The information content of the Financial Mail’s “Top Companies” announcements

Investors look beyond accounting and financial data and incorporate factors relating to morality, society, the environment and corporate governance (inter alia) in making their investment choices. This study examines the share price performance of South African companies which best comply with the financial and qualitative criteria as prescribed in the Financial Mail’s “Top Companies” publication.Using event-study methodology, the abnormal and cumulative abnormal returns of companies recommended by analysts as “Top Companies” were examined. Positive, significant excess cumulative returns were observed for new entrants to the “Top Companies” sample after the publication date. Thereafter, negative returns were observed for the long-term post-publication holding period of up to 200 trading days.The results suggest that any new information related to the criteria in the FM “Top Companies” publication is of value, but only to short-term traders with low transaction costs. Long-term investors who buy these shares based on the recommendations of the FM analysts generally receive below market rates of return, suggesting that once companies have made it into the list, the value is overstated.