MBA & MM Theses

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    The Market Value of R&D Investments Made by Companies Listed on the Johannesburg Stock Exchange
    (2014-01-20) Hill, Graeme John
    It is a prevailing view that South Africa under-invests in innovation. R&D spend is consistently less than 1% of GDP, which is well below benchmarks set by developed countries. The current research is concerned with R&D investments made by the listed business sector. Specifically, the question of whether R&D investments made by JSE listed companies are valued by the market is addressed, and whether these investments are reflected in the share prices. A cross sectional study has been carried out, in order to measure the impact of R&D investments on market value. The research methodology is based on previous studies carried out in developed and developing economies. Following a previous Canadian study, a linear regression model with market value as the dependent variable, and independent variables including book value, abnormal earnings, R&D spend, and net investment, is used. The period chosen for the study is the 5- year period from July 2007 to July 2012. Price data were obtained from the I-Net Bridge database. Data on book value, earnings, R&D spend, and net investment were obtained from financial statements as documented in the McGregor BFA database. This resulted in a panel dataset, for a cross section of companies over the study period. The study was not limited to any specific sector. Only the financial services sector was excluded, due to the specialised nature of valuation methods for such companies. It was found that approximately 60 companies report R&D expenses each year, with an annual spend by JSE companies of approximately R5bn. R&D investment is, however, highly concentrated, with 10 companies accounting for 80% of this spend. The linear regression analysis concludes that R&D spend is an insignificant predictor of market value. The research, therefore, fails to reject the null hypothesis that R&D activity has no impact on market value. The market value of JSE listed companies can be explained to a large degree (R2>90%) by the book value and abnormal earnings variables. This result indicates that short term parameters (book value and current earnings) are the primary drivers of market value on the JSE. While the literature, covering studies in a number of countries, obtains similar results, most do observe a positive effect of R&D on market value. The current result may reflect a short term focus of investors during the volatile period chosen for the study. It is clear, iii however, that innovative activity, on average, plays a very minor role in the fortunes of the listed business sector in South Africa.
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    Listed Property Investment in a Diversified Portfolio in South Africa
    (2014-01-14) Shastivarathan, Gopinath
    South African listed property investments illustrate a strong historical track record of providing favourable risk adjusted returns, portfolio diversification and the ability for investors to benefit from both capital and income growth. Acknowledging that the South African listed property market is significantly smaller than its global counterparts, this study reviews the relationship between listed property and the All Share Index, the All Bond Index, the Financial Index, the Resources Index and the Industrial Index in order to determine whether diversification potential exists between these asset classes. The study further considers any long term inflation hedging ability that listed property provides. The literature review on the relationship between listed property and various asset classes offered varying results, as these are dependent on both timeframes and the prevalent economic climate. Additional relationships that were reviewed include (but not limited too) the inclusion of listed property in the overall market index, the role of information sharing, the beta effect, the relationship with the foreign exchange market and population dynamics. The study adopts the cointegration of time series approach by using the Engle Granger methodology. This involved testing for the presence of unit roots and converting non stationary financial data to a stationary form. Cointegration analysis determines whether there is a long term equilibrium position which is mean reverting (deviations from the mean are temporal in nature). Historical data was generously supplied by Catalyst Fund Managers. Further data sources include Statistics South Africa, INET Bridge and the JSE Securities Exchange. The research results establish that over the study period (varying between 13 and 18 years) listed property offered portfolio diversification when combined with the All Bond and the Industrial Index. On the contrary, portfolio diversification was not evident when listed property was combined with the All Share Index, the Financial Index and the Resources Index. A significant finding of the study is that listed property does not provide a hedge against inflation. Areas of further research (which are recommended) would be an extension to the existing study and reconfirm the test results.
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    THE IMPACT OF THE COLLECTIVE INVESTMENT SCHEMES CONTROL ACT ON UNIT TRUSTS
    (2011-10-07) MAZHAKATA, JOSHUA
    The Collective Investment Schemes Control Act (2002), (CISCA) was promulgated into law on 12 December 2002 and became effective on 3 March 2003. CISCA introduces a number of changes to bring the Collective Investment Schemes in line with international practice. It replaces the Unit Trusts Control Act (1981) and the Participation Bond Act (1981). Three of the changes introduced by CISCA were investigated in the current study. CISCA removes the requirement to retain 5% of the fund‟s value in liquid assets. It allows the funds to fully invest in warrants and index tracking instruments. Securities by one concern can now hold the maximum of 5% or 10% (depending on market capitalisation) or 120% of the share‟s free float weighting in the relevant index, with an upper limit of 35% for any one share. An ex post study was conducted to establish what changes CISCA would have had on returns, had the legislation been introduced ten years prior to March 2003. A passive portfolio management strategy with a holding period of five years was used in the study. The study showed that investment in the Top 40 Tracker Fund yielded inferior returns compared to those for a unit trust fund. There was no statistically significant difference in returns for a fund with 5% cash and 95% equity, and a fund that had invested 100% of its assets in equity. However, the 100% equity fund yielded a marginally higher return of 1.1%. The changes introduced by CISCA are commendable as they create favourable conditions for investing in the unit trust industry.