Scielo RSS <![CDATA[South African Journal of Economic and Management Sciences ]]> vol. 22 num. 1 lang. <![CDATA[SciELO Logo]]> <![CDATA[<b>Pricing of fair value instruments reported under International Financial Reporting Standards 7: South African setting</b>]]> BACKGROUND: Prior literature established that different fair value levels disclosed in terms of the International Financial Reporting Standards (IFRS) 7 are value relevant. SETTING: This study investigates the market pricing of the different fair value levels, as well as the market reaction towards the fair value hierarchy levels reported in terms of IFRS 7. AIM: Prior research found inconsistencies in the market pricing of fair value levels. This study seeks to contribute to this debate. It also focuses on the period after comprehensive guidance on how to measure fair value levels was issued. METHODS: Data from 2009 to 2015 were collected from the financial sector companies listed on the Johannesburg Stock Exchange. The study uses the statement of financial position and the Ohlson model to investigate the market pricing of the different fair value levels disclosed in terms of IFRS 7. RESULTS: The results of the study show that the fair value of assets level 1, 2 and 3, as well as the fair value of liabilities level 3 are value relevant while the fair value of liabilities level 1 and 2 are not value relevant. Furthermore, the market pricing of level 2 and 3 fair value assets and liabilities is not lower for companies with a high debt equity ratio than for companies with a low debt equity ratio. The results further reveal that the pricing of level 3 assets improved with the introduction of IFRS 13 and post the 2008 financial crisis. CONCLUSION: Fair value assets across different hierarchy levels are value relevant. On the contrary, fair value liabilities are priced differently across the different hierarchy levels. <![CDATA[<b>Using explicit knowledge of groups to enhance firm productivity: A data envelopment analysis application</b>]]> BACKGROUND: The telecommunication industry is globally recognised to be a knowledge-intensive industry where high levels of technological sophistication are a key determinant of success and performance. Consequently, existing research has examined the role of labour hours and the firm's capital on productivity. Nonetheless, research is yet to relate, with empirical evidence, productivity gains that accrue to organisations as a direct function of knowledge work and knowledge workers, especially with respect to group-explicit knowledge usage in emerging economies such as Nigeria. The adoption of data envelopment analysis further provides originality in the area of benchmarking group-explicit knowledge in telecommunication firms to enhance productivity. As such, this research takes on a scientific investigation to fill this gap. AIM: The purpose of this research work was to determine the influence of group-explicit knowledge on the productivity of telecommunication organisations. SETTING: The setting of this research is composed of the four leading telecommunication firms in Nigeria and their customer service centres METHODS: Based on a sample size of 42 customer service centres of the four most active global system for mobile communications organisations in Lagos state and Federal Capital Territory (FCT), Nigeria, the research adopted the output-oriented data envelopment analysis model to show the influence of group-explicit knowledge on productivity. RESULTS: The results showed that 15 decision-making units (DMUs) (representing 36%) were found to be technically efficient using the constant return to scale approach, while only 12 DMUs (representing about 28.6%), based on variable return to scale approach, were found to productively engage their present input resources in outputs that achieve optimal productivity for the firm. CONCLUSION: Group-explicit knowledge dimensions that were investigated in this study significantly influence productivity of firms in Nigeria's telecommunication industry. It was recommended that DMUs that were identified to be productivity deficient should hold resources input constant while their employees made efforts to scale up operations to enhance productivity. <![CDATA[<b>The performance of debt and equity markets in Anglo American Plc and BHP Billiton Plc in the period 2006 to 2015 through the lens of Merton's structural model</b>]]> This article applies the Merton structural model in evaluating the performance of the debt and equity markets in Anglo American Plc and BHP Billiton Plc in the period 2006 to 2015. We consider statistical and economic measures of the efficacy of the Merton model in explaining observed market behaviour. We find strong but unstable statistical support for the Merton model as a descriptor of market behaviour. We generated superior risk adjusted returns when applying the results of our analysis to an investment strategy. Market prices deviate from model behaviour; however, the relationship appears to be mean reverting which supports the investment thesis. <![CDATA[<b>Good capitalism versus bad capitalism: A review</b>]]> This article applies the Merton structural model in evaluating the performance of the debt and equity markets in Anglo American Plc and BHP Billiton Plc in the period 2006 to 2015. We consider statistical and economic measures of the efficacy of the Merton model in explaining observed market behaviour. We find strong but unstable statistical support for the Merton model as a descriptor of market behaviour. We generated superior risk adjusted returns when applying the results of our analysis to an investment strategy. Market prices deviate from model behaviour; however, the relationship appears to be mean reverting which supports the investment thesis. <![CDATA[<b>A high unemployment and labour market segmentation: A three-segment macroeconomic model</b>]]> BACKGROUND: South Africa suffers from an unusually high unemployment rate - officially averaging 25% since 1999Q3. In addition, depending on whether one uses the official or broad definitions of unemployment, since 2008 there are on average between 2 and 3.3 times as many unemployed people as there are people in the informal sector. Hence the question: why do the unemployed not enter the informal sector to create a livelihood? AIM: To fill this gap we propose a macro-economic framework that incorporates both formal (primary) and informal (secondary) sectors, as well as involuntary unemployment resulting from entry barriers to the labour market. We believe such a model provides a more suitable basis for macroeconomic policy analysis. SETTING: Standard macroeconomic theories at best provide a partial explanation for the South African unemployment problem, focusing mostly on the formal sector. METHODS: The article uses a theoretical analysis. RESULTS: The article presents a macro-economic framework that incorporates both formal (primary) and informal (secondary) sectors, as well as involuntary unemployment resulting from entry barriers to the labour market. CONCLUSION: If the assumptions on which the model draws hold in the South African reality, then a solution to the unem-ployment problem involve policies addressing product and labour market structures and behaviour in the primary sector, as well as policies addressing the numerous barriers to entry, such as borrowing constraints, that poten-tial entrants into the secondary sector face. <![CDATA[<b>The unemployed and the formal and informal sectors in South Africa: A macroeconomic analysis</b>]]> BACKGROUND: At 27.2% in the second quarter of 2018 the official unemployment rate in South Africa ranks as one of the highest in the world. However, depending on whether one uses the official or broad definition of unemployed, since 2008 there are on average between 2 and 3.3 times as many unemployed people as there are people in the informal sector. AIM: This article seeks to explore empirically, using time-series data, the extent to which an increase in the number of unemployed leads to increased entry of workers into the informal sector. METHOD: We use a Markov-switching vector error correction model. RESULTS: We find that such entrance is very limited, lending credence to the notion that significant entry barriers exist into the informal sector CONCLUSION: From a policy point of view these results suggest the need to consider measures that will ease entrance into the informal sector. <![CDATA[<b>The effect of work engagement on total quality management practices in a petrochemical organisation</b>]]> BACKGROUND: Work engagement can be defined as a positive, fulfilling, work-related state of mind that is characterised by Vigour, Dedication and Absorption. There is a general belief that there is a connection between work engagement and business results, as well as total quality. Practitioners and academics have over the years agreed that the consequences of work engagement are positive. Total quality management is an essential practice that can be used to improve the quality of products on a systematic basis to meet customer satisfaction. It is important for an organisation to have engaged employees as it is evident that such an organisation is likely to prosper and attain total quality management (TQM). AIM: The main objective of the study was to determine the effect of work engagement on total quality management practices in a petrochemical organisation. SETTING: The study was carried out in the petrochemical industry, which is of economic significance to the country. The degree of work engagement is essential for sustainable performance in this industry METHODS: Two questionnaires were used for the study, namely the Utrecht Work Engagement Scale and TQM. A total of 166 of responses were received from employees working for a petrochemical organisation. RESULTS: Overall, the results showed that work engagement had a positive relationship with the dimensions of TQM, which was used as a measure of quality, which is a non-financial measure of performance CONCLUSION: Managers need to enable an organisation to attract, develop and retain highly engaged employees to ensure a sustainable competitive advantage. <![CDATA[<b>Modelling the link between supply chain risk, flexibility and performance in the public sector</b>]]> BACKGROUND: The South African public sector faces numerous internal and external risks that limit the performance of its entire supply chain. An understanding of these risks and their effects is an important milestone in overcoming them. AIM: This article tested the relationship between supply chain risks, flexibility and performance in the South African public sector METHOD: A survey questionnaire was administered to 307 supply chain practitioners who were based in the public sector in Gauteng. A structural equation modelling procedure was utilised in testing the proposed relationships. RESULTS: The results of the study showed that six supply chain risk factors, namely government policies, supply complexity, availability of skills, supplier performance monitoring, information security and process efficiency exert significant influences on supply chain flexibility. In turn, supply chain flexibility exerts a positive influence on the performance of the public supply chain. CONCLUSION: Managers in government may be able to improve the public supply chain management function through the suitable management of the supply chain risk factors considered in this study. <![CDATA[<b>A motivation for banks in emerging economies to adapt agency ratings when assessing corporate credit</b>]]> BACKGROUND: This article considers whether South African banks should utilise the credit ratings provided by US-based credit rating agencies when assessing the creditworthiness of corporate borrowers. AIM: A review is conducted of the relevant literature and specifically the methodologies used by the credit rating agencies for ranking corporates in emerging markets. SETTING: The three largest international credit rating agencies are Fitch Ratings, Moody's Investor Services, and Standard and Poor's. These agencies' credit ratings cover the global spectrum of corporate, sovereign, financial and other public entities and the securities and obligations they issue. The analytical frameworks used to produce these ratings are referred to as credit rating methodologies. METHOD: A review of Moody's ratings for South African corporate entities was undertaken to examine claims of a sovereign ceiling influencing the external ratings obtained by these institutions in emerging markets. RESULTS: Only 14 of the 200 global South African ratings pierced the sovereign ceiling. CONCLUSION: The study concludes that the use of unmodified external ratings by banks to assess a corporate borrower should be discouraged. High-level suggestions are provided on how the methodologies and data used by the external agencies may rather be used to arrive at more suitable internal ratings. <![CDATA[<b>The information technology role in supplier-customer information-sharing in the supply chain management of South African small and medium-sized enterprises</b>]]> BACKGROUND: The study background looked at the advent of supply chain management in the last generation which ushered in technology that drives information-sharing within, and across enterprises. The information flow facilitates synchronisation of business activities, such as relationship-building, supply chain management among others. AIM: The aim of the study was to investigate how information technology (IT) application in the South African small and medium-sized enterprises (SMEs) enhanced supplier-customer information sharing. SETTING: Interviews were conducted with SMEs samples that comprised mixed owner-managers from food, and general trading SMEs in Gauteng Province of South Africa. METHODS: A qualitative research methodology was used, and a non-probability sampling process was pursued. RESULTS: The results indicated that IT application in the South African SMEs enhanced supplier-customer information-sharing, as it improved interaction through supply chain collaboration and integration. CONCLUSION: The conclusion of the study highlighted that IT application in enterprises as obtained from South African SMEs enhanced supplier-customer information-sharing. <![CDATA[<b>Physical capital, total factor productivity, and economic growth in sub-Saharan Africa</b>]]> BACKGROUND: A major question that received the attention of numerous theoretical and empirical studies during the past few decades relates to the issue of output growth decomposition and the sources of economic growth. The literature focuses on two sources of growth: factor accumulation (mainly physical capital) and total factor productivity (TFP) growth, presenting inconclusive results as to the relative importance of each. AIM: This article investigates the relative importance of physical capital accumulation and TFP in explaining output growth in 36 sub-Saharan African (SSA) countries over 1996-2014. The possibility of TFP-induced input effects is tested in order to better assess the role of TFP in total output growth. SETTING: 36 SSA countries over the period 1996-2014. METHOD: The article uses a stochastic frontier analysis, an empirical methodology that decomposes total output growth into input growth, technological change and technical efficiency change. RESULTS: The contribution of physical capital to total growth exceeds that of TFP in 22 out of the 36 countries. The result withstands issues of TFP-induced effects on inputs. CONCLUSION: A large share of growth in SSA is explained by factor inputs and not by TFP. There is therefore room for TFP to further increase growth in SSA. In order to create more opportunities for growth, SSA countries ought to invest in productivity-enhancing factors. <![CDATA[<b>Do wine tourists care about the labourer?</b>]]> BACKGROUND: Consumers worldwide have recently become more aware that their consumption preferences and habits influence not only the environment, but also other people's lives. These 'ethical' consumers are therefore said to consider the moral features of the product or service in their consumption decision. The most prominent ethical consumption label is the Fair Trade label, which was established to enhance the living and working conditions of those working on small-scale farm cooperatives in developing countries. AIM: This paper aims to determine wine tourists' willingness to pay (WTP) for improved working and living conditions for wine farm workers SETTING: The research was conducted at the largest wine festival in South Africa, the Wacky Wine Festival in Robertson in the Western Cape, an area renowned for its wine and fruit products. METHOD: The concept of a socially acceptable logo on the wine bottle - signalling fair wages to the farm workers - was assessed by using a double-bounded contingent valuation approach. Wine tourists completed 397 questionnaires during the festival in June 2017. RESULTS: The results indicate that 80% of wine tourists are willing to pay more for socially responsible wines. The responsible wine consumer is typically younger and a premium of R11 per bottle of wine would be accepted if it signals fair treatment of workers. CONCLUSION: The socially responsible wine tourist in South Africa is more concerned about quality and the moral implications of the wine than the price. There is support for the implementation of a socially responsible label for wine products. <![CDATA[<b>Effectiveness of employer branding on staff retention and compensation expectations</b>]]> BACKGROUND: In a highly competitive, economically strained business environment it is essential for a business to balance the necessity of attracting and retaining top-performing employees and containing costs. Employee branding is a management tool that can serve to retain staff and reduce compensation levelsAIM: This study investigated the effects of employee branding on staff retention and compensation expectationsSETTING: Five South African insurers participated in this researchMETHODS: Analysis of variance and correlational tests were used to test various hypothesesRESULTS: The analysis indicated that increased perceptions of employer branding relate to staff with greater reports of retention and lower levels of compensation expectations. Interestingly, demographic factors were not significant in the analysis, although trends were found in potential age differences and total years at an employerCONCLUSION: Practically, the research provides a model to execute a successful employer branding strategy. The employer branding control cycle was developed to assist organisations to successfully execute an employer branding strategy. This model considers the design, implementation and monitoring phases of such a strategy <![CDATA[<b>A test taker's gamble: The effect of average grade to date on guessing behaviour in a multiple choice test with a negative marking rule</b>]]> BACKGROUND: Multiple choice questions (MCQs) are used as a preferred assessment tool, especially when testing large classes like most first-year Economics classes. However, while convenient and reliable, the validity of MCQs with a negative marking rule has been questioned repeatedly, especially with respect to the impact of differential risk preferences of students affecting their probability of taking a guessAIM: In this article we conduct an experiment aimed at replicating a situation where a student enters an examination or test once they already have an average from previous assessments, where both this and previous assessments will count towards the final grade. Our aim is to investigate the effect of a student's aggregate score to date on their degree of risk aversion in terms of the degree to which they guess in this particular assessmentSETTING: A total of 102 first-year Economics students at the University of the Witwatersrand volunteered to participate in this study. The test used in this study did not count as part of the students' overall course assessment. However, students were financially compensated based on their performance in the testMETHODS: Following an experimental design, students were allocated randomly into four groups to ensure that these differed only with respect to the starting points but not in any other observed or unobserved characteristic that could affect the guessing behaviour of the students. The first group consisted of students who were told that they were starting the multiple choice test with 53 points, the second group were told they were starting with 47 points, and the third and fourth groups were told that they were starting with 35 and 65 points respectivelyRESULTS: We show that entering an assessment with a very low previous score encourages risk seeking behaviour. Entering with a borderline passing score encourages risk aversion in this assessment. For those who place little value on every marginal point, entering with a very high score encourages risk seeking behaviour, while entering with a very high score when a lot of value is placed on each marginal point encourages risk aversion in this assessmentCONCLUSION: The validity of MCQs combined with a negative marking rule as an assessment tool is likely to be reduced and its usage might actually create a systematic bias against risk averse students <![CDATA[<b>Knowledge exchange and ethnic networks of clustered small-scale enterprises in Africa: A case study of furniture cluster in Tanzania</b>]]> BACKGROUND: Industrial clusters remain at the initial stage in the sub-Saharan Africa (SSA) region. They produce low-quality and similar products that are poorly innovative and therefore unable to expand. Ethnicity is a characteristic imprint of SSA clusters. However, little research has been done on SSA industrial clusters being able to explore ethnic effects on cluster development, in particular the cases where ethnic majority is over-presentedAIM: This study aims to investigate the effect of ethnic network between ethnic majority and minority on knowledge exchange in clustered micro and small-scale enterprises in AfricaSETTING: This study was undertaken in the furniture cluster located in Arusha City, Tanzania, which has striking features in its ethnic composition of a dominant ethnic majority and a variety of ethnic minorities. A census survey on the 234 clustered furniture enterprises was conducted to collect comprehensive information on production skill and ethnicity at individual levelMETHODS: Probit and ordered probit models are employed to analyse the difference in manufacturing skill between the ethnic majority and minority as well as the inter-ethnic and intra-ethnic enterprisesRESULTS: Results show a positive and significant effect of the strength of the ethnic networks in having advanced skills in furniture production; particularly evident is the skill that is governed by enterprises' own capability rather than production facilities. Comparing technological skills between the inter-ethnic enterprises and intra-ethnic enterprises, the former are more likely to share similar manufacturing technology with each other than the latter. While individuals in the ethnic majority resemble uniform manufacturing techniques in higher-priced furniture work, the ethnic minority exhibits a similarity in producing common goodsCONCLUSION: Ethnic network is a predictor of technological skills of clustered producers in the SSA region. However, the ethnic network effect can only influence the skills that are apparently observed and barely affects capital-intensive technology. These findings indicate the significance of the ethnic networking effect in knowledge exchange in Africa, but remain ineffective in overcoming capital constraints <![CDATA[<b>An investigation into the output tax consequences of bitcoin transactions for a South African value-added tax vendor</b>]]> BACKGROUND: The use of bitcoin in South Africa is fairly new, but has increased as several online retailers now accept bitcoin as a means of payment. The South African Revenue Service has released a media statement regarding the normal tax treatment of cryptocurrencies (such as bitcoin), but policy regarding the value-added tax (VAT) treatment of cryptocurrencies is still pending. AIM: The objective of the study is to determine the output tax consequences for a South African VAT vendor who receives bitcoins in exchange for the supply of goods or services that are subject to VAT, and when the same South African VAT vendor exchanges the bitcoins for South African rand at a local exchange platform. SETTING: This article examines existing literature in a South African VAT environment. METHOD: A non-empirical study based on existing literature is performed. RESULTS: It is found that when interpreting the (current) VAT Act No. 89 of 1991, the receiving of bitcoin in exchange for the supply of goods or services, as well as the exchange of bitcoin for South African rand, is subject to output tax at the standard rate of 14%, which will lead to 'double taxation'. CONCLUSION: It was shown through this study that the proposed treatment as explained in the previous section would impose 'double taxation' <![CDATA[<b>The impact of South African real estate investment trust legislation on firm growth and firm value</b>]]> BACKGROUND: Through the introduction of the South African real estate investment trust (SA REIT) structure, listed property investment firms are required to conform to international REIT standards, thereby making REITs more attractive to investors. Despite the exponential growth of the SA REIT industry over the past decade, SA REIT legislation - effective from 2013 - has imposed regulations with regard to financial leverage and profit retention, which may affect these firms' sustainable growth rate and firm value. AIM: By deconstructing the sustainable growth rate, we investigated the potential impact of SA REIT legislation on growth rate components and considered the impact of each growth component on firm value. SETTING: The introduction of SA REIT legislation provides an opportunity to investigate how regulation has affected REIT growth and value. METHODS: We investigated changes in the respective sustainable growth rate components using a mixed model analysis of variance. Additionally, we employed a panel regression to assess the impact of each component on firm value (proxied by Tobin Q). RESULTS: We found empirical evidence of decreased leverage and profit retention, as well as increased profit margins, in the REIT period, which may be indicative of firms' reaction to regulation. In addition, we found that profit retention had a significant positive impact on firm value, while leverage showed a significant negative effect on firm value post-legislation. CONCLUSION: This study confirmed a significant change in growth components, with higher average profitability and sustainable growth in the REIT period, suggesting that the REIT industry responded positively to the REIT regime introduction. <![CDATA[<b>Use of social media in Free State tourism small, medium and micro enterprises to widen business networks for competitiveness</b>]]> BACKGROUND: While the proliferation of social media is hailed for increasing corporate business networking and competitiveness, this claim has not been sufficiently tested in tourism small, medium and micro enterprises (SMMEs) in African emerging economies where traditional communication modes tend to dominate. SETTING: This study investigates the use of social media in tourism SMMEs to widen their business networks to increase competitiveness AIM: This study contributes to the debate on business networking among stakeholders within the tourism sector. METHODS: To close the research gap, the current study employed stakeholder theory and survey data of 123 hospitality SMMEs to explore the influence of social media utilisation for business networking with stakeholders and its effect on business competitiveness. RESULTS: Findings showed that the majority of tourism SMMEs used social media technologies to retain their customer base, solicit feedback from customers, assert their dominance in the market, maintain contact between their co-workers and share information. Moreover, the findings indicate that there is a significant positive relationship between social media business networking and competitiveness of these firms. The study recommended that tourism SMMEs should create a policy framework for comprehensive stakeholder engagement that serves the interests of all individuals. CONCLUSION: To increase the competitiveness of such firms, SMMEs should incorporate social media into their formal internal and external information strategy.