The Impact of Black Economic Empowerment

Abstract

Black Economic Empowerment is one of the South African government's initiatives to bring parity to past economic imbalances. One of the aspects of this empowerment has been through transferring of equity ownership to empowerment groups in order to increase black ownership and control. A key question that arises is the impact that these transactions have on the companies transacting. As listed companies form a significant stake of, as well as contribute significantly to the South African economy, the impact on such companies is of key interest. The purpose of this study was to investigate whether Black Economic Empowerment transactions have an impact on the cost of capital employed of listed companies that have transacted with Black Empowerment companies or consortia in South Africa. Results from an event study during the initial public announcement of the transaction indicated that no abnormal returns are earned during the preannouncement and announcement periods, hence indicating no impact on the cost of capital. The results did, however, indicate that negative abnormal returns are earned during the post-announcement period, indicating an increase in the cost of capital.