Browsing by Author "Dreyer, Jan Adriaan"

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    Broad-based black economic empowerment : the holy grail for financial health? A study of companies listed on the Johannesburg Stock Exchange
    (Stellenbosch : Stellenbosch University, 2019-12) Dreyer, Jan Adriaan; Viviers, Suzette; Mans-Kemp, Nadia; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management.
    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.