Corporate Governance, Affirmative Action and Firm Value: Evidence from Post-Apartheid South African Firms

43 Pages Posted: 17 Jul 2011

See all articles by Collins G. Ntim

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Kwaku K. Opong

University of Glasgow - Adam Smith Business School

Jo Danbolt

University of Edinburgh Business School

Date Written: August 12, 2010

Abstract

Research Question/Issue: The post-Apartheid South African (SA) corporate governance (CG) model is a unique hybridisation of the traditional Anglo-American and Continental European-Asian CG models, distinctively requiring firms to explicitly comply with a number of affirmative action and stakeholder CG provisions, such as black empowerment and HIV/Aids. This paper examines the association between a broad CG index and firm value in this distinct corporate setting.

Research Findings/Insights: Using a sample of 169 post-Apartheid SA firms from 2002 to 2007, we find a significant positive association between a broad CG index and firm value, as proxied by Tobin’s Q. Distinct from prior studies, but consistent with political cost, legitimacy and resource dependence theories, we find that compliance with affirmative action CG provisions impacts positively on firm value. The results are robust across a number of econometric models that control for different types of endogeneity, accounting and market-based firm valuation measures.

Theoretical/Academic Implications: The paper contributes to the literature on the association between compliance with codes of good governance and firm value by specifically modelling the relationship within a unique institutional, legal and CG environment. Distinctively, we contribute to the literature by showing how affirmative action and stakeholder CG provisions impact on firm value.

Practical/Policy Implications: The results have important policy implications for companies and regulators. They suggest that investors reward firms with better CG practices with higher market valuation, providing support to the efforts by various stakeholders at improving CG standards in SA companies. The results also suggest that SA companies who pay serious attention to complying with affirmative action and stakeholder CG provisions may reap benefits in the form of higher firm value.

Keywords: Keywords: Corporate Governance, Affirmative Action, Firm Value, South Africa, Endogeneity

JEL Classification: G12, G34, G38

Suggested Citation

Ntim, Collins G. and Opong, Kwaku K. and Danbolt, Jo, Corporate Governance, Affirmative Action and Firm Value: Evidence from Post-Apartheid South African Firms (August 12, 2010). Available at SSRN: https://ssrn.com/abstract=1884256 or http://dx.doi.org/10.2139/ssrn.1884256

Collins G. Ntim (Contact Author)

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

Kwaku K. Opong

University of Glasgow - Adam Smith Business School ( email )

University Avenue
Gilbert Scott Building
Glasgow, Scotland G12 8QQ
United Kingdom

Jo Danbolt

University of Edinburgh Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

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