Scielo RSS <![CDATA[South African Journal of Economic and Management Sciences ]]> http://www.scielo.org.za/rss.php?pid=2222-343620160001&lang=en vol. 19 num. 1 lang. en <![CDATA[SciELO Logo]]> http://www.scielo.org.za/img/en/fbpelogp.gif http://www.scielo.org.za <![CDATA[<b>Price discrimination in two-sided markets</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100001&lng=en&nrm=iso&tlng=en The use of a price discrimination strategy is an important tool in competition. It can hurt firms and benefit consumers in a one-sided market. However, in two-sided markets, its primary goal is to attract more agents or increase profits. Here, the performance of a second-degree price discrimination strategy in the context of duopoly two-sided platforms is analysed. Two exogenous variables, which include the discount rate and the price discrimination threshold, are used in order to examine whether the price discrimination strategy could help two-sided platforms achieve their objective, which is to maximise their market value. Three cases are considered, and we demonstrate that the price discrimination strategy cannot attract more agents and at the same time increase the profits; a lower price discrimination threshold cannot ensure larger markets shares; a higher discount rate is detrimental to the profit of a platform. However, this is good for its market shares. Moreover, discriminative pricing increases the competition. <![CDATA[<b>Earnings management through loss avoidance: Does South Africa have a good story to tell?</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100002&lng=en&nrm=iso&tlng=en The purpose of this study is to determine whether South African managers manage earnings to avoid reporting small losses (small earnings decreases). The study covers all the companies listed on the Johannesburg Stock Exchange (JSE) from 2003 to 2011. In line with Burgstahler and Dichev (1997), the cross-sectional distributions of earnings and changes in earnings are examined and the distributions are shown in histograms. Previous research (using data from the United States) has shown that the distribution curve for both the earnings and the change in earnings variable had noticeably fewer observations just below zero than would normally be expected, and a significantly higher number of observations just above zero. This pattern in the distributions suggests that managers manage reported earnings to ensure that earnings do not fall below a specific threshold, this being zero or the previous year's performance. Interestingly, and in contrast with the previous literature, using the Burgstahler and Dichev (1997) research model of analysis, our results show no evidence of managers in South Africa managing earnings to avoid reporting small losses or small decreases in earnings. A possible reason for this could be the relatively smaller size of the JSE (compared with stock exchanges in the United States). In addition, and more important, is the possibility that investors and analysts in South Africa may be fixated on other performance indicators, such as revenue and headline earnings per share, rather than on earnings (profits). This study adds to the limited research on earnings management in South Africa, which is a developing economy. Furthermore, previous research shows an inverse relationship between earnings management and earnings quality. The results of this study may therefore be useful to the users and the regulators of financial reports, both are concerned with earnings for the purposes of assessing the cost of capital and how companies utilise their resources. <![CDATA[<b>Contract farming risks: A quantitative assessment</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100003&lng=en&nrm=iso&tlng=en The objective of this study is to identify the key risks facing each of the stakeholders in the export-focused paprika value chain in Zambia. Although a deterministic cost-benefit analysis indicated that this outgrower scheme would have a very satisfactory net present value (NPV), a Monte Carlo analysis using an integrated financial-economic-stakeholder model identifies a number of risk variables that could make this system unsustainable. The major risks include the variability of the real exchange rate in Zambia; the international price of paprika; and the farm yield rates. This analysis points out that irrigation systems are very important for both stabilising and increasing yields. The analysis also shows the limitations of loan financing for such outgrower arrangements when at the sector level it is difficult or even impossible to mitigate the risks from real exchange rate movements and changes in international commodity prices. This micro-level analysis shows how critical real exchange rate management policies are in achieving sustainability of such export-oriented value chains. <![CDATA[<b>Market concentration trends in South Africa's private healthcare sector</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100004&lng=en&nrm=iso&tlng=en The Competition Commission (CC) commenced with an enquiry into South Africa's private healthcare sector at the beginning of 2014, the outcome of which could have far-reaching consequences for the medical industry in South Africa. The panel appointed to consider competition in the private healthcare sector has indicated that they are interested in understanding increased consolidation in the private hospital market and the effect this may have on competitive dynamics. This article considers historical concentration trends in the private hospital market from 2000 to 2012. In addition it also deals with changes in market structure in the medical scheme and administrator markets. These trends, in addition, provide a complete picture of market structure changes and the implications for relative bargaining power of the various parties. It finds that whereas the market concentration of private hospitals has remained relatively stable since 2004, the market concentration of medical schemes and administrators has increased over this period. <![CDATA[<b>Cost efficiency of African insurance companies using a finite mixture model</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100005&lng=en&nrm=iso&tlng=en This paper evaluates the operational practices by African insurance companies from Angola and Mozambique, using a finite mixture model that allows controlling for unobserved heterogeneity. More precisely, a stochastic frontier latent class model is adopted in this research to estimate the cost frontiers for each of the different technologies embedded in this heterogeneity. This model not only enables the identification of different groups of African insurance companies from Angola and Mozambique, but it also permits the analysis of their cost efficiency. The results indicate the existence of three different technology groups in the sample, suggesting the need for different business strategies. The policy implications are also derived. <![CDATA[<b>Bringing Pankaj Ghemawat to Africa: Measuring African economic integration</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100006&lng=en&nrm=iso&tlng=en A wealth of literature dealing with trade liberalisation, capital market liberalisation, labour mobility and related issues concerning globalisation asserts that economies that are more integrated with the global economy and, more specifically with their neighbours, tend to enjoy higher sustained levels of growth. Empirical evidence with solid quantitative findings recently conducted by Pankaj Ghemawat has confirmed that more 'open and connected' economies display higher rates of economic growth, higher per capita income levels and greater levels of human welfare. Against this backdrop, it is notable that the available evidence - whilst incomplete - suggests that African economies are amongst the least integrated in the world. Given that integration and connectedness matter, and that there are material gaps in the evaluation of integration for African economies, it is important to develop better measures of African economies' connectedness with their neighbours and with the world, how this connectedness is evolving and establish more comprehensive and robust means of economic integration compared to those historically available. Using Ghemawat's framework, which measures flows of trade, capital, information and people (TCIP) to determine connectedness, we develop the Visa Africa integration index to provide a more comprehensive and detailed gauge of economic integration for 11 African countries in three clusters: East Africa, West Africa and Southern Africa. The index results suggest that African economies are emerging off a modest base, with some economies demonstrating progressive structural improvements toward higher levels of integration with their respective regions and the world. East Africa, in particular, shows signs of rising connectedness over the survey period. The index also illustrates that some countries are more integrated globally than regionally and vice versa, which is important information for policy makers toward improving deeper and broader integration in their respective regions. The index builds on previous research in the broad area of integration and helps us better understand the challenges and opportunities presented by Africa's economic changes and some of the implications for economic growth. <![CDATA[<b>Comparing the power and influence of functional managers with that of project managers in matrix organisations: The challenge in duality of command</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100007&lng=en&nrm=iso&tlng=en Since its inception four decades ago, there has been widespread adoption of the matrix organisational design, particularly in project-based organisations. However, several challenges remain, one of which is related to the ambiguity of authority as a result of the dual command structure. This study examines the perceptions of the types of power and influence mechanisms used by the functional manager and the project manager to influence project personnel, and the effect of these mechanisms on attitudinal outcomes. The research used a two-phase design. The first qualitative phase validated the constructs of power and influence. In Phase 2, quantitative data was obtained from 22 functional managers, 28 project managers and 92 project personnel in South Africa, Italy and Canada from one large project execution technology company. There appears to be a large perceptual gap between project managers, functional managers and project personnel. Managers perceive themselves to be using aspirational and personal influence mechanisms, whereas project personnel perceive the managers to be using positional, punitive mechanisms. Relationships were observed between the perceived type of influence being used by the managers and the project personnel's satisfaction with their manager, overall job satisfaction, their performance and level of engagement. Functional and project managers are associated with very different attitudinal outcomes among project team members. <![CDATA[<b>Trading book risk metrics: A South African perspective</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100008&lng=en&nrm=iso&tlng=en The regulatory market risk metric - Value at Risk - has remained virtually unchanged since its introduction by JP Morgan in 1996. Many prominent examples of market risk underestimation have undermined the credibility of VaR, prompting the search for better, more robust measures. Expected shortfall and procyclical capital buffers have been proposed by regulatory authorities, but neither is without problems. Bubble VaR -a coherent measure which avoids many of the pitfalls to which other measures have succumbed - was designed to be both forward-looking and countercyclical. Although tested on other markets, here it is applied to various South African prices and the results compared with both international observations and other market risk measures. Bubble VaR is found to perform consistently and reliably under all market conditions. <![CDATA[<b>Challenges with the financial reporting of biological assets by public entities in South Africa</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100009&lng=en&nrm=iso&tlng=en Fair value accounting of biological assets in the public sector was introduced with the adoption of the public-sector-specific accounting standard: Generally Recognised Accounting Practice (GRAP) 101. The public sector currently reports on various bases of accounting. Public entities and municipalities report in terms of accrual accounting, and government departments report on the modified cash basis. The lack of a uniform basis of accounting impedes the comparability of financial information. The implementation of GRAP 101 in the public sector is important in facilitating comparability of financial information regarding biological assets. This paper is based on a content analysis of the annual reports of 10 relevant public entities in South Africa and specifically details the challenges that public entities encounter with the application of GRAP 101. These challenges, and how they were addressed by a public entity that adopted and applied GRAP 101, namely the Accelerated and Shared Growth Initiative South Africa - Eastern Cape (AsgiSA-EC), are documented in this research. <![CDATA[<b>Private shareholding: An analysis of an eclectic group of central banks</b>]]> http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2222-34362016000100010&lng=en&nrm=iso&tlng=en Although the title seems to be a contradictio in terminis, this paper identifies a small, eclectic number of central banks with private shareholders about which little has been published. It is shown that only the central banks of Belgium, Greece, Italy, Japan, South Africa, Switzerland, Turkey and the United States (US) Federal Reserve Banks allow shareholding other than by the government of the respective countries, although not in all instances by the general public. This paper considers private shareholding in this eclectic group of central banks, despite the trend of nationalising central banks that commenced in 1935. Private shareholding is defined as shareholding in a central bank by any party other than the respective government or governments (e.g. the European Central Bank) where the central bank is located. Large differences in the classes of shareholders of these eclectic central banks and differences in their approaches to dividend payments are highlighted in the paper. The conclusions reached are, firstly, that investment only in the shares of the central banks of Belgium and Greece (albeit only for residents in the latter instance) can be regarded as growth investments. Secondly, shareholding in the Italian central bank has been used to recapitalise ailing commercial banks. Thirdly, shareholders play no role in the formulation and implementation of monetary policy. Lastly, the shareholding structure of these banks contributes to improved governance in the case of the central banks of Belgium, Greece, Italy, South Africa, Switzerland and Turkey, but no evidence can be found that central banks with shareholders in any way outperform central banks without shareholders.