Abstract
M.Com. (Finance)
The purpose of this study is to examine the long-run relationship between shareholders’ protection and stock market development in South Africa, using time series data from 1975 to 2016. Shareholders’ protection rights were coded from the Companies Act of South Africa and the King Report on Corporate Governance in order to develop the Shareholder Protection Index (SPI). Stock market development was measured using the Johannesburg Stock Exchange (JSE) data, and the indicators include stock market capitalisation, total value of shares traded and the turnover ratio.
In order to measure the long-term relationship or cointegration between these selected time series data, the Johansen cointegration test was performed. The study found that there is a cointegrated long-term relationship between shareholders’ protection rights and stock market development in South Africa. Furthermore, the study used a vector error correction model (VECM) to examine whether there is short- and long-term relationship between all the selected variables.
The study found no short-term relationship between market capitalisation and the shareholder protection index, but did find short-term relationship between total value of shares traded and SPI. Lastly, the relationship between the turnover ratio and the SPI was examined and a short-term relationship between the two was found to exist.