This study uses a content analysis of 82 listed South African companies' annual reports to determine the extent to which South African listed companies in the non-financial sector choose optional ...fair value accounting (FVA). The study found that almost all companies disclosed historical cost as their primary measurement basis, disclosed FVA for financial instruments as the exception to the historical cost basis, and generally did not choose the fair value option in areas where International Financial Reporting Standards offer a free choice of whether or not to apply FVA. More specifically, most companies did not choose optional FVA for property, plant and equipment and did not choose optional FVA for intangible assets. Seventy-eight percent (78%) of the non-property investment companies did not choose optional FVA for investment properties in contrast to the property-investment companies where nearly all adopted optional FVA to account for their investment properties. Ninety-six percent (96%) of companies did not account for investments in subsidiaries, associates and joint ventures at fair value in their separate financial statements. The study therefore concludes that companies generally do not adopt optional FVA where there is a choice of whether to do so or not.
This paper tests the validity of the trade-off and pecking order theories of capital structure for non-financial firms listed on the Johannesburg Stock Exchange. Firstly, we find that the pecking ...order model is superior than the partial adjustment regressions at rejecting random financing behaviour. Secondly, tests on real data show that partial adjustment regressions confirm (reject) target adjustment behaviour for off (on) target firms. However, when falsely generated random financing gaps are used, the GMM model records a higher error rate compared to the Censored Tobit Regressions. Lastly, we propose alternative tests of both theories, and show that the pecking order theory works well, except under conditions where firms with reported financial deficits are at the bottom of the pecking order.
Orientation The South African economy is currently at one of its lowest points in several decades, with low economic growth, coronavirus challenges and unemployment being at an all-time high. This is ...further aggravated by the many challenges the economy faces, such as the lack of public sector programs to stimulate sustainable growth and a private sector mind-set that lacks business confidence and investment. Motivation of study A SPAC is an innovative financial structure that aims to raise funds in capital markets with the purpose of acquiring an unknown exiting company, using the funds as finance, within a limited time period. Special purpose SPACs focusing on SMEs with additional criteria and incentives might prove to be a valuable vehicle that provides funding to stimulate economic growth, kick start the second economy and erode unemployment in South Africa. Research purpose The objective of this article was to provide an overview of a special purpose acquisition company (SPAC) as a vehicle to fund future business operations and, further, to explore the opportunities that it may provide to the South African economy to stimulate growth in the second economy and small and medium-sized enterprise (SME) sector. Research approach/ design and method This article follows a qualitative research design with an exploratory approach. Findings and contribution Research on SPACs internationally and in South Africa is scarce and this article makes a significant contribution to the existing body of knowledge. The findings indicate that the financial measures show underperformance of SPACs relative to some traditional financial measures. Practical implications Non-financial considerations are important in considering the value that SPACs can bring to the ailing South African economy. Special purpose acquisition companies also provide opportunities to those informal sectors, which would never be able to get access to funding and formal markets in other ways.
Indebtedness threatens a firm’s survival if it performs poorly and fails to service its debts. While other empiricists have focused on the effect of long-term debt on firm value, we extend the ...frontiers by defining financial risk (debt) as total liabilities. We analyse information content of financial risk on the Johannesburg Stock Exchange for the 2010-2017 period using dynamic panel models. Financial risk is estimated using the debt/equity ratio and total debt. The sample is divided into high-risk and low-risk firms based on average debt/equity ratio. Using two-step System GMM, we found out that debt/equity ratio is value relevant in both high- and low-risk firms. Total debt is value relevant for lowrisk firms but not value relevant for high-risk firms. Equity investors are advised to include debt/equity ratio in valuations. Company managers should keep total liabilities below market capitalisation and standards setters should safeguard the integrity of reported liabilities.
The study examines the cyclical behaviour of style premiums on the Johannesburg Stock Exchange (JSE) over the period 2002-2018. More specifically, the study establishes whether there is a ...contemporaneous relationship between style premiums and certain regime dynamics. The examination period extends over two consecutive business cycles, each with an upward and a downward phase. A robust factor-mimicking portfolio construction procedure is employed. Findings show that the small-cap risk premium shrinks significantly or becomes negative during downward phases while the momentum premium is strongly positive throughout the study period, but is lower during downward phases. The value premium is positive during downward periods and particularly strong around the 2008 financial crisis period, but is low or negative during upward phases. Thus, the size and momentum effects are procyclical while the value effect is countercyclical on the JSE. The study adds to the limited JSE-related literature and is likely to be of interest to factor allocation investors wanting to exploit the phases of the business cycle.
Both the capital asset pricing model and Fama and French's (1993) three-factor model have consistently failed to explain momentum in stock returns, with only Carhart's (1997) four-factor model having ...some success in this regard. This study examines whether an alternative three-factor model proposed by Chen, Novy-Marx, and Zhang (2011) and a five-factor model forwarded by Fama and French (2015), which both include profitability and investment as pricing factors, can explain momentum on the South African market. Consistent with international evidence, the pricing errors from these two models are lower and although these errors remain significant, the results reveal that profitability and, to a lesser extent, investment are important risk-based factors that must be considered in explaining the short-term continuation in stock returns.
A distinctive phenomenon on the Johannesburg Stock Exchange (JSE) is the market segmentation between the resource sector and the financial and industrial sectors documented in empirical literature. ...The dominance of the resource sector in the cap-weighted FTSE/JSE All-Share index (ALSI) implies that the ALSI index might not be mean-variance efficient due to the potential lack of diversification. We estimate and compare the historical sector exposures of the ALSI index to its hypothetically optimal sector exposures over the examination period from 2003 through 2013. It is found that to achieve mean-variance efficiency on the JSE over the examination period, one should maintain substantial investments in the industrial sector and tactically allocate the remainder of the investments to the financial sector and/or the resource sector. It is also observed that the sector exposures of the ALSI index have shifted significantly from the resource sector to the industrial sector. To gain a better understanding of the investment style influences on the JSE sector returns, we further investigate the exposures of the prominent JSE sector returns to the style risks using the Carhart (1997) four-factor model. It is found that investments in financial stocks are exposed to significant value risk and, to some degree, influenced by the performance of large caps on the JSE. In addition, excess returns on the industrial sector are attributed to value, small cap and momentum risk premiums to some degree. The performance of the resource sector, on the other hand, is mildly biased towards the growth, large cap and contrarian investment styles on the JSE.
Director interlocks, which occur when companies have directors in common, have concerned shareholders, the public and legislators since the early 1900s. The purpose of this paper is to analyse the ...interlocking directorships of the Top 40 companies listed on the Johannesburg Stock Exchange using small world theory and compare the results to research on interlocks in Italian, French, German, United Kingdom (UK) and United States (US) companies. South Africa was found to be closest to Italy, between the low-density models of the UK and the US, and the significantly higher-density models of Germany and France. This suggests that rather than just the two models (low density and high density), there is a continuum currently reflected with the UK and the US at one end, then South Africa and Italy, and then France and Germany at the other end. The presence of directors with multiple directorships indicates that the threats and benefits associated with multiple directorships may exist in South Africa.
Good corporate governance has been attributed to many large organizations’ success. From the boardroom to the triple bottom line, it has been hailed as one powerful tool that brought about ...sustainability of these organizations in this competitive era. While this is beneficial to large organizations, small and medium enterprises (SMEs) can glean on such experiences to add their value to their companies which, in the long run could bring about new markets and improved business practices which can be ground breaking in their daily business dealings. Thus, if with the introduction of the King Report on good governance, competitive advantage is improved, SMEs are in a good position to sustain their businesses in turbulent economic conditions. This article is aimed at exploring the benefits with which good corporate governance can yield to top and bottom JSE listed SMEs in South Africa. A desktop method was used to analyze the financial statements of these SMEs companies with the view to gain understanding on their corporate governance activities and how well they benefit them. The findings show that good corporate governance is beneficial to SMEs.
Co‐evolved genetic programs for stock market trading Nicholls, Jason F.; Engelbrecht, Andries P.
Intelligent systems in accounting, finance & management,
July/September 2019, 2019-07-00, 20190701, Letnik:
26, Številka:
3
Journal Article
Recenzirano
Odprti dostop
Summary
The profitability of trading rules evolved by three different optimised genetic programs, namely a single population genetic program (GP), a co‐operative co‐evolved GP, and a competitive ...co‐evolved GP is compared. Profitability is determined by trading thirteen listed shares on the Johannesburg Stock Exchange (JSE) over a period of April 2003 to June 2008. An empirical study presented here shows that GPs can generate profitable trading rules across a variety of industries and market conditions. The results show that the co‐operative co‐evolved GP generates trading rules perform significantly worse than a single population GP and a competitively co‐evolved GP. The results also show that a competitive co‐evolved GP and the single population GP produce similar trading rules. The profits returned by the evolved trading rules are compared to the profit returned by the buy‐and‐hold trading strategy. The evolved trading rules significantly outperform the buy‐and‐hold strategy when the market trends downwards. No significant difference is identified among the buy‐and‐hold strategy, the competitive co‐evolved GP, and single population GP when the market trends upwards.
PDF
