scholarly journals Secondary tax and its effect on the cost of capital and shareholder value of South African JSE listed companies

2008 ◽  
Vol 8 (1) ◽  
Author(s):  
J. H.v.H De Wet ◽  
A. D. Das
Keyword(s):  
South African ◽  
Capital Investment ◽  
Cost Of Capital ◽  
Shareholder Value ◽  
Local Study ◽  
Tax Rate ◽  
Original Intention ◽  
Tax Changes ◽  
The Cost ◽  
The Impact

Background: The introduction of a secondary tax on companies (STC) and the lowering of the normal income tax rate in 1993 constituted a dramatic change in the tax structure of South African organisations. The original intention of these changes was to encourage organisations to re-invest profits to make use of capital investment opportunities. It was also anticipated that these tax changes would lower the cost of capital of organisations. Problem investigated: Announcements during the 2007 budget again raised questions about how the proposed changes in STC would affect the value of organisations. The impact of these tax changes has been the topic of some speculation in the absence of concrete research results to date. Purpose: The purpose of this study was to investigate the effect of these tax changes and all subsequent changes since 1993 on the cost of capital and shareholder value. Approach: A model of a hypothetical company, representing the 'average' listed South African organisation was used to determine the effect of the introduction of STC and the changes to the STC and company tax rate on the cost of capital and the value of the organisation. Findings: The study found that, contrary to expectations, the tax changes actually caused the cost of capital to go up. Overall, the combined effect of the higher cost of capital and the lower company tax rate caused the theoretical value of organisations to increase, constituting an improvement of shareholder value. Value of research: It is the first local study that endeavoured to analyse and quantify the impact of the introduction of STC and the lowering of the company tax rate on the cost of capital and the value of organisations. Conclusion: The introduction of STC in and the lowering of the company tax rate in 1993, as well as changes to these two forms of taxes since then, seem to have been justified in terms of shareholder value creation.

scholarly journals Drivers Creating Shareholder Value In South African Manufacturing Firms

2012 ◽  
Vol 28 (5) ◽  
pp. 1035 ◽  
Author(s):  
John H. Hall
Keyword(s):  
South Africa ◽  
Regression Analysis ◽  
South African ◽  
Value Creation ◽  
Capital Investment ◽  
Shareholder Value ◽  
Manufacturing Firms ◽  
Value Drivers ◽  
Value Based Management ◽  
The Cost

The objective of this study was to determine shareholder value drivers for South African manufacturing firms listed on the Johannesburg Securities Exchange (JSE) from 2006 to 2010. In order to optimise shareholder value creation, management must be able to recognise value drivers that it can control. A multiple regression analysis was used to identify the value drivers of manufacturing firms in South Africa. The value drivers found to be significant in explaining shareholder value are the cost of goods to sales percentage, the degree of manufacturing leverage, and the capital investment in plant and equipment. Value-based management incorporating these value drivers can guide manufacturing managers toward optimal shareholder value creation.

scholarly journals The Effect Of The Tax Reform Act of 1986 On U.S. Manufacturing Corporations

2011 ◽  
Vol 2 (4) ◽  
pp. 72
Author(s):  
George E. Moody ◽  
Don P. Holdren
Keyword(s):  
Capital Investment ◽  
Tax Reform ◽  
Cost Of Capital ◽  
Tax Credits ◽  
General Motors ◽  
Tax Rates ◽  
Conference Committee ◽  
The Cost ◽  
The Impact ◽  
Capital Intensive

This paper considers the impact of the Tax Reform Act of 1986 on capital intensive industries. While the findings in this report may not be applicable to service-type businesses, it was felt that the impact on manufacturing businesses would be the most severe. The specific areas of impact considered are investment tax credits, tax on foreign earned income, the change in depreciation, and the effect of lowering tax rates on the cost of capital. The authors reviewed the tax bill after it came out of the Joint Conference Committee ready for a vote of the Congress. In addition, studies were done using Pittsburgh Plate Glass for the investment tax credit effects and using General Motors and Chrysler for the cost of capital effects. Three of the four areas studied were found to impact negatively on either earnings or capital investment for manufacturing firms; so one would have to conclude that instead of being neutral, these new tax law changes will impact negatively on U.S manufacturing corporations.

scholarly journals Market value calculation and the solution of circularity between value and the weighted average cost of capital WACC

2009 ◽  
Vol 10 (6) ◽  
pp. 101-131 ◽  
Author(s):  
Ignacio Vélez-Pareja ◽  
Joseph Tham
Keyword(s):  
Average Cost ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Cost Of Debt ◽  
Cost Of Equity ◽  
Tax Rate ◽  
Market Values ◽  
Equity Cost ◽  
Tax Payments ◽  
The Cost

Most finance textbooks present the Weighted Average Cost of Capital (WACC) calculation as: WACC = Kd×(1-T)×D% + Ke×E%, where Kd is the cost of debt before taxes, T is the tax rate, D% is the percentage of debt on total value, Ke is the cost of equity and E% is the percentage of equity on total value. All of them precise (but not with enough emphasis) that the values to calculate D% y E% are market values. Although they devote special space and thought to calculate Kd and Ke, little effort is made to the correct calculation of market values. This means that there are several points that are not sufficiently dealt with: Market values, location in time, occurrence of tax payments, WACC changes in time and the circularity in calculating WACC. The purpose of this note is to clear up these ideas, solve the circularity problem and emphasize in some ideas that usually are looked over. Also, some suggestions are presented on how to calculate, or estimate, the equity cost of capital.

Does environmental information disclosure affect the performance of energy-intensive firms’ borrowing ability? Evidence from China

2018 ◽  
Vol 29 (5) ◽  
pp. 685-705 ◽  
Author(s):  
Haiqing Hu ◽  
Chun-Ping Chang ◽  
Minyi Dong ◽  
Wei-Na Meng ◽  
Yu Hao
Keyword(s):  
Capital Market ◽  
Information Disclosure ◽  
Cost Of Capital ◽  
Environmental Information ◽  
Influential Factors ◽  
Environmental Information Disclosure ◽  
Loan Size ◽  
The Cost ◽  
The Impact ◽  
Positive Effect

In recent years, a growing strand of China’s listed companies chose to disclose environmental information, which may potentially affect their financial performance then further influence its performance of financial supports. To quantitatively investigate the impact of enterprise’s environmental information disclosure on the ability of firms’ borrowing in China, this paper divides the measurements of information disclosure into five categories and evaluates firms’ performance in capital market through its availability of a loan and the cost of capital. In total, 97 listed energy-intensive companies in China are selected and their data covering the period of 2000–2014 are utilized for empirical study. The empirical results indicate that enterprise’s environmental information disclosure appears to have a significantly positive effect on the loan size available, while the cost of capital is less sensitive to environmental information disclosure. The empirical evidence also suggests that, among the five aspects of information disclosure measurements, the future plan and monetary information are the most influential factors of the cost of capital.

The Impact of Price Regulation on the Cost of Capital

2013 ◽  
Vol 84 (2) ◽  
pp. 139-158 ◽  
Author(s):  
Fernando T. Camacho ◽  
Flavio M. Menezes
Keyword(s):  
Cost Of Capital ◽  
Price Regulation ◽  
The Cost ◽  
The Impact

scholarly journals How leverage can improve performance

2020 ◽  
Vol 83 ◽  
pp. 01031
Author(s):  
Miroslav Kmeťko ◽  
Eduard Hyránek
Keyword(s):  
Risk Premium ◽  
Expected Returns ◽  
Tax Rates ◽  
Expected Return ◽  
Tax Rate ◽  
Equity Ratio ◽  
Risk Free Rate ◽  
The Cost ◽  
Managed Portfolios ◽  
The Impact

One of the best-known Capital Asset Pricing Model (CAP/M) provides us with a methodology for measuring the relationship between the risk premium and the impact of leverage on expected returns. However, this model is not used only to value the cost of capital but also to evaluate the performance of managed portfolios. We will test how the expected return changes in percent by changing the debt-equity ratio and the tax rate based on following assumptions: market return 7%, risk-free rate of return 1% and beta 1.2. These assumptions will be constant and we will change the debt-equity ratio and tax rate. Based on these results, it is clear that the change in profitability varies, in relation to the change of the DE ratio by one tenth. As for changes I n tax rates, changes in expected profitability are not entirely in direct proportion to these changes.

scholarly journals Employee theft in the South African retail industry: Killing the goose that lays the golden egg?

2012 ◽  
Vol 10 (1) ◽  
pp. 444-454
Author(s):  
Michael Colin Cant ◽  
Elsa C. Nell
Keyword(s):  
South African ◽  
Security Policy ◽  
Security Measures ◽  
Employee Theft ◽  
Future Success ◽  
Additional Costs ◽  
Projection Techniques ◽  
Trained Staff ◽  
The Cost ◽  
The Impact

Employee theft has once again come to the fore as a result of the economic crises prevailing world wide. It is a known fact that as economic hardships increase people are looking at other ways and means to supplement their declining income. One such method is unethical behaviour in the form of employee theft. Retail shrinkage as a result of theft by employees and consumers is a serious problem worldwide and has a direct effect on commerce and industry. Not only does it result in a loss of profit but the retailer is also faced with additional costs such as legal expenses, loss of productivity, expensive security measures, product replacements, increased insurance, loss of trained staff and the expense of retraining new staff in the case of conviction of dishonest employees. The cost of employee theft is enormous and it has a definite and detrimental impact on business activities. Industry estimates place shrinkage at between 5 and 7 percent of turnover, with most companies budgeting for at least 3 to 5 percent. The main purpose of the study was to examine the reasons why employees participate in this type of dishonest behaviour and the methods that they use in such instances. The research followed a quantitative approach where a survey questionnaire was used as the data collection method. As few if any person will admit to stealing, projection techniques were used to obtain the information. It was found that employees are aware of a variety of methods by which employees steal. The impression was gained that employees are not aware of the impact and effect losses of this nature have on the future success of a company. Dishonesty creates its own vicious circle. If management is perceived as treating employees unfairly in order to make even larger profits employees become defiant and react in such a dishonest manner. Employees then regard stealing as paying management back for this. This study highlights the areas where corrective action is required and indicates the need for a strict security policy and a beneficial corporate environment to be created by management.

Sign in / Sign up

Export Citation Format

Share Document