Abstract
M.Comm.
Companies evolve around the undertaking of risk for reward and are occasionally
exposed to potential catastrophes if the inherent risks encountered in their normal
course of business are not managed. Disasters occur infrequently and are not
unchallenging to pre-empt or control and they arise from daily uncertainties that
businesses have to confront. The gold mining industry has experienced numerous
disasters resulting in loss of life, destruction of assets, damage to third-party
property and harm to the immediate environment.
This has led to the question: why is management not successful in the prevention
of disasters and have the shareholders responded negatively by selling their
shares subsequently to the disasters, causing the share prices to drop or are
shareholders indifferent to the impacts of disasters? The essence of this research is to answer this question, which is accomplished by
revealing the concept of risk, defining event risk and determining the impact that
the disasters have had on share values. Six gold mining disasters meeting the
research criteria are used as case studies and investigated individually to establish
whether the disasters have had a negative influence on the share prices. The
emphases are on the short-term impact of event risk on the share value of gold
mining companies listed on the JSE Securities Exchange.
A theoretical context is used to explain the concept of risk and comprises the
complexity, definitions, types and classification of risk. This is followed by the
concept of risk and uncertainty, management's view of event risk and the benefit
versus risk relationship. Risk arises from uncertainty and for the purposes of this research, the focus is on
the downside risk and relating it to the impact disasters have had on share prices.
Downside risk is defined as an event risk or alternatively known as pure risk. Event
risk is further explained and includes the definition, components, requirements and
degree of event risk.
Ten days of share price data before and after the disasters was obtained from the
statistical department of the JSE Securities Exchange and used for empirical data
for significance testing to determine the influence the disasters have had on the
share value. The student t-test is used to measure the difference in the mean
share prices five and ten days before and after the disasters. This is followed by
the F distribution test to determine whether there is a difference in the price
variation and in this order, five and ten days before and after a disaster. The Chow test is used to conclude whether there is a structural break in the
aggregate share price regression following the disaster. The significance test is
then used to reveal whether the intercepts and slopes of the share price
regressions before and after the disasters have changed, implying that this may
have been caused by the disasters.
To conclude the empirical analysis, Pearson's correlation coefficient is used to
determine the influence of economic activity in the gold sector and that of the
general economy on the share price subsequent to a disaster. The reason for this
is to find out whether economic factors could have swayed the test results in
favour of the research objectives. Conversely and against all expectations, there is no strong case that the disasters
have had an insignificant (negative) influence on the share value. Although this is
the case, stakeholder consumerism and new corporate governance requirements
laid down by the JSE Securities Exchange may change the outcome that disasters
may have on the share price in the future and should be a topic for further
research.