An Application Of Data Envelopment Analysis To Benchmark CEO Remuneration: A South African Study

2013 ◽  
Vol 29 (5) ◽  
pp. 1509 ◽  
Author(s):  
Marli Theunissen ◽  
Merwe Oberholzer
Keyword(s):  
Data Envelopment Analysis ◽  
South African ◽  
Stock Exchange ◽  
Listed Companies ◽  
Data Envelopment ◽  
Efficiency Frontier ◽  
Cross Sectional ◽  
Johannesburg Stock Exchange ◽  
Multiple Components ◽  
And Performance

<p>The purpose of the study is twofold; firstly, to use data envelopment analysis (DEA) to estimate the technical efficiencies of Johannesburg Stock Exchange (JSE)-listed companies (per industry) to convert the multiple components of CEO remuneration into multiple company determinants, namely size and performance indicators, and secondly, to develop an efficiency frontier to serve as a benchmark to suggest acceptable CEO remuneration levels. An empirical study was executed on a sample of 221 JSE-listed companies. Cross-sectional data of CEO remuneration and company determinants were obtained from the McGregor BFA database for the 2010 financial year. The study found that CEOs from 80 of the 221 companies included in the sample emerged as the benchmark CEOs and formed the efficiency frontier against which inefficient CEOs were compared. The practical value is that remuneration committees can use this model, which is based on best practices, to simplify the structuring of reasonable CEO remuneration packages.</p>

scholarly journals The effect of industry nuances on the relationship between corporate governance and financial performance: Evidence from South African listed companies

2018 ◽  
Vol 21 (1) ◽  
Author(s):  
Jonty Tshipa ◽  
Leon M. Brummer ◽  
Hendrik Wolmarans ◽  
Elda Du Toit
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
South African ◽  
Resource Dependence ◽  
Stock Exchange ◽  
Listed Companies ◽  
Company Performance ◽  
Johannesburg Stock Exchange ◽  
Good Corporate Governance ◽  
The Relationship

Background: Premised on agency, resource dependence and stewardship theories, the study investigates empirically the existence of industry nuances in the relationship between corporate governance and financial performance of companies listed in the Johannesburg Stock Exchange. Aims: The main objective of the study is to understand the relationship between internal corporate governance and company performance from the perspective of three distinct economic periods, as well as industry nuances, cognisant of endogeneity issues. Setting: South Africa, as an emerging African market, offers an interesting research context in which the corporate governance and financial performance nexus can be examined empirically. Method: A sample of 90 companies from the five largest South African industries, covering a 13-year period from 2002 to 2014 (1170 firm-year observations) was examined with three estimation approaches. Results: Two key trends emerged from this study. First, the relationship between corporate governance and company performance differed from industry to industry. Second, the association between corporate governance and company performance also changes during steady and non-steady periods, which is an indication that the nexus is driven by the state of the global economy and the type of the industry. Conclusion: Evidence from the study suggests that companies should be allowed to optimise rather than maximise their corporate governance options. This finding questioned the approach of the recently published King IV Code of Good Corporate Governance, which requires Johannesburg Stock Exchange-listed companies to ‘apply and explain’ as opposed to ‘apply or explain’ as pronounced by King III Code of Good Corporate Governance.

scholarly journals Strategy and performance of South African listed family companies

1980 ◽  
Vol 11 (1) ◽  
pp. 5-8
Author(s):  
Rob Mackintosh
Keyword(s):  
Organizational Development ◽  
South African ◽  
Stock Exchange ◽  
Share Price ◽  
Business Policy ◽  
Johannesburg Stock Exchange ◽  
Professional Management ◽  
Small Base ◽  
And Performance ◽  
Business Family

An impressive body of theory on organizational development, performance, strategy and structure has developed over the last two decades. Much of what we know stems from direct observation (usually in the form of case-studies), first-hand experience, and common sense. Yet surprisingly little attempt has been made to test the theories and provide an empirical base with which to confirm or reject the theories. This study suggests that the traditional theories of organizational development are vindicated - that firms develop from entrepreneurial, family companies in the first stage to professional management in later stages. Furthermore, an analysis of share-price movements suggests that single business family companies on the Johannesburg Stock Exchange do not perform as well as those which adopt more diversified strategies. This study builds on the small base of previous research, and hopefully makes a contribution to our knowledge both in the academic/teaching sphere of business policy, and in the area of organizational change.'n Indrukwekkende versameling van teorie oor organisasieontwikkeling, en die prestasie, strategie en struktuur van ondernemings is oor die afgelope twee dekades ontwikkel. Ons kennis het ontstaan uit direkte waarneming (gewoonlik in die vorm van gevallestudies), eie ervaring, en gesonde verstand. Tog is min pogings aangewend om die teoriee te toets en 'n empiriese basis te skep waarvolgens die teoriee bevestig of verwerp kan word. Hierdie studie stel voor dat die tradisionele teoriee van organisasie-ontwikkeling geregverdig is - dat firmas van entrepreneuriele familie-ondernemings in die eerste stadium, tot professionele bestuur in latere stadia ontwikkel. Verder dui 'n ontleding van aandeleprys-bewegings aan dat enkelbedryf familiemaatskappye op die Johannesburgse Aandelebeurs nie so goed vertoon as die wat meer gediversifiseerde strategiee aanvaar het nie. Hierdie studie bou voort op die klein basis van vorige navorsing, en maak hopelik 'n bydrae tot kennis sowel in die akademiese/onderrigsfeer van bestuursbeleid, as op die gebied van organisasieverandering.

scholarly journals Are efficient CEOs higher remunerated? A data envelopment analysis of selected Johannesburg security exchange companies

2014 ◽  
Vol 12 (1) ◽  
pp. 92-104
Author(s):  
Merwe Oberholzer
Keyword(s):  
Data Envelopment Analysis ◽  
Stock Exchange ◽  
Practical Implication ◽  
The Other ◽  
Data Envelopment ◽  
Small Companies ◽  
Johannesburg Stock Exchange ◽  
Input And Output ◽  
Significant Difference ◽  
Performance Determinants

The originality of the study is that performances of CEOs are estimated by determining how efficiently they convert their own remuneration and other key company input resources into a key performance output. Accounting-based data, with the Du Pont analysis as conceptual framework, were applied as the other company input and output determinants. The main purpose was to determine whether there is a difference in remuneration of CEOs who are efficient and inefficient, as estimated by data envelopment analysis. A sample of 167 Johannesburg Stock Exchange-listed companies, divided into large, medium and small, from the industrial and resource sectors is empirically investigated. According to the Student t test, the study found that there is no statistically significant difference between the remuneration of efficient and inefficient CEOs of large and small companies, but for medium-sized companies, the inefficient CEOs are statistically significantly higher remunerated. A possible reason for this contradiction is, inter alia, that market-based performance determinants were not taken into account, which could lead to a different conclusion. The practical implication is that an accounting-based model is developed for company boards, which should consider using accounting-based data more frequently to benchmark their CEOs’ remuneration, since not only are these data readily available to make comparisons with peers, but it can be influenced more easily by a CEO as in the case of market-based determinants

scholarly journals The Relationship between Working Capital Management, Financial Constraints and Performance of Listed Companies in Tehran Stock Exchange

2017 ◽  
Vol 10 (2) ◽  
pp. 248 ◽  
Author(s):  
Ali Kowsari ◽  
Mohammad Reza Shorvarzi
Keyword(s):  
Financial Constraints ◽  
Negative Impact ◽  
Stock Exchange ◽  
Listed Companies ◽  
Capital Management ◽  
Working Capital ◽  
Cross Sectional ◽  
Working Capital Management ◽  
And Performance ◽  
The Relationship

The main objective of this study was to investigate the relationship between working capital management, financial constraints and performance of listed companies in Tehran Stock Exchange. To verify this financial information from 148companies listed on the Tehran Stock Exchange during the period 2009- 2013 were studied. Information required extracted from Rah Avard Novin 3 software, and thensummarized, classified, and calculated by Microsoft Excel, and finally through Eviews 8 and Stata 12 software were analyzed. According to the statistical procedures conducted in 95/0 reliability, the assumptions are tested. methods of the study are inductive reasoning and in terms of time are cross-sectional and in terms of relationship between variables is correlation. the results showed that ROA has a negative impact on working capital management. While financial constraints affect the relationship between working capital management and return on assets. better management of working capital can improve companies’ performance. On the other hand, effect of working capital on companies’ performance would be increased when facing financial constraint.

scholarly journals A Non-Parametric Comparison Among Firms Income Statement-Based And Balance Sheet-Based Performance

2013 ◽  
Vol 12 (11) ◽  
pp. 1467 ◽  
Author(s):  
Merwe Oberholzer
Keyword(s):  
Data Envelopment Analysis ◽  
Stock Exchange ◽  
Balance Sheet ◽  
Data Envelopment ◽  
Convenience Sample ◽  
Corporate Managers ◽  
Listed Firms ◽  
Industrial Companies ◽  
Johannesburg Stock Exchange ◽  
Income Statement

The purpose of the study is to create an income statement-based and a balance sheet-based data envelopment analysis (DEA) model, and to demonstrate these models on Johannesburg Stock Exchange (JSE) listed firms and to compare the technical and scale efficiencies of firms among the two models. A convenience sample of 51 JSE-listed industrial companies over a three year period was selected. The practical value of this modeling exercise is that corporate managers can become conscious that, although the income statement and balance sheet performances tend to be related, there is evidence of a significant gap between firms performance according to these measurements.

scholarly journals Performance, persistence and benchmarks of selected South African unit trusts for the period 1998-2002

2005 ◽  
Vol 36 (4) ◽  
pp. 81-90 ◽  
Author(s):  
G. Oldham ◽  
J. A. Kroeger
Keyword(s):  
South African ◽  
Stock Exchange ◽  
Theory Model ◽  
Convincing Evidence ◽  
Superior Performance ◽  
Arbitrage Pricing Theory ◽  
Cross Sectional ◽  
Fund Managers ◽  
Johannesburg Stock Exchange ◽  
Unit Trust

Fund managers in the South African unit trust industry have an objective of generating strong alpha returns, meaning average annual returns above the respective benchmark. This paper analyses the performance of twenty South African unit trusts, selected from various sectors over the 1998 – 2002 period. In all cases the benchmark used by the funds is the Johannesburg Stock Exchange All Share Index. The well-known Capital Asset Pricing Model and a three-factor Arbitrage Pricing Theory model are used in the analysis. The result shows that only four funds of the twenty analysed were able to generate a superior performance in one or more years of the five-year period. Individual unit trusts were unable to perform consistently for any length of time. The failure of the funds to meet their objective is further analysed in terms of the appropriateness of the JSE All Share Index as the benchmark. In some cases the index was not an appropriate benchmark to measure persistence in performance and sector indices were preferable. In a cross-sectional portfolio analysis there was evidence of overall persistence in performance but this was of short duration, related more to negative than positive persistence in performance. Overall, the results of the analysis do not produce convincing evidence that unit trust fund managers were able to generate consistent above average returns to their investors. Furthermore, it may be preferable from an investor’s viewpoint if fund managers were to target an absolute rather than a relative benchmark.

scholarly journals Measuring capital intensity in South African companies listed in the Industrial Section of the Johannesburg Stock Exchange (JSE)

1999 ◽  
Vol 30 (4) ◽  
pp. 110-121
Author(s):  
J. H. Burger ◽  
W. D. Hamman
Keyword(s):  
South African ◽  
Stock Exchange ◽  
Capital Intensity ◽  
Listed Companies ◽  
Statistical Analyses ◽  
Johannesburg Stock Exchange ◽  
Capital Intensive

The authors investigated selected listed companies in the Industrial Section of the JSE to determine the degree of capital-intensity of the selected companies. This is done by calculating various measures of capital intensity of the companies concerned and ranking the companies accordingly. Statistical analyses were done to investigate for significant differences between various measures, as well as between and within sectors of the Industrial Section of the JSE. It was found that overall there are no significant differences between the rankings of the ratios. Between sectors overall, there are significant differences between the rankings of ratios. Based upon years, however, there are no significant differences. Within sectors and between sectors per ratio, there are significant differences between the rankings of the ratios. From the analyses it is clear that the sectors are not homogeneously compiled, but are quite diversified: The measures of capital-intensity used also do not explain the same phenomenon. It has also been found that some companies display a dualism in that they are capital-intensive on some measures and capital-unintensive on others.

scholarly journals EVA and Stock Returns: Are They Correlated?

2016 ◽  
Vol 7 (2) ◽  
pp. 34-51
Author(s):  
Matione Sauro ◽  
Mashamba Tafirei
Keyword(s):  
Stock Returns ◽  
South African ◽  
Firm Value ◽  
Stock Exchange ◽  
Economic Value ◽  
Value Added ◽  
Ordinary Least Squares ◽  
Economic Value Added ◽  
Johannesburg Stock Exchange ◽  
And Performance

The study sought to examine the relationship between economic value-added (EVA) and stock returns in commercial banks listed at the Johannesburg stock exchange. Furthermore, we also investigated other traditional value measures like Dividend per Share and Return on Equity in-order to identify which metric measures firm value better. The data was analysed with the Ordinary Least Squares (OLS) method. Economic value added was found to have significant influence on the financial performance of banks. This explains why traditional performance measures have driven investors to look for alternatives, such as value based measures in most developed economies. Therefore, EVA can be reliably used to measure corporate value and performance simultaneously. This at least should be a good encouragement for South African banks to adopt Eva so as to keep up with local and international competition for foreign capital (FDIs) in global financial markets. Hence, South African banks should consider supplying EVA data when releasing annual performance figures.

scholarly journals ISA 701: Key Audit Matters - An exploration of the rationale and possible unintended consequences in a South African

2017 ◽  
Vol 10 (2) ◽  
pp. 376-391 ◽  
Author(s):  
Milton Segal
Keyword(s):  
Content Analysis ◽  
South African ◽  
Stock Exchange ◽  
Financial Statements ◽  
Listed Companies ◽  
Unintended Consequences ◽  
Confidential Information ◽  
Audit Opinion ◽  
Johannesburg Stock Exchange ◽  
Audit Reports

The New International Standard of Auditing (ISA) statement number 701 titled key audit matters (KAM) has been reported as one of the most significant changes to the audit profession and the manner in which audit reports are to be delivered. Effective from 15 December 2016, auditors for Johannesburg Stock Exchange (JSE) -listed companies will need to disclose key and significant transactions that occurred on the audit, even in the event of an unmodified audit opinion. The legislators describe this as increasing transparency and accountability to enhance the fairness of reporting and to assist the stakeholders with understanding the audited annual financial statements. This paper uses a detailed content analysis of prior academic and professional audit literature to explore possible unintended consequences, uncertainties and risks of the KAM. These include disclosure of potential confidential information and potentially increased auditor

scholarly journals Benchmarking Of Johannesburg Stock Exchange CEO Compensation

2012 ◽  
Vol 11 (9) ◽  
pp. 1061 ◽  
Author(s):  
Merwe Oberholzer ◽  
Marli Theunissen
Keyword(s):  
South African ◽  
Ceo Compensation ◽  
Empirical Investigation ◽  
Stock Exchange ◽  
Linear Regression Analysis ◽  
Data Envelopment ◽  
Small Companies ◽  
Return On Equity ◽  
Dea Model ◽  
Johannesburg Stock Exchange

The purpose of the study is to empirically compare CEO compensation benchmarks set by the frequently used Linear Regression Analysis (LRA), which is based on averages and Data Envelopment Analysis (DEA), which is based on best practices. To fulfill this purpose, an empirical investigation on South African listed companies was executed using a sample of 187 Johannesburg Stock Exchange (JSE) companies, grouped into three categories according to their sizes by using total assets, i.e. large, medium and small companies. For the LRA model, total CEO compensation is the dependent variable (y) with return on equity (as a measurement of performance) and total assets (as measurement of company size) as the independent variables (x). In the LRA model, the expected CEO compensation was calculated as a benchmark for each company and then compared to the actual value of the CEO compensation. In the DEA model, total CEO compensation is the input variable and return on equity and total assets the two output variables. The input-orientated technical efficiency estimate was calculated and the input targets (benchmarks for CEO compensation) set by the DEA model were compared to the actual CEO compensation. The study found that, using the LRA model, CEOs are on average actually underpaid in monetary terms by 36.8%, 33.2% and 17.8% for the large, medium and small companies, respectively. In contrast, the results for these three groups using DEA have shown that CEOs are on average actually overpaid in monetary terms by 47.6% 55.3% and 49.9%. This implies that LRA favors CEOs in comparison with the DEA model. Therefore, the study concludes that the frequently used LRA model is probably a reason that contributes to excessive CEO compensation.

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