The Price of Corporate Social Responsibility: The Case of Black Economic Empowerment Transactions in South Africa

William E. Jackson III, Todd M. Alessandri, and Sylvia Sloan Black
Working Paper 2005-29
December 2005

Download the full text of this paper (183 KB) PDF icon

Since the demise of apartheid in South Africa, corporations have been encouraged to participate in the governmental goal of increasing corporate ownership by the black majority population. One vehicle that has arisen to help facilitate an increase in corporate ownership has been black economic empowerment (BEE) transactions. BEE transactions are essentially private placements of equity. Firms that have taken this socially activist position of selling portions of their equity, usually at a substantial discount, to black empowerment groups have received positive media attention in the name of “good corporate citizenship.”

This study investigates the market performance of these BEE transactions, specifically addressing three questions. The first question is whether BEE transactions create or destroy wealth. To address this question we use an event study methodology to calculate the cumulative abnormal returns (CARs) associated with public announcements of BEE transactions. The second question is whether specific types of BEE transactions did better or worse than others. We address this question by analyzing the cross-sectional variation in the CARs associated with public announcements of BEE transactions. The third question is whether firms that engage in BEE transactions experience negative post-announcement price performance. This last question is motivated by popular press accounts of the exploitation of black empowerment groups by white-owned South African corporations. To address this question, we test whether BEE transactions have benefited white corporate South Africa at the expense of the participating black empowerment groups.

JEL classification: G14, G15, G18, F39

Key words: black economic empowerment, corporate social responsibility, event studies, South African stock market

The authors thank Michael Barclay, Bin Gao, Eitan Goldman, Larry Wall, and Harold Zhang for many insightful comments and recommendations. The authors especially thank Zenzo Lusengo and Owen Maubane of the African Merchant Bank in South Africa for detailed information and discussions on how black economic empowerment transactions are structured. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to William E. Jackson III, Federal Reserve Bank of Atlanta, Research Department, 1000 Peachtree Street, N.E., Atlanta, GA 30309, 404-498-8708,; Todd M. Alessandri, Whitman School of Management, Syracuse University, Syracuse, NY 13244-2130, 315-443-3674,; or Sylvia Sloan Black, School of Business Administration, North Carolina A&T State University, Greensboro, NC 27411, 336-334-7229, ext. 4039,