Abstract
The black economic empowerment (BEE) score consists of seven elements, namely ownership,management control, employment equity, skills development, preferential procurement, enterprisedevelopment and socio-economic development. The purpose of this study is to establish whether anassociation exists between an entity’s BEE elements and its share returns in the short term.Based on prior literature, it appears that the market reacts positively to an announcement of a BEE deal,although the literature also indicates that an entity’s BEE score, which includes all seven elements of theBEE score, bears a negative relationship to its share returns. Therefore the association between the variousBEE elements and share returns needs to be investigated. The study uses a multivariate regressionanalysis that controls for factors influencing share returns. The study includes the BEE element data asobtained from the survey of the top empowerment companies carried out by Empowerdex/Financial Mail forthe period 2005 to 2011.The results of this study indicate that a significant positive association exists between the managementcontrol element of the BEE score and the entity’s share returns. Furthermore, a significant negativeassociation exists between the ownership and preferential procurement elements of an entity and its sharereturns. This study contributes to the literature on BEE in the accounting and finance field in South Africa aswell as enhances the understanding and effect of BEE compliance through implementation of the genericscorecard as required by the 2007 codes of good practice. The results of this study would be of interest togovernment policy analysts, investors and managers.
Highlights
Since 1994 one of the key objectives of the South African government has been the transformation of the economy through the redress of historical inequalities
The black economic empowerment (BEE) score consists of seven elements, namely ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development (South Africa, 2007)
BEE compliance is regulated by the generic scorecard originating from the codes of good practice of 2007
Summary
Since 1994 one of the key objectives of the South African government has been the transformation of the economy through the redress of historical inequalities. BEE is broadly defined by the government in their BEE strategy document as ‘an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increases in the number of black people that manage, own and control the. The purpose of this study is to investigate the association between the seven elements of the BEE score and companies’ future share returns. This study identifies the positive and negative association of the elements comprising the BEE score with future share returns. This study contributes to the BEE literature in the finance and accounting field and provides empirical evidence of the association of the BEE elements as included in the generic scorecard with future share returns. The remainder of the article is structured as follows: a literature review, which is followed by a discussion of the research design, and the results and conclusion
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