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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Determinants of reputational signalling in South Africa
Author:Davidson, S.ISNI
Periodical:South African Journal of Economics
Geographic term:South Africa
Subjects:company law
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.1998.tb01064.x/pdf
Abstract:Pyramid structures dominate the South African corporate environment. Within a pyramid the dominant shareholder is able to control a firm or a number of firms while owning only a small fraction of the equity. A potential dominant shareholder is only able to form a pyramid if he has established a reputation for managing firms well, that is, managing the agency problem through tight shareholder control. This article examines whether there is evidence of an agency problem in South Africa. It conducts an alternative test of the agency problem and then investigates if the problem is managed via reputational signalling. Unlike previous research, positive (albeit relatively weak) evidence of an agency problem was found to exist. Contrary to similar research in the United States, where managers were found to undertake bonding activity with shareholders to solve the agency problem, the evidence for South Africa is ambiguous. The agency problem in South Africa is perhaps too small to render bonding activity relevant. It is also possible that some monitoring device able to align the interests of shareholders and management is in operation, so as to render bonding activity unnecessary. Bibliogr.