Corruption has been shown to undermine the efficiency of market-based economies by allowing participants to profit from illegal rent-seeking activities, which decrease public support for business and increase the cost of capital (Zingales, 2015). Over the past decade, the Competition Commission in South Africa has investigated and issued punitive fines amounting to around R8bn to companies engaged in non-competitive behaviour. Using event study methodology, we examine the impact on the share prices of listed companies upon the announcement of an investigation, a fine, and the payment of the fine. We find that shareholder returns were unaffected at the initiation and payment stages of the process, but that the returns were positively affected at the conviction stage. A buy-and-hold longitudinal study was also undertaken to determine if an ex-post portfolio consisting of stocks of convicted companies out-performed an equal-weighted all share benchmark, as well as a portfolio of matched companies which had not been fined. The results reveal that both the portfolio of fined companies and the matched portfolio of non-fined companies out-performed the market benchmark over a 24-year period. However, the portfolio consisting of convicted companies underperformed the portfolio of companies which had not been fined. We conclude that the market anticipated the fines and that the quantum of fines levied was less than expected. We also find that the non-competitive behaviour of convicted companies did not benefit their shareholders in the long-term.

The efficient market hypothesis is based on the assumption that individuals act rationally, processing all available information in their decision-making process. Prices therefore reflect the appropriate risk and return. However, research conducted regarding the ways that investors arrive at decisions when faced with uncertainty, has revealed that this is in fact not always the case. People often make systematic errors, the so-called cognitive biases, which lead them to less rational behavior than the traditional economic paradigm predicts. These cognitive biases have been found to be responsible for various irregular phenomena often observed in financial markets as (turbulence or, volatility, seasonable cycles, "bubbles", etc. Behavioral finance attempts to explain some of the changes in the financial markets that cannot be explained by the efficient market hypothesis. This research reviews some results from the behavioral finance and other related literature. A survey was also done to determine whether the most prominent portfolio managers in South Africa are aware of behavioral finance issues/models and consider the influence of cognitive issues when making investment decisions or giving advice to clients.