Financial Reforms and Firm Performance on the Johannesburg Stock Exchange

This paper examines the effects of financial reforms on the operating and financial performance of firms listed on the Johannesburg Stock Exchange (JSE). Using panel data estimation models, the results show; firstly, that the combined effect of the stock market liberalisation waves that commenced with the lifting of international sanctions is associated with a statistically significant increase in average shareholder returns. Secondly, the stock market reforms that commenced with the introduction of the electronic trading system are associated with improved financial performance. Thirdly, the first and second waves of stock market liberalisation cause large firms to increase their financial performance. However this trend reverses after the third wave of stock market liberalisation. Fourthly, the liberalisation of the capital account is associated with a significant increase in the probability for firms to become highly levered, thus increasing the possibility of these firms to become financially constrained. Lastly, firm specific characteristics play a significant role in explaining the variability in the probability for firms to become financially constrained (unconstrained).