| Summary: | A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the degree of Masters of Commerce (Accountancy), 2018 === Broad-Based Black Economic Empowerment (BBBEE) has played a significant role in the
transformation of the South African economy. One way in which this has been done is through the
promotion of ownership by individuals previously disadvantaged under the Apartheid system. These
BBBEE ownership promotions schemes are typically highly leveraged and require substantial as well
as sustained dividend pay-outs to remain liquid. This may place additional pressure on firms with
such BBBEE deals to adopt a more aggressive dividend policy. A panel data regression model was
used to test whether firms with BBBEE deals do in fact have higher dividend pay-out ratios, after
controlling for the other major determinant of dividend policy (Company Size, Capital Structure,
Growth and Investment Opportunities, Liquidity, Profitability and Johannesburg Securities Exchange
(JSE) Sector). The panel data regression model was run for JSE listed companies from the year 1999
to 2006. These years of study were selected in order to control for taxation on dividends as this period
represented the largest period for which data could be obtained, and for which tax consequences on
dividends remained the same. The results for the regression model found that, on average and while
controlling for other factors influencing dividend pay-out, the dividend pay-out ratio for companies’
party to a BBBEE deal increased by 7.9% after implementation of the deal. These finding imply that
the liquidity of companies may be compromised which could have adverse effects for companies,
investors and the overall economy as a whole. Implications for companies include liquidity and
bankruptcy concerns as a result of paying out more cash as dividends. Investors, on the other hand,
will have to consider whether an increased dividend pay-out ratio is desirable to them, or whether they
should seek alternative investments offering higher capital appreciation and less dividend payments.
Lastly, the overall economy could suffer from lower growth as a result companies paying higher
dividends and keeping less cash on hand to be used for the purpose of fixed asset investment.
Keywords: Broad-Based Black Economic Empowerment (BBBEE), Dividend Policy, Dividend Pay
out in South Africa, Minorities. === XL2019
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