School of Accounting, Economics and Finance

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An analysis of the trends in integrated reporting by South African government-owned enterprises.
(2023) Omarjee, Ayesha.; Vanker, Salma.
In recent times, government-owned enterprises have faced a deficit in terms of accountability. Addressing this issue, there has been a call for an oversight mechanism to enhance governance and consequently, accountability within state-owned companies (IOD and PWC, 2011). Integrated reporting has emerged as a response to this demand, primarily due to its capacity to offer a comprehensive perspective on the factors that contribute to value creation for an organisation over different time frames. Recognising the advantages that integrated reporting brings to corporate governance, South African government-owned enterprises have acknowledged its potential and subsequently incorporated integrated reporting in accordance with King IV principles and the IR Framework. The objective of this research is to analyse the patterns in integrated reporting among government-owned enterprises according to The Public Finance Management Act of 1999, focusing on the financial periods of 2018, 2019, and 2020. This study assesses the depth of information disclosed by government-owned enterprises and its alignment with the suggestions and criteria set forth by the King IV guidelines and IR Framework for integrated reporting. This evaluation utilizes a scorecard methodology to gauge the degree of disclosure achieved by each individual government-owned enterprise. Based on the empirical facts from the analysis, it is clear and conclusive that the level of reporting and disclosure of government-owned enterprises has improved consistently over the years. This assertion is based on the evident adoption and the upward trend in the application of the Integrated Reporting Framework for integrated reporting by government-owned enterprises. Whilst the overall average level of disclosure is good, there is without debate a necessity for improvement in some critical areas highlighted in this research . Notable among these areas are leadership, governance, stakeholder relationships, organizational ethics, and corporate citizenship.
Impression management observation in South African district municipalities through attribution theory lens.
(2023) Mgoyana, Sithandiwe.; Phesa, Masibulele.
District municipalities play a crucial role in the local government as they have the mandate to provide services to the communities and capacitate and assist local municipalities in their jurisdiction for the provision of services delivery. Most South African district municipalities are struggling to fulfil the mandate of delivering services to the communities and this is evidenced by delivery protests for poor service delivery across South African communities. Inability to provide proper service delivery by most South African district municipalities causes them to get pressure from political opposition and the communities at large, hence they resort to partake in impression management. The mayor’s foreword is a narrative disclosure in the annual report that has no guideline in terms of what gets included in it. Management of municipalities have the discretion on what to include, which makes the mayor’s foreword open to manipulation, and as such, can be a place for employing impression management tactics. This study examined the presence of impression management tactics in the mayor’s foreword in the annual reports of South African district municipalities. The study followed the quantitative research method. Quantitative content analysis was used to analyse the mayor’s foreword contained in the annual reports of 34 district municipalities in South Africa. Data were extracted from the annual reports available on the websites of district municipalities. Impression management tactics, in the form of textual characteristics, were examined based on the length, use of passive voice, use of personal reference, use of positive tone, and observation of readability. The study revealed that district municipalities use impression management tactics in the mayor’s foreword. The study revealed that non-performing district municipalities have used a lot of personal references, and more passive voice than performing even though not significant, while performing have used significantly more positive tone than nonperforming district municipalities. The study revealed that performing district municipalities have lower readability scores than non-performing. Furthermore, there is no significant difference between performing and non-performing district municipalities on the length of the mayor’s foreword, use of passive voice, use of personal references and the readability score. The study brings new insights into the use of impression management tactics in the public sector, specifically in local government. It further extends the debate on impression management and self-attribution.
Institutional shareholders' monitoring and control over corporate decisions: evidence from JSE listed companies.
(2021) Obagbuwa, Oloyede.; Kwenda, Farai.
This thesis seeks to intensify our understanding of the responsibility of the institutional shareholders in corporate governance. Whereas several studies have investigated the efficacy of institutional shareholders' monitoring and have considered the diversity of their investment, there is a dearth of research on the effect of limited attention caused by distraction on their monitoring intensity and particularly on the reaction of the corporate executives regarding corporate decisions to the temporarily relaxed monitoring intensity in emerging market space. As a result of a shift in institutional shareholders' attention occasioned by exogenous shocks to an unrelated firm in their portfolios, the intensity of their monitoring of corporate activities dropped. The executives make decisions beneficial to them and harmful to institutional shareholders' interest and the firm's value. The study considers corporate decisions on executive remuneration, earnings management, investment inefficiency and mergers and acquisitions (M&A). These decisions are crucial to the growth of firms and return to institutional shareholders. However, due to agency problems, corporate executives' decisions on these activities tend to be for personal interest at the detriment of institutional shareholders' interest and firm value. Effective institutional shareholders' monitoring seems to be the antidote against opportunistic executives. But the intensity of their monitoring is affected by distraction caused by the external shocks to another firm in their portfolios. When this distraction occurs, the executives maximise the space to make decisions on their remuneration, manipulate earnings, invest in the unprofitable venture, and uncontrolled acquisition sprees that is of private benefits. The first empirical analysis in this thesis examines the impact of institutional shareholders' distraction on executive remuneration. The study shows that when shareholders are distracted and their monitoring intensity drops, the executives are inclined to manipulate their remuneration without considering institutional shareholders' interest and firm performance. The second empirical analysis examines the relationship between the relaxed institutional shareholders' monitoring intensity and executive decision on earnings management. The study reveals that the executives tend to manipulate both the discretional accruals earnings and real activities earnings for personal interest. The third empirical analysis indicated that executives could invest in projects with negative net present value (NPV) when the institutional shareholders monitoring is not sufficient. The final empirical research relates to the intensity of institutional shareholders’ monitoring to M&A executive decisions. The finding reveals that the executives could engage in an uncontrolled acquisitions spree of personal interest, jeopardise institutional shareholder’s investment and fail to improve the firm's value. The overall findings indicated that when institutional shareholders' attention is shifted, their monitoring intensity drops. The executives engage in corporate decisions that will not be in the shareholders' best interest and promote the firm's growth. These findings support the hypothesis that institutional shareholders monitoring intensity has a positive influence on corporate decisions. This insight has an implication for stakeholders and value-creating corporate governance mechanism. The study employed the more robust Generalised Method of Moments (Sys-GMM) estimation approach to analyse the data collected for firms listed on the Johannesburg Stock Exchange (JSE) covering the period 2004-2019.
Investigating South Africa’s exposure to potential currency crises.
(2025) Hadebe , Ntokozo Thabiso.; Nyati , Malibongwe Cyprian.; Msomi , Simiso Sinqumo Sanele Gary.
This study investigates South Africa's potential exposure to currency crises, aiming to identify effective economic indicators for anticipating such crises. Using annual data from 1994 to 2020, a probit model analysis and the Market Turbulence Index (MTI) are employed to facilitate this investigation. The results suggest that none of the 10 variables identified in empirical literature have predictive power in the South African context. The insignificant findings can be attributed to data frequency restrictions, as annual data was used instead of daily, weekly, or monthly data due to limited public access to monthly statistics. The study concludes that the modelling approach employed may not be helpful for policymakers and central banks in predicting currency crises in South Africa. However, the use of higher frequency data and additional variables, such as political instability, may improve the significance and predictability of currency crises. Despite the insignificant results, the study highlights the potential adoption of the MTI in identifying crisis thresholds. With higher frequency data and more influential variables, this study can contribute significantly to the literature, particularly in a country like South Africa with a volatile economic climate.
The impact of ownership structures on the financial performance and corporate governance of JSE-listed firms.
(2023) Naidu , Delane Deborah.; Peerbhai , Faeezah.; McCullough , Kerry-Ann Frances.
The ownership structure of a firm plays an important role in decision making and cost control, as ownership signifies a source of authority over the company’s operations, strategy, and financial decisions. The evolution of finance has resulted in increased globalisation and increasingly open markets, which has consequently led to ownership structures of companies becoming more widely distributed among various types of owners. The ownership structure has significant implications for several fundamental aspects of firms, most notably, its financial performance. In addition to the financial performance of firms, the composition of ownership structures also holds significant importance for corporate governance systems, as owners have the capacity to influence the level of compliance that firms demonstrate towards corporate governance policies. This thesis, therefore, investigates the impacts of different ownership identities (managerial, foreign, institutional, government and family) on both the financial performance and corporate governance of companies listed on the Johannesburg Stock Exchange (JSE). The study uses panel data for non-financial JSE-listed firms, covering the 18-year period from 2004-2021. Financial performance is measured with Return on Assets (ROA), Return on Equity (ROE), Earnings per Share (EPS), and Tobin’s q. The study provides a novel contribution to corporate governance research by constructing a reliable and valid index and corresponding subindices to measure the corporate governance compliance of JSE-listed firms. The main index is predicated on the provisions of the King Reports that pertain to the categories of board characteristics and structure, accounting and auditing, and risk management and internal audit. These three categories form the subindices that are used to measure the individual compliance of provisions relating to boards, audit committees, and risk management committees. The reliability and validity of these constructs are confirmed by the Cronbach’s alpha test and the Principal Component Analysis (PCA), respectively. The study adopts the system Generalized Method of Moments (GMM) approach to estimate the impact of ownership structures, as it accounts for endogeneity, thus ensuring unbiased results. The results for ownership and financial performance revealed that managerial ownership shared a positive relationship with ROE, but a negative relationship with Tobin’s q. Similarly, foreign ownership had a positive impact on ROE, while institutional ownership had a negative effect on EPS. Lastly, family ownership was associated with a decline in Tobin’s q. The study also makes an original contribution to ownership research in South Africa by discovering a non-linear inverse U-shaped relationship between foreign ownership and ROE, with an optimal value of 39.6%. This infers that foreign ownership positively affects ROE when shareholdings are below 39.6%. However, when foreign ownership exceeds this threshold, firm performance is eroded. Regarding the analysis of ownership structure and corporate governance, the results showed that managerial ownership exhibited a negative effect on the board characteristics and structure subindex, while foreign ownership depicted positive effects on the main index and the accounting and auditing subindex. Regulators should therefore formulate policies that cultivate the benefits associated with managerial and foreign ownership, whilst also developing strategies to mitigate the negative effects of managerial, institutional, and family ownership. Iqoqa. Uhlaka lobunikazi lunomthelela omkhulu kakhulu emikhakheni eminingi ebalulekile yezinkampani, okuqapheleka kakhulu, ukusebenza kwezimali kanye nenqubo yokwenganyelwa kwenkampani. Le thisisi, kungalesi sizathu-ke, iphenya umthethela wobunjalo bobunikazi obahlukene (ukwengamela, okwangaphandle, okwesikhungo, uhulumeni kanye nomndeni) kukho kokubili ukusebenza kwezezimali kanye nokwengamela izinkampani ezisohlwini lweJohannesburg Stock Exchange (JSE). Ucwaningo lusebenzisa iqoqo lemininingo yezinkampani ezingakhandi nzuzo ezisohlwini lwe-JSE, kubalwa isikhathi esiyimika eyi-18 kusukela ngowezi-2004-2021. Ukusebenza kwezezimali kukalwa ngeReturn on Assets (ROA), iReturn on Equity (ROE), i-Earnings per Share (EPS), kanye neTobin’s q. Ucwaningo lunikeza umnikelo omude ngokwakha inkomba eyethembekile neyiyona yona ukukala ukuhambela kokwenganyelwa kwenkampani esohlwini lwe-JSE. Lezi zikalo zichazeka ngokwencazelo yeKing Reports emayelana nokwehlukaniseka komumo webhodi kanye nohlaka, ezezimali nokusetshenzwa, kanye nokwenganyelwa ngobungozi nokusetshenzwa kwamabhuku kwangaphakathi. Lezi zinhlobo ezintathu zaguqulwa zaba izinkonjana ezincane. Ukwethembeka kanye nokukholakala kwalezi zakhi kuqinisekiswa isivivinyo seCronbach’s alpha kanye nePrincipal Component Analysis (PCA), ngokwehlukana kwazo. Ucwaningo lusebenzisa indlela yenqubo yeGeneralized Method of Moments (GMM) ngezinhloso zokuhlawumbisela, njengoba ibhekelela ukuhlobana. Imiphumela yokusebenza kwezezimali yaveza ukuthi ubunikazi bokwengamela kwaveza ubudlelwane obuhle ne-ROE, kodwa ubudlelwane obungebuhle neTobin’s q. Ubunikazi bangaphandle baba nomthelela omuhle kwi-ROE, kanti ubunikazi besikhungo baba nomphumela ongemuhle kwi-EPS. Okokugcina, ubunikazi bomndeni kwakuhlobene nokwehla kweTobin’s q. Ucwaningo luphinde luveze futhi ubudlelwane boshintsho olungaqondile oluyi-Ushaped phakathi kobunikazi bangaphandle kanye ne-ROE, nobungako benani lika-39.6%. Lokhu kusho ukuthi ubunikazi bangaphandle bunomthelela omuhle kwi-ROE ngesikhathi ubunikazi bezingxenye zenkampani ziphansi ngama-39.6%. Ngakolunye uhlangothi, uma ubunikazi bangaphandle bedlula isikali esibekiwe, ukusebenza kwenkampani kuyahlukumezeka. Mayelana nokwenganyelwa kwenkampani, imiphumela yaveza ukuthi ubunikazi bokwengamela kwaveza umphumela ongemuhle ezinkombeni ezincane zezinhlobo zebhodi, ngesikhathi ubunikazi bangaphandle kuveza imiphumela emihle enkombeni okuyiyona yona kanye nasezimalini nenkomba encane yokusebenza kwamabhuku. Abaqaphi kumele baqhamuke nemigomo egqugquzela imivuzo ehlobene nobunikazi bokwengamela kanye nobangaphandle, ngesikhathi beqamba futhi amasu okuhlangabezana nemiphumela engemihle yokubunikazi bokwengamela, obesikhungo kanye nobomndeni.
The managers’ perceptions of irregular expenditure In the KwaZulu-Natal municipalities.
(2018) Zungu, Amos.; Mkhize, Msizi Vitalis.
Background: While the Municipal Finance Management Act (MFMA, 2003) requires accounting officers to prevent irregular expenditure, municipalities continue to incur such expenditure. Aim: This study aimed to determine the managers’ perceptions of irregular expenditure in the KwaZulu-Natal municipalities; their perceptions of councillors’ oversight of such expenditure, and managers’ views on the capacity of Municipal Public Account Committees (MPACs) to fulfil their oversight role. Setting: The setting for this study is municipalities in KwaZulu-Natal. Methods: A descriptive and analytical cross-sectional design using systematic sampling was employed. The responses of 52 managers were analysed. Results: Managers agreed on the need for compliance with procurement processes and proper planning. They also concurred that irregular expenditure negatively impacts social transformation and wealth redistribution. The study respondents were of the view that irregular expenditure occurs due to manipulation and unfair practices, a lack of transparent supply chain management processes and politicians’ interests in tenders. In their opinion, councillors fail to investigate liability for irregular expenditure as required by section 32(2) (a) and (b) of the MFMA. They reported that serious cases of irregular expenditure where there were allegations of fraud, theft and corruption had not been investigated. Furthermore, disciplinary proceedings were not instituted against those that did not act in good faith and committed serious financial misconduct that resulted in municipalities incurring financial losses. Conclusion: Irregular expenditure harms municipalities’ image and negatively impacts social transformation. Municipalities, Cooperative Governance and Traditional Affairs (CoGTA) and the South African Local Government Association (SALGA) should invest in capacity building, implement effective fraud prevention plans and enhance the capabilities of those in charge of oversight. Contribution to the Study: The study makes a practical contribution towards understanding of the incidence of irregular expenditure and how it can be prevented. In addition, the study is the first to be undertaken in South Africa. This will serve as a foundation and source of reference for further studies.
Tone at the top's role in the detection and prevention of financial statement manipulation in South africa.
(2024) Marais, Alastair Malcolm.; Vermaak, Claire Lauren.; Shewell, Patricia Maureen.
Corporate frauds destroy wealth, undermining investor confidence. Given the severity of corporate fraud, regulators have enhanced monitoring mechanisms designed to prevent and detect financial statement manipulation. Despite these efforts, financial statement manipulation continues to occur, and academic research has found mixed results regarding the effectiveness of interventions. An identified reason is that a company’s overall culture, as set by the tone at the top, may undermine the effectiveness of monitoring mechanisms. Consequently, this study investigated the role of tone at the top in detecting and preventing financial statement manipulation. The study adopted a quantitative methodology, analysing data from non-financial firms on the JSE, to estimate how tone at the top moderates the effectiveness of three fundamental monitoring mechanisms: the audit committee, the external auditor and the market reaction. The study’s first paper found that commonly used financial statement manipulation detection models (the Beneish M-score and Dechow et al. F-score) are unsuitable in South Africa. Consequently, the study used two measures to proxy for financial statement manipulation: financial statement fraud and accruals-based earnings management. Tone at the top was measured by analysing CEO statements in the annual report using the DICTION software’s five master variables. Principal component analysis was used to reduce these five themes into two primary tones: autocratic and pragmatic. Principal component analysis was also used to develop five audit committee (activity, diversity, financial expertise, governance expertise and independence) and two external auditor proxies (competence and independence). The market reaction was measured using cumulative abnormal returns. The relationships between these variables were estimated using panel data regression methods. Overall, the study found that tone at the top is not directly related to financial statement manipulation. Considering tone at the top’s moderating effect, the findings suggested that an autocratic tone undermines the effectiveness of audit committees’ activity and diversity. However, the autocratic tone can enhance the committees’ financial expertise and independence, the external auditors’ competence, and result in a more negative market reaction to financial statement manipulation. In contrast, the pragmatic tone can inhibit the audit committees’ financial expertise, but enhance its activity and diversity. The pragmatic tone does not impact the external auditor or the market reaction. These findings would interest regulators, investors, audit committee members, external auditors and market analysts as they show the importance of understanding how tone at the top either undermines or supports these monitoring mechanisms. Consequently, careful attention must be paid to the individuals appointed to key monitoring positions to ensure they will be effective rather than ceremonial.

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