Examining the impact of strategic outlook on financial performance of South African JSE listed firms

Date
2015
Authors
Soomeer, Mandira
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Abstract
Africa is currently chasing a large financing gap in order to fund developmental goals in the nation. With a range of other more pressing social issues to address, governments are overtasked and the efforts to source funds have been trying. Domestic private investment from firms is therefore necessary to build the nation to a point of attracting FDI but also mitigating the long term negative effects of foreign investment. This is a suitable form of funding as local firms are familiar with the business environment and their support is more relevant to an African context. However the ability to provide domestic private investment is dependent on the strategic outlook of domestic firms. Using a cross-section of JSE listed firms for the periods 2008 and 2013, respectively, differentiated by market capitalisation, the study models the relative optimistic strategic outlook of firms, where optimistic is defined as a favourable perception of future financial prospects which result in a firm taking the necessary steps to invest in itself and its country at present, to support future domestic expansions of operations. Furthermore the effect of optimism on financial performance is examined. The results of the study have revealed that although larger firms exhibited higher levels of optimism in 2008, this subsequently changed in 2013, when their smaller counterparts began to favour a more optimistic outlook. This was attributed to a change in government policy that promoted smaller business development. Furthermore, in 2008, optimistic firms are more financially sound than their pessimistic counterparts and that the share prices of optimistic firms are positively related to domestic investment, and by extension economic development. The 2013 results could not conclude the same. Therefore there is a time dependency of optimism that is influenced by the dynamic nature of the business environment as well as governmental policy reforms.
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Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2015.
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