The Impact of the Indigenous Economic Empowerment Act of Zimbabwe on the Financial Performance of Listed Securities

This study examines the daily closing price performance of ZSE listed securities post enactment and subsequent adoption of the Indigenous Economic Empowerment Act by the Government of Zimbabwe. A desk analysis of the closing daily trading prices of the largest counters, by market capitalization, traded on the stock exchange for the period January to April 2010 is made. Interview and questionnaire responses from day traders show a high negative correlation between the promulgation of the Act and the daily trading prices of all counters traded on the ZSE. First difference tests on the counters ’ price movements yielded strong correlation coefficients which seem to suggest Granger causality between the share price movements and the passing of the Act. Further findings reveal that closing prices of all the largest counters traded on the ZSE were adversely affected by the Act. As a rule, empowerment laws should not significantly and adversely affect trading prices. However, historical backgrounds seem to suggest evidence of rampant systemic inefficiencies resulting from previous empowerment policies implemented in Zimbabwe. This background seems to have induced investment phobia and apprehension among investors. This fear appears to have scared away investors, initially from trading in counters whose ownership structures are likely to be affected by empowerment policies, and ultimately all the other counters. This behaviour affects the daily closing prices of listed securities. However, empowerment laws were found to have the potential to facilitate a prompt escalation of previously underprivileged economic agents ont