Black Economic Empowerment Transactions in South Africa: Understanding When Corporate Social Responsibility May Create or Destroy Value

Why can some firms create value from a particular corporate social responsibility (CSR) action while other firms destroy value from the same type of CSR action? This study explores this question in the context of Black Economic Empowerment (BEE) in South Africa. BEE has helped to drive the transformation in the economic, political and social landscapes of post-apartheid South Africa. It strives to increase black wealth through the sale of an equity stake in a company to black empowerment groups. Thus, BEE appears to represent corporate social responsibility that benefits the previously disadvantaged population. This inductive study investigates whether BEE can represent a value-creating CSR action and under what conditions. We explore the economic impact of BEE for the shareholders and find that South African firms that engaged in BEE transactions that were completed at a discount experienced positive and significant average shareholder returns. However, the firms that engaged in BEE transactions that were completed at a premium experienced negative and significant average shareholder returns. Furthermore, for empowerment deals completed at a discount, the size of the equity stake was positively associated with shareholder returns. Our analysis suggests that the CSR aspects of BEE deals created value when pursued in earnest, but destroyed value otherwise. We offer several implications from our findings for managers. We also link the insights from our findings to implications for stewardship theory, signalling theory and broader CSR perspectives. (C) 2011 Elsevier Ltd. All rights reserved.