Abstract
Corporate social responsibility (CSR) has recently received considerable attention in literature. One of the vehicles by which companies can conform to CSR in South Africa is Black Economic Empowerment (BEE). In this regard, BEE has been employed to assist previously disadvantaged groups of investors obtain a larger share of the equity of South African listed companies. The question has often been asked whether the announcement of BEE transactions by listed companies increases shareholder wealth. This article tries to answer this question by examining the share performance of 125 BEE transactions involving 95 companies during the period January 2002 to July 2006. The results indicate a positive relation between BEE transaction announcements and shareholder wealth creation, but only during the last part of the period covered by the study.
Highlights
Since apartheid was abolished with the first democratic election in South Africa in 1994, companies have been encouraged to increase the participation of the black majority population in economic wealth creating activities
This study investigates the share performance of companies listed on the Johannesburg Stock Exchange (JSE) and involved in Black Economic Empowerment (BEE) transactions, in terms of its ability to create shareholder wealth
The second research question asks whether the announcements of different types of BEE transactions lead to differences in shareholder wealth creation
Summary
Since apartheid was abolished with the first democratic election in South Africa in 1994, companies have been encouraged to increase the participation of the black majority population in economic wealth creating activities. The first phase that occurred during 1996-1998, saw market capitalisation increase from 0.7 percent to 6 percent of the Johannesburg Stock Exchange (JSE) South Africa (Engdahl & Hauki, 2001:2) This sudden foray into capitalism was arrested by the market crisis of 1998 that witnessed a reduction in BEE ownership from 7 percent to 2.2 percent largely because of a major drop in heavily leveraged BEE acquired companies’ share prices (Southall, 2004:318; Beall, Gelb & Hassim, 2005:693). Emerging from this first phase of BEE, some economic realities surfaced and black ownership climbed back to an estimated 4 percent by 2004.
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