ARTICLES

 

Corporate social responsibility: The financial impact of Black Economic Empowerment transactions in South Africa

 

 

Hendrik Wolmarans^I; Kurt Sartorius^II

^ISchool of Financial Management, University of Pretoria
^IISchool of Accountancy, University of the Witwatersrand

 

 

---

ABSTRACT

Corporate social responsibility (CSR) has recently received considerable attention in literature. One of the vehicles by which companies can conform to CSR in South Africa is Black Economic Empowerment (BEE). In this regard, BEE has been employed to assist previously disadvantaged groups of investors obtain a larger share of the equity of South African listed companies. The question has often been asked whether the announcement of BEE transactions by listed companies increases shareholder wealth. This article tries to answer this question by examining the share performance of 125 BEE transactions involving 95 companies during the period January 2002 to July 2006. The results indicate a positive relation between BEE transaction announcements and shareholder wealth creation, but only during the last part of the period covered by the study.

JEL D64, G14, M14

---

 

 

“Full text available only in PDF format”

 

 

References

AUPPERLE, K.E., CARROLL, A.B. & HATFIELD, J.D., 1985. An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 28(2): 446-463.         [ Links ]

BARNETT, M.L., 2007. Stakeholder influence capacity and the variability of financial returns to corporate social responsibility. Academy of Management Review, 32(3): 794-816.         [ Links ]

BARNETT, M.L. & SALOMON, R.M., 2003. Throwing a curve at socially responsible investing research. Organization and Environment, 16(3): 381-389.         [ Links ]

BEALL, J., GELB, S. & HASSIM, S., 2005. Fragile stability. Journal of Southern African Studies, 31(4): 681-700.         [ Links ]

BHATTACHARYA, U., DAOUK, H., JORGENSON, B. & KEHR, C.H., 2000. When an event is not an event: the curious case of an emerging market. Journal of Financial Economics, 55(1): 69-101.         [ Links ]

BINDER, J.J., 1985. On the use of the multivariate regression model in event studies. Journal of Accounting Research, 23(1): 370-383.         [ Links ]

BLACK, P. A., 2002. On the case for 'Black economic empowerment' in South Africa. The South African Journal of Economics, 70(8): 1148-1162.         [ Links ]

BOUTIN-DUFRESNE, F. & SAVARIA, P., 2004. Corporate social responsibility and financial risk , The Journal of Investing, 13(1): 57-66.         [ Links ]

BRATTON, M., 1998. After Mandela's miracle in South Africa. Current History, May: 214-219.         [ Links ]

BROMILEY, P., GOVEKAR, M. & MARCUS, A., 1988. On using event-study methodology in strategic management research. Technovation, 8(1): 25-40.         [ Links ]

BROWN, S.J. & WARNER, J.B., 1980. Measuring security price performance. Journal of Financial Economics, 8(1): 205-258.         [ Links ]

BROWN, S.J. & WARNER, J.B., 1985. Using daily stock returns: the case of event studies. Journal of Financial Economics, 14(1): 3-31.         [ Links ]

BURGER, R. & VAN DEN BERG, S., 2004. Emergent black affluence and social mobility in post-apartheid South Africa. Development Policy Research Unit, Working Paper 04/87, University of Stellenbosch.         [ Links ]

BUSINESSMAP., 2007. Black economic empowerment transactions in South Africa [Online].         [ Links ] Available at: http://www.bmap.co.za [Accessed 20 July 2007].

BUTLER, A., 2006. Black economic empowerment. Working Paper, University of Cape Town.         [ Links ]

CAMPBELL, J.L., 2007. Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Academy of Management Review, 32(3): 946-967.         [ Links ]

CARGILL, J., 2005. Black corporate ownership: complex codes can impede change. in S Brown (ed), Conflict and Governance: Economic Transformation Audit 2005 (pp. 21-27 ), Cape Town: Institute for Justice and Reconciliation.         [ Links ]

CLINEBELL, S.K. & CLINEBELL, J.M., 1994. The effect of advanced notice of plant closings on firm value. Journal of Management, 20(3): 553-564.         [ Links ]

DAVIDSON, W. & WORRELL, D., 1988. The impact of announcements of corporate illegalities on shareholder returns. Academy of Management Journal, 31(1): 195-200.         [ Links ]

DAVIDSON, W. & WORRELL, D., 1992. The effect of product recall announcements on shareholder wealth. Strategic Management Journal, 13(6): 467-473.         [ Links ]

DE BAKKER, F.G.A., GROENEWEGEN, P. & DEN HOND, F., 2005. A bibliometric analysis of 30 years of research and theory on corporate social responsibility and corporate social performance. Business and Society, 44(3): 283-317.         [ Links ]

DOMBROW, J., RODRIQUES, M. & SIRMANS, C.F., 2000. A complete nonparametric event study approach. Review of Quantitative Finance and Accounting, 14(4): 361-380.         [ Links ]

ENGDAHL, C. & HAUKI, H., 2001. Black Economic Empowerment: An Introduction for Non-South African Businesses. Masters Thesis: Gothenburg University.         [ Links ]

FAMA, E.F., FISHER, L., JENSEN, M.C. & ROLL, R., 1969. The adjustment of stock prices to new information. International Economic Review, 10(1): 1-21.         [ Links ]

FREDERICK, W.C., 1994. From CSR₁ to CSR₂. Business and Society, 33(2): 150-164.         [ Links ]

FREUND, B., 2006. State, capital and the emergence of a new power elite in South Africa: black economic empowerment at national and local levels. Paper presented during Session 86 of the XIV International Economic History Congress, 15 July, Helsinki.         [ Links ]

GALAN, J.I., 2006. Corporate social responsibility and strategic management. Journal of Management Studies, 43(7): 1629-1640.         [ Links ]

GEVISSER, M., 1997. Ending economic apartheid. The Nation, September 9: 24-26.         [ Links ]

GUERARD, J.B., 1997. Is there a cost to being socially responsible in investing? Journal of Investing, 6(2): 11-18.         [ Links ]

JACKSON, W.E., ALESSANDRI, TM. & BLACK, S.S., 2005. The price of corporate social responsibility: the case of black economic empowerment transactions in South Africa. Working paper 2005-29, Federal Reserve Bank of Atlanta.         [ Links ]

KOOLLEN, J., 2004. BEE: A Strategic View. Empowerment 2004 Black Ownership: Risk of Opportunity. BusinessMap Foundation [Online].         [ Links ] Available at: http://www.bmap.co.za [Accessed 15 November 2005].

KRAMER, L.A., 2001. Alternative methods for robust analysis in event study applications. Advances in Investment Analysis and Portfolio Management, 8: 109-132.         [ Links ]

LOCKETT, A., MOON, J. & VISSER, W., 2006. Corporate social responsibility in management research: focus, nature, salience and sources of influence. Journal of Management Studies, 43(1): 115-136.         [ Links ]

MAZIBUKO, N.E. & BOSHOFF, C., 2003. Employee perceptions of share ownership schemes: an empirical study. South African Journal of Business Management, 34(2): 31-44.         [ Links ]

McGUIRE, J.B., SUNDGREN, A. & SCHNEEWEIS, T, 1988. Corporate social responsibility and firm financial performance. Academy of Management Journal, 31(4): 854-872.         [ Links ]

McWILLIAMS, A. & SIEGEL, D., 1997a. The role of money managers in assessing corporate social responsibility research. Journal of Investing, 6(4): 98-107.         [ Links ]

McWILLIAMS, A. & SIEGEL, D., 1997b. Event studies in management research. Academy of Management Journal, 40(3): 626-657.         [ Links ]

McWILLIAMS, A. & SIEGEL, D., 2000. Corporate social responsibility and financial performance: correlation or misspecification? Strategic Management Journal, 21(5): 603-609.         [ Links ]

McWILLIAMS, A., SIEGEL, D. & TEOH, S.H., 1999. Issues in the use of the event study methodology: a critical analysis of corporate social responsibility studies. Organisational Research Methods, 2(2): 340-265.         [ Links ]

McWILLIAMS, A., SIEGEL, D.S. & WRIGHT, P.M., 2006. Corporate social responsibility: strategic implications. Journal of Management Studies, 43(1): 1-18.         [ Links ]

MEZNAR, M., NIGH, D. & KWOK, C., 1994. Effect of announcements of withdrawal of South Africa on stockholder wealth. Academy of Management Journal, 37(6): 1663-1684.         [ Links ]

MORSING, M. & SCHULTZ, M., 2006. Corporate social responsibility communication: stakeholder information, response and involvement strategies. Business Ethics: A European Review, 15(4): 323-338.         [ Links ]

MUNILLA, L.S. & MILES, M.P., 2005. The corporate social responsibility continuum as a component of stakeholder theory. Business and Society Review, 110(4): 371-387.         [ Links ]

ORLITZKY, M., SCHMIDT., F.L. & RYNES, S.L., 2003. Corporate social and financial performance. Organization Studies, 24(3): 403-441.         [ Links ]

POSNIKOFF, J.F., 1997. Disinvestment from South Africa: they did well by doing good. Contemporary Economic Policy, 15(1): 76-86.         [ Links ]

REUER, J.J., 2000. Parent firm performance across international joint venture life-cycle stages. Journal of International Business Studies, 31(1): 1-20.         [ Links ]

SALINGER, M., 1992. Value event studies. Review of Economics and Statistics, 74(4): 671-677.         [ Links ]

SIEGEL, D.S. & VITALIANO, D.F., 2007. An empirical analysis of the strategic use of corporate social responsibility. Journal of Economics and Management Strategy, 16(3): 773-792.         [ Links ]

SOUTHALL, R., 2004. The ANC and black capitalism in South Africa, Review of African Political Economy, 31(100): 313-328.         [ Links ]

SOUTHALL, R., 2005. Black empowerment and corporate capital. in Daniel, J. Southall, R. & Lutchman, J. (Eds). The state of the nation: South Africa 2004-05. Cape Town: HSRC Press.         [ Links ]

TEOH, S.W., WELCH, I. & WAZZAN, C.P., 1999. The effect of socially activist investment policies on the financial markets: evidence from the South African boycott. The Journal of Business, 72(1): 35-89.         [ Links ]

THOMPSON, F., 2004. Black economic empowerment in South Africa: the role of parastatals and choices for the restructuring of the electricity industry. Paper presented at the ICS/CAS International Conference 'Looking at South Africa Ten Years on', 10-12 September, London.         [ Links ]

WADDOCK, S.A. & GRAVES, S.B., 1997. The corporate social performance - financial performance link. Strategic Management Journal, 18(4): 303-319.         [ Links ]

WINDSOR, D., 2006. Corporate social responsibility: three key approaches. Journal of Management Studies, 43(1): 93-114.         [ Links ]

WOOLLEY, R., 2005). Everybody's guide to Black economic empowerment and how to implement it, Cape Town: Zebra Press.         [ Links ]

WOOLRIDGE, J.R. & SNOW, C.C., 1990. Stock market reaction to strategic investment decisions. Strategic Management Journal, 11(5): 353-363.         [ Links ]

WORRELL, D.L., DAVIDSON, W.N. & SHARMA, VM., 1991. Layoff announcements and stockholder wealth. Academy of Management Journal, 34(3): 662-678.         [ Links ]

WRIGHT, P. & FERRIS, S.P., 1997. Agency conflict and corporate strategy: the effect of divestment on corporate value. Strategic Management Journal, 18(1): 77-83.         [ Links ]

WRIGHT, P., FERRIS, S.P., HILLER, J.S. & KROLL, M., 1995. Competitiveness through management of diversity: effects on stock price valuation. Academy of Management Journal, 38(1): 272-287.         [ Links ]