Corporate governance, affirmative action and firm value in post-apartheid South Africa: a simultaneous equation approach

The post-Apartheid South African corporate governance (CG) model is a unique hybridisation of the traditional Anglo-American and Continental European-Asian CG models, distinctively requiring firms to explicitly comply with a number of affirmative action and stakeholder CG provisions, such as black economic empowerment, employment equity, environment, HIV/Aids, and health and safety. This paper examines the association between a composite CG index and firm value in this distinct corporate setting within a simultaneous equation framework. Using a sample of post-Apartheid South African listed corporations, and controlling for potential interdependencies among block ownership, board size, leverage, institutional ownership, firm value and a broad CG index, we find a significant positive association between a composite CG index and firm value. Further, our two-stage least squares results show that there is also a reverse association between our broad CG index and firm value, emphasising the need for future research to adequately control for potential interrelationships between possible alternative CG mechanisms and firm value. Distinct from prior studies, we find that compliance with affirmative action CG provisions impacts positively on firm value. Our results are consistent with agency, legitimacy, political cost, and resource dependence theoretical predictions. Our findings are robust across a number of econometric models that adequately control for different types of endogeneity problems, and alternative accounting, and market-based firm valuation proxies

The Simultaneous Disclosure of Shareholder and Stakeholder Corporate Governance Practices and their Antecedents

In making corporate governance (CG) related disclosure, firms may solely focus on shareholders or may broaden their scope of disclosure to serve other stakeholders as well. This study examines whether there are differences in the disclosure of shareholder and stakeholder corporate governance (CG) practices. Based on a hand-collected dataset of 1110 firm-years in South Africa (SA), and a disclosure index using 72 CG provisions from the King III report of CG, we find that the disclosure of stakeholder CG practices is relatively higher than that of shareholder CG practices. Our evidence suggests that foreign ownership, institutional ownership, racial diversity, and gender diversity increase total voluntary disclosure. In contrast, CEO age decreases total voluntary disclosure. Also, whilst foreign ownership, institutional ownership, gender diversity and racial diversity increase both shareholder and stakeholder CG disclosures, CEO age has a negative relationship with both shareholder and stakeholder CG disclosures. Further, board size reduces shareholder disclosure but not stakeholder disclosure. Our results further indicate that, ceteris paribus, the extent of shareholder CG disclosure relative to stakeholder CG disclosure is (1) lower with board size, gender diversity and racial diversity and (2) higher with the level of institutional ownership. Our findings are robust across a raft of econometric techniques

Financial market development and corporate financing: evidence from emerging market economies

Purpose – The purpose of this paper is to examine the effects of financial market development on corporate financing of emerging market firms to ascertain whether or not interactions in the financial market has any impact on the available choice of financing of firms. Design/methodology/approach – Panel data covering the period 1990-2006 for 34 emerging market economies were analyzed within the framework of Pesaran's dynamic fixed effect model and the pooled mean group estimator to capture the short- and long-run effects of the covariates on the endogenous variables. Findings – The findings of the research indicate significantly that the direction and magnitude of the impact of financial market development and macroeconomic variables on capital structure vary with the maturities of the security issue. It is also documented that firm level variables such as profitability, investment opportunity, asset tangibility and risk are equally important in predicting firms' capital structure decisions. The findings also indicate that economy wide variables such as gross domestic product per capita are significant predictors of financing choices of firms. The results of the study generally support existing literature on the impact of financial market development, macroeconomic variables and certain firm level factors on capital structure. Originality/value – The paper considers unique data from emerging market economies over a 17-year period.Corporate finances, Emerging markets, Financial markets, Macroeconomics