Scielo RSS <![CDATA[South African Journal of Economic and Management Sciences ]]> vol. 20 num. 1 lang. pt <![CDATA[SciELO Logo]]> <![CDATA[<b>Determinants of the capital structure of Portuguese firms with investments in Angola</b>]]> BACKGROUND: This article seeks to complement the previous literature and clarify the particularities of the capital structure policy of firms with foreign direct investment in Angola. AIM: This article seeks to identify the determinants of the capital structure of Portuguese firms with direct investment in Angola and to understand whether the determinants normally considered by standard finance theory are in line with those used by firms when structuring their capital structure policy to participate in the specific market of Angola. SETTING: This article examines 26 large Portuguese firms with investments in Angola using econometric panel data for the period 2006-2010. METHODS: The study applied fixed and random effects methods and panel-corrected standard errors that maintain efficiency and unbiased behaviour even in the presence of panel-level heteroscedasticity and contemporaneous correlation of observations among panels. RESULTS: The results provide evidence that the determinants normally considered by standard finance theory are in fact - in terms of sign and coefficient dimension - those used by firms for structuring their capital structure policy when involved in the internationalisation process of entering Angola. Specifically, age, asset structure, return on assets and tangibility have a positive influence on the capital structure of Portuguese firms that have invested in Angola, while non-debt tax shields and liquidity have a negative influence on these companies' leverage ratios. When comparing our results with studies that have analysed the capital structure determinants of listed Portuguese firms - firms belonging to the PSI 20 Index and large firms in the Portuguese corporate sector - we found similarities in the sign and coefficient dimension of the determinants of capital structure. However, the profitability coefficient sign is in line with the trade-off framework (i.e. profitability is positively related to debt) but not with pecking order theory (i.e. profitability is negatively related to debt. CONCLUSION: Our results suggest that the high-growth Angolan market is seen by larger Portuguese firms as a low-risk diversification process because of the economic hardship Portugal has gone through, as well as cultural and linguistic similarities to Portugal. As such, the Angolan market is seen as an extension of the Portuguese domestic market that has increased potential. This scenario potentially reduces the firm default probability and the cost of debt. Maintaining the tax shield benefits of debt and decreasing the cost of debt - through a reduction in the default probability - have induced profitable firms to use more debt. <![CDATA[<b>Firm characteristics and excellence in integrated reporting</b>]]> BACKGROUND: Integrated reporting has attracted much attention in the past few years, and South Africa has taken the lead in its development worldwide. An annual survey is published by Ernst & Young regarding the quality of the integrated reports of the top 100 entities listed on the Johannesburg Stock Exchange (JSE). AIM: The study on which this article is based was aimed at determining whether the assessment of an entity's characteristics can predetermine the quality of the integrated report generated by that entity. SETTING: This article focuses on an analysis of the integrated reporting of the top 100 entities listed on JSE for the financial years ending in 2013, 2014 and 2015. METHODS: Comparison of categorical variables, mixed-model repeated measures ANOVA and generalised estimating equations were applied to identify the best classificators to distinguish between excellent integrated reporting and those reports where progress could still be made. RESULTS: The results show that the type of industry the entity finds itself in, the size and profitability of the entity, as well as the composition of the members of the board, have an effect on the quality of the integrated report. CONCLUSION: Our results indicated that the type of industry, size of an entity, the profitability and composition of the board of directors, all have an effect on the quality of the integrated reporting. Our evidence will assist current and prospective stakeholders in evaluating the expected quality of an entity's integrated report, through the evaluation of certain firm characteristics. <![CDATA[<b>Efficiency of international cooperation schemata in African countries: A comparative analysis using a data envelopment analysis approach</b>]]> BACKGROUND: Efficiency measurement by means of data envelopment analysis (DEA) in the non-profit sector has focused on the so-called Stage I of non-profit organisations, namely, fundraising efforts (which are the most influential determinants of raising funds in order to increase the amount of contributions). However, for the so-called Stage II of non-profit organisations, namely, spending the achieved resources to program services delivery, DEA studies are very scarce. In attempting to address this research gap and to the best of our knowledge, this investigation is the first study that applies DEA to the assessment of international cooperation schemata. Consequently, we offer a significant contribution to the literature by overcoming the limitations of other techniques used to assess the efficiency and providing new insight into the efficiency of targeted different international cooperation schemata (ICS) in international cooperation development projects. AIM: The purpose of this study is to evaluate and compare the efficiency of the ICS of developmental projects funded by the Spanish Agency for International Cooperation for Development. SETTING: Our setting is composed of different international cooperation projects funded with different schemata by the Spanish Agency for International Cooperation for Development between 2002 and 2006 in two African countries that are top priority targets of Spanish international aid: Morocco, and Mozambique. METHODS: Using a sample of 48 international cooperation projects carried out in two African countries considered priorities in the Spanish Cooperation Master Plan, we analyse project efficiency using DEA. RESULTS: The findings suggest that some schemata are more efficient than others when applied to international cooperation projects (ICS). Specifically, we find that permanent open-call subsidies are more efficient than non-governmental development organisation subsidies. CONCLUSION: Measures for evaluating international aid projects with respect to efficiency are problematic. The DEA method provides an ex-post meausure of efficiency that allows for the measurement in a specific and objetive way of the results achieved by each project and to propose corrective actions for the future. The comparison among ICS provides an opportunity to identify the conditions under which an ICs may achieve greater efficiency. <![CDATA[<b>Tax preferences, dividends and lobbying for maximum value</b>]]> BACKGROUND: The value of equity investments depends to some extent on the tax consequences for investors. When groups of investors have different tax preferences, this can lead to conflicting pressures on firms to either retain earnings or pay dividends. The findings of this study will be of interest to researchers of taxation and corporate governance alike, as they highlight the role that corporate shareholders play in the decisions of the firm. Investors and regulators will also be interested in the findings as they reveal more about the interaction between shareholders with conflicting interests. Lastly, changes in behaviour as a result of changes in tax legislation are of interest to those with fiscal responsibility. SETTING: A 2012 dividend tax change in South Africa, which simultaneously altered the tax preferences of individual and corporate investors, provides a unique opportunity to investigate firms' reaction to their investors' tax preferences. AIM: This article seeks to determine whether firms respond to changes in their investors' tax preferences in their decisions to either retain earnings or pay dividends. METHOD: The article investigates the responses of firms to the 2012 dividend tax change using multivariate regressions. RESULTS: Findings show that firms consider changes in the tax preferences of their investors in setting dividend policies. In addition, it appears that corporates have greater success in lobbying for beneficial dividend changes than individuals. CONCLUSION: Changes in investors' tax preferences impact on firms' dividend policy decisions. These decisions ultimately affect the value of the firm to its investors. <![CDATA[<b>Explore changes in the aspects fundamental to the competitiveness of South Africa as a preferred tourist destination</b>]]> BACKGROUND: Tourism is an evolving and changing industry, and keeping up with these changes requires an understanding of the forces and changes that shape this industry's outcomes. Tourism managers struggle daily to stay ahead in the competition to attract more tourists to destinations. Understanding the strengths and weaknesses of the past could shed light on the advantages of the future AIM: The aim of this study was to do a temporal analysis of the competitiveness of South Africa as a tourism destination SETTING: This research investigated the competitive position of South Africa as a tourism destination just after the 1994 elections and compared those results to the results of a similar study in 2014 METHODS: In this article, a frequency analysis revealed South Africa's strengths and weaknesses, after which t-tests indicated the relationship between the strengths and weaknesses of the destination and the factors that contribute to South Africa's competitiveness RESULTS: South Africa's strengths include the quality of the food and experience, scenery, variety of accommodation climate and geographical features. It is clear that respondents identified different attributes that contributed to the strengths of the destination in comparison with 2002, where the strengths were wildlife, scenery, cultural diversity, climate, value for money, variety of attractions and specific icons CONCLUSION: This research is valuable for South Africa because it informs tourism role players about what respondents perceive to be South Africa's strengths. Role players can then form strategies that incorporate the strengths to create competitive advantage. This article also indicates the areas in which the country has grown in the past decade as well as indicating which weaknesses remain a problem <![CDATA[<b>Identifying the determinants of South Africa's extensive and intensive trade margins: A gravity model approach</b>]]> BACKGROUND: The significance of the paper is twofold. Firstly, it adds to the small but growing body of literature focusing on the decomposition of South Africa's export growth. Secondly, it identifies the determinants of the intensive and extensive margins of South Africa's exports - a topic that (as far as the authors are concerned) has not been explored before. AIM: This paper aims to investigate a wide range of market access determinants that affect South Africa's export growth along the intensive and extensive margins. SETTING: Export diversification has been identified as one of the critical pillars of South Africa's much-hoped-for economic revival. Although recent years have seen the country's export product mix evolving, there is still insufficient diversification into new markets with high value-added products. This is putting a damper on export performance as a whole and, in turn, hindering South Africa's economic growth. METHODS: A Heckman selection gravity model is applied using highly disaggregated data. The first stage of the process revealed the factors affecting the probability of South Africa exporting to a particular destination (extensive margin). The second stage, which modelled trade flows, revealed the variables that affect export volumes (intensive margin. RESULTS: The results showed that South Africa's export product mix is relatively varied, but the number of export markets is limited. In terms of the extensive margin (or the probability of exporting), economic variables such as the importing country's GDP and population have a positive impact on firms' decision to export. Other factors affecting the extensive margin are distance to the market (negative impact), cultural or language fit (positive impact), presence of a South African embassy abroad (positive impact), existing free trade agreement with Southern African Development Community (positive impact) and trade regulations and costs (negative impact). In terms of the intensive margin (or the factors influencing the volume of exports), there are strong parallels with the extensive margin, with the exception being that the time involved in exporting has more of an impact than documentary requirements. CONCLUSION: Among the factors contributing to South Africa's exports having largely developed in the intensive margin are a general lack of market-related information, infrastructural weaknesses (both of a physical and technological nature) and a difficult regulatory environment - all of which add to the cost and time involved in exporting. Policymakers have long spoken about the need for the country to diversify its export basket, but now talk about needs to give way to action. The government and its economic partners need to arrive at a common vision of an export sector that will be able to expand into new products and markets, be an active participant in global value chains and deliver sustainable jobs. <![CDATA[<b>Unintended possible consequences of fuel input taxes for individual investments in greenhouse gas mitigation technologies and the resulting emissions</b>]]> BACKGROUND: South Africa is planning to introduce a carbon tax as a Pigouvian measure for the reduction of greenhouse gas emissions, one of the tax bases designed as a fuel input tax. In this form, it is supposed to incentivise users to reduce and/or substitute fossil fuels, leading to a reduction of CO2 emissions. AIM: This article examines how such a carbon tax regime may affect the individual willingness to invest in greenhouse gas mitigation technologies. SETTING: Mathematical derivation, using methods of linear programming, duality theory and sensitivity analysis. METHODS: By employing a two-step evaluation approach, it allows to identify the factors determining the maximum price an individual investor would pay for such an investment, given the conditions of imperfect markets. RESULTS: This price ceiling depends on the (corrected) net present values of the payments and on the interdependencies arising from changes in the optimal investment and production programmes. Although the well-established results of environmental economics usually can be confirmed for a single investment, increasing carbon taxes may entail sometimes contradictory and unexpected consequences for individual investments in greenhouse gas mitigation technologies and the resulting emissions. Under certain circumstances, they may discourage such investments and, when still undertaken, even lead to higher emissions. However, these results can be interpreted in an economically comprehensible manner. CONCLUSION: Under the usually given conditions of imperfect markets, the impact of a carbon tax regime on individual investment decisions to mitigate greenhouse gas emissions is not as straight forward as under the usually assumed, but unrealistically simplifying perfect market conditions. To avoid undesired and discouraging effects, policy makers cannot make solitary decisions, but have to take interdependencies on the addressee┬┤s side into account. The individual investor┬┤s price ceiling for such an investment in imperfect markets can be interpreted as a sum of (partially corrected) net present values, which themselves are a generalisation of the net present values known from perfect markets. <![CDATA[<b>The impact of coaching on the emotional and social intelligence competencies of leaders</b>]]> BACKGROUND: The development of the emotional intelligence of leaders has become an exceptionally popular enterprise. However, the empirical research conducted by practitioners to date does not provide convincing evidence of the effectiveness of emotional intelligence development interventions. Robust and informative research on the effectiveness of coaching to develop the emotional intelligence of leaders is lacking. AIM: The purpose of this study was to determine, describe and evaluate the impact of a theoretically substantiated coaching intervention on the emotional and social intelligence competencies of leaders in a financial services company. SETTING: The setting of the study is a financial services company in South Africa. METHODS: A mixed method approach using a quantitative and qualitative research design was considered appropriate. The quantitative research method consisted of a quasi-experimental design using a non-equivalent pre- and post test control group to measure the impact of the coaching intervention on a sample of 30 leaders. The Bar-On EQ-i scale was selected as a reliable and valid measure of emotional and social intelligence competencies. Wilcoxon's statistic was calculated to determine the statistical significance of score differences between the experimental (N = 30) and control (N = 30) groups. The qualitative research method was comprised of semi-structured interviews with six of the leaders and their supervisors. RESULTS: The statistical results indicated that coaching significantly impacted the emotional and social intelligence competencies of leaders in terms of their overall emotional quotient (EQ), intrapersonal competency, interpersonal skills, stress management, self-regard and empathy. The semi-structured interviews provided rich descriptive themes and evaluations that corroborated the quantitative findings. CONCLUSION: This research provided convincing empirical evidence of the positive impact of a long-term, spaced and goal-focused coaching intervention on the emotional and social intelligence competencies of leaders in a financial services institution. The finding suggests that a theoretically well substantiated coaching intervention and a robust empirical study can be effective in demonstrating the impact of coaching on the emotional and social intelligence competencies of leaders. However, the implications of the limitations pointed out in this study could have influenced the findings, and future research aimed at improving relevant research models should take these into account. <![CDATA[<b>Fractional Black-Scholes option pricing, volatility calibration and implied Hurst exponents in South African context</b>]]> BACKGROUND: Contingent claims on underlying assets are typically priced under a framework that assumes, inter alia, that the log returns of the underlying asset are normally distributed. However, many researchers have shown that this assumption is violated in practice. Such violations include the statistical properties of heavy tails, volatility clustering, leptokurtosis and long memory. This paper considers the pricing of contingent claims when the underlying is assumed to display long memory, an issue that has heretofore not received much attention. AIM: We address several theoretical and practical issues in option pricing and implied volatility calibration in a fractional Black-Scholes market. We introduce a novel eight-parameter fractional Black-Scholes-inspired (FBSI) model for the implied volatility surface, and consider in depth the issue of calibration. One of the main benefits of such a model is that it allows one to decompose implied volatility into an independent long-memory component - captured by an implied Hurst exponent - and a conditional implied volatility component. Such a decomposition has useful applications in the areas of derivatives trading, risk management, delta hedging and dynamic asset allocation. SETTING: The proposed FBSI volatility model is calibrated to South African equity index options data as well as South African Rand/American Dollar currency options data. However, given the focus on the theoretical development of the model, the results in this paper are applicable across all financial markets. METHODS: The FBSI model essentially combines a deterministic function form of the 1-year implied volatility skew with a separate deterministic function for the implied Hurst exponent, thus allowing one to model both observed implied volatility surfaces as well as decompose them into independent volatility and long-memory components respectively. Calibration of the model makes use of a quasi-explicit weighted least-squares optimisation routine. RESULTS: It is shown that a fractional Black-Scholes model always admits a non-constant implied volatility term structure when the Hurst exponent is not 0.5, and that 1-year implied volatility is independent of the Hurst exponent and equivalent to fractional volatility. Furthermore, we show that the FBSI model fits the equity index implied volatility data very well but that a more flexible Hurst exponent parameterisation is required to fit accurately the currency implied volatility data. CONCLUSION: The FBSI model is an arbitrage-free deterministic volatility model that can accurately model equity index implied volatility. It also provides one with an estimate of the implied Hurst exponent, which could be very useful in derivatives trading and delta hedging. <![CDATA[<b>A comparison of the value relevance of interim and annual financial statements</b>]]> BACKGROUND: This study tests the value relevance of interim accounting information. The study also explores whether the value relevance of annual and interim financial statements has changed over time. AIM: It explores whether the value relevance of interim financial statements is higher than the value relevance of annual financial statements. Finally, it investigates whether accounting information published in interim and annual financial statements has incremental value relevance. SETTING: Data for the period from 1999 to 2012 were collected from a sample of non-financial companies listed on the Johannesburg Stock Exchange. METHOD: The Ohlson model to investigate the value relevance of accounting information was used for the study. RESULTS: The results show that interim book value of equity is value relevant while interim earnings are not. Interim financial statements appear to have higher value relevance than annual financial statements. The value relevance of interim and annual accounting information has remained fairly constant over the sample period. Incremental comparisons provide evidence that additional book value of equity and earnings that accrue to a company between interim and annual reporting dates are value relevant. CONCLUSION: The study was conducted over a long sample period (1999-2012), in an era when a technology-driven economy and more timely reporting media could have had an effect on the value relevance of published accounting information. To the best of our knowledge, this is the first study to evaluate and compare the value relevance of published interim and annual financial statements. <![CDATA[<b>Assembly of a conduct risk regulatory model for developing market banks</b>]]> BACKGROUND: The substantial penalties imposed on banks in the recent past for various conduct irregularities have given rise to a new type of risk called conduct risk. Conduct risk comes about when financial services companies conduct themselves in an inappropriate way towards their customers, resulting in a negative (economic) outcome for the customer. What makes the management and mitigation of conduct risk by banks so different is that it cannot be easily integrated into a bank's standard risk management framework. So far, the concept of conduct risk has not been formally covered by the Basel Accords. AIM: There are, however, global efforts by international organisations and local regulators to control it - with little clarity on the 'how'. The aim of this study is to explore this 'how.' SETTING: While regulators need to protect customers, resulting in a positive outcome for the customer, they must also ensure that banks take conduct risk management and its mitigation seriously. At the same time, any regulatory model for conduct risk needs to be incorporated into the existing bank regulatory strategy and methodology and assimilated with the profile of a country. METHODS: An exploratory model that regulators could use to keep conduct risk at bay is developed based on primary and secondary data and this is then applied to the South African, Kenyan and Malaysian milieus to determine what can be learnt about conduct risk in emerging economies. RESULTS: The model investigates the interrelationships between different goals that regulators ideally need to achieve and the findings show that regulators have a difficult task balancing these goals and at the same time achieving a positive outcome. CONCLUSION: Based on the model, the recommendation for regulators in the developing world would be to collaborate in their approach to conduct risk, as they might face similar difficulties and operate in a comparable context. <![CDATA[<b>A supply chain cost reduction framework for the South African mobile phone industry</b>]]> BACKGROUND: The costs incurred in the provision of products and services across the supply chain are on the rise in many industries, including the mobile phone industry. Despite this, there is limited information in South Africa on the perceptions of supply chain players regarding cost reduction in the mobile phone industry. Furthermore, there is currently no framework for reducing supply chain costs in the South African mobile phone industry. AIM: The purpose of this study is to explore supply chain costs in the South African mobile phone industry, and to develop a supply chain cost-reduction framework for the South African mobile phone industry. SETTING: This study explores supply chain costs in four mobile phone companies operating in the South African mobile phone industry, of which three mobile network operators and one mobile retailing group. It uses semi-structured interview data collected in 2011. METHOD: This study adopted a qualitative case study design to understand supply chain costs and develop a supply chain cost-reduction framework for the South African mobile phone industry. Eight semi-structured interviews with managers of mobile phone companies were conducted. The data were analysed with the help of Atlas.ti, using an adapted three-phased analytical framework as suggested by Miles and Huberman (1994) and O' Dwyer (2004). RESULTS: The study found that consolidation of strategic relationships through collaboration and strategic alliances between MNOs and other supply chain players is one of the ways to drive costs down across the supply chain. Outsourcing of some of the support activities and retailers' direct purchasing transactions from device manufacturers were also found to be other avenues for reducing supply chain costs in the industry. CONCLUSION: The study suggests that mobile network operators (MNOs) need to consolidate their strategic relationships by increasing the share of the network infrastructure, and emphasising the need to strive for operational efficiencies. This combined effort should result in significant cost reductions across the supply chain. The findings of this study provided some avenues that managers of mobile-phone companies could consider to drive costs down supply chain-wide and service end-users at lower rates. The findings of this study could also help regulating authorities to get insights into supply chain cost reduction and develop appropriate mobile phone policies in South Africa.