Doctoral Degrees (Business Management)

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Browsing Doctoral Degrees (Business Management) by browse.metadata.advisor "Erasmus, Petrus Daniel"

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    Corporate governance and the financial performance of selected Johannesburg Stock Exchange industries
    (Stellenbosch : Stellenbosch University, 2014-12) Mans-Kemp, Nadia; Erasmus, Petrus Daniel; Viviers, Suzette; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management.
    ENGLISH ABSTRACT: Mainstream investors are mostly interested in how they can benefit financially from a specific investment. Although this is the case, an increasing number of so-called responsible investors are also beginning to integrate environmental, social and corporate governance (ESG) aspects into their investment analysis and ownership practices. Corporate governance compliance is often the first level of ESG interest for these investors. Previous researchers considered the relationship between corporate governance and various financial performance measures, but reported inconclusive evidence on the nature of the relationship. Even though the three King Reports provide a well-developed framework for corporate governance compliance in South Africa, no comprehensive academic study has previously been conducted on the above-mentioned relationship in the South African context. The primary objective of the current study was therefore to investigate the relationship between corporate governance and the financial performance of selected JSE industries. The chosen study period (20022010) coincided with the launch of the King II Report and included the 20072009 global financial crisis. A combination of convenience and judgement sampling was used to draw a sample from six JSE industries. In an attempt to reduce survivorship bias, the sample included both listed firms and firms that had delisted during the study period. The complete sample comprised 227 companies (1 417 annual observations). When the study commenced, there was a lack of reliable, readily available ESG data for JSE-listed firms. An existing corporate governance research instrument was therefore refined to develop standardised data on the corporate governance compliance of the selected firms. An annual corporate governance score (CGS) was compiled for each of the firms by means of content analysis of its annual reports. Five financial performance variables were considered, namely return on assets (ROA), return on equity (ROE), earnings per share (EPS), total share return (TSR) and risk-adjusted abnormal return (alpha). The selection of these measures was based on previous research. The secondary financial data were sourced from the McGregor BFA database and the Bureau for Economic Research. The resulting panel dataset was analysed by means of various descriptive and inferential analyses. The descriptive statistics revealed an overall increasing corporate governance compliance trend. Both the disclosure and acceptability dimensions of the sample companies’ CGSs improved over time. The sample firms complied with approximately 68 per cent of the corporate governance criteria on average. The panel regression analysis showed a significant positive relationship between CGS and the accounting-based EPS ratio. Although this result is encouraging, it should be kept in mind that managers can have an influence on both these variables. On the other hand, a significant negative relationship was observed between the market-based TSR measure and CGS. The TSR measure is not adjusted for risk. Risk-adjusted abnormal returns were thus also estimated for four corporate governance-sorted portfolios. In a positive change of events, both the capital asset pricing model (CAPM) and the FamaFrench three-factor estimations showed positive alphas for the portfolio consisting of firms with the highest CGSs. These encouraging results were observed for the overall study period and the period before May 2008. Investors could thus have benefitted, in risk-adjusted terms, by investing in the sample firms with high corporate governance compliance. In the period after May 2008, the FamaFrench three-factor estimations revealed that the risk-adjusted market-based performance of almost all the sample firms were negatively affected by the global financial crisis of the late 2000s. The reported alphas for this period were, however, not significant. Based on these results, the researcher recommends that directors, managers and shareholders should consider the valuable opportunities associated with sound corporate governance compliance, rather than merely regarding it as a “tick-box” obligation.