Browsing by Author "Sebastian, Avani"

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An analysis of the impact of the respective environmental, social and governance performances on firm value in South Africa
(University of the Witwatersrand, Johannesburg, 2023-03) Rewachanda, Saihil; Sebastian, Avani
Background: There is increasing pressure on South African firms to invest in sustainable initiatives. As a result, the impact of environmental, social and governance (ESG) performance on firm value has become a significant area for research. Notwithstanding the growing importance of ESG performance, the majority of prior research has focused largely on ESG disclosure. From an integrated thinking perspective, firms are required to consider their impact on each of the E, S and G aspects of sustainable value creation. However, prior research has concentrated on combined ESG ratings, rather than disaggregating the ratings to analyse the impact of the respective environmental, social and governance pillars on firm value. Purpose: The aim of this research report is to examine the relationship between firm value and respective environmental (E), social (S) and governance (G) performance ratings in South Africa. Method: The study utilises ESG performance ratings from rating agencies, FTSE and Bloomberg, as well as internal and external perspectives of firm value. Data was analysed using descriptive statistics and regression analysis over the five-year period from 2018 to 2022. Results: No relationship between E, S or G performance and firm value was statistically significant, irrespective of the measure of firm value used or the ESG rating used. Implications: The results indicate that investors might not incorporate E, S and G performance ratings in their investment decisions. From an internal firm perspective, the results indicate that management might not incorporate E, S and G performances in their value creation decisions. Significance: Due to the findings of the non-significant relationships between E, S and G performances and firm value, this study contributes to existing academic research as it foregrounds the need for further investigation into the value relevance of ESG performance ratings on firm value
An evaluation of the use of professional judgement in corporate valuations in South Africa
(2022) Gaibie, Tasneem; Sebastian, Avani
Corporate valuations can be considered the heart of finance with sensible financial and investment decisions depending largely on the value of a firm. Investment analysts rely on corporate valuation estimates to make investment decisions while financial managers use these corporate valuations for capital budgeting as well as merger and acquisition activities. Global merger and acquisition and capital market activity has increased over the last decade with a significant number of deals being concluded on an annual basis. While the number of deals in South Africa make up a minority portion of the total global deals, foreign investors have shown an interest to invest in South Africa. Whilst finance research makes extensive reference to firm value, the professional judgement that is applied in its calculation has not been interrogated within the South African market. The focus of this research study was to examine the use of professional judgement within valuations in the South African context. The research aims at identifying aspects in corporate valuations requiring professional judgement and understanding why this professional judgement is necessary. Explanatory sequential design is the mixed method research technique that was employed to conduct this research. According to this design, the researcher begins by conducting a quantitative study and follows up with subsequent qualitative techniques to help explain the quantitative results. The research was carried out in four parts. Part one involved collecting data from respondents by means of a survey. A sample of 30 experts were used. The small population size in terms of the number of professionals performing valuations in South Africa made it difficult to select a larger sample. Part two involved descriptive statistical analysis of the survey responses. The content of the surveys was summarised using descriptive statistics and were used to inform further questions for the semi-structured interviews. Part three involved semi-structured interviews to add richness, reliability and to corroborate the trends identified. The researcher employed a phenomenological methodology to identify the perception of valuation experts regarding the judgement that they are required to apply when performing corporate valuations. The data collected was analysed by identifying common themes and arriving at a description relating to the phenomenon based on their experience. A sample of six valuation practitioners from the original survey sample were interviewed. While a larger sample would provide a broader range of data, obtaining a detailed account of the experience of the six valuation practitioners was sufficient to uncover the core elements of the professional judgment applied in the corporate valuations that they perform. 7 During part four, the results and findings were interpreted to answer the research question and identify areas of future research. The results of this research indicate that professional judgement is needed when determining which valuation models to apply, when calculating or applying certain inputs within the theoretical models and when considering adjustments that are processed to the valuation models. Industry nuances is a key reason for why professional judgement in necessary in South African valuations. This along with the limited number of companies listed on the Johannesburg Stock Exchange, make it more difficult to identity directly comparable companies which can be used for input estimation within the valuation models. In an emerging economy like South Africa, there is uncertainty associated with future growth and market conditions. Richness of market information and suitable benchmarks are also challenges faced in the South African economy. Market information and future growth are key inputs within a corporate valuation model. The challenges and uncertainties around these inputs requires the valuation practitioner to apply their professional judgement. Despite the challenges and uncertainties around valuation inputs, valuation practitioners are all in agreement that having a standard valuation model structure in place is beneficial and creates consistency in the approach to performing corporate valuations. Unfortunately, the level of professional judgement applied within these corporate valuation models can have a material impact on the final value and ultimately impact the management decisions which are made based on these valuations. Based on this, we can conclude that estimating valuation parameters is a key aspect that needs to be considered by both valuation practitioners and academics. This research report contributes by identifying challenges and uncertainties which necessitate the use of professional judgement within corporate valuations. Identification of these challenges and uncertainties can assist valuation practitioners to place more emphasis on the inputs which have a large level of uncertainty associated with them. The report can further assist valuations practitioners to understand what is considered best practice for corporate valuations in South Africa. Identifying “best practices” and standardising the estimation practices will be beneficial to valuation practitioners by reducing the differences in corporate valuations. More accurate valuations will result in better information, assisting with more accurate and informed financial decisions being made
An Exploration of How Fast Fashion Companies’ Sustainability Policies and Practices Align To the Sustainable Development Goals
(University of the Witwatersrand, Johannesburg, 2024) Dhanjee, Kamini; Aucock, Michele; Sebastian, Avani
Background: The fast fashion industry is a significant contributor to environmental and social issues by producing greenhouse gases, generating textile waste and underpaying workers. The voluntary nature of sustainability disclosure in fast fashion corporate reports lacks standardisation and oversight. Consequently, fashion companies tend to emphasise their positive actions and policies. Media reports often present proof of actions that are inconsistent with companies’ reported actions. Purpose: This study explores the Sustainable Development Goals which fast fashion companies disclose in their corporate reports, the level of detail this disclosure and how media reports support or discredit these disclosures. Method: For the top eight fast fashion companies by revenue globally, references to each of the 17 Sustainable Development Goals (SDGs) in corporate reports from 2020 to 2022 and the level of disclosure was explored through qualitative content analysis. The analysis was led by the targets set out for each SDG by the United Nations and a total score was computed for each SDG for each company. Descriptive statistics were calculated to uncover patterns relating to disclosure frequency, disclosure detail, revenue and other company characteristics Results: There has been a persistent lack of disclosure of quantitative and information on performance targets. Commonly reported SDGs are SDGs 1, 5, 6, 7, 8, 12 and 13, demonstrating what fast fashion companies prioritise. The SDGs overall do not garner much media attention, but stakeholders tend to prioritise SDGs 8, 12 and 13. The study provides evidence of the disconnect between disclosure and practice. Implications: This implies that companies view the SDGs as a disclosure checklist with non- binding implications. From a practical standpoint, the absence of regulated Sustainable Development Goal disclosures suggests that stakeholders with an interest in the Sustainable Development Goals cannot depend on corporate reports to inform their decisions.
Does the index matter? A comparison of the capital structures of firms listed on the AltX to those listed on the JSE
(2017) Sebastian, Avani
This study investigates whether there is a significant difference between the capital structures of firms listed on the JSE’s main board and those listed on the AltX. The factors influencing the differences are also explored in detail. Non-financial firms listed on the JSE and AltX respectively between 2011 and 2015 were chosen for the study. A panel data regression model was used and five measures of leverage were tested. The findings indicate that the exchange on which a firm is listed has an impact on its capital structure, with firms listed on the AltX having significantly higher levels of leverage than those listed on the JSE’s main board. In support of the pecking order theory, AltX firms are found to be more likely to draw on their internal funds as a first source of finance, even though they are generally less profitable than JSE firms and have less internal funds available. Moreover, AltX firms are found to be more reliant on more accessible short term financing than JSE firms, making them more susceptible to liquidity risks. This higher risk is congruent with the finding that the availability of tangible assets to offer as collateral appears to be a more significant determinant of leverage for AltX firms. The AltX was established to support growth of small and medium enterprises (SMEs) by enabling access to finance. Thus despite the establishment of the AltX, SMEs still face considerable constraints to accessing capital. Keywords: Capital structure, AltX, JSE, SME, information asymmetry
Does Twitter (now known as “X”) disclosure influence share price?
(University of the Witwatersrand, Johannesburg, 2024) Minnaar, Courtney; Sebastian, Avani
An effective corporate communication strategy is essential for firms to establish and maintain good relationships with capital market participants to ensure continued financial support. Firms are increasingly adopting social media platforms like Twitter as a medium of communication. This study investigates the effectiveness of Twitter as a channel for firms to disclose financial performance and enhance their overall information environment, thereby improving share price performance. In doing so, this study seeks to establish whether JSE-firms that tweet about financial performance experience better share price performance. Additionally, this study aims to determine whether share price performance varies depending on the nature of the news, favourable or unfavourable, contained in the tweets about financial performance. This study employs ordinary least squares (OLS) regression analyses using Twitter and share price data of 148 JSE-listed firms over their 2022 fiscal year. This study reveals a positive relationship between the frequency of firms' tweets about financial performance and changes in share price. Additionally, a positive relationship exists between the type of news disclosed in tweets about financial performance and changes in share price. The findings of this study contribute to Agency Theory, Internet Investor Relations (IIR) and dialogic communication literature, as it provides evidence of the benefits of utilising social media as a dialogic communication channel to effectively communicate with capital market participants to improve the firm's information environment to obtain and maintain their continued financial support.
How does Integrated Report Quality Affect Decision-Making? An equity analyst perspective in the South African market
(University of the Witwatersrand, Johannesburg, 2024) Sebastian, Avani; Seetharam, Yudhvir
A key source of information about a company is their integrated reports, whose main purpose is to improve the quality of information available to investors. Seminal behavioural finance literature shows that, in situations where market participants perceive potentially imperfect information, they may be inclined to behavioural biases in their estimation of the value of a firm’s shares. However, prior literature also shows that behavioural bias may be present even when there are no evident deficiencies in the information environment. This study explores the relationship between the quality of integrated reports and behavioural bias in the South African equity market. Integrated report quality is approximated by the scores awarded by adjudicators of the EY Excellence in Integrated Reporting Awards. The study focuses on sell-side equity analysts as market participants. A convergent mixed methods design was used. Quantitative analysis was in the form of a structural equation model with latent variables for quality and each of the behavioural biases. The model incorporated data from 2208 forecasts from 316 analysts, across 342 company-years. Semi-structured interviews with 20 sell-side equity analysts were conducted to provide the context necessary for a meaningful evaluation. Across all methods of analysis, findings show that the quality of information in the integrated reports has little to no effect on the analysts’ decision-making processes. Findings from the interviews indicate that analysts consider direct interactions with management to be the most important source of information for their reports and forecasts. In these interactions, they rely on “gut feel” to establish credibility of management’s assertions. Regarding bias, the quantitative analysis showed that herding has a negative and significant association with the quality of analysts’ forecasts. The qualitative analysis confirmed the analysts’ view of the consensus forecast as a benchmark. Considered with findings of the lack of use of integrated reports, it is inferred that analysts view the consensus forecast as a more useful source of information than the information in the integrated reports. Despite the use of indicator variables with prior literature as precedent, the results of the analysis can vary depending on the choice of measurement approximations for the behavioural biases. The study makes a theoretical contribution by connecting research on integrated report quality and behavioural bias. It shows that analyst coverage, even if sponsored by the company, is considered necessary to reduce information asymmetry, despite the production of integrated reports. The study makes a methodological contribution with its analysis of qualitative data from interviews with analysts. Based on the findings, it considers how general debiasing strategies could be used in the context of analysts, thereby making a practical contribution.
The influence of fintech share trading and investment platforms on the participation of South African professionals in the South African equity capital market
(University of the Witwatersrand, Johannesburg, 2023) Ishwarlal, Saiyuri; Sebastian, Avani; Brahmbhatt, Yogesh
Background: The emergence of revolutionary financial technology as a result of the transition towards the Fourth Industrial Revolution, is transforming the financial services sector. Innovative financial technology, such as fintech share trading and investment platforms has the potential to increase access to the equity capital market, through enhanced user- experience, minimal trading costs and greater convenience. Purpose: The purpose of this study is to examine the influence of fintech share trading andinvestment platforms on the participation of South African professionals in the South African equity capital market. This study contributes to the emerging stream of fintech research, through examining the impact of fintech platforms on participation in the equity capital market. Method: A survey questionnaire was distributed electronically, and responses were received from professionals with various specialisations. The 199 usable responses were analysed using descriptive statistics and non-parametric tests. Findings: The findings of this study reflect a large percentage of professionals would not engage in the trading and investment of shares in the absence of fintech platforms. This suggests that fintech platforms are positively contributing towards the participation of South African professionals in the equity capital market. An individual’s age, level of education and number of years of investment experience show a statistically significant difference in respect of the dependency on fintech platforms for participation in share trading and investment. Data security and privacy concerns, a low level of trust in fintech platforms and lower levels of awareness of financial products and services are factors that inhibit the use of fintech platforms. Greater ease of use, affordability, efficiency and flexibility are elements that encourage the usage of fintech platforms