The Impact of Black Economic Empowerment

Black Economic Empowerment is one of the South African government'sinitiatives to bring parity to past economic imbalances. One of the aspects ofthis empowerment has been through transferring of equity ownership toempowerment groups in order to increase black ownership and control. A keyquestion that arises is the impact that these transactions have on thecompanies transacting. As listed companies form a significant stake of, aswell as contribute significantly to the South African economy, the impact onsuch companies is of key interest.The purpose of this study was to investigate whether Black EconomicEmpowerment transactions have an impact on the cost of capital employed oflisted companies that have transacted with Black Empowerment companies orconsortia in South Africa.Results from an event study during the initial public announcement of thetransaction indicated that no abnormal returns are earned during the preannouncementand announcement periods, hence indicating no impact on thecost of capital. The results did, however, indicate that negative abnormalreturns are earned during the post-announcement period, indicating anincrease in the cost of capital.