Abstract:
One of the major initiatives to redress the social and economic injustices
of apartheid in South Africa is the black economic empowerment (BEE)
legislative framework currently enacted by government. One of the core
tenets of BEE is to facilitate the inclusion of previously disadvantaged
blacks as shareholders of companies, thereby providing them with a
stake in the economy. Since these new shareholders lack the means to
acquire shares, existing shareholders devise various mechanisms which,
in essence, bestow scrip on the newcomers, and simultaneously open up
opportunities for BEE-compliant companies to benefit. Studies into the
impact of BEE on shareholders have delivered conflicting findings, with
some showing significant benefits to existing shareholders while others
contradict this. The present study examines the association between a
company’s BEE score/rating and shareholder returns, using an event study
methodology and a buy-and-hold portfolio analysis to understand both
the short- and long-term effects of a company’s BEE score. The authors
observed a positive association between a change in BEE score and
abnormal returns in the short term. In the longer term, portfolios which
were comprised of companies with better BEE scores generated lower
returns than those with worse BEE scores – a surprising phenomenon
which may be attributable to the high cost of BEE compliance. These results add weight to the existing body of literature which questions the
efficacy of BEE.
