Faculty of Commerce, Law and Management (ETDs)
Permanent URI for this communityhttps://hdl.handle.net/10539/37778
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Item Market reaction to rights offer: A case of Johannesburg Stock Exchange(University of the Witwatersrand, Johannesburg, 2020) Lebepe, Busisiwe A.; MOKOALELI-MOKOTELI, THABANGFirms have at their disposal various sources to meet the capital requirements to fund their growth aspirations to generate sustainable shareholder wealth. Rights issues are key among this compendium of capital sources. This study investigated the short and medium-term market reaction of firms’ rights offer announcement event on the share price of Johannesburg Stock Exchange (JSE)-listed firms using an event study methodology to operationalise the research. A univariate t-test analysis determined the significance of the market price reaction post-announcement of a rights offer for JSE-listed shares. The cumulative abnormal returns (CAR) were calculated using the market model formula. The significance testing was conducted on the null hypotheses at a 5% significance level. Empirical evidence frequently indicates a significant price drop post-announcement of a rights offer. Studies indicate a general negative price reaction to announcing the rights issue on the JSE due to a dilution in earnings per share, regulation, and effects of floatation costs. This study’s results provide a contrarian view with empirical evidence indicating a significantly positive price movement of 2.30%, 2.94%, and 2.56%, respectively, from day three to five post-announcement of a rights offer. However, statistically insignificant negative price movement results were observed in the medium-term (30–252 days). The review period is from January 2006 to January 2020, covering periods from different economic cycles and the most recent data on rights offers. This study contributes to the ongoing assessment on price reaction post announcing a rights offer in the South African marketItem A comparative analysis of the impact of Covid-19 and the global financial crisis on capital structure: Evidence from the Johannesburg Stock Exchange(University of the Witwatersrand, Johannesburg, 2023) Mjeso, Thandiwe; Chipeta, ChimwemweSince Modigliani and Miller (1958) introduced the modern theory of capital structure, various studies have been conducted on capital structure. This study contributes to the existing capital structure literature by investigating how the Covid-19 pandemic impacted the capital structure of Johannesburg Stock Exchange (JSE) listed non-financial firms and comparing this impact to that of the 2008 global financial crisis. Furthermore, this study seeks to determine the relationship between capital structure and fundamental firm factors (business risk, profitability, firm size, growth, and asset tangibility). To conduct this analysis, the financial data of these firms for the 2005 to 2022 period is extracted from Bloomberg and the Generalized Method of Moments (GMM) model is used to conduct the analysis of this study. The results of this study indicate that Covid-19 did not have a statistically significant impact on the capital structure of the JSE listed non-financial firms whereas, the 2008 global financial crisis had a statistically significant impact. Overall, the results of this study are consistent with the empirical evidence reported by previous studies, and they provide evidence in support of both the trade-off theory and the pecking order theoryItem Evaluating the relationship between retail and technology companies’ share prices with earnings and net cash flow in the context of South Africa and America (USA)(University of the Witwatersrand, Johannesburg, 2023) Tiquin, Cal; Brahmbhatt, Y.Background: The informational value of accounting information is becoming increasingly important within the context of the modern information age. Research in this regard is lacking within the South African context, and within the technological sector. Purpose: The purpose of this research study is to test if the explanatory power of net earnings and cash flow differed for separate sectors of stock exchanges. Methodology: Four samples, representing the technology and retail sectors of both the JSE and the NYSE were collected and analysed in terms of an Ohlson (1995) model for a five year time period, from 2017 to 2021 (inclusive). Using a linear panel data regression model with secondary data, the explanatory power of both cash flow and earnings were compared between the different sectors. Findings: The results showed that the explanatory power of cash flow was greater than the explanatory power of net earnings on the NYSE for the technology sector, while the opposite was true for a traditional, retail sector. No significant regression results were attained for the JSE. Implications: The findings of this research provide valuable insight into the informational value of accounting information, and how it may differ between sectors. It may also assist regulatory bodies, Stock exchanges and investors in determining if different accounting information should be presented or prioritised for different sectorItem Investigating the relationship between integrated reporting quality and its effect on risk of the top 100 JSE listed companies in South Africa(University of the Witwatersrand, Johannesburg, 2023-12-13) Jhavary, Musnaa; Cerbone, DannielleThis thesis investigates the relationship between the quality of an organization’s integrated report, as defined by the EY Integrated Reporting Awards, and the risk of the organisation. To achieve this the relationship between an entity’s financial ratios and the quality of the integrated report it produces are calculated and explored. A quantitative research approach is used and risk is proxied using debt and equity ratios collected from the IRESS database, as well as integrated reports found on the websites of the top 100 JSE-listed companies over five years from 2017 to 2021. A regression is performed using the Statistical Package for the Social Sciences (SPSS) software. The results suggest a significant relationship between the costs of debt and integrated reporting quality, when compared to the cost of equity and the weighted average cost of capital. In addition, other variables hold a stronger relationship with integrated reporting quality, such as the ability of a firm to produce a standalone CSR report, as well as the firm’s equity market-to-book ratio and a firm’s sizeItem Herding Behaviour and Equity Market Liquidity in the Johannesburg Stock Exchange(University of the Witwatersrand, Johannesburg, 2023) Rip, Kyle Christopher; Britten, JamesThis study tests the relationship between equity market liquidity and herding behaviour in the aggregate market portfolio in a South African context and found evidence of herding behvaiour when conditioned on liquidity. The “aggregate market portfolio” refers to the average consensus of all market constituents- in this case the JSE. The analysis is performed through liquidity quartiles on the whole sample period as well as in specific sub-periods with alternative measures of liquidity. The sample period covers January 2000 to December 2021. The results show that a higher level of equity market liquidity is associated with an increase in the tendency for investors to herd towards the market consensus (reduced return dispersions as a result of clustering around the mean market return). However, this research shows that the relationship is dependent on the time period analysed and that the relationship may no longer hold when the relative level of market liquidity (the distribution of daily market liquidity levels) changesItem An evaluation of corporate actions as a shareholder wealth creation mechanism for JSE-listed investment holding companies(University of the Witwatersrand, Johannesburg, 2023) Schwenke, NicholasBackground: Investment holding companies represent a category of company primarily focused on adding value by increasing the value of the stakes in the businesses they own. In South Africa there is a trend for Investment Holding companies to trade at a price lower than their reported intrinsic net asset value that is widely commented on by management teams and the financial press. It is also accepted that corporate actions are known to have an impact on share price and investor behaviour. Purpose: The purpose of this research is first to quantify the discount to intrinsic net asset value across a sample of holding companies. This research will also determine if corporate actions pursued by holding companies have reduced any discounts which exist and, in the process, created value for shareholders. Finally, an assessment of which corporate actions is most effective in reducing the discount (if any) will be prepared. Method: Discounts are quantified by comparing daily share prices to the reported intrinsic net asset value. The impact of corporate actions is evaluated using an event study methodology using multiple estimation models. Results: The results showed that corporate actions resulted in no significant abnormal returns apart from in a six-month event window after the event announcement date. Statistically significant negative abnormal returns were noted in this event window. This indicates that corporate actions are not an effective way of reducing the discount to intrinsic net asset value. Contribution: This research adds to the existing JSE event study literature by focusing on a specific subset of companies. The research makes a theoretical contribution by suggesting value creation strategies for businesses which may be fundamentally mispricedItem Investigating the relationship between integrated reporting quality and its effect on risk of the top 100 JSE listed companies in South Africa(University of the Witswatersrand, Johannesburg, 2023) Jhavary, Husnaa; Cerbone, DannielleThis thesis investigates the relationship between the quality of an organization’s integrated report, as defined by the EY Integrated Reporting Awards, and the risk of the organisation. To achieve this the relationship between an entity’s financial ratios and the quality of the integrated report it produces are calculated and explored. A quantitative research approach is used and risk is proxied using debt and equity ratios collected from the IRESS database, as well as integrated reports found on the websites of the top 100 JSE-listed companies over five years from 2017 to 2021. A regression is performed using the Statistical Package for the Social Sciences (SPSS) software. The results suggest a significant relationship between the costs of debt and integrated reporting quality, when compared to the cost of equity and the weighted average cost of capital. In addition, other variables hold a stronger relationship with integrated reporting quality, such as the ability of a firm to produce a standalone CSR report, as well as the firm’s equity market-to-book ratio and a firm’s sizeItem Is the Environmental, Social and Corporate Governance (ESG) score the missing factor in the Fama-French five factor asset pricing model?(2022) Nsibande, Luyanda Malusi QinisoBackground: Companies are increasingly encouraged to focus on the creation of sustainable value. In South Africa, financial research institutions evaluate and track companies’ performance based on environmental, social and governance-related criteria. These scores are intended to inform decisions by potential equity investors, amongst others. However, commonly-used asset pricing models do not include ESG scores. Purpose: The purpose of this research is to discover whether the inclusion of Environmental, Social and Governance (ESG) scores in the Fama and French fivefactor model (FF5) will improve the model’s predicting power of expected returns on the Johannesburg stock exchange JSE Methodology: For the largest 40 JSE-listed companies, statistical ordinary least squares (OLS) regression was employed with R statistics to analyse fundamental, share price and ESG score data over the five-year time period from 2015 to 2019. The researcher compared the predictive power of the FF5 model to that of the same model including ESG scores. Findings: The results showed that the predictive power of the FF5 model is only marginally improved when the ESG scores are incorporated. These findings may indicate that equity prices are not significantly influenced by ESG scores. Implications: The findings of this research provide the basis for further endeavours on the share-price implications of ESG performance. It makes a theoretical contribution by suggesting possible enhancements to traditional asset pricing techniques.Item Testing the pecking order theory of capital structure in South Africa(2021) Andries, Lydia SejoThis study was conducted with the aim of testing the pecking order hypothesis as well as examining the variables influencing the capital structure decisions using companies that are listed on the main board of the Johannesburg Stock Exchange over 12 years from 2009 to 2020. It has been noted that several listed companies in South Africa are facing the challenge of survival in the current economic climate. The companies are constantly found to be in risky situations in relation to their finances, which makes it difficult for them to meet their responsibilities to creditors and other stakeholders. Making the correct decisions regarding capital structure enhances the financial well-being of any organization. When companies fail to make the right capital decisions, the result can be financial distress, bankruptcy, and liquidation. The research will also inform both potential and existing investors in South Africa on the general approach to funding of the JSE listed companies and therefore give investors some basis for their investment decisions. A total of 197 companies excluding financial companies were selected to be used in the study using stratified random sampling. Pooled ordinary least squares, fixed effects and random effects models with heteroscedasticity robust standard errors were used. The results from the model employed to test the pecking order hypothesis do not show strong evidence of company management going in line with the pecking order theory when making decisions regarding the financing of the company. The conventional leverage regressions run to determine the factors that influence the capital structure were found to be consistent with theoretical predictions except for firm size which had the correct sign as predicted by theory but statistically insignificant. Asset tangibility and firm size were both positive while Market to Book and profitability were both negative in line with theoretical predictions. All the conventional predictors of leverage were statistically significant at the 1% and 5% significance levels except for firm size which was not statistically significant at any of the conventional levels of significance. Thus, for the sample of companies used in this study and the sample period selected, there is no strong support for the pecking order theory while leverage is determined by growth options as proxied by MTB, asset tangibility as well as profitability. A limitation of the model used in this study is that it only considered firm-specific factors in determining the predictors of leverage. Future research could include macroeconomic variables as additional predictors of the financing decisions of listed firms in South Africa as empirical evidence shows that these macroeconomic are important in the leverage-financing deficit nexusItem Financial reporting quality: an exploratory study of small-and mid-cap entities listed on the JSE(2021) Brookes, LeighThe fundamental challenges small-and mid-cap firms are facing in producing high-quality financial statements: High-quality financial statements are becoming increasingly difficult to prepare as business and the IASB’s standards evolve and become increasingly complex. This may leave small-and mid-cap firms vulnerable to being ill-equipped to produce high-quality financial statements based on their limited resources and dependencies. Minimal research has focused on the components that contribute to attaining high-quality financial statements at small-and mid-cap firms. The research that has focused on this has been predominately centered around large-cap firms, while little attention has been allocated to that of the small-and mid-cap firms. Small-and mid-cap firms comprise the majority (in number) of the companies listed on the JSE and contribute a significant portion of growth and employment to South Africa. It is important to address this gap in research so that structures can potentially be put into place to support these companies and aid their success. An exploratory qualitative research method was employed due to the limited availability of prior research. Data was obtained through semi-structured, open-ended interviews with senior financial executives at small-and mid-cap JSE listed entities. Further interviews were conducted with auditors, regulators, and academics in relation to their interactions and perceptions of the financial reporting quality at small-and mid-cap firms. It appears that small-and mid-cap firms may be disadvantaged by the limited resources they have access to. If so, this tends to adversely affect their ability to implement effective corporate governance and particularly obtain financial management with high expertise, adversely affecting the quality of their financial statements. Conversely, there are factors that may contribute to decreasing the challenges they face. Small-and mid-cap firms often have finance teams with longer tenures and inherently less complex processes and reporting. This allows staff to understand the business intrinsically, facilitating with the financial reporting process