Browsing by Subject "Financial Management"
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- ItemOpen AccessActive share, fund style and performance(2014) Siddle, Richard; West, DarronThe South African unit trust industry was found to display low levels of Active Share compared to international levels. A sample of unit trusts, representing approximately 58.2% of assets under management in the South African general equity fund industry, was selected based on the availability of the information necessary to perform this analysis. The average Active Share demonstrated by the sample of unit trusts has decreased from 60.85% in June 2007 to 55.65% in June 2013. A fund flow analysis confirmed that fund managers' portfolio decisions are highly affected by the risk of outflows and possibility of inflows. Managers faced with a high risk of outflows and low possibility of inflows adjusted their Active Share by approximately double that of managers with a moderate risk of outflows and inflows. A similar result was found when comparing managers experiencing a low risk of outflows and a high possibility of inflows, to managers experiencing a moderate risk of outflows and inflows. Under varying market conditions, unit trusts exhibiting the highest Active Share and tracking error (concentrated stock picker) earned a significantly higher alpha than unit trusts exhibiting the lowest Active Share and tracking error (closet indexer). During the financial crisis and in the subsequent bull market to previous highs, concentrated stock pickers earned a significantly higher alpha than closet indexers. In bull markets breaking through previous highs, concentrated stock pickers earned the lowest alpha. The alpha earned by unit trusts exhibiting the highest level of Active Share was significantly higher than the alpha earned by unit trusts exhibiting the lowest level of Active Share. The benefit of distinguishing between truly active (concentrated stock picker) unit trusts and closet indexer unit trusts is clear.
- ItemOpen AccessAgency costs of free cash flow : the South African experience(1997) Ankude, Edem Komla; Uliana, EnricoThe use of free cash flow has been a source of conflict between shareholders and managers. This conflict derives from the agency relationship between shareholders and managers in that decisions taken by managers (as agents) affect the shareholders (as principals). The decisions of managers may not always be in the interest of shareholders. The interests of shareholders will be served if actions of managers lead to the maximisation of the total value of the company. The free cash flow theory suggests that managers have the tendency to misuse surplus cash resources. Any use of free cash flow that is not value maximising could result in losses to shareholders. These are termed the agency costs of free cash flow. It is believed that managers will think and act as shareholders if they own significant proportions of the equity capital of companies. This dissertation examines the effects of the agency relationship on the utilisation of free cash flow.
- ItemOpen AccessThe Altman corporation failure prediction model : applied among South African medical schemes(2014) Arens, Fanelo James; West, DarronThis study has a number of interrelated objectives that seek to understand and contextualize the Altman bankruptcy prediction model in the setting of the South African medical schemes over a ten year period (2002 to 2011). The main objective of this study is to validate the Altman Z₂ model amongst the medical schemes in South Africa; in terms of accurately classifying Z₂-scores of ≤ 1.23 and ≥ 2.9 into the a priori groups of failed and non-failed schemes. The average classification rates in the period 2002 to 2011 are as follows: 82% accuracy rate and 17.9% error rate. A linear trend line inserted in the graph shows the accuracy improving from 72% to 91% between the period 2003/2004 to 2011/2012. This outcome is consistent with the conclusion in previous studies (Aziz and Humayon, 2006: 27) that showed the accuracy rates in most failure prediction studies to be as follows: 84%, 88%, and 85% for statistical models, AEIS models and theoretical models respectively. Although this study validated the Altman model, further studies are required to test the rest of the study objectives under conditions where some of the assumptions are revised.
- ItemOpen AccessAn analysis of how the firm objective debate is reflected in financial textbooks and in the MVV statements of JSE TOP40 firms(2016) Abdulrehman, Shayan Aslam; De Jager, PhillipThis study investigates whether the shareholder, stakeholder and customer-oriented theories on the objective of the firm are reflected in modern financial textbooks, and in the Mission, Vision, and Values statements of the JSE TOP40 firms. The literature review discusses the shareholder, stakeholder and customer-oriented theories of the firm, among others, and shows that there is no consensus between finance researchers on the objective of the firm, with opposing views presented. The research approach adopts qualitative analysis as the method for this study, as it is deemed to be suitable for pattern recognition in large sets of data. The data consisted of twenty financial textbooks, and the MVV statements of the JSE TOP40 firms. Both the data sets were analysed to identify the shareholder, stakeholder and customer-oriented objectives of the firm using the word frequency and coding queries in software NVivo. The finding in respect of financial textbooks indicates that seventeen textbooks advocated for a shareholder objective, two advocated for a stakeholder, and one for a customer-oriented objective of the firm. The JSE TOP40 firms' finding indicates that seventeen pursued a stakeholder objective, twelve pursued a customer-oriented objective, and eleven pursued a shareholder objective. The study establishes that the shareholder, stakeholder and customer-oriented theories of the firm's objective are reflected better in the MVV statements of JSE TOP40 firms, than in financial textbooks. This highlights a disconnection between financial textbooks, where the shareholder objective of the firm was found to be dominant, and the JSE TOP40 firms' findings where the debate concerning the three objectives was more evenly spread. This study recommends that South African academic authors should update their financial textbooks to reflect more emphasis on the stakeholder and customer-oriented theories of the firm's objectives, as being pursued by the JSE TOP40 firms.
- ItemOpen AccessAn analysis of models of branchless banking in developing countries(2012) Makhubedu, Dipolelo; Holman, GlenThis paper pays special attention to banking the unbanked population in the developing markets through branchless banking. This form of banking is defined as the delivery of financial services outside conventional bank branches using information and communications technologies and nonbank retail agents. The services offered take a variety of forms including long-distance remittances, micropayments, and informal airtime bartering schemes for example: mobile banking, mobile transfers, and mobile payments. Using Kenya’s M-PESA as the lead case study, the impact of combining the use of mobile network operators and banks has proved to be effective.
- ItemOpen AccessAnalysis of South African venture capital practitioners' views on the motivations, benefits and constraints of international syndication(2014) Causey, John P; Toerien, FrancoisThe international syndication of venture capital investments has become an increasingly widespread phenomenon, but there is a lack of research which applies the already limited prior international research in this field1 to South Africa or other African countries. This research aims to begin that discussion, and take the first step in filling that gap of understanding. The main research questions addressed in this study: are local venture capital practitioners ready and willing to syndicate internationally, and what are the constraints to the formation of those transactions? The issues were examined by interviewing high level investment practitioners representing seven of the 21 nongovernmental VC firms belonging to the South African Venture Capital Associated (SAVCA). This data were influenced and shaped by other available sources of primary and secondary data. The results indicate that South African venture capital investors are ready and willing to syndicate internationally, however there are caveats to that broad statement which the ensuing analysis addresses. Additionally, it was found that there are significant and profound constraints to these transactions forming in South Africa. Those constraints are an unsupportive regulatory environment, negative perceptions by the international investor community of South Africa, small domestic deal sizes and the dearth of bankable ventures led by high quality management teams. Options for further research include a study of the attitudes of potential foreign VC professional partners to the option of syndication involving South African VC firms, and a more in depth investigation into the risks and constraints to South Africa-international syndication.
- ItemOpen AccessAn analysis of the accuracy and determinants of earnings forecasts of companies listing on the alternative exchange of South Africa(2011) Levinson, Lisa; Correia, CarlosThis study analyses earnings forecast accuracy and bias, and the determinants of earnings forecast accuracy, for firms listed on the Alternative Exchange (AltX) in South Africa.
- ItemOpen AccessAn analysis of the benefits of issuing convertible debt in South Africa: Shoprite Holdings Ltd case study(2013) Wormald, Simon; Holman, GlenThe aim of this paper is to investigate Shoprite’s decision to issue convertible bonds despite South African firms tending to favour traditional forms of debt or equity. The paper first revisits the theory on convertible debt to consider the possible reasons for why Shoprite elected to issue convertible debt, and then develops two models, the first to quantify Shoprite’s debt capacity and cost of debt, the second to value the convertible bond issue, and quantify the benefit, if any, that convertible bonds achieved as opposed to a straight debt or equity issue.
- ItemOpen AccessAn analysis of the perceived effectiveness of remuneration committees in deciding on executive compensation in South African listed companies(2009) Penkin, Kenneth David; Wormald, Michael; Cramer, PeterThis thesis will examine the administration of executive compensation in listed companies in South Africa in order to understand the background to the topical emotion expressed by the public about the quantum of executive earnings. The Thesis attempts to explain how approaches are made to these vast payments. It commences with the history of the management of executive compensation. Before the 1990s, disclosure of directors' emoluments was limited to one amount. Companies suffered losses due to the Agency Theory where executives dominated boards. With the introduction of remuneration committees and corporate governance, control was moved to a committee of the board of -non-executive directors (a remuneration committee). The purpose of this research was to ascertain whether such a committee is effective. Interviews were held with leading executives and an analyst. An electronic survey was dispatched to the chief executive officers and chief financial officers of a large selection of listed companies. The results of the research are summarised and conclusions expressed on all such views with the addition of limited input of the author's views. The question requires an examination of the effectiveness of remuneration committees. Some suggestions are also made as to future research and actions which may be conducted. This thesis shows that remuneration committees are not as effective as they should be and will explain why this is so.
- ItemOpen AccessAn application of the Piotroski F-Score to the South African market(2012) Attwood, Michael Richard; Correia, CarlosThis paper examines whether application of the Piotroski F Score (Piotroski, 2000), to the South African market is feasible and whether or not the distribution of returns earned by an investor can be shifted upward through use of this investment screen.
- ItemOpen AccessAre South African directors able to earn abnormal returns by trading in their companies shares?(2016) Ismail, Ameera; Kruger, RyanThis paper investigates whether South African directors are able to earn abnormal returns by trading in their companies' shares. An event study methodology was used based on the Capital Asset Pricing Model for director's trades during the period 2009 to 20 12. The results suggest sales transactions are associated with a greater market reaction than purchases. A better market indication is received from in directly beneficial trades than directly beneficial, specifically for sales. Upon further analysis, we find significantly higher abnormal returns for larger value trades. For purchases, single director trades provide a stronger market reaction than multiple director trades. In contrast, sales transactions provide a stronger signal when they are from multiple directors than single directors
- ItemOpen AccessAre there benefits to diversification across the largest African stock markets?(2016) De Jesus, Carlos; De Jager, PhillipThis study examines the co-movements of selected African stock exchanges, including Nigeria, Morocco, Egypt and South Africa, as well as the USA, in local currency and in USDt erms, for the period January 2004 to June 2014. The study sheds light on African market cointegration before, during, and post the financial crises of 2007/2008 to identify whether there are benefits to diversification in stock exchanges across Africa and how this has changed over time. Only the four biggest exchanges are examined, to eliminate the effects of illiquidity and ensuring the size of indices used result in conclusions that are practical to investors. This study looks at short and long term relationships using correlation, cointegration, and the direction of the relationships using causality tests. It finds low correlations between all African exchanges and the USA, with the exception of South Africa, which did show significant correlation with the USA. We find no consistent cointegration relationships over the periods tested. There are no consistent causality relationships between the various countries. The implication of these results are that there are likely benefits to diversification across the four African exchanges examined.
- ItemOpen AccessAn assessment of the style and performance of South African institutional fund managers(2013) Moore, David; Van Rensburg, PaulThis paper aims to expand on the growing area of fund style classification and benchmarking research in developed markets by extending such analyses to the South African context. ... A differentiating feature of this study is both the style indices used and the sample of fund manager return data in the South African context. The style indices used were sourced from A-DEX, which unlike those used in Scher and Muller (2005) comprise a greater sample of JSE listed companies and are fully tradable. Furthermore, the data sample compiled by RisCura Solutions (Pty) Ltd and contains returns from a total of sixty South African institutional fund managers. ... The current study analyses one of the largest samples of institutional manager return data in the South African context.
- ItemOpen AccessCapital structures under hyperinflation : the Zimbabwean experience(2009) Chiwandamira, D P; Chivaka, RichardAn essential part of an economy of developing and less developed nations lies in the establishment of a set of financial markets. In these financial markets companies are able to determine their capital structure by making rational decisions on whether to look internally or externally for financing. The study analysed the capital structures with a view of determining the extent of the applicability of capital structure theories to listed companies that are operating under a hyper inflation. The aim of the study was to verify the theoretical findings and predictions about determinants of capital structure. There is extensive literature on capital structure theories and their validity, Miller and Modigliani (1958), Ross (1977), Myers (1984 and 1977), Myers and Majluf (1984), and others, which have focused on why firms opt for certain capital structures. These studies have been conducted in stable macro economic environments of developed, developing, and least developed countries. There has been no in-depth study on the choices of capital structure that has been done in an unstable economy that is characterised by hyper inflation, such as Zimbabwe. As a step to understanding the rational and choices of capital structure in a hyperinflationary environment, a sample of eight companies listed on Zimbabwe Stock Exchange, which has a total of seventy five listed companies, was selected. Size, tangibility, profitability, and non-tax debt shield were the determinants of capital structure that were used. Debt to equity ratio was also used to analyse the companies, sectors they fall in and an overall analysis. The objective of the research was to test the validity and applicability of the conventional capital structure theories in the Zimbabwean environment between 1998 and 2006. In the literature review, the research presents an overview of four main capital structure theories namely; trade-off, signalling, pecking order and agency theory. The research critically examined capital structures of eight listed companies in Zimbabwe that have been operating under hyper inflation. The comparison of capital structures of companies in different sectors was done to determine if there was any link between the choice of a particular capital structure mix and the sector the company was operating in. The impact of interest rates was also taken into account in the research to determine the effect under the same environment. Zimbabwe has experienced very high levels of inflation from 2000 with recent official statistics indicating inflation to be 100,580.2% as of end of January 2008. This figure is widely perceived as understated as the basket of good used in the calculation is based on government controlled prices. According to the IMF the real inflation figure taking into account the "black market" prices is estimated at 150,000%. This presentation will not delve into the debate of the definition of hyperinflation but the evidence points out a hyperinflationary environment by all accounts. To conduct the research, inflation adjusted financial reports dating from 1998 to 2006 of eight listed companies on the Zimbabwe Stock Exchange were analysed.
- ItemRestrictedCash flow optimazation through inventory management improvements at Atlantis foundries(2013) Goebel Johanna Marita; West, DarronInvestor focus has shifted in last decade from a mere earnings related attention to a cash emphasis finding its expression in the frequent mention of proverbs such as "Cash is king" in daily newspapers. The realization that reported earnings are in a large extent subject to accounting decisions based on the applied GAAP brought cash increasingly in shareholder focus. Capital commitments in the manufacturing environment, as well as an original equipment manufacturer (OEM) buyer market in the global automotive components industry, cause corporations to focus on inventory management in order to improve their cash position. At the same time, tight delivery targets demand a higher delivery readiness at low stock at low stock levels from corporations. A case study on castings manufacturer Atlantis Foundries (AF) located in Atlantis, South Africa, has been undertaken to prove a historical correlation between inventory developments and a deterioration in the net cash position. Based on that finding, a case specific set of key performance indicators (KPI) has been developed in order to measure improvements in inventory management measures and their impact on cash flow.
- ItemOpen AccessCEO pay ratios and company performance : a study of JSE-listed consumer goods and services companies(2016) Urson, Michael; Toerien, FrancoisThe disparity in remuneration between company CEOs and other employees is a topical and highly controversial issue globally. Theoretically, there are two explanations for this pay disparity - tournament theory and behavioural theory. Tournament theory says that employees are more motivated to compete with a larger pay gap, while the behavioural theories say that employees feel inadequate and thus demotivated in the presence of a larger pay gap, resulting in poorer performance. In response to growing concerns about the pay gap, new legislation in the USA has required companies to disclose their pay ratios1 in their financial statements, which is also likely to come to South Africa. As a means to explore CEO pay ratios in a South African context, a study of the determinants and performance effects of companies' CEO pay ratios was conducted in the Consumer Goods and Consumer Services subsectors on the JSE. Data was collected on companies for the period 2006 to 2014 and pay ratios were estimated for each company where the data allowed. Due to the complexity of CEO remuneration, three different pay ratios were calculated, which differed in how long-term incentive payments were treated in each case. Using the same method as Shin, Kang, Hyun, & Kim (2015) used in their South Korean study, three different analyses were conducted. Firstly, the factors determining pay ratios were analysed in a regression analysis, which found CEO tenure, companies' future investment opportunities and company size to be key determinants of pay ratios. Secondly, the deviations from companies' expected pay ratios were regressed against subsequent company performance to see whether CEOs being paid the, "wrong," amount relative to employees affects company performance. It was found that deviations from the expected pay ratio negatively affected company performance, and there was no difference in performance between under- and over-paying CEOs relative to employees. Finally, as a means to test whether tournament theory or behavioural theories better explain the CEO pay ratio in South Africa, subsequent company performance was regressed against the three different pay ratios calculated. It was found that there is little evidence of a relationship between subsequent company performance and the pay ratio, except in the case where performance is measured by return on assets, and the pay ratio is measured such that it excludes long-term incentives completely. The relationship in this case was found to be positive, indicating that tournament theory better explained the relationship between pay ratios and company performance. One of the limitations of this study was the limited availability of data, which gives rise to self-selection bias.
- ItemOpen AccessThe changing landscape of long-term share-based compensation in South Africa: an investigation into recent developments in employee incentive used by companies listed on the Johannesburg Stock Exchange(2012) Mavrodinov, Nikolay Stefanov; Holman, GlenFor several decades equity-based compensation has been used as a tool to align the incentives of company executives and employees with those of the company shareholders. For instance globally, during the 1990's, there was and explosion in the issuance of employee stock options. This served several purposes, namely - to motivate managers in the pursuit to increase company value and achieve long-term goals, as a retention tool for talented staff and also as a way for cash strapped young companies to reward employees without the need to divert cash from operating activities.The objective of this study is to examine the current long-term share-based incentive schemes used by JSE listed companies based on data from 50 large and mid cap companies. It aims to identify trends in terms of prevalent scheme types, average scheme size relative to issued share capital, settlement methods, valuation models used, construction of model inputs and the use of performance conditions.
- ItemOpen AccessThe characteristics of successful and unsuccessful resolution of corporate failure on the Johannesburg Stock Exchange(1998) Karani, Pascal; Uliana, EnricoThe study analyses the incentives and mechanisms of failing firms on the Johannesburg Stock Exchange that restructure their claims following a decline in performance and value. The study also analyses patterns for restructuring of failing firms. The sample contains firms that were delisted between 1986 and 1996. Firms that were delisted and re-instated number 28 and constitute the sample for firms that restructured successfully their claims. Firms that were delisted on the JSE following an unsuccessful debt restructuring number 32 and constitute the sample for unsuccessful firms. The study finds that firms that restructured successfully on the JSE have more intangible assets, less bank debt and few creditors. This finding means that South African corporate restructuring activities relies more on assets characteristics rather than financial characteristics.
- ItemOpen AccessCluster management synergy valuation: Synthesis and illustration of a discounted cash flow synergy valuation model for cluster management organisations(2016) De Kock, Neil; Rajaratnam, Kanshukan; Kruger, RyanThe practice of cluster management has become an integral component to the modern cluster business environment. This research develops a framework for the valuation of synergies generated by a cluster management organisation (CMO) to be used as either a method of (ex-post) management evaluation or (ex-ante) for capital budgeting purposes. The theoretical framework is synthesised from clustering and business alliance (predominantly Mergers and Acquisitions (M&A) and Joint Ventures (JV)), literature. The case of the South African Furniture Initiative (SAFI) was used to inform model development and to illustrate practical application of the theoretical synergy valuation model. The case study found that the synergy valuation model faces problems with practical application due to the wide variety of activities commonly associated with CMO goals and objectives. It concludes that even though a synergy framework would provide a useful tool for evaluation and capital budgeting, further research is required to develop a more accurate method of impact estimation.
- ItemOpen AccessA comparative and critical analysis of the corporate governance structure of South Africa(2002) Louw, Hanneke; Uliana, EnricoThe King Reports, as well as legislative developments culminating from these reports, are aimed at enhancing corporate governance standards in South Africa and aligning them with international best practice. Notwithstanding these measures, a number of significant failures in corporate governance rocked South African business during this period, severely denting the perception of the quality and standard of corporate governance. Given the importance of international investors' confidence, a continuous review of the South African corporate governance structure is imperative. This dissertation aims at performing a comparative and critical analysis of the corporate governance structures in South Africa. The objective is to seek alternative or improved corporate governance mechanisms that will enhance the current dispensation. For this purpose, various international corporate governance models are analysed and their monitoring mechanisms identified. The possibility of utilising some of these mechanisms to enhance corporate governance in South Africa is examined. The institutional environment in South Africa (I.e. the controlled shareholder environment, inactive and illiquid markets) prevents the market model mechanisms of the US and UK from playing a greater monitoring role. Further market model mechanisms aimed at promoting the independent monitoring of management have to a large extent been incorporated into the South African corporate governance framework. However, the ongoing failures of large listed and unlisted companies, including smaller banks in South Africa, that appear to indicate poor levels of, or ineffective, corporate governance, calls for the enforcement and acceptance of the monitoring guidelines set out in the King Reports. The German and Japanese bank governance model has a limited application in South Africa. The level of bank debt financing is generally lower than equity financing, thereby restricting banks' ability to become monitors through their debt control rights.