Browsing by Subject "Finance and Tax"

Now showing 1 - 20 of 52
  • Thumbnail Image
    Item
    Open Access
    A critical analysis as to whether a company is entitled to carry forward assessed losses if such company has traded but has derived no income therefrom
    (2021) Coetzee, Izak Jacobus; Johnson, Tracy
    The Income Tax Act No 58 of 1962 provides for tax to be levied on an annual basis (i.e. income and expenditure are generally calculated and determined in respect of a single year of assessment). Section 20(1) makes provision for the possibility that the allowable deductions may exceed a taxpayer's income by allowing for the carrying forward of any balance of assessed loss to subsequent years of assessment. It therefore provides for taxpayers to utilise assessed losses determined in previous tax periods against the income derived in future tax periods. Our courts have decided that a company which does not trade during a specific year of assessment forfeits its right to carry forward its balance of assessed loss from the preceding year of assessment. What has been left undecided in our superior courts however (although has been considered in our Tax Courts), is whether a company would also forfeit its right to carry forward its balance of assessed loss in the event where such a company carried on a trade during the current year of assessment, but derived no income therefrom. The primary research question in this study is whether a company would be allowed to carry forward its balance of assessed loss determined at the end of its previous year of assessment to its current year of assessment, in circumstances where it derived no ‘income' from its trading activities during the current year of assessment. This study also considers, as a secondary research question, whether the recent proposals made by Treasury in terms of the Budget Speech held on 26 February 2020, would have an impact on the primary research question. In order to address the primary and secondary research questions, this study considers the wording of section 20 in the light of the guidance on interpreting fiscal statutes as provided by our courts. The study also considers the views expressed in our courts in relation to section 20(1) as well as the relevant commentary on these views. Furthermore, the study considers SARS' view on section 20 as well as whether the recent proposals made by Treasury have an impact on the carrying forward of a company's balance of assessed loss. It is concluded that in terms of the recent proposal made by Treasury, a company whose trading activities result in a loss should be unaffected by the proposed amendments, although this can only be confirmed once the proposed legislation in this regard has been made available. It is further concluded that a superior court has not yet interpreted section 20(1) in terms of the current approach to the interpretation of statutes, and it is submitted that a superior court may come to the conclusion that a company would be allowed to carry forward its balance of assessed loss determined at the end of its previous year of assessment to its current year of assessment, even though it had derived no income from its trading activities during its current year of assessment.
  • No Thumbnail Available
    Item
    Open Access
    A Global Solution On Taxing The Digital Economy: "Does Article 12B of the UN MC adequately solve the problems encountered by the adopted unilateral measures (DSTs) to taxing the Digital Economy?"
    (2023) Mayebe, Francis; Roeleveld, Jennifer
    The rapid growth of the digital economy has created significant tax challenges, particularly for developing countries. As identified in this dissertation, the current tax framework is inadequate in solving the tax challenges as non-resident digital entities can generate income in a market/source jurisdiction without the need of having any physical presence. The OECD and the UN have been relentlessly searching for solutions to address the challenges of the digital economy. On the other hand, many states have not been patient enough to wait for a solution but have resorted to implementing unilateral measures in the form of Digital Services Taxes (DSTs) and equalisation levies. As it can be already noted from recent trends in international tax policy and seems, as well as the unilateral actions taken in the European Union (EU), that the permanent establishment nexus requirement to assume taxing rights is ill-suited to deal with certain complexities that can be ascertained from the core of the digital economy. It is clearly evident from the nature of the digital economy that an enterprise may attain a significant level of economic benefits in a foreign jurisdiction without having the physical factors embedded in the PE Principle. In this instance, it is widely seen that the digital enterprise or through the use of digital means, an enterprise without physical presence in the market jurisdiction may be entitled to a wide range of public benefits in that state which may include legal protection. In support of this argument, the EU has taken a view that a wide gap indeed exists between economic presence and physical presence in light of the increasing levels of technological advancement and increased globalization. It is certain from this view by the EU that one has seen an increase in unilateral measures to tax the digital economy amongst EU states through the introduction of the DST. The DST introduced in the EU states is targeted at taxing gross revenue in three instances: firstly, in instances where adverts are placed on the website, software or apps; secondly, where a digital platform allows users to find and interact with each other in a way that allows or facilitates the supply of goods and services; lastly, where data is collected by digital means and subsequently used to generate revenue. It is evident from the above that the measures adopted are narrowly focused on digital services that are reliant on user value creation. The United Nations made a shift away from an intense physical presence requirement by first introducing Article 12A into its Model Tax Treaty which allowed states to tax fees paid for technical services irrespective of physical presence in the source country. In a recent case, the US Supreme Court made an interesting finding in South Dakota v Wayfair, were it held that all states have a right to impose taxes on supplies made to their residents by non-residents irrespective of the lack of physical presence by the supplier in that instance. It is in this light clear that the introduction of Article 12B by the United Nations is a drive towards the right direction in solving the issue of taxing the digital economy. Article 12B which is focused on taxing Automated Digital Services (ADS) seeks to provide a way in which market jurisdictions can benefit from taxing entities participating in their markets without much physical presence. It gives an opportunity to avoid double taxation resulting from unilateral measures discussed above and by using a system of withholding taxes, it could potentially increase compliance and reduce disputes around interpretation. However, Article 12B also poses a few concerns in its application such as containing a ring-fencing proposal, the uncertainty of the concept of payer and the use of the gross income as a fundamental basis for calculations. It is certainly clear that it has weaknesses and strengths, and it is upon this basis that l will be exploring its application further in the relevant chapters.
  • Thumbnail Image
    Item
    Open Access
    A lifeline for Small Business in South Africa: An evaluation of section 12J, Venture Capital Incentives
    (2020) Mynhardt, Tertius Mader; Tickle, Deborah; West, Craig
    This dissertation seeks to answer two questions. In the main it aims to answer does the section 12J venture capital incentive advance government's original stated intention of incentivizing the provision of equity funds to the SME sector. Based on the outcome of the primary research question the secondary question seeks to answer whether section 12J should be extended beyond 2021. In seeking to answer these questions the dissertation critically evaluates the section 12J legislation, researches the venture capital industry in South Africa including section 12J venture capital companies and investigates the role and success of targeted tax incentives in South Africa. The VCC incentive targeted start-ups and SME's generally considered high growth and high-tech, or junior mining and exploration companies. SME's, especially entrepreneurial businesses, have the potential to be a catalyst for economic growth and job creation. Inter alia, access to finance is stunting the development of the SME sector with up to 70% of SME's failing due to a lack of funding. Venture capitalists can provide equity finance, management and technical support that could reduce some of the high risks associated with SME's. The advantage of equity finance is that it allows the SME's to better weather economic downturns and reinvest cash surpluses instead of servicing debt. In the main, whether the section 12J tax incentive is successfully advancing government's original intention still remains to be seen. Although there has been significant uptake of the regime and evidence to suggest that jobs are being created and meaningful investments are occurring, it still needs to be assessed to what extent the jobs and investments would have occurred even without the incentive. There also remain some short-comings to the design of the incentive and uncertainty to the regime which affects the sustainability of VCC's and the type of investments being made. The VCC industry has evolved to be more conservative, investing into asset-backed businesses and generally providing more growth capital, meaning that start-ups and other industries such as high growth technological companies are benefitting to a lesser extent. As such, government's intention to provide equity finance to start-ups and high growth industries appears to not be being addressed. Due to the late uptake of the regime, it is further unlikely that sufficient data would be available to analyze the incentive before 30 June 2021, the current sunset date. For these reasons, it is the writer's view that Treasury should appoint an external research organisation to prepare a thorough analysis of the incentive and whether it should be extended, but in any event, as a minimum the incentive should be extended for at least another six years (to make up for the years from its introduction to the year it began to show significant uptake, i.e. 2009 to 2015). Alternatively, the section 12J incentive should not be extended but rather replaced with a similar incentive taking into account the recommendations made in this dissertation.
  • No Thumbnail Available
    Item
    Open Access
    A South African perspective: Do excise duties imposed on tobacco products drive the illicit trade in tobacco products?
    (2024) Matlala, Tshegofatso; Roeleveld, Jennifer
    The use of tobacco products is said to be the second leading cause of preventable deaths and disability in the world, accounting for approximately eight million deaths around the world annually, with about one million deaths as a result of exposure to secondhand smoke. South Africa and many other countries have recognized the need for tobacco control measures and have adopted strategies and policies to combat the use of tobacco products. According to the World Health Organization (WHO), the imposition of excise duties on tobacco products is considered one of the most effective tobacco control measures. South Africa imposes an excise duty on tobacco products that are intended to be consumed within South Africa. The South African Government has been consistently increasing excise duties on tobacco products from the early 1900s. The consistent increase in the excise duties on tobacco products over the years has resulted in a significant decrease in the consumption of cigarettes in South Africa. From as far back as 1997, the tobacco industry in South Africa has argued against the increase of excise duties on tobacco products, claiming that it would result in an increase in the illicit trade in tobacco products. The illicit trade in tobacco products is on the rise and the tobacco industry has attributed this increase to the continual increase of excise duties on tobacco products. In this regard, the tobacco industry made a submission to the Standing Committee on Finance wherein it requested that the South African government cease the increase of excise duties for a period of three years in order to address the issue of illicit trade. The purpose of this dissertation is to consider whether the claims made by the tobacco industry are true and to consider what drives the illicit trade in tobacco products in South Africa. To this end, an analysis of the way in which tobacco products are taxed; the characteristics and consequences of the illicit trade in tobacco products; and the drivers of the illicit trade in tobacco products was performed. The experience of Brazil and Georgia were considered alongside the WHO Framework Convention on Tobacco Control (WHO FCTC). Article 6 of the WHO FCTC provides price and tax measures which are to be implemented to reduce the demand for tobacco products, while Article 15 provides measures to address the illicit trade in tobacco products. This dissertation finds that the illicit trade in tobacco products is not solely driven by tax and price differential, but by a combination of varying factors including weak tax administration, weak border control, corruption, as well as tax and price differentials. More specifically from a South African perspective, this dissertation finds that the growth in the illicit trade in tobacco products in recent years has been as a result of weak administration and the disbanding of the High-Risk Investigation Unit (HRIU) in 2014.
  • No Thumbnail Available
    Item
    Open Access
    Altman Z-Score Models and predicting financial distress: Empirical study of delisted mining stocks on the Johannesburg Stock Exchange
    (2023) Matanga, Nigel; Holman, Glen
    The aim of the study is to measure the predictive prowess of Altman's Z-score models when used to predict financial health and subsequent delisting of mining and metal companies listed on the Johannesburg Stock Exchange (JSE) from 1994 till 2021. The study applied the Altman's Z-score model as well as the Z double prime model to the financials of JSE listed mining companies to measure the predicted status of companies in a year, two years', and three years' time against the actual listing status of each company in the sample over the corresponding time horizons. Key findings indicate that both models reliably predict delisting of mining companies on the JSE when the horizon is only a year in the future. Additional analysis shows that individual factors of the model may not necessarily be a proxy for the Zscores and that the entire model needs to be considered in its entirety as a measure of financial health. Key words: Mining, Altman Z-Score models, Financial health, Financial distress, Delisting, Johannesburg Stock Exchange.
  • No Thumbnail Available
    Item
    Open Access
    An examination of the effect of the global financial crisis on the link between capital structure and firm performance
    (2024) Malekanyo, Reoagile; Chamisa, Edward
    The study examines the effect of the global financial crisis on the link between capital structure and firm performance using panel data of the South African nonfinancial firms that were listed on the Johannesburg stock exchange (JSE) for the period between 2007 and 2012. The analysis is done by splitting the entire period into the during and post financial crisis and then combining the two datasets after controlling for the period type to examine if the crisis period had an impact on the link between capital structure and firm performance. The relationship is examined based on two prominent capital structure theories, that is, the trade-off theory and perking order theory. The perking order theory assumes that a negative link exists whereas the trade-off theory assumes that a positive relationship exists. ROA is used as a proxy for firm performance. The ratios of total liabilities, long term liabilities and short-term liabilities to total assets are used as proxies for capital structure. The study uses firm size, liquidity, and tangibility as control variables. The main findings based on the link between capital structure and firm performance show that there was an insignificant negative relationship between firm performance and all proxies of debt, that is, total debt, long term debt and short-term debt during the global financial crisis period while a strong statistically significant negative relationship existed between firm performance and both total debt and long-term debt after the global financial crisis and even after controlling for the period type. The relationship was much stronger with long term debt than with total debt. In contrast, the findings of this study show that there was no significant relationship between short term debt and firm performance during and after the global financial crisis and even after controlling for the period type. The findings of a negative relationship between firm performance and both total debt and long-term debt is consistent with the perking order theory. However, although the results show that the effect of the financial crisis was insignificant, controlling for the effect of the crisis period actually improved the link between capital structure and firm performance as the adjusted Rsquared improved after controlling for the effect of the crisis period. The results also show that there was a significant negative relationship between firm size and performance for all the models considered and that the relationship was stronger after the financial crisis and even after controlling for the period type. Furthermore, the results show that there was a strong and significant positive relationship between liquidity and firm performance for all the models, even after controlling for the period type as well. Lastly, the results of this study show a negative link between tangibility and firm performance for all the models but that the relationship was significant only after the financial crisis period and for the combined period that controls for the period type. Overall, the results in Models 5 and 6 show that although the effect of the global financial crisis was insignificant, controlling for it improved the link between capital structure and firm performance as shown by the improvement in the adjust R-squared.
  • Thumbnail Image
    Item
    Open Access
    An investigation into reference-day risk-free metrics in the context of modern portfolio theory on the JSE
    (2019) Feinstein, Samuel G; Rajaratnam, Kanshukan
    Modern portfolio theory (MPT), asset pricing models and broader financial modelling are dependent upon the accuracy of input parameters. For example, the accuracy of expected returns, standard deviations and correlations as an input into MPT will result in a more efficient selection of the optimal portfolio. These metrics are exposed to reference-day risk which is the variation in input estimation due to the selection of initial reference-day in calculations. This paper examines whether a change in reference-day, the day on which a metric is calculated, significantly affects estimates of risk-return metrics on the Johannesburg Stock Exchange (JSE). Thereafter, it applies these findings to the asset allocation problem of constructing a maximum Sharpe portfolio. The objective of this paper is to further prior research through the evaluation of an alternative simulation method and an extension of the range of tested metrics. The advancement of this prior research is achieved through the use of the Cholesky decomposition and a nonparametric bootstrapping procedure to generate reference-day risk-free estimates for average returns, standard deviations, correlations and betas. Furthermore, this paper applies the reference-day risk-free metrics to the construction of optimal multi-asset portfolios in the mean-variance framework. The findings suggest that through the use of a five-year period of monthly returns, the selection of a reference-day materially affects risk-return metrics and the subsequent portfolio characteristics that are based upon these metrics. The performance of portfolios, optimised on each reference day, ranged between 10% during the out-of-sample period. Additionally, using traditional end of month data resulted in underperformance of out-of-sample, overstated average returns, understated standard deviations and lower correlations between asset classes. Based on these findings we propose an alternative bootstrapping method for calculating reference-day risk-free metrics which reduces the effect of reference-day risk. The purpose of this methodology is to use these estimates for portfolio construction, risk management and asset pricing. The results of this paper indicate that reference-day risk makes a material difference in portfolio construction.
  • No Thumbnail Available
    Item
    Open Access
    An Investigation into The Predictive Power of Overnight Gaps on The Johannesburg Stock Exchange
    (2023) de Jager, Johannes; van Rensburg, Paul
    Stock market gaps occur nearly every day, yet very little is known about their influence on subsequent pricing behaviour, particularly in developing economies like South Africa. The aim of this research is to comprehensively identify and analyse the relationship between overnight price gaps and subsequent intraday returns for publicly traded South African companies. These theoretical findings will also be applied practically, with a simulated trading strategy created and tested based on the theoretical and statistical findings. The primary method of identifying the underlying relationships at play is a collection of multiple linear and multiple logistic regression models, created using data spanning 20 years and 371 companies and split into training and testing sections to ensure accurate and bias-free results. The robust set of statistical tests and analyses performed indicates a persistent and highly significant inverse relationship that exists between large overnight gaps and subsequent intraday returns. This significant relationship was also applied to a very successful mean-reversion based trading strategy, with a sustained average annual outperformance of the JSE AllShare Index observed under even the highest transaction costs of 1.3% per trade. At the lower transaction cost level associated with CFD trading, an average annual outperformance of 166% was recorded. The theoretical and practical implications of these findings are in stark contrast to the widely accepted efficient market hypothesis and provide compelling new evidence of the exploitable nature of a relatively under researched market anomaly created by the inefficiencies associated with overnight price gaps. These results also pave the way for further analyses of gap behaviour, and collectively these findings add new and meaningful results to the body of knowledge on market anomalies.
  • Thumbnail Image
    Item
    Open Access
    An investigation into the style and asset class adjusted performance of South African multi-asset funds
    (2019) Richardson, Luke A.C.; van Rensburg, Paul
    Purpose: This study examines 26 large and established South African multi-asset unit trusts in order to determine their style and asset class exposure over time. The objective is to ascertain whether South African multi-asset fund managers can realise outperformance, that exceeds what can be realised through exposure to representative, investable, style and asset class indices. Such an analysis assists in identifying unit trust manager skill, but a further consideration is how to combine unit trusts in a suitable manner, to this end portfolio construction tools are utilised to meet illustrative client objectives in a multi-asset context. Methodology: This study uses monthly total return time series for several investable style and asset class indices as well as South African multi-asset unit trust monthly total return time series. Where historical data permits, the period under investigation is from 1 January 2003 to 30 June 2018. Style and asset class exposure is determined using the Returns Based Style Analysis (RBSA) of Sharpe (1992) applying a 24-month rolling window approach. Findings: The equity style exposures estimated using RBSA provide evidence that on average the value style was dominant across the multi-asset high equity unit trusts examined. For the multi-asset low equity unit trusts examined the low volatility style was dominant. Moreover, a large proportion of the variability in returns of many multi asset unit trusts, can be explained by exposure to style and asset class indices. Consequently only 3 out of the 15 multi-asset high equity unit trusts analysed, could realise performance in excess of their custom style and asset class benchmark. As only a limited number of these unit trusts could demonstrate superior security selection ability the implication is that many asset managers stand to be disrupted by lower cost products that provide similar style and asset class index exposure. Originality/Value: Much research has been conducted into the style exposures of SA general equity funds. However, to the author’s own knowledge this is the first study to apply RBSA in a performance context to multi-asset unit trusts, under the new ASISA classification standards. The benefits of portfolio construction tools such as portfolio simulation and the ‘Risk Budgeting’ approach are also discussed and applied in a multi-asset context.
  • No Thumbnail Available
    Item
    Open Access
    An Investigation Of The R&D Anomaly In The U.S. And Europe: Implications For Mispricing Theory
    (2023) Prinsloo, Pierre-Jean; Toerien, Francois
    Belonging in the city of Cape Town is a contested and ambivalent terrain. The past spatial injustices of colonial and apartheid rule have left deep scars and practices embedded in the city. Much has been researched and written about the role of women in land and housing struggles in the Cape. However, there is a gap in the understanding of the interior worlds of black women and how they access resources within for navigating and negotiating belonging in their everyday lives. According to de Certeau's belonging refers to an “everyday ritualized use of space, an appropriation and territorialisation” (and) a “process of transformation of a place, which becomes a space of accumulated attachment and sentiments by means of everyday practices” (de Certeau, 1984: p96). Picking up on this notion of belonging, my research aims to recognize, identify and understand meaning and sense making, humour and the emotional lives of women. The thesis focuses on the lives of three women from one family: each representing a different generation (grandmother, daughter, granddaughter). The thesis explores memoryscapes as that intersection between memory, its tangible aspects such as place, objects and architecture, and that of story. Using narrative enquiry and creative methods of analysis as qualitative research method, the research asks how belonging is negotiated by black women in a postcolonial city. The thesis starts by introducing four strands of literature that inform the research: 1) I engaged with urban studies theory, challenging developmental approaches to postcolonial city formation; Rodaway,2002, Middleton, 2017, Lefebvre, 1996, Jeannotte, 2007, ed. Schindel and Colombo, 2014. 2) I argue that what are missing in the theory are the everyday, ordinary, and interior lives of women. I therefore engaged with feminist scholars such as Hartman, 2019, Butler, 2016, Carby, 2019); 3) I introduce how interiority can enrich literature on belonging Hartman, 2019, Carby, 2019; and 4) I introduce why memory work is crucial to this kind of inquiry; (ed) Field, Meyer, Swanson,2007, Said, 2000, Stoler, 2013, Ricouer, 2004, McKittrick, 2007. The thesis then introduces the qualitative approach to the research, paying particular attention to how narrative forms of inquiry Bochner and Riggs, 2014, Rosenwald and Ochberg, 1992 and visual modes of analysis Elliott and Culhane ed, 2017 and Butler-Kisber, 2010 can enrich urban enquiry. The thesis turns to unpacking the findings through a series of three vignettes entitled ‘I am cheeky you know', ‘umnqusho, amagwinya and tea' and ‘these acts of belonging'. The thesis ends with sharing four key aspects which come to light through the research. The first is that a rich interior life provides a resource for not only coping with life in the city in the everyday, but also strengthens resilience, identity and hence the ability to navigate belonging. The second finding was a set of key strategies deployed by the three women in their navigation of belonging. The third finding is that a process of intersecting story, archival and digital images into a series of collages presented a visual language through which to decode belonging and to make visible the invisible worlds which inform affective relationships, choices and decisions about the city. Finally, it is therefore critical for urban studies to engage more deeply and consistently with the ways in which interiority inform navigation and experiences of belonging in postcolonial cities.
  • No Thumbnail Available
    Item
    Open Access
    Are the South African source rules fit for purpose to facilitate taxation of profits from the digital economy?
    (2023) Ndinisa, Andile; West, Craig
    This dissertation evaluates whether the South African source rules, contemplated in the Income Tax Act 58 of 19581 (the ITA), can still be relied upon in facilitating the taxation of profits from the growing digital economy. Economic activity and ways of doing business have evolved over time, however as in many countries, the South African source rules have not changed. The area of source and digital tax have provided applicability challenges. One of the major challenges identified was that the current source rules were mainly dependant on residency and physical presence. Furthermore, they would only take into account supply-side factors in determining the source of an income. The Organisation for Economic Co-operation and Development (OECD) has workable solutions to address tax challenges arising from digitalisation. Some of the proposed solution take into account both supply-side and demand-side factors when allocating profits to market jurisdictions. The study was motivated by the challenges faced by governments and policy makers in allocating taxing rights over profits from the digital economy using the existing tax laws. Arthur J. Cockfield points to arguments suggesting that the digital economy will result in inability to cumulate taxes adequately using the traditional principles.2 The research contributes to previous literature by comprehensively evaluating the South African source rules and the major technologies. The dissertation however does explore current writings on the tax challenges of the digital economy.
  • Thumbnail Image
    Item
    Open Access
    Asset allocation and Regulation 28
    (2016) Mjebeza, Athenkosi; Van Rensburg, Paul
    This paper aims to determine the impact Regulation 28 has on optimal asset allocation. The revised Regulation 28 of the pensions fund act came into effect as of 1 July 2011 which imposed certain restrictions or constraints on pension funds under direct control of trustees. This study evaluates some of the constraints imposed on the Regulation 28 through the use of Markowitz (1952) efficient frontier framework and a non-parametric model. With offshore allocation increased to 25% and an additional 5% to African (ex SA) markets the study also explores the diversification prospects to international, emerging and African (exSA) markets. The findings suggest that international markets bring about increase benefits to South African markets; however, when the Regulation 28 constraint is imposed the benefits slightly diminishes. Further analysis show that emerging and African markets bring little to no benefits to optimal South African pension fund allocation. Locally, the study looked at the gold index and the findings suggest that the gold asset class increases the welfare of an investor and it's a safe haven asset class.
  • Thumbnail Image
    Item
    Open Access
    A corporate failure prediction model for non-financial South African corporates incorporating best practices used by the credit industry
    (2016) Rowlings, Douglas; Correia, Carlos
    In the context of the current macroeconomic environment there is an expectation of an increase in South African non-financial corporate failure, where advance prediction thereof will become even more important. A number of South African non-financial corporate failures have occurred following the financial crisis. In addition, South Africa experienced a watershed moment with the first default on a non-financial corporate bond in 2013. At the same time, with the adoption of the International Financial Reporting Standards (IFRS) framework there have been significant advances in the quality of financial information which should improve its usage in predicting corporate failure. This study used the latest sample to date of listed South African non-financial corporates that met the definition of failure but limited the universe of financial information to that which was prepared under IFRS. At the same time, adjustments were made to the financial data based upon pre-selection of independent credit statistic variables most commonly used in ranking relative credit risk for non-financial corporates. Additionally, equity market price data was introduced into the model to add a forward-looking information consideration. This resulted in an eleven variable model where differentiation of corporate failure was facilitated through the use of multiple discriminant analysis.
  • No Thumbnail Available
    Item
    Open Access
    Corporate governance disclosure and information asymmetry: Evidence from South Africa
    (2023) Vos, Ashleigh; Toerien, Francois
    Investors globally are becoming more interested in companies' governance disclosure, in part to reduce the information asymmetry caused by the principal-agent problem. Although the association between a company's governance disclosure and its level of information asymmetry has been explored in some developed countries, there is a gap in knowledge on this in a developing country context. This study investigates this link for companies listed on the Johannesburg Stock Exchange (JSE). Using Tobin's Q and share price volatility as proxies for information asymmetry; Bloomberg governance disclosure scores as the variable of interest; and board size, board independence, audit committee size, analyst following, systematic risk, free float, the inverse of assets and profitability as control variables, panel data regression methodology is applied to a sample of 103 companies listed on the JSE from 2009 to 2021 in order to explore the relationship between governance disclosure and information asymmetry in South Africa. Random effects panel regression is used for each dependent variable (share price volatility and Tobin's Q) to gain an understanding of the relationship between corporate governance disclosure, the control variables, and the proxies for information asymmetry. The results of each regression showed that there is a negative correlation between governance disclosure and dependent variables (share price volatility and Tobins Q). This was in line with the hypothesis for the dependent variable - share price volatility, however, the Tobin's Q regression produced a negative correlation when the hypothesis stated a positive correlation. The Tobin's Q regression shows mixed results and therefore there is not sufficient evidence to confirm the hypothesis stated. Since both regression results produced negative results, it contributed to existing literature that prioritising good governance practices will allow a firm to gain the support of stakeholders and reduce information asymmetry.
  • Thumbnail Image
    Item
    Open Access
    Corporate governance in South Africa : the role of institutional investors
    (2015) Bhikha, Vishal; Thurner, Thomas
    Corporate governance has become the slogan of the global investment arena over the past decade. Corporate scandals and collapses with major loss to shareholders have noted a change in investors' attitude towards this topic. Corporate governance has not only become important for the survival of companies in the global economy, a set corporate governance framework too is required to merely attract capital for start-ups. This study focuses on the institutional investors in South Africa, and their attitudes towards current corporate governance standards in South Africa, and attitude to governance reform. The aims of this study: * To accentuate the significance, features and benefits of corporate governance in light of the empirical analysis; * To understand South African institutional investor environment better, and their monitoring and participating roles in corporate governance for investment in listed corporate entities; * Review the key criteria factored into investing, and how these are monitored on an on-going basis. Corporate governance criteria in specific was used; * Highlight the attitudes of South African institutional investors to corporate governance in South Africa, and their perception on corporate governance reform; * Review weakness in findings in light of the empirical study and analytical framework and summarise recommendations given the outlook for this sector. We introduce the topic of corporate governance and the concept of agency theory which highlights the reasons behind opportunistic behaviour which occurs at different levels within corporate organisations. We further discuss the change in attitudes of institutional investors on the back of corporate scandals, as well as the reasons and remedies of institutional activism. A background of South African institutional investors is also conducted, with a review of current legislation and corporate governance reform mechanisms applicable to South Africa. Following this is a broad literature review on the quantitative as well as qualitative information needs of institutional investors; this forms the basis for the structure of our questionnaires conducted. The last section draws on the critical findings and insights (including quotes from the interviews) on the role of institutional investors in South Africa, followed by the summary and limitations of this study.
  • Thumbnail Image
    Item
    Open Access
    Determinants of Capital Structure in the South African Listed Property Sector
    (2020) Calvosa, Alessandro; Toerien, Francois
    The purpose of this study is to investigate whether empirical evidence support traditional determinants and theories of capital structure in the listed South African property industry, a relatively new adopter of the globally recognised and regulated Real Estate Investment Trust (REIT) structure. There currently exists little academic literature focusing on this specific topic in the South African property sector. Furthermore, the recent change of the prevalent legal form of South African listed property companies, affords a unique opportunity to investigate the possible impact of regulatory changes on capital structure within this context. A panel regression is applied to a sample of 39 firms over the period 2005 to 2019, which includes all property companies with South African exposure listed on the JSE, both during the pre-REIT and REIT regimes. This results in an unbalanced panel of 314 company years. The regime change to the REIT structure appears to have, on average, increased the use of leverage in South Africa's listed property sector. Debt usage, however, remains well below the allowed regulatory limit and lower than worldwide counterparts. The regression results offer support for the trade-off theory, pecking order theory and market timing theory in the South African listed property context, and are generally in agreement with international findings. Thus, size is found to be positively correlated to debt levels, in line with trade-off theory prediction. Growth opportunities tend to increase leverage ratios, which is consistent with the pecking order theory. Evidence for market timing behavior is the positive correlation found between 12-month share price movements and leverage. Other firm specific determinants including share volatility and interest cover ratio also offered pecking order theory support. Inflation was also found to have a significant effect on leverage in the sector. In conclusion, it is found that the evidence supports elements of most capital structure theories in the South African listed property sector.
  • No Thumbnail Available
    Item
    Open Access
    Disclosure and the cost of capital
    (2004) Koopman, Anthony C; Uliana, Enrico
    [pg 11 is missing] In both academic literature and business practice there appears to be contradictory views concerning the existence, and nature, of the relationship between the quality of corporate disclosure and associated company cost of equity capital. Theory suggests that an informed investor would scale down the required rate of return as the level of uncertainty and risks associated with the firm's present and future performance is reduced. This study has attempted to empirically determine whether or not South African companies manage the level of information disparity between investors and themselves so as to influence the company's cost of capital. A literature study was undertaken to ascertain what data and empirical findings have been produced by previous studies on disclosure and the cost of capital. The literature review also highlighted the impact that information asymmetry, intra-industry information transfers, estimation risk and information filtering by management has on disclosure and the effect that this has on cost of capital. The firms beta coefficient, based on the last quarter of 1997, were used as a measurement of risk and as a surrogate for the cost of capital. The disclosure metric was based on the financial and non-financial information contained in the 1997 annual financial reports of the sample companies. The research method that was adopted builds on both local and international empirical research in this field, using a statistical correlation analysis to test the null hypothesis of no relationship between disclosure and beta for companies listed on the Johannesburg Stock exchange. The research results provided evidence of a positive, yet very weak correlation between disclosure and the cost of capital. As the variation in the sample data improved, a slightly stronger positive correlation between the research variables was observed.
  • Thumbnail Image
    Item
    Open Access
    Dividend payments from employee share scheme trusts
    (2017) Lock, Nicholas; Tickle, Deborah; Roeleveld, Jennifer
    In the past, there has been confusion regarding the taxation of dividends received from employee share scheme trusts. Conflicting interpretations of the definitions in section 8C and certain provisions of 10(1)(k) of the Income Tax Act No. 58 of 1962 (ITA) have caused administrators of these schemes to treat the taxation of dividends in various ways. Section 10(1)(k)(i)(ii) was introduced in the Taxation Laws Amendment Act (TLAA) of 2013 to address the situation where employers are disguising salaries and bonuses as dividend payments to members of employee share scheme trusts. The intention behind this new section 10(1)(k)(i)(ii) is quite clear but it is not entirely certain whether it is having the desired effect as there is still uncertainty around the treatment of dividends from unrestricted equity instruments. The Davis Tax Committee (DTC) published recommendations on the taxation of trusts in its first interim report on estate duty. These recommendations could further complicate matters and have significant tax implications for all the parties involved in these employee share scheme trusts. To try and understand the uncertainty around these dividend payments an analysis was conducted on section 10(1)(k)(i)(dd) and 10(1)(k)(i)(ii) of the ITA. It was also necessary to look at the different types of employee share schemes that are available and also the nature of dividends, dividends withholding tax (DWT) and capital gains tax (CGT). Section 8C and the definitions therein were also analysed to understand the taxation of taxpayers on vesting of equity instruments. A brief look at the treatment of dividend payments from United Kingdom employee share scheme trusts also provided some useful context from an international perspective. Two case studies were conducted to analyse the overall tax effect based on the current tax legislation and also taking into consideration the recommendations made by the first DTC Report.
  • No Thumbnail Available
    Item
    Open Access
    Exploring the curvilinear relationship between corporate social performance and financial performance: Evidence from South African listed firms
    (2024) Van Niekerk, Michael-John; Chamisa, Edward
    In the past, there has been a wealth of research into the relationship between corporate social performance (CSP) and corporate financial performance (CFP). However, this relationship has not been thoroughly researched in developing markets, particularly in South Africa. Compelling theoretical arguments and empirical evidence have been presented both for and against the financial benefits associated with CSR. Recently, there has been an increasing number of studies attempting to reconcile these seemingly opposing views by suggesting that the CSP-CFP relationship may in fact be non-linear. This study aims to contribute to this perspective and address the research gap in South Africa by exploring the shape of the CSP-CFP relationship in a South African context. This is achieved through the use of panel regression models with fixed and random effects, on an overall CSP and component CSP level for 130 Johannesburg Stock Exchange (JSE) listed firms from 2012 to 2019 (1 040 firm-year observations). Bloomberg ESG disclosure scores are used as a proxy for CSP and its components (environmental performance, social performance, and governance performance). CFP is proxied through a measure of market-based performance, annual shareholder return (ASR), and a measure of accounting-based performance, return on assets (ROA). A significant U-shaped relationship is found between overall CSP and CFP. This same relationship is also found between environmental performance and CFP, and between social performance and CFP. Contrary to the findings of prior South African studies, a negative linear relationship is found between governance performance and CFP. The findings of this study have implications for managers facing increasing pressure to engage in environmental, social, and governance (ESG) initiatives from investors and the broader public, and for researchers in emerging markets to explore the CSP-CFP relationship from a novel perspective.
  • Thumbnail Image
    Item
    Open Access
    Fair value accounting in South African banks : financial stability implications
    (2015) De Jager, Phillip; Holman, Glen
    This article-based thesis consists of three main papers that examine the use of fair value accounting in banks and how it can influence behaviour with systemic effects; this helps in understanding the role of fair value accounting in the global financial crisis. The examination consisted of two parts. The first part was the investigation of how fair value accounting was actually used by South African banks. The second part was the development of an analytical model that links together fair value accounting, bank capital regulation and economic outcomes. The South African case study was further divided into two parts. In the first part, a comparative design was used to investigate in detail how fair value accounting was implemented by two South African banks and what their motivations were. The second part sought to answer the question: did South African banks pay out higher dividends based on risky fair value accounting gains? The South African evidence indicates that fair value accounting materially impacts the profit and loss and the regulatory capital of banks. This component of regulatory capital proved to be risky. Dangerous pay-outs resulted from the increase in profits and bank assets grew the most during the period of risky capital formation. It was found that the use of a stock-flow consistent model of the economy was a commonality amongst those that predicted the global financial crisis. A stock-flow consistent model was shown to be descriptive of the South African evidence. The model showed fair value accounting to be at the centre of feedback processes that can weaken the banking system during the economic upswing. The study concludes that fair value accounting is central in processes that weaken the banking system during an economic upswing and thus demonstrates why the current call for prudent accounting in banks is justified. The study expands on current literature in a number of ways. It adds to the literature that fair value accounting is procyclical by demonstrating that this effect is not constant throughout the cycle and is more problematic during the upswing; this differs from the usual argument that fair value accounting accelerates the downturn. The South African empirical evidence showed that fair value accounting for available-for-sale assets is not the only avenue for fair value accounting to be dangerous; fair value accounting adjustments through profit and loss should also be monitored. The analytical model as well as the South African empirical evidence contradicts the common argument that the fair value measurement of financial instruments must be pervasive in a bank and banking system to be dangerous. The South African empirical evidence shows that fair value accounting must be considered a possible avenue of earnings or capital management in banks.