Faculty of Science School of Statistics and Actuarial science 9802374m nhuang@glenrandmib.co.za / The purpose of this research report is to review the embedded value concept and to examine its practical use in South Africa. Important recent developments relating to the embedded value concept are discussed and compared with the existing embedded value concept. These developments include fair value accounting, market-consistent embedded value and the European Embedded Value Principle. In the second part of the report, the disclosure of the embedded value information of four major South African life assurance companies is examined. It was found that the market capitalisations of these companies were smaller than their embedded values for most of the period under the investigation. Reasons for this phenomenon are considered and tested against the data available. It was found that the risk discount rates used by some life assurance companies in calculating their embedded values may be too low. It appears that a ‘herding’ tendency exists among South African life assurance companies when selecting risk discount rates for the embedded value calculation. It is suggested that a more market consistent approach for the embedded value calculation and a better disclosure for the embedded value reporting should be considered by life assurance companies in South Africa. This should improve investors’ understanding and confidence in the embedded value disclosed, which in turn should help narrow or eliminate the discount of the market capitalisation to the embedded value observed in the market.

Investors make investment decisions based on their risk appetite. Furthermore, when such investors consider shares as part of their investment portfolio, these investors will consider the risk profile of the company it is interested in. By taking on a certain level of risk, shareholders expect to be commensurately compensated. Shareholders of companies with relatively higher debt levels in their capital structure and therefore higher financial risk, require a relatively higher return on their investment in order to compensate for such additional risk taken. Shareholders expect return in the form of dividend pay-outs, and capital growth in the share price. A positive correlation is therefore expected between the debt levels of a company and the total return to their shareholders, i.e. the sum of the dividend pay-outs and the capital growth in the share price, also referred to as total shareholder return (TSR). The focus of this study is on the platinum industry in South Africa, as this industry is vital to the South African economy in terms of job creation and earner of foreign exchange as South Africa dominates the world production of platinum. The purpose of this study is to investigate whether there is a correlation between the debt levels and the total shareholder return (TSR) of platinum companies listed on the JSE Ltd. Quantitative research techniques were used to address the research problem, making use of secondary data and rank correlation-based research. Firstly, the debt-to-equity ratio for each company was calculated based on book values. Secondly, the TSR of each company was calculated considering the dividends received and capital growth in share price. The correlation between the TSR and the debt-to-equity ratio was determined using Spearman’s rank correlation coefficient. The results were inconclusive, i.e. no, negative and positive relationships where the relationship is for the first 12 years not significant and for the last two years significant. Therefore the final conclusion is that this study is inconclusive to support or to reject the conceptual scope of the study in that risk is concomitant to return, i.e. returns compensate for risks, therefore higher debt levels require higher total shareholder returns (and vice versa). This study contributes to the literature on capital structure decisions from a South African platinum company perspective. The core audience will be the management of South African platinum companies considering changes in their capital structure as well as investors considering investing into a listed platinum company. / MCom (Management Accountancy), North-West University, Potchefstroom Campus, 2015

Investors make investment decisions based on their risk appetite. Furthermore, when such investors consider shares as part of their investment portfolio, these investors will consider the risk profile of the company it is interested in. By taking on a certain level of risk, shareholders expect to be commensurately compensated. Shareholders of companies with relatively higher debt levels in their capital structure and therefore higher financial risk, require a relatively higher return on their investment in order to compensate for such additional risk taken. Shareholders expect return in the form of dividend pay-outs, and capital growth in the share price. A positive correlation is therefore expected between the debt levels of a company and the total return to their shareholders, i.e. the sum of the dividend pay-outs and the capital growth in the share price, also referred to as total shareholder return (TSR). The focus of this study is on the platinum industry in South Africa, as this industry is vital to the South African economy in terms of job creation and earner of foreign exchange as South Africa dominates the world production of platinum. The purpose of this study is to investigate whether there is a correlation between the debt levels and the total shareholder return (TSR) of platinum companies listed on the JSE Ltd. Quantitative research techniques were used to address the research problem, making use of secondary data and rank correlation-based research. Firstly, the debt-to-equity ratio for each company was calculated based on book values. Secondly, the TSR of each company was calculated considering the dividends received and capital growth in share price. The correlation between the TSR and the debt-to-equity ratio was determined using Spearman’s rank correlation coefficient. The results were inconclusive, i.e. no, negative and positive relationships where the relationship is for the first 12 years not significant and for the last two years significant. Therefore the final conclusion is that this study is inconclusive to support or to reject the conceptual scope of the study in that risk is concomitant to return, i.e. returns compensate for risks, therefore higher debt levels require higher total shareholder returns (and vice versa). This study contributes to the literature on capital structure decisions from a South African platinum company perspective. The core audience will be the management of South African platinum companies considering changes in their capital structure as well as investors considering investing into a listed platinum company. / MCom (Management Accountancy), North-West University, Potchefstroom Campus, 2015

Thesis (MBA (Business Management))--University of Stellenbosch, 2010. / ENGLISH ABSTRACT: Market capitalisation is a measure of size and prestige for various JSE listed companies. Changes in the Companies Act in relation to the capital maintenance provided companies the opportunity to repurchase their own shares. South Africa’s legislation is different to those of its international peers which resulted in a different interpretation of how to deal with treasury shares and resultantly impacted on the valuation of market capitalisation. This study was undertaken with the aim of establishing if there are differences in the reporting of closing balances of the number of shares of the company and group as provided by the share analysis section of the annual financial reports which is required by the JSE Listing Requirements. Thirty-four companies were selected specifically, analysed and compared to information as per the University of Stellenbosch Business School share program to determine whether differences arise and to determine the impact that this has on the market capitalisation valuation and explanations for deviations. The results reflected that the non reconciliation of closing balances of the group was primarily due to the non consolidation of trusts, subsidiaries and treasury shares and companies not adhering to the listing requirements as per section 3.3 of the shareholders’ spread to adequately disclose treasury related transactions. The study also found ambiguity in accounting standards IAS 1 in that they did not provide conclusive guidance in terms of the disclosure of share movements in rand value and units to reconcile between opening and closing balances of all treasury shares. Changes in the tax legislation will in future negate the reason for share repurchases through the subsidiaries or trusts which will have an impact on the reconciliation process going forward. Ultimately the accounting profession and JSE will have to implement standardised guidelines to ensure that the reporting of treasury shares is simplified to ensure that market users’ understanding of treasury activities and market capitalisation valuation can be improved.

This paper examines the relationship between ownership concentration and corporate performance amongst listed South African industrial firms. The study‘s theory base is rooted in the principal-agent problem and seeks to investigate the theory‘s applicability to the South African context. Descriptive statistical analysis is performed in line with existing studies (Demsetz&Lehn, 1985; Demsetz&Villalonga, 2001; Morck et al., 1988). The percentage sums of the five and ten largest shareholders as well as firm market capitalisation are treated as independent variables. The financial measures of Tobin‘s Q and return on capital employed (ROCE) form the dependent variables as a basis for measuring firm financial performance. The results suggest that there is no statistically significant relationship between ownership concentration and firms‘ financial performance in the case of Tobin‘s Q or ROCE during the survey period. However, a statistically significant positive relationship between firms‘ market capitalisation and financial performance is found. The study tentatively suggests that the separation of ownership from control does not appear to have any negative behavioural implications for the theory of the firm in the South African context. Future research is encouraged to confirm these results. / Dissertation (MBA)--University of Pretoria, 2012. / Gordon Institute of Business Science (GIBS) / unrestricted

Sammanfattning Titel: Sambandet mellan kapitalstruktur och börsvärde: En jämförande studie mellan fastighetsbolag och övriga Large Cap-företag på Stockholmsbörsen Författare: Magnus Hofsberger, Albin Seger Handledare: Katarina Eriksson Bakgrund: Sambandet mellan kapitalstruktur och företagsvärde har sedan Modigliani och Miller (1958) publicerade irrelevansteoremet varit ett hett ämne. Än idag finns det dock inget entydigt svar på hur detta samband ser ut. Diskussionen har även på senare tid blivit ytterst aktuell då flera branscher på den svenska marknaden har ökat sin skuldsättning. Bland dessa branscher är det framförallt fastighetsbranschen som drivit på utvecklingen. Tidigare forskning är oenig och studien upplever att det finns ett kunskapsgap kring hur sambandet mellan kapitalstruktur och börsvärde ser ut på den svenska marknaden. Syfte: Studiens syfte är att undersöka och analysera hur kapitalstrukturen hos bolag noterade på Large Cap på Stockholmsbörsen påverkar deras börsvärde. Dessutom syftar studien att undersöka eventuella skillnader i detta samband mellan fastighetsbolag och övriga Large Cap-företag. Metod: För att besvara studiens frågeställningar och syfte har studien använt sig av en kvantitativ forskningsmetod med en deduktiv ansats samt en paneldataregression för perioden 2018-2022. Resultat: Studien fann att sambandet mellan kapitalstruktur och börsvärde negativt och statistiskt signifikant. Dummyvariabeln för fastighetsbolag var inte statistiskt signifikant. Studien kan därmed konkludera att fastighetsbranschen inte skilde sig från resterande Large Cap-företag. / Abstract Title: The relationship Between Capital Structure and Market Capitalisation: A comparative study between Real Estate Companies and Other Large Cap Firms on the Stockholm Stock Exchange. Authors: Magnus Hofsberger, Albin Seger Supervisor: Katarina Eriksson Background: The relationship between capital structure and market capitalisation has been a hot topic ever since Modigliani and Miller (1958) published the irrelevance-theorem. There is, however, to this day no definite answer on what this relationship looks like. The discussion has become particularly relevant in recent times as several industries in the Swedish market have increased their leverage. Among these industries, it is primarily the real estate sector that has been driving the trend. Previous research has been inconclusive, and the study has identified a knowledge gap regarding the relationship between capital structure and market capitalisation in the Swedish market. Purpose: The purpose of the study is to investigate and analyze how the capital structure of companies listed on the Large Cap segment of the Stockholm Stock Exchange affects their market value. Additionally, the study aims to examine any differences in this relationship between real estate companies and other Large Cap firms. Method: To address the research questions and the purpose of the study, a quantitative research method with a deductive approach in addition to a paneldataregression for the period 2018-2022 was used. Results: The study found that the relationship between capital structure and market capitalisation was negative and statistically significant. The dummy variable for real estate companies was not statistically significant. The study can therefore conclude that the real estate sector did not differ from the remaining Large Cap firms.

Till följd av redovisningens utveckling och att olika länder har olika regleringar, har det blivit problematiskt att harmonisera och standardisera redovisningsinformation världen över. För att lösa det problemet lanserade FASB och IASB nya redovisningsregleringar, där t.ex. goodwillavskrivning ersattes med nedskrivningsprövning. I och med de nya regleringarna har det uppstått en diskussion om huruvida goodwillnedskrivning ger värderelevant information till investerare. Det är det som är syftet med den här studien; finns det ett samband mellan goodwillnedskrivning och börsvärde inom industribranschen i Sverige? Således om goodwillnedskrivning används av investerare vid företagsvärdering för räkenskapsåren 2005–2017. Studien har en kvantitativ metod och en deduktiv ansats. Datamaterialet har hämtats från Retriever Business samt direkt från bolagens årsredovisningar. Datamaterialet har analyserats genom en multipel regressionsanalys. Den multipla regressionsanalysen resulterade i ett negativt signifikant samband mellan börsvärde och goodwillnedskrivning, således är goodwillnedskrivning ett värderelevant mått för investerare inom industribranschen i Sverige. / Due to accounting development and different regulations in different countries, it has become difficult to harmonise and standardise accounting information worldwide. To solve this problem FASB and IASB launched a new regulation, where goodwill amortisation was replaced with impairments. With the new regulation, a discussion has arisen as to whether goodwill impairments provide value relevant information to investors. The purpose with this study is to evaluate if there is a relation between market value and goodwill impairments within the industrial sector in Sweden. Thus, if goodwill impairments are used by investors at company valuation for the financial years of 2005-2017. This study has a quantitative method and a deductive approach. The data have been retrieved from Retriever Business and from the company’s annual reports. The data have then been analysed via a multiple regression. The multiple regression showed a negative significant relation between market value and goodwill impairment, thus goodwill impairments are value relevant information for investors within the industrial sector in Sweden

This thesis examines the links between economic time-series innovations and statistical risk factors in the UK stock market using principal components analysis (PCA) and the general-to-specific (Gets) approach to econometric modelling. A multi-factor risk structure for the UK stock market is assumed, and it is found that the use of economic 'news' (innovations), PCA, the Gets approach, and different stock grouping criteria helps to explain the relationships between stock returns and economic variables. The Kalman Filter appears to be more appropriate than first-differencing or ARIMA modelling as a technique for estimating innovations when applying the Gets approach. Different combinations of economic variables appear to underpin the risk structure of stock returns for different sub-samples. Indications of a possible influence of firm size are found in principal components when different stock sorting criteria are used, but more definite conclusions require simultaneous sorting by market value and beta. Overall it appears that the major factor affecting the identification of specific explanatory economic variables across different sub-samples is the general economic context of investment. The influence of firm size on stock returns seems in particular to be highly sensitive to the wider economic context. There is an apparent instability in the economic underpinnings of the risk structure of stock returns (as measured by principal components) that might also be a result of changing economic conditions.

Today, the capital structure is an established research area in economics. Capital structure refers to the relationship between equity and liabilities, which through history has been explored through many different aspects. Capital structure is influenced by several factors and the results is ambiguous as to which of these factors are related to capital structure and which can explain the capital structure. The purpose of this study is to investigate the relationship between the share price and capital structure as well as investigate which control variable is correlating with capital structure. The study is of quantitative form, where data was collected between 2009-2017 from the 15 largest companies, set at market value, from Large Cap and Mid Cap listings from Nasdaq Stockholm. The result of the study shows that the share price and capital structure have a positive relationship for both lists, also share price could explain variations in the capital structure. The control variables result differ significantly depending on the list and variables. Profitability is the variable that explains the capital structure best, especially on the Large Cap list. Company size has no connection with the capital structure, and the explanation rate is reasonably comparable to share price as a single independent variable. Firm age has no connection with the capital structure and only affects the explanation negatively. / Idag är kapitalstruktur ett etablerat forskningsområde inom företagsekonomi. Kapitalstruktur avser förhållandet mellan eget kapital och skulder vilket har genom tiden utforskats ur mängder av aspekter. Utformningen av kapitalstrukturen påverkas av flera faktorer och idag är empirin tvetydig angående vilka av dessa faktorer som har samband med kapitalstrukturen och vilka som är kan förklara kapitalstrukturen. Syftet med denna studie är att undersöka sambandet mellan aktiekursen och kapitalstrukturen samt undersöka vilka kontrollvariabler som korrelerar kapitalstrukturen. Studien är av kvantitativ form och data samlades in mellan 2009–2017 från de 15 största företagen, sett till börsvärde, från Large Cap och Mid Cap listorna från Nasdaq Stockholm. Resultatet från studien visar att aktiekursen och kapitalstrukturen har ett positivt samband för båda listorna och att aktiekursen kan förklara variationer i kapitalstrukturen. Kontrollvariablerna skiljer sig i resultatet markant beroende på lista och variabel. Lönsamhet är den kontrollvariabeln som förklarar kapitalstrukturen bäst bland kontrollvariablerna, speciellt på Large Cap listan. Företagsstorlek har inget samband med kapitalstrukturen och ökar förklaringsgraden någorlunda jämförelsevis med aktiekurs som ensam oberoende variabel. Företagsålder har inget samband med kapitalstrukturen och påverkar förklaringsgraden endast negativt.

The thesis examined the comprehensive causal relationship between the banking sector, stock market development and economic growth in a multi-variate framework using Zimbabwean time series data from 1988 to 2015. Three banking sector development proxies (total financial sector credit, banking credit to private sector and broad money M3) and three stock market development proxies (stock market capitalization, value traded and turnover ratio) were employed to estimate both long and short run relationships between banking sector, stock market and economic growth in Zimbabwe. The study employs the vector error correction model (VECM) as the main estimation technique and the autoregressive distributed lag (ARDL) approach as a robustness testing technique. Results showed that in Zimbabwe a significant causal relationship from banking sector and stock market development to economic growth exists in the long run without any feedback effects. In the short run, however, a negative yet statistically significant causal relationship runs from economic growth to banking sector and stock market development in Zimbabwe. The study further concludes that there is a unidirectional causal relationship running from stock market development to banking sector development in Zimbabwe in both short and long run periods. Nonetheless this relationship between banking sector and stock markets has been found to be more significant in the short run than in the long run. The thesis adopts the complementary view and recommends for the spontaneity implementation of monetary policies as the economy grows. Monetary authorities should thus formulate policies to promote both banks and stock markets with corresponding growth in Zimbabwe’s economy. / Business Management / M. Com. (Business Management)