The Relationship between Black Economic Empowerment Score and Shareholder Return in South Africa

Abstract

This research examines the association between Black Economic Empowerment (BEE) score and shareholder return. We look at the effect of a change in BEE score on abnormal returns for shareholders, as well as at the long term performance of holding portfolios ranked on BEE score. The study takes the form of an event study and a buy and hold portfolio analysis to understand both the short term and long term effects of a company’s BEE score on abnormal returns. All companies, listed in the Johannesburg Stock Exchange’s (JSE) All Share Index, which were BEE compliant between January 2009 and September 2015, are analysed. We observed a positive association between a change in BEE score and abnormal return in the short-term. In the longer term, portfolios which were comprised of companies with the best BEE scores generated lower returns than those with worse BEE scores. We attribute this surprising result to the high cost of BEE compliance. These results add weight to the existing body of literature which questions the efficacy of BEE.