The value of directors on the Johannesburg Stock Exchange

Abstract

Directors of listed companies are seen as key individuals in the running of their organisations. The loss of a key individual could have significant effect on the profitability and sustainability of a company. The loss of such an individual could cause harm to the share price of an organisation, due to the instability that may exist in the immediate to short term period after the death of a director. The purpose of this research paper was to investigate the effect that the death of a director of a JSE listed company has on the company s share price. The research aimed to identify whether an abnormal return was experienced prior to, or post the death of the director, and whether it could be possible to predict abnormal returns based on the death of directors. The research further aimed to identify whether a difference existed in the abnormal returns experienced after the death of a non-executive director as opposed to an executive director or whether this differed in the JSE s resource rich companies as opposed to non-resource companies. Ultimately, the research also tested the efficiency of the JSE as a market. The research study ultimately found that there is a statistically significant effect on share price following the death of a director. The magnitude of the effect differs based on a number of variables, including whether the director was independent or executive. Where a director was independent, a negative abnormal return was experienced. However, where a director was an executive director, a positive abnormal return was experienced. The magnitude of the effect also differed significantly between the resources and non-resource companies on the JSE. Evidence was observed in the analysis, in support of the literature review, which confirms that the death of a director leads to abnormal returns on the share price. KEYWORDS