first paper that focuses on the linkage between
corporate internal governance and corporate bond liquidity at extremely short
window of intraday level during heightened market uncertainty. I believe the
paper contributes to the literature on the determinants of corporate bond liquidity
[5,6]. Moreover, the statistically significant relationship between internal
governance mechanism and bond turnover measure indicates that market
trading activities incorporate public information in addition to prices and thus
provide side evidence that the corporate bond market is at least of semi-strong
form efficiency.
2. THEORETICAL BACKGROUND AND LITERATURE REVIEW
Clearly the executive horizon of the incumbent CEO is much shorter than that of
her immediate subordinates in the top management team who potentially will
assume the CEO position, in the sense that the outgoing CEO is more likely to
boost current earnings through myopic activities while the incoming CEO is more
aligned her self-interest with the future value of the firm. Acharya et al. [2]
suggests a mechanism of internal governance that could mitigate the executive
horizon problem. No matter how powerful the CEO is, unless she is the sole
productive force of the firm, she still needs the assistance of the lower level
managers to collaboratively and strategically implement the designated policy. As
such, the degree to which the other members in the top management team share
executive duties become the most conceptually consistent measure with Acharya
et al. [2] and the internal governance is said to be optimal when the power and
cash-flow relevant tasks are distributed proportionally across the management
team resulting in superior firm performance. The mechanism of internal
governance can be illustrated as the following theoretical model in Acharya et al.
[2].
1
  b 1 b
k SS   1     b1  [1]
 1  r b1 
(1)
1
  b    
b 1 1 b
k FB     1      [2]
 r  b 1  1  r  
in which k ss is steady state capital stock in the scenario of myopic CEO, which is
FB
positively related to firm performance; k is the steady state capital stock in
first-best case, which represents the highest possible level of firm performance;
f
 is the internal governance measure; all other parametric
f g
114
components are kept positive, b  1, 1   b  0 ; and the key variable is 

which denotes the fraction of cash flow relevant tasks assigned to the CEO.
ss FB
Next, I compare the above expressions of k and k , whereby scaling the
steady state capital stock for myopic CEOs by that of the first-best case as
follows.
k SS  r 1     b 1 1 b
 
 b 1   1   1  r  
b 1
k FB
(1)
Apparently, we could observe that the value of equation (2) approaches zero as
 approaches the two extreme values of 0 and 1. A fully decentralized team
has   0 , and one where the CEO makes all the contribution has   1 .
Therefore, firm value is maximized when  is in between 0 and 1 which predicts
a hump-shaped relationship between firm value and  .
Moreover, from an information-processing perspective in Haleblian and

Finkelstein [7], the top management team can be thought of as an information-
processing center of a firm, whose capability is dependent on the composition of
the team and the distribution of the power. Internal governance has been shown
relevant to the quality of information environment in the literature. Landier et al.
[8] shows that junior managers improve the information production inside the
firm. Cheng et al. [9] documents that non-CEO executives provide high quality of
financial reporting. Taken together, good internal governance may promote
accurate and reliable disclosure practices, which are informative to market
participants and analysts for the actual announcement. Furthermore, Cheng et al.
[9] shows that good internal governance could effectively constrain activities of
earnings management by myopic CEO, further reducing information asymmetry
between the firm and the market.
In additional to the information processing channel, as indicated in Acharya et al.

[2], internal governance would optimize the investment policy for capital stock,
which in turn lowers the financial and operational risks that underlie the firm,
leading to stable and resilient performance facing turbulence and discontinuity of
external business environment. Specifically, Adams et al. [10] document that the
financial performance is more volatile for firms led by dominating CEOs as
measured by title, ownership and status, who are in general less disciplined by
subordinate managers and other governance mechanisms. In contrast, the risk
profile of the firm is lower in face of good internal governance, which in turn
improves the prospects in the long run and enhances corporate bond liquidity
during special times of heightened information asymmetry.
115
One effective way to examine the informational efficiency of the market is to

check how the market reacts to the information flow. I propose to test the effect
of internal governance on the firm’s liquidity in the context of news
announcements, where the information is heightened. In accordance with the
fundamental intuition of basic finance model such as discounted cash flow model
(DCF), earnings announcement is one of the major such events which conveys
unobscured information regarding the mean and variance of the firm value.
Studies have widely documented the influential effect of earnings managements
on security price, trading volume and bid-ask spread in the equity market
whereby checking abnormal movements of trading surrounding the event [11,12].
Analogous to the equity market, earnings announcements also lead to

heightened information for bond trading, especially for riskier and more “equity-
like” corporate bonds. Specifically, there are three aspects of corporate bond
pricing: interest rates and macro-economic conditions, contracting covenants of
bond and the probability of default. Focusing on the probability of default, the
canonical literature on the structure model of bond pricing [13,14,15] regards
corporate bonds as derivative securities written on the firm assets. As shown in
the following model, the bond price in Merton [14] expresses the bond price as a
function of firm value and volatility of cash flows, P    F Vt , 2 , , r, B  .
Specifically, the basic pricing formula is structured as follows,
P    Vt N  d1   Be N  d2  (2)
Where 
d1  ln Vt B   r  1 2  2  /    and d2  d1    .
In alignment with Modigliani and Miller theorem [16] and the pricing parity of
equity and credit indicated by the strand of structure models, bond and equity are
claims on the same underlying assets and thus are reflecting the same
information regarding the risk and value of firms’ assets. Hence, scheduled
earnings announcements are indicative of updating bond prices according to the
information innovations. As such, the potential risk of information asymmetry
should be escalating in a certain short period before the actual announcement
when the market participants hold heterogeneous expectations of the firm
performance and interpretations of analyst forecasts, resulting in reduced trading
volume and inflated liquidity premium (see, for example, [17]).
3. HYPOTHESES DEVELOPMENT
With all being said, I hypothesize that there is a hump-shaped relationship

between internal governance measure and corporate bond liquidity before
earnings announcements. On the one hand, internal governance is shown
arguably beneficial to the internal and external information environment of the
firm (see, for example, Cheng et al. [9]; Landier et al. [8]). Moreover, the risk
management aspect of internal governance reduces financial and operational
risks through optimizing the decision making process, which improves the long
116
term prospects of the firm in face of dynamic business environments and market
1
conditions. As a result, the information asymmetry and concerns of adverse
selection among market participants before earnings announcements would be
largely undermined and the market liquidity would therefore be improved. On the
other hand, earnings announcements, as an official public statement of the firm’s
profitability, effectively convey information regarding the mean and variance of
firm value. Based on the Modigliani and Miller theorem and the structured
corporate debt pricing model, the pricing parity of equity and bond indicates that
after the actual arrival of earnings announcements to the market, bond prices are
of high risk of changing in accordance with the information content. As such, I
shall expect to see, in general, heightened information asymmetry and
undermined market liquidity shortly before earnings announcements [17]. Taken
together, the two main channels and earnings announcements lead to a context
of proliferated conflicts between the salutary force of good internal governance
and detrimental force of heightened information asymmetry to corporate bond
liquidity. Therefore, the empirical analyses focused on this particular time window
of heightened market uncertainty could identify the causal relationship between
internal governance measure and corporate bond liquidity. As such, the
hypothesis can be stated as follows.
Hypothesis: Quality of internal corporate governance is positively associated

with corporate bond liquidity shortly before earnings announcements.
4. DATA, MEASURES AND METHODOLOGY
4.1 Measures and Methodology
According to Acharya et al. [2] internal governance works best when neither the
CEO nor their subordinate managers are dominant. The authors define a variable
  f /  f  g  , which is the relative contribution of the CEO ( f ) to cash-flow
generation when compared to the cash-flow contribution of her management
team ( f  g ). A fully decentralized team would have   0 , and one where
the CEO makes all the contribution is when  =1. To operationalize this metric, I
f
calculate the number of executive titles of the CEO ( ) scaled by the total
number of executive titles carried by the entire top management team of five
executives ( f  g ), which is the proxy used by Aggarwal et al. [18] and Brick et
al. [19]. Adopting the methodology developed in Brick et al. [19], I use the regular
expression (regex) procedure in R to calculate the number of titles for each
executive. Please refer to the Appendix in Brick et al. [19] for the technical details
of data processing procedures.
1
According to Qiao [20], the channel of risk management may prevail in the context of this study on
corporate bond liquidity.
117
The turnover of an asset is a typical measure of liquidity. In the context of bond

liquidity, turnover is usually defined as the daily average of total trading volume
(see, for example, Dick-Nielsen, [21]). Since I use narrow event window at
intraday level, I define the main liquidity measure in the paper as bond turnover
per event window, or in other words, sum of transactional bond trading volume,
N
i.e. Turnoverbond ,t   Qj , in which Qj is the bond trading volume of
transaction j and N stands for the number of transactions within the event
window. Since bonds are, in general, traded infrequently, bonds with
transactions in the short event window are distinguished greatly from those
without, in terms of liquidity and transparency. To capture such information in the
empirical test, I take the turnover of bonds issued by certain firms as zero if the
bonds of the firm don’t trade during the short event window but did trade during
the month before the actual time of announcements. Alternatively, I use average
transactional trading volume as an alternative measure of bond liquidity, i.e.
1 N
Intensitybond ,t 
N
Qj , which emphasizes the trading intensity of the
bond. However, one mechanical disadvantage of the intensity measure is that it

unfairly punishes bonds that trade frequently with moderate volume and
enormously rewards bonds that trade infrequently in large blocks which happen
to execute within the event window. The latter case of bond trading in low
frequency but with huge transactional volume is in fact more likely motivated by
reasons aside from pure liquidity reason, but by inside information, collusion
among institutional players and regulatory requirements [22]. As such, the
measure of trading intensity is less resilient to confounding effects of the data,
blurring the channel of informational transparency or financial risk management,
especially when the degrees of trading frequency of the bonds in the sample are
of considerable discrepancy. I will further introduce the empirical design that
could confront such imperfections in the measures in the subsequent section. I
choose not to use Amihud price impact as the liquidity measure because it is not
suitable for intraday analysis of thinly traded corporate bond. The bond turnover
measure is scaled by 1 million in plain linear regression models for convenience
of interpretation.
According to the comparative statics of the theoretical model in Acharya et al. [2],
I utilize the following quadratic model specification for the main tests.
LiquidityMeasure  0  1IGit  2 IGit2  3Controlsit 1 t  k  it (3)
in which dependent variable is the bond liquidity measures, IG is internal

governance measure, and Controlsit 1 represents a list of covariates of firm,
board, and bond characteristics at the beginning of the fiscal year. To mitigate
the effect of macro-economic condition and market level events, I include year
118
fixed effects, t , in the model specification. Further, to mitigate the inconsistency

concern about missing endogenous firm level variables, I include firm fixed
effects dummies, k , in the model specification. The standard error is two-way
clustered at year and bond level.
4.2 Data and Sample Construction
I obtain the date and time stamp of quarterly earnings announcements of all the
firms available on I/B/E/S (Institutional Brokers Estimate System) of chosen
horizon from the beginning of 2007 through 2017, as total 10 years serving as
the entire time horizon for the scope of this study. Such a horizon is by all means
comprehensive in the sense that a) before 2006, TRACE is subject to rapid
expansion and progressive implementation since its initiation in 2002 and I want
to avoid the liquidity shocks and disturbances during the staggered roll-out of
TRACE b) the data in TRACE enhanced is up to January, 2017, as of when the
sample was composed. Further, I select a particular range from 2009 to 2014
within the complete time horizon as the main period to perform the
majority of my empirical analyses. I choose such a period is because a) I want to
avoid the main market level disturbances of 2007-2009 financial crisis and its
shocks upon the efficacy of top management team b) I’m more interested in the
bond market liquidity in recent years c) I want to avoid the regulatory
shocks upon liquidity provisions and trading behaviors since 2014 such as
Volcker Rule and the major expansion of TRACE by reporting 144A bonds. In
essence, for the sake of mitigating confounding effects, I intend to focus
particularly on the most stable period of the market and TRACE database for the
main investigation. Moreover, the main horizon for investigation includes the
exogenous shock of 2008 financial crisis for my identification strategy in the
robustness check.
To accommodate the fact that only annual data is available for internal
governance measure, in this study I only use the first quarterly earnings
announcement in each fiscal year, which is presumably the one proliferating the
most uncertainty on the market. To utilize the data available at intraday level and
improve the accuracy of the test, I choose a very narrow window, 1 hour before
earnings announcements, as the main event window. As defined in Hasbrouck
[23], the concept of information epoch starts from the beginning of information
asymmetry and ends at the resolution of information asymmetry. In conformance
with that philosophy, I intend to focus the main event window on the very left
boundary of information epoch, beyond which the actual announcement will
arrive and resolve the information asymmetry. As such, during the short window
of 1 hour before earnings announcements, the opportunity cost of not trading for
liquidity is so low, and the liquidity measures constructed based on the trades
happened in between are less confounded by trades motivated by other reasons
such as inside information, thereby representing the channel of informational
transparency and financial risk management. However, one arguable weakness
of the empirical design is that the short event window may probabilistically
119
exaggerate the bias of the liquidity measure in face of a sample consisting of

bonds with heterogeneous trading frequency. To further support my empirical
design, I control for the trading frequency of the bonds in the sample
construction, whereby including bonds that are active over 25%, 50%, 75% and
95% of days in the month before the announcement date. The rationale is that,
by narrowing sample down to relatively actively traded bonds, the percentage of
correct observations identified by the measure out of the filtered sample is
improved.
If the actual announcements arrives market before normal trading hours, the last
hour of trading prior to the announcement date is the chosen event window; on
the contrary, if the arrival of news is late than the normal trading hours, I choose
the last hour during normal trading hours of the day. Next, for each firm and the
corresponding event window, I obtain the bond transaction data from the TRACE
enhanced database. In essence, the sample of bond transaction is of longitudinal
data with large cross section. One difficulty of execution is to efficiently download
and effectively process the microstructure data from TRACE. To overcome such
a problem, I design and operationalize a program which could exactly derive the
relevant transactional level data according to the pair of firm and announcement
time, calculate measures and manage memory efficiently. I utilize the standard
method structured in Dick-Nielsen [21,24] to mitigate the bias brought by trade
correction, cancellation and reversal reports mixed in the data dissemination of
TRACE.
I collect the identity of the CEO and subordinate managers, as well as their job
titles and employment history from Execucomp. The collected data of executive
background includes job titles of top five executives in the corresponding fiscal
year (TITLEANN), and the CEO annual flag (CEOAN). The data of firm
characteristics are obtained from Compustat, such as total assets, financial
leverage and the corresponding performance measures at the beginning of the
fiscal year (lagged). I take the logarithm of the total assets to mitigate the issue of
skewness. Additionally, I collect data from ISS on board characteristics such as
the number of outside directors, total number of directors and
percentage of outside director who serve on the board. I merge the
Execucomp, Compustat and ISS to construct the sample of control variables. I
also control bond characteristics such as credit rating from FISD. In fact,
since bond credit rating shouldn’t vary much within firm and across the chosen
time horizon, it is largely captured by firm fixed effects. I merge the sample of
bond liquidity measures and controls by Compustat and I/B/E/S link table.
The specific variable definition is shown in Table 1 and the summary statistics is
in Table 2. The main sample is of over 10,000 bond-year observations, 968
unique firms, 8170 bonds, and average turnover of traded bonds around
1.4 MM.
120
Table 1. Variable definitions
Variable Description
Bond Turnover Total transactional trading volume per the selected intraday
window
IG It denotes the fraction of executive titles held by the CEO (  ),
the proxy for the relative contribution of the CEO to the entire
cash flow of the firm.
M/B The industry adjusted M/B is defined as M/B minus the industry
median level M/B. The median level is calculated for 2-digit SIC
industry-year using the Compustat universe.
Leverage (Long term debt + debt in current liabilities)/ at the beginning of
the period (lagged)
Assets Natural log of total Assets
RD Research and development expenditures/ at the beginning of
the period (lagged)
Director Total number of directors serving on the board
Outsider Percentage of outsider directors
Table 2. Summary statistics
Sample of Main Time Horizon (2009-2014)

Mean Median p25 p75 Std. Skewness Kurtosis
Bond 1.461 0.100 0.025 0.608 16.015 58.939 3676.164
Turnover
IG 0.262 0.250 0.222 0.300 0.069 0.551 3.787
M/B 1.172 0.422 -0.238 1.680 4.166 2.018 37.561
Leverage 0.246 0.222 0.071 0.359 0.246 14.685 878.622
Assets 7.738 7.633 6.516 8.861 1.722 0.365 3.270
RD 0.033 0.000 0.000 0.032 0.080 7.114 101.603
Director 9.484 9.000 8.000 11.000 2.510 0.963 6.301
Outsider 0.715 0.778 0.600 0.875 0.196 -1.013 3.302
5. RESULTS AND ANALYSES
5.1 Main Results
The main results of the paper are exhibited in Table 3. When using bond turnover
as the liquidity measure, I observe the positive results consistent with the
hypothesis that there is a hump-shaped relationship between internal
governance measure and corporate bond liquidity before earnings
announcements. For instance, Table 3 column (2) shows that the coefficient of
internal governance measure is positive and significant at 1% and that of its
quadratic term is of 1% statistical significance. The results in Column (2) confirm
the relationship by controlling board characteristics. It is of important theoretical
reason to do so since in the theoretical work of Acharya et al. [2], the amount of
internal and external governance mechanism is determined endogenously and
according to Kanagaretnam et al. [3], board governance contributes to reducing
information asymmetry. The evidence indicates that, when information is
heightened shortly before earnings announcements, the bonds of firms with good
121
internal governance, or in other terms, balanced power distribution among top

management team, are likely to enjoy higher degree of liquidity. The main
channel for the enhanced bond liquidity stems from the beneficial effect of good
internal governance upon information environment and risk profile of the firm.
Qualitatively equivalent results are shown in Column (4) in which the liquidity
measure is trading intensity. In sum, when the power distribution among the top
management team is proportional and the internal governance is deemed to be
effective, both the overall trading volume within the event window measured by
turnover and the average transactional trading volume measured by trading
intensity are significantly improved.
2
Table 3. Main results
Panel A 1 Hour Window

Turnover Intensity
(1) (2) (3) (4)
IG 11.495 13.911*** 4.163 4.551***
(0.77) (3.69) (0.82) (2.85)
IG2 -17.544 -20.791*** -5.962 -6.416***
(-0.77) (-3.69) (-0.78) (-2.69)
M/B 0.008 0.003 0.009 0.007
(0.14) (0.23) (0.47) (1.20)
Assets 0.815 0.592** 0.466 0.393***
(0.78) (2.00) (1.31) (3.13)
Leverage 0.251 -1.464 -0.261 -1.005**
(0.07) (-1.58) (-0.23) (-2.56)
RD 0.681 0.140 1.151 2.077
(0.04) (0.03) (0.18) (1.08)
Directors 0.111*** 0.072***
(2.73) (4.16)
Outsider -1.374** -0.544*
(-1.99) (-1.86)
Year & Firm FE Yes Yes Yes Yes

R2 0.245 0.138 0.242 0.140
N 7667 6727 7667 6727
Panel B Frequency
25% 50% 75% 95%
IG 16.842*** 22.029*** 22.092*** 52.824***
(3.39) (3.40) (2.77) (3.41)
IG2 -25.456*** -33.567*** -33.751*** -79.103***
(-3.36) (-3.39) (-2.77) (-3.46)
M/B 0.003 0.000 0.019 -0.013
(0.17) (0.02) (0.81) (-0.29)
Assets 0.850** 1.046** 0.680 1.036
(2.29) (2.21) (1.15) (1.06)
Leverage -2.215* -2.362 -2.130 -2.170
(-1.89) (-1.57) (-1.13) (-0.68)
RD 0.462 -0.455 -3.906 -5.755
(0.09) (-0.07) (-0.49) (-0.39)
2
*, **, *** respectively corresponds to10%, 5% and 1% level of significance for all tables in the paper.
122
Panel A 1 Hour Window

Turnover Intensity
(1) (2) (3) (4)
Directors 0.082 0.101 0.029 0.018
(1.59) (1.56) (0.35) (0.13)
Outsider -1.714** -2.299** -2.309 -1.698
(-1.98) (-2.07) (-1.61) (-0.66)

R2 0.140 0.142 0.166 0.249
N 5095 3978 2887 1541
In panel B, I regress bond turnover against the full econometric specification

using samples consisting of bonds with a variety of trading frequency. For
conciseness, I only tabulate the results of regression in which the turnover
measure is dependent variable. In general, the hump-shaped relationship
uncovered in panel A is statistically insensitive to the choice of samples in panel
B, indicating the robustness of the statistical inference. It is worth noting that,
albeit not obviously, the smallest p-value, i.e., the highest level of statistical
significance is obtained whereby using the bonds of highest trading frequency,
which is aligned with the argument that a sample of frequently traded bonds
could mitigate the potential bias in the empirical design.
5.2 Sensitivity Analyses

The main results are obtained using the extreme short event window of 1 hour
before earnings announcements. To further confirm the validity of the main
results, I perform sensitivity test to examine the persistency and evolution of the
hump-shaped pattern. As shown in Table 4, the hump-shaped relationship holds
when controlling for the external board characteristics. This finding is in fact all
the more striking in the sense that according to Calomiris et al. [25], institutional
traders prefer to trade around 3:00 PM and thus result in more trades driven by
insider information instead of transparency or low risk profile. Thus, the negative
results for even longer window of 4 hours and 1 day in Column (1) - (2) of Table
5 and Table 6 become not surprising. One potential reason is that in a longer
window, other factors such as private information may play a bigger role [25]; the
other one is that empirically the dependent variable follows a zero-inflated
positively skewed distribution (long tail distribution), which undermines the
efficiency of linear (in parameter) regression model. Theoretically, I could round
the dependent variable to integer and utilize zero-inflated Poisson regression.
Instead, I choose to use a straight forward ln  y  c  transformation, where y is
the original data and c is some constant (usually unity). The method is widely
used in ecological and biological sciences [26], where the data of such
distribution are usually encountered. As shown in Column (3) – (4) of Table 5 and
6, the statistically significant quadratic relationship holds for longer event window
when the log link function of data transformation is applied. Furthermore, in panel
B of Table 5 and 6, I perform the same analyses with log transformation on
samples consisting of bonds with different trading frequency. The main results of
the hump-shaped relationship between bond liquidity and internal governance
123
preserves. Note that the purpose of sensitivity test is to examine the resilience of
the main results in face of confounding disturbances. Thus, the choices of longer
event window are by no means theoretically sound and the log link functions
should be regarded as an empirical modification rather than a full-fledged
solution.
Table 4. Sensitivity Test (1)
Panel A 2 Hours Window
Turnover Intensity
(1) (2) (3) (4)
IG 15.069 11.838*** 3.848 3.795***
(0.92) (2.78) (1.01) (2.72)
IG2 -23.144 -18.853*** -5.807 -5.679***
(-0.97) (-3.07) (-1.05) (-2.82)
M/B -0.038 -0.006 0.001 -0.003
(-0.52) (-0.28) (0.05) (-0.54)
Assets 0.909 0.139 0.267 0.246**
(0.74) (0.38) (0.93) (2.03)
Leverage -0.796 -1.884* -0.490 -1.013***
(-0.24) (-1.87) (-0.63) (-3.06)
RD 8.192 4.919 2.402 3.133
(0.34) (0.80) (0.43) (1.56)
Directors 0.136*** 0.032**
(2.81) (1.99)
Outsider -0.668 0.157
(-0.78) (0.56)

R2 0.191 0.134 0.240 0.161
N 9395 8166 9395 8166
Panel B Frequency
25% 50% 75% 95%
IG 14.843*** 23.368*** 22.265** 43.790***
(2.63) (3.08) (2.34) (2.78)
IG2 -24.227*** -38.025*** -36.402** -74.512***
(-2.91) (-3.30) (-2.52) (-3.11)
M/B -0.008 -0.008 0.009 -0.015
(-0.33) (-0.29) (0.26) (-0.23)
Assets 0.227 0.385 -0.122 0.390
(0.50) (0.71) (-0.18) (0.37)
Leverage -2.265* -1.724 -1.509 -0.431
(-1.84) (-1.17) (-0.85) (-0.16)
RD 5.400 6.971 5.538 4.934
(0.76) (0.80) (0.52) (0.26)
Directors 0.128** 0.164** 0.140 0.103
(2.12) (2.20) (1.45) (0.67)
Outsider -1.129 -1.908 -1.919 -1.469
(-1.06) (-1.44) (-1.09) (-0.50)

R2 0.132 0.136 0.155 0.264
N 6354 5026 3729 2039
124
Table 5. Sensitivity test (2)
Panel A 4 Hours Window

Turnover Log(Turnover+c)
(1) (2) (3) (4)
IG 14.366 11.111 41.349*** 46.522***
(0.56) (0.92) (8.90) (9.68)
IG2 -17.584 -14.166 -60.766*** -66.999***
(-0.47) (-0.80) (-8.85) (-9.55)
M/B -0.135 -0.026 0.012 -0.006
(-1.25) (-0.50) (0.59) (-0.29)
Assets 0.460 -0.592 -0.896*** -1.988***
(0.25) (-0.60) (-2.67) (-5.03)
Leverage -2.070 -2.998 -0.887 -1.162
(-0.39) (-1.06) (-0.92) (-1.04)
RD 12.017 7.929 -2.407 -0.049
(0.33) (0.47) (-0.36) (-0.01)
Directors -0.110 0.308***
(-0.85) (5.95)
Outsider -0.261 0.203
(-0.11) (0.22)

R2 0.129 0.075 0.575 0.592
N 10403 9105 10403 9105
Panel B Log(Turnover+c)
25% 50% 75% 95%
IG 45.635*** 54.363*** 52.566*** 50.237***
(8.17) (8.59) (7.65) (5.90)
IG2 -67.178*** -76.592*** -71.674*** -71.771***
(-8.06) (-8.01) (-6.89) (-5.56)
M/B 0.003 -0.001 0.008 0.031
(0.15) (-0.05) (0.37) (1.03)
Assets -1.739*** -1.644*** -2.091*** -0.898
(-4.07) (-3.65) (-4.25) (-1.58)
Leverage -0.383 -0.913 -2.681** 0.838
(-0.32) (-0.72) (-2.03) (0.56)
RD -1.617 5.696 12.317 18.582*
(-0.23) (0.78) (1.63) (1.85)
Directors 0.199*** 0.229*** 0.177*** -0.105
(3.53) (3.78) (2.64) (-1.26)
Outsider 0.190 -0.305 -1.979 0.037
(0.19) (-0.28) (-1.58) (0.02)

R2 0.522 0.487 0.478 0.537
N 7329 5913 4336 2282
125
Table 6. Sensitivity test (3)
Panel A 1 Day Window

Turnover Log(Turnover+c)
(1) (2) (3) (4)
IG 21.012 12.470 58.495*** 57.881***
(0.76) (0.98) (12.13) (11.60)
IG2 -23.847 -12.793 -74.452*** -71.753***
(-0.58) (-0.68) (-10.31) (-9.70)
M/B -0.125 0.003 0.014 0.015
(-1.17) (0.05) (0.75) (0.79)
Assets 0.030 -0.856 -1.747*** -1.659***
(0.02) (-0.87) (-5.30) (-4.33)
Leverage -2.793 -3.257 -4.017*** -4.592***
(-0.50) (-1.13) (-4.16) (-4.08)
RD 15.536 9.460 -4.673 -8.406
(0.40) (0.55) (-0.70) (-1.25)
Directors -0.048 0.452***
(-0.37) (8.99)
Outsider -0.272 -1.937**
(-0.12) (-2.20)

R2 0.105 0.073 0.564 0.576
N 12195 10628 12195 10628
Panel B Log(Turnover+c)
25% 50% 75% 95%
IG 52.764*** 57.813*** 66.273*** 71.339***
(9.31) (9.06) (9.03) (7.13)
IG2 -66.190*** -71.633*** -80.759*** -89.482***
(-7.80) (-7.44) (-7.28) (-5.89)
M/B 0.022 0.012 0.020 0.036
(1.04) (0.53) (0.80) (0.87)
Assets -0.982** -0.641 -0.356 1.905***
(-2.35) (-1.42) (-0.68) (2.73)
Leverage -3.439*** -2.687** -4.100*** -0.705
(-2.80) (-2.06) (-2.84) (-0.40)
RD -5.050 1.375 10.675 16.233
(-0.72) (0.18) (1.29) (1.33)
Directors 0.354*** 0.312*** 0.262*** -0.065
(6.39) (5.16) (3.67) (-0.66)
Outsider -2.228** -3.130*** -4.511*** -0.443
(-2.28) (-2.91) (-3.43) (-0.24)

R2 0.520 0.515 0.510 0.566
N 8488 6703 4743 2310
5.3 Aggregate Analyses
In essence, internal governance is a firm level mechanism. Naturally, one

alternative empirical specification is to aggregate bond liquidity measure to the
firm level whereby taking a sum or average of all bond turnover data by firm.
126
Table 7 demonstrates the regression results using the sample of most actively
traded bonds across event windows of a variety of length ranging from 1 hour to
1 day. The aggregation method chosen here is the average bond turnover by firm
since the simple sum neglect the heterogeneity of bond issuances between firms
as illustrated in Appendix. Note that it is by no means a rigorous proof but a
heuristic econometric example for illustration purpose. Not surprisingly, the firm
level aggregation analysis generally weakens the statistical significance of the
hump-shaped relation. However, utilizing the narrow event window of 1 hour, I
still observe statistically significant relationship between internal governance
measure and bond turnover at 5 percent, indicating that when the trading
frequency is controlled, the narrow event window of 1 hour remains the most
effective for capturing the effect of internal governance on bond liquidity. As
expected, the statistical significance of the hump-shaped relation decays as the
window length become longer, wherein more confounding trades are present.
Table 7. Aggregate analysis
Frequency: 95%
Aggregation analysis
1 hour 2 hours 4 hours 1 Day
(1) (2) (3) (4)
IG 45.746 38.248 33.275 32.488
(2.38)** (2.06)** (1.90)* (1.32)
IG2 -62.404 -60.024 -46.046 -37.931
(-2.12)** (-2.06)** (-1.66)* (-0.98)
M/B -0.007 -0.004 0.010 -0.080
(-0.15) (-0.07) (0.21) (-0.84)
Assets 0.212 1.142 -0.534 2.657
(0.20) (1.14) (-0.56) (1.78)*
Leverage 3.149 1.365 2.748 2.057
(0.88) (0.51) (1.07) (0.50)
RD -8.375 -0.946 5.731 -1.787
(-0.54) (-0.06) (0.36) (-0.10)
Directors 0.095 0.132 -0.115 -0.223
(0.63) (0.84) (-0.76) (-0.91)
Outsider -4.217 -2.278 3.273 3.983
(-1.46) (-0.78) (1.17) (1.06)

R2 0.577 0.727 0.600 0.393
N 639 709 741 485
6. ROBUSTNESS CHECK
6.1 Subsample Analysis
All in all, the uncovered hump-shaped relationship between internal governance

measure and corporate bond liquidity shortly before earnings announcements
are confirmed on various dimensions. However, further development might be
needed to demonstrate the robustness of the results and the rightfulness of the
127
statistical inference. There are two causes of endogeneity issue: missing

endogenous variables and reversed causality. One important aspect of the
hypothesis is that earnings announcements are informative to bond pricing and
price discovery. Clearly, when the bonds are more risky, they are more equity-
like and reflect the information content of earnings announcements, and the
salutary risk management effect of good internal governance is more likely to
manifest in the corporate bond liquidity and trading activities. Therefore, to
control the moderating factor of bond rating, I split the sample into investment
grade bonds and non-investment grade bonds. The regression results are shown
in Table 8. The statistical significances of the hump-shaped relation for
investment grade bonds are in general weaker than those of non-investment
grade bonds. Especially, when I use the sample of the most active bonds, the
hump-shaped relationship between internal governance measure and bond
liquidity vanishes, indicating that when the bias of event window is mitigated, the
earnings announcements are less informative to bond value and internal
governance no longer has statistically significant effect on bond liquidity through
lowering the issuer’s risk profile.
Table 8. Subsample analysis
Panel A Non-Investment Grade

Turnover 1 Hour Window
25% 50% 75% 95%
IG 14.934*** 20.087*** 18.080** 44.817***
(2.85) (2.89) (2.19) (2.82)
IG2 -20.944*** -28.510*** -24.196* -61.523***
(-2.61) (-2.66) (-1.91) (-2.64)
M/B -0.017 -0.021 -0.000 -0.011
(-0.94) (-0.94) (-0.02) (-0.25)
Assets 0.782** 1.017** 0.519 0.942
(2.04) (2.08) (0.88) (0.99)
Leverage -1.660 -1.511 -0.488 -0.266
(-1.38) (-0.97) (-0.26) (-0.08)
RD 1.324 1.369 -1.950 -4.531
(0.24) (0.20) (-0.24) (-0.31)
Directors 0.066 0.083 -0.008 -0.065
(1.23) (1.22) (-0.10) (-0.48)
Outsider -1.725* -2.370** -2.439 -1.032
(-1.92) (-2.02) (-1.63) (-0.39)
R2 0.144 0.144 0.182 0.277
N 4329 3350 2429 1310
Panel B Investment Grade
25% 50% 75% 95%
IG 37.441** 41.649** 66.574** 8.864
(2.17) (1.99) (1.99) (0.15)
IG2 -70.478*** -79.366** -142.725*** -66.947
(-2.69) (-2.49) (-2.75) (-0.74)
M/B 0.144*** 0.145** 0.189*** 0.004
(2.74) (2.48) (2.80) (0.03)
Assets -0.583 -1.630 -8.339** -13.163**
128
Panel A Non-Investment Grade

Turnover 1 Hour Window
25% 50% 75% 95%
(-0.36) (-0.80) (-2.51) (-2.30)
Leverage -17.442*** -19.700*** -29.975*** -43.636***
(-3.42) (-3.26) (-3.63) (-2.86)
RD -36.216 -50.749* -58.051* -96.479
(-1.44) (-1.70) (-1.66) (-1.28)
Directors 0.283 0.309 0.457 0.694
(1.46) (1.35) (1.53) (1.34)
Outsider -2.069 -3.527 -3.481 -5.269
(-0.65) (-0.89) (-0.73) (-0.58)
R2 0.369 0.376 0.443 0.539
N 766 628 458 231
6.2 Potential Endogeneity
Modeling causal relation between internal governance and bond market liquidity
empirically in a reduced form might be problematic since it ignores the potential
endogenous feedback from bond market liquidity to internal governance. The
issue of reversed causality is valid if internal governance and bond market
liquidity are endogenously determined in one framework or if internal governance
measure strongly reflect the feedback of corporate bond market. Current
theoretical models and empirical evidence between security liquidity and
corporate governance focus on the endogenous relation between stock market
liquidity and external governance of block holders (Edmans, 2009) [27,28], which
are not specifically related to this study. Nevertheless, I choose to use following
approach of exogenous shock to further verify the results for potential reversed
causality, even though the endogeneity claim on the results is disputable and not
well-established theoretically.
I utilize the approach of quasi-exogenous shock upon the internal governance

measure. One event that I can think of as relatively exogenous is the 2008
financial crisis. The empirical evidence shows that after the crisis, the internal
governance measure increases significantly [18], which is either because CEOs
take on more responsibilities of junior managers to reduce cost or because CEOs
are not penalized by bad luck [29-32]. Hence, to utilize the exogenous shock of
2008 financial crisis, I run the change of bond liquidity against change of internal
governance measure after financial crisis as follows.
LiquidityMeasure  0  1IGit  2Controlsit 1 t   k  it (5)
in which I include firm fixed effects k and time trend t to account for firm level
unobservable individual effects and the market level conditions during crisis
period. If the relationship holds, I expect that bond liquidity of firms that situated
in the up-sloping part of the hump-shaped will increase in internal governance
129
measure, while firms that situated in the down-sloping part of the hump-shaped
will decrease in internal governance measure.
The empirical results in Table 9 and Table 10 reports empirical evidence

supporting above predications. Table 9 column (2) confirms that, controlling for
external governance, the hump-shaped relationship holds when I expand the
time horizon to include the crisis period, which in itself is a fairly good proof of
robustness.
Table 9. Robustness check (1)
Turnover 2007-2014
1 Hour Window
(1) (2)
IG 4.537 9.541***
(0.46) (3.06)
IG2 -7.420 -14.734***
(-0.47) (-3.06)
M/B 0.000 0.003
(0.01) (0.27)
Assets 0.296 0.137
(0.52) (0.67)
Leverage 1.338 0.184
(0.65) (0.26)
RD -0.770 -1.850
(-0.11) (-0.94)
Directors 0.071**
(2.05)
Outsider -0.834
(-1.55)
Year & Firm FE Yes Yes

R2 0.239 0.130
N 10171 8546
Table 10 demonstrates the results of using 2008 median level of internal

governance measure as the approximate cutoff point for the upward sloping part
and downward sloping part. Using this cutoff point rather than the model
estimated optimal point of internal governance measure (around 0.33) is because
latter one results in too less data identified on the downward sloping part, leading
to diminished statistical power. For the same reason, I don’t use bond frequency
to filter sample and instead, I only include bonds that have trades in the 1 hour
event window either before or after the financial crisis. The results indicate that
the hump-shaped relationship between internal governance measure and
corporate bond liquidity holds in face of the exogenous shock upon internal
governance.
130
Table 10. Robustness Check (2)
Turnover during crisis

1 Hour Window
Upward Sloping Downward Sloping
∆IG 225.995 -92.900
(4.43)*** (-3.32)***
M/B 14.035 -3.952
(0.99) (-2.23)**
Assets -0.536 2.003
(-0.05) (2.02)**
Leverage 47.391 -4.854
(1.07) (-0.59)
RD -256.034 103.016
(-0.97) (2.29)**
Directors -1.570 3.193
(-0.22) (2.18)**
Outsider -28.701 -4.580
(-1.32) (-0.22)
Year & Firm FE Yes Yes
R2 0.347 0.342
N 997 898
7. CONCLUDING REMARKS
In this study, the key research question of interest is whether or not the degree of
efficacy of the management team measured by the internal governance
mechanism is associated with the bond liquidity measures. Specifically, utilizing
the bond turnover measure, the paper uncovers a hump-shaped relationship
between internal governance and corporate bond liquidity before earnings
announcements, which is aligned with the functional form of internal governance
in the theoretical development by Acharya et al. [2] and is confirmed by
sensitivity tests and aggregate analyses. The main identification strategy is
quasi-exogenous shock of 2008 financial crisis. In face of an exogenous shock
upon internal governance measure, the hump-shaped relationship still holds.
To my best knowledge, this is the first paper that coherently takes together such
interesting components as internal governance, earnings announcements, and
corporate bond liquidity at intraday level. Hence, I believe the paper has the
potential to fulfill the current gap in the literature. Moreover, the statistically
significant relationship between internal governance mechanism and bond
turnover measure are indicative of the fact that market trading activities
incorporate public information besides prices and thus provide side evidence that
the corporate bond market is of semi-strong form efficiency. Despite well-
motivated, the paper does not intend to fully dissect the channels and economic
rationales that underlie the uncovered functional relationship between corporate
governance and corporate bond liquidity, leaving a fertile ground for future study.
One promising direction of future research is to theoretically model or empirically
disentangle the nexus of corporate bond, firm and management team, thereby
identifying the most important channels from those posited in this study.
131
COMPETING INTERESTS
Author has declared that no competing interests exist.
REFERENCES
1. Malkiel BG, Fama, EF. 1970. Efficient capital markets: A review of theory
and empirical work. The Journal of Finance 25:2:383-417.
2. Acharya VV, Myers SC, Rajan RG. 2011. The internal governance of
firms. The Journal of Finance 66:3, 689-720.
3. Kanagaretnam K, Lobo GJ, Whalen DJ. 2007. Does good corporate
governance reduce information asymmetry around quarterly earnings
announcements? Journal of Accounting and Public Policy 26:4, 497-522.
4. Jain P, Jiang C, Mekhaimer M. 2016. Executives' horizon, internal
governance and stock market liquidity. Journal of Corporate Finance 40,
1-23.
5. Chen, T. K., Liao, H. H., & Kuo, H. J. (2013). Internal liquidity risk, financial
bullwhip effects, and corporate bond yield spreads: Supply chain
perspectives. Journal of Banking & Finance, 37(7), 2434-2456.
6. Elton, E. J., & Green, T. C. (1998). Tax and liquidity effects in pricing
government bonds. The Journal of Finance, 53(5), 1533-1562.
7. Haleblian J, Finkelstein S. 1993. Top management team size, CEO
dominance, and firm performance: The moderating roles of environmental
turbulence and discretion. Academy of management journal 36:4, 844-
863.
8. Landier A, Sraer D, Thesmar D. 2009. Optimal dissent in organizations.
The Review of Economic Studies 76:2, 761-794.
9. Cheng Q, Lee J, Shevlin T. 2015. Internal governance and real earnings
management. The Accounting Review 91:4, 1051-1085.
10. Adams RB, Almeida H, Ferreira D. 2005. Powerful CEOs and their impact
on corporate performance. The Review of Financial Studies 18:4, 1403-
1432.
11. Beaver WH. 1968. The information content of annual earnings
announcements. Journal of accounting research, 67-92.
12. Lee CM, Mucklow B, Ready MJ. 1993. Spreads, depths, and the impact of
earnings information: An intraday analysis. The Review of Financial
Studies 6:2, 345-374.
13. Black F, Cox JC. 1976. Valuing corporate securities: Some effects of bond
indenture provisions. The Journal of Finance 31:2, 351-367.
14. Merton RC. 1974. On the pricing of corporate debt: The risk structure of
interest rates. The Journal of Finance 29:2, 449-470.
15. Leland H. 1994. Bond prices, yield spreads, and optimal capital structure
with default risk. The journal of finance 49:4, 1213-1252.
16. Modigliani F, Miller MH. 1956. The Cost of Capital, Corporation Finance
and the Theory of Investment. American Economic Review 48, 261-297.
17. Chae J. 2005. Trading volume, information asymmetry, and timing
information. The Journal of Finance 60:1, 413-442.
132
18. Aggarwal RK, Fu H, Pan Y. 2017. An empirical investigation of internal

governance. AFA 2011 Denver Meetings Paper.
19. Brick EI, Palia D, Qiao Y. 2019. The Impact of Internal Governance on a
CEO’s Investment Cycle. AFA 2020 San Diego Meetings Paper.
20. Qiao, Y. (2022). To delegate or not to delegate? On the quality of
voluntary corporate financial disclosure. Review of Managerial Science, 1-
36.
21. Dick-Nielsen J. 2009. Liquidity biases in TRACE. The Journal of Fixed
Income 19:2, 43-55.
22. Easley D, O'hara M. 1987. Price, trade size, and information in securities
markets. Journal of Financial economics 19:1, 69-90.
23. Hasbrouck J. 1999. The dynamics of discrete bid and ask quotes. The
Journal of finance 54:6, 2109-2142.
24. Dick-Nielsen J. 2014. How to clean enhanced TRACE data. SSRN
2337908.
25. Calomiris CW. 2017. Has Financial Regulation Been a Flop? (or How to
Reform Dodd‐Frank). Journal of Applied Corporate Finance 29:4, 8-24.
26. Fletcher D, MacKenzie D, Villouta E. 2005. Modelling skewed data with
many zeros: a simple approach combining ordinary and logistic
regression. Environmental and ecological statistics 12:1, 45-54.
27. Admati AR, Pfleiderer P. 2009. The “Wall Street Walk” and shareholder
activism: Exit as a form of voice. The Review of Financial Studies 22:7,
2645-2685.
28. Edmans A, Manso G. 2011. Governance through trading and intervention:
A theory of multiple blockholders. The Review of Financial Studies 24:7,
2395-2428.
29. Bertrand M, Mullainathan S. 2001. Are CEOs rewarded for luck? The ones
without principals are. The Quarterly Journal of Economics 116:3, 901-
932.
30. Garvey GT, Milbourn TT. 2006. Asymmetric benchmarking in
compensation: Executives are rewarded for good luck but not penalized
for bad. Journal of Financial Economics 82:1, 197-225.
31. Easley D, Kiefer NM, O'hara M, Paperman JB. 1996. Liquidity,
information, and infrequently traded stocks. The Journal of Finance 51:4,
1405-1436.
32. Karabag SF. 2020. An unprecedented global crisis! the global, regional,
national, political, economic and commercial impact of the coronavirus
pandemic. Journal of Applied Economics and Business Research 10:1, 1-
6.
133
Yankuo Qiao
Financial Research Center, Fudan Development Institute (FDDI), Shanghai, China.
The George B. Delaplaine Jr. School of Business, Hood College, Frederick, USA.
He earned his Ph.D. in Management (Finance) from Rutgers Business School-Newark and New
Brunswick at Rutgers, The State University of New Jersey, USA, and pursued a Postdoc in Finance and
Applied Economics at Fudan Development Institute (FDDI), Fudan University, China. He is an Assistant
Professor of Finance at The George B. Delaplaine Jr. School of Business, Hood College. Previously, he
worked as Visiting Professor in Finance at the School of Business Administration, Oakland University,
Part-time Research Associate at Financial Research Center, Fudan University, Dean’s Dissertation
Fellow at Rutgers University-Newark, and Coadjutant Faculty at Rutgers Business School and Rutgers
University Newark Institute at Northeast Normal University (RUNIN). His research interests lie in
Corporate Finance, Managerial Finance, Financial Accounting, Corporate Social Responsibility and
Machine Learning and Textual Analysis in Finance. His research has appeared in scholarly journals
such as Review of Managerial Science (SSCI), Eurasian Business Review (SSCI), and Theoretical
Economics Letters (ABS). He has received various research grants including 2020 Rutgers GSN Dean’s
Dissertation Fellowship, 2021 China Postdoctoral Science Foundation Fellowship, and 2022 Shanghai
Post-doctoral Excellence Program Award. His research has been accepted to numerous department
seminars and academic conferences including Western Economic Association Annual Meeting,
International Atlantic Economic Conference, Eurasia Business and Economics Association Conference,
Federation of Business Disciplines (Southwestern Finance Association) Annual Meeting, World Finance
and Banking Symposium, Asia-Pacific Conference on Economics and Finance Annual Meeting,
Multinational Finance Society Annual Meeting, Academy of Business Research Summer Conference
and American Finance Association Annual Meeting. He has some published papers in national and
international journals.
___________________________________________________________________________________
DISCLAIMER
Journal of Applied Economics and Business Research, 10(2): 59-75, 2020.
134
Chapter 6
The Application of Planning Model to the

Rating of Villages with the Potential of
Tourism (Case Study: Bandar Anzali City,
Iran)
Pari Mosapour Miyandehi a#* and Alireza Estelaji b†
DOI: 10.9734/bpi/ctbef/v3/18708D
ABSTRACT
Bandar Anzali is one of the most beautiful cities of the Gilan province in Iran. Its
area is 308,1 square kilometers and its population is 118,564 people. Also it has
two Rural districts, Chahar Farizah, and Lijarki Hassan Rood, and it has 28
villages. Its sandy beaches and lagoons have always welcomed crowds of
tourists.The presence of natural attractions in this city has made it one of the
most attractive tourist spots in Iran. While tourists do not know much about the
existence of green and beautiful villages in this city. The current research aims to
identify and rank rural tourism potentials using the planning model. The statistical
population of the current research is all the villages of Bandar Anzali city. The
research method is descriptive and analytical. According to the topic of the
research, two methods have been used to collect information: in the first part, the
use of library documents to present theories and theories in the field of tourism of
the studied villages has been given. In the second part, based on 27 indicators of
rural tourism capability, information on the potentials in the villages in the form of
field and questionnaire, identified and collected, and then, using the innovative
planning model derived from the Gutman model, the ranking of the villages in
terms of the number of potentials Rural tourism activities have been carried out
and the villages have been identified on the map of the city in 3 levels. The
findings show that the villages of Abkanar, Bashman, Sangachin, Jafraward
Payan, and Ali Abad (level 1) have the highest and Kechlak, Khimran, Kochk
Mahaleh, Siah Khale Sar, Shile Sar, Maaf, Tarbgode and Karbalai Gode (level 3)
have the lowest. There are rural tourism potentials. To plan for the development
of tourism in villages, facilities should be provided based on the existing tourism
potential.
________________________________________________________________________
a
Geography group, Bint Al-Hadi Sadr Pardis, Farhangian University, Rasht, Iran..
b
Yadegar-e-Imam Khomeini (RAH) Shahre Rey Branch, Islamic Azad University, Tehran, Iran.
#
Associate Professor;
†
Full Professor;
*Corresponding author: E-mail: dr_parimosapour@yahoo.com;
The Application of Planning Model to the Rating of Villages with the Potential of Tourism (Case Study:
Bandar Anzali City, Iran)
Keywords: Rural tourism; tourism capacities; planning model; Bandar Anzali.
1. INTRODUCTION
With the advent of the information and technology age, the term "leisure time"
has taken on a new meaning. This activity has transformed the tourism industry
into one of the most important components of a stable economy in various
countries in the process of development.
A critical issue is ensuring the quality and performance of programs as long as

clients are satisfied. In the age of tourism, there are many demands for a
desirable use of leisure time [1]. Nowadays tourists are looking for a place where
they can spend their free time, which makes the villages the best places of
attraction.
The villages in Bandar Anzali, Iran, enjoy nice weather, and fresh healthy food,
attracting city people for their beautiful gardens and other views.
Tourism development provides the most appealing opportunities for capital

investment in rural and remote areas. Equal development is much easier to
achieve through tourism development. In general, the tourism industry aids in the
revival of many long-forgotten customs and traditions. It is the various ethnicities,
races, dialects, and languages that are related to tourism and rural tourism that
can support this beauty and help bring back prosperity to societies.
One of the key elements in developing rural tourism is identifying the available
potential in each village. Learning about the capabilities of each region and
spotting the obstacles to the performance of the programs play important roles in
economic, social, and cultural development.
Recognizing the tourism potential requires the application of different models of

planning and hereby an established program can be used to add to the attraction
of rural tourism, leading to the improvement of economic capabilities and
employment.
2. METHODOLOGY
The method applied in this paper is descriptive and analytical. It includes two
parts. The first one uses documents and books and the second part which
comprises most amount of the paper is field studies; it is done through
questionnaires, interviews, observation, and research. The statistical population
is the villages of Bandar Anzali city. In this research, the ranking of villages is
based on an innovative model based on Guttman's model.
2.1 Rural Tourism
It has been proved that the proportion of creating job opportunities as a result of
each tourist is five to one. And every minute 24 job are created due to tourism
136
industry [2.p.1]. According to the predictions made by the World Tourism

Organization, by the year 2020 the number of tourists from 625 million at present
will reach 1,6 billion and the current tourism income of 445 billion dollars will be
two trillion dollars. Thus, the first conclusion is that the tourism industry is one of
the most prosperous sources of wealth in the world [3].
And here it must be stressed that rural tourism forms a significant part of national
and international growth in the tourism business. Nowadays a great number of
western and industrial countries contribute to the rural tourism and have
managed to win high ranks in attracting the biggest number of rural tourists in the
world. Turkey, for example, is one the countries which possess a lower potential
for tourism than Iran but have attracted 10 times more tourists than Iran, and the
income of this is 35 times more than that of Iran [4]. In 2000 such countries as
Spain, and France ranked as the most successful countries in attracting tourists
(Tahririyeh, 2003, p.1).
Spain as a holiday sea resort is indebted to the tourist complexes which are
located in the developed rural areas of the Mediterranean coast [5,p.169] The
home residential areas known as Paradors are globally famous. Paradors are
very beautiful residential areas that attract 55 million tourists a year collecting
over 38 billion dollars [6].
Another country that has been successful in attracting rural tourists in Thailand.
(Fig. 1). Thailand, known as the country of smiles, has very beautiful villages
inside which are special camps for tourists to stay in. In these camps (whose rent
is just USD 7 a night) the tourist gets acquainted with the village families while
living with them and enjoys the local food they consume (Thai. 2006, p.1-5).
Fig. 1. Rural houses in Thailand
137
Iran is also enriched with tourist attractions in the villages and Guilan, a province
in the north, enjoys splendid scenery with the Caspian Sea and the lagoons
making it one of the most beautiful tourist-attracting places. In Guilan, the most
important area is the port city of Bandar Anzali, which has a high degree of
capabilities as a resort place welcoming thousands of “summer-heat-stricken”
people (Rahnamai,1999,p.54).
Located in the west of Guilan province between 37°, 20’ and 37°, 34’ North
latitude and between the meridian of 49°, 15’ and 49°, 48’ east, Bandar Anzali is
at -23 from the sea level. It is neighbored by the Caspian Sea to the north, by
Rasht and Somesara to the South, by Rasht to the east, and Talesh to the west.
[7,p.24].
According to the consensus of 2006The area of Bandar Anzali is about sq m

3089 with a population of 133134. (Political, Economic and Social Statistics
2006, p. 51) It is composed of two sections and two villages named
Chaharfarizeh and Lijarki Hassanrood. There are 28 residential villages. The first
section, Chaharfarizeh, is composed of some small villages as follows:
1)Abkenar, 2) Mahroozeh, 3) Torbehbar 4) Eshpela 5) Karkan 6) Eshtarkan
7)Moaf 8)Khomeiran 9) Siahkhale sar 10) Shileh sar 11) Siah vazaan
12)Kachalak 13) Roodposht 14) Chaibijar 15) Koopoorchaal 16) Aliabadkapoor
chaal 17) Koochak mahale 18)Sangachin 19) Galoogah 20) bashman
21)Karbalai Mehdigoodeh. The second area, Lijarki Hassanrood, is composed of
some small villages as follows: 1) Golshan 2) Hassanrood 3) Lijarki Hassanrood
4)Talebabad 5) Torbegoodeh 6) Shanhaye pardeh 7)Jafrood Bain.
Most of the villages are located either around the lagoon or around the biggest
lake in the world (the Caspian Sea) or are adjacent to both locations. Meanwhile,
the villages are of spectacular beauty due to the rice fields, orchards, natural
pools, and fish farms, which have helped attract many tourists every year
especially in summer when they come to spend their holidays. (Fig. 2).
As it is known rural tourism is the most known type. A village is the first ring of
residential attachment with nature. For this reason, it possesses the highest
potential for ecotourism. In addition, because most people are farmers in villages
and the majority of country agriculture is in villages, here comes agro-tourism
intermingled with rural tourism [8.p.83].
The villages of Bandar Anzali as social and ecological habitats have ample
capabilities for attracting tourists. They are thus discussed.
2.2 Natural Potentials
2.2.1 The sea and the shores and the rivers
The Caspian Sea with an area of sq k 438000 is the largest lake in the world. It is
surrounded by such countries as Russian, Turkmenistan, Kazakhstan and
Azerbaijan. The seashore is 6380 k long 992 k of which extends from Astara to
138
the mouth of Atrak River and belongs to Iran. The length of the seashore of
Guilan is 200 k and in Bandar Anzali it is 35 k. The Caspian Sea shores are of
the most beautiful for tourism.
Fig. 2. Map of Guilan Province, Iran
2.2.1.1 Rivers
Another benefit of the rivers can be found in the beautiful sights, fishing, and
boating. Most of the villages are adjacent to the rivers.
2.2.1.2 Bandar Anzali Lagoon
The Anzali lagoon is situated on the southwest coast of the Mazandaran Sea, in
the west of the Sefidrood delta, and south of Bandar Anzali. This lagoon is one of
139
the most attractive water sights of Bandar Anzali and has tremendous
importance for tourism. In spring when plants and water flowers grow, it is
especially majestic with the lilies, water pistachios, and the reed grooves where
such birds as white swans, geese and khotkas ( a kind of boat) live and lay eggs.
The position of most villages along the margins of the lagoon adds to the
attraction of the villages (Fig. 3).
Fig. 3. Anzali Lagoon
2.3 Farms and Farming
The farms and orchards, namely agro-tourism, are known as one of the
attractions of tourism. In his type of tourism, people spend one or more days in
the villages individually or collectively, observing the gardening and agricultural
activities. They can also enjoy picking and eating some fruits, helping themselves
to local food, and enjoying the Kolza fields.
2.4 Forest Parks
The forest parks in villages are considered as the tourism potential. In the
present study, there is one village with a forest park.
3. THE HISTORICAL AND RELIGIOUS POTENTIALS OF VILLAGES
The historical and religious places include some ancient monuments,

Imamzadehs, and other mausoleums. Since Bandar Anzali is not old enough, it
140
doesn't have many historical monuments and places in villages except for one ;
that is in Khomeiran where there used to be a ruined bathroom. . In most of the
villages there are shrines and Imamzadeh.
4. CULTURAL POTENTIALS OF VILLAGES
4.1 The Type of Costumes, Customs, and Languages
In the villages under study, there have been numerous potentials since the past,
but because of the development of urbanized culture, most of these abilities have
been forgotten. Among these are the local costumes, and traditional sports such
as Guilemardi wrestling and Varza Jang (bullfight). In the local dialect, Varza is a
bull that is mostly used for fights and people bet on it. Autumn and winter are the
best times for bullfights when the bulls are physically prepared for the fight
(Fig. 4).
Fig. 4. Cultural potentials of villages
5. THE ECONOMIC ABILITIES OF VILLAGES: WEEKLY FAIRS,

STALLS AND HANDICRAFTS
The fairs are the center for the trade of local products and also for the exchange
of ideas and regulation of some of the social interactions especially among
villagers. Weekly fairs are mostly held in such villages as Koporchaal (Monday
fair), Golshan (Tuesday fair), Lijarki (Wednesday fair), and Abkenar (Thursday
fair). The stalls are also shopping centers which are held in villages. (Fig. 5).
In principle, handicrafts are referred to the work the material of which is derived
from the same village. The lagoon and plants such as reeds and li (a kind of
straw) which grow there and the local women who are very famous for their
artistic hands have increased the attraction of tourists. It is very interesting for the
tourist to see how a straw basket or tablecloth is woven. (Fig. 6).
141
Fig. 5. Bashman market place
Fig. 6. Handicraft potentials in villages: Terbgode handicraft
6. SPORT POTENTIALS IN VILLAGES: SPORT HALLS AND FIELDS
The role of sports in developing the tourism industry is so significant that the
United Nations has named the year 2004 the year of sport tourism (Doyan, 2005,
P. 13).
The villages under study are also full of sports facilities for golf, football and so
on.
7. RESIDENTIAL FACILITIES OF VILLAGES
Residential facilities are of high significance in promoting programs in a region,

especially in villages. Village tourists can be accommodated in rural houses
which are culturally by the rural community. These are suitable places for
tourists. The construction of the houses is different in different places depending
142
on the variety of weather and the type of culture in each region. For this reason,
they can be considered as one of the places of attraction for the tourist. There
are different types of rural accommodation.
7.1 Traditional Homes or Local Accommodation
These houses whose building materials are derived from nature are two-storied
structures. The second floor known as Balakhaneh Tallar (Top house hall) can
be found in some villages in Bandar Anzali (Fig. 7).
Fig. 7. Abkenar traditional homes
7.1.1 Second houses
The accommodations are mainly found in the villages of Abkenart and

Bashaman. Inside Bashaman, is an enclosed area known as Khazar Villa which
has very beautiful villas. The owners of these dwellings are living either in
Tehran, the Capital, or in European countries.
7.1.2 Garden houses
These dwellings are built in the middle of the gardens or farms and according to
the field studies done these dwellings can be found in most villages.
7.1.3 Kotam and alcoves
Kotams are buildings erected in the gardens and farms for the sake of guarding
the field. The construction materials are reeds and Torab (a kind of bamboo)
found in the lagoon (Mosapour, 1995, p.123).
Alcoves can also be found in most villages located by the sea. They can mainly
be seen in Abkenar and Torbebar.
143
7.1.4 Gajameh
Gajameh is a small winter room built inside a Lotkah (local name for the boat) to
keep the rain away. According to the field studies, in none of the villages under
study, Gajameh was observed. It is only used for a resting place as a short time
by the sea.
7.1.5 Koomeh
Koomeh is a house made of reeds and thorn plants. It is a place for a watchman.
It is located inside the sea or lagoon. In the present study, Koomeh is considered
a dwelling place.
In the field studies, all the villages have been studied to spot the capabilities of
each and then the data has been analyzed. Based on the field studies through,
interviews and observation, it can be claimed that all the villages under study
possess tourism potential, and with a small capital investment, these villages can
be turned into significant rural tourist-attracting places. A huge amount of ability
falls in Abkenar village.
8. APPLICATION OF PLANNING MODELS
According to Dalir (2001,P.181) research must be done by the criteria of a

scientific and geographic research method; thus for better planning in different
regions in the country, it is necessary to classify the areas according to the
possessing or lacking certain facilities.
In this research, the villages of Bandar Anzali have been studied and the data
has been analyzed according to the capabilities they each have with the help of
the planning model which was created by the author to rank the villages from the
point of view of tourist attraction.
In this research Gatman’s Model [9] has been applied. One of the methods of
scalogram analysis used for the calculation of the amount of centrality and
determination of The hierarchy of settlements is the technique of Gatman’s
Criterion. This method is used when the purpose of the planning is to choose
places where different social and economic services are provided for the
population inhabiting a certain area. In this method, the institutions which offer
economic and social services may be utilized as a criterion for the determination
of the hierarchy. The factor of the population is used in similar cases to give a
final score or rank to each settlement. Among the simplest and at the same time
the most effective, this technique is suitable in grading settlements.
This method was originally executed in North America in 1944. [10:177]. In the
present research, where Gatman’s developed method is used, instead of
applying surface or deep structure services for grading the settlements, the
available capacity of villages is employed to do so.
144
The Application of Planning Model to the Rating of Villages with the Potential of Tourism (Case Study: Bandar Anzali City, Iran)
Table 1. Religious, cultural, economic, residential, sport capabilities of Bandar Anzali for rural tourism
capabilities
Total of
Names of Villages
Traditional house
Special language
Kotam& alcoves
Garden house
Football pitch
natural pools
Forest parks
Weekly fairs
Local dress
Mausoleum
Handicrafts
Sport halls
kolza plant
Old house
Tomb tree
Fish farm
bullfight
Boating
Lagoon
garden
G rade
Shrine
spring
Farms
Stalls
river
villa
sea
Number
Type
Abkenar 1 1 1 9 2 2 1 1 4 1 1 1 1 1 1 1 1
- 10 10 2 8 20 22 80 1
Eshpela 1 1 1 1 3 2 1 5 8 15 13
Eshtarkan 1 1 1 2 2 28
Beshman 1 1 3 1 1 1 1 1 1 1 30 20 13 63 2
Torbe bar 1 1 1 1 1 1 1 7 7 22
Chi Bijar 1 1 7 1 2 2 1 5 8 20 10
Khomeiran 1 1 1 2 1 1 1 1 8 9 17
Rood 1 1 1 1 1 1 1 1 1 1 1 20 12 31 4
posht
Sangachin 1 1 1 9 1 1 1 1 1 1 1 2 20 13 41 3
Siah 1 1 2 1 1 1 2 7 9 18
khalesar
Siah vazan 1 1 2 1 1 5 6 23
Shile sar 1 1 3 1 1 1 6 7 21
Ali abad 1 1 1 2 1 2 1 1 1 1 1 1 10 2 2 15 28 5
Kapoorchal 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 5 17 23 7
Kachalak 1 1 1 1 1 1 1 7 9 19
Kargan 1 1 10 1 1 1 1 1 1 1 10 19 11
Karbalai 1 1 1 3 3 27
mahdi
goodah
Kochak 1 1 3 1 1 2 5 8 20
mahale
Gloo gah 1 1 1 3 3 26
Mahroozah 1 1 1 1 4 4 24
145
The Application of Planning Model to the Rating of Villages with the Potential of Tourism (Case Study: Bandar Anzali City, Iran)
capabilities
Total of
Names of Villages
Traditional house
Special language
Kotam& alcoves
Garden house
Football pitch
natural pools
Forest parks
Weekly fairs
Local dress
Mausoleum
Handicrafts
Sport halls
kolza plant
Old house
Tomb tree
Fish farm
bullfight
Boating
Lagoon
garden
G rade
Shrine
spring
Farms
Stalls
river
villa
sea
Number
Type
Moaf 1 1 1 1 4 4 25
Terbgode 1 1 3 1 1 1 1 1 6 9 16 12
Shanghay 1 1 1 1 1 2 4 15 7 22 9
parde
Taleb abad 1 1 1 1 3 1 1 5 8 14 14
Lijariki 1 1 1 1 1 1 1 1 2 9 10 16
hasanrood
Hasanrood 1 1 2 1 1 1 1 4 8 12 15
Golshan 1 1 1 1 1 1 1 1 1 5 15 10 28 6
Low 1 1 1 3 1 1 1 1 1 6 5 10 10 22 8
jafrood
9 1 28 28 11 8 19 15 12 1 10 6 3 5 5 6 11 4 1 21 7 1 7 5 3 5 12
Type
capabilities
9 1 28 28 47 19 23 15 12 1 12 7 7 5 5 6 11 4 1 21 7 1 65 21 6 24 142
Number
Total of
Grade 15 26 4 5 3 10 7 11 12 24 13 17 18 21 20 19 14 22 23 8 16 25 2 9 19 6 1
146
In the present model which follows Gatman's model, the capabilities have been
converted into quantities to make the ranking of villages possible. Accordingly,
code 1 has been assigned to the capabilities of the lagoon, sea, farms, football
pitches, boating, handicrafts and the local costume of each village and other
abilities have also been labeled (Table 1).
Table 2. Number and percentage of capabilities for rural tourism in Bandar

Anzali
Capabilities
Capabilities
Capabilities
Percentage
Percentage
Percentage
Number
Number
Number
Sea 12 48 Mausoleums 9 40 Football pitches 21 64
Lagoon 15 52 Tomb trees 3 12 Boating 7 32
River 19 72 Local 5 20 Traditional 3 12
Costumes houses
Natural 8 36 Special 5 20 Rental 4 20
pool language dwellings
Fish farm 11 48 Bullfight 1 4 Villas 7 28
Forest 1 4 Handicrafts 11 48 Garden houses 5 20
parks
Spring 1 4 Weekly market 4 16 Kootams& 12 52
Alcoves
Ancient 1 4 Stalls 6 20
monuments
Old houses 2 8 Kolza 8 32
Imamzadeh 6 24 Sport halls 1 4
Source: field study, 2008
Table 3. Ranking of villages of Bandar Anzali, based on the model of

tourism capabilities
Names of villages Grade Number of Percentage Population Percentage

capabilities
Abkenar, Bashman, Low 1 28 76 13010 44
and High Sangachin , Low
Jafrood, Roodposht,
Golshan, Aliabad
Kapoorchaal, Shanghaye 2 19 51 9828 33.2
pardeh, torobgoodeh,
Chaibijar, Kargan,
Eshpala, Talebabad,
Hassanrood
Kachalak, Khomeiran, 3 17 46 6726 22.8
Lijaraki, Koochak mahaleh,
Siah khalehsar, Torbe sar,
Shileh sar, Siah vazan,
Maaf, Karbalai goodeh
Total 37 100 29564 100
147
Next the number of capabilities of each village has been added up, producing the
number of tourism capabilities and finally the villages were ranked based on the
highest number of capabilities (Table 2 and Chart 1).
Villages of level one are of the most tourist attracting ones but villages of levels 2
and 3 have less potentials for tourism. According to the classification of the
villages based on the models created, the villages which have the highest tourist
attractions can be identified and designed to promote rural tourism (Table 3).
Ranking of villages of Bandar Anzali based on tourism capabilities is presented in

(Chart 1) below:
Chart 1. Ranking of villages in terms of tourism capabilities
And based on this ranking, the villages have been classified (in Chart 2 below) in
three groups (marked with colored dots):
Chart 2. Ranking of villages of Bandar Anzali, based on the model of

tourism capabilities
148
Based on the findings, the following map represents the graded villages in which
the green circle shows the highest degree of tourism potentials and red and pink
circles show the second and the lowest degree of capacity for tourism attractions
respectively.
Fig. 8. Ranking of Tourism Capacity of Bandar Anzali
9. CONCLUSION
In village planning, the villages are divided by development potential. The

different types of villages should contain different planning contents [11].
As has been mentioned, the villages of Bandar Anzali were ranked based on the
planning model and the villages which had the highest capabilities for tourism
149
were identified. According to this ranking, investment in the rural tourism sector in
this city can be programmed, which will eventually attract tourists to villages, on
the one hand, and increase the amount of income of people and prevent
migration to the cities on the other hand [12-17].
Today, the tourism industry places much stress on villages, because tourists
have a great tendency for having a good time in villages. Since most of the
countries of the world have had great success in this field and earn a lot of
money annually and some of these countries stand first in rural industry. One
important factor in their success goes back to accommodate the tourists. Some
countries, for example, Spain, have won fame in this way. Iran, which has very
beautiful villages with pleasant weather and unique capabilities making one
village distinguished from the other has not been so successful in rural tourism.
This failure lies in the that it has not managed to identify the potential of the
villages. Considering the points mentioned, if such research is done on other
cities in Iran, it will be possible to make comprehensive programs for rural
tourism and by increasing financial investment in rural tourism, more and more
tourists will be absorbed into the villages, leading to the permanent development
of the villages.
COMPETING INTERESTS
REFERENCES
1. Available:http://www.donya-e-eqtesad.com
2. Available:http://www.chn.ir/Tourism
3. Available:http://www.hamshahri.org /hamnews/1383
4. Etemad Newspaper. Iran Ranking 89 on Tourism Industry; 1998.
5. Sharply, Richard Julia. Rural tourism, translated into persian by
rahmatoallah monshizadeh. Monshi Publications; 1992.
6. Available:http://www.CYBERSPAIN/colo/parador.htm
7. Bidarigh Mehr, Mahmood. The Geographical Features of Guilan: based on
the latest divisions (city, town, village) Iran's Planning and management
Organization Publications; 1999.
8. Ne'amati, Morteza. The Potentials of Rural Tourism Rural. Management
Monthly; Tehran Feb; 2005.
9. Hossein Zadeh, Karim. Regional planning. SAMT Publications; 2004.
10. Assayesh, Hossein, et al. Principles and methods of regional planning
(models, methods and techniques ) Shahr-e Rei Azad universityPress;
2003.
11. Chen J, Wang C, Dai R, Xu S, Shen Y, Ji M. Practical village planning
strategy of different types of villages—a case study of 38 villages in
Shapingba District, Chongqing. Land. 2021 Oct 27;10(11):1143.
12. Guilan Planning Organization. Political, economic, social statistics (Bandar
Anzali); 1998.
150
13. Mosapour Miyandehi, Pari. The recognition and identification of rural

tourism potentials with an emphasis on domestic accommodation in Anzali
Port, M.A. Thesis; Azad University, Tehran; 2006.
14. Rahnamiayi, Mohammad Taghi. The comprehensive plan for tourism in
nd
Guilan Province 1st & 2 vol., Tehran University Press; 1999.
15. Available:http://www.HAMSHAHARI%20cinternet%20version%20the1384
16. Available:http://www.parador.es/castellano/paradores/ficha.jap
17. Available:http://www.Homestey/Teach/and/Thi/Youth
151
Pari Mosapour Miyandehi

Geography group, Bint Al-Hadi Sadr Pardis, Farhangian University, Rasht, Iran.
Research and Academic Experience: She has PhD degree in Geography and Rural Planning, Faculty
member of Farhangian University, Iran. She has 8 Research and Academic project.
Research Area: Her Research Area includes Sustainable tourism, rural tourism, sustainable
development, content subject knowledge, rural planning, teaching methods in geography and teaching
comparative geography.
Number of Published Papers: She has 20 Published papers in national and international journals and
Presentation of 40 articles in conferences (international and domestic).
Special Award: She is an Exemplary researcher in Farhangian University research projects.
Other Remarkable point(s): She is Authored books such as: Map reading and its application in
geography; Geographical issues and problems of our century and Cultural geography natural
anthropology, birds, hunting. She also has some Translated book such as: Geography Education’s
Potential and the Capability Approach GeoCapabilities and Schools; Images of the future cit Time and
space for sustainable development; New Geographies of the Globalized World; Urban Planning for
Healthy European Cities and Tourism and sustainability (Development, globalisation and new tourism in
the Third World)
___________________________________________________________________________________
DISCLAIMER
Journal of Hospitality Management and Tourism, 1(1): 12-202010.
152
Chapter 7
Performance of Employees and

Leadership Style in Parastatals in
Transport Sector
Chavunduka M. Desderio a*, Nyemba Piason a

and Thomas Bhebhe a
DOI: 10.9734/bpi/ctbef/v3/4410B
ABSTRACT
The objective of the study aimed to examine the connection between a leader's
style and the performance of his or her transport industry. The majority of
parastatals in Zimbabwe perform poorly. The management methods employed
by these parastatals may be a contributing cause in their subpar performance.
Performance is a relative concept defined in terms of some referent employing a
complex set of time-based measurements of generating future results. Data was
collected through administering a Multifactor Leadership Questionnaire (MLQ) for
the leadership style and analysis of the employee performance appraisal records
of the 178 respondents (34 managers and 144 raters/subordinates) in the
selected parastatals. The data was analysed using the statistical package SPSS
version 20. It was found that transformational and transactional leadership styles
were the two most prevalent ones used in this industry. Employee performance
was positively connected with both leadership philosophies, but the correlation
for transactional leadership was substantially larger. This suggests that a key
factor in the effectiveness of parastatals is their leadership styles.
Keywords: Leadership style; employee performance; transport sector.
1. INTRODUCTION
As a way of raising revenue and at the same time providing essential service to
the general public, the government of Zimbabwe runs several parastatals which
include transport sector. In the search for the type of leadership that will achieve
the levels of employee performance necessary for the overall performance of
organisations it is clear that there are many ways of understanding leadership [1].
The underwhelming performance of parastatals supports the necessity for strong

leadership within parastatals in Zimbabwe. This research focuses on the
________________________________________________________________________
a
Chinhoyi University of Technology, P. Bag 7724, Chinhoyi, Zimbabwe.
*Corresponding author: E-mail: dchavunduka@gmail.com;
Performance of Employees and Leadership Style in Parastatals in Transport Sector
leadership in Zimbabwean parastatals as part of an effort to improve the situation

in these parastatals. There have been some leadership changes and
improvements in understanding of the parastatals environment. The fundamental
issue with most parastatals is that despite several attempts to improve
performance through incentive programmes, few of them have been successful.
Leadership entails deciding on a team's direction, explaining it to others, and
inspiring and enabling them to help the organisation succeed. This involves
influencing people, by means of personal attributes, to achieve a common goal.
Messick and Krammer (2005) argued that leadership qualities are influenced by
several factors including the situation at hand and the environment. Therefore
leadership traits are also dependent upon the character and behaviour of the
leader. Parastatals have experienced massive interruptions due to unplanned
visits by individuals who seek the attention of the manager or other employees.
This has led to distractions and a reduction of productivity. The company has
also experienced a lot of idle talk. Also given the same factors over a period of
time, it has been proven that parastatals perform poorly compared to their
counterparts in the private sector [2].
The fact of poor performance in the transport sector despite many attempts by
government to improve it could be a sign of ineffective leadership in these
organizations. Elsewhere the relationship between leadership style and
organizational performance has been studied. The findings indicate that
leadership style has a considerable relationship with organizational performance.
However the contextual factors in the Zimbabwean situation are different given
the political influence on these entities. Although associations between
leadership styles and employee performance have been recognized in studies
done before there have, to date, been no researches that specifically focus on
how leadership styles influences employee performance in parastatals in
Zimbabwe.
2. LEADERSHIP STYLES
As early as 1939, Kurt Lewin led a group of researchers to identify different styles
of leadership (Lewin, LIippit, White, 1939). This early study has been very
influential and established three major leadership styles: (U.S. Army, 1973),
namely authoritarian or autocratic, participative or democratic and lastly
delegative or laissez-fair. However this section focuses on the newer leadership
styles. According to Burns (1978), transformational and transactional leadership
styles were identified as the most popular among the various theories of
leadership and motivation relating to effective organizational change
management. Burns (ibid) differentiates between transactional and
transformational leadership and takes the two styles as extreme ends of
spectrum. Even if the two have similarities, the transactional leadership theory
and the transformational leadership theory are different and have different
explicabilities.
Transactional theory, as its name implies, involves a transaction or exchange

between a supervisor and a subordinate. The exchange involves promises or
154
commitments guided by respect and trust. Jung (2001) also defines transactional
leadership as leader’s talent in picking the subordinates’ needs and aspirations.
The aim of the transactional leader is to ensure that all the stakeholders have a
clear understanding of the goals and the potential barriers within the system [3].
The leader focuses on involving stakeholders to take up the responsibilities
required for the organization to achieve its desired goals. The employee’s
performance is the one that determines the type of the exchange whether a
reward or discipline. Transactional leaders exhibit both positive and remedial
behaviours.
In other words, transactional leadership encourages subordinates to act in

accordance to the leader’s expectation so that they are rewarded or promoted.
Research also shows that making subordinates well versed with their job
obligations and recognized aims is a very crucial aspect of transactional
leadership style [4,5] acknowledge that transactional leadership helps the
efficiency by attracting innovative job performance and job satisfaction. Their
research concluded that transactional leadership has significant impact on
employee performance and job satisfaction.
On the other hand, transformational leadership is the leader’s ability to influence

followers to excel and perform above their own personal goals for the benefit of
the organization [6]. Followers of transformational leaders feel admiration, trust,
loyalty and respect towards the leader and they are motivated to go an extra
mile. Transformational leadership creates a valuable and positive change in its
followers. The leader in this case focuses on ‘changing’ others, helping each
other and encouraging them to pay attention towards the entire organization. In
their studies, Berson & Popper [6] indicate that transformational leadership is
important for innovation being implemented by the organization in the era of stiff
competition. Various studies over a long period of time on this area have strongly
supported this position [7].
According to Larsson & Lundholm [8] transformational leadership is moulded

through discussions between the leaders and follower. They also highlights that
there is not enough leadership studies focusing on day to day exchanges.
According to Conger & Kanungo [9] and Shamir, House & Arthur [10]
transformational leaders have an influence on their followers on an individual
level to the extent that this influence will also affect group and institutional level
performance. Transformational leadership style emphasises the personal growth
of employees and their needs. Leaders who make use of transformational
leadership style focus on the progress of value system of followers, their level of
motivational and moral levels with the enlargement of their skills [11]. This
leadership style acts as a link between managers and employees in the nurturing
of latter’s values, interests and level of motivation.
3. THE CONCEPT OF PERFORMANCE
Performance is a relative concept defined in terms of some referent employing a

complex set of time-based measurements of generating future results. Hence
155
performance appraisal is the logical evaluation of the employees' performance so

as to understand their abilities for further growth and developments. It is
important to measure employee performance to make sure a company is
meeting its goals. It also helps in terms of budgeting, determine effective
management strategies, finding areas that need improvement and determining
potential areas for collaboration. Without measuring performance, an
organization cannot place a value on employee activities and management
activities [12]. Thus, employee performance is defined as a motivational state of
cognizance influenced by the factors of psychological meaningfulness,
availability or readiness and security which are influenced by situational features
of the job atmosphere [13,14].
4. THEORETICAL AND CONCEPTUAL FRAMEWORKS
The research is situated within the framework of Fiedler’s [15] contingency

theory. This theory argues that the leader’s ability to lead is contingent upon
several situational factors, including the leaders’ preferred style, the capabilities
and behaviours of workers that depend heavily on the situational factors. This
theory is used to measure the efficiency of a group’s performance based on the
leadership style and situations. The leadership style is the regular system of
exchange that transpires between a leader and a work group. According to the
model there are two types of leadership styles, task-motivated and relationship-
motivated models. Fiedler upheld the position that leaders have more influence if
they maintain good relationships with group members who like, respect and trust
them than if they do not. These same factors respect, trust and shared vision are
the pillars of the modern transformational leadership style in influencing
employee performance.
Another tenet of the framework is known as situational favorableness which is

the extent to which a situation enables a leader to exert influence over a group.
There are three key situational factors which are namely leader-member, task
structure and position power. Leader member refers to the degree to which
employees accept the leader while task structure referring to the degree to which
the subordinate jobs are described in detail or how clearly goals and procedures
are defined. Lastly, position power means the amount of formal authority the
leader possesses by virtue of his or her position in the organization or capability
of the leader to use reward and punishment to control group members.
The theory also indicated that employees can grow a sense of obligation,
according to the norm of reciprocity, an employee might engage in organizational
citizenship behaviours or counter productive work behaviours as a mutual action
rewarding past leadership practices, especially those directed at employee
improvement and organizational status. The researcher therefore contended that
social exchange dynamics and identification processes can interact together to
reinforce the impact of leadership styles and actions.
In this study, employee performance is the dependent variable and is considered

as the as the execution of work, acts, feats. It can also be taken as the ability of
156
employees to meet institutional tasks, requirements, goals and objectives

through planned investment into organizing, executing and accomplishing duties
and responsibilities in the shortest possible period [16]. As a result, usually
performance is identified with effectiveness and efficiency or simply the job
related functions expected of an employee and how well those activities were
accomplished. The solidity of the two variables performance and leadership must
be clear through style and approach by the leaders in order to stimulate
effectiveness and efficiency which are results of unique leadership styles to
specific performance problems [3, 7].
According to Levine and Crom [17] leadership is about giving followers an

opportunity to contribute when coming up with resolutions and management of
problems. Leadership can be also explained as the skill to use managerial
competencies to structure performance processes by stimulating, igniting and
motivating staff members to accomplish set organizational goals and objectives.
The guideline for leadership was drawn along transactional and transformational
leadership styles. The model below suggests a relationship between leadership
style, political system and employee performance.
Fig. 1. Conceptual relationship between leadership style and employee

performance in the context of political interference
Source: Creation by authors
The model above examines perceptions of a political system as a mediator in the

relationship between leadership and employee performance. The rationale for
this model is based on several theories such as the situational factor leader-
member exchange theory [7] and the social-exchange theory [18]. According to
these theories, it is the leaders’ responsibility to create an organizational
atmosphere that is reciprocal, fair, and fulfils the expectations and needs of the
individuals and the managerial cadres. The framework above also presupposes
that there are two leadership styles practiced in the transport sector which may
require different situations to be effective. However, the political system and
government bureaucracy can be a huge obstruction to employee performance.
The leadership styles, transactional and transformational are influential in
according appropriate leadership tools to the supervisors and managers in the
execution of duties and responsibilities of the parastatals. These styles are
157
important in stimulating employee performance that would be manifested in the

increased execution of duties, meeting deadlines, increasing team chemistry and
consequently achieving departmental goals. However, for the transport sector, it
was clear political system affects leadership whereby the management decisions
and styles are influenced by politics. This is evident from the structure of the
organisation and the office bearers of most influential management positions who
are mostly former active political activists or security service personnel.
The study looks into leadership styles being employed by the managers; that is
all staff members who hold a supervisory role or staff members with grade C1
and above according to the Paterson Grading system currently used by transport
sector on employee performance. This is with the objectives to establish the
relationship between the leadership styles and employee performance in the
transport sector. The hypothesis for this study is that there is a significant
relationship between leadership style and employee performance.
From the 57 managers in the transport sector, 48 (84%) were chosen using
stratified random sampling. From the population of 391raters, a sample size of
175 (45%) was chosen. To measure the leadership style, a Multi Leadership
Questionnaire (MLQ) was administered to both managers and the
subordinates/raters in the government related transport sector and then perusal
of employee’s performance appraisal records of each leader’s subordinates.
To measure employee performance, the researcher made use of some

documentary analysis procedure. This procedure is a performance measurement
system called the results based management (RBM) that embraces the
transport sector’s stated values and seeks to ensure fairness, objectivity
and consistency, while allowing sufficient flexibility to create the
appropriate climate for positive interaction, communication and feedback
regarding employee performance.
Using this RBM key result areas or measurement units are clearly spelt and
weight is allocated to each unit. With the RBM performance is measured in terms
of three factors namely: Quality, Quantity and Timeliness. The actual
performance is indicated against each performance target and score. In the
transport sector the assessment is normally done quarterly and the rating being
used ranges from 1 up to 6, 1 representing nothing accomplished, 2 representing
performance below standards and 6 representing performance clearly exceeding
target.
The data from the two were then captured and inspected using descriptive
statistics and frequency tables. This was followed by testing the hypothesis and
analysis and discussion of the data.
158
6. RESULTS AND DISCUSSION
The study aims at analyzing the influence of leadership styles on employee

performance in parastatals in the transport sector. For the leader questionnaire
version, 48 questionnaires were distributed to the managers in the sample
population. The questionnaires returned were 34 giving a response rate of 71%.
For the ‘Rater’ version, 175 questionnaires were distributed to the raters in the
sample population, 144 questionnaires were returned giving a response rate of
82%. In total, the response rate was 80% as shown in Table 1.
Table 1. Response rate
Managers Raters Total

Population 57 391 448
Sample chosen 48 175 223
Returned questionnaires 34 144 178
Response Rate 71% 82% 80%
Each question in the (MLQ) questionnaire has the five optional answers: 0.
Strongly disagree, 1. Disagree, 2. Neutral, 3. Agree, 4. strongly agree, this is
called the Likert scale. The various questions were categorized into
transformational, transactional or laisser-faire leadership style, depending on the
direction of the question. For the employee performance rating, the performance
descriptions are as follows: 1. nothing was accomplished, 2. Performance below
set targets – below variance, 3. Performance below set targets – but within
variance, 4. Met all agreed set targets, 5. Performance above set targets – but
within variance, 6. Clearly exceeds set targets – beyond variance.
The data received from the respondents were processed by means of statistical
analysis to test the research hypothesis and the possible relationships between
the research variables. The research package SPSS (SPSS version 20) was
used to process the data in this study. Tests were carried for correlation through
the use of Pearson Coefficient correlation or association to test whether the
hypothesis generated can be accepted or rejected.
7. DESCRIPTIVE STATISTICS FOR THE INDEPENDENT VARIABLES
The first step in analysing the data was to calculate Multifactor Leadership
Questionnaire scores for each participant and all the respondents, i.e. the Mean,
Standard Deviation, Minimum and Maximum as shown in table.
Descriptive Statistics for MLQ Subscales
Leadership factor N Mean Stan Dev Min Max

Idealised Attributes 178 2.5955 0.6628 1.25 4.00
Idealised Behaviour 178 2.9115 0.4528 2.00 3.75
Inspirational Motivation 178 3.0126 0.5065 2.25 4.00
Intellectual Stimulation 178 2.6503 0.4628 1.75 3.75
Individual Consideration 178 2.1236 0.6429 0.5 3.25
159
Leadership factor N Mean Stan Dev Min Max

Transformational 178 2.6587 0.3035 1.90 3.45
Contingent Reward 178 2.8048 0.6532 1.25 4.00
Mgnt By Exception – Active 178 1.7416 1.0157 0.00 4.00
Mgnt By Exception – Passive 178 0.8879 0.5070 0.00 2.00
Transactional 178 1.8113 0.4670 1.00 3.00
The midpoint of the scale used on the MLQ is 1.5, any scores above 1.5
indicates a positive attitude to this style while a score below 1.5 would indicate a
negative attitude to the style.
Average scores of greater or equal to 3.00 for all transformational leadership

factors were suggested by Bass and Avolio [19] for effective leadership. This
research produced average score of 2.6587 for transformational leadership style
which is less than what Bass and Avolio [19] suggested. This can mean that
leaders at transport sector are not exhibiting levels of Individualised
Consideration, Intellectual Stimulation, Idealised Behaviour and Idealised
Attributed except Inspirational Motivation that has a score of 3.0126 which is
above the suggested 3.
As for the transactional leadership scores, Bass and Avolio [19] suggested an
average score of 2 for contingent reward but this research produced a higher
score of 2.8048, for management-by- exception (active) was 1.0 to 2.0 and the
mean score obtained from this research was 1.74, which is slightly above the
midpoint of the range. They also suggested score 1.00 for management-by-
exception- passive and research produced 0.8879 score.
8. THE INFLUENCE OF LEADERSHIP STYLES ON EMPLOYEE

PERFORMANCE
In order to establish whether there is any linear relationship between

transformational leadership, transactional leadership and employee performance
the Person correlation coefficient was used and this is usually denoted by (r).
The table below shows the correlations and associated p-values based on the
employee performance ratings.
Correlations between employee performance and the two leadership styles
Marked correlations are significant at the 5% level of significance. N =

178 (Casewise deletion of missing data)
Transformational Transactional
leadership leadership
Employee 0.6 0.83
Performance *p = 0.424 *p = 0.271
From table above, correlation analysis shows clearly that there is a strong,
positive linear relationship between employee performance and transformational
leadership (r = 0.6, p = 0.424), however the relationship is weaker compared to
160
the one for employee performance and transactional leadership which is a very
strong positive linear relationship (r = 0.83, p = 0.271).
9. HYPOTHESIS TESTING
The hypotheis in this study is that there is no relationship between leadership

(transformational and transactional) styles on employee performance in transport
sector. To test this hypothesis and come up with a conclusion Chi-square tests
were done on the employee performance and transformational leadership data
using SPSS, the findings are presented on the table below:
Chi-Square Tests for Employee performance and Transformational Leadership
Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 170.828 69 .000
N of Valid Cases 178
The table above shows that the significance level is 0.000 which is less than
0.05. Therefore, the researcher rejects the null hypothesis (Ho) and concludes
that there is sufficient evidence that at the 5% level of significance, there is a
significant relationship between transformational leadership and employee
performance. These findings imply that the aspects of transformational
leadership are important for employee performance. This data also implies that
employees believe that they would want leaders who instil pride in them, display
sense of power and confidence, talk optimistically about the future and
enthusiastically about what need to be accomplished.
For the transactional leadership, the findings are presented on the table below:
Chi-Square Tests Employee performance and Transactional leadership
Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 104.730 21 .000
N of Valid Cases 178
As shown in the table above Pearson Chi-square significance level is 0.000

which is less than 0.05. Therefore, the researcher rejects the null hypothesis (Ho)
and concludes that there is sufficient evidence that at the 5% level of
significance, there is a significant relationship between transactional leadership
and employee performance. This means that transactional leadership factors just
like transformational factors also important factors in influencing employee
performance.
The results of this research indicate that transactional leadership style has
significant positive effect on employee performance supported by a high
correlation coefficient of 0.83, the effect of transformational leadership style on
performance is positive but less significant due to a low correlation coefficient of
0.6. A possible reason for this is that the employees of transport sector are
161
mostly less educated, skilled and experienced professionals (46% of the

workforce has secondary education only and no any other qualification). These
results are also consistent with the study carried out by Koh et al. [20] that there
is a significant relationship between transformational and transactional leadership
and employee performance. They are also in line with research by Sundi [21] that
concluded that there is a positive and significant effect of both transformational
and transactional leadership style on job satisfaction of employees.
These findings are in support of the idea that transactional and transformational
leadership styles cannot be strictly separated and both are not conflicting
leadership styles [19]. The two leadership styles transformational and
transactional are important and needed for the success of transport sector.
Parastatals need vision, encouragement, and commitment spearheaded by
transformational leaders. But parastatals also require having transactional
leaders to provide direction to focus on and reward work done properly. Neither
transactional leadership style alone can be applied nor transformational
leadership can replace the transactional leadership style. The findings of this
research can also mean that transactional factors such as contingent reward and
management by exception compared to transformational factors such as
inspirational motivation and intellectual stimulation and individual consideration
could be more appropriate leadership factors in order to induce high employee
perform.
10. CONCLUSIONS AND RECOMMENDATIONS
On the basis of the findings of this research, it can be concluded that leadership
style effects employee performance. The study found that transactional
leadership style plays a greater role in influencing employee performance in
comparison to the transformational leadership style.
To ensure long-term organisational survival and high employee performance the

transport sector, employees need to be motivated to go beyond ordinary
expectations by appealing to their higher order needs and moral values.
Involving subordinates in decision making especially if the decisions affect them
creates a sense of ownership for the decision made making implementation
easier. In addition, two way communication affect employee performance,
communication with feedback enables the organisation to effectively tackle
challenges before they get out of control.
The findings indicated that both transactional and transformational leadership

styles have a positive relationship with employee performance. Although
transactional leadership has a stronger relationship compared to transformational
leadership style, transport sector leaders would need to blend the two styles in
execution of duties instead of using only one. Leaders at all levels must be given
an opportunity for further training have an appreciation of the management area
and learn how to effectively manage people.
162
COMPETING INTERESTS
REFERENCES
1. Hayward BA, Amos TL, Baxter J. Employee performance, leadership style

and emotional intelligence: An exploratory study in a South African
parastatal. Acta Commercii. 2008 Jan 1;8(1):15-26.
2. Njagi LK, Malel J. Time management and job performance in selected
parastatals in Kenya. Australian Journal of Business and Management
Research. 2012 Aug 1;2(5):19
3. Bennis W. Leaders: The strategy for taking charge. New York: Harper and
Row Publishers; 2007.
4. Lo MC, Ramayah T, Min HW. Leadership styles and organizational
commitment. African Journal of Marketing Management. 2009;1(6):133-
139.
5. Janssen O, Yperen NW. Employees’ goal orientations, the quality of
Leader-member exchange, and the outcomes of job satisfaction and job
performance. Academy of Management Journal. 2004;47(3):368–384.
6. Berson Y, Popper M. The relationship between vision strength, leadership
style, and context. The Leadership Quarterly. 2001;12:53-73.
7. Wang H, Law KS, Hackett RD, Chen Z. Leader-member exchange as a
mediator of the relationship between transformational leadership and
followers' performance and organizational citizenship behavior. Academy
of Management Journal. 2005;48:420-432.
8. Larsson M, Lundholm SE. Leadership as work-embedded influence: A
micro-discursive analysis of an everyday interaction in a bank. Leadership.
2010;6(2):159- 184.
9. Conger JA, Kanungo MA. The empowerment process:Iintegrating theory
and practice. Academy of Management Review. 1998;13:471-483.
10. Shamir B, House RJ, Arthur MB. The motivational effects of charismatic
leadership: A self-concept based theory. Organization Science. 1993;
4(4):577-594.
11. Ismail A, Halim FA, Munna DN, Abdullah A, Shminan AS, Muda AL. The
mediating effect of empowerment in the relationship between
transformational leadership and service quality. J. Bus. Manage. 2009;
4(4):3-12.
12. Mathews W. Just like starting over. Communication World, 27, 16-21.
Psychological Methods. 2010;12:23-44.
DOI:10.1037/1082-989X.12.1.23
13. May DR, Gilson RL, Harter LM. The psychological conditions of
meaningfulness, safety and availability and the engagement of the human
spirit at work. Journal of Occupational and Organizational Psychology.
2004;77:11-37.
14. Macey WH, Schneider B. The meaning of employee engagement.
Industrial and Organizational Psychology. 2008;1(1):3-30.
163
15. Fiedler FE. Leadership Experience and Leadership Performance,

Alexandria, VA: US Army; 1994.
16. Adair J. Action centred leadership. Australian Tour; 2012.
17. Levine SR, Crom MA. The leadership in you. New York: Pocket Books;
2013.
18. Blau P. Exchange and power in social life. New York: Wiley; 2004.
19. Bass BM, Avolio BJ, Jung DI. Re-examining the components of
transformational and transactional leadership. Psychology Journal. 2003;
72:441-462.
20. Koh WL, Steers RM, Terborg JR. The effects of transformational
leadership on teacher attitudes and student performance in Singapore.
Journal of Organizational Behavior. 1995;16(4):319-333.
21. Sundi K. Effect of transformational leadership and transactional leadership
on employee performance of konawe education department at Southeast
Sulawesi. International Journal of Business and Management Invention;
2013.
___________________________________________________________________________________
DISCLAIMER
Journal of Business Management Science, 2(1): 69-86, 2016.
164
London Tarakeswar
Registered offices
India: Guest House Road, Street no - 1/6, Hooghly, West Bengal, India,
Corp. Firm Registration Number: L77527,
Tele: +91 7439016438 | +91 9748770553, Email: director@bookpi.org,
(Headquarters)
UK: 27 Old Gloucester Street London WC1N 3AX, UK

Fax: +44 20-3031-1429, Email: director@bookpi.org,
(Branch office)

Untitled

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Untitled

Uploaded by

Copyright:

Available Formats

Current Topics on Business,

Economics and Finance

India . United Kingdom

Dr. Maria Ciurea

FIRST EDITION 2023

ISBN 978-81-19102-57-0 (Print)

A Quantitative Study on the Role of

Sagaren Govender a*, Cecile Gerwel Proches a

The Department of Health in South Africa has a constitutional mandate to provide

Keywords: Leadership; service delivery; healthcare; public hospitals; South

performance of their institutions in order to contribute to rendering effective,

1.1 Problem Statement

1.2 Research Aim and Study Objectives

 To determine the leadership challenges/gaps at regional hospitals;

In South Africa, there is increasing emphasis on the crisis relating to leadership in

According to Fre˛czkiewicz-Wronka, Austen-Tynda and Wronka [9], an

organisations where rapid changes and high levels of uncertainties are

A quantitative research approach was followed which relied exclusively on

• Leading to enhance healthcare

A five-point Likert-type scale was used in the questionnaire, whereby respondents

Table 1. Respondents for the questionnaire survey

Hospital Occupational Categories No. of Respondents

Hospital Occupational Categories No. of Respondents

Hospital Occupational Categories No. of Respondents

Hospital Occupational Categories No. of Respondents

Hospital Occupational Categories No. of Respondents

Hospital Occupational Categories No. of Respondents

In considering the response rates to the self-administered questionnaires at each

Table 2. Statistics of the responses

Hospital Usable Incomplete Multiple answers

Table 3. Reliability test output

4.1 Section A: Demographic Profiles of the Respondents

4.1.2 Distribution of age

4.1.3 Distribution of gender

King Edward PMMH

Fig. 1. Respondents’ working locations

18-30 years 31-40 years 41-55 years 56-65 years

Fig. 2. Distribution of age

Fig. 3. Gender distribution

4.1.4 Distribution of race

4.1.5 Marital status of respondents

Fig. 4. Distribution of race

Fig. 5. Marital status of the respondents

4.1.6 Job titles of respondents

4.1.7 Educational qualifications of respondents

Fig. 6. Job titles of the respondents

Fig. 7. Educational qualifications of the respondents

4.2 Section B: Responses Regarding Leadership Effectiveness and

Ten statements were put to the respondents to investigate ‘Leading to enhance

4.2.2 Frequency distribution for the variable - leading with a purpose

To investigate the respondents’ views regarding leading with a purpose, 10

4.2.3 Frequency distribution for the variable - developing leadership

To determine developing leadership capabilities, 15 statements were put to the

4.2.4 Frequency distribution for the variable - capacities for optimal

Fourteen statements were put to the respondents to investigate capacities for

4.2.5 Frequency distribution for the variable - healthcare service delivery

Table 8 summarises the statements regarding healthcare service delivery. The

Section A of the survey questionnaire allowed for the personal demographic

Table 4. Summary of statements regarding leading to enhance healthcare

Statements Strongly disagree Disagree Uncertain Agree Strongly agree Mean

Statements Strongly disagree Disagree Uncertain Agree Strongly agree Mean

Table 5. Summary of statements regarding leading with purpose

Statements Strongly disagree Disagree Uncertain Agree Strongly agree Mean

Table 6. Summary of statements regarding developing leadership capabilities