Voluntary and Involuntary Delisting – Implications for Shareholder Wealth on the Johannesburg Stock Exchange

Abstract

The delisting of stocks from major stock exchanges has been a focal point of academic and practitioner research due to its significant implications on market dynamics and investor wealth. Companies may opt to delist voluntarily to pursue private strategies or be involuntarily delisted for failing to meet regulatory requirements. The dichotomy between voluntary and involuntary delisting has generated extensive debate regarding the underlying drivers and the consequent impact on the value of assets traded. Despite a substantial body of literature on this subject, there is a notable scarcity of research focused on a major stock market such as the Johannesburg Stock Exchange (JSE). This thesis aims to fill this gap by examining the wealth effects of delisting events and identifying the determinants of delisting on the JSE. The event study methodology and logistic regression analysis is utilised for the study. The sample comprises 92 companies delisted from the JSE, encompassing voluntary and involuntary delistings. The findings reveal that delisting events generally result in significant negative impacts on shareholder wealth. Contrary to previous studies, voluntary delisting events do not demonstrate significant abnormal returns, suggesting market efficiency. Involuntary delisting events also fail to show significant abnormal returns, which may be attributed to informed investor behaviour. The sector-specific analysis highlights that the Consumer Non-Cyclical and Industrial sectors are particularly adversely affected by voluntary delistings, while the Technology sector experiences negative impacts from involuntary delistings. Regarding delisting determinants, cash flows emerge as a significant factor influencing overall delisting decisions, while growth prospects are particularly relevant for involuntary delistings. The study acknowledges limitations, including a relatively small sample size and the exclusion of specific contextual factors, and suggests avenues for further research. Based on the findings, policy recommendations are proposed to mitigate the negative impacts of delisting. These recommendations aim to benefit individual investors, companies, regulators, and financial advisors. Overall, this thesis contributes to a deeper understanding of the wealth effects of delisting events and the determinants of delisting decisions on the JSE, offering valuable insights for scholars and practitioners in financial markets.