The study used the Markov regime switching model to investigate the presence of regimes in the volatility dynamics of the returns of JSE All-Share Index (ALSI). Volatility regimes are as a result of ...sudden changes in the underlying economy generating the market returns. In all, twelve candidate models were fitted to the data. Estimates from the regime switching model were compared to the industry standard non-switching GARCH (1,1) using the Deviance Information Criteria (DIC). The results show that the two-regime switching EGARCH model with skewed Student t innovations describes better the return of the JSE Index. Additionally, we backtest the model results in order to confirm our findings that the two-regime switching EGARCH is the best of the models for the sample period.
The study examines the influence of board characteristics on environmental sustainability performance. Companies’ sustainability performance is affected by many factors such as board composition, ...lack of knowledge, policies and resources of companies, competition from other companies and market trends. The King IV Code of Corporate Governance suggests that the composition of board members ought to contain a diversity of race and gender and independence. The Code states that the board members should consist of both independent members and non-independent members that would act in the interest of the companies. The study used the multiple regression analysis to analyse data from Johannesburg Stock Exchange (JSE)’s Socially Responsible Index (SRI) listed banking and retail companies from 2007–2017 to test how board characteristics influence environmental (energy usage) sustainability of JSE SRI listed firms. Results indicate that the number of female board members has a negative and insignificant influence on corporate energy usage; board independence positively and significantly influences energy usage, and market capitalisation has a positive but an insignificant influence on energy usage. The study suggests that though not all board characteristics influence companies’ environmental performance, having a considerable number of independent board members could have a positive impact on environmentally-related decisions.
•Meeting the different stakeholder needs require different board characteristics.•One board characteristic cannot improve corporate sustainable energy usage.•Female board members do not influence energy usage performance.•Firm size does not influence improved energy usage.•Board independence influences sustainable energy usage in the companies examined.
In this paper, a feed-forward artificial neural network (ANN) is used to price Johannesburg Stock Exchange (JSE) Top 40 European call options using a constructed implied volatility surface. The ...prices generated by the ANN were compared to the prices obtained using the Black-Scholes (BS) model. It was found that the pricing performance of the ANN significantly improves when the number of training samples are increased and that ANNs are able to price European call options in the South African market with a high degree of accuracy.
There have been many corporate collapses and financial crises in recent years linked to a lack of effective corporate governance. The South African King IV Code of Corporate Governance recommends ...that corporate governing bodies should be comprised of an appropriate balance of knowledge, diversity, and independence for discharging their duties objectively and more efficiently. This study examines the effect of corporate governance structures on firm financial performance. The secondary data of selected Johannesburg Stock Exchange (JSE), Socially Responsible Investment (SRI) Index-listed mining firms’ sustainability reports, and integrated annual financial statements are used. Using panel data analysis of the random effects model, we determined the relationship between board independence and board size and the return on equity (ROE) for the period 2010–2015. Results indicate a weak negative correlation between ROE and board size, and a weak, but positive, correlation between ROE and board independence. Additionally, there is a positive, but weak, correlation between ROE and sales growth, but a negative and weak relationship between ROE and firm size. The study suggests that effective corporate governance through a small effective board and monitoring by an independent board result in increased firm financial performance. We recommend that South African companies see compliance with the recommendations of the King IV Code on Corporate Governance not as a liability, but an ethical investment that may likely yield financial benefit in the long-term. Although complying with corporate governance principles does not necessarily translate into a significant economic benefit, firms should, however, continue to adopt corporate governance for ethical reasons to meet stakeholder’s social and environmental needs for sustainable development.
This paper attempted to apply an EVT-based pairwise copula method for modelling risk interaction between foreign exchange rates and equity indices of the Johannesburg Stock Exchange (JSE) and to ...model the dependence structure of the underlying assets with some selected listed stock indices. We filtered the return residuals using the stochastic volatility and GJR-GARCH (1,1) models with different distributions, and we selected the best-fitted model in the GARCH framework. We applied the peaks-over-threshold (POT) method to the filtered residuals to fit it by the generalised Pareto distribution (GPD), and we used the vine copula to model the co-movement between foreign exchange rates and equity indices and value at risk (VaR) for risk quantification. We used three exchange rates (USD, GDP, and EUR) against the South African rand (ZAR) and six industry indices (banking, life insurance, non-life insurance, leisure, telecommunications, and mining). Our empirical findings show that the GJR-GARCH with Student’s t-distribution, combined with a regular (R)-vine copula, outperforms the alternatives models. Dependence structure analysis reveals a strong co-dependency between the stock from the financial industry and foreign exchange rates. The results also show that VaR-based R-vine copula outperforms the model compared to VaR-based D-vine and C-vine before the COVID-19 outbreak, while the D-vine copula produced appears to be the most suitable risk model specification for quantifying risk during the COVID-19 pandemic. Therefore, VaR-based R-vine copula is suitable for risk quantification, while GJR-GARCH with Student’s t-distribution produces better results in the GARCH framework. Further, we find that equity indices and foreign exchange rates exhibit higher tail risk contagion during the COVID-19 pandemic, with the non-life-insurance and telecommunications sectors appearing to be the investor’s safe haven among the listed sectors of the JSE. Our results will help South African investors seek risk-adjusted returns to substantially reduce the hedging cost of potential loss due to the misspecification of a risk model and make an investment decision during the global health crisis.
Background: Company director networks have been studied for many countries, including South Africa, from the perspective of network theory. However, most studies of company director networks focus on ...the overall structure of the network, that is, by conducting a macro-level analysis.Aim: In this study, we conducted a node-level analysis to investigate whether the four major South African banks, namely, Barclays Africa Group Ltd (now ABSA Group Limited), Nedbank Group Ltd, Standard Bank Group Ltd and FirstRand Ltd, occupy central roles in the company director network on the Johannesburg Stock Exchange (JSE).Setting: Social networks provide a vital source of information and are therefore an important field of study in business.Methods: We use degree-, betweenness- and closeness centrality, as well as strength, and a force-directed layout to investigate whether these four banks occupy key positions in the company director network on the JSE.Results: We show that these four banks occupy central roles on the JSE. The direct connections of these companies are also identified, and findings are compared to some overseas studies.Conclusion: This study concludes that the said four major banks occupy key positions on the JSE.
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.
Purpose
A recent contribution entitled Global Responsibility and the King Reports was made to the literature that represents a significant advancement in the understanding of how standards of good ...governance are practised. The corpus revealed key insights about macro-institutional governance regimes, yet, extraordinarily little about meso-organisational and even less so, micro-individual corporate governance practice. This study aims to shed light on the micro-individual level of corporate governance practice which has remained obscured by drawing pragmatic insights from the landmark South African King Code experience that may be applied to other governance jurisdictions for global organisational responsibility.
Design/methodology/approach
To unearth micro-individual corporate governance code practices, a phenomenological exploration of corporate governance practitioners’ (CGPs) perceptions was conducted. Qualitative semi-structured interviews with senior board members of securities-exchange listed companies were conducted with 10 directors of leading multinational South African corporations listed on Africa’s largest formal financial market; the Johannesburg Stock Exchange. Recursive analysis of the qualitative data revealed key attributes that render a corporate governance code “fulfilling” as a consequence of being perceived as subjectively valuable by practitioners who are the ultimate end-users of the King Codes for advancing good corporate governance practice in each of their respective companies.
Findings
Two categories of fulfilling micro-perceived value attributes (MPVAs) of corporate governance codes emerged, namely, internal and external MPVAs. The three internal MPVAs are, namely, (I1) Meaningful innovation, (I2) Ethical pragmatism and (I3) Cultural transformation. The three external MPVAs are, namely, (E1) Governance legitimacy, (E2) Societal licencing and (E3) Risk mitigation. From these six attributes, two testable corporate governance code development propositions are advanced, namely, (P1) a corporate governance code with a higher constitution of MPVAs will fulfil CGPs more than one with less. (P2) A more fulfilling corporate governance code will enjoy higher adoption, application and/or compliance rates.
Originality/value
Illumining the subjective experiential perceptions that constitute the fulfilment of a corporate governance code deepens the pragmatic understanding of the “demand-side” or consumption of such codes in practice. Knowing these fulfilling MPVAs may also result in the development of codes that enjoy wider adoption and compliance rates thereby enhancing global corporate responsibility pragmatism through enhanced good governance. This study sheds light on the nexus where normative corporate governance principles and the enactment thereof meet at the coalface of organisational activity with an emphasis on those attributes that render them valuable to practitioners.
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.
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