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The Relative Value Relevance of Shareholder versus Stakeholder Corporate Governance Disclosure Policy Reforms in South Africa

Literature › Works

Collins G. Ntim; Kwaku K. Opong; Jo Danbolt (2012). The Relative Value Relevance of Shareholder versus Stakeholder Corporate Governance Disclosure Policy Reforms in South Africa. Corporate Governance: An International Review, 20(1). Blackwell Publishing Ltd.
Type journal article
Scope Post-1994 South African economy
Method econometric
Period studied 2002–2007
Regions South Africa, Johannesburg Securities Exchange
Themes transition post apartheid, business and state, methods data sources
Citation key ntim2012

Argument

The paper studies whether disclosing recommended corporate governance (CG) practices under the post-apartheid King II Report (2002) raises the market value (Tobin's Q) of JSE-listed firms. It argues that disclosure of both shareholder and stakeholder practices is associated with higher firm value, but that shareholder disclosure contributes significantly more. Stakeholder disclosure is said to work largely through its correlation with shareholder disclosure. The evidence is a fixed-effects panel of 169 firms over 2002-2007, with lagged and 2SLS endogeneity checks. King II's stakeholder rules (black economic empowerment, employment equity, HIV/AIDS) are presented as a response to the legacy of apartheid inequality.

Evidence and method

Hand-coded 50-item King II disclosure indices (41 shareholder, 9 stakeholder) from annual reports (Perfect Information Database); financial data from DataStream. Balanced panel of 169 non-financial JSE firms, 845 firm-years, 2002-2007. Also cites King Committee reports, CLSA, McKinsey and Deutsche Bank investor surveys.

Findings

  • The overall South African CG disclosure index averages 61% of the 50 provisions, with wide dispersion. (p. 9)

    the average firm complying with 61 per cent of the 50 CG disclosure provisions analyzed

  • Firms disclosed stakeholder provisions more fully than shareholder ones on average. (p. 9)

    compliance with the 9 stakeholder CG disclosure provisions of the SA CG code is on average higher than with the 41 shareholder CG disclosure provisions

  • Shareholder CG disclosure is positively and significantly associated with Tobin's Q (H1); a 10% rise is linked to a 0.07% gain in value. (p. 10)

    a 10 per cent increase in CGSHARE, for example, can be expected to be associated with a .07 per cent improvement in market value

  • Stakeholder CG disclosure is also positively associated with firm value (H2), with a smaller coefficient. (p. 10)

    a 10 per cent increase in CGSTAKE, for instance, can be expected to be associated with a .05 per cent increase in market value

  • When both indices are included, shareholder disclosure dominates and stakeholder disclosure loses significance (H3). (p. 11)

    The coefficient of Q on CGSHARE in Model IV of Table 5 is positive and statistically significant, while that on CGSTAKE is positive, but statistically insignificant.

  • Stakeholder disclosure adds more value for firms that also have high shareholder disclosure (moderating effect). (p. 13)

    a 10 per cent increase in CGSTAKE, for example, can be expected to be associated with a .03 per cent additional increase in the value of firms with high CGSHARE

  • Among shareholder disclosure categories, board and director disclosures contribute most to firm value. (p. 13)

    comprehensive disclosure of corporate board mechanisms contributes more to firm value than the other three CG disclosure practices

  • A Durbin-Wu-Hausman test indicates endogeneity, but 2SLS shows the positive effect of CG disclosure persists. (p. 15)

    the test rejects the null hypothesis of no endogeneity at the 5 per cent level

  • Results are robust to an alternative equal-weighting scheme for the five index sections. (p. 17)

    the coefficients on the alternatively weighted CGSHARE, CGSTAKE, and SACGI in the analysis of the cross-sectional variation in Q are positive (.009, .007, and .011, respectively)

  • The King II stakeholder provisions are motivated by apartheid's legacy of discrimination and inequality. (p. 3)

    The requirement for companies to protect stakeholder interests, such as those of employees and local communities by disclosing their CG practices on stakeholders is, therefore, seen as a major way of addressing historical socio-economic inequalities