Abstract
The South African competition regime is in line with global standards that prohibit direct and indirect price fixing, dividing markets, and collusive tendering. That is to say, it prohibits “hard core cartels”. Provided that the penalties are large enough to reduce the gains made from collusion, companies will have lower incentives to engage in collusion. If penalties are large enough to affect the value of companies, and intervention results in lower immediate and future profitability prospects, investors will care about the conduct of their managers, thereby enhancing deterrence effects. If removed from their positions, managers involved in collusion would then face real consequences including loss of income and incentive schemes. At a company level, findings of cartel conduct could lead to revenue loss due to legal and administrative costs, as well as reduced profitability due to the lower than collusive prices. Companies may also suffer reputational damage, which could be a disincentive to investors. This study uses event study methodologies to examine cartel conduct in South Africa between 2009 and 2019 and assesses the impact of announcements of investigation and the imposition of penalties. This is done by analysing the returns on the share prices of 15 companies listed on the Johannesburg Stock Exchange. The study provides evidence that for the most part, the announcement of investigations and imposition of penalties on the listed companies under study did not lead to statistically significant negative returns, despite negative returns being observed in most cases. The result may be because penalties were low relative to the overall financial position of most of the companies, particularly those that fell within a group of companies. This implies that the penalties did not have a significant impact on the valuation of the companies’ share prices. Delays in processing cases from investigation to penalisation may also have resulted in discounted present values and lower effective penalties. These delays also mean that investors may have priced in the penalties during the period between announcement of investigation and penalisation. The Competition Commission often conducts separate cases for each member of a cartel. These cases may be settled at various times throughout the process. For some companies, this creates the opportunity for information relating to the investigation to reach investors before all the affected companies have been penalised.
M.Com. (Competition and Economic Regulation)