Effects of labour unrest on the share returns of the JSE Top 40 companies

MCom (Risk Management, North-West University, Vanderbijlpark Campus, 2021Labour strikes are a platform that enables workers to demonstrate their disagreement and/or their dissatisfaction towards their employer, with respect to labour relation issues such as remuneration, working conditions and employee benefits. Labour strikes in South Africa date back to 1922, post the Anglo-Boer war of 1899–1902, within the mining sector and have since become the fabric of our society in correcting historic socio-economic ails of unemployment, minimum wages and inequality. “The right to strike” as of 1995 is recognised as a constitutional right and fundamental tool for bargaining agents and workers. Collective bargaining is recognised as a key determinant of an amicable labour relationship between employees and the employers, which provide organisational rights to union representatives and facilitates continuous centralised bargaining councils. Collective bargaining is a key means for bargaining agents to establish fair wage and working conditions, on behalf of employees. Labour strikes regulate and establish new terms and conditions of employment and protects the rights of employees from arbitrary action by the employer. Collective bargaining provides employees with a sense of respect, responsibility and dignity, it strengthens the workforce and increases employee’s morale and productivity. Labour strikes for businesses mean a disrupt in the day-to-day operations and in certain cases a complete halt in production. The resolve of a labour strike results in a direct deviation in the main purpose of a company, which is to turn a profit and maximise shareholders’ returns. Labour strikes results in a loss in production, followed by a loss in customers as the first consequence of a strike. The withdrawal of labour by workers results in a disturbance in the supply chain affecting customers, companies and industries aligned with the affected company. The occurrence of the labour strike results in losses in the value of the company and subsequently the businesses' market share. However, the major impact endured by a company as a result of a labour strike is the reputation of the firm. Reputational damage to a business has a far-reaching effect on the business, affecting customers and investor sentiment. The value of a publicly-listed company is entrenched in the share price of the company. Investors make use of a company’s share price to gauge the market perception of the share and determine whether a company is profitable. Investors evaluate operating efficiency and profitability of the listed company. Labour strikes can negatively affect investor confidence and subsequently the share returns of an affected company. Effect of labour strikes on the share returns of the JSE-Top 40 companies Labour strikes in South Africa have increased at an alarming rate following the 2008/2009 global financial crisis (GFC). The number of labour strikes following the 2008/2009 GFC more than doubled, increasing from 51 strike incidents in 2010 to 132 in 2017. The GFC placed a strain on global economic conditions, affecting emerging markets the most. The occurrence of GFC exposed and deepened some of South Africa’s well-hidden vulnerabilities of poverty, unemployment and inequality. Calls for retrenchments and accepting minimum wages have been met with fury and frustration by workers, which has resulted in a significant rise in the number of labour strikes. Owing to the rise in the number of labour strikes and the gap in academic research, the study focused on examining the effects that labour strikes have on the share returns of the JSE Top 40 companies. To achieve the primary objective the subsequent objectives were set, establishing whether labour strikes have an effect on the share return of the JSE Top 40 companies, identifying the effects of protected and unprotected labour strikes, respectively, on the share returns of the JSE Top 40 companies and identify the effects of protected and unprotected labour strikes on the share returns of the JSE Top 40 companies, respectively and collectively, before and after the day of the strike. An event study methodology was used to examine a data sample of the JSE Top 40 companies that were affected by protected and unprotected labour strikes between 2010 and 2017, which were observed over a 61-day event window. A descriptive summary of the test result is presented, followed by industry analysis of the affected companies, a cumulative analysis of the effects of protected and unprotected labour strikes on the share return of the JSE Top 40 companies are presented, together with a comparison of the effects that protected and unprotected labour strikes had on the share returns of the JSE Top 40 companies. Along with a comparison of the effects of protected and unprotected labour strikes on the share return of the JSE Top 40 companies before and after the day of the strike commenced. The study found that labour strikes have a negative effect on the share return of the JSE Top 40 companies, with a significant negative effect found in companies affected by protected strikes. The study’s results are supported by previous researchers who found that protected labour strikes have a greater effect on companies owning to the cost implication of a protected labour strike. The study revealed that the majority of companies affected by labour strikes were found within the mining sector, which was in line with the Department of Labour’s Annual Industrial Action Report. The comparison of the effects of protected and unprotected labour strikes on the share return of the JSE Top 40 companies support the findings of the descriptive statistics that protected labour strikes have a greater cost implication than unprotected strikes. This is further confirmed in examining the effects of protected and unprotected labour strikes Effect of labour strikes on the share returns of the JSE-Top 40 companies before and after the day of the strike. The results indicated that there was an immediate effect on the share return of protected labour strikes, which rebounded after the day of the strike. The study’s findings indicate that there is a need for cohesion during periods of wage negotiations among bargaining agents. A conscious integrative collective bargaining approach employed by bargaining agents will enhance cohesion and instil investor confidence in the labour market and subsequently financial markets. A cohesive bargaining process will eliminate losses due to disruptions in daily operations owing to labour strikes and ensure maximum share returns to stakeholders. The study’s findings draw attention to the effect that labour strikes have on both the employee and the employer. By avoiding the occurrence of labour strikes the relationship between the employee and employer is maintained along with businesses’ daily operations. This in effect will support the ailing labour market as employment is maintained and new jobs can be made available.Master