Broad-based black economic empowerment : the holy grail for financial health? A study of companies listed on the Johannesburg Stock Exchange

Dreyer, Jan Adriaan (2019-12)

Thesis (MCom)--Stellenbosch University, 2019.

Thesis

ENGLISH SUMMARY : Broad-Based Black Economic Empowerment (B-BBEE) is a contentious mechanism that has been introduced to redress the imbalances caused by the apartheid regime by empowering previously disadvantaged individuals. Several scholars have argued that, whilst it is important to empower black individuals, B-BBEE is not necessarily the best method available. Long after the democratisation of South Africa and the introduction of B-BBEE legislation, the imbalance between the income of black and white South Africans is still evident, providing support for those claiming that B-BBEE needs to be reformed. B-BBEE compliance is a requirement for companies conducting business with government institutions, but voluntary for other organisations. The introduction of the 2013 Codes of Good Practice brought about stricter requirements for B-BBEE than those initially drafted in 2004. Corporate leaders might question whether the benefits related to B-BBEE outweigh the associated costs. Previous research yielded inconclusive results on the relationship between the total B-BBEE scores of listed companies and financial performance. Most of these studies were based on small samples and employed a limited number of financial performance measures. These gaps have been addressed in the current study. Not only was a large sample investigated over a longer time period in comparison to previous studies, but a wide range of financial health measures were used. The individual elements of the B-BBEE scorecard were investigated in addition to the total B-BBEE scores provided by Empowerdex. Financial health, the dependent variable, was used as a collective term for accounting-based, market-based, value-based and risk-based measures. The author controlled for company size. The financial health and size data were sourced from the Bloomberg database. Four accounting-based measures, five market-based measures, one value-based measure and one risk-based measure were employed in this study. Descriptive statistical analyses were conducted to investigate trends in the data. Mixed-model analysis of variance and Fisher’s Least Significant Difference tests were used to assess the significance of the observed trends over time. Panel regression models were employed to investigate the relationships between B-BBEE scores (in total and per element) and each of the considered financial health measures. In total, 1 767 observations from 379 unique companies were analysed over the 12-year study period (2004-2015). A statistically significant positive relationship was noted between total B-BBEE score and cost of equity. In contrast, a statistically significant negative association was observed between total B-BBEE score and the Price/ Earnings (P/E) ratio. Significant increases in B-BBEE scores (in total and per element) were observed over the research period. The mean socio-economic development B-BBEE element scores reflected the largest increase over time. The panel regression analysis revealed a significant positive association between this element and the P/E ratio. A significant negative association was also reported between the management control element and cost of equity. Based on the empirical findings, recommendations are offered to a range of stakeholders. Directors should carefully consider their B-BBEE strategies by giving more attention to management control and socio-economic development, given the significant associations reported between these elements and financial health. The BEE commission should also critically evaluate the appropriateness of the individual B-BBEE elements and their weightings in the current economic climate. More focus could be placed on education and skills development to grow the talent pool in the country. Companies and government should thoughtfully consider the optimal manner to empower previously disadvantaged individuals.

AFRIKAANSE OPSOMMING : Breë-Basis Swart Ekonomiese Bemagtiging (B-BBEE) is ʼn omstrede meganisme wat in werking gestel is om die wanbalanse wat deur die apartheid regering veroorsaak is, reg te stel deur voorheen benadeelde persone te bemagtig. Menige outeurs is van mening dat, alhoewel dit belangrik is om swart individue te bemagtig, B-BBEE nie noodwendig die mees geskikte metode is nie. Lank na die demokratisering van Suid-Afrika en die bekendstelling van B-BBEE wetgewing, is die wanbalans tussen swart en wit inkomste steeds duidelik, wat steun verleen aan diegene wat redeneer dat B-BBEE hervorm moet word. Voldoening aan B-BBEE wetgewing word vereis van maatskappye wat handel met regeringsinstellings wil dryf, maar is nie verpligtend vir ander organisasies nie. Die bekendstelling van die 2013 Kodes van Goeie Praktyk bevat strenger vereistes vir B-BBEE as wat oorspronklik in 2004 daargestel is. Besigheidsleiers kan vra of die voordele van B-BBEE die meegaande koste oorskry. Vorige navorsing het onbesliste resultate oor die verhouding tussen die totale B-BBEE tellings van genoteerde maatskappye en finansiële prestasie opgelewer. Meeste van hierdie studies is op klein steekproewe en ʼn beperkte aantal finansiële prestasie maatstawwe gegrond. Hierdie gapings is in hierdie studie aangespreek. Nie net is ʼn groter steekproef oor ʼn langer tydperk as vorige studies ondersoek nie, maar ʼn wye reeks finansiële gesondheidsmaatstawwe is gebruik. Die individuele elemente van die B-BBEE telkaart is, addisioneel tot die totale B-BBEE tellings deur Empowerdex verskaf, ondersoek. Finansiële gesondheid, die afhanklike veranderlike, is as ʼn versamelnaam vir rekeningkundig-gebaseerde, mark-gebaseerde, waarde-gebaseerde en risiko-gebaseerde maatstawwe gebruik. Die outeur het vir maatskappy-grootte gekontroleer. Die finansiële gesondheid en grootte data is vanaf Bloomberg verkry. Vier rekeningkundig-gebaseerde maatstawwe, vyf mark-gebaseerde maatstawwe, een waarde-gebaseerde maatstaf en een risiko-gebaseerde maatstaf is in hierdie studie gebruik. Beskrywende statistiese analise is gedoen om die tendense in die data te ondersoek. Gemengde-model analise van variansie (ANOVA) en Fisher se minste beduidende verskille (LSD) toetse is gebruik om die beduidendheid van die tendense oor tyd vas te stel. Paneel regressie modelle is toegepas om die verhoudings tussen B-BBEE tellings (in totaal en per element) en elk van die oorweegde finansiële gesondheidsmaatstawwe te ondersoek. In totaal is 1767 waarnemings van 379 unieke maatskappye oor ʼn 12-jaar studieperiode (2004-2015) ondersoek. ʼn Statisties beduidende positiewe verwantskap is waargeneem tussen totale B-BBEE telling en koste van ekwiteit. In teenstelling, is ʼn beduidende negatiewe verwantskap waargeneem tussen totale B-BBEE telling en die Prys/Verdienste verhouding. Beduidende toenames in B-BBEE tellings (in totaal en per element) is oor die navorsingsperiode waargeneem. Die gemiddelde sosio-ekonomiese ontwikkeling B-BBEE element tellings het die grootste toename oor tyd getoon. Die paneel regressie analise het ʼn beduidende positiewe verhouding tussen hierdie element en die Prys/Verdienste verhouding getoon. ʼn Beduidende negatiewe verband is ook tussen die bestuursbeheer element en koste van ekwiteit gerapporteer. Gebaseer op die empiriese bevindinge word voorstelle aan verskeie belanghebbendes gemaak. Direkteure moet hul B-BBEE strategieë noukeurig oorweeg deur meer aandag aan bestuursbeheer en sosio-ekonomiese ontwikkeling te gee, gegewe die beduidende verwantskappe tussen hierdie elemente en finansiële gesondheid. Die BEE kommissie moet ook die toepaslikheid en die gewigte van die individuele B-BBEE elemente in die huidige ekonomiese klimaat krities evalueer. Groter fokus kan op onderrig en vaardigheidsontwikkeling geplaas word om die talentpoel in die land te vergroot. Maatskappye en die regering moet die optimale metode, waardeur voorheen benadeelde individue bemagtig kan word, deurdink.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/107269
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