Doctoral Degrees (Business Management)

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Browsing Doctoral Degrees (Business Management) by browse.metadata.advisor "De Villiers, J. U."

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    Evaluating value based financial performance measures
    (Stellenbosch : University of Stellenbosch, 2008-03) Erasmus, Petrus Daniel; De Villiers, J. U.; University of Stellenbosch. Faculty of Economic and Management Sciences. Dept. of Business Economics.
    The primary financial objective of a firm is the maximisation of its shareholders’ value. A problem faced by the shareholders of a firm is that it is difficult to determine the effect of management decisions on the future share returns of the firm. Furthermore, it may be necessary to implement certain monitoring costs to ensure that management is focused on achieving this objective. A firm would, therefore, benefit from being able to identify those financial performance measures that are able to link the financial performance of the firm to its share returns. Implementing such a financial performance measure in the valuation and reward systems of a firm should ensure that management is aligned with the objective of shareholder value maximisation, and rewarded for achieving it. A large number of traditional financial performance measures have been developed. These measures are often criticised for excluding a firm’s cost of capital, and are considered inappropriate to be used when evaluating value creation. Furthermore, it is argued that these measures are based on accounting information, which could be distorted by Generally Accepted Accounting Practice (GAAP). Studies investigating the relationship between these measures and share returns also provide conflicting results. As a result of the perceived limitations of traditional measures, value based financial performance measures were developed. The major difference between the traditional and value based measures is that the value based measures include a firm’s cost of capital in their calculation. They also attempt to remove some of the accounting distortions resulting from GAAP. Proponents of the value based measures present these measures as a major improvement over the traditional financial performance measures and report high levels of correlation between the measures and share returns. A number of studies containing contradictory results have been published. On the basis of these conflicting results it is not clear whether the value based measures are able to outperform the traditional financial performance measures in explaining share returns. The primary objectives of this study are thus to: • Determine the relationship between the traditional measures earnings before extraordinary items (EBEI) and cash from operations (CFO), and shareholder value creation; • Investigate the value based measures residual income (RI), economic value added (EVA), cash value added (CVA) and cash flow return on investments (CFROI), and to determine their relationship with the creation of shareholder value; • Evaluate the incremental information content of the value based measures above the traditional measures. The information content of the traditional measures and the value based measures are evaluated by employing an approach developed by Biddle, Bowen and Wallace (1997). The first phase of this approach entails the evaluation of the relative information content of the various measures in order to determine which measure explains the largest portion of a firm’s market-adjusted share returns. The second phase consists of an evaluation of the incremental information content of the components of a measure in order to determine whether the inclusion of an additional component contributes statistically significant additional information beyond that contained in the other components. The study is conducted for South African industrial firms listed on the Johannesburg Securities Exchange for the period 1991 to 2005. The data required to calculate the measures investigated in the study are obtained from the McGregor BFA database. This database contains annual standardised financial statements for listed and delisted South African firms. It also contains EVA, cost of capital and invested capital amounts for those firms listed at the end of the research period. Including only these listed firms in the research sample would expose the study to a survivorship bias. Hence these values are estimated for those firms that delisted during the period under review by employing a similar approach to the one used in the database. The resulting sample consists of 364 firms providing 3181 complete observations. Since different information is required to calculate the various measures included in the study, different samples are compiled from this initial sample and included in the tests conducted to evaluate the information content of the measures. The results of this study indicate that the value based measures are not able to outperform EBEI in the majority of the relative information content tests. Furthermore, the measures EVA, CVA and CFROI are also not able to outperform the relatively simple value based measure RI. The results from the incremental information content tests indicate that although some of the components of the value based measures provide statistically significant incremental information content, the level of significance for these relatively complex adjustments is generally low. Based on these results, the claims made by the proponents of the value based measures cannot be supported. Furthermore, if a firm intends to incorporate its cost of capital in its financial performance measures, the measure RI provides most of the benefits contained in the other more complex value based measures.
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    Foreign investment and South African real estate investment trusts (REITs)
    (Stellenbosch : Stellenbosch University, 2018-12) Carstens, Margaretha; Freybote, J.; De Villiers, J. U.; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management.
    ENGLISH SUMMARY : Real estate investment trusts (REIT) were introduced in South Africa in 2013 and follow the global REIT standard that originated in the US during the 1960s. The previously existing South African property investment vehicles, property unit trusts (PUTs) and property loan stocks (PLSs) were transformed to REITs. One of the main motivations for the introduction of REITs in South Africa was to make the listedproperty sector more attractive to foreign investors. This dissertation investigated three research questions in the context of foreign investments in SA REITs. First, it analysed whether SA REITs are attractive to foreign investors from a portfolio point of view. Using quadratic programming and the perspective of a foreign investor with US REIT investments, this study found that adding SA REITs to a portfolio of US REITs has diversification benefits in terms of a reduced portfolio variance and an increased Sharpe ratio. However, SA REITs with predominantly foreign holdings, particularly in Europe, have superior diversification benefits to foreign investors compared to SA REITs with predominantly South African holdings. Second, this dissertation investigated the macroeconomic, capital and property-market factors that drove foreign investments in SA REITs after May 2013 (REIT period) and in the alternative listedproperty vehicles prior to May 2013 (pre-REIT period). The results suggest that the impact of country-specific pull and non-country-specific push factors on foreign REIT investor behaviour changed over time, with push factors driving SA REIT investment in the REIT period and pull factors determining investment in the pre-REIT period. The impact of these factors on foreign REIT investments further differs for REIT market capitalisation (cap), with push factors driving large-cap REIT investments and pull factors affecting small-cap REIT investments. Thus, the attractiveness of SA REITs to foreign investors was not only driven by factors specific to South Africa, but also by factors specific to other countries, particularly the US and Europe. Third, this dissertation aimed to answer whether the introduction of REITs in South Africa has met the objective of attracting more foreign investors and improved the liquidity in the listed-property market. Results suggest that, following the introduction of REITs, foreign investors have indeed had a significant impact on REIT share liquidity as captured by activity measures (turnover and trading volume). On the other hand, the introduction of REITs has eliminated the negative impact foreign investors had on the friction dimensions of liquidity (bid-ask spread and price impact). The findings of the three chapters in this dissertation contribute to the literature on international REIT investment, and investment in emerging markets such as South Africa in particular. In addition, the study has implications for REIT investors, SA REITs and policymakers concerned with attracting foreign portfolio investment and developing listed-property markets. Other emerging economies that are contemplating the adoption of the REIT structure are likely to benefit from the increasing knowledge regarding foreign REIT investments, particularly with regard to liquidity implications and foreign investment drivers.