The impact of black economic empowerment transaction announcements on share price performance of JSE listed mining companies

Abstract

The South African government introduced the Black Economic Empowerment (BEE) as an intervention to resolve economic imbalances. In furthering inclusivity in the previously exclusive sectors, like Mining, the BEE legislations and Mining Charter were introduced to benefit the HDSA. The study addressed a significant gap in BEE research, which is important within the South African context, as the country currently reviews progress after the initial 20 years of democratic dispensation. The research examined the share price performance of mining stocks listed on the JSE by tracking their share price performance after announcements relating to black empowerment transactions. The objectives of the research were to, first, determine whether announcements of BEE transactions lead to better shareholder wealth creation in the South African mining sector, second, to determine the impact of these announcements on Old and BEE mining companies that were listed on the JSE post- 1994, third, to determine whether the early BEE announcements made before the release of the Mining Charter in September 2010 had a greater positive impact on the Cumulative Abnormal Returns (CARs) of Mining companies compared to those made after the amendment to legislation. The research employed an event study methodology to analyse a sample of 26 mining companies that made a total of 241 qualifying announcements from January 2000 to November 2014. The results of the study showed negative impact on the CARs of the mining companies. It was noted that the old mining companies that existed before 1994 had better average abnormal return than the BEE companies. Further, the results showed that the Average Abnormal Returns (AARs) of the BEE announcements made prior to the Mining Charter had greater AARs than those made after the implementation. In sum, the BEE announcements had largely a negative impact on share performance of the mining companies.