Showing papers in "Journal of Economic and Financial Sciences in 2011"

Corporate governance practices at South African higher education institutions : an annual report disclosure analysis

Abstract: Higher education institutions are presently facing many challenges, ranging from economic and financial constraints to social and educational issues. Accordingly, sound management and governance are essential, and this brings the governance model of HEIs more in line with business corporations. This article provides an overview of the state of governance practices at higher education institutions in South Africa, and an assessment of the corporate governance disclosures in their annual reports. This was done through a literature review of higher education developments, including a South African perspective, supported by empirical evidence obtained from assessing the annual reports of these institutions. The study found that, although most of these institutions are providing disclosure on their corporate governance structures and practices in line with the recommendations of the Higher Education Act and King II, such disclosure is often lacking in detail and could be improved.

Spatial price transmission analysis in Ghanaian agricultural markets: Does the data frequency improve our estimation?

Abstract: Unavailability of high frequency weekly or daily data compels most studies of price transmission in developing countries to use low frequency monthly data for their analyses. Analysing price dynamics, especially in agricultural markets, with monthly data may however yield imprecise price adjustment parameters and lead to wrong inferences on price dynamics. This is because agricultural markets in developing countries usually operate daily or weekly, not monthly, as implied by the market analysts who use low frequency data. This paper investigates the relevance of data frequency in price transmission analysis by using a standard and a threshold vector error correction model to estimate and compare price adjustment parameters for high frequency semi-weekly data and low frequency monthly data obtained from five major fresh tomato markets in Ghana. The results reveal that adjustment parameters estimated from the low frequency data are higher in all cases than those estimated from the high frequency data. There is reason to suspect that using low frequency data, as confirmed in some literature, leads to an overestimation of the price adjustment parameters. More research involving a large number of observations is however needed to enhance our knowledge about the usefulness of high frequency data in price transmission analysis.

Shift-share analysis of production in the manufacturing industry of South Africa's Southern District Municipality

Abstract: In this study, the development and structure of value-added production in the manufacturing industries of the Southern District Municipality (SDM) of South Africa are investigated. The field of study focuses on spatial economic development, with the aim of identifying industries that can offer future growth and job creation. The methodology of shift-share analysis, often applied to studies of Economic Geography, is used for the empirical analysis. The SDM district municipality includes the local municipalities of Klerksdorp, Potchefstroom, Ventersdorp, Merafong City and Wolmaransstad. The economy of these municipalities is mainly dependent on gold mining, which is declining as their gold reserves are becoming depleted which will lead to a large section of its population being unemployed in the near future. Shift-share analysis provides insight into the shifts of production between various sectors over time and is comprehensible to policymakers. It provides further insight into the national share effect on production of the sectors in the region, as well as the regional industrial mix and the competitive share effects. It was found that the sectors with the highest growth potential are Transport Equipment, Petroleum and Chemicals, Furniture, Metal Products, and Wood and Paper Products, and they merit attention in future development initiatives.

Bargaining power and market definition: a reflection on two mergers

Abstract: When assessing whether a merger is likely to substantially prevent or lessen competition, the Competition Act, No. 89 of 1998, as amended, specifies that the Commission should assess the strength of competition by taking into account the degree of countervailing power in a market. We highlight the importance of understanding this in terms of the factors underlying bargaining power, such as the alternative sources of supply available to buyers, the alternative sources of demand to sellers, cost structures, and information asymmetries. To do this we critically compare the approach adopted by the Competition Tribunal in evaluating two mergers: Sasol/Engen and Chlor-Alkali Holdings/Botash. We find that in both cases an analysis of bargaining power should play an important part in the assessment of the effects on competition, including the identification of competitive constraints that fall within market definition.

The company as a responsible corporate citizen: An analysis of the board’s commitment to sustainability

Abstract: Organisations are increasingly realising that they are members of a wider community and must therefore behave in a responsible manner. The boards of directors of organisations play a critical role in ensuring that companies conduct their business in a responsible and sustainable manner, and in providing accurate, reliable and credible reporting to their stakeholders. The objective of the paper is twofold: to provide a brief overview of the development of corporate citizenship, sustainability and sustainability reporting and the board’s role in this regard; and, secondly, to provide evidence regarding the board’s commitment to sustainability as disclosed in a company’s sustainability reporting. This is achieved through a literature review of current corporate governance and sustainability developments and practices. This review is supported by empirical evidence obtained from assessing the sustainability reporting of companies through a content analysis of the annual reports of companies listed on the Johannesburg Stock Exchange Limited’s Socially Responsible Index. The study found that sustainability and sustainability reporting are widely researched and advocated in the literature, and that companies report a commitment to sustainability, but that these reports lack specific detail concerning the board’s responsibility for and commitment to sustainability.

The expenditure and foreign revenue impact of international students on the South African economy

Abstract: In South Africa, there is still no clear policy of internationalisation of higher education, partly due to limited research. So far, only two efforts – at Nelson Mandela Metropolitan University (NMMU) in 2004 and Rhodes University in 2005 – have been made to determine the expenditure and foreign revenue impact of international students on South Africa. Each of these papers sampled only a single university, so they are of limited use for national impact analysis. To build on these studies, this research was conducted at six South African universities that admit the largest number of international students and also included the economic effects of spending items hitherto neglected. We show that international students (mainly from Africa) contribute significantly to South African GDP and balance of payments, but that South Africa still lags behind in exploiting and enhancing these benefits.

Administrative penalties - impact and alternatives

Abstract: Administrative penalties are imposed in South Africa for a specified set of prohibited practices. These are typically the most egregious anti-competitive acts, and therefore the main purpose of administrative penalties is to act as a deterrent, both to the offending firm and to other firms that may consider engaging in similar behaviour. With a spate of high-profile cases resulting in fines, there has been much discussion over fines and their ultimate impact on businesses and consumers. We discuss three arguments that have been raised. Firstly, we consider whether companies simply pass the cost of their fine through to consumers in the form of higher prices. Secondly, we look at the validity of the complaint that high fines could lead to poorer competitive outcomes due to firm exit. Thirdly, we assess suggested alternative mechanisms for disbursing the fine such as paying the fine in the form of lower prices.

Accounting practitioners’ views on the proposed “Micro GAAP”: A South African perspective

Abstract: Even though the IFRS for SMEs does provide some relief in respect of the financial reporting burden for non-public entities, there still seems to be a need for an even lower level of financial reporting. In recent years South Africa embarked upon the development of a financial reporting framework for non-public entities and various versions of this so-called micro GAAP have been issued. However, the Accounting Practices Board raised some concerns about the then proposed micro GAAP. This article highlights the South African accounting practitioners’ views from different professional bodies on micro GAAP. They generally believe that micro GAAP will represent fair presentation and that the financial statements prepared under micro GAAP can still be regarded as general purpose financial statements. Furthermore, the majority of accounting practitioners believe that there is a definite need for a third tier of financial reporting in South Africa and indicated their preference of which entities may apply micro GAAP. Legal backing of micro GAAP is also considered appropriate by the practitioners.

An investigation into the extent to which the National Senior Certificate equips university finance students with required skills

Abstract: Higher education institutions have an obligation to provide graduates with the necessary knowledge and skills to enter the workforce and contribute effectively to the financial and economic development of the country. After 1994, the South African educational system was redesigned. One of the major events in this process was the replacement of the Senior Certificate (NATED 550) by the National Senior Certificate, awarded for the first time in 2008. Questions have been raised as to whether the National Senior Certificate curriculum prepares learners adequately for success in university studies. The purpose of the exploratory research reported on in this article was to investigate the perceptions of students on the skills acquired in the National Senior Certificate, as well as the skills required to succeed in their university studies. The study was conducted amongst the first-year B.Com (Finance) students during the 2009 academic year at a South African higher education institution. The results of the study indicate that these students felt that they lacked some of the critical skills required for academic success at university.

Re-evaluation of the Platinum SDI : a critical commentary

Abstract: The Platinum Spatial Development Initiative (SDI) in the North West Province was initiated 10 years ago to address the spatial economic development challenges of the region. This revised commentary aims to re-evaluate development, and intends to provide an objective overview of the successes and failures of the Platinum SDI. The aim is to provoke a debate on the matter in order to assess whether or not the Platinum SDI is to the advantage of the economic development of the country and its people, and especially the poor. This paper considers the historical context and evaluates a number of arguments, either in support of or questioning the viability of the Platinum SDI. The paper concludes that after more than a decade there is still little evidence that the Platinum SDI will in the near future be efficient. At present, the Platinum SDI has very little to offer. To succeed will require more effort by all concerned, and especially much more commitment from the relevant governmental structures.

The effect of fiscal policy on the size of the informal sector in Nigeria

Abstract: This paper adapts a dynamic real business cycle model to examine the effect of fiscal policy on the relative size of the informal sector in Nigeria. The motivation for this paper is to provide an economic intuition on how fiscal policy has contributed to the growth of the informal sector. The results of the model show the presence of an inverted U-shaped relationship between the tax rate and the size of the informal sector. It also predicts that for a given tax rate below a threshold of 30%, public capital stock contributes to an increase in the size of the informal sector and vice versa. The theoretical predictions of the model are supported empirically using data from Nigeria between 1980 and 2000. The model finally shows that there is a proportional relationship between the agent’s welfare and the size of the informal sector.

Does import parity pricing constitute evidence of excessive pricing and what are the consequences of attempting to remedy it

Abstract: Although provisions prohibiting abuses of dominance through the setting of excessive prices have long been present under many competition jurisdictions, prohibitions have been seldom applied in practice. This is most likely due to the profound conceptual and practical difficulties in differentiating between pricing conduct that is neutral from a competition law perspective and conduct that genuinely constitutes excessive pricing, and then further problems in remedying genuine abuses. However, recent developments in South African competition policy have focussed on use of import parity pricing as a possible indicator of excessive pricing, although in our view the mere existence of import parity pricing is unlikely to be a reliable indicator of such conduct. This paper draws upon economic theory and relevant jurisprudence to provide clarity as to the circumstances under which import parity pricing might reflect excessive pricing. It then considers the prospects for effective remedies if an abuse is identified.

Two-sided markets : an application to mobile termination in South Africa

Abstract: The concept of a two-sided market has received increased attention in the academic literature of late. In this paper we argue that the market for call termination is an example of a two-sided market. We apply the concepts of a two-sided termination market to the current attempts by ICASA to reduce mobile termination rates through regulation. We also deal with the concepts of significant market power (SMP) and established significant market power (ESMP), and show that the traditional thinking around market power has to be adapted when one deals with two-sided markets. More specifically, we analyse these concepts by looking at the position of Cell C, a smaller player in the mobile market in SA. We show that market power (and appropriate pro-competitive remedies) in call termination markets cannot be established without considering the origination (retail) market – the other side of the two-sided market.

Theory and practice in the use of merger remedies: Considering South African experience

Abstract: There has been considerable debate internationally around the relative advantages and disadvantages of structural and behavioural remedies. In mergers which raise competition concerns, prohibition or divestiture may prevent merger efficiencies from being realised, and therefore behavioural remedies may seem attractive. However, these can prove difficult or impossible to enforce in practice. The merger approval rates of the South African competition authorities are in line with the practice of international agencies, but the number of behavioural remedies imposed is relatively high. This paper briefly considers the international literature on merger remedies before analysing South African merger decisions and making a comparison with other jurisdictions. It then presents a review of a decision made by the Tribunal in the merger between Astral Foods and National Chick in 2001, which was approved with both structural and behavioural conditions. Finally, the paper draws conclusions for the design of remedies in future.

Customer and organisational value added through customer experience differentiation

Abstract: Previous research has shown that the customer experience is a strategic differentiator leading to a competitive advantage for organisations. The customer experience is the interaction between customer and the organisation and should lead to value add. It is important though that value is added to the customer as well as to the organisation. The focus of this paper is first on what value is. The second part of the paper focuses on a measurement tool that was developed to measure the value to customer (VTC) and the value of the customer (VOC). The measurement tool is validated through application within a retail banking environment. By measuring the value to and of customers an organisation can determine if optimal value is added. The outcome of the measurement can be used by organisations to understand the customer value offering and the financial implications of value and establishing the relevant balance.

Financial leverage decisions in an era of corporate earnings down-turn and financial market instability - the Nigerian experience

Abstract: This paper examines the impact of profitability on the financial leverage of firms operating in an unstable macroeconomic environment such as Nigeria. Using fixed and dynamic panel models, it finds consistent evidence that the profitability of a firm significantly and negatively affects its short-term debt, but not its long-term debt capital. It attributes this to the unstable nature of the Nigerian business environment and the relative inefficiency of its financial markets. It signals that Nigerian firms could be over-relying on short-term debt and external equity to fund long-term investments – a trend that is capable of increasing cost of capital to a level above any plausible limit.

Exploring the finance and growth relationship for emerging market economies

Abstract: This study focuses on alternative ways to measure financial sector development and the external factors that both directly and indirectly influence economic growth. The empirical results based upon panel data from 1985 to 2003 for a sample of emerging countries suggest three major conclusions. First, by including a range of alternative financial sector development measures and a variety of external policy-related factors in the model, the importance of supplying basic liquidity services, as measured by M3, becomes less important for emerging countries. Second, the empirical results suggest that while a basic level of deposit insurance protection might prove stabilizing for emerging economies, excessive levels of insurance may promote undue risk. Third, several competitive market structure and regulatory variables designed to measure efficiency in the intermediation process, such as net interest margin, and managerial efficiency as measured by overhead costs, are found to have a statistically significant, and in certain cases, unexpected impacts.

Die inkomstebelastinghantering van aanvangsfranchisefooie betaalbaar in die Suid-Afrikaanse petroleumbedryf

Abstract: A wholesaler of petroleum products is prohibited in terms of section 12(2)(c) of Regulation 287 of the Petroleum Products Act, No. 120 of 1977, to own a retail licence for purposes other than that of training. As a result, petroleum companies make use of franchises to sell their products. The concept of a franchise is based on the principle that a franchisee obtains the franchise of an existing, often prosperous, business from a franchisor, and then operates the business under the banner of this franchise. The franchisee pays the franchisor franchise fees as consideration for certain items or privileges obtained. This article investigates the deductibility of franchise fees in terms of the current South African Income Tax Act, No. 58 of 1962 and includes an evaluation of Australian Income Tax Act sections that might offer deduction possibilities for franchise fees if applied within a South African context.

The assessment of joint purchasing : can too much 'buying power' ever be a problem

Abstract: The creation of ‘buying power’ through joint purchasing agreements is often seen as positive, with direct benefits for consumers in the form of lower prices. Even where joint purchasing agreements lead to the creation of a monopsonist, economic theory suggests that the welfare effects of monopsony power depend greatly on the market context, with some economists proposing that the probability of harm in cases involving monopsony power is considerably lower than in cases of a monopoly. Despite this view, section 4(1)(b) of the South African Competition Act classifies the ‘fixing of a purchase or selling price or any other trading condition’ by competitors as a per se prohibition. This implies that from a legal perspective purchasing agreements may be afforded the same draconian treatment as selling cartels. This paper considers whether this potentially punitive treatment of joint buying arrangements under section 4(1)(b) is warranted and indeed whether the equivalent treatment of joint buying and selling agreements under this section of the Act is appropriate.

The direction of possible causal relationship between financial development and economic growth in namibia

Abstract: The study investigates the causal relationship between financial development and economic growth in Namibia. In order to test for the existence of long-run relationships between the variables, the study employs a cointegration and vector error correction model (VECM) technique. The Granger causality test was applied to the variables to test for the direction of causation between variables. The results show that there is a stable long-run relationship between financial development and economic growth. The Granger causality test indicates that the causality runs from economic growth to financial development. The results suggest that the real sector of the economy should be developed further in order to stimulate further development in the economy through policy interventions like industrial development to diversify the economic base, enhance the performance of small and medium enterprises, and improve the performance of the tourism sector, which has great potential for promoting growth.

Die verkoop van 'n besigheid as lopende saak: Belasting en arbeidsreg probleme met “voorsienings”

Abstract: The amounts set aside for the provision for employee-related contingent liabilities, such as the provision for leave pay, are often considerable. According to current Income Tax law, it is highly unlikely that the former employer (seller) will enjoy a tax deduction. Furthermore, it is also unlikely that the prospective employer (buyer) will enjoy a tax deduction. In contrast to this, both the former and prospective employers are held liable according to the Labour Relations Act in cases where a business is sold as a going concern. This article concludes that the Draft Taxation Laws Amendment Bill 2011, as envisioned, finally provides clear tax legislation, but still needs to be aligned with the objectives of the Labour Relations Act. In doing so, contradictory legislation will be avoided, thus facilitating the transfer of businesses and achieving the protection of employees’ work security.