The Impact of Black Economic Empowerment on the Performance of Listed Firms in South Africa

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Abstract
Black Economic Empowerment (BEE) is a policy that aims to empower black people and, thus, decrease racial inequality in South Africa. The program puts reformation pressure on firms and might strongly influence firm performance. This paper examines how BEE affects turnover, profits, and labor productivity of (large) firms listed in South Africa. We use an extensive dataset covering a major share of listed firms between 2004 and 2019. The analysis employs fixed-effects regressions and instrumental variable approaches to account for endogeneity. Overall, we find that BEE has a positive impact on firms' sales, a positive but not robust impact on labor productivity, and no impact on profits. After accounting for heterogeneity in BEE scorecards applied, the positive effect of BEE on turnover and labor productivity becomes less pronounced. We conclude that BEE had a slightly positive effect on firm performance in the best case but also did not harm firms in the worst case. Thus, this study disproves the critique that BEE harms businesses, at least on the sample of listed firms. However, we propose that the policy should be further adapted to reduce the cost of compliance and focus on areas that bring structural change in South African companies, like the skills development dimension.

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