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AN EMPIRICAL INVESTIGATION OF THE EFFECT OF BLACK ECONOMIC EMPOWERMENT TRANSACTIONS ON SHARE PRICES: 1996 TO 2006

Barry Strydom

University of Kwazulu-Natal, South Africa

 

Andrew Christison

University of Kwazulu-Natal, South Africa

 

Joao Matias

Barnard Jacobs Mellet Wealth (Pty) Ltd, South Africa

 

ABSTRACT

Black Economic Empowerment (BEE) remains one of the most important drivers for corporate restructuring in South Africa and, given the strategic significance of BEE transactions, successfully implementing such transactions poses a critical challenge for corporate South Africa. This paper argues that, in line with standard financial theory, if BEE transactions are perceived by the market to represent an increase in the future earnings potential of the firm or a reduction in the riskiness of future earnings then the announcement of a BEE transaction should result in an increase in a firm‟s share price. An event study approach is employed to test this hypothesis for 254 BEE transactions between 1996 and 2006. BEE transactions are not found to be associated with negative abnormal returns and in a limited number of cases they are associated with positive abnormal returns suggesting that the reaction may be related to firm specific and/or transaction specific characteristics.

Keywords: Black Economic Empowerment, Firm Valuation, Corporate Control, Event Study

JEL Codes: G14, G34