The impact of regulatory fines on shareholder returns

Abstract

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.

Exploring the Nexus of Capital Market and Investor Behaviour: A Systematic Literature Review

“…This behaviour, combined with the imminent perceptions Source: Generated on VoS Viewer software by Author, using Web of Science data of risk, evolving investment landscapes, and local preferences, make it difficult to make any investment decisions Acheson and Turner (2011). The regulatory domain further complicates this scenario which the investors are gasping Strydom et al (2015) highlight those regulatory burdens, specifically fines, influence long-term portfolio returns.…”

“…However, the efficacy of these analytical tools in current dynamic markets is underexplored. Future Research should aim to study the evolution of fundamental and technical analysis in modern financial markets.A rising trend as perStrydom et al (2015) andHagen et al (2023) indicates that external factors like regulatory changes and global shocks influence investment. But how can investors adapt to these sudden changes?…”