A Research Report presented to the Graduate School of Business of the University of Stelienbosch in partial fulfilment of the requirements for the degree of Master of Business Administration / Thesis (MBA)--Stellenbosch University, 2006. / ENGLISH ABSTRACT: Certain companies in South Africa have dual classes of shares listed on the JSE Securities Exchange i.e. ordinary shares and N shares. Ordinary listed shares, nonmally holds one vote per share, are referred to as superior voting shares. Restricted voting shares have restricted voting benefits to the shareholders, in some cases one vote casting for thousand shares held. Some companies have listed N shares on the JSE Securities Exchange; these are the South African shares with restricted voting powers. A total of 34 companies have issued low voting shares in South Africa, 2 companies started as far back as 1990. Naspers Limited is the only company that has listed only low voting shares. This study investigates the justification for companies issuing low voting shares by comparing the price performance of these shares and also investigates the justification for shares with restricted voting rights. Tests are conducted to detenmine whether a premium is paid for South African superior voting shares by comparing the share prices of superior voting shares and restricted voting shares on the same day of trading on the JSE Securities Exchange. Various parties in the South African business community have opinions and arguments against and in favour of low voting shares; the reasons for the issuing of low voting shares are under scrutiny. In addition to the above mentioned tests the factors influencing the voting premium have also been investigated. The benefits of restricted shares are also investigated. The results of tests conducted on dual share classes trading in South Africa are compared with the results of similar studies on share price information of dual share classes trading on international stock exchanges. The findings of the study are: Ordinary listed shares are trading at a premium comparing to restricted voting shares, in South Africa the premium is calculated at 9.83%; The payment of dividends to shareholders does not influence the share premium; The ratio of ordinary shares in relation to total shares issued does not influence the VRP of a company; The capitalisation of company, in other words the outstanding number of ordinary shares valued at the market price, does not influence the voting premium; and Companies being controlled by families or major shareholding groups are more likely to issue shares with restricted voting rights; The conclusion of the study is that the limited benefits are offered to the owners of the companies that have issued the dual classes of shares and not to the investors' public. These owners of superior voting shares have utilised restricted voting shares to remain in control of the companies and get access to relative cheap investors funding. Restricted voting shares' popularity declined to the end of 1992, the phenomenon is consistent with demise of restricted voting shares in France / AFRIKAANSE OPSOMMING: Sommige Suid Afrikaanse genoteerde maatskappye het verskillende klasse aandele genoteer op JSE Securities Exchange. Daar word tel kens na gewone genoteerde aandele verwys as aandele met superieure stem reg, die aandele sal sonder uitsondering een stem hou vir elke uitgereikte gewone aandeel. In Suid-Afrika staan aandele met beperkte stem reg bekend as N-aandele. Die betrokke aandele het nie dieselfde stem reg voordele as gewone aandele nie en kan tot een stem per duisend uitgereikte aandele dra. 'n Totaal van 34 maatskappye het beide klasse aandele genoteer, Naspers Beperk is die enigste maatskappy wat slegs aandele met beperkte stemreg genoteer het. Die verhandeling ondersoek of daar enige geldige rede is vir die uitreiking van aandele met beperkte stem reg. 'n Ondersoek word geloods deur te kyk na die prysgedrag van die twee verskillende tipes aandele naamlik gewone en Naandele. Die redes vir enige prysafwykings word ook ondersoek. 'n Vergelykings tussen die aandelepryse van aandele met superieure stemreg en aandele met beperke stemreg (soos genoteer op die JSE Securities Exchange) word gedoen om te bepaal of aandele met superieure stem reg teen 'n premie verhandel. Verskeie partye het argumente en opinies teen en ten gunste van die gebruik van aandele met beperkte stemreg. die redes vir die uitreiking van aandele met beperkte stem reg word onder die vergrootglas geplaas. In Verdere ondersoek na die faktore wat verantwoordelik kon wees vir die premieverskil tussen aandeelpryse van aandele met superior stemregte en aandele met beperkte stemregte word ook gedoen. Daar word ook ondersoek of daar enige voardele is vir die uitreik van aandele met beperkte stemreg. Die studie sluit af met 'n vergelyking van die resultate in 'n Suid-Afrikaanse beleggingingomgewing met die resultate van soorgelyke studies wat gedoen is op aandeleinligting van verskeie intemasionale aandelebeurse waar aandele met beide superieure en beperkte stem reg genoteer is. Die bevindinge van die studie is as volg: Gewone genoteerde aandele (aandele met superieure stemreg) soos genoteer op die JSE Securities Exchange verhandel teen 'n premie van 9.83% oor die tydperk onder oorskou in vergelyking met aandele met beperkte stemreg. Die beta ling van dividende aan aandeelhouers speel geen rol op die grootte van die pryspremie in die verhandeling van gewone genoteerde aandele en aandele met beperkte stem reg. Die verhouding tussen gewone aandele in verhouding to totale aandele uitgereik speel nie 'n rol in die grote van die pryspremie nie; Die kapitalisasie van die maatskappye, met ander word die uitstaande gewone genoteerde aandele teen markprys, speel geen rol in die graolle van die pryspremie nie; en Die aandeelhouersstruktuur speel 'n ral in die uitreiking van aandele met beperkte stemreg. Maatskappye wat beheer word deur families of graot houermaatskappye is geneig om aandele met beperkte stemreg uit te reik. Die gevolgtrekking van die studie is dat aandele met beperkte stemreg wei voordele het, in die geval nie vir die breer beleggingspubliek nie maar wei vir persone of instansies in beheer van die spesifieke maatskappye met beide klasse aandele. Aandele met beperkte stemreg is gebruik am toegang te verkry tot goedkoop befondsing sander am beheer van die maatskappye te verloor. Aandele met beperkte stemreg se gewildheid het begin afneem, nie net in Suid-Afrika nie maar oak in Frankryk waar baie maatskappye besluil hel om weg Ie doen mel die soort aandele.

Thesis (MBA)--Stellenbosch University, 2001. / ENGLISH ABSTRACT: This study investigates the relationship between dividends and stock returns on the Johannesburg Stock Exchange (JSE). In this mini study project a regression model is used to investigate the relationship between dividend yield portfolios and stock returns. Each of these dividend yield portfolios are further subdivided into dividend stability portfolios which together with a regression model are used to investigate the relationship between dividend stability and stock returns on the JSE. It follows from this study that there is a non-linear relationship between the risk-adjusted returns and dividend yields. A significant finding of this study is the fact that there is an inverse linear relationship between the dividend yield and average stock returns for dividend paying portfolios on the JSE. Investors on the JSE appear to place a premium on capital gains as opposed to dividends. It follows from this study that there is an inverse correlation between dividend stability and the risk-adjusted return with the beta coefficient increasing as dividend stability decreases. Within a particular yield portfolio, it is evident that higher systematic risk is associated with shares with unstable dividend yielding histories. It is clear from the results that this dividend signalling is not limited to high yielding stocks alone. As dividends are not entirely controlled by managers, a low stable dividend yield could signal a low exposure to systematic risk to outsiders. / AFRIKAANSE OPSOMMING: In hierdie studie word die verband tussen dividende en aandeelopbrengste op die Johannesburgse Effektebeurs ondersoek. 'n Regressiemodel is in hierdie mini werkstuk gebruik om die verwantskap tussen dividend opbrengsportfolios en aandeelopbrengs te ondersoek. Elk van hierdie opbrengsportfolios is vervolgens verder verdeel in dividendstabiliteitsportfolios wat tesame met 'n regressiemodel gebruik is om die verband tussen dividendstabiliteit en aandeelopbrengs te bepaal. Dit volg uit hierdie studie dat daar 'n nie-lineêre verband tussen risiko aangepaste aandeelopbrengs en dividendopbrengs bestaan. 'n Noemenswaardige bevinding is die inverse lineêre verwantskap tussen dividend en gemiddelde aandeelopbrengs vir dividend betalende aandele op die Johannesburgse Effektebeurs. Dit blyk asof beleggers op die Johannesburgse Effektebeurs 'n premie plaas op kapitaalgroei ten koste van dividendopbrengs. Dit volg ook uit hierdie studie dat daar 'n inverse korrelasie is tussen dividendstabiliteit en risiko aangepaste aandeelopbrengs met die beta koëffissiënte wat toeneem soos dividendstabiliteit afneem. Binne 'n spesifieke dividendopbrengsportfolio is dit duidelik dat hoër sistematiese risiko geassosieer word met onstabiele historiese dividendopbrengste. Dit volg uit die resultate dat hierdie inligtingoordrag deur middel van dividende, nie beperk is tot hoë dividendopbrengs aandele nie. Aangesien dividende nie uitsluitlik deur bestuurders beheer word nie, kan 'n aandeel met lae maar stabiele dividendopbrengs, 'n boodskap van lae blootstelling aan sistematiese risiko aan die mark oordra.

The study investigates the relationship between stock market performance and business cycles in South Africa for the period 2002-2009 using monthly data. This is done by constructing a Vector Error Correction Model (VECM). The study specifies a business cycle model with the business cycle coincident indicator (BC) regressed against, the All Share Price Index (ALSI), Real Effective Exchange Rate (REER), Money Supply (M1), Inflation (CPIX) and the Prime Overdraft Rate (POR). The ALSI represents stock market performance whilst the rest of the variables are to enhance model specification. The study found a positive relationship between stock market performance and business cycles in South Africa. The results also indicated that business cycles are positively related to the lagged variable of the coincident indicator and money supply. In addition, the findings also reveal that BC is negatively related to interest rates and the real effective exchange rate.

M.Com. (Financial Economics) / This study investigates the best measure of extreme losses in the South African equity derivatives market, and applies this to estimate the size of a default fund for Safcom, the central counterparty (CCP) for exchange-traded derivatives in South Africa. The predictive abilities of historic simulation Value at Risk (VaR), Conditional VaR (CVaR), Extreme VaR (EVaR) calculated using a Generalised Extreme Value (GEV) distribution and stress testing are compared during historic periods of stress in this market. The iterative cumulative sum of squares (ICSS) algorithm of Inclan and Tiao (1994) is applied to identify significant and large, positive shifts in the volatility of returns, thus indicating the start of a stress period. The FTSE/JSE Top 40 Index Future (known as the ALSI future) is used as a proxy for this market. Two key periods of stress are identified, namely the 1997 Asian crisis and the 2008 global financial crisis. The maximum daily losses in the ALSI during these stress periods were observed on 28 October 1997 and 6 October 2008. For the VaR-based loss estimates, 2500 trading days’ returns up to 28 October 1997 and 2750 trading days’ returns up to 6 October 2008 is used. The study finds that Extreme VaR predicts extreme losses during these two historic periods of stress the most accurately and is consequently applied to the quantification of a default fund for Safcom, using 2500 daily returns from 5 June 2003 to 31 May 2013. The EVaR-based estimation of a default fund shows that the current Safcom default fund is sufficient to provide for market losses equivalent to what was suffered during the 2008 global financial crisis, but not sufficient for the magnitude of losses suffered during the 1997 Asian crisis.

Empirical evidence indicates that companies that reduce information asymmetry by increased voluntary disclosures achieve several benefits, such as lower cost of capital, improved pricing, and liquidity of their shares. Despite the possibility of such benefits, many studies report varying degrees of voluntary disclosure behaviour that is attributable to various factors. Recent studies indicate that investors’ investment horizon has a significant effect on actions taken by management. Companies with predominantly short-horizon investors spend less on research and development, invest in shorter-term projects that are less profitable than longer-term projects, and are more likely to manipulate earnings to meet short-term earnings expectations. This study investigates whether investors’ investment horizon has an effect on the quality of companies’ information environment. Long-horizon investors should be familiar with their investee company’s risks and rewards, using both their own internal information gathering processes and the cumulative information disclosed by management over time. Moreover, over the course of a long-term relationship, they can become familiar with management’s capability to deliver long-term sustainable returns. Long-horizon investors should therefore be less concerned with short-term fluctuations of earnings and management’s public explanations and disclosures thereof. I hypothesise that higher (lower) proportions of long-horizon investors are associated with lower (higher) quality voluntary disclosure. The shareholder familiarity hypothesis was tested in this study, using an ordinary least squares regression. Voluntary disclosures were observed via the channel of companies’ websites. A checklist was compiled of best practices for online investor relations, and content analyses were conducted on the websites of 205 companies listed on the Johannesburg Stock Exchange. Shareholder familiarity was proxied by shareholder stability, measured over nine years. The stability measure was lagged by one year to create a temporal difference between the shareholder profile and disclosure behaviour. I found that companies with a profile of unstable investors that are larger, younger, dual-listed and have a Big4 auditor have higher quality online investor relations practices. The hypothesis of a negative association between shareholder familiarity and voluntary disclosure quality is therefore accepted. This study extends the theory on information asymmetry and voluntary disclosure by providing evidence supporting the argument that investor horizon is a predictor of voluntary disclosure quality. The dictum of more is better does not hold in all scenarios. It is important for financial directors and investor relations officers to establish the investment horizon profile of their respective companies’ shareholders before they embark on extensive disclosure programmes. / Financial Intelligence

The disclosure of headline earnings is one of the JSE Limited (JSE)’s listing requirements. All listed entities are required to comply with this disclosure requirement. Guidance in the form of The Circular on headline earnings is issued by the South African Institute of Chartered Accountants (SAICA), and is updated every time when there are changes to the International Financial Reporting Standards (IFRS). The Circular adopts a rules-based approach and specifies what is included and excluded in the calculation of headline earnings. The rules consist of general rules, which apply to all entities other than those industry groups with special provisions such as the life insurance entities. This study questions whether a rules-based headline earnings approach or a principles-based approach is more appropriate for the calculation of headline earnings of listed property entities on the JSE, for economic decision-making purposes. The research method consisted of questionnaires that were sent out to stakeholders. The responses from the CFOs and investment analysts show that principles-based headline earnings guidance is preferred over rules-based headline earnings guidance. / Business Management / M. Phil (Accounting Sciences)

The disclosure of headline earnings is one of the JSE Limited (JSE)’s listing requirements. All listed entities are required to comply with this disclosure requirement. Guidance in the form of The Circular on headline earnings is issued by the South African Institute of Chartered Accountants (SAICA), and is updated every time when there are changes to the International Financial Reporting Standards (IFRS). The Circular adopts a rules-based approach and specifies what is included and excluded in the calculation of headline earnings. The rules consist of general rules, which apply to all entities other than those industry groups with special provisions such as the life insurance entities. This study questions whether a rules-based headline earnings approach or a principles-based approach is more appropriate for the calculation of headline earnings of listed property entities on the JSE, for economic decision-making purposes. The research method consisted of questionnaires that were sent out to stakeholders. The responses from the CFOs and investment analysts show that principles-based headline earnings guidance is preferred over rules-based headline earnings guidance. / Business Management / M. Phil. (Accounting Sciences)