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The association between South African listed companies' BEE scores and market performance An introductory study

The association between South African listed companies' BEE scores and market performance An... Purpose – The purpose of this paper is to investigate whether an association exists between a firm's black economic empowerment (BEE) score and its share returns. Design/methodology/approach – The study uses linear regression that controls for the factors explaining share returns identified by Fama and French. The study includes the Top 200 BEE companies according to the Financial Mail/Empowerdex Top Empowerment Companies survey for 2005‐2008. Findings – The regression analysis shows a significant, negative association between a firm's BEE score and its share returns. Research limitations/implications – The results suggest that managers may be over‐investing in activities to improve their firms' BEE scores. This result is surprising. The long‐term effect of BEE investment, the association between the different elements of the BEE score and share returns and the optimal BEE investment level are all fruitful avenues for future research. Originality/value – One of the elements of the BEE score is the percentage of black ownership of the company. Various studies have found positive market reactions to BEE deal announcements, which relate to the percentage of black ownership of the company. By contrast, this study investigates the relationship between an entity's BEE score, as opposed to a BEE deal announcement, and this entity's market performance. The results would be of interest to government policy analysts, investors and managers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Meditari Accountancy Research Emerald Publishing

The association between South African listed companies' BEE scores and market performance An introductory study

Meditari Accountancy Research , Volume 19 (1/2): 17 – Oct 1, 2011

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1022-2529
DOI
10.1108/10222521111178619
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to investigate whether an association exists between a firm's black economic empowerment (BEE) score and its share returns. Design/methodology/approach – The study uses linear regression that controls for the factors explaining share returns identified by Fama and French. The study includes the Top 200 BEE companies according to the Financial Mail/Empowerdex Top Empowerment Companies survey for 2005‐2008. Findings – The regression analysis shows a significant, negative association between a firm's BEE score and its share returns. Research limitations/implications – The results suggest that managers may be over‐investing in activities to improve their firms' BEE scores. This result is surprising. The long‐term effect of BEE investment, the association between the different elements of the BEE score and share returns and the optimal BEE investment level are all fruitful avenues for future research. Originality/value – One of the elements of the BEE score is the percentage of black ownership of the company. Various studies have found positive market reactions to BEE deal announcements, which relate to the percentage of black ownership of the company. By contrast, this study investigates the relationship between an entity's BEE score, as opposed to a BEE deal announcement, and this entity's market performance. The results would be of interest to government policy analysts, investors and managers.

Journal

Meditari Accountancy ResearchEmerald Publishing

Published: Oct 1, 2011

Keywords: South Africa; Organizational culture; Social responsibility; Black people; BEE; Black economic empowerment; Future performance; Share returns

References