The Impact of Black Economic Empowerment on Business Risk - Evidence from the South African Industrial Sector

Existing research indicate that many South African companies display a negative perception of and a general reluctance towards embracing the various aspects of Broad-Based Black Economic Empowerment (B-BBEE). The objective of this study is to test the validity of potential underlying negative perceptions by evaluating the statistical relationship between each B-BBEE scorecard element and the business risk of companies listed in the South African industrial sector of the Johannesburg Securities Exchange, using multivariate panel regressions. The findings demonstrate that a firm's level of B-BBEE has minimal to no impact on the level of its business risk. Companies are advised to avoid treating the elements of their B-BBEE exposure as factors to be mitigated through corporate risk management strategies, and instead focus on fully harnessing their performance benefits. Policymakers can incorporate the empirical evidence that B-BBEE carries no downside risk into their campaigns to reduce fronting practices and reluctance towards B-BBEE.