Influence of the performance of Black Economic Empowerment shares on the Johannesburg Stock Exchange Top 40.

Abstract

The study investigated the performance of Black Economic Empowerment (BEE) shares on the Johannesburg Stock Exchange (JSE). It employed data from 48 firms active on the JSE from 2003 to 2016. Unbalanced panel data was used as there were firms with no data for this period and they were omitted from the study when they were no longer part of the JSE Top 40. The fixed effects model results showed that BEE shares’ influence on share returns is insignificant, but that they do have an impact on firm value. It was found that when a BEE share is issued, the firm’s value increases by 0.522 when return on equity (ROE) is used and 0.45 when return on assets (ROA) is employed. A bootstrap technique was run on the fixed effects model in order to account for cross-sectional dependency. The bootstrap did not affect the outcome of the effect of BEE shares on share returns. However, the influence of BEE shares on the firm’s value became significant. These results are consistent with the existing literature which states that firms issue BEE shares in order to reap other benefits. Although BEE shares have no influence on share returns and firm value, it is recommended that firms continue to issue such shares in order to receive a higher BEE rating.