mr maungwa - repository.nwu.ac.za
TRANSCRIPT
Effects of labour unrest on the share returns of the JSE Top 40 companies
MR Maungwa orcid.org 0000-0002-2292-4410
Dissertation accepted in fulfilment of the requirements for the degree Master of Commerce in Risk Management at the
North-West University
Supervisor: Dr SJ Ferreira-Schenk
Co-supervisor: Mr D Mokatsanyane
Graduation ceremony: June 2021
Student number: 23568763
Effect of labour strikes on the share returns of the JSE-Top 40 companies II
DECLARATION
I declare that:
“Effects of labour unrest on the share returns of the JSE Top 40 companies”
is my own work, that all the sources used or quoted have been indicated and acknowledged
by means of complete references, and that I have not previously submitted this dissertation
for a degree at any other university.
M.R. Maungwa
November 2020
Vanderbijlpark
Effect of labour strikes on the share returns of the JSE-Top 40 companies III
DECLARATION OF THE LANGUAGE EDITOR
DECLARATION OF LANGUAGE EDITING
14 November 2020
To whom it may concern
This is to confirm that I, the undersigned, have language edited the completed research of
M.R. Maungwa for the Master of Commerce in Risk Management entitled: Effects of labour
unrest on the share returns of the JSE Top 40 companies.
No changes were permanently affected and were left to the discretion of the student. The
responsibility of implementing the recommended language changes rests with the author of
the thesis.
Yours truly
Jomoné Müller
Effect of labour strikes on the share returns of the JSE-Top 40 companies IV
ACKNOWLEDGEMENT
With this submission, I would like to express my sincerest gratitude to the following persons,
for their continued support and guidance throughout this paper. In particular, I would like to
thank the following:
• God for giving me the knowledge to write this dissertation, the strength to overcome
all adversity throughout and the courage to preserve when it all seemed so bleak.
• To my supervisor Dr Suné Ferreira-Schenk, I would like to express my sincerest
gratitude for your guidance, your unweathered patience and words of
encouragement throughout this journey.
• Mr Danny Mokastanyane for your guidance, time and sacrifice, your assistance is
highly appreciated.
• To my language editor Jomone Miller for the wonderful editorial work.
• My parents Thabo Maungwa and Clara Morolong for their love and support.
• To my dear sister Reabestwe Maungwa, thank so much for your patience, love and
support. Your continued encouragement was exceptional.
• To my uncle Itumeleng Morolong for your love, endless support and motivation.
• A special thank you to my friends, family and colleagues for your support throughout
this time, your words of encouragement and understanding. Thank you.
“ Today I choose to live with gratitude for the love that fills my heart, the peace that rests
within my spirit, and the voice of hope that says all things are possible.”
– Anonymous
Effect of labour strikes on the share returns of the JSE-Top 40 companies V
ABSTRACT
Keywords: labour strikes, JSE Top 40 companies, share returns, efficient market hypothesis,
collective bargaining, event study methodology, labour strikes, global financial crises,
behavioural finance, protected and unprotected labour strikes
Labour 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 VI
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 VII
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.
Effect of labour strikes on the share returns of the JSE-Top 40 companies VIII
TABLE OF CONTENTS
DECLARATION ......................................................................................................... II
ACKNOWLEDGEMENT ........................................................................................... IV
ABSTRACT ............................................................................................................... V
TABLE OF CONTENTS .......................................................................................... VIII
LIST OF TABLES .................................................................................................. XIV
LIST OF FIGURES................................................................................................. XVI
LIST OF ABBREVIATIONS .................................................................................. XVII
CHAPTER 1: INTRODUCTION AND BACKGROUND ............................................. 1
1.1 INTRODUCTION ........................................................................................... 1
1.2 PROBLEM STATEMENT .............................................................................. 3
1.3 OBJECTIVE OF THE STUDY ....................................................................... 4
Primary objective ........................................................................................... 4
Theoretical objectives .................................................................................... 5
1.4 RESEARCH DESIGN AND METHODOLOGY .............................................. 5
1.5 RESEARCH METHODOLOGY ..................................................................... 5
Literature review ............................................................................................ 5
Empirical study .............................................................................................. 5
Sample size and sample period ..................................................................... 6
Event study methodology .............................................................................. 6
Hypothesis test statistics of abnormal returns ............................................... 8
Hypothesis test: ............................................................................................. 9
Abnormal returns ........................................................................................... 9
Z-statistic ..................................................................................................... 10
Effect of labour strikes on the share returns of the JSE-Top 40 companies IX
1.6 ETHICAL CONSIDERATIONS .................................................................... 11
1.7 CHAPTER CLASSIFICATION .................................................................... 11
CHAPTER 2: LABOUR STRIKES ........................................................................... 13
2.1 INTRODUCTION ......................................................................................... 13
2.2 DEFINING LABOUR STRIKES ................................................................... 15
Traditional strike (Primary strike) ................................................................. 15
Secondary strike (Sympathy strike) ............................................................. 16
Go-slow ....................................................................................................... 16
Work-to-rule ................................................................................................. 16
Sit-ins or work-ins ........................................................................................ 16
Lockouts ...................................................................................................... 17
2.3 A THEORETICAL FRAMEWORK FOR LABOUR STRIKES ..................... 17
The Zeuthen-Harsanyi model ...................................................................... 17
Ashenfelter-Johnson (Political model) ......................................................... 19
Hick’s bargaining theory .............................................................................. 21
2.4 COLLECTIVE BARGAINING ...................................................................... 23
2.5 PURPOSE OF COLLECTIVE BARGAINING ............................................. 23
2.6 COLLECTIVE BARGAINING AGREEMENT .............................................. 24
2.7 THE NEGOTIATING PROCESS ................................................................. 24
Preparation and discovery ........................................................................... 24
Negotiations ................................................................................................. 25
Outcome ...................................................................................................... 25
2.8 LEGAL PROCEDURE TO A LABOUR STRIKE ......................................... 27
Protected strikes and lockouts ..................................................................... 28
Illegal strikes and lockouts ........................................................................... 29
Effect of labour strikes on the share returns of the JSE-Top 40 companies X
When strike or lockout procedures do not apply .......................................... 29
2.9 REVIEW OF PREVIOUS STUDIES ............................................................ 29
2.10 GLOBAL FINACNCIAL CRISIS .................................................................. 32
The impact of the Global Financial Crisis on South Africa ........................... 35
2.11 SYNOPSIS .................................................................................................. 36
CHAPTER 3: EFFICIENT MARKET HYPOTHESIS ................................................ 37
3.1 INTRODUCTION ......................................................................................... 37
3.2 EFFICIENT CAPITAL MARKETS ............................................................... 38
3.3 ASSUMPTIONS OF AN EFFICIENT CAPITAL MARKET .......................... 38
3.4 EFFICIENT MARKET HYPOTHESIS .......................................................... 39
Weak form of efficient market hypothesis .................................................... 40
Semi-weak form of efficient market hypothesis ........................................... 40
Strong form of the efficient market hypothesis............................................. 40
3.5 THE IMPLICATION OF EFFICIENT MARKETS FOR INVESTORS ........... 41
3.6 FINANCIAL MARKET ANOMALIES .......................................................... 42
Fundamental anomalies .............................................................................. 43
3.7 BEHAVIOURAL FINANCE ......................................................................... 45
3.8 EFFICIENCY REVIEW OF THE JOHANNESBURG SECURITIES
EXCHANGE ................................................................................................ 48
3.9 SYNOPSIS .................................................................................................. 50
CHAPTER 4: RESEARCH DESIGN AND METHODOLOGY .................................. 51
4.1 INTRODUCTION ......................................................................................... 51
4.2 DATA DESCRIPTION ................................................................................. 51
Sample size and sample period ................................................................... 51
Data sample ................................................................................................ 53
4.3 EVENT STUDY METHODOLOGY .............................................................. 56
Effect of labour strikes on the share returns of the JSE-Top 40 companies XI
Event identification ...................................................................................... 57
The event periods ........................................................................................ 57
Calculation of abnormal returns ................................................................... 60
Hypothesis test statistics of abnormal returns ............................................. 62
4.4 SYNOPSIS .................................................................................................. 63
CHAPTER 5: RESULTS AND DISCUSSION .......................................................... 64
5.1 INTRODUCTION ......................................................................................... 64
5.2 DESCRIPTIVE STATISTICS ....................................................................... 65
5.3 INDUSTRY ANALYSIS OF THE JSE TOP 40 COMPANIES AFFECTED BY
LABOUR STRIKES ..................................................................................... 68
Industry distribution of the JSE Top 40 companies affected by labour strikes
……………………………………………………………………………………...69
Industry analysis of the JSE Top 40 companies affected by labour strikes . 70
5.4 CUMULATIVE ANALYSIS OF THE EFFECTS OF PROTECTED AND
UNPROTECTED LABOUR STRIKES ON THE SHARE RETURN OF JSE
TOP 40 COMPANIES.................................................................................. 96
Trend analysis of share return of companies affected by protected and
unprotected strikes, collectively ................................................................... 97
Hypothesis test of protected and unprotected strikes collectively on share
returns of affected companies ..................................................................... 98
Periodic analysis of protected and unprotected strikes collectively ........... 101
Summary hypothesis test of the JSE Top 40 companies affected by
protected and unprotected strikes, collectively .......................................... 102
5.5 COMPARISON OF SHARE RETURNS OF COMPANIES AFFECTED BY
PROTECTED AND UNPROTECTED STRIKES, RESPECTIVELY .......... 104
Trend analysis of share returns of companies affected by protected and
unprotected strikes, respectively ............................................................... 105
Effect of labour strikes on the share returns of the JSE-Top 40 companies XII
The distinction in share returns of companies affected by protected
unprotected strikes .................................................................................... 106
Periodic analysis of the JSE Top 40 companies affected by protected labour
strikes ........................................................................................................ 108
Periodic analysis of the JSE Top 40 companies affected by unprotected
strikes ........................................................................................................ 110
Summary hypothesis test of companies affected by protected and
unprotected labour strikes, respectively..................................................... 112
5.6 MOVEMENT IN SHARE RETURNS OF AFFECTED COMPANIES BEFORE
AND AFTER THE DAY OF THE STRIKE ................................................. 113
Share returns of protected strikes before and after the day of the
announcement of the strike ....................................................................... 113
Share returns of unprotected strikes before and after the day of the
announcement of the strike ....................................................................... 118
5.7 SYNOPSIS ................................................................................................ 123
CHAPTER 6: CONCLUSION AND RECOMMENDATIONS .................................. 127
6.1 INTRODUCTION ....................................................................................... 127
6.2 OVERVIEW OF THE STUDY .................................................................... 128
Theoretical objectives ................................................................................ 128
Empirical objectives ................................................................................... 128
6.3 FINDINGS OF THE STUDY ...................................................................... 130
Empirical Objective 1: Establishing whether labour strikes affect the share
returns of the JSE Top 40 companies ....................................................... 130
Empirical objective 2: Identifying the effects of protected and unprotected
labour strikes, respectively, on the share returns of the JSE Top 40
companies ................................................................................................. 131
Effect of labour strikes on the share returns of the JSE-Top 40 companies XIII
Empirical Objective 3: Identify the effects of protected and unprotected
labour strikes on the share returns of the JSE Top 40 companies,
respectively, before and after the day of the strike .................................... 131
6.4 CONTRIBUTION OF THE STUDY ............................................................ 132
6.5 CONCLUDING REMARKS AND RECOMMENDATIONS ........................ 132
6.6 LIMITATIONS AND FUTURE RESEARCH .............................................. 134
REFERENCE LIST ................................................................................................ 135
ANNEXURE 1:ETHICAL CLEARANCE ................................................................ 164
ANNEXURE 2: DECLARATION ............................................................................ 165
Effect of labour strikes on the share returns of the JSE-Top 40 companies XIV
LIST OF TABLES
Table 1.1: Sample selection criteria ........................................................................... 6
Table 3.1: Investors cognitive biases ....................................................................... 47
Table 4.1: Sample selection criteria ......................................................................... 53
Table 4.2: Protected and unprotected strikes from 2010 - 2017 ............................... 54
Table 5.1: Descriptive summary of share returns of companies affected by protected
and unprotected labour strikes ................................................................ 66
Table 5.2: Significance test: AAR mining industry .................................................... 73
Table 5.3: Significance test AAR consumer goods industry ..................................... 77
Table 5.4: Significance test of AAR of companies in the retail industry .................... 80
Table 5.5: Significance of AAR of companies in the brewery industry ..................... 84
Table 5.6: Significance test of AAR of companies in the telecommunications industry
................................................................................................................................. 87
Table 5.7: Significance test of AAR of companies in the corporate group industry .. 90
Table 5.8: Significance test of AAR of companies in the pharmaceutical industry ... 94
Table 5.9: Significance test of CAAR of the JSE Top 40 companies affected by
overall labour strikes ............................................................................... 99
Table 5.10: Interval analysis of protected and unprotected collectively .................. 101
Table 5.11: Summary significance test of share returns of companies affected by
protected and unprotected labour strikes ............................................ 103
Table 5.12: Significance test of CAAR of companies affected by protected and
unprotected strikes, respectively ......................................................... 106
Table 5.13: Interval analysis of protected labour strikes......................................... 109
Table 5.14: Interval analysis of unprotected labour strikes ..................................... 110
Table 5.15: Significances test of share return of companies affected by protected
and unprotected labour strikes, respectively ....................................... 112
Table 5.16: Share returns of companies affected by protected strikes before and
after the day of the strike ..................................................................... 115
Table 5.17: Significance test of share return of companies affected by protected
labour strikes before and after the day of the strike ............................ 118
Table 5.18: Share returns of companies affected by protected labour strikes before
and after the day of the strike .............................................................. 120
Effect of labour strikes on the share returns of the JSE-Top 40 companies XV
Table 5.19: Significance test of share return of companies affected by unprotected
labour strikes before and after the day of the strike ............................ 123
Effect of labour strikes on the share returns of the JSE-Top 40 companies XVI
LIST OF FIGURES
Figure 2.1: The Zeuthen-Harsanyi Bargaining model ............................................... 18
Figure 4.1: Performance of the JSE Top 40 index from 2010 to 2017 ..................... 52
Figure 4.2: Illustrates the event period of the study .................................................. 58
Figure 5.1: Distribution of share returns of the JSE Top 40 companies affected by
labour strikes ......................................................................................... 68
Figure 5.2: Industry distribution of the JSE Top companies affected by labour strikes
................................................................................................................................. 69
Figure 5.3: Average abnormal returns of companies in the mining industry ............. 71
Figure 5.4: Average abnormal returns of companies in the consumer goods industry
................................................................................................................................. 75
Figure 5.5: Average abnormal returns of companies in the retail industry................ 79
Figure 5.6: Average abnormal returns of the brewery industry ................................. 83
Figure 5.7: Average abnormal returns of companies in the telecommunications
industry .................................................................................................... 86
Figure 5.8: Average abnormal returns of companies in the corporate group industry
................................................................................................................................. 89
Figure 5.9: Average abnormal returns of companies in the pharmaceutical industry 93
Figure 5.10: Share return of the JSE Top 40 companies affected by protected and
unprotected labour strikes collectively ................................................... 97
Figure 5.11: Comparison of share returns of companies affected by protected and
unprotected strikes .............................................................................. 104
Figure 5.12: Difference in share returns of protected strikes before and after the day
of the announcement of the strike ....................................................... 113
Figure 5.13: Difference in share returns of companies affected by unprotected strike
before and after the day of the strike ................................................... 119
Effect of labour strikes on the share returns of the JSE-Top 40 companies XVII
LIST OF ABBREVIATIONS
AAR : Average abnormal returns
ALSA : All Share Index
CAAR : Cumulative average abnormal returns
CAR : Cumulative abnormal returns
CCMA : Commission for Conciliation, Mediation and Arbitration
CDO : Collateralised Debt Obligation
CRA : Community Reinvestment Act
ECM : Efficient capital market
EMH : Efficient market hypothesis
FSM : Financial Services Modernisation Act
GDP : Gross domestic product
GCF : Global financial crisis
JSE : Johannesburg Securities Exchange
Effect of labour strikes on the share returns of the JSE-Top 40 companies 1
CHAPTER 1: INTRODUCTION AND BACKGROUND
The most difficult thing is the decision to act, the rest is merely tenacity. –Amelia Earhart
1.1 INTRODUCTION
The advent of the 2008/2009 global financial crisis (GFC) placed a strain on global economic
conditions, affecting emerging markets the most as they still find it difficult to recover from to
date (Industrial action report, 2015). The recession resulted in high price levels, growth in
unemployment and slow economic growth. Men and women across the world are subjected
to accepting minimum wages as a result of sluggish global economic conditions (International
Labour Organization, 2016). The Industrial Action Report (2017), indicates that labour strikes
following the 2008/2009 GFC more than doubled, increasing from 51 strike incidents in 2010
to 132 in 2017. The rise in the number of labour strikes remains as a result of wage
discrimination, inequality and socio-economic conditions (Jorge & Adams, 2018). In 2010 a
historical number of 20 674 737 working days1were lost in production (Industrial Action Report,
2017). The number of days lost in production was primarily a result of prolonged public servant
strikes where workers demanded an increase in wages, bonus and better working conditions
(Industrial Action Report, 2010).
The notion of subscribing to minimum wages has been met with fury and frustration in South
Africa’s labour market. South Africa’s labour market has long been characterised by historical
socio-economic disparities of high levels of unemployment, minimum wages and high levels
of inequality (World Bank, 2018). Theses socio-economic disparities have been strained by
economic conditions, which have decreased consumer’s purchasing power and resulting in
higher wage demands and subsequent labour strikes (Department of Labour, 2016).
South Africa’s labour market has as a result of sluggish economic conditions been affected by
the significant rise in the number of labour strikes in the last decade. In 2010, the South African
army was deployed to hospitals across the country during a public servant strike involving 12
labour unions and more than 1.3 million workers ranging from teachers, police, nurses and
custom officials in a 20-day long strike (Smith, 2010). During this period, hospital entrances
were blocked, colleagues assaulted, surgeries and schools disrupted, and this was despite
court interdicts preventing workers from striking (Ceruti, 2010).
1 The number of working days lost due to labour strikes, is a measure of the total number of workers
involved directly in the strike or lockouts multiplied by the length of the work stoppage (Industrial Action Report, 2016)
Effect of labour strikes on the share returns of the JSE-Top 40 companies 2
On the 10th of August 2012, 3000 mine workers walked off the job and embarked on what
management regarded as an illegal wildcat strike (South African History Online(SAHO), 2012).
The incident is perceived as the most devastating strike incident since the history of
democracy. The strike resulted in the death of 34 miners, 78 wounded and 200 arrested after
police opened fire on workers (De Waal, 2012). The strike was characterised with acts of
intimidation from members of the South African Police Service, security guards and labour
union members (Bruce, 2015).
The Rustenburg platinum belt, infamous for the Marikina massacre, experienced one of
]history’s most abnormal labour strike on the 23rd of January 2014 (England, 2014). According
to Molatlhwa (2017), 700 000 mineworkers downed tools and embarked on a five-month long
strike ending on 23rd June 2014. The 2014 platinum belt strike is regarded as the longest strike
to take place in South African history (Stroddard, 2014). The strike was prolonged because of
workers’ additional demands, which employers regarded as impractical (SAHO, 2014). In
addition to their salary increase of R5000, workers demanded back pay for the duration of the
strike, living allowance and further requested affected mining houses not to take criminal
action against workers suspected of violence during the strike (Burkhardts, 2014).
The reoccurring nature of labour strikes demonstrates a general depiction of South Africa’s
labour market, which according to Urbach (2010), is as certain as death and taxes. According
to Ackerman (2016), labour strikes are among many other reasons, investors have lost
confidence in the South African economy. Ndenze (2014) found that labour strikes such as
the 2014 platinum belt strike had damaged South Africa’s wider investor sentiment and had
brought the country’s economy to the brink of recession. The resolve of labour strikes results
in losses to both firms and workers, firms lose out in profitability due to days lost in production,
whereas workers lose out in wages as a result of the no work, no pay agreement between
employer and employee (Amegee, 2010). An extreme example of this is found in the 2014
platinum miners’ strike affecting three mine houses: Impala Platinum, Amplats, and Lonmin.
The six-month long strike resulted in the three mining houses losing out on 40 per cent of
production, which amounted to R24.1 billion in revenue (Fin24, 2014). Workers lost out on
R10.6 billion in wages (Simelane et al., 2014).
Labour strikes disrupt the main purposes of a company. The resolve of a labour strike causes
interruptions in a company’s’ production line and subsequently affects a company’s profit
margin (De wet, 2012). The main purpose of a company is profit maximisation for its
shareholders (Mankiw, 2013). Profit maximisation is regarded as businesses attempt to deliver
maximum value from operational inputs, through increasing operating efficiency and
increasing economies of scale and reducing redundant functions (Varian, 2010). Halts in
Effect of labour strikes on the share returns of the JSE-Top 40 companies 3
production are disruptions to daily operations of the company, which interferes with the
company’s efforts to derive maximum value from its daily operations (Mas, 2008).
The value of a publicly listed company is entrenched in a company’s share price. Investors
make use of a company’s share price to gauge the market perception of the security and
determine whether a company is profitable (Bernstein & Damodaran, 1998). Investors
evaluate operating efficiency and profitability of the listed company (Chandra, 2012). Labour
strikes affect investor confidence, and subsequently the share returns of an affected company.
Investors and labour departments have been able to quantify losses resulting from labour
strikes in the form of salaries and wages and revenue, however, a gap remains in quantifying
the impact that labour strikes have on the share returns of a company (Seedat, 2013).
1.2 PROBLEM STATEMENT
According to Condon (2018), “the right to strike is made up of a delicate balance between the
power of a firm and the rights of employees and is considered as a sign of a healthy
democracy”. The South African constitution, as of 1996, recognises the right to strike as an
important bargaining tool for labour unions (Labour Relations Act, 11 of 2002). Labour strikes
are regarded as a movement aimed at improving working conditions, which unions together
with their members accomplish through placing pressure on their employers (McGregor,
2018). According to Taylor (2004), labour strikes improve work morale, lowers absenteeism
and increases productivity. Du Toit (2000) affirms that “good labour relations attempt to
advance collective bargaining as a means of securing labour peace, social justice, economic
development, and employee equality”.
The South African economy has, however, been long burdened by the significant rise in labour
strikes following the GFC. The GFC revealed some of South Africa’s well-hidden
vulnerabilities, namely unemployment, inequality and poverty (Zini, 2008). Much of these
vulnerabilities have been the cause of increased labour strikes, owing to worker’s demands
for better working conditions, higher wages and equal pay (Chabalala, 2014). Ngidi (2011)
stresses that the government’s and trade union’s efforts to improve employees’ standard of
living and address wage discrimination have failed and have resulted in an increase in the
number of private companies and services delivery strikes. Labour strikes have had an
adverse effect on business affecting production, profitability, consumer and investor
confidence (Ganda & Ngwakwe, 2015).
Businesses in their various forms endure a direct and indirect cost implication as a result of
labour strikes. According to Israelstam (2017), the loss of production and customers is usually
the first consequence of a strike. Workers' withdrawal of labour results in a disturbance in the
Effect of labour strikes on the share returns of the JSE-Top 40 companies 4
supply chain affecting customers, companies, and industries aligned with the affected
company (Sapa, 2013). The impact 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 (Ngidi, 2011).
Reputational damage to a business has a far-reaching effect on the business, affecting
customers and investor sentiment.
The desire for higher wages and equality in the workplace, in relation to the desire for
maximum share returns to shareholders presents a delicate balance in South Africa operating
environment (Botha, 2014). The conflicting interests of workers and shareholders are
exacerbated by the historical structural imbalance of South Africa’s labour market and the
effects of the GFC, that has resulted in an increase in labour strikes (Ganda & Ngwakwe,
2015). Workers have been demanding higher wages due to the loss in purchasing power,
while firms are focused on attaining the primary objective of obtaining maximum share returns.
The competing desires of workers and shareholders, that has resulted in a rise in labour strikes
has necessitated the need to evaluate the effects of labour strikes on the share returns of
companies listed on the Johannesburg security exchange (JSE) Top 40 index. The outcome
of the study will provide an understanding of the effects of labour strikes on invest confidence.
The purpose of the study is to examine the effect that labour strikes have on firms, more
specifically, how they affect the share return of companies listed on the JSE Top 40 index.
Limit research has been done on evaluating the effects of labour strikes on the share return
of companies listed on the JSE Top 40 index. Previous studies by Neumann (1980), Bhana
(1997), DiNardo and Hallock (2000) and Seedat (2013) focused on the effects of labour strikes
on specific industries, the predictability of labour strike and the effects of labour strikes on
publicly listed companies. This leaving a gap for research specifically aimed at understanding
the effects of labour strikes on the share return of companies listed on the JSE Top 40 index.
The makes use of an event study methodology to evaluate the share returns of affected
companies before the announcement of a strike, during and after the strike. The study begins
by providing a literature review of labour strikes, financial markets, followed by a layout of the
event study methodology. An empirical study is conducted followed by results discussion,
recommendations, and conclusion.
1.3 OBJECTIVE OF THE STUDY
Primary objective
The primary objective of the study is to evaluate the effects that labour strikes have on the
share returns of the JSE Top 40 companies.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 5
Theoretical objectives
In order to achieve the primary objective, the following theoretical objectives were formulated
to contextualise the study:
• Provide a theoretical overview of labour strikes to establish a general understanding of the
dynamics of labour strikes and how the resolve of a strike is established with respect to
protected and unprotected strikes; and
• Provide an overview of the efficient market hypothesis (EMH) as a basis of proving whether
the event of labour strikes does affect the share price of publicly listed companies.
1.4 RESEARCH DESIGN AND METHODOLOGY
In order to achieve the primary objective of the study an empirical study was conducted, and
the objectives were as follows:
• Establishing whether labour strikes affect the share returns 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.
1.5 RESEARCH METHODOLOGY
The study comprises a literature review and an empirical study. Quantitative research, using
secondary data, are used for the empirical portion of the study.
Literature review
The study makes use of secondary data obtained from multiple sources from previous studies,
journal articles, newspaper articles, textbooks, and websites.
Empirical study
The empirical study makes use of an event study methodology. The study assesses share
returns of affected companies, against potential returns companies would have obtained in
the absence of the strike. The period in which the strike occurred must be identified, along
with the precise date of the announcement of the strike together with the date of completion.
The historical price movement of the affected companies was collected and a series of
statistical tests (described in the following section) were conducted, to identify abnormalities
in price movements.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 6
Sample size and sample period
A sample of the JSE Top 40 companies was taken from the JSE all share market. The sample
frame consisted of companies ranging from all economic sectors, for example,
telecommunications, consumer goods, and manufacturing. An all economic sector sample
was used in the study due to the focus of the study being on the event of labour strike affecting
the JSE Top 40 companies, which cuts across all economic sectors. Historical share price
movement recorded daily was used to analyse the significant effect that labour strike has on
affected companies. Daily historical price movements from 2010 to 2017 were considered to
conduct the study. The study focuses on the period post the 2008/2009 financial crisis and as
a result, the sample period is from 2010 to 2017. The data set was collected from IRESS, a
leading provider of financial data feeds and analytical tools, the annual industrial action report
and secondary data from newspaper articles such as News24, Money Web, Business Day
live, etc.
The study identified 41 companies from a pool of 256 companies which were affected by
labour strikes and were listed on the JSE All Share Index. The study identified that of the 256
companies affected by labour strikes 41 companies that were listed on the JSE Top 40 index
at some point in time between 2010 and 2017. Of the 41 companies identified, 32 companies
were affected by protected labour strikes and 9 were affected by unprotected labour strikes.
Table 1.1 presents the study’s data sample selection criteria.
Table 1.1: Sample selection criteria
SAMPLE SELECTION CRITERIA Number of companies
1. Companies affected by labour strikes between 2010 and 2017
259
2. Companies listed on the JSE Top 40 index affected by labour strikes
41
3. Companies listed on the JSE Top 40 index affected by protected strikes
32
4. Companies listed on the JSE Top 40 index affected by unprotected strikes
9
Event study methodology
The study made use of an event study to assess the share returns of the JSE Top 40
companies that have been affected by labour strikes. An event study is a statistical method
commonly used in financial research to measure the effect of identifiable events on financial
variables (Brooks, 2014). Announcement of acquisitions, mergers, firm’s dividends pay-outs
Effect of labour strikes on the share returns of the JSE-Top 40 companies 7
and entry into or deletions of a stock from an index and labour strikes take the form of
identifiable events.
The first paper on event studies was] written in the 1930s, however, modern-day event studies
pay attribute to Ball and Brown (1968) and Fama et al. (1969), for the groundwork of their
studies (Mackinlay, 1997). Ball and Brown’s work was primarily aimed at testing the ECM and
whether the arrival of new information to the market will result in an immediate reaction in the
share price movement. According to Neuhierl et al. (2008), identification of such a reaction is
obtained through assessing the expected returns a firm would have attained had the event not
occurred against the abnormal returns obtained as a result of the event.
The model identifies three periods of an event, namely, the estimation window, the event
window, and the post-event window. Normal returns of affected firms are calculated in the
estimation window, whereas abnormal normal returns are estimated within the event window.
Abnormal returns provide insight into whether the event had an effect on the firm, whether
information pertaining to the event was leaked, or whether the market needs additional time
to process the information. The post-event window estimation provides an assessment of the
performance of the share price after the event has occurred (Benninga, 2008)
Event windows over which observations are made require specification in terms of the length
of the event window. The length of the event window is determined by the purpose of the
study, whether the researcher seeks to observe the long-term effect of the event or the short-
term effect (Brooks, 2014). Studies that consider months and several years assess long event
windows. Studies that consider 5, 10, 20- or 30-day periods assess a short event window. For
this study, a 30-day period prior to and post the event were considered. The event window is
represented by “zero”, the period prior the event is represented by a negative count to -30, a
positive count to 30 for the post-event.
Event studies can be conducted by making use of the market model, the constant expected
returns model, and a capital pricing model. According to Brooks (2014), the market model is
the most commonly used. The market model makes its deductions through correlating
abnormal return of the firm against a reference market (Kothari et al., 2004).
In order to obtain abnormal returns, of the difference between actual return and expected
return was estimated during the event period (Brown & Warner, 1958):
𝐴𝑅𝑖𝑡 = 𝑅𝑖𝑡 − 𝐸(𝑅𝑖𝑡) (1.1)
Where:
Effect of labour strikes on the share returns of the JSE-Top 40 companies 8
𝐴𝑅𝑖𝑡 are abnormal returns of the affected company 𝑖 on period 𝑡;
𝑅𝑖𝑡 are normal returns of the company 𝑖 in period 𝑡; and
𝐸(𝑅𝑖𝑡) are the returns of the company 𝑖 on period 𝑡.
Calculation of normal returns will then be estimated. Actual share returns of change in share
price:
𝑅𝑖𝑡 = 𝐼𝑛(𝑃𝑖𝑡
𝑃𝑖𝑡−1) (1.2)
Where:
𝑅𝑖𝑡 is the share price of company 𝑖 on period 𝑡 ; and
𝑃𝑖𝑡 is the share price on period’s 𝑡 -1.
Expected returns using the market model will be estimated to establish whether abnormal
returns differ from normal return. Estimated as follows:
𝐸(𝑅𝑖𝑡) = 𝛼𝑖 + 𝛽𝑖𝑅𝑚𝑡 + 𝑒𝑡 (1.3)
Where:
𝐸(𝑅𝑖𝑡) is the expected return on the company 𝑖 during the period 𝑡;
𝛼𝑖 is the intercept of the regression;
𝛽𝑖 is the slope of the regression;
𝑅𝑚𝑡 is the return on the market during period 𝑡; and
𝑒𝑡 The error terms.
The abnormal return in equation one is subsequently:
𝐴𝑅𝑖𝑡 = 𝑅𝑖𝑡 − 𝐸(𝑅𝑖𝑡) = 𝑅𝑖𝑡 − 𝛼𝑖 − 𝛽𝑖𝑅𝑚𝑡 (1.4)
The outcome of Equation 1.4, therefore, provides an indication as to whether labour strikes
do affect the share returns of the JSE Top 40 companies, with regard to protected strikes and
unprotected strikes.
Hypothesis test statistics of abnormal returns
The outcome of abnormal returns provides an indication as to whether labour strikes do affect
the returns of an affected company. An outcome of greater than zero in the event window,
allows the researcher to conclude that the identified event does result in movements in the
Effect of labour strikes on the share returns of the JSE-Top 40 companies 9
share price of the identified firm (Mackinlay, 1997). The study in this regard considered the
hypothesis test that is described in the section to follow.
Hypothesis test:
- Null hypothesis (𝑯𝟎𝟏): The resolve of labour strikes does not affect the share returns of
the JSE Top 40 companies.
- Alternative hypothesis(𝑯𝑨𝟏): The resolve of labour strikes affects the share returns of
the JSE Top 40 companies.
- Null hypothesis (𝑯𝟎𝟐): Protected labour strikes do not have a greater negative impact on
share returns of the JSE Top 40 companies, in relation to unprotected labour strikes.
- Alternative hypothesis (𝑯𝑨𝟐): Protected labour strikes have a greater negative impact
on the share returns of the JSE Top 40 companies, in relation to unprotected labour strikes.
- Null hypothesis (𝑯𝟎𝟑): The resolve of protected labour strikes does not result in a change
in the share returns of the JSE Top 40 companies after the day of the strike.
- Alternative hypothesis (𝑯𝑨𝟑): The resolve of protected labour strikes results in a change
in the share returns of the JSE Top 40 companies after the day of the strike.
- Null hypothesis (𝑯𝟎𝟒): The resolve of unprotected labour strikes does not result in a
change in the share returns of the JSE Top 40 companies after the day of the strike.
- Alternative hypothesis (𝑯𝑨𝟒): The resolve of unprotected labour strikes result in a
change in the share returns of the JSE Top 40 companies after the day of the strike.
Abnormal returns
Estimations of aggregate abnormal returns are required to conclude the researcher’s findings
concerning sample events. Average abnormal returns (AAR) and cumulative abnormal returns
(CAR) are to be estimated in this regard. The estimation of AAR tests the significant effect of
the event on individual share prices over the event window (Woon, 2004). The outcome of the
estimation provides a generalised outcome of the study. AAR for all companies in the sample
for day 𝑡 was estimated as follows:
𝐴𝐴𝑅𝑡 =1
𝑁∑ 𝐴𝑅𝑖𝑡
𝑁𝑖=1 (1.5)
𝑁 indicates the number of companies in the sample.
CAR estimation will be as follows:
𝐶𝐴𝑅𝑖 = ∑ 𝐴𝑅𝑖𝑡𝐾𝑖=1 (1.6)
Effect of labour strikes on the share returns of the JSE-Top 40 companies 10
CAR estimates the sum of abnormal returns of company 𝑖 during the event window.
𝐾 indicates the number of days in the event window.
AAR estimations are followed by cumulative average abnormal returns (CAAR). According to
Eventstudytools (2003), CAAR is an additional estimation that provides an overall indication
of the impact caused by the event, more especially in cases where the event is not exclusive
to the event window. CAAR is represented by the following equation:
𝐶𝐴𝐴𝑅𝑇 = ∑ 𝐴𝐴𝑅𝑡𝑇𝑡=1 (1.7)
Z-statistic
In order to conclude the above-mentioned calculations, a z-statistic must be estimated to test
the set hypothesis. Estimations of the z-statistic indicated as to whether abnormal returns
deviate from zero (Massey & Miller, 2006). The outcome of the estimate in terms of its size
and direction of the z-statistic indicated the significance of the test statistics. Calculation of the
z-statistic is as follows:
𝑍𝐴𝑅 =𝐴𝑅𝑖𝑡
𝑆𝐷(𝐴𝑅𝑖𝑡) (1.8)
Where:
𝑍𝐴𝑅 is the z-statistic of abnormal returns
𝑆𝐷(𝐴𝑅𝑖𝑡) is the sample standard deviation of abnormal return.
𝑆𝐷(𝐴𝑅𝑖𝑡) = √1
𝑇0−1∑ (𝐴𝑅𝑖𝑡 − 𝐸(𝐴𝑅𝑡))2𝑇0
𝑡−1 (1.9)
Where:
𝑇0 is the period of the event (estimation window)
At a significant level of 5 per cent, the z-statistic was compared with z-critical value.
If the z-statistic > z-critical value then the null hypothesis will be rejected, thus indicating that
abnormal returns deviated significantly from zero.
If the z-statistic < z-critical value then the null hypothesis will not be rejected, thus indicating
that abnormal returns did not deviate significantly from zero.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 11
1.6 ETHICAL CONSIDERATIONS
The study was conducted according to the ethical guidelines and principles as prescribed by
the North-West University (NWU, 2016). The study is considered to be of low ethical risk owing
to its use of secondary share price and labour strikes data. The share price data were obtained
from INET BFA IRESS, for which the university has a license for. The share price and labour
strike data were public information and were freely available. The study obtained ethical
clearance from the Research Committee of the Faculty of Economic Sciences and
Management Sciences with the ethics clearance number NWU-00584-20-A4.
1.7 CHAPTER CLASSIFICATION
The study comprised of the following chapters:
Chapter 1: Introduction and problem statement
Chapter 1 presents an introduction to the study, which contextualise the overall objectives of
the study, the theoretical and empirical objective of the study as well as the methodology which
is followed to attain the research objectives.
Chapter 2: Labour strikes
Theoretical background to the labour strikes is provided to establish a general understanding
of the dynamics of labour strikes, and how the resolve of a strike is established. The theoretical
background of labour strikes is supported by the background of GFC and how it may have
affected South Africa’s labour market.
Chapter 3: Efficient Market Hypothesis
Theoretical background to efficient markets is provided as a basis and enables the researcher
to establish whether the JSE is an efficient market and most importantly whether labour strikes
affect the share price movement of publicly listed companies.
Chapter 4: Research design and methodology
Chapter 4 presents a discussion on event methodology followed by the study. The discussion
encompasses the steps taken during data collection, as well as the model used to reach the
empirical objectives of the study.
Chapter 5: Results and discussion
The results obtained from the model estimation along with their interpretation are presented
in Chapter 5.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 12
Chapter 6: Conclusion
Chapter 6 concludes the study by providing a summary, concluding the results and providing
possible recommendations for further research.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 13
CHAPTER 2: LABOUR STRIKES
To fulfil the promise of economic opportunity, we must remain true to the principle that
collective bargaining is a cornerstone of a free society and indispensable to a strong middle
class.-Tom Perez
2.1 INTRODUCTION
The South African constitution as of 1995 recognised the right to strike as an important
bargaining tool for labour unions (Labour Relations Act, 11 of 2002). Labour unions in the
representation of their members have increasingly exercised their right to strike over the past
few years. Workers together with their unions have made use of “labour strikes” as a tool to
demonstrate their disagreements and/or dissatisfaction regarding labour relation issues such
as remuneration, working conditions and employee benefits towards their employer (Lester,
2014). Section 213 of the Labour Relations Act of 1995 defines labour strike as “the partial or
complete concerted refusal to work, or the retardation or obstruction of work, by persons who
are or have been employed by the same employer or by different employers, to remedy a
grievance or resolve a dispute in respect of any matter of mutual interest between employer
and employee, and every reference to work’ in this definition includes overtime work, whether
it is voluntary or compulsory”.
Labour strikes in South Africa date back to 1922, post the Anglo-Boer war of 1899–1902,
within the mining sector (Norman, 1922). The end of the war saw an influx of unskilled white
unemployed labours entering the urban areas in search of employment (Sahistory, 2012). The
mining industry, throughout the period, had developed a racial hierarchical division of labour
whereby supervisory and skilled jobs were performed by white labourers and unskilled work
and low paying labour was reserved for black and coloured labourers (Dickens, 2015). Mine-
owners according to Egan (2006), had developed a division of labour policy to maintain a
balance that protected their interests without disturbing the racial social order within the
industry.
Prompted by the rising in cost of operations and the drop in the price of gold during the
economic depression, which followed World War l, the division of labour policy resulted in an
overarching conflict of interest and political disenchantment in the workforce (Hirson, 1993).
Mine executives and The Chamber of Mines planned to reduce the colour bar and increase
the ratio of black to white workers (Visser, 2003). The Chamber of Mines gave notice that it
would be abandoning the division of labour policy and would replace 2000 semi-skilled white
men with cheaper black labour, this gave rise to the labour revolt (Davenport, 2013). White
Effect of labour strikes on the share returns of the JSE-Top 40 companies 14
labours used the uprising as an attempt to place pressure on mining companies and the state
to back down on the policy to save on labour costs by employing black labourers in positions
that should have been reserved for them (Warwick, 2012). As a result, labour strikes erupted
in early 1921 and intensified as the year progressed (Krikler, 2006).
South Africa during this period became more industrialised, which placed pressure on the
government to protect skilled white workers in the mining and manufacturing industry, and as
a result enacted the Industrial Conciliation Act of 1924, the Wage Act of 1925 and the Mines
and Works Amendment Act of 1926 (Williams, 1923). The Industrial Conciliation Act of 1924
set up a mechanism for consultation between employer’s organisations and trade unions
(Davis, 1989). The Wage Act set up a board to recommend minimum wages and conditions
of employment (Lucas, 1933). The Mines and Works Amendment Act of 1926 firmly
established the principle of the colour bar in certain mining jobs (Conradie, 2016).
The enactment of the Industrial Conciliation Act, the Wage Act and Mines and Works
Amendment Act of 1926 was met with resistance in the 1946 “African Mineworkers Strike”
(Webb, 2012). On 12 August 1946, African mine workers of the Witwatersrand went on strike
demanding more equitable wages (SAhistory, 2012). The strike was motivated by the
imbalance caused by the apartheid-era legislation, which presented favourable employment
opportunities and higher wages for white labourers (O’Mera, 1975). The strike played a
significant role in the recourse towards the apartheid era which altered political thinking in the
liberation movement (Venter, 2003). It served as a revelation in South Africa’s labour industry,
which has come to witness an increase in labour unions, the number of labour strikes and the
number of days lost in production and the sophistication within the labour market (Condon,
2018). This has today earned South Africa the status of strike capital of the world (Urbach,
2010).
The chapter aims to achieve the study’s first theoretical objective of establishing a general
understanding of the dynamics of labour strikes and how the resolve of a strike is established
with respect to protected and unprotected strikes.The chapter presents definitions and
concepts related to labour strikes, which included collective bargaining, collective bargaining
agreements, labour strike, protected and unprotected strikes. The chapter explains the
theories of collective bargaining and outlines the theoretical framework of labour strikes. The
chapter further presents a review of the results of past empirical studies relating to labour
strikes and their effects on financial markets. This followed by an overview of the GFC and the
effects it has on South Africa’s economy. A synopsis of the chapter is provided to summaries
the chapter.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 15
2.2 DEFINING LABOUR STRIKES
Labour strike is a term used by employers and within the business community to describe the
organising of employees through labour unions (Ally, 2015). Labour strikes are regarded as
the ultimate sanction enforced by labour unions demonstrating member’s dissatisfaction
towards their employer regarding unfair labour practices such as wages and working
conditions (Barker, 2015). Labour strikes are characterised by the partial or complete
withdrawal of labour services by union members (Kerruish, 2017). McConnell et al. (2009)
indicate that labour strike often entails the violent disruptions by disgruntled workers
obstructing the day-to-day operations of a firm, subsequently resulting in a halt in production.
According to Hyman (1984), labour strike can be defined as “the refusal to work and/or the
retardation of work, which is instituted to remedy a grievance or resolve a dispute on any
matter of mutual interest”. Bendix (1996) describes labour strikes as “a short-term, collective
deferral of work, with the aim to put production on hold and to force the employer to take the
demands of the workers seriously”. Labour strikes are regarded “as an integral part of
collective bargaining, which regulates the power relationship between the employer and the
employee” (Mamoria et al., 2008). Johnson (2014) states that “labour strikes are a sign of a
healthy economy, which eradicates management’s unilateral decision-making regarding
employee working conditions”.
Labour strikes occur as a result of varying reasons that range from; health hazards in the
workplace, working hours, wages, demand for leave with pay, discrimination, inadequate
working tools, training and development and aggressive behaviour by management (Raje,
2019). Disgruntled employees faced with dissatisfactory working conditions, such as low
minimum wages are willing and more inclined to embark on a strike as they have very little to
lose and are willing to take the risk to improve working conditions and increased compensation
(Power, 2013). According to Bendix (1996) workers demonstrate their dissatisfaction by
means of a traditional strike (primary strike), secondary strikes (sympathy strike), go-slow,
work-to-rule, sit-ins or lock-ins and lockouts. The various forms of labour strike are outlined
below as follows:
Traditional strike (Primary strike)
Primary strikes are a conventional form of industrial action that is directly aimed at the
employer or group of employers with whom the grievance is lodged against (Finnemore,
1996). Garber and Potgieter (2007) defined a traditional strike as “an intensive and a brief
Effect of labour strikes on the share returns of the JSE-Top 40 companies 16
suspension of workers’ services from the firm to remove concerns in the employment
relationship that the employer is willing to offer when negotiations take place”.
Secondary strike (Sympathy strike)
Secondary strikes are regarded as a sympathetic form of industrial action that occurs as a
result of a primary strike (Chand, 2016). The Labour Relations Act of 1995 defines a secondary
strike as, “a strike or conduct in contemplation or furtherance of a strike that is in support of a
strike by other employees against their employer but does not include a strike in pursuit of a
demand referred to a council if the striking employees employed within the registered scope
of that council have a material interest in that demand”.
Go-slow
Go-slows are a form of labour strikes that is characterised by a slowdown in a firm's normal
level of production, as a result of workers taking more time than usual to complete their work
(Dundon, 2011). Go-slows creates difficulties on the part of the employer to justify wage cuts
and/or implement disciplinary action due to workers' attendance at their workstations (Zondo,
2009). According to Hammett et al. (1957), go-slows are pressure tactics that are less risky
than a full-on strike. Adavbiele (2015) indicates that for a go-slow to fall within the definition of
strike action and be offered protection, it must be concerted, retard the progress of work and
be accomplished by industrial demand.
Work-to-rule
Employees in a work-to-rule form of labour strike slowdown work by insisting on strict
interpretations of duties stipulated in their employment contract or recognition agreement
(Grogan, 2014). According to Swepston (2013), by employees requesting detailed instructions
on how to complete tasks, production is negatively impacted. A firm often devises newer and
quicker methods of production, which do not amount to a strict amendment of workers
contract, as result workers can refuse to adopt new methods of work and retarded work
processes (Mbona, 2014). Consequently, the enforcement of disciplinary action and refusal of
remuneration becomes difficult to employ.
Sit-ins or work-ins
Sit-ins or work-ins are labour strikes in which workers disrupt operations by occupying their
workplace, obstructing the employer’s control over work processes (Valticos, 2013). This
action constitutes a protected strike as it results in the retardation of the work process (Rycroft
& Jordaan, 1991).
Effect of labour strikes on the share returns of the JSE-Top 40 companies 17
Lockouts
According to Kujinga and Van Eck (2018), lockouts are a deprivation of work premises on the
part of the employer to force workers to accept their demands. Lockouts are employer’s
recourse to labour strikes and are a means of last resort to compel workers to submit to their
demands (Venter & Levy, 2014). Lockouts can either be offensive or defensive. During
offensive lockouts, employers seek to impose a request by preventing employees from
entering their place of employment (Maddux, 1967). Defensive lockouts occur in response to
a strike and usually occur when the employer wants to enforce the seriousness of their final
offer or remove striking workers from their premises (Leroy, 1996). Defensive locks can be
implemented to legitimise non-payment of wages to striking workers (Botha & Lephoto, 2017).
2.3 A THEORETICAL FRAMEWORK FOR LABOUR STRIKES
Economists have long been interested in modelling collective bargaining (Filer et al., 1996).
Their interest in labour strikes has resulted in several competing explanations for the existence
of labour strikes in the face of the Hicks paradox (Hirsch & Addison, 1986). According to
Ehrenberg and Smith (2000), Sir John Hick’s model of strikes in the bargaining process is the
first, simplest and well-known model explaining the existence of strikes. Sloane et al. (2013)
suggested that in the face of Hick’s paradox two of the best-known models to explain collective
bargaining were proposed by Zeuthen-Harsanyi (1956) and Ashenfelter-Johnson (1969). The
competing models are outlined below to provide context to how labour strike ensues,
beginning with Zeuthen-Harsanyi (1956), followed by the Ashenfelter-Johnson “political
model” and ending with Hicks paradox.
The Zeuthen-Harsanyi model
One of the best-known models of collective bargaining proposed is that of Zeuthen (1930),
whose model is sequential and focuses on the willingness of bargaining agents to risk the
possibility of a labour strike by rejecting the initial offer made by opposing bargaining agents
(Saraydar, 1965). Zeuthen’s model was reformulated by Harsanyi (1956) and was
subsequently renamed as the “Zeuthen-Harsanyi model” (Crawford, 1980). Harsanyi
demonstrated Zeuthen’s model by making use of an axiomatic approach, which specified a
set of criteria’s that a solution should satisfy (Bishop, 1964). Harsanyi set up a Pareto optimal
criterion, which was similar to that of Nash’s (1950) and was described as more rigorous in
nature (Farber, 1986). The three criteria are set by Harsanyi through Nash (1950) namely
Pareto optimal, Pareto improvement and Pareto sub. Figure 2.1 below demonstrates
Harsanyi’s reformulation of Zeuthen’s model:
Effect of labour strikes on the share returns of the JSE-Top 40 companies 18
Figure 2.1: The Zeuthen-Harsanyi Bargaining model
Source: Sloane et al. (2013)
Figure 2.1 illustrates the bargaining proceedings afforded by Zeuthen-Harsanyi’s model, which
illustrates the three Pareto optimal criteria. Bishop (1964) demonstrates Zeuthen’s theory by
making use of a static utility frontier curve, which represents gains from bargaining agents
derived from settlements. According to Hamermesh (1973), bargaining agents are likely to
assume extreme positions, denoted by A and B, this is due to the likelihood of the negotiations
process encompassing an element of bluffing. Zeuthen-Harsanyi’s negotiations proceed with
the assumption that bargaining agents have compared the utility derived from accepting a
certain offer made by the opposing party and the expected utility of turning down an offer and
risking labour strike in anticipation of a more favourable offer (Damme, 1986).
In Figure 2.1 unions are denoted as E, while the employers are denoted as F. Unions in the
bargaining process are said to gain utility from an offer by the employer 𝑢𝐸𝐹, whereas the utility
from its own offer is set at 𝑢𝐸𝐸 if its offer is accepted by the employer and 0 if it is rejected
(Harsanyi, 1956). Unions will hold out on its own offer: 𝑢𝐸𝐹 ≤ (1 − 𝑐𝐸)𝑢𝐸𝐸, whereas 𝐶𝐸 is the
probability the union attaches to the probability of disagreement (Nash, 1953). Nash (1953)
further states that equally, the employer will hold out for its own offer if: 𝑢𝐹𝐸 ≤ (1 − 𝑐𝐹)𝑢𝐹𝐹,
whereas 𝑢𝐹𝐸 denotes the employer’s utility from an offer made by the union, 𝑢𝐹𝐹 the utility
from its own offer if accepted by the union, and 𝐶𝐹 is the perception of the probability of
disagreement. According to Harsanyi (1977), the rearrangement of each inequality thus gives
the maximum probability that each side will risk in holding out for their own preferred outcome
as 𝑐𝐸 ≤𝑢𝐸𝐸 −𝑢𝐸𝐹
𝑢𝐸𝐸 and𝑐𝐹 ≤
𝑢𝐹𝐹−𝑢𝐸𝐹
𝑢𝐹𝐹 .
Effect of labour strikes on the share returns of the JSE-Top 40 companies 19
Zeuthen assumes the party with the lower value of c, the bargaining agent’s willingness to risk
labour strike, is likely to make some form of concession (Svejnar, 1980). Union are likely to do
so if 𝐶𝐸 ≤ 𝐶𝐹, which will be the case if, on substitution and rearrangement of, 𝑢𝐸𝐸𝑢𝐹𝐸 ≤
𝑢𝐸𝐹𝑢𝐹𝐹 (Coddington, 2003). The inequality equation represents the utility outcome of the
negotiation, with the left side representing the hatched area and the right-hand side
representing the dotted area in Figure 2.1. The outcome of Figure 2.1 thus satisfies the Pareto
optimal criterion for the union to concede. The effect of this concession will be to raise the
utility product 𝑢𝐸𝐸𝑢𝐹𝐸 until it is large enough to reverse the inequality and elicit a corresponding
concession by the employer will in a similar way, increase the utility product 𝑢𝐸𝐹𝑢𝐹𝐹 that it
proposes (Vestchera, 2018). Successive concessions thus raise the overall size of the utility
gains (the bargaining process is a positive-sum game), with the outcome being where this
product is maximised – point C in Figure 2.1 – which coincides with equal sharing of the utility
gains (i.e.𝑢𝐹∗ = 𝑢𝐸
∗ ).
Ashenfelter-Johnson (Political model)
Ashenfelter-Johnson's model also referred to as the “political model” is regarded as the most
influential theoretical model of labour strikes (Lewin et al., 1992). The Ashenfelter-Johnson
model is referred to as the “political model” due to its nature of involving three parties in the
negotiations process of collective bargaining (Dickerson, 1992). The negotiations process in
Ashenfelter-Johnson’s “political model”, include management, union leaders and the rank and
file union representatives also referred to as a principal-agent relationship (Gart, 1966).
Ashenfelter-Johnson’s model argues that principal-agents enter negotiations with competing
agendas and varying information regarding involved parties' concession schedule (Nayar,
1996). According to Siebert et al. (1985), a union leader’s objectives include the union’s
survival and growth as well as their own political survival, which at times does not coincide
with the interest of its members. Firms enter negotiations with the intent to retain the present
value of their current and future profits, whereas union file members intend to optimise future
employee benefits (Rosa, 2013).
Rank and file members are known to be more extreme in their wage demands than their
leaders, which is as a result of their lack of knowledge of their employee’s concession
schedule (Ross, 1948). Union leaders may realise within negotiations that their members’
demands are unattainable, and should they not be able to persuade their members to concede
and accept a lower increase, unions may have to incur a strike (Cramton & Tracy, 2002).
Union leaders, as a result, are forced to strike rather than risk being seen to be colluding with
management, even though this may not be in the interest of its members (McConnell, 1989).
Effect of labour strikes on the share returns of the JSE-Top 40 companies 20
Due to the costs associated with strikes, union member’s aspirations gradually moderate over
time low enough for union leaders to settle without appearing to have colluded with
management, due to the cost of strike action (Booth, 1995).
As a result, Ashenfelter and Johnson (1969) concluded that labour strikes are the equilibrating
mechanism that squares up union membership’s wage expectations with what the firm may
be prepared to pay. Subsequently, Ashenfelter and Johnson (1969) define unions concession
schedule as 𝑦𝐴 =∆𝑊
�̅� proportional wage increases acceptable to rank and file members, where
∆𝑊 are the absolute wage increase and �̅� the existing wage. They assumed that the union’s
concession depends on the length of the strike and as a result formulated according to:
𝑦𝐴 = 𝑦∗ + (𝑦0 − 𝑦∗)𝑒−𝑡𝑠
𝑦∗ = 𝑙𝑜𝑤𝑒𝑠𝑡 𝑎𝑐𝑐𝑒𝑝𝑡𝑎𝑏𝑙𝑒 𝑤𝑎𝑔𝑒𝑠
𝑆 = 𝑆𝑡𝑟𝑖𝑘𝑒 𝑙𝑒𝑛𝑔𝑡ℎ
𝑦0 = 𝑊𝑎𝑔𝑒𝑠 𝑎𝑐𝑐𝑒𝑝𝑡𝑎𝑏𝑙𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑠𝑡𝑎𝑟𝑡 𝑜𝑓 𝑛𝑒𝑔𝑜𝑡𝑖𝑎𝑡𝑖𝑜𝑛𝑠
𝜏 = 𝑡ℎ𝑒 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑐𝑎𝑦 𝑜𝑓 𝑎𝑐𝑐𝑒𝑝𝑡𝑎𝑏𝑙𝑒 𝑤𝑎𝑔𝑒 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑠𝑡𝑟𝑖𝑘𝑒
Figure 2.2: Ashenfelter and Johnson's model ─ The union concession curve
Source: Ashenfelter and Johnson (1969)
Figure 2.2 illustrates union leaders’ pursuit of their own objectives in meeting the level of
benefits acceptable to their members, along with firms assumed knowledge of union’s
concession schedule parameters and attempt to maximise the present value of its current and
future profits, choosing to pay higher wages by agreeing to the union’s last demands, or
refusing their demands and accepting a strike to secure a lower settlement. The outcome of
Effect of labour strikes on the share returns of the JSE-Top 40 companies 21
Ashenfelter-Johnson Political model was illustrated by Farber (1978) and was depicted as
follows:
Figure 2.3: Ashenfelter and Johnson's model-concession outcome
Source: Boeri and Van Ours (2013)
Farber (1978) merges the firm’s iso-profit contours with the union’s concession schedule
curve. In Figure 2.3 the firm’s iso-profit contours are represented by . The contour curves
closer to the origin, which represents higher profits for the firm. The firm in this regard
maximises profits subject to the union’s concession schedule. Figure 2.3 presents two
scenarios with the firm accepting a strike on the left resulting in a concession at tangency A
and the firm avoiding a strike and accepting union’s demands on the right at tangency B.
According to Sapsford and Tzannatos (1993), despite being regarded at the most influential
and intuitive model, Ashenfelter and Johnson’s “political model” was criticised for assuming:
• Strikes are seen to be caused by unions alone;
• Union leadership is essentially passive and allow their members to go on strike; and
• Asymmetry of treatment between a maximising employer with perfect knowledge and a
non-maximising union with ignorant members.
Hick’s bargaining theory
Sir John Hick’s model of labour strikes is one of the earliest and most widely employed models
of labour strikes (Elliot, 1990). Hick’s paradox models the bargaining process by which
bargaining agents form concessions to reach a bargaining agreement (Kennan, 1986). Hick’s
model incorporates a union resistance curve and employer concession curve (Saraydar,
1971). The union resistance curve illustrates the length of time that workers would be prepared
Effect of labour strikes on the share returns of the JSE-Top 40 companies 22
to strike rather than allow their wages to fall below the corresponding wage level, whereas the
employer’s concession curve illustrates the wage rise the employer will be willing to concede
to rather than experience the cost associated with the concession just balance (Hicks, 1932).
Figure 2.4: Hick's Bargaining Model
Source: Sapsford (1980)
Figure 2.4 illustrates the Hick’s bargaining theory, which describes the process of concessions
that will be made by bargaining agents as they move towards an agreement. The employer
concession curve in Figure 2.4 is drawn upward sloping illustrating the expected duration of a
strike and the increased cost of a strike, it demonstrates the employer’s willingness to concede
to higher wages to avoid the high costs that come with strikes (Pantsios & Polachek, 2017).
However, the employer concession curve becomes progressively shallower, reflecting the
existence of an upper bound limit on acceptable wages the employer will agree to regardless
of the duration of the strike, indicating when it will prefer to shut down rather than coinciding
to union demands (Flatua, 2001).
The union resistance curve is assumed to be negatively sloping considering workers' ability to
contemplate longer work stoppages with their associated loss in earnings (Riddel, 1980). The
union resistance curve and employer concession curve intersect as the length of the strike
increases, representing the maximum expected strike length (Shove, 1989). According to
Laing (2011), should the strike last longer than the maximum expected strike length the losses
associated with the strike will be so great that workers will instead prefer to simply accept the
competitive wages.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 23
Hick’s theory argues that if bargaining agents were equally informed about the concession
and resistance curves, and were able to identify an equilibrium point, bargaining agents would
have agreed at wage 𝑊∗ and would have avoided the costs that would otherwise be suffered
by both parties (Rice, 1977). Therefore, Hick’s states that rational fully informed bargaining
agents would never engage in labour strike considering it is always better to negotiate.
2.4 COLLECTIVE BARGAINING
Le Grange (1996) defines collective bargaining as “a process of decision making between
employers and trade unions, to arrive at an agreed set of rules that govern the substantive
and procedural terms of the relationship between the employer and trade unions, and aspects
of and issues arising out of the employment situation”. Somer (1980) defines collective
bargaining as “the continuous relationship between an employer and a designated labour
organisation representing a specific unit of employees to negotiate written terms of
employment”. Collective bargaining is entered into with the intent of reaching cordial
agreements, through negotiating in good faith (Ndumo, 2005). Seedat (2003) describes
collective bargaining as the key determinant of an amicable labour relationship between
employer and employee, which provides organisational rights to union representatives and
facilitates continuous centralised bargaining councils. The International Labour Organisation
(1998) describes collective bargaining as “the fundamental right and the key means by which
employers and their organisation and trade unions establish fair wage and working conditions,
on behalf of their employees”.
2.5 PURPOSE OF COLLECTIVE BARGAINING
The purpose of collective bargaining is to reach an agreement through compromise and/or
concessions (Bendix, 2000). The process of collective bargaining is initiated with the intent of
regulating and establishing new terms and conditions of employment (Davidov, 2004).
Collective bargaining carries out an economic function that establishes fair wages and working
conditions, a social function that acts as a judicial system that protects the rights of employees
from arbitrary action by management as well as a political function that brings democracy to
the workplace (Rycroft & Jordaan, 1992).
The collective bargaining process is essential as it provides employees with a sense of
respect, responsibility and dignity (Gernigo et al., 2000). Collective bargaining strengthens the
workforce and increases employee morale and productivity. According to Smriti (2004),
collective bargaining further protects and discourages employers from making unilateral
decisions regarding employee working conditions. Collective bargaining creates a mechanism
Effect of labour strikes on the share returns of the JSE-Top 40 companies 24
of effectiveness and efficiency (Anon, 2006). The collective bargaining process creates ease
in the agreement review, conflict resolution, and communication.
More importantly, collective bargaining reduces the cost of high labour turnover, creates
stability and ensures continued productivity within the firm (Montoya, 2015). In addition to
employee and employer benefits at a social level collective bargaining creates peace within
the labour market, it creates a harmonious labour environment, which translates into social
and economic development as the discrimination and exploitation of workers are continuously
regulated (Harrison, 2004).
2.6 COLLECTIVE BARGAINING AGREEMENT
The collective bargaining process is concluded with the formation of a collective bargaining
agreement. A collective bargaining agreement is a written agreement between the employer
and employees’ trade union, which stipulates the terms and conditions of employment
concerning the employee following the negotiation processes (Gorman, 1976). The bargaining
agreement outlines working conditions, working hours, remuneration, bonuses and work
benefits (Davey, 1987). The Labour Relations Act of 1995, defines a collective bargaining
agreement “as a written agreement concerning the terms and conditions of employment or
any other matter of mutual interest concluded by one or more employees, one or more
registered employers’ organisations, or one or more registered employers and or
organisations”. A collective bargaining agreement functions as a labour contract between a
labour union and the employer (Schnabel et al., 2005). The collective bargaining process is
initiated in instances where an existing agreement is terminated and requires a review when
a conflict of interest arises, and existing agreements are rejected, or when disputes or
grievances arise, and a renewed agreement is required (Nel, 2002).
2.7 THE NEGOTIATING PROCESS
The negotiation process of collective bargaining comprises three stages, namely: preparation
and discovery stage, bargaining stage and resolution stage (Anthopoulos &
Xristiananopoulou, 2012).
Preparation and discovery
During the preparation and discovery stage leading up to negotiations, bargaining agents are
required to gather all relevant data and information, set out bargaining objectives and establish
the tone of the proceedings (Craver, 2007). The preparation stage of the negotiations is an
important stage of the process that involves unions engaging in consultative sessions with
Effect of labour strikes on the share returns of the JSE-Top 40 companies 25
union members regarding the status of their current wages, working conditions and grievances
(Katz et al., 2015). Correspondently, employer representatives assemble intimate knowledge
of the organisation, its structure, its current and projected financial position, total wage bill and
other labour costs as well as productivity levels (Fells, 2000). Together with the knowledge of
the union, its membership numbers, their likely aims, objectives and approach to negotiations
based on the previous agreements should be explored.
The outcome of the engagement forms the basis for the bargaining agent’s demands, which
sets the tone for negotiations (Stein, 1989). During the preparation stage, details of the
engagement are outlining, which entail where negotiations are to take place, the rules of
engagement, publicity releases, the payment system of union representatives and allied
issues (Wakelin, 2012). Preparation for negotiations enables bargaining agents to move from
conflicting perceptions and behaviours to co-operative perceptions and behaviours (Zartman,
1989).
Negotiations
The opening stage of negotiations is an extremely important occasion; wherein the tone of the
negotiations is set, and demands are clearly and unambiguously outlined, thus expediting the
proceedings (Finnemore & Van der Merwe, 1994). Opening statements within negotiations
include statements of intent in which parties outline what they would like to achieve (Suffield
et al., 2019). The opening statement in the negotiations is often characterised by extremely
high proposals and counteroffers by bargaining agents, which may lead to labour strikes if
extremely unreasonable (Venter & Levy, 2014). As a result, the bargaining process may be
longer due to varying counteroffers, complexities of the bargaining agent’s demand and the
number of bargaining proposals.
Outcome
Bargaining agents may employ either a distributive or integrative approach when negotiating
(Walton & McKersie, 1965). Walton (1965) describes the distributive approach as a
competitive approach by agents bargaining over the larger claim of resources. The distributive
approach is often referred to as the win-lose approach (Slabbert & Swanepoel, 1998).
Negotiators who make use of the distributive approach are not bothered by the response of
the opposing bargaining agents involved (Han et al., 2012). The distributive approach is
characterised by bargaining agents contend or concede to the final offer in the negotiations
process (Thompson et al., 1996).
Effect of labour strikes on the share returns of the JSE-Top 40 companies 26
Distributive approach
The distributive approach to collective bargaining is a competitive bargaining strategy in which
one party gains only if the party loses. Section 2.7.3.1. presents the various forms of
distributive approach namely contending, conceding and Integrative approach.
Contending
According to Han et al. (2012), bargaining agents believe that they can force the other party
to concede to their demands, thus rejecting opposing agent’s final offer, resulting in a strike or
lockout on the part of respective bargaining agents. Fells (2009) states that there are several
factors that impact the contention of bargaining agents’ final offer, which include: agents
placing a higher value on a claim that is supported by a likely outcome, expecting the other
party to concede, having no time constraints, having little concern for future interactions with
the other party, and having little concern for the other party’s outcome.
Conceding
By conceding a negotiator gives into the opposing parties' demands. Carnevale and Pruitt
(1992) believe the reasons bargaining agents conceded may be as a result of a poorly
conceived case or realised value in the continuous relationship with the opposing agent.
Venturini (1981) outlines that conceding to opposing agents' demands has the following
implications; the negotiator must account for his or her constituency, where a concession is
often rarely the mandate or desired outcome because of the cost that is invariably incurred.
By conceding on one issue, a negotiator may be perceived as weak and thus be targeted in
other negotiations. However, Carnevale and Pruitt (1992) held that conceding to opposing
agents' demands may have strategic value. By making minor concessions a negotiator
increases their leverage on more pertinent issues (Hilty & Carnevale, 1993).
Integrative approach
An integrative approach is employed when bargaining agents co-operate in their negotiation
process and focus solely on creating value for both parties (Katz & Kochan, 2000). The
integrative approach is also known as the win-win approach (Fisher & Ury, 1983). According
to Thompson (1991), by adopting an integrative approach, bargaining agents embark on a
culture of relationship-building and information sharing. However, Hawes and Fleming (2014),
state that the integrative approach entails collaboration among bargaining agents involved.
The integrative approach is characterised by a compromise and willingness of bargaining
agents to make concessions to achieve a mutually acceptable outcome (Lewicki et al., 2006).
Effect of labour strikes on the share returns of the JSE-Top 40 companies 27
Compromising
According to Blake and Mouton (1979), concessions are central to seeking a compromise.
However, bargaining agents should seek a compromise with their underlying mandate and
issues in mind. Effective collective bargaining negotiations are a fundamental part of sound
labour relations (De Dreu et al., 1946). By addressing issues in an open forum and actively
seeking solutions, parties are better positioned to build an employment relationship based on
trust and understanding (Michael & Micheal, 2012). Effective collective bargaining is important
in light of achieving social, political and economic transformation through increased
productivity, job security, motivation and involvement in union activities (Olotuah & Olotuah,
2016)
2.8 LEGAL PROCEDURE TO A LABOUR STRIKE
The Labour Relations Act of 1995 stipulates that “workers have the right to strike and
employers have the right to a lockout, where a resolution cannot be obtained in a labour
matter”. Furthermore, the Labour Relations Act of 1995 outlines procedures, criteria and
limitations that apply to warrant a protected strike. Figure 2.5 illustrates the legal procedure
together with set criteria for a strike to be regarded as protected. Cliffe Dekker Hofmeyr (2019)
describes a protected strike as a strike that complies with the set criteria in the Labour
Relations Act of 1995, where the subject matter of the strike is legitimate and procedural
requirements are complied with before the strike commences.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 28
Figure 2.5: Legal procedure towards protected strikes and lockouts
Source: Bendix (2001)
Protected strikes and lockouts
Section 64 of the Labour Relations Act, 66 of 1995 warrants the following conditions to be
adhered to for a strike or a lockout to be regarded as legal:
• The dispute must have been referred to a Bargaining Council or the Commission for
Conciliation, Mediation and Arbitration (CCMA);
• Opposing bargaining agents on the part of the employer or the part of the employee must
have been issued with a certificate stating that the dispute has not been resolved;
• A 30-day period must have elapsed since referral, or an agreed-upon extension period
has elapsed since the referral was received by the council or the commission; and
• In the event of a proposed industrial action on the part of the employee, 48 hours written
notice of a strike is issued to:
a. The employer; or
b. A council (if the dispute relates to a collective agreement to be concluded in a
council); or
c. To an employers’ organisation (if the employer).
Effect of labour strikes on the share returns of the JSE-Top 40 companies 29
• In the event of a proposed lockout by the employer, 48 hours written notice of a lockout is
given to:
a. The trade union.
b. To the workers (should workers have no trade union representatives).
c. A council (if the dispute relates to a collective agreement to be concluded in a
council).
• In the event of a proposed strike or lockout where the state is the employer, a seven-day
notice of the commencement of a strike or lockout must be issued to representatives of
the opposing bargaining agent.
Illegal strikes and lockouts
Section 64 of the Labour Relations Act, 66 of 1995 regard strikes and lockouts to be illegal
and unprotected if:
• A collective bargaining agreement or arbitration award binds the parties;
• An agreement is referred for arbitration or to the labour court;
• A wage determination binds the parties and it is less than 1 year old; and
• The parties are providing an essential or maintenance service.
When strike or lockout procedures do not apply
• The Labour Relations Act of 1995 outlines that strike, and lockout procedures do not
apply when:
- Bargaining agents follow set procedures in a council’s constitution, (The strike or
lockout follows a predetermined collective agreement procedure);
- Workers strike in response to an illegal lockout, (employers lock workers out in
response to an illegal strike); and
- The employers unilaterally change workers’ working conditions and refuse to
restore them.
2.9 REVIEW OF PREVIOUS STUDIES
The effects of labour strikes on financial markets have been researched at length in the past
decade. Researchers have analysed the effects that labour strikes have had on shareholder
value, equity returns, economic performance, and investor confidence. These studies made
use of regression analysis, event study methodology and accounting-based ratio analysis.
Studies by Neumann (1980), Bhana (1997), DiNardo and Hallock (2000) and Seedat (2013)
Effect of labour strikes on the share returns of the JSE-Top 40 companies 30
are presented below to present related findings of the effect of labour strikes on the share
return of publicly listed companies.
The earliest paper on labour strikes and financial markets was by Neumann (1980), who
observed the predictability of labour strikes and the effect they have on the share return of
publicly listed companies. Neumann (1980) opposed the narrative that strikes are random and
unpredictable and that they are as a result of an error in the bargaining process, as well as
barging agents’ anticipation of opposing agents' demands. Neumann (1980) challenges Hick’s
(1966) theoretical rationale of faulty negotiations. Neumann (1980) indicates that the reason
labour strikes are predictable is due to political or organisational lines, which outlines the need
for labour strikes, as they facilitate unions’ relevance. He argues that faulty negotiations are
contradictory to the concept of mature collective bargaining, a term used to refer to long-term
labour market equilibrium.
Neumann’s rationale of labour strikes being predictable hinges on protocols outlined during
the negotiations process. He defines a protocol as “a set of rules whose value depends on the
cost of bargaining agents allowing a dispute to go unresolved and for alternative methods of
resolving labour disputes to take course”. Neumann (1980) elaborates that “a protocol is best
thought of as a complex mixture of contractual statements and determined rules for a set
procedure at a specific event a ‘dictionary’ that translates the actions and statements of the
parties into a common language”. According to Neumann (1980), the foundation around the
concept of a set protocol is embedded in contractual relationships. Neumann (1980) indicates
that the idea of bargaining relationships as protocols, with behaviour signalling by both parties,
explains a certain type of predictability in strikes and has implications for the statistical study
of several aspects of strike activity, which included the duration of a strike and predictability of
the strike.
Neumann (1980) indicates that if strikes were unpredictable losses from the strike activity
should be concentrated on the day of the strike, and if they were completely predictable the
market would not factor in the possibility of a strike before the day of announcement or
commencement of the strike. Making use of the capital asset pricing model and the EMH
Neumann (1980) proved that strikes are predictable. Evidence from his study indicates that
several trading days before the commencement of the strike and the impending conclusion of
the strike resulted in declines in the market value of the affected firms. According to Neumann
(1980), there is not a full adjustment in the share value of affected firms, however, there is a
significant negative excess return on the date of conclusion of the strike. Neumann (1980)
further found that the share price of the security does not recover from the effects of the strike
and that the longer the strike the greater the cost implication to the firm.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 31
Another study was conducted by Bhana (1997), whose objective was to determine the effects
of industrial strikes on the value of shares listed on the JSE from 1983 to 1993. His study
observed the short-term effect of labour strike on companies listed on the JSE, which
comprised a random sample of 50 companies that were involved in labour strikes during the
10-year period. The observed sample was restricted to companies whose shares were
continuously listed on the JSE during the event period.
Bhana (1997) established that strikes have a negative effect on the value of a firm’s share
price and that losses are not temporary, meaning that losses to firms are sustained and firms
do not recover from incurred losses. A window period of 30 days before the announcement of
a strike and 30 days after the strike commenced were observed. In the event window, Bhana
(1997) found that there were significant movements in the price of a firm’s shares 5–10 days
before the announcement of the strike, the day before the announcement, on the day of the
strike and 10 days after the strike. Bhana (1997) findings were indicative of the notion that
capital markets are usually able to anticipate whether a looming contract deadline will result
in a strike or settlement.
Bhana (1997) states that sophisticated investors who had access to news wire stories would
have had access to information the day before the announcement of the strike, thus it is not
unexpected that significant changes were found before the announcement. The study
concluded that labour strikes have a negative effect on abnormal returns and that financial
markets react spontaneously to the receipt of public information prior and post the
announcement of the strike. As a result of the predictability of the strike, Bhana (1997)
concluded that there were inefficiencies in the JSE. Bhana (1997) also concluded that the
longer the duration of the strike the greater the cost implication. A study conducted by DiNardo
and Hallock (2000) focuses on the effects of labour strikes on financial markets in the early
1920s and late 1930s. The study makes use of a combination of labour and market data, to
assess the market’s interpretation of labour conflict and the effect of major strikes between
world wars on detailed industry stock prices.
The study analysed a sample of 36 strikes. Due to limitations of market data captured during
the study period, the first strike started in January 1925 and the last strike ended May 1937.
The study observed strikes occurring in 17 different industries, having an average strike
duration of 5.5 months. DiNardo and Hallock (2000) observed labour strike per industry and
on a monthly base, making the event month 0. The study observed the strike in terms of month
0 to month +1, -1 to month +1, -2 to month +2 and -3 to month +3. However, DiNardo and
Hallock (2000) made an analysis of -1 to 1 month due to its outcome and relevance.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 32
DiNardo and Hallock (2000) found that labour strikes have a negative effect on the industry
stock value of a firm. DiNardo and Hallock (2000) further revealed that prolonged strikes,
violent strikes, strikes where unions “win”, industry-wide strikes that lead to union recognition,
and strikes that lead to large wage increases lead to larger negative share returns than the
actual strike itself. The study further establishes that market prices adjust to the arrival of
“news” of a strike long before its announcement. DiNardo and Hallock’s (2000) study strongly
suggests that although the financial markets generally expected unions to “lose”, they viewed
union victories as quite important determinants of the share of firm profits going to
stockholders.
A similar study was conducted by Seedat (2013) whose study was aimed at analysing the
effects of the labour strike on the share value of the South African gold industry, from January
2007 to December 2012. The study observed the impact of unprotected strikes and protected
strikes and their impact on the day of the announcement and their effect as a result of the
duration of the strike. Seedat (2013) selected 30 companies that were affected by labour strike
and observed 70 days prior and 30 days following the day of the announcement were
observed.
Seedat (2013) established that labour strikes do not have a negative effect on shareholder
value of securities, with less significance found in unprotected strikes. Due to the nature of the
strike, firms were not financially obligated to meet worker’s demands, thus no financial
implications were perceived (Seedat, 2013). The opposite was found in protected strikes,
where greater significance was found in share price due to perceived financial implications of
the strike by investors. Seedat (2013) also revealed that strikes that lasted for a shorter period
have greater significance than prolonged strikes, proving that strikes that have a shorter
duration have greater financial implications. This is due to firms giving into labour unions’ high
initial demand in the negotiations process after the firm realises its financial capacity to meet
their demands and cannot afford a halt in production.
2.10 GLOBAL FINACNCIAL CRISIS
Many economists consider the 2007–2008 GFC to have been the most severe economic crisis
since the Great Depression of the 1930s (Eigner & Umlauft, 2015). The GFC was a worldwide
economic event that began in 2007 with the collapse of the US housing market, which
developed into an international banking crisis (Duignan, 2019). The gradual increase in the
default rate in the US house market developed into what is now known as the US subprime
mortgage crisis (Kojucharov et al., 2008). Owing to deregulation, low interest rates,
securitisation, the Community Reinvestment Act of 1977 (CRA), reckless lending and
Effect of labour strikes on the share returns of the JSE-Top 40 companies 33
mortgage guarantees the US subprime housing market led to the financial crisis and
consequently a global recession (Jurek & Marszaùek, 2014).
According to Tobak (2010), the intentions of the CRA were misused and misguided by a long
string of politically motivated amendments to the act. Tobak (2010) highlights that the checks
and balances that were put in place to ensure that lenders do not write bad loans were
gradually removed. The CRA was enacted to create access to home loans for low-income
households (Quercia & Janneke, 2009). Referred to as subprime lending. In 1997 the US
administration placed pressure on public sector mortgage lending institutions Fannie Mae and
Freddie Mac to start lending to low- and moderate-income households (Taylor, 2008). This led
to ease in credit conditions, weak and fraudulent underwriting practices and predatory lending
(Fligstein & Roehrkasse, 2015).
The changes in the credit market led to a high mortgage approval rate, which resulted in an
appreciation in the US housing market and subsequently the “subprime mortgage bubble”
(Mckibbin & Stocekel, 2009). Homeowners, according to Justiniano et al. (2015) took interest
in the low interest rates and growing value in the US housing market and extended a line of
credit against their homes. Homeowners did this to buy up more houses and resell against
their growth in value (Franzese, 2013). Interest rates in the US rose from 1 per cent to 5.35
per cent between 2004 and 2006. The rapid rise in interest rates placed a strain on
households, resulting in high default rates as homeowners could no longer keep up with
regular payments. This led to high delinquency rates and subsequent foreclosures.
The US banking sector took a strain due to a high delinquency rate, which developed from a
rapid devaluation in financial instruments (Farhi & Cintra, 2009). In 1999, US banks lobbied
congress to enact the Financial Services Modernisation Act (FSM), which allowed banks to
use depositor’s money to invest in derivative instruments (Amadeo, 2019). Amadeo (2019),
further indicates that banks argued that the enactment of the FSM Act would enable them to
compete with foreign firms. The Commodity Futures Modernisation Act, in the year to follow,
exempted credit default swaps and other derivatives from regulations (Lipton, 2018). The US
banking sector took advantage of the deregulation of bank laws and embarked on a journey
of securitisation. With deregulation in place, conducive economic conditions and heightened
endorsement of CRA, banks created interest-only loans that were affordable to subprime
borrowers (Chwieroth, 2011). According to Prithard (2019), interest-only loans are loans that
temporarily allows borrowers to pay only the interest costs, without requiring them to pay down
the loan balance.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 34
Banks later securitised subprime loans and package them as Collateralised Debt Obligations
(CDOs), also known as mortgage-backed securities, and sold them to investment firms (Baily
et al., 2008). According to Buffet (2016), banks were able to pass CDOs as low-risk securities
to investors as they were often backed by credit default swaps. CDOs were a means for banks
to remove risks on their balance sheets and maintain prudential banking requirements. Banks
demanded that more mortgages be sold to support the profitable sale of derivative instruments
(Amadeo, 2019). The demand for increased sales of mortgages led to fraudulent underwriting
practices and predatory lending (Patterson & Koller, 2011). As a result, the percentage sale
in subprime mortgages doubled, from 9 per cent to 20 per cent, between 2000 and 2006
(Ariccia et al., 2008). By 2007 the US housing market had grown into a $1.3 trillion-dollar
industry, ending the 2001 recession.
According to Fiorillo (2018), in 2004 when the US Federal Reserve began to increase interest
rates, homeowners could no longer afford payments on their loans and as a result, investors
suffered immense losses. Fiorillo (2018) further elaborates the Federal Reserve’s interest rate
hikes placed pressure on the housing market, causing the US subprime housing bubble to
burst. Investors became conscious of CDOs and were reluctant to participate in the credit
market (Reiff, 2013). The scepticism in the CDO market created a credit freeze in the banking
sector as banks become warry of interbank lending, owing to scepticism over the extent of
bad loans on their rival’s books (Afonso et al., 2010). This created a solvency and liquidity
crisis, which led to a loss in confidence in the banking sector and the credit market
(Chiaramonte, 2018). Investors and depositors panicked and began to withdraw their equity
and cash deposits from banks (Morgenson, 2011).
The impact of the subprime mortgage crisis in the US was quickly felt across the world,
affecting global financial systems (Baxter, 2013). As liquidity challenges became more serve
investors around the world began to withdraw funds from emerging markets and placing them
in safe-haven investments to avoid further risks (Kynge, 2015). Stock markets around the
world declined. International banks began tightening operations and cancel billions in bond
sales owing to market conditions (Berrospide, 2012). Consumers around the world were soon
hard hit by an increase in the cost of living, which caused a general slowdown in global
economic activity and a rise in prolonged unemployment (Allen & Gale, 2007). According to
Nanto (2009), the sudden slowdown in large, industrialised economies resulted in a call for
stimulus packages by the US government to restore confidence in the financial system and
restore solvency and liquidity.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 35
The impact of the Global Financial Crisis on South Africa
The South African economy was severely affected by the GFC. Unlike most developing
countries, emerging markets and many other industrialised countries (Rena, 2017). South
Africa has historically been a significant player in international markets (Padayachee, 2010).
Owing to its open market and trade linkages to the global arena. The South African economy
experienced a deterioration in foreign direct investments, remittances and a large decline in
commodity prices (Zini, 2008). Rena and Msoni (2014) indicate that the GFC sent the country’s
economy into a recession in 2008/09 for the first time in 19 years. Exposing some of the
country’s vulnerabilities. Steyler and Powell (2010) explain that the GFC and the recession
that followed exacerbated long-standing structural problems of poverty, unemployment and
inequality in the economy. Haroon (2010) further explains that the GFC has deepened an
already existing national crisis in a country where 40 per cent of the population is unemployed
and income inequality is among the highest in the world.
The GFC took a while to develop and started showing its effects in the middle of 2007 into
2008 (Gupta, 2012). Economic activity in South Africa started declining for the first time in the
last quarter of 2008 by 1.8 per cent, which was followed by a drastic decline of 6.4 per cent in
the first quarter of 2009, and thereafter 3 per cent in the second quarter of 2009 (Steyler &
Powell, 2010). This placed South Africa in a technical recession as the overall gross domestic
product (GDP) contracted by 1.8 per cent at the end of 2009 (Verick, 2010). According to
Marumoage (2014), contractions in the country’s economy resulted in large job losses as
companies retrenched and felt that they could no longer sustain operations that were no longer
financially feasible. The wide retrenchment of employees led to a significant increase in the
number of unannounced strikes, which further impacted economic output (Forstater, 2013).
As a result of economic conditions, almost a million employees lost their jobs and
unemployment grew from 21.9 per cent early to 25 per cent in 2008 (Kantor, 2018). The South
African economy was losing 198 000 jobs year-on-year in the second quarter of 2009, which
signified a bleeding labour market (Marumoage, 2014). According to Statistics South Africa
(2014), job losses were more pronounced in the more labour intense sectors of the economy,
which included the mining, manufacturing, construction and trade sector. Consequently,
according to Hofmeyr (2012), semi-skilled, unskilled workers, including the youth bore the
brunt of the recession. According to the National Treasury (2010), of the million employees
that lost their jobs, 527 000 were semi-skilled and 219 000 were unemployed youth.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 36
2.11 SYNOPSIS
This chapter was set out to achieve the study’s first theoretical objective of contextualising
labour strikes through formulating an understanding of labour strikes, their dynamics and how
the resolve of labour strikes are established with respect to protected and unprotected labour
strikes. The chapter further presents a background of the GFC and how it affected South
Africa’s labour market, with respect to protected and unprotected labour strikes. The chapter
identifies the right to labour strikes as an importance bargaining platform for labour unions,
who have increasingly exercised their right to strike in recent years to address employee’s
disagreements and/or dissatisfaction regarding labour relation issues. The chapter presents a
brief history of labour strikes in South Africa, followed by a theoretical background to labour
strikes.
The theoretical background defines labour strikes in their various forms and provides
competing theoretical frameworks of Zeuthen-Harsanyi (1956), Ashenfelter-Johnson (1969)
and Hick’s (1932) bargaining theory. The theoretical background further presents definitions
of the collective bargaining and outlines the purpose of collective bargaining, along with the
collective bargaining agreement. A detailed process of the negotiations process to collective
bargaining is presented, together with the legal procedure to protected labour strikes. To
support the study’s findings, a review of previous papers by Neumann (1980), Bhana (1997),
DiNardo and Hallock (2000) and Seedat (2013) are presented.
Chapter 3 presents a literature review of the EHM, which aims to present the theoretical
background to efficient markets and provide a basis that will enable the researcher to establish
whether the JSE is an efficient market and whether labour strikes affect the share price
movement of publicly listed companies.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 37
CHAPTER 3: EFFICIENT MARKET HYPOTHESIS
Believe you can and you’re halfway there. –Theodore Roosevelt
3.1 INTRODUCTION
The theory of an efficient market is one of the most debated and controversial subjects within
finance, contesting whether the arrival of information in a random and unpredictable manner
results in unbiased movement in the share price of a security (Van Wyk et al., 2012). The
subject of efficient markets is regarded as one of the most fundamental and exciting areas in
financial debates, which questions price changes in security markets and how these changes
occur (Russel & Torbey, 2002.). The excitement and controversy surrounding the subject of
efficient capital markets (ECM) attract a large number of market participants in their various
forms. Academicians, investors and portfolio managers who participate in financial markets
for their respective motives, which in end filter into establishing areas of arbitration in price
movements of securities.
The ECM has been researched extensively, following Eugene Fama’s fair game theory
(Towers, 2002). Research relating to the EMH has refined the realism of the marketplace to
include costly information, transactional costs, financing cost, agency costs and real-world
frictions (Ang at el., 2011). The fair game model is the first theory to have contextualised the
EMH (Fama, 1970). Research prior to the fair game model was extensive though it was
baseless as it lacked theoretical backing. The fair game model contended that “investors can
be confident that the current price of a security fully reflects all available information about
security, therefore the expected return of the security is consistent with its risk” (Fama, 1970).
As a result of the extensive research relating to the EMH, alternative theories and dimensions
surrounding the theory, have added to the controversy that is the EMH. Latif et al. (2011)
categorise alternative theories into fundamental, technical, market anomalies and behavioural
finance. Behavioural finance has strongly contested the concept of ECM, which brings
intriguing insights on reasons for many of the identified anomalies in financial markets (Lo,
2005). However, according to Degutis and Novickyte (2014), “the efficient market theory
remains an important part of modern finance as its empirical evidence is ambiguous, but the
concept itself is sound”.
The chapter aims to achieve the study’s second theoretical objective of providing an overview
of the efficient market, which is used as a basis of proving whether a labour strike does affect
the share price of a publicly listed company. The chapter is subdivided into seven sections
that define an efficient market, the assumptions of an efficient market, implications of EMH,
Effect of labour strikes on the share returns of the JSE-Top 40 companies 38
financial market anomalies, behavioural finance and efficiency review of the JSE. Finally, a
synopsis of the chapter.
3.2 EFFICIENT CAPITAL MARKETS
The theory of efficient markets was formalised by Fama (1970) who stated that “in an efficient
market, on average, the competition will cause the full effects of new information on the
intrinsic value of securities reflecting instantaneously in its actual price”. Researchers over the
past decades have redefined efficient markets, which has given rise to several versions of the
definition.
Jensen (1978) defined an efficient market as “a market that takes into consideration all
available information about a security, given the available information set, making it impossible
for traders to make an economic profit”. Ang et al. (2011) defined an efficient market as “a
market in which the price of a security reacts instantaneously without any form of bias to the
arrival of new information to the market”. Malkiel (1992) regard an efficient market as a “market
that fully and accurately reflects all relevant information relating to a security in determining
the securities price”. A simpler version of this definition was provided by Maxym (2000) who
defined “an ECM as a market in which the prices of a security adjust rapidly to the arrival of
new information”.
The idea behind an ECM is that there is very little room for arbitration in financial markets,
where investors can generate abnormal amounts of profit from movements in share prices of
a security (Delcey, 2018). The share price of a security in ECM fully reflects investor
expectations that are shaped by the available information set (Erdugan, 2012). Therefore, the
efficient market produces prices that are accurate in terms of current knowledge regarding a
security, allowing investors to make informed decisions when participating in inefficient
markets (Lorie et al., 1985).
Efficient markets are such that securities with high-expected returns have correspondingly
high levels of risk, meaning market participants within an information efficient market are
exposed to the perceived risk of a security, which is consistent with the rate of return of the
security (Reilly & Brown, 2015). Investors entering the market inherit the same amount of risk
as expected returns (Andersen & Nielsen, 2011).
3.3 ASSUMPTIONS OF AN EFFICIENT CAPITAL MARKET
The following assumptions must be met for a market to be regarded as efficient:
Effect of labour strikes on the share returns of the JSE-Top 40 companies 39
• A market requires a large number of independent, competing, profit-maximising
participants who analyse and value securities;
• New information arriving at the marketplace regarding securities must come in a
random fashion; the timing of individual announcements is required to be independent
of each other; and
• Competing investors attempt to adjust security prices rapidly to reflect the effect of the
new information, price adjustments by individual investors are assumed to be
independent and non-bias.
The EMH theory suggests that “the asset prices are determined by demand and supply in
competitive markets with rational investors” (Belke & Polleit, 2009). Rational investors gather
information very rapidly and immediately incorporate this information into share prices. Price
adjustments realised from ECM may be imperfect, though they present a true reflection of
investor’s perception of the security (Kehinde, 2012). This implies that price adjustments
regarding securities may under or over adjust, though the adjustments in either direction
presented by the arrival of new information to the marketplace constitute an ECM (Roschkow,
2013). Price adjustments in the market are made evident by the presence of a large number
of competing for profit-maximising investors looking to take advantage of the arrival of new
information and create abnormal profits (Titan, 2015).
The combination of the manner in which information arrives at an ECM together with a large
number of competing profit-maximising participants gives precedence to the reality that price
adjustments of securities are random and independent (Guduza & Phiri, 2017). Thus, the
assumption of an information efficient market implies that markets require a minimum amount
of trading that affect price adjustments of securities, as a result of a large number of competing
investors, rendering the market efficient.
3.4 EFFICIENT MARKET HYPOTHESIS
The EMH is divided into three forms of hypotheses namely weak, semi-weak and strong, which
are categorised concerning the type of information set involved. Fama (1970) divided the
overall EMH into sub-hypothesis in an attempt to formalise the growing empirical evidence
relating to efficient markets. EMH was conceptualised from the random walk theory, which
describes the random departure from a security’s previous price due to the arrival of
unhindered information to the marketplace. The categories of EMH are presented below:
Effect of labour strikes on the share returns of the JSE-Top 40 companies 40
Weak form of efficient market hypothesis
The weak form of EMH informs market participants that the current price of security fully
reflects all available information regarding a security (Karz, 2012). The weak form of EMH
suggests that no further value can be derived from analysing historical market information,
implying that market participants should not be able to consistently outperform the markets
and generate abnormal profits by making use of publicly available information (Gimba, 2010).
Historical market data in the form of price movements, trading volumes and rates of return are
easily assessable and are thus already incorporated into the share price of securities.
Technical analysis guidelines in this regard cannot be used to generate consistent profit,
implying that information is already incorporated in the market price and cannot, therefore,
affect future price movements of a security (Moberek & Keasey, 2000).
Semi-weak form of efficient market hypothesis
The semi-strong form of EMH suggests that all publicly available information concerning a
security is already incorporated into the market price of the security (Derdas, 2009). Semi-
strong EMH considers public information not limited to historical market information,
companies’ annual reports, company announcements, macroeconomic factors, political news
and all forms of information sets that are not necessarily financial in nature (Sandhar et al,
2009). As a result, the semi-strong form of EMH embraces the weak form of EMH (Khan &
Ikram, 2010). The semi-strong EMH asserts that market participants are unable to consistently
generate abnormal profits with information that is widely known, as market prices adjust rapidly
to the arrival of new information (Haugen, 2001). Therefore, discrediting fundamental analysis
when determining whether the value of a security is undervalued or overvalued.
Strong form of the efficient market hypothesis
The strong form EMH asserts that the current market price of a security fully reflects all public
and private information pertaining to the security (Lindner et al., 2010). The strong form of
EMH extends the assumption of a perfect market, wherein the prices of securities are shaped
by public and private sources of information (Malinowski, 2013). This form of EMH suggests
that company management cannot generate abnormal profits from trading on insider
information i.e. important announcements, strategies and company decisions (Clarke et al.,
2001). Chau and Dimitri (2008) assert that private information is already accounted into
securities’ market prices, the rationale behind the notion is that unbiased markets anticipate
private information before the decision is made or rather announced. Therefore, no group of
market participants has monopolistic access to information that generates superior rates of
returns (Brigham & Houston, 2007).
Effect of labour strikes on the share returns of the JSE-Top 40 companies 41
3.5 THE IMPLICATION OF EFFICIENT MARKETS FOR INVESTORS
The EMH has an important implication on investment analysts as well as portfolio managers.
The question of securities’ price movement regarding why they move and the changes that
take place is of importance (Dobbins & Witt, 1979). Investors participate in the securities
market to identify securities that are undervalued and can provide them with abnormal returns
on investment in the future. Several market participants believe that they can select securities
that will outperform the market and use a variety of forecast and valuation techniques, such
as fundamental and technical analysis to make investment decisions (Timmermann &
Granger, 2004). Fundamental and technical analysis respectively enables analysts to identify
undervalued securities and determine the correct timing of entering an investment
(Petrusheva & Jordanoski, 2016).
Fundamental analysis is regarded as a process of analysing macroeconomic, industry and
company-specific conditions that influence the risk-return on an investment (Abarbanell &
Bushee, 1998). Analysts that make use of this form of evaluation believe that the value of a
security is dependent on underlying economic factors (Brigham & Houston, 2007). Meaning
that if economic conditions were to change within the operating environment of a security, the
value of the security is likely to be affected. The implication of EMH on fundamental analysis
is that above-average returns can only be attained if market participants have access to
reports of superior analysis and can invest in the findings before a large number of profit-
maximising competitors establishes that there is a discrepancy in the intrinsic value of the
security (Suresh, 2013).
Technical analysis is an attempt by technical analysts, or technicians, to evaluate historical
price movements of security to generate abnormal trading profits from reoccurring patterns in
securities’ price movements (Achelis, 2000). Technicians make use of a wide range of graphs
and charts to identify buying and selling signals in historical price movements (Wilder, 1978).
Technical analysts believe that individual investors do not analyse information, nor do they act
upon it immediately when analysed (Pring, 2002). According to Bodie et al. (2014), the
implication of EMH for technical analysis is that the use of historical trading information only
should not enable the investor to generate abnormal returns, particularly if risk and transaction
costs are taken into consideration.
Portfolio management is “the art and science of making decisions regarding investment mix
and policy, matching investment objectives, asset allocation for individuals and institutions and
balancing risk against performance” (Chandra, 2012). Portfolio management decision making
entails determining strengths, weaknesses, opportunities, and threats in the choice of debt vs.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 42
equity, domestic vs. international, growth vs. safety, and many other trade-offs encountered
in the attempt to maximise returns a]t a given appetite for risk. Portfolio management follows
either a passive or active investment strategy.
Passive investment management is the most common form of investment management
strategy, which incorporates either a buy-and-hold or indexing approach. According to Malkiel
(2003), indexing is a passive management strategy that attempts to construct a portfolio that
tracks the performance of an index. The purpose of indexing is to provide investors with
returns that match that of the identified index. Passive portfolio management minimises trading
and investing fees and avoids having to correctly anticipate the future (Walden, 2015).
Active management is a portfolio management strategy that involves major adjustments to the
portfolio. Active management relies on portfolio managers to continuously identify
undervalued securities to exploit any form of discrepancy in the intrinsic value of the security
and identify the correct timing of entering the market (Stotz, 2005). Unlike the passive
management strategy, active portfolio management requires managers to forecast securities
performance, time the market and select securities that provide abnormal returns (Block &
Hirt, 2012). An active portfolio management strategy is geared towards outperforming a
particular index (Grinold & Kahn, 1996).
The EMH emphasises that the intrinsic value of a security is accurate at all times and attempts
by investors to obtain abnormal returns for security price movement is a time-consuming
exercise, which awards inconsistent returns and is to be eroded by management costs,
taxation, transaction (Degutis & Novickyte, 2014). Thus, implications for portfolio managers
without access to information of superior analysis is to follow a passive investment
management strategy that aims to track a market rather than to outperform the market
(Jegadeesh & Titman, 1993). Portfolio returns are optimised through diversification and asset
allocation; thus, portfolio managers must construct a portfolio that is geared towards the
investor’s appropriate phase and risk profile within the investor life cycle.
3.6 FINANCIAL MARKET ANOMALIES
The EMH has been challenged extensively over the years, which has given rise to several
alternative theories that contest its premise. According to Kartasova (2014), market
participants argue inconsistencies in the EMH as a result of observed deviations from its
assumptions. Financial market anomalies are empirically observed patterns in the share price-
return of a security, which are inconsistent with EMH (Dalika & Seetharam, 2015). EMH theory
argues that market participants cannot gain abnormal returns or consistently outperform the
Effect of labour strikes on the share returns of the JSE-Top 40 companies 43
market. However, financial market anomalies present opportunities wherein investors are
capable of taking advantage of abnormal behaviour in the securities price movement and gain
abnormal returns (Muhammad & Rahman, 2010). Bowman and Buchanan (1995) believe that
financial market anomalies are as a result of shortfalls in models applied in testing EMH, as
opposed to inefficiencies in the market. Financial market anomalies often seem to disappear,
reverse or soothe after they have been documented and analysed, raising questions as to
whether profit-making opportunities exist in the past and have since been arbitraged or they
are simply statistical peculiarity that engrossed the attention of market participants (Schwert,
2003). There are a vast number of documented financial market anomalies, which can be
categories as fundamental, technical and calendar anomalies (Latif et al., 2011).
Fundamental anomalies
Fundamental anomalies are financial market anomalies, which are observed in the evaluation
of companies (Dana & Cristina, 2013). Financial market anomalies are found in company-
specific characteristics, selection of equity evaluation strategies and the recognition of the
company and the abnormal returns that they present. The more recognised fundamental
anomalies are the size effect, closed-ended mutual funds, neglect and Institutional holdings.
The size effects
The size effect is a financial market anomaly that observes the size of a firm in relation to its
share return. Banz (1981) discovered that the profitability achieved by small, capitalised firms
are on average greater than that of large capitalised firms. Banz (1981) affirmed that the size
of a firm serves as a proxy for risk. He found that smaller firms carry greater risk than larger
firms and as a result market forces place downward pressure on the share price of smaller
capitalised firms providing investors with higher returns (Friend & Larry, 1988). Owing to the
risk factor that small, capitalised firms carry, the investors expect equal returns for their
accepted level of risk. According to Crain (2011), researchers deem smaller firms to be riskier
than larger firms and constantly try to identify their underlying sources of risk.
The value effects
The “value effect” also known as the “book-to-market” effect, explains a market tendency for
the value of a security to outperform its benchmark security in the long run (Banko et al., 2006).
Value securities are defined as securities that trade at a lower price relative to their book value
(Fama & French, 1992). Value securities offer investors a high dividend yield and low price-
to-earnings ratio. The value effect is given rise by an overreaction to the growth aspect of the
undervalued security (Basu, 1977).
Effect of labour strikes on the share returns of the JSE-Top 40 companies 44
Neglected firm effect
The “neglected firm effect” explains the market phenomenon that firms that are evaluated by
lessor analysts present greater abnormal returns (Sharma, 2015). Kenton (2018) attributes
the abnormal returns of neglected securities to lower levels of liquidity and limited information
regarding the security.
Institutional holding
Institutional holding refers to the ownership of securities by investors. Market anomalies have
indicated that there is a strong correlation between high returns and securities that are held
by a few institutions (Arbel & Strebel, 1983)
Technical anomalies
Technical anomalies are financial market anomalies, which are related to technical analysis
techniques. Researchers have tested technical trading systems established that securities’
prices adjust rapidly to the arrival of information and that technical analysis techniques are not
likely to provide an advantage to investors who use them (Ahmad & Ali, 2008). However,
investors have argued that there is validity to some technical strategies.
Calendar anomalies
Calendar anomalies are seasonal anomalies that present familiar patterns in the price
movements of a security over a period of the year (Karz, 2010). Calendar anomalies present
opportunities, which allow investors to take advantage of abnormal price movements in
securities and gain abnormal returns (Boudreaux, 1995). Due to the relation of the anomaly
with specified periods over the calendar year, the anomaly is regarded as calendar anomalies
and as a result of the annual occurrence, they are also referred to as seasonal or seasonality
anomalies (Darrat et al., 2013). Calendar anomalies can occur either at a specific time of the
day, a specified day of the week, a specific week in the month or in a specific week in the year.
Four of the most arguable calendar anomalies are namely day-of-the-week effect, turn-of-the-
month effect, month-of-the-year effect and holiday (Hansen & Lunde, 2003).
Day-of-the week effect
Day-of-the week effect is a calendar anomaly, which illustrates that expected returns from
security price movements are not the same throughout weekdays. Day-of-the-week effect
states that expected returns from security price movements are significantly low on a Monday
Effect of labour strikes on the share returns of the JSE-Top 40 companies 45
and are abnormally high on a Friday (Cross, 1973). As a result of the negative downside on a
Monday, the anomaly is referred to as the weekend effect (French, 1980).
Turn-of-the-month
Turn-of-the-month is a calendar anomaly, which has found a correlation between the first half
of the month beginning from the last few days of the previous month and abnormal expected
abnormal returns from price movements in securities (Nikkinen et al., 2007). This implies that
the average daily returns of stocks on the turn-of-the-month are different (Liu, 2013).
The month-of-the-year effect
The “month-of-the-year effect” is a calendar anomaly that refers to months within a year that
exhibits abnormal returns. Correlation between abnormal returns and the month varies
between different countries (Gultekin & Gultekin, 1983). In the United States of America,
abnormal returns are obtained in December, whereas in India they are obtained in March
(Thushara & Perera, 2013). Though, the effect is often referred to as the January effect as
most countries such as United Kingdom and Tokyo’s’ abnormal returns are obtained in
January.
Holiday effect
The holiday effect is a seasonal anomaly that illustrates the behaviour of security price
movements around public holidays. Abnormal returns are obtained before holidays as
opposed to normal trading days and post-holidays (Lakonishok & Smidt, 1988).
3.7 BEHAVIOURAL FINANCE
Behavioural finance is the study of psychological factors, which influence the behaviour of
investors in financial markets (Birau, 2012). The study demonstrates behavioural cognitive
psychology of human decision making in financial economics (Gupta et al., 2014). It focuses
on how investors interpret information and the decisions that they take following their
interpretation (Shefrin, 2000). Early studies on behaviour finance are found in the 1800s and
pay homage to Mackay (1841), Lebon (1982) and Seldon (1912). Their studies build the
foundation of behavioural finance, presenting various observations on group behaviour in
financial markets, popular mind effects in groups and the emotional and psychological forces
at work on investors and traders in financial markets (Ricciardi & Simon, 2000). The study by
Mackay (1841), Lebon (1982) and Seldon (1912) originated the theory of behavioural finance
by integrating interdisciplinary concepts of psychology, sociology and finance.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 46
Behavioural finance assumes that the information structure and characteristics of market
participants play a significant role on individual’s investment decisions as well as market
outcomes (Birau, 2011). Behavioural finance believes that market participants process
information using emotional filters, which influence their decision making (Thaler, 1990).
Emotional filters or rather psychological complexities are primary feelings of fear, panic
anxiety, envy, euphoria, greed, satisfaction, ambition or vanity (Cisler et al., 2010). Market
participants are likely to act complacent in their decisions and make a suboptimal decision that
violates traditional finance claims of rationality as a result of emotional filters (Goetzmann &
Peles, 1993). Decisions made by market participants in this regard, distort market efficiency,
share returns and portfolio performance (Barber & Odean, 1999). Market participants
experience various emotions and make decisions owing to their emotional filters referred to
as decision-making biases.
Decision-making behaviours are classified as biases and affect individual’s decision making,
particularly in finance and investment (Balaji, 2013). Decision-making biases sit deep within
our psyche and assist us in information processing and decision making (Hirschey et al.,
2008). Decision-making biases are circumstantial and arise in various situations and at times
contradict one another, recorded decision biases are presented below:
Effect of labour strikes on the share returns of the JSE-Top 40 companies 47
Table 3.1: Investors cognitive biases
Bias Description
Anchoring
The tendency to be over-influenced by the earliest information presented to us when making decisions, thus allowing oneself to be driven to a decision or conclusion that is biased towards the initial piece of information (the “anchor”).
Loss aversion The tendency to strongly prefer decisions that allow us to avoid losses over those that allow us to acquire gains shows that the human perception of a loss is as much twice as powerful as that of an equal gain.
Endowment effect
The tendency to place greater value on a good that we own than that which we place on an identical good that we do not own.
Framing effect The tendency to react to, judge, or interpret the exact same information in distinctly different ways depending on how it is presented to us, or framed.
Confirmation bias The tendency to overweight, seek out, or more readily recall information in a way that confirms our preconceived belief, while simultaneously undervaluing or ignoring information that disproves our preconceived beliefs.
Hindsight bias The inclination, after an event has occurred, to see the event as having been predictable, even if there had been little to no objective basis for predicting it.
Availability heuristic
A common mental shortcut that causes individuals to rely on immediate information or examples that come to mind first when evaluating a specific topic concept, method or decision.
Sunk cost fallacy The tendency to irrationally include sunk costs (costs that have already been incurred and ate irrecoverable) as a factor in our forward decision making.
Gambler’s fallacy The tendency to believe that, if something happens more frequently than “normal” during a period of time, it must happen less frequently in the future, or vice versa.
Hot-hand fallacy
The mistaken belief that an individual who has experienced success with a random event has a greater chance of continuing that success in subsequent attempts.
Money illusion The tendency to think of currency in nominal terms rather than in real terms (i.e. consider only nominal value instead of real purchasing power).
Source: Roze (2017)
Behavioural finance has grown rapidly over the past twenty years and as a result of observed
deviations in investor’s behaviour, challenges the assumptions of traditional financial and
economic theory (Byrne & Utkus, 2013). Traditional finance and economic theory pronounce
that capital markets are efficient, and it is not possible to outperform the market over the long
term (Fama, 1998). The theory further emphasises that investors are rational, and their
emotions are not swayed by the arrival of new information to the marketplace (Timmermann,
2004). Behavioural finance questions the assumptions of ECMs, investor’s certainty regarding
future market activity and EMH’s presumption of investor’s behaviour (Sharma, 2016).
Researchers believe that behavioural finance explains market anomalies and that financial
theory should take account of observed human behaviour. Therefore, it was worthy to mention
behavioural finance biases as it can contribute to the behaviour of stock markets and the price
of a security during a labour strike.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 48
3.8 EFFICIENCY REVIEW OF THE JOHANNESBURG SECURITIES
EXCHANGE
The theory of the EMH has been researched at length and alongside it the efficiency of various
capital markets. Researchers have argued that for capital markets to perform its role, the
market must be efficient (Phiri, 2015). Market regulators are constantly imposing new rules
and regulations to ensure that capital markets are competent (Angel, 2014). An information
efficient market implies that capital and risks are appropriately priced without any distortions
(Stout, 1988). Researchers have published numerous papers concerning the “weak form of
EMH” as a means of validating or dismissing the validity of an efficient market (Urquhart,
2013). The weak form of EMH informs market participants that the current price of a security
fully reflects all public information regarding the security (Nasser, 2015). This section thus
presents a qualitative review of studies on the JSE to ensure that indeed the JSE is an ECM.
The outcome of the review informs the researcher that market data from the JSE is valid and
that the JSE can be used as a proxy to prove the effects of labour on listed companies.
A more recent study on the efficiency of the JSE was conducted by Guduza and Phiri (2017).
Guduza and Phiri (2017) who studied individual and panel unit root tests on 4 equity and 7
bond markets on the JSE, making use of monthly data from 2002 to 2016. Guduza and Phiri
(2017) found evidence supporting that the JSE equity and bond market follow a weak form of
market efficiency. Guduza and Phiri (2017) determined that the observed data failed to
produce evidence of unit root behaviour and concluded that the JSE is an ECM. This was in
no way a surprise to Guduza and Phiri (2017) as the JSE was recognised by the World
Economic Forum in 2014 as the most efficiently regulated exchange worldwide.
Chitenderu et al. (2014) tested the existence of the random walk hypothesis on the JSE All
Share Index (ALSI) between 2000 and 2011. Unit root and autocorrelation tests were
conducted and revealed that the JSE ALSI between 2000 and 2011 followed a random walk
process. Chitenderu et al. (2014) concluded that the JSE ALSI conforms to a weak form of
market efficiency and as a result, the opportunity to create abnormal returns can be ruled out.
Heymans and Santana (2018) conducted an in-depth study on the efficiency of sub-indices
on the JSE. Heymans and Santana (2018) confirmed that the JSE is an informationally
efficient market, however, believed the sub-indices of the JSE experiences periods of
efficiency and inefficiency. Heymans and Santana (2018) found that the more newly
formulated indices on the JSE presented periods of inefficiency, thus present opportunity for
active portfolio managers to create or obtain excessive returns. Heymans and Santana (2018)
highlighted that the Top 40 index ranked as a highly efficient index, with small-cap index
ranking as a less efficient index. Phiri (2015) conducted a similar study to Heymans and
Effect of labour strikes on the share returns of the JSE-Top 40 companies 49
Santana (2018) and investigated the efficiency of five general sub-indices of the JSE,
concerning the weak form of EMH. Phiri (2015) conducted several unit roots tests, namely
Dickey-Fuller test, Threshold autoregressive unit root test, and a three-regime unit root test,
observing weekly data from 2000 to 2014. Phiri (2015) concluded that under a linear
framework the JSE stock indices were stationary and supported the weak form of market
efficiency, whereas under nonlinearity majority of market data received violate the
assumptions of a weak form of EMH.
Bonga-Bonga (2012) in his study of “The Evolving Efficiency of the South African Stock
Exchange” examined market data from the JSE, concerning the weak form of market
efficiency. Bonga-Bonga (2012) tested the efficiency of the JSE under the hypothesis that
emerging markets’ efficiency are constantly evolving as their regulatory environment
enhances through time. Bonga-Bonga (2012) tested market data from 1995 to 2007 and made
use of time-varying and fixed parameter GARCH model in a testing set hypothesis. The study
revealed that the JSE over the testing period proved to be an efficient market and followed
assumptions of the weak form of a market hypothesis.
Gräter and Struweg (2015) conducted similar research as Bonga-Bonga (2012) and tested
the efficiency of developing markets with a focus on the JSE. Gräter and Struweg (2015)
revealed evidence both in favour and against the JSE following a weak form of market
efficiency. An augmented Dickey-Fuller and Phillips-Perron tests were conducted on data from
1999 to 2014. A null hypothesis test relating to whether logarithmic returns had a unit root and
are, therefore, a weak form efficient was tested, concerning both unit root tests. In both cases
Gräter and Struweg (2015) rejected the null hypothesis, proving that for the observed period
the JSE was not efficient. Simons (2006) tested the efficiency of African Stock Markets,
namely, Ghana, Mauritius, Egypt and South Africa. The test results revealed that the South
African securities exchange follows a weak form of market efficiency and thus returns on the
South African securities market are independent and follow a random walk.
The review of past research on market efficiency of the JSE reveals that the JSE is an efficient
market. Researchers have found evidence that in most cases that observed data drawn from
the JSE possessed unit root and thus follows a stationary process. The outcome of the unit
root tests informed researchers that the price movement of securities on the JSE followed a
random walk. Researchers in this respect were able to conclude that the JSE conforms to a
weak form of market efficiency. This informs market participants that price movements on the
JSE are random and unbiased and as such abnormal returns cannot be gained from the JSE.
The outcome of the review informs the researcher that the JSE is an information efficient
market and is a credible proxy to test the effects of labour strikes on JSE Top 40 companies.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 50
3.9 SYNOPSIS
Chapter 3 was set out to achieve the study’s second theoretical objective of providing a
background to the EMH and assisting the researcher to establish whether the JSE is an
efficient market. The chapter begins with a background to the theory of efficient market
hypothesis, detailing its origin and how it was contextualised by Eugene Fama. This is followed
by definitions of efficient capital markets, assumptions of what makes an efficient capital
market and the three forms of efficient market hypothesis. The implications of an efficient
capital market are presented, together with financial market anomalies. Financial market
anomalies present irregulates that challenge the premise of the efficient market hypothesis.
The various forms of financial market anomalies are presented, with details of Behavioural
finance being presented as the leading financial market anomaly to challenge the efficient
market hypothesis. Lastly, the chapter conducted a qualitative analysis of the JSE to establish
whether it is an efficient market. This was in line with ensuring that the study's test results are
accurate and a reliable conclusion of the effects that labour strikes have on the share return
of JSE Top 40 companies. Studies by Guduza and Phiri (2017), Chitenderu et al. (2014),
Heymans and Santana (2018), Bonga-Bonga (2012) and Gräter and Struweg (2015) were
reviewed.
Chapter 4, which follows, presents the study’s research design, research approach, sampling
procedure and data collection method employed to achieve the study’s empirical objective.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 51
CHAPTER 4: RESEARCH DESIGN AND METHODOLOGY
“We will either find a way or make one.”
Hannibal (247-182 BC)
4.1 INTRODUCTION
This chapter discusses the research approach, methodology and data employed to achieve
the research objectives and answers the questions posed by the study. Section 4.2 presents
a layout of the data description, which includes a description of the data sample, the sample
size and sample period observed during the study. Section 4.2.2 presents the data sample
employed by the study. Whereas Section 4.3 discusses the event study methodology used to
assess the impact of labour strikes on the share return of the JSE Top 40 companies. A
summary of the chapter is presented in the synopsis in Section 4.4.
4.2 DATA DESCRIPTION
Sample size and sample period
The data sample used in the study is extracted from the JSE. The JSE ALSI is South Africa’s
primary market in multi-asset class securities exchange. The JSE ALSI is designed to illustrate
the performance of South African companies and provide market participants with a
comprehensive set of complementary indexes that measure the performance of major capital
and industry segments (FTSE Russell fact sheet, 2019). The headline indices are the JSE
ALSI, the JSE Top 40 index, mid-cap index, small-cap index and Fledging Index
(Johannesburg Security Exchange, 2019).
The JSE Top 40 index represents 40 of the biggest companies trading on JSE ALSI. As of 31
December 2017, the JSE Top 40 index comprised 40 out of 352 companies on the JSE ALSI
and represented over 80 per cent of the total market capitalisation of the enlisted companies.
The JSE Top 40 index is a fair reflection of market activity and serves as a proxy for the overall
South African Market (Kotze, 2017). Consequently, the study makes use of the daily historical
price movement of the JSE Top 40 companies when assessing the effects of labour strikes
on affected companies.
The JSE Top 40 index following the 2008/2009 financial crisis has traded significantly well
amidst the global and domestic political instability between 2010 and 2017. The index endured
a steady growth of 104 per cent from 23066.67 points between 2010 and 2014, resulting in a
significant increase in market capitalisation. Growth in the index steadied between 2014 and
Effect of labour strikes on the share returns of the JSE-Top 40 companies 52
2016 with markets trading between 41543.66 and 49081.01 points. The decline in market
growth was due to increased tension in global and domestic instability. Towards the end of
the 2016 financial year, the JSE Top 40 index rebounded and began to trend again, growing
by 28,8 per cent between 2016 and 2017. The overall performance of the JSE Top 40 index
between 2010 and 2017 was 138 per cent.
Figure 4.1: Performance of the JSE Top 40 index from 2010 to 2017
Source: JSE (2017)
The study observed 41 companies which were listed on the JSE Top 40 index between 2010
and 2017 and were affected by labour strikes. Of the 41 companies that were affected by
labour strikes, 32 were affected by protected strikes and 9 were affected by unprotected
strikes. The study focused on the period post the 2008/2009 financial crisis and as a result,
the sample period observed was between 2010 and 2017.
The daily historical price movements of affected companies were extracted from IRESS, a
leading provider of financial data feeds and analytical tools. The list of companies listed on the
JSE Top 40 index between 2010 and 2017 was obtained from the JSE. The identified labour
strikes were obtained from the annual industrial action report and from secondary data sources
such as newspaper articles from News24, MoneyWeb, Business Day live, etc.
20000
30000
40000
50000
60000
IND
EX P
OIN
TS
DATE
FTSE/JSE Top 40 Index
Top 40 Companies Linear (Top 40 Companies)
Effect of labour strikes on the share returns of the JSE-Top 40 companies 53
Data sample
The data sample used in the study was selected by making use of the set of selection criteria
listed in Table 4.1. Companies that had been affected by labour strikes between 2010 and
2017 were identified. The list of identified companies was narrowed down to companies that
were enlisted on the JSE Top 40 index, in their respective years between 2010 and 2017. The
study identified 41 companies that were affected by labour strikes during this period. The 41
companies were categorised in accordance with the nature of the strike, which affected the
identified company. The data sample comprised 32 companies that were affected by protected
labour strikes and 9 companies that were affected unprotected labour strikes.
Table 4.1: Sample selection criteria
SAMPLE SELECTION CRITERIA Number of companies
1. Companies affected by labour strikes between 2010 and 2017
259
2. Companies listed on the JSE Top 40 index affected by labour strikes
41
3. Companies listed on the JSE Top 40 index affected by protected strikes
32
4. Companies listed on the JSE Top 40 index affected by unprotected strikes
9
The data sample comprises the events listed in Table 4.2. The identified companies in Table
4.2 were selected from a pool of companies that were enlisted on the JSE Top 40 index
between 2010 and 2017 and had been affected by a labour strike either in the form of a
protected strike or unprotected strike.
Effect of labour strikes on the share returns of the JSE-Top 40 companies 54
Table 4.2: Protected and unprotected strikes from 2010 - 2017
Company Sector Protected/Unprotected Date
Start Date 2017
1. Shoprite Retail Protected 22-Dec-17
2. Tiger Brands Consumer Goods Protected 08-Aug-17
2016
3. Shoprite Retailer Protected 04-Apr-16
4. Glencore Mining Protected 05-Apr-16
5. Sibanye Gold Mining Protected 06-Apr-16
6. Bidvest Group Corporate group Protected 11-May-16
7. Aspen Pharmacare Holdings Pharmaceutical Protected 29-Jul-16
8. Anglo America Mining Protected 27-Oct-16
9. Impala Platinum Holdings Mining Protected 27-Sep-16
10. Tiger Brands Consumer Goods Protected 13-Oct-16
2015
11. MTN Telecommunications Unprotected 20-May-15
12. Glencore Mining Protected 04-Oct-15
13. Anglo America Mining Protected 04-Oct-15
2014
14. Impala Mining Protected 23-Jan-14
15. Anglo America Mining Protected 23-Jan-14
2013
16. AngloGold Ashanti Mining Protected 03-Sep-13
17. Anglo America Mining Unprotected 14-May-13
18. BHP Billiton Mining Protected 18-Nov-13
19. Exxaro Resources Ltd Mining Unprotected 05-Mar-13
20. SABMiller Brewery Protected 30-Sep-13
21. Tiger Brands Consumer Goods Protected 15-Nov-13
Effect of labour strikes on the share returns of the JSE-Top 40 companies 55
2012
22. AngloGold Ashanti Mining Unprotected 20-Sep-12
23. Mining Protected 28-Jul-12
24. Impala Platinum Mining Unprotected 20-Jan-12
25. Kumba Iron Ore Ltd Mining Unprotected 03-Oct-12
2011
26. African Rainbow Min Ltd Mining Protected 29-Aug-11
27. Anglo American Plc Mining Protected 24-Jul-11
28. AngloGold Ashanti Ltd Mining Protected 28-Jul-11
29. Exxaro Resources Ltd Mining Protected 24-Jul-11
30. Gold Fields Ltd Mining Protected 28-Jul-11
31. Harmony Gm Co Ltd Mining Protected 28-Jul-11
32. MTN Group Ltd Telecommunications Unprotected 14-Mar-11
2010
33. Anglo American Plat Ltd Mining Unprotected 13-Sep-10
34. Bhp Billiton Plc Mining Protected 27-Aug-10
35. Exxaro Resources Ltd Mining Protected 23-Aug-10
36. Harmony Gm Co Ltd Mining Protected 13-Jan-10
37. Impala Platinum Hlgs Ltd Mining Protected 21-May-10
38. Kumba Iron Ore Ltd Mining Protected 04-Oct
39. SABMiller Plc Brewery Protected 27-Jan-10
40. Anglo American Plc Ltd Mining Unprotected 27-Sep-10
41. Bhp Billiton Plc Mining Protected 08-Dec-10
Effect of labour strikes on the share returns of the JSE Top 40 Companies 56
4.3 EVENT STUDY METHODOLOGY
The study made use of an event study statistical model to assess the share price movement
of the JSE Top 40 companies, which have been affected by labour strikes. An event study is
a statistical study that attempts to examine the behaviour of a firms’ stock price movement
around corporate events (Kothari & Warner, 2006). According to Bowman (1983) event study
is also known as residual analysis and abnormal performance index test. Bowman (1983)
regard event studies as “an analysis of security price behaviour around the time of an
information announcement or event”. An event study is an important methodological approach
to market-based empirical research in finance and accounting used to examine a variety of
events such as the announcements of annual accounting earnings, accounting principle
changes, large block trades and corporate mergers (Mackinlay, 1997).
Event studies play a significant role in enabling stakeholder understanding of the degree of
abnormal performance in the share price movement of a security at the time of information
announcement or an event (Woon, 2004). The study provides a measure of impact analysis
of an announcement or event concerning the share return of a security (Corrado, 2011). The
primary objective of an event study is to determine whether there is an abnormal price
movement in the share price of a security, which is due to an associated event (Gilson & Black,
2003). Market efficiency is a key assumption of event studies (McWilliams & Siegal, 1997).
Market efficiencies identify the economic effects of an event (Tabak, 2010). According to
Jonsson and Radeschnig (2014), the effects of an event should immediately reflect in the
stock price of an affected company.
The first published work on event studies was conducted in the 1930s by Dolley (1933), who
examined the price effects of stock splits (Mackinlay, 1997). However, modern-day event
studies attribute the main groundwork of the study to Ball and Brown (1968) and Fama et al.
(1969) on their respective studies on “Information Content of Earnings” and “The Effects of
Stock Splits after removing the effects of simultaneous dividend increases”. Ball and Brown
(1968) conducted a rigorous investigation of the information contained in the annual earnings
announcement and their results served to clarify the understating of accounting information.
Fama et al. (1969) investigated the behaviour of stock prices during the 60 months
surrounding the months of stock splits, their findings found that security prices adjust rapidly
to the information implicit in a stock split.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 57
Event identification
In this study, labour strikes have been identified as the event of interest and has been defined
as, “The partial or complete concerted refusal to work, or the retardation or obstruction of work,
by persons who are or have been employed by the same employer or by different employers,
for the purpose of remedying a grievance or resolve a dispute in respect of any matter of
mutual interest between employer and employee, and every reference to ‘work’ in this
definition includes overtime work, whether it is voluntary or compulsory” (Labour Relation Act,
1995). As per the prerequisite of protected labour strikes following Section 64 of Labour
Relations Act, 66 of 1995 employees or employers who propose to embark on a labour strike
must issue his or her employers or employees with a 48-hour notice of intent. As a result,
movement in the share price of the security is expected on the day of the announcement of
the strike, being two days prior to the actual event.
The event periods
Event studies break down an event into three categories, which is regarded as the estimation
window, the event window and the post-event window (Benningia, 2008). The combined
windows are known as the event period. Researchers conducting an event study either
observe the long-term effects or the short-term effects of an event (Ryngaert & Netter, 1990).
Studies observing the long-term effects of an event consider monthly, yearly or several year
intervals, whereas studies that consider the short-term effects of an event observe the event
over a 5, 10 or 20-day interval (Thompson, 1993). Due to the duration of a bargaining process,
the study observed the short-term event window.
Estimation window
The estimation window is the period prior to the event window. The historical data regressed
in the estimation window is utilised to estimate the normal return of the affected security would
have obtained in absence of the identified event. The normal returns estimated in the event
window are regarded as the expected return of the security. The estimation window must be
long enough to get an accurate and reliable regression between the affected security and the
market portfolio (Gao et al., 2014). Armitage (1995) recommends an estimation period of
anything from 100 to 300 days for daily observations and 24 to 60 months when analysing
monthly historical data. An estimation window of 300 days prior to the event window was
observed to estimate expected returns. According to Krivin et al. (2003), it is important to
Effect of labour strikes on the share returns of the JSE Top 40 Companies 58
ensure that the estimation window and event window do not overlap, preventing any
contamination of the expected return estimate.
Event window
The abnormal returns are observed within the event window and are regarded as the returns
gained due to the identified event. The abnormal returns are estimated by deducting expected
returns from actual returns (Temming, 2014). The outcome of the abnormal returns provides
insight regarding the effects of the identified event on the return of the affected security
(Solibakke, 2002). The length of the event window is determined by the purpose of the study
(Woolridge, 2013). The study observed a window period of 61 days. A 30-day period prior and
post the day of the event was observed. The day of the event was observed as “zero”. A 30-
day period prior to the day of the event was observed owing to the legal requirement of a
labour dispute being referred to a bargaining council or the CCMA. According to Section 64 of
Labour Relations Act, 66 of 1995 a 30-day period must have elapsed since a referral, or an
agreed-upon extension period has elapsed since the referral was received by the council of
the commission. A 30-day period post the strike was observed to examine the continued effect
of the strike on the company share price.
The post-event window
The post-event window provides an assessment of the performance of the share price after
the event has occurred (Kliger & Gurevich, 2014). The outcome of the post-event window
provides insight as to whether the firms share price returns to equilibrium (Shaheen, 2006).
Figure 4.2: Illustrates the event period of the study
-300 -30 0 30
𝑇0 𝑇1 𝑇2
Time
(days)
Estimation Window Event Window
Labour Strike
Effect of labour strikes on the share returns of the JSE Top 40 Companies 59
Normal returns estimation models
Normal returns are the returns that would have realised in the absence of an identified event
(Brown & Warner, 1968). Normal returns are estimated by means of modelling expected
returns. According to Mackinlay (1997), expected returns models take the form of statistical
models, which make use of statistical assumptions to generate a sample of data and economic
models, which make use of investor behavioural impact. Statistical models and economic
models in each respect take the form of the constant mean return model, the market model
and the capital asset pricing model and arbitrage pricing theory (Cox, 2006). The most
commonly used models when estimating expected returns are the constant expected return
model and the market model (Pettengill & Clark, 2001). The constant mean return model
assumes that the mean return of a given security is constant throughout time, whereas the
market model assumes a stable linear relation between the market return and the security
return (Cable & Holland, 1999).
The constant mean return model is the simplest model when estimating expected returns,
researchers find that by making use of historical return averages outperforms the more
complicated approaches because of the models' estimation error term (Brooks, 2014).
However, according to Campbell et al. (1997), the market model provides an improvement in
relation to the constant mean return model, by removing the portion of the return that is related
to variation in the market’s returns, the variance of the abnormal return is reduced. Campbell
et al. (1997) further explain that by removing the variation in returns the market model
increases researchers’ ability to detect event effects. Due to its ability to detect the effects of
an event, the study made use of the market model to estimate the expected return.
Expected returns were estimated using the market model and were estimated as follows:
𝐸(𝑅𝑖𝑡) = 𝛼𝑖 + 𝛽𝑖𝑅𝑚𝑡 + 𝑒𝑡 (4.1)
Where:
𝐸(𝑅𝑖𝑡) is the expected return on the company 𝑖 during the period 𝑡;
𝛼𝑖 is the intercept of the regression;
𝛽𝑖 is the slope of the regression;
𝑅𝑚𝑡 is the return on the market during period 𝑡; and
𝑒𝑡 is the error term.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 60
Calculation of normal returns is then estimated. Actual share returns of change in share price:
𝑅𝑖𝑡 = 𝐼𝑛(𝑃𝑖𝑡
𝑃𝑖𝑡−1) (4.2)
Where:
𝑅𝑖𝑡 is the share price of company 𝑖 on period 𝑡; and
𝑃𝑖𝑡 is the share price on period’s 𝑡-1.
Calculation of abnormal returns
Abnormal returns
Abnormal returns are the residual outcome of expected returns and actual returns (Silzle &
Ung, 2016). Abnormal returns (AR) are estimated by subtracting expected returns and actual
returns of affected security in the event window (Brown & Warner, 1968). The captured AR
allow researchers to examine the individual impact of an event on the affected security. The
AR of each firm 𝑖 on day 𝑡 are based on the market model and are defined as follows:
𝐴𝑅𝑖𝑡 = 𝑅𝑖𝑡 − 𝐸(𝑅𝑖𝑡) (4.3)
Where:
𝐴𝑅𝑖𝑡 are abnormal returns of the affected company 𝑖 on period 𝑡;
𝑅𝑖𝑡 are normal returns of the company 𝑖 in period 𝑡; and
𝐸(𝑅𝑖𝑡) are the expected returns of the company 𝑖 on period 𝑡.
The abnormal return in equation one is subsequently:
𝐴𝑅𝑖𝑡 = 𝑅𝑖𝑡 − 𝐸(𝑅𝑖𝑡) = 𝑅𝑖𝑡 − 𝛼𝑖 − 𝛽𝑖𝑅𝑚𝑡 (4.4)
The outcome of Equation 4 provides the researcher with an indication of the magnitude and
direction of impact of a strike, the share returns of an affected JSE Top 40 company, in relation
to protected and unprotected strikes.
Average abnormal returns
In order to examine the outcome of the overall sample event returns and draw a conclusion of
the results of individual companies’ AR, the abnormal returns of affected companies must be
Effect of labour strikes on the share returns of the JSE Top 40 Companies 61
aggregated over time and for all securities. The individual daily AR are aggregated for each
day to obtain the AAR. The estimation of AAR tests the significant effect of the event on
individual share prices over the event window (Woon, 2004). The outcome of the estimation
provides a generalised outcome of the study. AAR for all companies in the sample for day 𝑡
were estimated as follows:
𝐴𝐴𝑅𝑡 =1
𝑁∑ 𝐴𝑅𝑖𝑡
𝑁𝑖=1 (4.5)
𝑁 indicates the number of companies in the sample.
Cumulative abnormal returns
According to Erlien (2011), observations of individual AR of firms do not provide a holistic
representation of the event of interest. As a result, AR must be aggregated to provide a holistic
view of the event of interest. CAR is aggregated across time for company 𝑖 in observation of
the overall impact of the event. The CAR is estimated by summing up the AR of the days in
the event window 𝑘 and is estimated as follows:
𝐶𝐴𝑅𝑖 = ∑ 𝐴𝑅𝑖𝑡𝐾𝑖=1 (4.6)
Cumulative average abnormal returns
The final calculation of AR prior to significance testing is that of CAAR. CAAR aggregate the
AR across both time and the firm’s yields and provides an overall indication of the impact of
the event of interest (Boehmer et al., 1991). The CAAR can be calculated by aggregating the
AARs for the respective period or by aggregating the average of the CARs given the specified
window period.
CAAR is represented by the following equation:
𝐶𝐴𝐴𝑅𝑇 = ∑ 𝐴𝐴𝑅𝑡𝑇𝑡=1 (4.7)
And
𝐶𝐴𝐴𝑅𝑡 =1
𝑁∑ 𝐶𝐴𝑅𝑡
𝑁𝑖=1 Or 𝐶𝐴𝐴𝑅𝑡 = ∑ 𝑤𝑖
𝑁𝑖=1 ∗ 𝐶𝐴𝑅𝑡 (4.8)
Z-statistic
In order to conclude the above-mentioned calculations, a z-statistic must be estimated to test
the set hypothesis. Estimations of the z-statistic will provide an indication as to whether AR
Effect of labour strikes on the share returns of the JSE Top 40 Companies 62
deviate from zero (Massey & Miller, 2006). The outcome of the estimate in terms of its size
and direction of the z-statistic indicates the significance of the test statistics. Calculation of the
z-statistic is as follows:
𝑍𝐴𝑅 =𝐴𝑅𝑖𝑡
𝑆𝐷(𝐴𝑅𝑖𝑡) (4.9)
Where:
𝑍𝐴𝑅 is the z-statistic of abnormal returns; and
𝑆𝐷(𝐴𝑅𝑖𝑡) is the sample standard deviation of abnormal return.
𝑆𝐷(𝐴𝑅𝑖𝑡) = √1
𝑇0−1∑ (𝐴𝑅𝑖𝑡 − 𝐸(𝐴𝑅𝑡))2𝑇0
𝑡−1 (4.10)
Where:
𝑇0 is the period of the event (estimation window)
At a significant level of 5 per cent, the z-statistic will be compared with z-critical value.
If the z-statistic > z-critical value then the null hypothesis will be rejected, thus indicating that
abnormal returns deviated significantly from zero.
If the z-statistic < z-critical value then the null hypothesis will not be rejected, thus indicating
that abnormal returns did not deviate significantly from zero.
Hypothesis test statistics of abnormal returns
The outcome of AR provides an indication as to whether labour strikes does affect the returns
of an affected firm. An outcome of greater than zero in the estimation, allows the researcher
to conclude that the identified event does result in movements in the share price of the
identified firm (Mackinlay, 1997). The study considered in this regard the hypothesis test that
is described in the section to follow.
Hypothesis test:
The following hypothesises were tested to achieve the study’s empirical research objectives:
- Null hypothesis (𝑯𝟎𝟏): The resolve of labour strikes does not affect the share returns of
the JSE Top 40 companies.
- Alternative hypothesis(𝑯𝑨𝟏): The resolve of labour strikes affects the share returns of
the JSE Top 40 companies.
- Null hypothesis (𝑯𝟎𝟐): Protected labour strikes do not have a greater negative impact on
share returns of the JSE Top 40 companies, in relation to unprotected labour strikes.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 63
- Alternative hypothesis (𝑯𝑨𝟐): Protected labour strikes have a greater negative impact
on the share returns of the JSE Top 40 companies, in relation to unprotected labour strikes.
- Null hypothesis (𝑯𝟎𝟑): The resolve of protected labour strikes does not result in a change
in the share returns of the JSE Top 40 companies after the day of the strike.
- Alternative hypothesis (𝑯𝑨𝟑): The resolve of protected labour strikes results in a change
in the share returns of the JSE Top 40 companies after the day of the strike.
- Null hypothesis (𝑯𝟎𝟒): The resolve of unprotected labour strikes does not result in a
change in the share returns of the JSE Top 40 companies after the day of the strike.
- Alternative hypothesis (𝑯𝑨𝟒): The resolve of unprotected labour strikes result in a
change in the share returns of the JSE Top 40 companies after the day of the strike.
4.4 SYNOPSIS
Chapter 4 presents the research design and methodology applied to achieve the study’s
empirical objectives set out in Chapter 1. The chapter specifies the research design, research
approach, sampling procedure and data collection method employed to assess the effect of
labour strikes on the share return of JSE Top 40 companies. To achieve the study’s objective
the study identified 41 companies which were affected by protected and unprotected labour
strikes between 2010 and 2017 and were listed on JSE Top 40 index at the time of the labour
strike. Of the 41 companies identified, 32 companies were affected by protected labour strikes
and nine were affected by unprotected labour strikes. The study employed an event study
methodology to assess the effects of labour strikes on the share return of JSE Top 40
companies. The model observed a window period of 61 days, 30 days before and after the
day of the strike and zero as the day of the strike. A z-statistic is incorporated to evaluate
whether the AR obtain are significant enough to reject the study’s null hypotheses, making the
statements true for the alternative hypotheses at the specified confidence level.
The research approach employed in this chapter contributes to the analysis and interpretation
of the study’s empirical findings presented in Chapter 5. Chapter 5 presents, analysis and
interprets the study's findings, leading to the conclusion and recommendation presented in
Chapter 6.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 64
CHAPTER 5: RESULTS AND DISCUSSION
An investment in knowledge pays the best interest.” Benjamin Franklin
5.1 INTRODUCTION
The purpose of this chapter is to present the empirical findings of the study. The primary
objective of the study was to establish whether the resolution of labour strikes affects the share
return of the JSE Top 40 companies. The results of the empirical objectives detailed in Chapter
1 and their related hypotheses are re-stated to test the study’s objective. The empirical
objectives detailed in Chapter 1 entailed:
• Establishing whether labour strikes affect the share returns 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.
The following hypothesises are detailed to test the above empirical research objectives:
- Null hypothesis (𝑯𝟎𝟏): The resolve of labour strikes does not affect the share returns of
the JSE Top 40 companies.
- Alternative hypothesis(𝑯𝑨𝟏): The resolve of labour strikes affects the share returns of
the JSE Top 40 companies.
- Null hypothesis (𝑯𝟎𝟐): Protected labour strikes do not have a greater negative impact on
share returns of the JSE Top 40 companies, in relation to unprotected labour strikes.
- Alternative hypothesis (𝑯𝑨𝟐): Protected labour strikes have a greater negative impact
on the share returns of the JSE Top 40 companies, in relation to unprotected labour strikes.
- Null hypothesis (𝑯𝟎𝟑): The resolve of protected labour strikes does not result in a change
in the share returns of the JSE Top 40 companies after the day of the strike.
- Alternative hypothesis (𝑯𝑨𝟑): The resolve of protected labour strikes results in a change
in the share returns of the JSE Top 40 companies after the day of the strike.
- Null hypothesis (𝑯𝟎𝟒): The resolve of unprotected labour strikes does not result in a
change in the share returns of the JSE Top 40 companies after the day of the strike.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 65
- Alternative hypothesis (𝑯𝑨𝟒): The resolve of unprotected labour strikes result in a
change in the share returns of the JSE Top 40 companies after the day of the strike.
In order to achieve the study’s objectives, the aforementioned hypotheses were tested
employing an event study methodology. The results of the applied methodology are presented,
analysed and interpreted. This chapter is presented as follows:
● Section 5.2 presents a descriptive summary of the CAAR of the JSE Top 40 companies
affected by protected and unprotected strikes, collectively and respectively;
● Section 5.3 presents an industry-specific analysis of companies affected by labour
strikes;
● Section 5.4 presents an overall analysis of the effects that protected and unprotected
labour strikes had on the JSE Top 40 companies between 2010 and 2017, collectively;
● Section 5.5 presents a comparison of the share returns of the JSE Top 40 companies
affected by protected and unprotected strikes; and
● Section 5.6 presents an analysis of share returns of companies affected by protected
and unprotected strikes before and after the day of the event.
5.2 DESCRIPTIVE STATISTICS
Section 5.2 presents and interprets the descriptive statistics of CAAR of the JSE Top 40
companies affected by protected and unprotected strikes, collectively and respectively. A data
sample of the JSE Top 40 companies, which were affected by protected and unprotected
labour strikes between 2010 and 2017, was observed over a 61-day event window. The data
sample comprised of 32 companies which were affected by protected labour strikes and 9
companies that were affected by unprotected labour strikes. The study observed an event
window of 61 days, 30 days before and after the day of the strike, including Day 0 as the day
of the strike. The descriptive summary of share returns of companies affected by protected
and unprotected strikes are presented in Table 5.1.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 66
Table 5.1: Descriptive summary of share returns of companies affected by protected and unprotected labour strikes
Descriptive statistics
Overall strikes Protected Unprotected
Event day 0 0 0
Sample size 41 32 9
Sample mean -0.44% -1.52% 3.35%
Median -0.48% -1.49% 3.48%
Standard deviation 0.0056 0.0087 0.0133
Sample variance 0.003% 0.008% 0.017%
Kurtosis 2.91 2.19 3.69
Skewness -0.297 0.04 -0.89
Jarque-Bera 0.87 1.70 8.82
Probability 0.646% 0.428% 0.012%
Minimum -2.03% -3.53% -0.13%
Maximum 0.58% 0.46% 5.75%
The data sample revealed that labour strikes have a negative effect on the share returns of
the JSE Top 40 companies. The collective CAAR of protected and unprotected strikes over
the 61-day event window indicates that companies affected by labour strikes experienced
average losses of 0.44 per cent in share returns. Protected strikes presented greater losses
of the 2 types of strikes, with an average negative return of 1.52 per cent and maximum losses
of 3.53 per cent. The share returns of companies affected by unprotected strikes maintained
a positive share return of 3.48 per cent and experienced a maximum loss of 0.13 per cent.
The movement in share returns of companies affected by unprotected strikes indicates that
unprotected labour strikes do not affect the share returns of the JSE Top 40 companies.
The observed losses in the share returns of affected companies are consistent with the
findings of Bhana (1997) and Seedat (2013), who found that protected labour strikes have a
greater cost implication to the employer as opposed to unprotected labour strikes. Bhana
(1997) and Seedat (2013) believe that due to the nature of unprotected strikes, employers are
not obligated to the demands made by workers and as a result of no cost implication related
to unprotected strikes. Seedat (2013) found that with protected strikes markets perceive that
there will be an increase in employees’ wages during times of wage negotiations, which
subsequently results in increased costs to the investor. Norton Rose Global (2009) reasons
that the share value of companies affected by unprotected strikes is retained as the employer
Effect of labour strikes on the share returns of the JSE Top 40 Companies 67
is not obligated to increase the wages of their workers or even retain workers who have been
engaging in unprotected strikes.
The CAARs of companies affected by protected and unprotected strikes collectively varied
with an average of 0.56 per cent. A greater variance of 1.7 per cent was found in CAAR of
unprotected strikes, which coincided with a standard deviation of 1.33 per cent. The variation
in the standard deviation of companies affected by unprotected labour strikes was 0.46 per
cent greater than that of protected strikes. Variance and standard deviation in the share return
of securities are viewed as signs of volatility in the share price of securities (Williams, 2016).
The study’s findings of volatility in the share returns of companies affected by protected and
unprotected strikes, respectively, align with findings of Chabalala (2014) who found that
periods of labour strikes presented a high degree of share price volatility and decline in profits
for companies. Chabalala (2014) found that volatility in the movement share price of
companies affected by labour strikes increased throughout the strike, owing to a loss in
production, resources and investor confidence.
The distribution of CAAR of protected and unprotected strikes collectively indicate that periods
of labour strikes present a slight decline in share returns of affected companies. However,
share returns of affected companies do not deviate significantly from their mean average
returns. This is evident in the 0.3 skewness and 2.91 kurtosis coefficient, which present a
normal distribution in the share return of the affected companies. The significant contribution
in the skewness of labour strikes collectively (protected and unprotected strikes) was due to
the distribution of CAAR of unprotected strikes, which were moderately skewed with a negative
coefficient of 0.89. Protected strikes presented a more symmetrical sample distribution, with
a coefficient of 0.04. The distribution in share returns of companies affected by protected
strikes indicated that there was no significant movement in the share return of companies
affected by protected strikes and confirms that markets anticipate wage negotiations and price
it in share price movement of affected companies.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 68
Figure 5.1: Distribution of share returns of the JSE Top 40 companies affected by labour strikes
The Jarque-Bera p-values of overall strikes (protected and unprotected strikes collected) and
protected strike of 0.646 per cent and 0.428 per cent, respectively, failed to reject the null
hypothesis of normality. The outcome of the Jarque-Bera p-values confirms normal distribution
of overall strike action and protected strikes. The Jarque-Bera statistic confirms the skewness
of the unprotected strikes. Unprotected strikes presented a p-value of 0.012 per cent,
subsequently rejecting the null hypothesis of normality making the statement true for the
alternative hypothesis. This subsequently confirms that there is drastic movement in the share
price movement of securities during periods of wage negotiations.
5.3 INDUSTRY ANALYSIS OF THE JSE TOP 40 COMPANIES AFFECTED
BY LABOUR STRIKES
This section aims to present an industry analysis of the JSE Top 40 companies that were
affected by labour strikes between 2010 and 2017. Its purpose is to identify which industries
were affected by a large number of labour strikes and to observe the movement in share
returns of affected companies with respect to the announcement of labour strikes.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 69
Industry distribution of the JSE Top 40 companies affected by labour
strikes
Figure 5.2 presents an illustration of the JSE Top 40 companies which were affected by labour
strikes per industry. Figure 5.2 aims to illustrate the number of companies per industry affected
by labour strikes and which industry was most affected by labour strikes.
Figure 5.2: Industry distribution of the JSE Top companies affected by labour strikes
The study found that majority of the labour strikes found in the sample were experienced within
the mining and consumer goods industry. Thirty of the 41 companies listed on the JSE Top
40 index were companies in the mining industry, while 3 were found within the consumer
goods industry. The least amount of labour strikes was found within the pharmaceutical and
corporate group industry with each industry experiencing 1 strike. Companies within the
telecommunications, brewery and retail industry each experienced 2 strikes during the
observed period.
The study’s findings of South Africa’s mining industry, as 1 of the major industries affected by
labour strikes, is in line with the Department of Labour’s Annual Industrial Action Report
(2016), which highlights that South Africa’s labour market is dominated by strikes within the
Effect of labour strikes on the share returns of the JSE Top 40 Companies 70
public sector, manufacturing, transport, construction and mining industry. According to IAR
(2017), the increase in the number of labour strikes within these industries was due to growth
in unionisation and labour intensity of the industries. Phoshoko (2018) writes that growth in
the number of labour strikes in the mining industry is due to historical discrimination and
exploitation of mining employees. The number of workdays2 lost in South Africa’s mining
industry grew by 822 465 from 361 113 in 2010 to 1 183 581 2017 (IAR, 2017). According to
Bhorat, Naidoo and Yu (2014), the increasing number of strike incidents in the mining industry
during August 2012 had the potential to increase public strikes in the economy.
Industry analysis of the JSE Top 40 companies affected by labour
strikes
This section presents the industry-specific analysis of the AAR of companies that were
affected by labour strikes. It aims to identify AR of affected companies per industry and identify
a trend in AR over the 61-day event window. The analysis begins with the mining industry,
followed by consumer goods, retailers, brewery, telecommunications, corporate groups and
pharmaceuticals. The AAR of the affected JSE Top 40 companies were observed to assess
the effect that labour strikes had on affected companies.
The AAR represents the AR of multiple events of the same type and aims to establish a market
response pattern of the observed event (Neuhierl et al., 2011). According to Ting (2017), AR
is the difference between actual and expected asset price obtained as a result of a specific
event. AR concludes the price impact of specified events through statistical testing (Granhol
& Gustafsson, 2017). The AARs of affected companies are modelled over the 61-day event
window on the vertical and horizontal axis respectively. The day of the strike is illustrated with
a solid line at “zero”.
Industry analysis of companies in the mining industry affected by
labour strikes
Figure 5.3 presents the movement in AAR of the JSE Top 40 companies within the mining
industry that were affected by labour strikes between 2010 and 2017. The graph illustrates
financial markets' response to the arrival of news of labour strikes during periods of wage
negotiations within the mining industry.
2 The number of working days lost due to labour strikes, is a measure of the total number of workers
involved directly in the strike or lockouts multiplied by the length of the work stoppage (Industrial Action Report, 2016)
Effect of labour strikes on the share returns of the JSE Top 40 Companies 71
Figure 5.3: Average abnormal returns of companies in the mining industry
The share returns of companies within the mining industry experienced a significant amount
of volatility throughout the event window. A large amount of volatility in share returns of the
affected mining companies was observed in the 30 days before the day of the strike. Closer
to the day of the strike from Day 10, volatility in the share return of the affected mining
companies increased as the shares of affected companies traded at a new low between 0.65
per cent and negative 0.69 per cent. At Day -2, on the day of the announcement of the strike,
the share returns of the affected companies dropped significantly and rebounded on Day -1
right past the day of the strike. Drastic movement is observed in the share returns of affected
mining companies between day “zero”, when the strike commenced, and Day 14. Between
Day 0 and 14, the share returns of affected companies fluctuated between 1.46 per cent and
-0.99 per cent, with sharp movements observed between Day 4 and 14. Towards the end of
the event window from Day 14 to 30, volatility in the share returns of affected mining
companies subsided and began to trade upwards.
The significant amount of volatility in the share returns of affected mining companies is
attributed to workers will to risk a labour strike to obtain the most favourable outcome during
wage negotiations, along with the arrival of news of a looming strike to financial markets
(Saraydar, 1965). According to Zeuthen (1930), Hicks (1932) and Ashenfelter and Johnson
(1969), workers enter labour negotiations based on a suitable concession of an expected
value of holding out for the most desired outcome during wage negotiations. Zeuthen-Harsanyi
-1,5%
-1,0%
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
Av
era
ge A
bn
orm
al
Retu
rns %
Event Window
AAR: Mining Industry
Effect of labour strikes on the share returns of the JSE Top 40 Companies 72
(1956) models the bargaining proceedings during wage negotiations by making use of a static
utility frontier curve that represents gains bargaining agents derived from settlements at
various points on the utility frontier curve. Hick (1932) presents the duration of an expected
labour strike in relation to a favourable settlement of a strike and is centred around the cost
implications of an elongated strike. Ashenfelter and Johnson (1969) similarly model the
duration of a labour strike in relation to a favourable wage settlement, however, focus their
argument around competing agendas and varying information regarding involved party’s
concession schedule.
Breakdowns in wage negotiations are described by Neumann (1980) as procedures
respective bargaining agents follow at a specific event, a “dictionary” which translates the
actions and statements of the parties into a common language. Neumann's (1980)
assumptions of “set protocols” align with Zeuthen-Harsanyi (1956) assumption that bargaining
agents have compared the utility derived from accepting a certain offer made by the opposing
party and the expected utility of turning down an offer and risking labour strike in anticipation
of a more favourable offer (Damme, 1986). The observed volatility in the share returns of
affected mining companies is indicative of breakdowns in wage negotiations along with
bargaining agents concession curves. Breakdowns in wage negotiations are evident in 30
days before the day of the strike with share returns of affected mining companies becoming
increasingly volatile 10 days before the day of the strike and 14 days after the strike
commenced. Signs of a compromise in the settlement are observed after day 14, with the
share returns of affected mining companies trade upwards.
These findings correlate with that of Hick (1932) that labours strikes are less likely to proceed
for a sustained period owing to a cost implication of a labour strike. Nigidi (2011) found that
the share returns of companies in the mining industry experienced a decline before the day of
the strike, with volatility observed 4 days before the day of the strike, thereafter, declining past
the day of the strike and not returning to equilibrium. The study’s findings differed from that of
Nigidi (2011), the study found significant volatility throughout the event window whereas
moderate volatility is observed in Nigidi’s (2011) findings.
Significance test of AAR of companies in the mining industry
Table 5.2 presents the significance test of the AAR of mining companies affected by labour
strikes over the observed 61-day event window. The significance tests aimed to identify on
which days over the event window were the AR of affected companies are significant. The AR
of the affected mining companies were tested at a 95, 90 and 80 per cent confidence interval.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 73
Table 5.2: Significance test: AAR mining industry
Significance test: AAR mining industry
Event window Average abnormal return z-statistic
-30 0.85% 1.63*
-29 -0.51% -1.02
-28 0.52% 0.97
-27 0.18% 0.31
-26 0.19% 0.34
-25 -0.68% -1.35*
-24 -0.31% -0.63
-23 -0.55% -1.10
-22 -0.49% -0.99
-21 0.93% 1.78**
-20 -0.36% -0.73
-19 -0.35% -0.71
-18 0.50% 0.95
-17 0.32% 0.59
-16 1.06% 2.03***
-15 0.00% -0.02
-14 -0.45% -0.91
-13 0.52% 0.98
-12 0.49% 0.92
-11 0.65% 1.24
-10 -0.38% -0.77
-9 0.06% 0.09
-8 -0.67% -1.34*
-7 0.08% 0.13
-6 0.08% 0.13
-5 -0.85% -1.69**
-4 0.29% 0.54
-3 0.14% 0.25
-2 -0.69% -1.38*
-1 0.24% 0.44
0 0.13% 0.22
Effect of labour strikes on the share returns of the JSE Top 40 Companies 74
1 0.19% 0.35
2 0.34% 0.62
3 0.32% 0.59
4 1.45% 2.80***
5 -0.50% -1.0 1
6 -0.99% -1.96***
7 -0.16% -0.35
8 0.26% 0.48
9 -0.12% -0.26
10 -0.47% -0.95
11 0.15% 0.26
12 1.11% 2.13***
13 -0.78% -1.54*
14 -0.17% -0.36
15 -0.47% -0.96
16 0.19% 0.33
17 -0.04% -0.11
18 -0.59% -1.17
19 -0.03% -0.09
20 0.59% 1.11
21 -0.27% -0.56
22 0.15% 0.27
23 -0.20% -0.42
24 -0.02% -0.0 8
25 0.72% 1.37*
26 -0.21% -0.44
27 -0.12% -0.27
28 -0.44% -0.88
29 0.04% 0.04
30 0.10% 0.17
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval ** Significant at 80 per cent
confidence interval *
Throughout the event window, significant AR were found at various confidence intervals.
During the 30 days of wage negotiations before the day of the strike, significance was found
on Day -30, -25, -21, -16, -8, -5, and on the day of the announcement of the strike at Day 2.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 75
On the day of the strike on Day 0, there were no significant AR. Over the 30-day wage
settlement period, significant AR were found on Day 4, 6, 12, 13, and 25. The significant AR
found at the confidence intervals of 95, 90, and 80 per cent allow the researcher to conclude
that periods of wage negotiations in the mining industry results in abnormal share returns of
affected mining companies.
Industry analysis of companies in the consumer goods industry
Figure 5.4 presents the movement in AAR of the JSE Top 40 companies within the consumer
goods industry that were affected by labour strikes between 2010 and 2017. The graph
illustrates financial markets' response to the arrival of news of labour strikes during periods of
wage negotiations within the consumer goods industry.
Figure 5.4: Average abnormal returns of companies in the consumer goods industry
The movement in the share return of companies within the consumer goods industry is
synonymous with the Ashenfelter-Johnson (1956) “Political Model” theory. The share returns
of companies in the consumer goods industry presented volatility throughout the event
window. The share returns of affected companies fluctuated between 1.28 per cent and
negative 1.89 per cent. The volatility in the share returns of affected consumer goods
companies signals conflicting interest in barging agents' demands. Neumann's (1980) theory
of “set protocol” is exhibited profoundly in the drastic movement of affected consumer goods
companies. Breakdowns in wage negotiation as a result of “set protocols”, signal a looming
-2,50%
-2,00%
-1,50%
-1,00%
-0,50%
0,00%
0,50%
1,00%
1,50%
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
Av
era
ge A
bn
orm
al
Retu
rns %
Event Window
AAR: Consumer Goods Industry
Effect of labour strikes on the share returns of the JSE Top 40 Companies 76
strike to financial markets and arrive as bad news translating into volatility in the share return
of affected companies. The drastic movement in the share return of affected companies in the
consumer industry is observed 22 days before the day of the strike and 26 days after the
commencement of the strike. Signs of a recovery in the share returns of affected consumer
goods companies are observed 20 after the strike commenced. Findings of recovery in the
share returns of affected consumer goods companies 20 days after the commencement of the
strike further support Ashenfelter and Johnson's (1956) theory of conflicting interests and
increased cost of an elongated strike.
Significance test of AAR of companies in the consumer goods
industry
Table 5.3 presents the significance test of AAR of companies within the consumer goods
industry which were affected by labour strikes over the observed 61-day event window. The
significance tests aim to identify on which days over the event window were the AR of affected
companies significant. The AR of the affected companies were tested at a 95, 90 and 80 per
cent confidence interval.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 77
Table 5.3: Significance test AAR consumer goods industry
Significance test: AAR consumer goods industry
Event window Average abnormal returns Z-statistic
-30 0.02% 0.20
-29 -0.37% -0.34
-28 -0.60% -0.66
-27 0.75% 1.23
-26 0.15% 0.39
-25 0.32% 0.62
-24 -0.33% -0.29
-23 0.70% 1.15
-22 -0.93% -1.12
-21 -1.23% -1.54*
-20 -0.07% 0.08
-19 -0.67% -0.75
-18 0.18% 0.43
-17 0.87% 1.39*
-16 0.05% 0.25
-15 -0.23% -0.15
-14 -0.03% 0.13
-13 0.26% 0.54
-12 -0.43% -0.43
-11 -0.54% -0.57
-10 0.19% 0.44
-9 -0.22% -0.13
-8 1.28% 1.95**
-7 0.79% 1.28
-6 -0.03% 0.14
-5 -1.20% -1.49*
-4 0.68% 1.13
-3 -0.15% -0.02
-2 -0.64% -0.71
-1 0.08% 0.29
0 0.95% 1.49*
1 -0.23% -0.15
Effect of labour strikes on the share returns of the JSE Top 40 Companies 78
2 0.33% 0.64
3 -1.49% -1.90**
4 0.02% 0.20
5 -0.91% -1.08
6 -0.67% -0.75
7 -0.95% -1.14
8 -0.91% -1.09
9 0.54% 0.93
10 0.60% 1.01
11 1.02% 1.59*
12 -0.35% -0.32
13 -0.97% -1.17
14 -0.73% -0.84
15 -0.33% -0.28
16 0.07% 0.27
17 -0.68% -0.77
18 -0.50% -0.52
19 -1.89% -2.45***
20 -0.92% -1.10
21 0.44% 0.79
22 -1.52% -1.93**
23 1.22% 1.88**
24 0.80% 1.29*
25 -0.46% -0.46
26 -0.43% -0.43
27 -0.35% -0.31
28 0.52% 0.91
29 0.94% 1.48*
30 0.44% 0.79
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval ** Significant at 80 per cent
confidence interval *
The share returns of companies within the consumer goods industry presented significant AR
throughout the event window. Significant AR of companies within the consumer goods industry
were mostly found at a confidence interval of 90 per cent. Before the day of the strike,
significance was found at Day 21, -17, -8 and -5. On the day of the strike at a confidence
Effect of labour strikes on the share returns of the JSE Top 40 Companies 79
interval of 90 per cent, significant AR of 1.49 were found. Days after the commencement of
the strike significant AR were found on Day 3, 11, 19, 22, 23, 24 and 29. Significance in the
share returns of affected companies throughout the event window informs the researcher that
periods of wage negotiations within the consumer goods industry result in significant AR.
Industry analysis of companies in the retail industry
Figure 5.5 presents the movement in AAR of the JSE Top 40 companies within the retail
industry that were affected by labour strikes between 2010 and 2017. The graph illustrates
financial markets' response to the arrival of news of labour strikes during periods of wage
negotiations within the retail industry.
Figure 5.5: Average abnormal returns of companies in the retail industry
The movement in share returns of companies within the retail industry presented similar
movement as the movement in share returns of companies within the consumer goods
industry that were affected by labour strikes. Volatility in the share returns of affected retail
companies is observed throughout the event window between Day 24, before the day of the
strike, and Day 24 after the strike had commenced. The share of affected retail companies
fluctuated between 1.28 per cent and negative 1.89 per cent. Zeuthen (1930) and Ashenfelter
and Johnson's (1956) theory is observed in the movement of share returns of companies in
the retail industry. Zeuthen (1930) argues that workers are willing to risk a labour strike to
obtain the most favourable outcome and is demonstrated in the several break downs of the
-2,0%
-1,5%
-1,0%
-0,5%
0,0%
0,5%
1,0%
1,5%
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
Av
era
ge A
bn
orm
al
Retu
rns
%
Event Window
AAR: Retail Industry
Effect of labour strikes on the share returns of the JSE Top 40 Companies 80
negotiation process, which has translated to the volatility of share return. The volatility of share
returns of companies in the retail industry increased drastically 8 days before the day of the
strike, showing no sign of a resolution closer to the day of the strike with share returns dropping
on the day of the announcement of the strike. Volatility in the share return continued for an
extended period, showing signs of a wage settlement at Day 20 with the share return of
companies in the retail industry trading up.
Significance test of the AAR of companies in the retail industry
Table 5.4 presents the significance test of AAR of companies within the retail industry that
were affected by labour strikes over the observed 61-day event window. The significance tests
aim to identify on which days over the event window were the AR of affected companies
significant. The AR of the affected companies were tested at a 95, 90, and 80 per cent
confidence interval.
Table 5.4: Significance test of AAR of companies in the retail industry
Significance test: AAR retail industry
Event window Average abnormal returns z-statistic
-30 0.62% 0.30
-29 0.00% -0.15
-28 -0.59% -0.58
-27 -0.32% -0.38
-26 3.89% 2.66***
-25 -0.10% -0.23
-24 2.46% 1.63*
-23 -1.70% -1.38*
-22 0.30% 0.06
-21 1.46% 0.90
-20 0.38% 0.12
-19 1.90% 1.22
-18 -1.31% -1.10
-17 0.65% 0.32
-16 0.80% 0.43
-15 3.10% 2.09***
-14 -0.43% -046
-13 0.79% 0.42
Effect of labour strikes on the share returns of the JSE Top 40 Companies 81
-12 -3.32% -2.55***
-11 -1.77% -1.43*
-10 0.11% -0.07
-9 0.27% 0.04
-8 1.75% 1.11
-7 0.88% 0.49
-6 1.82% 1.16
-5 -2.24% -1.77**
-4 2.30% 1.51*
-3 -0.08% -0.21
-2 -2.19% -1.74**
-1 -2.42% -1.90**
0 0.11% -0.07
1 2.00% 1.30*
2 -1.35% -1.13
3 0.61% 0.29
4 -1.31% -1.10
5 -0.06% -0.19
6 -0.18% -0.28
7 -0.10% -0.22
8 0.32% 0.08
9 -1.47% -1.21
10 -0.08% -0.21
11 -0.83% -0.76
12 -0.23% -0.32
13 0.41% 0.15
14 1.13% 0.66
15 2.06% 1.34*
16 1.84% 1.18
17 0.35% 0.10
18 0.11% -0.07
19 1.06% 0.62
20 0.64% 0.31
21 -0.22% -0.31
22 -0.72% -0.67
23 0.04% -0.12
Effect of labour strikes on the share returns of the JSE Top 40 Companies 82
24 0.35% 0.10
25 2.13% 1.39*
26 0.96% 0.54
27 -1.70% -1.38*
28 -0.04% -0.18
29 -0.30% -0.37
30 0.29% 0.06
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval **Significant at 80 per cent
confidence interval *
The share returns of companies in the retail industry presented significant AR at various
confidence intervals throughout the event window. In the 30 days of wage negotiations,
significant AR at a confidence interval of 95 per cent were found on Day 26, -15, and -12.
Closer to the day of the strike between Day 5 and -1, significant AR were found at a confidence
interval of 90 per cent. Significant AR were found on Day 2 on the day the strike was
announced. No significant AR were found on the day of the strike at Day 0. In the 30 days
after the strike had commenced, fewer days with significant AR were found. Significant AR
after the strike had commenced were found on Day 1, 15, 25, and 27. The significant AR found
throughout the event window, inform the researcher that periods of wage negotiations in the
retail industry resulting in significant AR.
Industry analysis of companies in the brewery industry
Figure 5.6 presents the movement in AAR of the JSE Top 40 companies within the brewery
industry that were affected by labour strikes between 2010 and 2017. The graph illustrates
financial markets' response to the arrival of news of labour strikes during periods of wage
negotiations within the brewery industry.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 83
Figure 5.6: Average abnormal returns of the brewery industry
The share return of companies in the brewery industry presented less instability in comparison
to companies in the mining, consumer good and retail industry. The affected companies share
return fluctuated between 1.80 per cent and negative -2.53 per cent. Significant movement in
share return is observed between Day 16 and -14, -12 and -10 and Day 4 and -2. The drastic
movement in share returns of companies in the brewery industry before the day of the strike
is symbolic of the bargaining agent’s rejections of wage offers and counteroffers along
respective bargain agents concession curve. A similar drastic movement in share returns of
affected brewery companies is observed throughout the 30 days settlement window. Instability
in the share return of the affected brewery companies subsided later in the event window on
Day 28, illustrating signs of an elongated labour strike.
Significance test of AAR of companies in the brewery industry
Table 5.5 presents the significance test of AAR of companies within the brewery industry that
were affected by labour strikes over the observed 61-day event window. The significance tests
aim to identify on which days over the event window were the AR of affected companies
significant. The AR of the affected companies were tested at a 95, 90 and 80 per cent
confidence interval.
-3,0%
-2,5%
-2,0%
-1,5%
-1,0%
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
Ave
rag
e A
bn
orm
al R
etu
rns
%
Event Window
AAR: Brewery Industry
Effect of labour strikes on the share returns of the JSE Top 40 Companies 84
Table 5.5: Significance of AAR of companies in the brewery industry
Significance Test: AAR brewery industry
Event window Average abnormal return z-statistic
-30 0.40% 0.60
-29 0.01% 0.13
-28 -0.15% -0.07
-27 -0.02% 0.09
-26 -0.64% -0.66
-25 1.36% 1.76**
-24 -0.19% -0.11
-23 -0.01% 0.11
-22 -0.54% -0.53
-21 0.27% 0.45
-20 -0.90% -0.97
-19 0.30% 0.48
-18 -0.94% -1.02
-17 -0.07% 0.03
-16 -2.17% -2.49***
-15 0.13% 0.27
-14 -0.01% 0.11
-13 0.82% 1.11
-12 -1.98% -2.27***
-11 0.13% 0.27
-10 0.93% 1.24
-9 0.55% 0.78
-8 -0.27% -0.21
-7 0.47% 0.69
-6 -0.28% -0.22
-5 0.53% 0.76
-4 -0.12% -0.0 2
-3 -0.76% -0.80
-2 -0.44% -0.41
-1 -0.76% -0.79
0 1.44% 1.85**
Effect of labour strikes on the share returns of the JSE Top 40 Companies 85
1 -0.80% -0.85
2 -0.68% -0.70
3 -0.82% -0.87
4 -1.33% -1.49*
5 0.52% 0.75
6 -0.04% 0.07
7 -1.08% -1.18
8 0.27% 0.44
9 -1.57% -1.77
10 -0.34% -0.29
11 -0.09% 0.01
12 0.19% 0.35
13 1.80% 2.29***
14 -0.49% -0.47
15 -0.39% -0.35
16 0.83% 1.11
17 0.36% 0.56
18 0.60% 0.84
19 0.10% 0.24
20 0.37% 0.56
21 -0.19% -0.11
22 -2.53% -2.93***
23 1.56% 2.00***
24 0.03% 0.16
25 0.57% 0.81
26 -0.78% -0.83
27 0.14% 0.29
28 0.01% 0.13
29 0.38% 0.57
30 0.29% 0.47
Significant at 95 per cent confidence interval ***Significant at 90 per cent confidence interval **Significant at 80 per cent
confidence interval *
The share returns of affected brewery companies present significant AR throughout the event
window. Major significant AR were found at a 95 per cent confidence interval on Day 16 and
-12 before the day of the strike. After the strike had commenced, significant AR at a 95 per
Effect of labour strikes on the share returns of the JSE Top 40 Companies 86
cent confidence interval where found on Day 13, 22 and 23. The share returns of affected
brewery companies presented significant abnormal return on the day of the strike at a 90 per
cent confidence interval. The findings of significant AR throughout the event window enable
the researcher to conclude that periods of wage negotiations and strikes result in significant
AR for companies in the brewery industry.
Industry analysis of companies in the telecommunications industry
Figure 5.7 presents the movement in AAR of the JSE Top 40 companies within the
telecommunications industry that were affected by labour strikes between 2010 and 2017.
Figure 5.7 illustrates financial markets' response to the arrival of news of labour strikes during
periods of wage negotiations within the telecommunication industry.
Figure 5.7: Average abnormal returns of companies in the telecommunications industry
The share returns of companies in the telecommunication industry presented similar
movements as companies in the consumer goods and retail industry. Drastic movement in the
share returns of the affected brewery companies is observed in the 30 days before the day of
the strike. With share returns of affected telecommunications companies fluctuating between
3.40 per cent and negative 1.92 per cent. Instability in the 30 days before the day of the strike
illustrates intense labour negotiation with signs of rejected wage offers translated to financial
markets. This is observed in the drastic decline in share return on Day 2, on the day of
announcement of the strike. In the settlement window, instability in the share return of the
-3%
-2%
-1%
0%
1%
2%
3%
4%
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
Avera
ge A
bnorm
al R
etu
rns %
Event Window
AAR: Telecommunications Industry
Effect of labour strikes on the share returns of the JSE Top 40 Companies 87
affected telecommunication companies subsided showing signs of an early settlement, with
share returns of affected companies rebounding at Day 14.
Significance test of AAR of companies in the telecommunications
industry
Table 5.6 presents the significance test of AAR of companies within the telecommunication
industry that were affected by labour strikes over the observed 61-day event window. The
significance tests aim to identify on which days over the event window were the AR of affected
companies significant. The AR of the affected companies were tested at a 95, 90, and 80 per
cent confidence interval.
Table 5.6: Significance test of AAR of companies in the telecommunications industry
Significance test: AAR telecommunications industry
Event window Average abnormal returns z-statistic
-30 -1.85% -2.01***
-29 0.20% 0.01
-28 0.26% 0.07
-27 0.27% 0.09
-26 -0.26% -0.44
-25 -1.24% -1.40*
-24 3.40% 3.17***
-23 -0.22% -0.40
-22 -0.42% -0.60
-21 0.20% 0.01
-20 0.17% -0.02
-19 -1.70% -1.86**
-18 0.65% 0.46
-17 -0.11% -0.29
-16 0.48% 0.29
-15 1.33% 1.13
-14 -0.36% -0.53
-13 -1.46% -1.62*
-12 -0.01% -0.19
-11 -0.04% -0.22
-10 1.13% 0.92
-9 1.73% 1.52*
Effect of labour strikes on the share returns of the JSE Top 40 Companies 88
-8 1.98% 1.77**
-7 -0.36% -0.54
-6 -0.88% -1.0 5
-5 1.53% 1.32
-4 0.01% -0.18
-3 2.64% 2.42***
-2 -0.83% -1.00
-1 0.36% 0.17
0 0.23% 0.05
1 -1.36% -1.53*
2 0.47% 0.28
3 1.34% 1.14
4 -0.25% -0.43
5 -0.18% -0.37
6 0.53% 0.34
7 -0.50% -0.68
8 0.36% 0.17
9 -1.21% -1.38
10 0.28% 0.09
11 1.09% 0.89
12 -1.92% -2.07***
13 0.36% 0.17
14 0.55% 0.36
15 -0.06% -0.24
16 0.55% 0.35
17 -0.62% -0.80
18 -1.12% -1.29*
19 0.81% 0.61
20 -0.10% -0.28
21 -0.0 1% -0.19
22 0.28% 0.09
23 -0.23% -0.41
24 0.77% 0.57
25 0.57% 0.38
26 1.82% 1.61*
27 0.54% 0.34
Effect of labour strikes on the share returns of the JSE Top 40 Companies 89
28 0.86% 0.66
29 0.23% 0.04
30 0.69% 0.49
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval ** Significant at 80 per cent
confidence interval *
The share returns of affected telecommunications companies presented significant AR
throughout the event window at various confidence intervals. Significance in AR during 30-
day wage negotiations were found on Day -25, -24, -19, -13, -9, -8 and -3. In the 30 days after
the strike had commenced significant AR were found on Day 1, 12, 18 and 26. The
observations indicate that there was a great amount of significant AR during 30 days before
the strike. The findings of significant AR indicate that in periods of wage negotiations in the
telecommunications industry result in AR.
Industry analysis of companies in the corporate group industry
Figure 5.8 presents the movement in AAR of the JSE Top 40 companies within the corporate
group industry that were affected by labour strikes between 2010 and 2017. The graph
illustrates financial markets' response to the arrival of news of labour strikes during periods of
wage negotiations within the corporate group industry.
Figure 5.8: Average abnormal returns of companies in the corporate group industry
-5%
-4%
-3%
-2%
-1%
0%
1%
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
Av
era
ge A
bn
orm
al
Retu
rns %
Event Window
AAR: Corporate Group
Effect of labour strikes on the share returns of the JSE Top 40 Companies 90
The share returns of companies in the corporate group industry presented stable yet AR in
the 30 days before the day of the strike. Instability in the share return of the corporate group
is observed in the settlement window between Day 14 and 30. However, according to
Sharenet (2016) observed volatility in the share return of the affected company is a result of
the corporate announcement in the share returns of Bidvest. The movement in share returns
of companies in the corporate group industry informs the researcher that labour strikes did not
affect the share return of the affected company.
Significance test of AAR of companies in the corporate group
industry
Table 5.7 presents the significance test of AAR of companies within the corporate group
industry that were affected by labour strikes over the observed 61-day event window. The
significance tests aim to identify on which days over the event window were the AR of affected
companies significant. The AR of the affected companies were tested at a 95, 90, and 80 per
cent confidence interval.
Table 5.7: Significance test of AAR of companies in the corporate group industry
Significance test: AAR corporate group industry
Event window Average abnormal returns z-statistic
-30 -0.26% 0.22
-29 0.11% -0.13
-28 0.10% 0.36
-27 0.58% 0.09
-26 0.63% 0.07
-25 0.59% -0.03
-24 0.27% 0.01
-23 0.18% -0.12
-22 0.06% 0.25
-21 0.15% 0.19
-20 0.36% -0.10
-19 0.08% 0.21
-18 0.10% -0.26
-17 -0.23% 0.36
-16 -0.11% -0.05
-15 -0.24% 0.31
Effect of labour strikes on the share returns of the JSE Top 40 Companies 91
-14 -0.18% 0.13
-13 -0.03% 0.01
-12 -0.24% -0.04
-11 -0.32% 0.00
-10 -0.36% 0.13
-9 -0.26% 0.00
-8 -0.27% 0.02
-7 -0.18% 0.26
-6 -0.18% 0.06
-5 -0.25% 0.38
-4 0.04% 0.13
-3 -0.01% 0.10
-2 0.20% -0.06
-1 -0.05% 0.03
0 -0.01% 0.09
1 -0.14% 0.11
2 -0.16% -0.07
3 -0.20% -0.06
4 -0.22% -0.20
5 -0.34% 0.32
6 -0.23% 0.17
7 -0.13% -0.14
8 -0.22% 0.11
9 -0.31% -0.18
10 -0.45% 0.19
11 -0.57% 0.34
12 -0.43% 0.50
13 -0.1 9% -7.52***
14 -4.67% 0.83
15 -4.19% 0.50
16 -3.94% 0.21
17 -3.88% 0.29
18 -3.67% -0.02
19 -3.64% 0.23
20 -3.38% 0.06
21 -3.53% 0.22
Effect of labour strikes on the share returns of the JSE Top 40 Companies 92
22 -3.51% 0.14
23 -3.34% 0.16
24 -3.31% -0.28
25 -3.37% 0.45
26 -3.22% 0.15
27 -3.33% 0.06
28 -3.60% 0.09
29 0.97% 0.34
30 0.68% 0.39
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval ** Significant at 80 per cent
confidence interval *
The share returns of companies within the corporate group industry presented significance on
Day 13 after the strike had commenced. Significance was found at a confidence interval of 95
per cent. Significance in the corporate group industry was found only on Day 13, which is not
enough to conclude that periods of wage negotiations in the corporate group industry result in
significant AR.
Industry analysis of companies in the pharmaceutical industry
Figure 5.9 presents the movement in AAR of the JSE Top 40 companies within the
pharmaceutical industry which were affected by labour strikes between 2010 and 2017. The
graph illustrates financial markets response to the arrival of news of labour strikes during
periods of wage negotiations within the pharmaceutical industry.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 93
Figure 5.9: Average abnormal returns of companies in the pharmaceutical industry
The share returns of companies in the pharmaceutical industry presented significant volatility
through the event window. The share return of affected companies fluctuated between 3.40
per cent and negative 1.92 per cent. with great volatility observed in the 30 days before the
day of the strike. In the 30 days before the strike commenced, drastic movement in the share
returns of affected companies was observed on Day 23, -19, -14, -12, -6, and on the day of
the announcement of the strike at Day 2. The observed volatility in the share returns of the
affected pharmaceutical subsided in the 30-day settlement window after the strike
commenced. The movement in the share returns of the affected pharmaceutical companies is
synonymous with Hick’s (1932) theory. The 30-day negotiations window illustrates rejections
in bargain agents’ concessions curve that continues shortly after the strike commences. On
Day 14, signs of wage agreement are observed with the share return of the affected
pharmaceutical company rebounding and entering a growth trajectory.
Significance test of AAR of companies in the pharmaceutical industry
Table 5.8 presents the significance test of AAR of companies within the pharmaceutical
industry that were affected by labour strikes over the observed 61-day event window. The
significance tests aim to identify on which days over the event window were the AR of affected
-3%
-2%
-1%
0%
1%
2%
3%
4%
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
Av
era
ge A
bn
orm
al
Retu
rns %
Event Window
AAR: Pharmaceutical Industry
Effect of labour strikes on the share returns of the JSE Top 40 Companies 94
companies significant. The AR of the affected companies were tested at a 95, 90, and 80 per
cent confidence interval.
Table 5.8: Significance test of AAR of companies in the pharmaceutical industry
Significance test: AAR pharmaceutical industry
Event window Average abnormal return z-statics
-30 -0.23% -0.43
-29 -0.09% -0.38
-28 -0.14% -1.03
-27 -0.34% 1.07
-26 -0.25% 0.11
-25 -0.34% -0.60
-24 -0.17% -0.37
-23 -0.34% 0.18
-22 -0.32% 0.72
-21 -0.24% -1.27
-20 -0.17% 0.58
-19 -0.10% -0.90
-18 -0.13% -1.12
-17 -0.35% 0.76
-16 -0.11% 0.22
-15 0.13% -0.13
-14 0.17% -0.8
-13 0.19% 5.63***
-12 0.98% 0.33
-11 0.89% 1.57*
-10 1.07% -0.11
-9 1.12% 0.04
-8 1.17% -0.08
-7 1.14% -0.94
-6 0.94% 0.44
-5 1.14% -1.27
-4 0.92% -0.39
-3 0.99% 1.23
-2 1.26% -0.13
-1 1.16% -0.11
Effect of labour strikes on the share returns of the JSE Top 40 Companies 95
0 1.12% 0.07
1 1.14% -0.20
2 1.14% 1.36 *
3 0.63% 0.42
4 0.64% -0.16
5 0.44% 0.20
6 0.47% 1.33*
7 0.63% -0.93
8 0.53% 0.00
9 0.64% -0.61
10 0.51% -1.14
11 0.53% -1.03
12 0.45% 0.06
13 0.31% -0.68
14 0.25% -0.0 9
15 0.25% 0.79
16 0.34% -0.93
17 0.25% -0.15
18 0.07% 0.31
19 0.06% -0.24
20 0.05% -0.52
21 -0.04% 0.18
22 -0.17% -0.75
23 -0.15% -0.18
24 -0.17% -0.71
25 -0.18% 1.01
26 0.07% -0.09
27 0.18% -0.12
28 0.16% 0.47
29 0.30% -0.41
30 0.26% -0.73
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval ** Significant at 80 per cent
confidence interval *
The share returns of companies in the pharmaceutical industry present significant AR
throughout the event windows at various confidence intervals. Significance in AR was found
Effect of labour strikes on the share returns of the JSE Top 40 Companies 96
on Day 13, -11, 2, 6. The significant AR of affected pharmaceutical companies were not
enough to conclude that periods of wage negotiations in the pharmaceutical industry result in
significant AR.
5.4 CUMULATIVE ANALYSIS OF THE EFFECTS OF PROTECTED AND
UNPROTECTED LABOUR STRIKES ON THE SHARE RETURN OF
JSE TOP 40 COMPANIES
This section presents the result of the primary objective. The primary objective is to test
whether the announcement of labour strikes affects the share return of the JSE Top 40
companies. A trend analysis of the CAAR of the companies affected by protected and
unprotected strikes collectively are presented. Followed by the outcomes of the primary
hypothesis. Figure 5.10 presents a graphical representation of the effect that labour strikes
had on the share returns of the JSE Top 40 companies. The modelled data sets are inclusive
of both protected and unprotected strikes and represent the share returns of companies
affected by labour strikes over the event window. The average CAAR of both protected and
unprotected strikes is modelled at -0.44 per cent, which illustrates the average returns
investors were likely to obtain within the event window. The event's confidence interval is
presented at 0.0 per cent and -0.9 per cent. The confidence interval informs the researcher of
the sample parameter in which the share returns of the affected company is likely to fluctuate
within (Kenton, 2020).
Effect of labour strikes on the share returns of the JSE Top 40 Companies 97
Figure 5.10: Share return of the JSE Top 40 companies affected by protected and
unprotected labour strikes collectively
Trend analysis of share return of companies affected by protected and
unprotected strikes, collectively
The movement in CAAR of companies affected by protected and unprotected strikes
collectively revealed that affected companies experience significant instability throughout
periods of wage negotiations. The share returns of affected companies varied from 0.6 per
cent at Day 21 to -2.0 per cent at Day 5. Adverse movement in the share returns of the affected
companies was found within the early stages of the negotiations process, 6 days before the
day of the strike and continued to 12 days after the day of the strike. Miller and Modigliani
(1961) attributed volatility in share returns of companies engaging in wage negotiations to the
arrival of news of a looming strike to financial markets. Miller and Modigliani's (1961) findings
are supported by Bhana (1997), who attributed movement in share returns of companies
engaging in wage negotiations to leakages of insider information relating to potential strikes.
-2,1%
-1,8%
-1,5%
-1,2%
-0,9%
-0,6%
-0,3%
0,0%
0,3%
0,6%
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
CA
AR
%
Event window
Share Return of the JSE Top 40 Companies affected by Protected and Unprotected strikes collectively
Cumlative AverageAbnormal Returns
95 %above
95 %below
Average
Effect of labour strikes on the share returns of the JSE Top 40 Companies 98
During the first 15 days of wage negotiations, the share returns of affected companies varied
between 0.58 per cent and -0.7 per cent. Similar volatility is observed 5 days before the day
of the strike and 12 days after the day of the strike and varied between -1.8 per cent and -2
per cent. Observed volatility in the share returns of the affected companies is attributed to a
breakdown in set protocol during wage negotiations, which subsequently translated into “bad
news” in the market. Neumann's (1980) study believed that strikes are predictable as a result
of “set protocols” determined by bargaining agents within the preparation and discovery stage
of wage negotiations. Neumann (1980) described “set protocols” as procedures respective
bargaining agents follow at a specific event, a “dictionary” that translates the actions and
statements of the parties into a common language.
Five days after the strike, the share returns of companies affected by protected and
unprotected strikes collectively rebounded and began to recover entering a growth trajectory
that continued until Day 23. Growth in the share returns of the affected companies showed
signs of a settlement that was perceived as a positive sign by the market. The observed
findings of the recovery in share returns of companies affected by protected and unprotected
strikes collectively are consistent with those of Nigidi (2011). According to Nigidi (2011) labour
strikes in South Africa is generally short and lasts between 1 and 5 days, he further adds that
the decline in share returns prior and post the day of the strike are short-lived and quickly
recover. The findings by Nigidi (2011) are affirmed by Nelson, Amoaka-Adu, and Smith (1994)
that strikes lasting only a few days generally reduce the share returns of affected companies
owing to the costs and benefits of strikes.
Hypothesis test of protected and unprotected strikes collectively on
share returns of affected companies
This section presents the results of the primary hypothesis test of whether the resolution of
labour strikes results in abnormal share returns of affected companies. A "z-test" at a
confidence interval of 95 per cent and a "critical value of 1.96" was considered in the study as
a measure of significance. The outcome of the z-statistic greater than the z-critical value of
1.96 allows the researcher to reject the null hypothesis thus making the statement true for the
alternative hypothesis. The study’s alternative hypothesis informs the researcher that the
resolve of protected and unprotected strikes (collectively), affect the share return of the JSE
Top 40 companies, negatively. Table 5.9 presents the z-test on CAAR of protected and
unprotected strikes collectively over the 61-day event window.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 99
Table 5.9: Significance test of CAAR of the JSE Top 40 companies affected by overall labour strikes
Share return of the JSE Top 40 companies affected by overall labour strikes
Day Cumulative average
abnormal returns z-statistic
-30 0.33% 1.04
-29 0.05% 0.18
-28 -0.25% -0.73
-27 -0.38% -1.19
-26 -0.64% -1.59*
-25 -0.25% -0.85
-24 -0.39% -1.19
-23 0.13% 0.43
-22 0.58% 1.60*
-21 -0.02% -0.08
-20 0.28% 0.95
-19 0.52% 1.48*
-18 0.16% 0.41
-17 -0.11% -0.24
-16 -0.56% -1.51*
-15 -0.70% -2.82***
-14 -0.32% -1.43*
-13 -0.71% -2.26***
-12 -0.52% -1.64*
-11 -1.06% -2.77***
-10 -0.82% -2.62***
-9 -0.94% -3.46***
-8 -0.77% -1.99***
-7 -0.92% -4.12***
-6 -0.96% -2.75***
-5 -0.18% -0.26
-4 -0.80% -2.55***
-3 -1.25% -2.62***
-2 -0.39% -1.37*
-1 -0.59% -2.12***
0 -0.80% -1.87**
Effect of labour strikes on the share returns of the JSE Top 40 Companies 100
1 -0.99% -3.82***
2 -1.07% -2.59***
3 -1.18% -3.47***
4 -2.03% -5.33***
5 -1.76% -5.38***
6 -1.03% -4.19***
7 -0.77% -2.93***
8 -0.95% -2.62***
9 -0.73% -3.10***
10 -0.48% -1.33*
11 -0.74% -2.80***
12 -1.28% -3.67***
13 -0.80% -0.33
14 -0.68% -2.18***
15 -0.40% -1.21
16 -0.60% -1.95**
17 -0.51% -1.66**
18 0.07% 0.26
19 0.26% 0.84
20 0.08% 0.30
21 0.23% 0.88
22 0.36% 0.96
23 0.44% 1.41**
24 0.32% 1.12
25 -0.30% -0.86
26 -0.18% -0.54
27 -0.07% -0.30
28 0.12% 0.40
29 -0.05% -0.15
30 -0.16% -0.59
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval ** Significant at 80 per cent
confidence interval *
At a confidence interval of 95 per cent and z-critical value of 1.96, significant z-statistics were
found on Day -15, -13, -11 to -6, -4, -3 and -1 on days before the day of the strike. After the
day of the strike, significant z-statistics were found on Day 1 till today 9 thereafter on Days 11,
Effect of labour strikes on the share returns of the JSE Top 40 Companies 101
12 and 13. On the day of the announcement of the strike (“Day 2”) and the day of the strike
(“Day 0”), there was no significance, meaning that "no abnormal returns" were obtained on
the day of the announcement and the day of the strike.
Periodic analysis of protected and unprotected strikes collectively
Table 5.10 presents an interval analysis of share returns of companies affected by protected
and unprotected strikes collectively. The table presents the average CAAR standard deviation
and z-statistic at a 5, 10 and 20- and 30-day interval before the day of the strike, after the day
of the strike and the overall event. The interval analysis aims to provide periodic analysis of
the event window.
Table 5.10: Interval analysis of protected and unprotected collectively
Interval analysis
Periods Variables 5-day 10-day 20-day 30-day
Before the event CAAR -0.641% -0.762% -0.531% -0.382% STDEV 0.026 0.006 0.022 0.022 z-test -1.784 -2.384 -1.683 -1.201
After the event CAAR -2.026% -2.026% -0.779% -0.496% STDEV 0.022 0.020 0.027 0.024 z-test -4.120 -3.477 -2.359 -1.495
Overall event CAAR -1.003% 0.277% -0.659% -0.445% STDEV 0.024 0.022 0.024 0.023 z-test -2.853 -2.880 -2.017 -1.357
Before the day of the strike
The interval analysis before the day of the strike indicates that average share returns of
companies affected by protected and unprotected strikes collectively gradually declined over
the 30, 20- and 10-day interval, with average share returns of negative 0.382 per cent, 0.531
per cent and 0.762 per cent, respectively. Within 5 days before the day of the strike, the
average share returns of affected companies began to gradually increase to negative 0.641
per cent. Over the 30, 20, and 5-day intervals, the share returns of affected companies showed
relatively increased volatility of 0.022 at a 20- and 30-day interval and 0.026 within 5 days
before the day of the strike. At the 10-day interval before the day of the strike volatility was
relatively low at 0.006. Abnormal share returns of the affected companies were significant
within 10 days before the day of the strike and less significant in the 5-, 20- and 30- days
interval before the day of the strike. At a 95 per cent confidence interval and z-critical value of
Effect of labour strikes on the share returns of the JSE Top 40 Companies 102
1.96, 10 days before the day of the strike the study rejects the null hypothesis, making the
statement true for the alternative hypothesis that AR are observed 10 days before the day of
the strike.
After the day of the strike
After the day of the announcement of the strike, the share returns of the affected companies
increased significantly over the first 10 days of the strike with an average CAAR of -2.026 per
cent. The share returns of the affected companies began to decline after the 10-day interval,
between the 20- and 30-day intervals to -0.779 per cent and -0.496 per cent, respectively.
Abnormal share returns were found within the 5, 10 and 20-day intervals. Volatility in the share
return of the affected companies fluctuated between 0.020 and 0.027.
Overall event
Observation of share returns over the 5 days before and after the day of the strike, together
with 10 and 20 days before and after the day of the strike indicate that over a 20-day event
window, labour strikes resulted in significant AR of -2.853, -2.880 and -2.017, respectively.
Volatility in the share returns of the after companies fluctuated between 0.022 and 0.023 over
the 5,-10,-20, and 30-day event window for before and after the day of the strike.
Summary hypothesis test of the JSE Top 40 companies affected by
protected and unprotected strikes, collectively
In order to conclude the hypothesis test on whether the resolution of labour strikes affects the
share returns of the JSE Top 40 companies, a significance test considering each day of the
61-day event window was conducted. Table 5.11 presents the cumulative outcome of the
significance test of protected and unprotected strikes collectively over the 61-day event
window. The hypothesis test is performed at a confidence interval of 95 per cent and a z-
critical level of 1.96.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 103
Table 5.11: Summary significance test of share returns of companies affected by protected and unprotected labour strikes
Event outcome: Effects of protected and unprotected strikes collectively
CAAR
AR
-0.445%
n1
61
0.005557118
H0 AR=0
H1 AR0
Test statistic -2.46
Probability that H0 is true 0.02
Significance level a 5%
Confidence level 95%
Critical value 1.96
DF 59
Std error 0.20%
95% CI -0.04%
-0.85%
Test Reject H0
At a 95 per cent confidence interval and z-critical value of 1.96, the research rejects the null
hypothesis with a z-statistic of -2.46. This makes the statement true for the alternative
hypothesis that the resolve of labour strikes affects the share returns of the JSE Top 40
companies.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 104
5.5 COMPARISON OF SHARE RETURNS OF COMPANIES AFFECTED
BY PROTECTED AND UNPROTECTED STRIKES, RESPECTIVELY
This section aims to satisfy the objective of identifying whether there is a distinguishable
difference in the share return of companies affected by protected and unprotected strikes,
respectively. The test performed in this section aims to examine the study’s second
hypothesis. Figure 5.11 presents a graphical representation of the share returns of the JSE
Top 40 companies that were affected by protected and unprotected strikes, respectively. The
below graph illustrates the movement in share returns of companies affected by labour strikes,
the average share returns and the confidence intervals of both protected (P) and unprotected
(UP) strikes over the 61-day window period.
Figure 5.11: Comparison of share returns of companies affected by protected and
unprotected strikes
Effect of labour strikes on the share returns of the JSE Top 40 Companies 105
Trend analysis of share returns of companies affected by protected and
unprotected strikes, respectively
The share returns of companies affected by protected and unprotected strikes illustrate
varying trajectories in their movement in share returns of affected companies. Companies
affected by protected strikes experienced a decline in share returns at the start of the
negotiations period, which continued to decline past the day of the strike. The returns of
companies affected by protected strikes rebounded and began to grow 5 days after the day of
the strike. In contrast, the share returns of companies affected by unprotected strikes
maintained a growth trajectory well into the period of wage negotiations. Fifteen days closer
to the day of the strike, the share returns of companies affected by unprotected strikes began
to deteriorate, reaching a low 2 days before the day of the strike. Following the day of the
announcement of the strike, the share returns of the affected companies rebounded and
continued to trade right after the day of the strike.
The trend in share returns of companies affected by protected and unprotected strikes depicts
the findings of Seedat (2013), Bhana (1997), and Norton Rose Global (2009). Illustrating the
belief that companies affected by unprotected strikes have no cost implication on the share
returns of affected companies as a result of affected companies not bearing any obligation to
protesters' demands due to the nature of the strike. This is illustrated in the maintained growth
in share returns during the negotiations period, which experienced a slight decline 15 days
closer to the day of the strike, thereafter, continuing to trend between a confidence interval of
2 per cent and 4.66 per cent after the day of the strike. Confidence intervals are statistical
measures of a probability that a population parameter will fall between 2 set values for a certain
proportion of times (Kenton, 2020). The trend in share returns of companies affected by
unprotected strikes remained within the estimated confidence interval, further illustrating no
cost implication as movements in share returns were certain.
In contrast, the share returns of companies affected by protected strikes began to deteriorate
at the start of the wage negotiation and continued through till the day of the strike. The decline
in the share returns illustrated the market's expectation of a potential increase in operational
costs at the start of wage negotiations. This is further observed in the drastic decline in share
return on Day 1, following the announcement of the strike continuing to 5 days after the strike.
On Day 5, the share return of the affected companies rebounded and began to grow indicating
a positive perception in wage settlements. The trend in share return traded outside of the
Effect of labour strikes on the share returns of the JSE Top 40 Companies 106
sample’s confidence interval illustrating uncertainty in the share returns of companies
engaging in protected wage negotiations.
The distinction in share returns of companies affected by protected and
unprotected strikes
Table 5.12 presents the comparison of the effects that an unprotected strike has on the share
return of the JSE Top 40 companies in relation to the share return of protected strikes. This
section aims to test our second hypothesis that aims to establish whether there is a distinction
between the share returns of companies affected by unprotected strikes, in relation to
companies affected by protected strikes. Similarly, a z-statistic at a confidence interval of 95
per cent and a z-critical value of 1.96 was considered in the study as the measure of
significance.
Table 5.12: Significance test of CAAR of companies affected by protected and unprotected strikes, respectively
Share returns of the JSE Top 40 companies affected by protected (P) and unprotected (UP) strikes
Day Cumulative average abnormal returns (P)
z-statistic Cumulative average
abnormal returns (UP) z-statistic
-30 0.46% 1.21 -0.13% -0.26
-29 0.06% 0.17 0.02% 0.04
-28 -0.32% -0.75 0.02% 0.07
-27 -0.55% -1.38** 0.22% 0.63
-26 -1.02% -2.09*** 0.71% 1.27
-25 -0.87% -2.51*** 1.93% 4.33***
-24 -0.97% -2.88*** 1.65% 1.76**
-23 -0.69% -1.96*** 2.99% 6.34***
-22 -0.28% -0.63 3.59% 6.17***
-21 -1.24% -3.93*** 4.22% 8.94***
-20 -0.88% -2.37*** 4.34% 11.99***
-19 -0.82% -1.92*** 5.17% 10.15***
-18 -1.46% -3.08*** 5.75% 13.22***
-17 -1.50% -2.92*** 4.73% 5.65***
-16 -2.01% -4.30*** 4.47% 12.96***
Effect of labour strikes on the share returns of the JSE Top 40 Companies 107
-15 -2.03% -7.08*** 3.94% 8.11***
-14 -1.75% -6.68*** 4.62% 10.28***
-13 -2.53% -7.54*** 5.53% 8.33***
-12 -2.15% -5.55*** 5.12% 12.73***
-11 -2.84% -5.94*** 5.11% 15.44***
-10 -2.42% -6.45*** 4.74% 9.77***
-9 -2.60% -8.22*** 4.83% 9.08***
-8 -2.24% -4.90*** 4.34% 6.13***
-7 -2.38% -9.21*** 4.15% 8.77***
-6 -2.41% -5.45*** 4.08% 13.50***
-5 -1.27% -1.50* 3.68% 6.24***
-4 -2.05% -5.35*** 3.58% 8.01***
-3 -2.16% -3.75*** 2.02% 3.32***
-2 -1.40% -4.12*** 3.20% 6.56***
-1 -1.64% -5.16*** 3.12% 5.12***
0 -1.97% -3.85*** 3.31% 4.44***
1 -2.48% -8.42*** 4.22% 11.76***
2 -2.59% -4.91*** 4.21% 13.22***
3 -2.54% -6.06*** 3.59% 8.71***
4 -3.53% -7.78*** 3.24% 5.00***
5 -3.12% -7.86*** 3.03% 6.37***
6 -2.20% -7.58*** 3.11% 7.76***
7 -2.12% -7.16*** 3.99% 7.26***
8 -2.36% -5.22*** 4.01% 9.51***
9 -2.21% -8.08*** 4.46% 9.45***
10 -1.95% -4.42*** 4.66% 8.17***
11 -2.06% -6.45*** 3.92% 10.03***
12 -2.63% -6.28*** 3.48% 5.91***
13 -2.00% -0.65 3.45% 14.05***
14 -1.88% -4.89*** 3.60% 9.63***
15 -1.47% -3.82*** 3.43% 5.57***
16 -1.48% -4.12*** 2.60% 5.05***
17 -1.49% -3.95*** 3.03% 8.11***
18 -0.75% -2.56*** 3.04% 6.40***
19 -0.46% -1.25 2.93% 4.92***
20 -0.91% -3.17*** 3.67% 5.13***
Effect of labour strikes on the share returns of the JSE Top 40 Companies 108
21 -0.53% -1.80** 3.01% 6.45***
22 -0.46% -1.01 3.34% 7.96***
23 -0.42% -1.10 3.54% 9.01***
24 -0.39% -1.17 2.93% 5.18***
25 -1.33% -3.16*** 3.40% 9.20***
26 -1.01% -2.57*** 2.84% 4.84***
27 -0.64% -2.65*** 2.08% 5.90***
28 -0.36% -0.99 1.95% 4.06***
29 -0.60% -1.49 2.02% 4.16***
30 -0.80% -2.61*** 2.21% 3.32***
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval ** Significant at 80 per cent
confidence interval *
At a confidence interval of 95 per cent and a z-critical value of 1.96, there is a clear indication
that labour strikes affect the share return of the JSE Top 40 companies. Greater significance
is found in the share returns of unprotected strikes that continued to trade as normal and only
began to experience losses in share returns 18 days before the day of the strike and right
through the event day. AR were equally found in the share returns of protected strikes. The
share returns of affected companies experienced significant losses from the beginning of the
negotiations period right through the announcement of the strike and the day of the strike. The
share returns of companies affected by protected companies rebounded after the day of the
strike.
Periodic analysis of the JSE Top 40 companies affected by protected
labour strikes
Table 5.13 presents an interval analysis of share returns of companies affected by protected
strikes. Table 5.13 presents the average CAAR, standard deviation and z-statistic of protected
labour strikes at a 5, 10 and 20- and 30-day interval, before the day of the strike, after the day
of the strike and the overall event. The interval analysis aims to provide periodic analysis of
the event window.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 109
Table 5.13: Interval analysis of protected labour strikes
Interval analysis protected strikes
Periods Variables 5-day 10-day 20-day 30-day
Before the event CAAR -1.703% -2.057% -1.927% -1.465% STDEV 0.028 0.007 0.024 0.023 Z-Test 1.081 -5.412 -5.075 -3.875
After the event CAAR -3.529% -3.529% -2.012% -1.559% STDEV 0.024 0.022 0.029 0.026 Z-Test -7.005 -6.749 -5.231 -4.105
Overall event CAAR -2.248% 0356% -1.969% -1.519% STDEV 0.026 0.023 0.026 0.024 Z-Test -5.341 -5.974 -5.121 -3.988
Before the day of the strike
The average share returns of protected labour strikes gradually declined over the 10-, 20-,
and 30-day intervals before the day of the strike from -1.465 per cent to -2.057 per cent. In
the 5 days interval before the day of the strike, the average share returns of the affected
company rebounded to -1.703 per cent. The average share returns of protected labour strikes
presented similar results as protected and unprotected strikes, collectively, with volatility
fluctuating between 0.028 and 0.023 within the 5, 20-, and 30-day interval. At the 10-day
interval before the day of the strike, volatility was relatively low with 0.007. The average share
returns of the affected companies at 10-, 20- and the 30-day interval before the day of the
strike presented abnormal share returns with z-statistics greater than 1.96 critical value at a
confidence interval of 95 per cent. The 5-day confidence interval before the day of the strike
presented a z-statistic smaller than the z-critical value, indicated this within 5 before the day
of the strike share returns, affected companies did not present significant AR.
After the day of the strike
After the day of the strike, the average share returns of affected companies gradually declined
with each interval from – 3.529 to -1.559 per cent in the 5-day interval to the 30-day interval.
The 5-, 10-, 20- and 30-day interval after the day of the strike for protected labour strikes
presented z-values greater than the z-critical value of 1.96 at a 95 per cent confidence interval.
This was indicated after the day of the strike; share returns of affected companies present AR.
Volatility in the average share returns of affected companies fluctuated between 0.022 and
0.029.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 110
Overall event
The average share returns of protected labour strikes varied over the 5-, 10-, 20- and the 30-
day interval before and after the day of the strike, between -1.465 and -2.057 per cent. At the
5-day interval before and after the day of the strike, the average share returns of the affected
companies were significantly higher than the share returns of affected companies at intervals
10, 20, and 30 before and after the day of the strike, with share returns of -2.248 per cent. At
the 10-day interval before and after the day of the strike the average share returns of affected
companies declined to 0.356 per cent. The average share returns of companies affected by
protected labour strikes over the periodic interval of 5, 10, 20 and 30 days before and after the
day of the strike, indicates that protected labour strikes result in significant AR. The z-statistic
of the protected strikes 5, 10, 20 and 30 days after the day of the strike was greater than the
z-critical value of 1.96 at a 95 per cent confidence interval.
Periodic analysis of the JSE Top 40 companies affected by unprotected
strikes
Table 5.14 presents an interval analysis of share returns of companies affected by unprotected
strikes. Table 5.13 presents the average CAAR, standard deviation and z-statistic at a 5-, 10-
and 20- and 30-day interval, before the day of the strike, after the day of the strike and the
overall event. The interval analysis aims to provide periodic analysis of the event window.
Table 5.14: Interval analysis of unprotected labour strikes
Interval analysis unprotected strikes
Periods Variables 5-day 10-day 20-day 30-day
Before the event CAAR 3.120% 3.774% 4.326% 3.392%
STDEV 0.016 0.003 0.015 0.015 z-test 1.305 7.650 9.268 7.156
After the event CAAR 3.657% 3.852% 3.583% 3.299% STDEV 0.013 0.014 0.014 0.014 z-test 9.014 8.722 8.101 7.404
Overall event CAAR 3.382% 0.572% 3.939% 3.345% STDEV 0.016 0.015 0.015 0.015 z-test 7.160 8.008 8.581 7.233
Effect of labour strikes on the share returns of the JSE Top 40 Companies 111
Before the day of the strike
The share returns of companies affected by unprotected labour strikes maintained a relatively
high AAR over the 5, 10, 20, 30-day interval, before the day of the strike. In the 5-day interval
before the day of the strike, AAR of affected companies declined relative to the 10-, 20- and
30-day intervals. The standard deviation of 0.016 indicated that there was an increase in
volatility in the 5-day interval after the decline in volatility in the 10-day interval. The increase
in volatility is attributed to markets’ anticipation of a looming strike as a result of increased
movement in the share return of the affected companies. Significant AR were found in the 10-
, 20-, and 30-day intervals. In the 5-day interval, the share returns of affected companies did
not present significant AR. This indicating the market's anticipation of a looming strike was
indefinite.
After the day of the strike
The share return of affected companies was relatively higher in the respective intervals after
the strike commenced, in relation to the intervals in the 30 days before the day of the strike.
The share returns of affected companies fluctuated between 3.299 per cent and 3.657 per
cent, within the respective intervals. Movement in the share returns of affected companies
after the strike commenced was relatively stable, volatility across respective intervals
fluctuated between 0.013 and 0.014. Significant AR were found across the respective intervals
in the 30 days after the strike commenced. This informed the researcher that the markets did
not anticipate the advent of an unprotected strike.
Overall strikes
The share returns of affected companies presented similar returns over the 5, 20, 30-day
interval, except for the 10-day interval. The decline in share return in the 10-day interval over
the 61-day event window indicates that there is less of an opportunity for profit-taking in the
10-day interval. Volatility in the share return of the affected companies remained relatively
stable across, respective intervals, fluctuating between 0.015 and 0.016. Significant AR were
found across respective intervals indicating that periods of labour strikes result in significant
AR.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 112
Summary hypothesis test of companies affected by protected and
unprotected labour strikes, respectively
This section aims to assess the distinction in share returns of companies affected by protected
and unprotected strikes, respectively. Table 5.15 presents a summary overview comparing
the effects of protected and unprotected labour strikes on the share returns of the JSE Top 40
companies. The z-test is conducted at a confidence interval of 95 per cent and a critical level
of 1.96.
Table 5.15: Significances test of share return of companies affected by protected and unprotected labour strikes, respectively
Event outcome: Comparison between protected and unprotected strikes
Protected Unprotected
-1.52% 3.35%
n1 n2
61 61
0.87% 1.33%
H0 =
H1 ≠
Test statistic 3.78
Probability that H1 is true 0.025%
Significance level a 5%
Confidence level 95%
Critical value 1.96
DF 120
Std error 0.05%
95% CI -0.65%
-2.39%
Test Reject H0
95% CI 4.66%
2.03%
In order to summarise the hypothesis test comparing the share returns of the JSE Top 40
companies affected by protected and unprotected strikes. The outcome of the z-test in Table
5.15 presented a z-statistic of 3.78, which was greater than the z-critical value of 1.96 at a 95
per cent confidence interval. This allowed the researcher to reject the null hypothesis, making
Effect of labour strikes on the share returns of the JSE Top 40 Companies 113
the statement true for the alternative. Thus, the researcher can conclude that there is a
distinction in the share returns of companies affected by protected and unprotected strikes.
5.6 MOVEMENT IN SHARE RETURNS OF AFFECTED COMPANIES
BEFORE AND AFTER THE DAY OF THE STRIKE
This section of the chapter establishes whether there is a difference in the movement in share
returns of companies affected by protected and unprotected strikes, respectively, before and
after the day of the strike.
Share returns of protected strikes before and after the day of the
announcement of the strike
Figure 5.12 presents the difference in share returns of protected strikes before and after the
day of the strike. Modelled on Figure 5.12 are the CAAR of protected, their average CAARs
and their respective confidence intervals.
Figure 5.12: Difference in share returns of protected strikes before and after the day of the announcement of the strike
Effect of labour strikes on the share returns of the JSE Top 40 Companies 114
Trend analysis of the movement in share return of companies affected
by protected strike before and after the day of the strike
Figure 5.12 illustrates that there is a clear difference in the movement in share returns of
companies affected by protected strikes before and after the day of the strike (Day 0). Before
the day of the strike, the share returns of affected companies started to decline at the
beginning of the negotiations process at Day 30. Figure 5.12 illustrates the decline in share
return of affected companies continued from Day 30 until Day - 5. Five days before the day of
the strike the share returns of affected companies started showing signs of recovery and
began to rebound. Volatility in share return is observed between Day 5 and Day 1, with share
returns dropping on the day of the strike. It is observed in Figure 5.12 that the share returns
of the affected companies continue to show signs of recovery right through to Day 25 where
it starts to reach equilibrium.
The deterioration in share returns of companies affected by protected strikes is attributed to
leakage of private information and implicit cost of a protected strike Seedat (2013), Bhana
(1997). Imberman (1979) in support of Norton Rose Global (2009) adds that the decline in
share return of companies affected by protected strikes before the day of the strike is due to
publicised disagreements during wage negotiations, companies desire to stockpile produce
and standard cost of operations. Imberman (1979) highlights that publicised disagreements
during wage negotiations often result in hostility affecting future productivity and workers'
concerns of finished products.
According to Imberman (1979), when interruptions in supply occur during labour strikes;
employers resort to stockpiling which results in incurred costs by the employer engrossing the
share returns of investors. The costs associated with stockpiling entail: overtime for workers,
transportation cost of warehouses, and additional warehouse space. Additional costs
absorbing investor share returns are the standard operating costs of the company, which entail
the loss of trained employees, which left the company during the strike, cost of idle machinery
during the strike and overtime to replenish depleted inventory.
Recovery in the share returns of companies affected by protected strikes is observed 2 days
after the day of the strike. The findings align with Nigidi (2011), who indicated that labour
strikes in South Africa generally last 1–5 days. Nigidi (2011) added that owing to the general
duration of the strikes in South Africa, costs associated with labour strikes are not inflated as
strikes do not commence for an extended period. The negative reaction in share return can
be attributed to investor sentiments and the factors of the uncertainty of the wage settlement,
Effect of labour strikes on the share returns of the JSE Top 40 Companies 115
which subsequently rebound on Day 5. The rebound in share returns on Day 5 are sentiments
of a positive wage settlement received by the market.
Hypothesis test of the share returns of companies affected by
protected strikes before and after the day of the strike
Table 5.16 presents the results of the z-test on the movement in share returns of companies
affected by protected labour strikes before and after the day of the strike. The CAAR of
companies affected by protected strikes and their respective z-statistic are presented in Table
5.16. The study conducts its z-statistic at a confidence interval of 95 per cent with a z-critical
value of 1.96.
Table 5.16: Share returns of companies affected by protected strikes before and after the day of the strike
Share returns of companies affected by protected labour strikes before and after the day of the strike
Day Cumulative average
abnormal return (P) z-statistic
-30 0.460% 1.21
-29 0.061% 0.17
-28 -0.321% -0.75
-27 -0.551% -1.38*
-26 -1.020% -2.09***
-25 -0.865% -2.51***
-24 -0.966% -2.88***
-23 -0.688% -1.96***
-22 -0.277% -0.63
-21 -1.242% -3.93***
-20 -0.880% -2.37***
-19 -0.819% -1.92**
-18 -1.461% -3.08***
-17 -1.501% -2.92***
-16 -2.006% -4.30***
-15 -2.031% -7.08***
-14 -1.747% -6.68***
-13 -2.529% -7.54***
Effect of labour strikes on the share returns of the JSE Top 40 Companies 116
-12 -2.147% -5.55***
-11 -2.843% -5.94***
-10 -2.423% -6.45***
-9 -2.602% -8.22***
-8 -2.244% -4.90***
-7 -2.380% -9.21***
-6 -2.406% -5.45***
-5 -1.270% -1.50**
-4 -2.051% -5.35***
-3 -2.158% -3.75***
-2 -1.398% -4.12***
-1 -1.636% -5.16***
0
1 0.503% 1.71**
2 -0.608% -1.16
3 -0.560% -1.34**
4 -1.533% -3.38***
5 -1.132% -2.85***
6 -0.231% -0.79
7 -0.151% -0.51
8 -0.385% -0.85
9 -0.243% -0.89
10 0.015% 0.04
11 -0.097% -0.30
12 -0.648% -1.55*
13 -0.034% -0.01
14 0.084% 0.22
15 0.484% 1.26
16 0.476% 1.32*
17 0.464% 1.23
18 1.190% 4.04***
19 1.472% 3.98***
20 1.031% 3.57***
21 1.406% 4.75***
22 1.472% 3.19***
23 1.515% 3.96***
Effect of labour strikes on the share returns of the JSE Top 40 Companies 117
24 1.547% 4.64***
25 0.625% 1.49*
26 0.939% 2.39***
27 1.304% 5.43***
28 1.576% 4.35***
29 1.338% 3.32***
30 1.143% 3.73***
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval ** Significant at 80 per cent
confidence interval *
Table 5.16 illustrates that the z-statistic of companies affected by protected strikes gradually
deteriorated throughout the 30-day negotiations periods. Following the day of the strike, the
z-statistics of the affected companies along with their share returns rebound and continued to
grow throughout the event window. The z-test, in Table 5.16, informs the researcher that
before the day of the strike there are significant losses in share returns of affected companies.
Table 5.16 illustrates that after the day of the strike share returns of the affected companies
experience significant growth as it rebounds.
Summary hypothesis test of companies affected by protected labour
strikes before and after the day of the strike
Table 5.17 presents the distinction in share returns of companies affected by protected strikes
before and after the day of the strike. Table 5.17 summarises the hypothesis test by comparing
share returns of the JSE Top 40 companies affected by protected strikes before and after the
day of the strike. The z-test is conducted at a confidence interval of 95 per cent and a critical
level of 1.96.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 118
Table 5.17: Significance test of share return of companies affected by protected labour strikes before and after the day of the strike
Event outcome: Variance in share return before and after the day of the strike
Cumulative before Cumulative after
μ1 μ2
-1.46% 0.43%
n1 n2
30 30
σ1 σ2
0.0086 0.0088
H0 μ1 = μ2
H1 μ1 ≠ μ2
Test statistic 8.45
Prob that H0 is true 0%
Significance level α 5%
Confidence level 95%
Critical value 2.00
DF 58
Std error 0.22%
95% CI -1.24%
-1.96%
Test Reject H0
Table 5.17 indicates that a z-statistic of 8.45 was obtained to establish the distinction in share
returns of companies affected by protected strikes before and after the day of the strike. The
obtained z-statistic in Table 5.17 is significantly greater than the z-critical value of 1.96. This
allowed the researcher to reject the null hypothesis. Therefore, making the statement true that
there is a clear distinction in the share return of companies affected by protected strikes before
and after the day of the strike.
Share returns of unprotected strikes before and after the day of the
announcement of the strike
Figure 5.13 presents the difference in share returns of unprotected strikes before and after the
day of the strike. Modelled on Figure 5.13 are the CAAR of protected, their average CAARs
and their respective confidence intervals.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 119
Figure 5.13: Difference in share returns of companies affected by unprotected strike before and after the day of the strike
Figure 5.13 illustrates that there is a clear distinction in the share return of companies affected
by unprotected strikes before and after the day of the strike. In contrast with the movement in
share returns of companies affected by protected strikes, the share returns of companies
affected by unprotected strikes maintain a growth trajectory well into the negotiations process
and started to decline -17 days before the day of the strike. Figure 5.13 indicates that at Day
17 the share returns of the affected companies begin to enter a downward trajectory, which
continued right through the day of the announcement of the strike (Day 2) and the day of the
strikes (Day 0). Following the day of the strike, the share returns of the affected company
begin to trade at a significantly new low and showed signs of recovery at the end of the event
window.
Maintained growth in the share returns of companies affected by unprotected strikes at the
start of the wage negotiations are attributed to unprotected strikes going undetected before
the day of the strike and there not being cost implications to demands made by workers
engaging in unprotected strikes (Norton Rose Global, 2009). The gradual decline in share
return closer to the day of the strike at Day 17, is attributed to market speculation of a looming
unprotected strike and leaked information regarding internal grievances between workers and
Effect of labour strikes on the share returns of the JSE Top 40 Companies 120
the affected firms along with their unions. Increased tension between the affected firm and
their workers can be observed at Day 2 and the day of the strike with the share returns
dropping significantly on the day of the strike and continuing to Day 2. From Day 2 of the strike,
the share return of affected companies normalises and can trade at a new low and without
recovering. According to Seedat (2013) much as there are no cost implications to unprotected
strikes, signs of a decline in the share returns of the affected company are evident.
Hypothesis test of the share returns of companies affected by
unprotected labour strikes before and after the day of the strike
Table 5.18 presents the difference in share returns of companies affected by unprotected
strikes before and after the day of the strike. The CAAR of companies affected by unprotected
strikes and their respective z-statistic are presented in Table 5.18. The study conducted the
z-test at a confidence interval of 95 per cent with a z-critical value of 1.96.
Table 5.18: Share returns of companies affected by protected labour strikes before and after the day of the strike
Share returns of affected companies before and after the day of the strike
Day Cumulative average abnormal return (UP) z-statistic
-30 -0.131% -0.26
-29 0.025% 0.04
-28 0.022% 0.07
-27 0.222% 0.63
-26 0.712% 1.27
-25 1.926% 4.33***
-24 1.651% 1.76**
-23 2.995% 6.34***
-22 3.592% 6.17***
-21 4.221% 8.94***
-20 4.341% 11.99***
-19 5.174% 10.15***
-18 5.750% 13.22***
-17 4.734% 5.65***
-16 4.468% 12.96***
-15 3.942% 8.11***
-14 4.621% 10.28***
Effect of labour strikes on the share returns of the JSE Top 40 Companies 121
-13 5.532% 8.33***
-12 5.117% 12.73***
-11 5.108% 15.44***
-10 4.737% 9.77***
-9 4.829% 9.08***
-8 4.343% 6.13***
-7 4.151% 8.77***
-6 4.080% 13.50***
-5 3.677% 6.24***
-4 3.580% 8.01***
-3 2.018% 3.32***
-2 3.200% 6.56***
-1 3.123% 5.12***
0
1 -0.9397% -2.62***
2 0.9253% 2.91***
3 0.2869% 0.70
4 -0.0824% -0.13
5 -0.2982% -0.63
6 -0.2085% -0.52
7 0.6933% 1.26
8 0.7146% 1.70**
9 1.1858% 2.51***
10 1.3934% 2.44***
11 0.6280% 1.61*
12 0.1757% 0.30
13 0.1365% 0.56
14 0.2918% 0.78
15 0.1219% 0.20
16 -0.7423% -1.44*
17 -0.2985% -0.80
18 -0.2870% -0.61
19 -0.4015% -0.67
20 0.3717% 0.52
21 -0.3177% -0.68
22 0.0289% 0.07
Effect of labour strikes on the share returns of the JSE Top 40 Companies 122
23 0.2338% 0.60
24 -0.3949% -0.70
25 0.0846% 0.23
26 -0.4905% -0.84
27 -1.2795% -3.63***
28 -1.4128% -2.94***
29 -1.3348% -2.74***
30 -1.1465% -1.73**
Significant at 95 per cent confidence interval *** Significant at 90 per cent confidence interval ** Significant at 80 per cent
confidence interval *
The outcome of the z-statistics of companies affected by unprotected strikes before and after
the day of the strike are inverse in relation to the z-statistics of companies affected by protected
strikes. The z-statistic of companies affected by unprotected strikes in Table 5.18, presented
significantly high-test values at the beginning of the negotiations period, between Day 23 and
-1. Following the day of the strike, the z-statistic of the affected companies deteriorated
significantly as the share returns of the affected companies began to decline. The outcome of
the z-statistics informs us that share returns of affected companies maintain a positive
trajectory 30 days before the strike and deteriorate after the day of the strike.
Summary hypothesis test of companies affected by unprotected labour
strikes before and after the day of the strike
Table 5.19 provides a summary outcome of the distinction in share returns of companies
affected by unprotected strikes before and after the day of the strike. Table 5.19 presents the
summary overview of share returns of the JSE Top 40 companies affected by unprotected
strikes before and after the day of the strike. A z-test is conducted at a confidence interval of
95% and a critical level of 1.96.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 123
Table 5.19: Significance test of share return of companies affected by unprotected labour strikes before and after the day of the strike
In order to summarise the hypothesis test with respect to the difference in share returns of
companies affected by unprotected strikes before and after the day of the strike over the 61-
day window period at a confidence interval of 95 per cent and a critical value of 1.96. Table
5.19 indicates that a z-test statistic of -9.93 which is significantly greater than the z-critical
value of 1.96. This allows the researcher to reject the null hypothesis. Therefore, making it
true that there is a clear distinction in the share return of companies affected by unprotected
strikes before and after the day of the strike.
5.7 SYNOPSIS
The objective of this chapter was to present the empirical findings of the study’s objectives.
The chapter presented an analysis and interpretation of the study’s findings and detailed how
the study’s objectives and hypothesis were tested and achieved. An event study methodology
was applied in an attempt to identify abnormal share returns investors are likely to obtain as a
result of labour strikes. The AAR and CAAR of the JSE Top 40 companies affected by
Event outcome: Average differences before and after
Cumulative before Cumulative after
μ1 μ2 3.39% -0.08%
n1 n2 30 30
σ1 σ2 0.0177 0.0072
H0 μ1 = μ2 H1 μ1 ≠ μ2
Test statistic -9.93
Probability that H1 is true 0.0%
Significance level a 5%
Confidence level 95%
Critical value 1.96
DF 58
Std error 0.69%
95% CI 4.77%
1.96%
Test Reject H0
Effect of labour strikes on the share returns of the JSE Top 40 Companies 124
protected and unprotected labour strikes between 2010 and 2017 were estimated, analysed
and interpreted. In order to examine the results, the following analysis was conducted:
• A descriptive summary of the CAAR of protected and unprotected labour strikes, as a
collective and in their respective form.
• An industry-specific analysis of respective companies.
• A cumulative analysis of the effects of protected and unprotected labour strikes on the
share return of the JSE Top 40 companies.
• A comparison of the effects that protected and unprotected labour strikes had on the
share returns of the JSE Top 40 companies.
• 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 was
conducted.
The descriptive summary revealed that labour strikes have a negative effect on the share
return of the JSE Top 40 companies. The study found that protected labour strikes had a
greater effect on the share returns of affected companies as a result of the cost implication of
protected labour strikes. The study findings were supported by results from previous studies
that attributed to the negative effects of protected labour strikes to the market’s perception of
increased cost to the company as a result of employees demands and employer’s subsequent
obligation to employee demands. Unprotected labour strikes in relation to protected strikes,
experienced a significant amount of volatility due to a loss in daily production, resources and
investor confidence.
The study’s industry analysis revealed that the mining industry experienced a large number of
labour strikes in relation to all other industries. These findings were in line with the Department
of Labour’s Annual Industrial Action Report, which found that South Africa’s labour market was
dominated by strikes within the public sector, manufacturing, transport, construction and
mining industry and attributed their reoccurrence to growth in unions and the historical
discrimination and exploitation of employees, specifically within the mining industry. The
study’s industrial analysis further revealed that the share returns of affected companies
experienced a significant amount of volatility throughout the 61-day event window across all
industries. The volatility in share returns of affected companies per industry was attributed to
workers' willingness to ensure a labour strike to obtain the most favourable outcome during
wage negotiations, along with the arrival of news of a looming strike to financial markets.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 125
These findings were based on Zeuthen (1930), Hicks (1932) and Ashenfelter and Johnson
(1969), who found that workers enter labour negotiations based on a suitable concession of
an expected value of holding out for the most desired outcome during wage negotiations.
The cumulative analysis of the effects of protected and unprotected labour strikes on the share
return of the JSE Top 40 companies affirmed that labour strikes affect the share return of
affected companies. The trend analysis of the movement in share returns of protected and
unprotected labour strikes, collectively, presented a decline in the share return of affected
companies 21 days before the day of the strike, which continued passed the day of the strike
and rebounded 5 days after the day of the strike. The movement in share returns of affected
companies prior to the day of the strike was attributed to the arrival of news of a looming strike
to financial markets. Significant AR at a confidence interval of 95 per cent were found between
15 days before the day of the strike and 9 days after the strike commenced. A summary
analysis of the cumulative effects of protected and unprotected labour strikes on the share
return of the JSE Top 40 companies concluded that labour strikes affect the share return of
affected companies.
A comparison of the effects of protected and unprotected labour strikes on the share return of
the JSE Top 40 companies was conducted to identify a distinction in share return of affected
companies. The study found that in contrast to the share return of companies affected by
unprotected strikes the share returns of companies affected by protected labour strikes
declined at the beginning of the wage negotiation and continued past the day of the strike and
rebounded after the day of the strike. The share returns of companies affected by unprotected
strikes maintained a growth trajectory and only experienced a decline in share return 15 days
closers to the day of the strike. However, 5 days before the day of the strike the share return
of companies affected by unprotected strikes rebounded and began to trade past the day of
the strike. The movement in share returns of companies affected by protected and unprotected
strikes affirmed the market perception of there not being a cost implication to companies
affected by unprotected labour strikes. Significant AR were found in the share returns of both
protected and unprotected strikes. The summary significance test revealed that there is a
distinction in the movement in share returns of companies affected by protected and
unprotected labour strikes.
A final evaluation of the movement in share return of companies affected by protected and
unprotected labour strikes before and after the day of the strike was conducted. The findings
of the evaluation correlated with the findings in Section 5.4, which found a significant decline
in the share return of companies affected by protected labour strikes before the day of the
Effect of labour strikes on the share returns of the JSE Top 40 Companies 126
strike, which later rebound after the day of the strike. Correspondingly, the share return of
unprotected strikes maintained a growth trajectory prior to the day of the strike and continued
to trade after the day of the strike.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 127
CHAPTER 6: CONCLUSION AND RECOMMENDATIONS
“You will never plough a field if you only turn it over in your mind.” Irish Proverb
6.1 INTRODUCTION
South African companies experienced a large increase in the number of labour strikes
following the 2008/2009 GFC. The GFC placed a strain on global economic conditions,
resulting in high price levels, growth in unemployment, and slow economic growth. The
occurrence of the GFC exposed a large number of South Africa’s socio-economic ails of
minimum wages, high levels of unemployment and inequality, which resulted in increased
demands from workers to employers. Men and women around the world were subjected to
accepting minimum wages as a result of sluggish global economic conditions. The notion of
accepting minimum wages was with fury and frustration in South Africa’s labour market,
resulting in a large increase in the number of labour strikes.
Labour strikes in South Africa more than doubled following the GFC, increasing from 51 in
2010 to 132 in 2017. In 2010 a historical number of 20 674 737 working days3 were lost in
production, as a result of prolonged public servant strikes. The rise in the number of labour
strikes was as a result of wage discrimination, inequality, and socio-economic conditions. The
reoccurrence of labour strikes in South Africa between 2010 and 2017 was likened to the
certainty of death and taxes. The increase in labour strikes during 2014 dampened investor
confidence and brought the country’s economy to the brink of recession.
The effect of labour strikes resulted in losses to both workers and employers. In periods of
labour strikes workers lost out in salaries and wages owing to the no work no pay agreement
between workers and the employer. In contrast, firms lost out on days in production and
subsequently lost in profits. Firms are established with the main purpose of creating profits
and providing maximum share returns for shareholders, through the reduction of redundant
functions and optimum usage of production inputs. The share value of publicly listed
companies is embedded in the share price of the firm. Investors make use of a company’s
share price to evaluate the market’s perception of a security. Disruptions in daily operations
of a firm in the form of labour strike are a halt in production, which affects investor confidence
and subsequently investor share returns.
3 The number of working days lost due to labour strikes, is a measure of the total number of workers
involved directly in the strike or lockouts multiplied by the length of the work stoppage (Industrial Action Report, 2016)
Effect of labour strikes on the share returns of the JSE Top 40 Companies 128
The study observed the resolve of labour strikes and how it affected share returns of the JSE
Top 40 companies, through an event study methodology. The study examined 41 companies
listed on the JSE Top 40 index which were affected by labour strikes between 2010 to 2017.
The data sample comprised companies from the mining, consumer goods, retail, brewery,
telecommunications, corporate and pharmaceutical industry. The purpose of this chapter is to
present a summary of the achieved theoretical and empirical objectives. The main findings of
the empirical objectives are discussed to highlight the contribution of the study.
Recommendations of the study are drawn from the literature review and the research findings.
The concluding remarks and recommendations of the study are present in the last section of
the chapter, followed by limitations of the study and future research opportunities of the study.
6.2 OVERVIEW OF THE STUDY
The study’s recommendations are articulated in this chapter based on the insights gained from
the previous five chapters, which have contributed to the research findings. This section of the
chapter provides a synopsis of the chapters encountered in the study. In Chapter 1, an
introduction and background to the study are provided, along with the problem statement,
which gave rise to the need to conduct the study. Chapter 1 outlined the primary objective,
theoretical objectives, and empirical objectives and the set-out hypotheses to be
accomplished in accordance with the problem statement. The primary objective of the study
is to evaluate the effects that labour strikes have on the share returns of JSE Top 40
companies.
Theoretical objectives
In order to achieve the primary objective, the following theoretical objectives were formulated
to contextualise the study:
• Provide a theoretical overview of labour strikes to establish a general understanding of the
dynamics of labour strikes and how the resolve of a strike is established with regard to
protected and unprotected strikes.
• Provide an overview of the EMH as a basis of proving whether the event of labour strikes
does affect the share price of publicly listed companies.
Empirical objectives
In order to achieve the primary objective of the study an empirical study was conducted, and
the objectives were as follows:
Effect of labour strikes on the share returns of the JSE Top 40 Companies 129
• Establishing whether labour strikes affect the share returns 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.
• 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.
Chapter 2 aimed to achieve the theoretical objective I set out in Chapter 1. The chapter
commenced by contextualising labour strikes in the South African context, by providing a
historical background of labour strikes, defining labour strikes in their different forms and
providing a theoretical framework to labour strikes. The nature and purpose of collective
bargaining as a critical function of wage negotiations are defined in Chapter 2, detailing the
process of collective bargaining, the various approaches to collective bargaining, and legal
procedure to labour strikes. A review of previous studies evaluating the effect that labour
strikes had on the share return of affected companies is provided to further contextualise the
study and provide supporting evidence as a base to the study. The chapter further provides
background to the GFC, which gave rise to the financial crises and how it affected the South
African economy.
Correspondingly, Chapter 3 was aimed to achieve theoretical objective II laid out in Chapter
1. The chapter began with providing historical background and insight into the EMH. The
introduction to Chapter 3 was followed by definitions of an ECM and the assumptions of what
makes an ECM. The three forms of EMH are later detailed, along with the implications that
investors face when participating in ECM. Developments around the EMH in the form of
“financial market anomalies” are presented. A large focus is given to “behavioural finance” as
the most recent and influential financial market anomaly to contend the EMH. Chapter 3 further
presented a review of other previous studies with respect to the JSE being an ECM to provide
supporting evidence of the JSE being an efficient market.
Chapter 4 detailed and described the research design and methodology followed to gather
and analyse the data to achieve the study’s empirical objectives. Chapter 4 provided
supporting arguments for using the research approach, the sample design process, the
sample size as well as the research instrument used in the collection and analyses of the data
sample. The study made use of a quantitative research approach to evaluate the data sample.
A sample pool of 259 companies listed on the JSE ALSI were identified have been affected
Effect of labour strikes on the share returns of the JSE Top 40 Companies 130
by labour strikes between 2010 and 2017. Of the 259 companies, 41 companies were listed
on JSE Top 40 index. The study evaluated 32 JSE Top 40 companies that were affected by
unprotected strikes and 9 JSE Top 40 companies that were affected by unprotected labour
strikes.
Chapter 5 presents a detailed analysis and interpretation of the quantitative analysis
performed to achieve the study's empirical objectives. The chapter began by detailing the
empirical objectives and restating the set hypotheses to achieve the study's research
objective. A descriptive analysis of the results was presented, followed by an industrial
analysis of the various JSE Top 40 companies affected by labour strikes. This was followed
by an analysis of how protected and unprotected labour strikes, collectively, affected the share
return of affected companies. Further analysis of the effects of protected and unprotected
labour strikes, respectively, on the share returns of JSE Top 40 companies were presented.
This is followed by an analysis of the effects of protected and unprotected labour strikes before
and after the day of the strike, respectively.
6.3 FINDINGS OF THE STUDY
The primary objective of the study was to evaluate the effect that labour strikes have on the
share return of the JSE Top 40 companies. In order to achieve the primary research
objectives, the following empirical objectives were formulated and achieved.
Empirical Objective 1: Establishing whether labour strikes affect the
share returns of the JSE Top 40 companies
Empirical objective 1 was established to evaluate the effect that labour strikes have on the
share return of the JSE Top 40 companies. This objective was achieved in Section 5.4 by
evaluating CAAR of the JSE Top 40 companies affected by protected and unprotected strikes,
collectively. A trend analysis of the movement in share return of affected companies was
conducted, followed by a z-statistical significance test, a periodic analysis of CAAR and a
summary significance test. The study found that periods of wage negotiations resulted in a
significant amount of volatility in the share returns of affected companies, throughout the event
window. A significant amount of AR was found 16 days before the day of the strike, on the day
of the strike, and continued to 17 days after the labour strike commenced. Greater movement
in CAAR of affected the JSE Top 40 companies was found between the 5- and the 10-day
interval before and after the day of the strike. The summary significance test concluded that
Effect of labour strikes on the share returns of the JSE Top 40 Companies 131
indeed the resolve of protected and unprotected labour strikes affects the share return of JSE
Top 40 companies.
Empirical objective 2: Identifying the effects of protected and
unprotected labour strikes, respectively, on the share returns of the JSE
Top 40 companies
Empirical objective 2 was established to identify a distinction in how protected and unprotected
labour strikes affect the share return of the JSE Top 40 companies. The objective was
achieved in Section 5.5, through the evaluation of the CAAR of JSE Top 40 companies
affected by protected and unprotected labour strikes, respectively. A clear distinction in the
movement in share return of companies affected by protected and unprotected labour strikes
was found. The share return of companies affected by protected labour strikes deteriorated
from the beginning of the wage negotiations and recovered after the day of the strike. While
the share return of companies affected by unprotected labour strikes maintained a growth
trajectory from the beginning of the wage negotiations and began to decline 15 days before
the day of the strike, re-bounding 5 days before the day of the strike and continuing to trade
throughout the event window. The z-test found significant AR throughout the event window for
both protected and unprotected strikes. The summary significance test concluded that the
resolve of protected and unprotected labour strikes, respectively, affect the share return of
JSE Top 40 companies.
Empirical Objective 3: Identify the effects of protected and unprotected
labour strikes on the share returns of the JSE Top 40 companies,
respectively, before and after the day of the strike
Empirical objective 3 was formulated to present the effects of protected and unprotected
labour strikes, respectively, on the share returns of the JSE Top 40 companies before and
after the day of the strike. This objective was achieved in Section 5.6. The CAAR of companies
affected by protected and unprotected labours strikes were examined. The study found that
there is a notable difference in the movement in the share return of the affected companies
before and after the day of the strike. Similarly, to the outcome of empirical objective 2, the
share returns of companies affected protected labour strikes deteriorated in the 30 days before
the day of the strike and rebounded in the 30 days after the strike has commenced. The
opposite was found for the share returns of companies affected by unprotected strikes. The
share returns of companies affected by unprotected labour strikes maintained a positive
growth trajectory before the day of the strike and later deteriorated significantly after the day
of the strike.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 132
6.4 CONTRIBUTION OF THE STUDY
Labour strikes are increasingly becoming a custom in South Africa’s economy. The growth in
incidents and days lost in production threaten investor confidence. Previous studies have
examined the effect that labour strikes have in the form of losses in salaries and wages and
revenue, which ultimately affect household income and the financial position of a firm. A gap
remained in accessing the effect that labour strikes have on the share return of publicly listed
companies. The study aimed to bridge the research gap on the impact that labour strikes have
on the share returns of publicly listed companies.
This was established through the achievement of empirical objective one. The findings of
empirical objective one bridged the gap in financial markets' understanding of the impact that
labour strikes have on the share returns of publicly listed companies. The study’s findings will
assist investors and portfolio managers to optimise their share returns during periods of labour
strikes. It will further induce consciousness of the impact of wage negotiations on companies
and implore bargaining agents to employ an integrative approach when engaging in wage
negotiations.
6.5 CONCLUDING REMARKS AND RECOMMENDATIONS
The outcome of studies primary objective indicated that labour strikes (protected and
unprotected) affect the share return of affected companies. Protected strikes were
found to have a greater effect on the share return of affected companies as a result of
the cost implication of a protected strike. The share returns of companies affected by
protected strikes begin to deteriorate at the start of the wage negotiation and continued
past the date of the strike. The share return of the affected company’s began to recover
at 5 days after the day of the strike. The immediate response to the arrival of news of
a looming strike to financial market at the start of the wage negotiation and throughout
the negotiation period to day 5 after the day of the strike reflects the efficiency of the
JSE. The decline in share return of affected companies at the start of wage negotiation
is an indication of a loss in investor confidence to the news a looming labour strike
arriving at the market.
The outcome of the study’s findings is indicative of the need for a conscious integrative
approach to wage negotiations. This is supported by the observed recovery in the
Effect of labour strikes on the share returns of the JSE Top 40 Companies 133
share return of affected companies 5 days after a settlement is reached. The early
recovery in share return is supported by Hick’s (1932) theory, that argues that if
bargaining agents were equally informed about the concession and resistance curves,
and were able to identify an equilibrium point, bargaining agents would have agreed
on a wage agreement and would avoid the costs suffered by both parties as a result
of the strike. A conscious integrative approach to wage negotiations will enhance
cohesion among bargaining agents and instil investor confidence in the labour market
and subsequently financial markets. In closing, a cohesive collective bargaining
process will eliminate losses due to disruptions in daily operations owing and ensuring
maximum share returns to stakeholders.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 134
6.6 LIMITATIONS AND FUTURE RESEARCH
The study was limited by a lack of data, which indicated dates in which respective labour
strikes were concluded. The lack of data quality restricted the study from accessing the effects
of short- and long-term labour strikes on the share returns of the JSE Top 40 companies. This
further prevents the study to accurately access the time it takes for the share price of
companies affected by labour strikes to return to equilibrium. The limitations of the study
created opportunities for further research in areas where the study fell short and areas of
interest. The following areas are identified as areas of future research:
• Assessing the effect of short-term labour strikes on the share return of the JSE Top 40
companies, in relations to the effects of long-term strikes.
• Examining the duration, it takes for the share return of affected companies to return to
equilibrium.
• Exploring the impact of media coverage on the share return of JSE Top 40 companies.
• Accessing the impact of prolonged labour strikes on household income earning, with
respect to earnings forgone in pursuit of a more worthwhile wage agreement.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 135
REFERENCE LIST
Abarbanell, J. S. & Bushee, B, J. 1998. Abnormal returns to fundamental analysis strategy.
The Accounting Review, 73(1): 19-45.
Achelis, S.B. 2000. Technical analysis from A to Z. New York: Equips International.
Ackerman, M. 2016. Labour unrest a major reason for SA’s economic underperformance,
says Citadel strategist at USB Leader’s Angle. University of Stellenbosch.
http://www.usb.ac.za/news-events/news/309 Date of access: 17 Sept. 2017.
Adavbiele, J. 2015. Implications of incessant strike actions on the implementation of
technical education programme in Nigeria. Journal of Education and Practice, 6(8):134-138.
Afonso, G., Kovner, A. & Schoar, A. 2010. What happened to US interbank lending in the
financial crisis? https://voxeu.org/article/what-happened-us-interbank-lending-financial-crisis
Date of access: 01 Feb. 2020.
Allen, F. and Gale, D. 2007. Understanding financial crisis. Oxford: Oxford University Press.
Ally, S. 2015. Labour unrest, way to mitigate labour unrest and the effects of labour unrest.
College of Business Education. DSM. Tanzania.
http://www.slideshare.net/suleymans19/labour-unrestway-to-mitagate-it-and-the-effects
Date of access: 7 Oct. 2018.
Amadeo, K. 2019. Causes of the 2008 global financial crisis: what really caused the crisis?.
https://www.thebalance.com/what-caused-2008-global-financial-crisis-3306176 Date of
access: 01 Feb. 2020.
Amegee, P. K. 2010. The causes and impact of labour unrests on some selected
organizations in ACCRA.
http://ugspace.ug.edu.gh/bitstream/123456789/7177/1/Paul%20Kofi%20Amegee_The%20C
auses%20and%20Impact%20of%20Labour%20Unrest%20on%20some%20Selected%20Or
ganizations%20in%20Accra_2010.pdf Date of access: 18 Sept. 2017.
Andersen, S. & Nielsen, K. 2011. Participation constraints in the stock market: Evidence
from unexpected inheritance due to sudden death. The Review of Financial Studies, 24(5):
1667-1697.
Angel, J. 2014. Regulation. In: CFA Institute, 3rd ed. CFA institute investment foundations.
london: pp 67-88.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 136
Ang, A., Goetzmann, W.N. & Schaefer, S. M. 2011. Review of the efficient market theory
and; evidence implications for active investment management.
https://www0.gsb.columbia.edu/faculty/aang/papers/EMH.pdf Date of access: 18 Sept. 2016.
Anon. 2006. Importance of collective bargaining.
http://www.naukrihub.com/industrialrelations/importance-of-collective-bargaining.html Date
of access 18 Jan. 2019.
Anthopoulos, L. G. & Xristianopoulou, A. 2012. Negotiation models for managing projects: a
Review.
file:///C:/Users/HP/Downloads/AnthopoulosChristianopoulou_NegotiationModelsPM.pdf Date
of access: 23 Jun. 2019.
Arbel, A. & Strebel, P. 1983. Pay attention to neglected firms. Journal of portfolio
management, 9(2): 37-42.
Ariccia, G., Igan, D. & Laeven. 2008. Credit booms and lending standards: Evidence from
the subprime mortgage market. https://www.imf.org/external/pubs/ft/wp/2008/wp08106.pdf
Date of access: 11/02/2020.
Armitage, S. 1995. Event study methods and evidence on their performance. Journal of
economic surveys, 9(1): 25-52.
Ashenfelter, O. & Johnson, G. E. 1969. Bargaining theory, trade unions and industrial strike
activity. The America economic review, 59(1):35-49.
Balaji, G. 2013. recognizing and managing biases in investment decision making‖.
https://www.dpm.com.au/knowledge-centre/managing-financial-decision-making/ Date of
access; 13 Apr. 2020.
Ball, R. and Brown, P. 1968. An empirical evaluation of accounting numbers. Journal of
Accounting Research, 6(2):78-159.
Baily, M., Litan, R. & Johnson, M. The origins of the financial crisis.
https://www.brookings.edu/wp-content/uploads/2016/06/11_origins_crisis_baily_litan.pdf
Date of access: 07 Feb. 2020.
Banko, J., Conover, M. & Jensen. 2006. The relationship between the value effect and
industry affiliation. The Journal of Business, 79(5): 2595-2616.
Banz, R. 1981. The relationship between return and market value of common stocks.
Journal of Financial Economics, 9(1): 3-18.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 137
Barber, B. & Odean, T. 1999. The courage of misguided convictions. Financial Analysts
Journal, 55(6): 41-55.
Barker, F. 2015. The South African labour market; theory and practice. 5th ed. Pretoria: Van
Schaik Publishers.
Barrot, A. 2014. The circular flow of economic activity. www.worldcat.org/title/economics-for-
south-african students/oclc/190787050?referer=di&ht=edition Date of access: 23 Jun. 2017.
Barr, G. D. & Priestly, R. 2004. Expected returns, risk and the integration of international
bond. https://pdfs.semanticscholar.org/49c2/6736375606978efb57092d4b8dddbf5fcadd.pdf
Date of access: 15 Apr. 2018.
Basu, S. 1977. Investment performance of common stocks in relation to their price earnings
ratios: A test of the efficient market hypothesis. The Journal of Finance, 32(3): 663-682.
Baxter, R. 2013. The global economic crisis and its impact on South Africa and the country’s
mining industry.
https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/51/Roger+Baxt
er.pdf. Date of access: 23 Jan. 2020.
Beck, R. B. 2000. The history of South Africa. Westport. Conn :Greenwood press.
Beggs, J. 2017. The circular-flow model of the economy. ThoughtCo.
https://www.thoughtco.com/the-circular-flow-model-of-the-economy-1147015 Date of
access: 23 Jun. 2017.
Belke, A. & Polleit, T. 2009. Monetary economics in globalised financial markets. London.
Springer Dordrecht Heidelberg.
Bendix, S. 1996. International relations in South Africa. 3rd ed. Cape Town: Juta.
Bendix, S. 2000. The basics of labour relations. Cape Town: Juta.
Bendix, S. 2001. Industrial relations in South Africa. 4th ed. Lansdowne: Juta.
Benninga, S. 2008. Financial modelling. 3rd ed. Boston, MA: MIT Press.
Bernstein, L. P. & Damodaran, A. 1998. Investment management. New York: John Wiley &
Sons, inc.
Berrospide, J. 2012. Liquidity hoarding and the financial crisis: An empirical evaluation.
https://www.bis.org/bcbs/events/bhbibe/berrospide.pdf. Date of access: 03 Feb. 2020.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 138
Bhana, N. 1997. The effects of industrial strikes on the value of shares listed on the
Johannesburg stock exchange. Investment analysts journal, 44(1): 43-49.
Bhorat, H., Naidoo, K., & Yu, D. 2014. Trade unions in an emerging economy: The case of
South Africa. Development policy research unit working paper 201402. Cape Town:
Development policy research unit, University of Cape Town.
Boyte-White, C. 2020. Volatility from the investor's point of view.
https://www.investopedia.com/ask/answers/010915/volatility-good-thing-or-bad-thing-
investors-point-view-and-why.asp Date of access 27 May. 2020.
Birau, F. R. 2011. Behavioural finance paradigm and its implications on investment
decisions. Romania: University of Craiova. (Thesis- PhD).
Birau, F. R. 2012. The Impact of behavioural finance on stock markets. Romania: University
of Craiova. (Thesis- PhD).
Bishop, R. L. 1964. A Zeuthen-Hicks theory of bargaining. Econometrica, 32(3):410-17.
Blake, R. R. & Mouton, J. S.1979. Intergroup problem-solving in organizations. (In Austin, W.
G. & Worchel, S. The social psychology of intergroup relations. Burnham Inc. Pub. p.19-32).
Bodie, Z., Kane, A. & Marcus, A. J. 2014. Investments. 10th ed. New York. McGraw-Hill.
Boehmer E., Musumeci J. and A. Poulsen 1991. Event-study methodology under conditions
of event-induced variance. Journal of Financial Economics, 30(2): 253–272.
Boeri, T. & Van Ours, J. 2013. The economics of imperfect labour markets. 2nd ed. The
United Kingdom: Princeton University Press.
Bonga-Bonga L. and Makakabule M. 2010. Modelling stock returns in the South African
stock exchange. European Journal of Economics, Finance and Administrative Sciences,
11(9): 997-1002.
Booth, A. L. 1995. The economics of the trade union. New York: Cambridge University
Press.
Botha, M. 2014. The different worlds of labour and company law: Truth or Myth?. PER:
Potchefstroomse Elektroniese Regsblad, 17(5): 2042-2103.
https://dx.doi.org/10.4314/pelj.v17i5.06. Date of access:31 Jan. 2021.
Botha, M. & Lephoto, M. 2017. An employer’s recourse to lock-out and replacement labour:
An evaluation of recent case law. file:///C:/Users/HP/Downloads/4166-Article%20Text-
17892-1-10-20180111%20(1).pdf Date of access: 24 Jun. 2019.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 139
Boudreaux, D. O. 1995. The monthly effect in international stock markets: Evidence and
implications. Journal of Financial and Strategic Decisions, 8(1): 15-20.
Bowman, R. 1983. Understanding and conducting event studies. Journal of Business
Finance & Accounting, 10(4): 561- 584.
Brooks, C. 2014. Introductory econometrics for finance. 3rd ed. United Kingdom: Cambridge
University Press.
Brown, G. R. 1983. Understanding and conducting event studies. Journal of Business
Finance & Accounting, 10(4): 503 – 704.
Brigham, E.B. & Houston, J. F. 2007. Fundamentals of financial management. 13th ed.
USA: South Western.
Bruce, D. 2015. Marikana: A summary and analysis of the Farlam report – CASAC.
https://www.casac.org.za/wp-content/uploads/2015/02/Summary-and-Analysis-of-the-report-
of-the-Marikana-commission-of-inquiry.pdf Date of access: 14 Jun. 2017.
Buffer, M. 2016. How do CDOs and CDSs influence the crisis of 2008. Lingnan Journal of
Banking, Finance and Economics, 6(2):17-20.
Bunting, S. P. 1922. Red revolt: The rand strike, January-March 1992. Johannesburg.
Burkhardts, P. 2014. Platinum talks seek to end longest South African mine strike. Mail &
Guardian. https://mg.co.za/article/2014-04-23-platinum-talks-seek-to-end-longest-south-
african-mine-strike Date of access: 17 Sept. 2017.
Byrne, A. & Utkus, S. P. 2013. Understanding how the mind can help or hinder investment
success. United Kingdom. Vanguard asset management.
Cable, J. & Holland, K. 1999. Modelling normal returns in event studies: A model-selection
approach and pilot study. file:///C:/Users/HP/Downloads/waecwp96-13%20(3).pdf Date of
access: 15 Sep. 2019
Campbell, J., Lo, A. & Mackinly (1997). The econometrics of financial markets. United
Kingdom. Princeton university press.
Carnevale, P. J. & Pruitt, D. G. 1992. Negotiation and mediation. Annual review of
psychology, 43(1):531-582.
Ceruti, C. 2010. Maturing contradictions: the 2010 public sector strike in South Africa. Global
labour column labouruniversity.org/fileadmin/GLU_Column/papers/no_43_Ceruti.pdf Date of
access: 10 Jun. 2017.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 140
Chabalala, C. M. 2014. Impact of strikes on investors’ confidence in the South African mining
sector. Vanderbijlpark: NWU. (Dissertation – Masters)
Chand, S. 2016. Industrial disputes: definition, forms and types. Your article library.
http://www.yourarticlelibrary.com/industries/industrial-disputes-definition-forms-and-
types/35453/ Date of access: 7 Oct. 2018.
Chandra, P. 2012. Investment analysis and portfolio management. 1st ed. New York:
McGraw-Hill.
Chau, M. & Dimitri, V . 2008. Strong-form efficiency with monopolistic insiders. Review of
financial studies, 21(5) 2275–2306.
Chiaramonte, L. 2018. Bank liquidity and the global financial crisis: The causes and
implications of regulatory reform. Italy. Palmgrave and Macmillan.
Chitenderu T., Maradeza A. &Sibinda K. 2014. The random walk theory and stock prices:
Evidence from Johannesburg stock exchange. International business and economics
research journal, 13(6), 1241-1250.
Chwieroth, J. 2011. The crisis in global finance: political economy perspectives on
international financial regulatory change.
http://eprints.lse.ac.uk/41825/1/The%20crisis%20in%20global%20finance(lsero).pdf Date of
access: 07 Feb. 2020.
Cisler, J., Olatunji, B., Feldner, M. & Forsyth, J. 2010. Emotion regulation and the anxiety
disorders: An integrative review. journal of psychopathol behaviour assess, 32(1): 68–82.
Clarke, J., Jandik, T. & Mandelker, G. 2001. The efficient market hypothesis. (In addition, R.
C., ed. Expert financial planning: Investment strategies from industry leaders. New York:
Wiley p 126-141.
Coburn, C. 2013. Negotiation conflict styles.
https://hms.harvard.edu/sites/default/files/assets/sites/ombuds/files/Negotiationconflictstyles.
pdf Date of access: 2 Jul. 2019.
Coddington, A. 2003. Theories of the bargaining process. London: Routledge.
Condon, J. 2018. Labour unrest – economic consequences of strikes.
https://www.bbrief.co.za/2018/10/17/labour-unrest-economic-consequences-of-strikes/ Date
of access: 09 Dec. 2019.
Cornradie, M. 2016. The constitutional right to fair labour practices: a consideration of the
influence and continued importance of the historical regulation of (un)fair labour practices
Effect of labour strikes on the share returns of the JSE Top 40 Companies 141
pre-1977. http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S1021-
545X2016000200001 Date of access: 26 May 2019.
Corrado, C. J. 2011. Event studies: A methodology review. Journal of Accounting & Finance,
51(1): 207-234.
Crain, M. 2011. A literature review of the size effect.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1710076 Date of access; 03 Apr,
2018.
Cramton, P. & Tracy, J. 2002. Unions, bargaining and strikes. (In addition, and Schnabel.
International handbook of trade unions, Cheltenham. The United Kingdom.
Craver, C. 2007. Legal negotiation process and techniques.
file:///C:/Users/HP/Downloads/NEGOTPROCESSBANK%20(1).pdf Date of access: 1 Jun
2019.
Crawford. V, P. 1980. A note on the Zeuthen-Harsanyi theory of bargaining. The Journal of
Conflict Resolution, 24(3): 525-535.
Cross, F. 1973. The behaviour of stock prices on Fridays and Mondays. Financial Analysts
Journal, 40(6): 793-805.
Dalika, N. & Seetharam, Y. 2015. Sentiment and returns: An analysis of investor sentiment
in the South African market. Investment Management and Financial Innovations, 12(1), 267-
276.
Damme, E. 1986. The Nash bargaining solution is optimal. Journal of Economic Theory,
38(1): 78-100.
Dana, B.E. & Cristina, S.L. 2013. Technical and fundamental anomalies, paradoxes of
modern stock exchange markets. Economic Science Series, 22 (1) (2013), pp. 37-43.
Darrat, A. F., Li, B. & Chung, R. 2013. Seasonal anomalies: A closer look at the
Johannesburg stock exchange. Contemporary Management Research, 9(2): 155-168.
Davenport, J. 2013. The lead-up to the 1922 Rand Revolt.
https://www.miningweekly.com/article/the-lead-up-to-the-1922-rand-revolt-2013-08-16 Date
of access: 11 May 2019.
Davenport, T. R. H. 1987. South Africa. A modern history. Johannesburg: MacMillan.
Davey, H. W. 1987. Contemporary collective bargaining. Prentice Hall, Inc. Engle. New
Jersey.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 142
Davidov, G. 2004. Collective bargaining laws: Purpose and scope. International Journal of
Comparative Labour Law and Industrial Relations, 20(1):81-106.
Davis, D. 1989. From contract to administrative law: The changing face of South African
Law. (In Visser, D. P. Essays on the history of law. Cape Town: Juta.).
De Dreu, C, K., Beersma, B., Steinel, W. & Van Kleef, G. A. 1946. The psychology of
negotiation: Principles and basic process. (In Kruglanski, A. W. & Higgins, E. T., 2nd ed.
Social Psychology: Handbook of basic principles. New York: The Guilford Press. p608-629).
Delcey, T. 2018. Efficient market hypothesis, Eugene Fama and Paul Samuelson: A
reevaluation. https://hal.archives-ouvertes.fr/hal-
01618347/file/Delecay%252C%252owp1%252C%250Fama-
Samuelson.pdf&ved=2ahUKEwj-
7MTToofiAhXDSBUIHe7yDvOQFiAkegQIBBAB&usg=AovVaw2VrOe131m8jP_VH4myjin9
Date of access: 13 July 2018.
Degutis, A. & Novickyte, L. 2014. The efficient market hypothesis: A critical review of
literature and methodology. Ekonomika, 93(2).
Department of Labour see South Africa. Department of Labour.
Derdas, S. I. 2009. Testing semi-strong for efficiency and the PEAD anomaly in ATHEX: An
event study based on annual earnings announcements. Boca Raton, Florida: Dissertation.
http://www.bookpump.com/dps/pdf-b/2337872b.pdf Date of access: 15 Mar. 2018.
De Siva, S. 1996. Collective bargaining negotiations. International Labour Organisation.
http://www.ilo.org/public/emglish/dialogue/actemp/downloads/publications/srscbarg.pdf Date
of access: 10 Jan. 2019.
De Waal, M. 2012. Marikana: What really happened? We may never know. Daily Maverick.
https://www.dailymaverick.co.za/article/2012-08-23-marikana-what-really-happened-we-
may-never-know#.WT6zneuGPIU Date of access: 16 Jun. 2017.
De Wet, J. 2012. The financial impact of strikes: A worker’s perspective. Corporate
Ownership and control, 9(4): 400-407.
Dickens, P. 2015. South Africa’s very own Communist Revolution – The Rand Revolt of
1922. https://samilhistory.com/2017/10/15/south-africas-very-own-communist-revolution-the-
rand-revolt-of-1922/ Date of access: 14 Jun. 2019.
Dickerson, A. P. 1992. Industrial conflict in Britain. Birmingham: University of Warwick.
(Thesis – PhD).
Effect of labour strikes on the share returns of the JSE Top 40 Companies 143
DiNardo, J. & Hallock, K. F. 2000. When unions “Mattered”: assessing the impact of strikes
on financial markets: 1925-1937. https://www.nber.org/papers/w7794 Date of access: 11
Aug. 2019.
Dobbins, R. & Witt, S.F. 1979. Some implications of the efficient market hypothesis.
Managerial Finance, 5(1): 65-79.
Dolley, J. C. 1933. Characteristics and procedure of common stock split-ups. Harvard
Business Review, 11: 316-26.
Duignan, B. 2019. Financial crisis of 2007-08: Global Economics.
https://www.britannica.com/event/financial-crisis-of-2007-2008 Date of access: 09 Feb.
2020.
Dundon, Y. 2011. Understanding employment relations. 2nd ed. London: McGraw Hill.
Du Toit, D. 2000. Labour Relations Law. A comprehensive guide. 3rd edition. Butterworth:
Durban.
Egan, A. 2006. The miners are revolting. https://mg.co.za/article/2006-04-07-the-miners-are-
revolting Date of access: 24 Jun. 2019.
Ehrenberg, R. G. & Smith, R. S. 2000. Modern theory and Labour public policy economics.
7th ed. New York: Addison-Wesley Longman.
Eigner, P. & Umlauft, T. 2015. The Great Depression(s) of 1929-1933 and 2007-2009?
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2612243 Date of access: 05 Feb.
2020.
Elliot, R. F. 1990. Labor economics: A comparative text. London. McGraw-Hill.
England, A. 2014. Agreement marks end of South Africa platinum mining strike. Financial
Times. https://www.ft.com/content/2cb6db9c-fba0-11e3-aa19-00144feab7de Date of access:
17 Sept. 2017.
Erdugan, R. 2012. The effect of economic factors on the performance of the Australian stock
market. Melbourne: Victoria University. (Thesis – PhD)
Erlien, M. 2011. Earnings announcements and stock returns – A study of efficiency in the
Norwegian capital market. Universitetet I Stavanger. (Thesis – Masters).
Fama, E. 1965. The behaviour of stock markets price. The Journal of Business, 38(1): 34-
105.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 144
Fama, E., Fisher, L., Jensen, M. & Roll, R. 1969. The adjustment of stock prices to new
information. International Economic Review, 10(1): 1-21.
Fama, E. 1970. Efficient capital markets: A review of theory and empirical work. The Journal
of Finance, 25(2): 383-417.
Fama, E.1991. Efficient capital markets: II. The Journal of Finance, 46(5): 1575-1617.
Fama, E. & French, R.1992. The cross-section of expected stock returns. The Journal of
Finance, 48(2) 427-465.
Fama, E. 1998. Market efficiency, long-term returns, and behavioural finance. Journal of
Financial Economics, 49(3): 283-306.
Farber, H. 1986. The analysis of union behaviour. (In Ashenfelter, O., & Layard, R.
Handbook to Labour Economics. Amsterdam: Oxford. p. 1039-1085).
Farhi, M. & Cintra, M. 2009. The financial crisis and the global shadow banking system.
https://journals.openedition.org/regulation/7473?lang=en. Date of access: 14 Feb. 2020.
Fells, R. 2000. Negotiating strategically. (In Travaglione, A. & Marshall, V. Human resource
management: An applied approach. New South Wales: McGraw-Hill).
Filer, R. K., Hamermesh, D. S. & Rees, A, E. 1996. The economics of work and pay. 6th ed.
New York: HarperCollins College Publisher.
Finnemore, M. & Van der Merwe, R. 1994. Introduction to industrial relations in South Africa.
3rd ed. Natal: Lexicon Publishers.
Finnemore, M. 1999. Introduction to labour relations in South Africa. 7th ed. Durban:
Butterworth.
Fiorillo, S. 2018. What was the subprime mortgage crisis and how did it
happen?https://www.thestreet.com/personal-finance/mortgages/subprime-mortgage-crisis-
14704400 Date of access: 01 Feb. 2020.
Fisher, R. & Ury, W. 1983. Getting to yes. Negotiating agreement without giving in. New
York: Penguin Books.
Fin24, 2014. Amcu ends five-month platinum strike. Fin24.
http://www.fin24.com/Economy/Amcu-ends-five-month-platinum-strike-20140623 Date of
access: 17 Sept. 2017.
Flatau, P. R. 2001. Hick’s the theory of wages: Its place in the history of neoclassical
distribution theory. History of Economic Review, 36:44-65.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 145
Fligstein, N. & Roehrkasse, A. 2015. The causes of fraud in financial crises: evidence from
the mortgage-backed securities industry.
https://sociology.berkeley.edu/sites/default/files/faculty/fligstein/The%20Causes%20of%20Fr
aud%20in%20Financial%20Crises%20October%202015.pdf Date of access: 02 Feb. 2020.
Forstater, M. 2013. Sectoral coverage of the global economic crisis: implications of the
global financial and economic crisis on the textile and clothing sector.
https://www.ilo.org/wcmsp5/groups/public/---ed_dialogue/---
sector/documents/publication/wcms_162597.pdf Date of access: 05 Feb. 2020.
French, K. 1980. Stock market returns and the weekend effect. Journal of Financial
Economics, 8(1): 55-70.
Friend, I. & Lang, H. 1988. The size effect on stock returns: is it simply a risk effect not
adequately reflected by the usual measures?. Journal of Banking & Finance, 12(1): 13-30.
Fund-fact Sheet, 2019. FTSE/JSE All-Share index: Fund-fact sheet.
file:///C:/Users/HP/Downloads/J203_20190930%20(1).pdf Date of access: 29 Oct. 2019.
Ganda, F. & Ngwakwe, C. 2015. The differential effect of labour unrest on corporate financial
performance. Risk governance of control: financial performance, 5(3): 246 – 254.
Gao, R., Wang, C. & Hafner, C. 2014. The impact of acquisitions on new technology stocks:
the Google-Motorola case. Journal of Financial Economics, 9(2): 1 - 23.
Garbers, C. J. & Potgieter, S. 2007. Management for healthy labour relations. Pretoria: Van
Schaik Publishers.
Gart, M. 1966. Labor's Rebellious rank and file. Fortune, 74(1):150-53.
Gernigon, B., Odero, A. & Guido, H. 2000. Collective bargaining: ILO standards and the
principles of the supervisory bodies. https://www.ilo.org/wcmsp5/groups/public/---ed_norm/---
normes/documents/publication/wcms_087931.pdf Date of access: 6 Jun. 2019.
Gimba, V.K. 2010. Testing the weak-form efficiency market hypothesis: evidence from
Nigerian stock market. CBN Journal of Applied Statistics, 3(1): 117-136.
Gilson, R. L. & Black, B. S. 2003. The law and finance of corporate acquisitions. 2nd Ed.
New York. Foundation.
Goetzmann, N. & Peles, N. 1993. Cognitive dissonance and mutual fund investors. The
Journal of Financial Research, 20(2): 145-158.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 146
Gorman, R. 1976. Basic text on labour law - unionization and collective bargaining.
Minnesota. West Publishing Co.
Granholm, J., & Gustafsson, P. 2017. The quest for the abnormal return: A study of trading strategies based on twitter sentiment. Umeå School of Business and Economics (Dissertation - degree) http://www.diva-portal.org/smash/get/diva2:1115366/FULLTEXT01.pdf date of access: 27 Jun. 2017.
Gräter, E. & Struweg, J. 2015. Testing weak form efficiency in the South African market.
Journal of Economic and Financial Sciences, 8(2); 621-632.
Grinold, R.C. & Kahn, R. N. 1996.The growth in active portfolio management. The Journal of
Finance, 51(3): 783–810
Grogan, J. 2014. Workplace law. 11th ed. Claremont: Juta and Company Limited.
Guduza, S. & Phiri, A. 2017. Efficient market hypothesis: Evidence from the JSE equity and
bond markets. https://mpra.ub.uni-muenchen.de/83487/1/MPRA_paper_83487.pdf Date of
access: 12 Nov. 2018.
Gultekin, M. N. & Gultekin, N. B. 1983. Stock market seasonality. International Evidence.
Journal of Financial Economics, 12(4): 469-481.
Gupta, E., Bedi, P. & Lakra, P. 2014. Efficient market hypothesis V/S Behavioural finance.
Journal of Business Management, 16(1): 56-60.
Gupta, T. 2014. Global financial crisis: causes & consequences. Journal of Business and
Management, 1(3): 16-24.
Hamermesh, D. S. 1973. “Who ‘Wins’ in wage bargaining?”. Industrial and Labour Relations
Review, 26(4):1146- 9.
Hammett, R. S., Seidman, J. & London, J. 1957. The slowdown as a union tactic. Journal of
Political Economy, 65(2):126-134.
Han, I., Kwon, S., Bae, J. & Park, K. 2012. When are integrative tactics more effective? The
moderating effects of moral identity and the use of distributive tactics. International Journal
of Conflict Management, 23(2):133-150.
Hansen, P. R. & Lunde, A. 2003. Testing significance of calendar effects. Brown University.
Department of Economics.
Harsanyi, J. C. 1956. Approaches to the bargaining problem before and after the theory of
games: A critical discussion of Zeuthen’s, Hicks’, and Nash’s Theories. Econometrica, 24(2)
144-157.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 147
Harsanyi, J. C. 1977. Rational behaviour and bargaining equilibrium in games and social
situations. Cambridge: Cambridge University Press.
Harrison, D.S. 2004. Collective bargaining within the labour relationship: In a South African
Context. North-West University. (Dissertation-Honours).
Haugen, R. 2001. Modern investment Theory. 5th Ed. New York: Prentice Hall.
Hawes, J. M., & Fleming, D. 2014. Recognising distributive or integrative negotiation
opportunities in marketing channels: The conceptualisation of adaptive negotiations. Journal
of Marketing Channels, 21(4):279-281.
Heyman, A. & Santana, L. 2018. How efficient is the Johannesburg stock exchange really?.
South African Journal of Economic and Management Sciences, 21(1): 1-14.
Hicks, J. 1932. The theory of wages. London: MacMillan.
Hilty, J. &Carnevale, P. J. 1993. Black-hat/White-hat strategy in bilateral negotiation.
Organizational Behaviour and Human Decision Processes, 55(3): 444-469.
Hirson, B. 1993. The general strike of 1922. Searchlight South Africa, 3(3):63-93.
Hirsch, B. T. & Addison, J. T. 1986. The economic analysis of unions: new approaches and
evidence. London: Allen & Unwin.
Hirschey, M. & Nofsinger, J. 2007. Investment: analysis and behaviour. 1st ed.Tata McGrow
Hill.
Hirt, G. A. & Block, S. B. 2012. Fundaments of investment management. 10th ed. New York:
McGraw-Hill.
Hofmeyr, J. 2012. The youth dividend: unlocking the potential of young South Africans.
http://us-cdn.creamermedia.co.za/assets/articles/attachments/43554_ijr_ta_2012_final.pdf
Date of access: 05 Feb. 2020.
Hyman, R. 1984. Strikes. 3rd ed. London: Fontana.
Imberman, W. (1979). Strikes cost more than you think. Harvard Business Review, 57(3), 133-138. IOL (Industrial Action Report). 2010. Annual Industrial Action Report.
https://www.gov.za/sites/default/files/gcis_document/201409/industrial-action-report-
2011revised0.pdf Date of access: 8 Jun. 2017.
IOL (Industrial Action Report). 2016. Annual Industrial Action Report International Labour
Organization 2016. World employment social outlook. International Labour Organization.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 148
http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_443500/lang--en/index.htm
Date of access: 6 Jun. 2017.
IOL (Industrial Action Report). 2017. Annual industrial action report international labour
organization 2016. World Employment Social Outlook. International Labour Organization.
http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_443500/lang--en/index.htm
Date of access: 6 Jun. 2017.
ILO (International Labour Organisation). 2015. Collective bargaining. A policy guide.
https://www.ilo.org/travail/whatwedo/instructionmaterials/WCMS_425004/lang--
en/index.htm.pdf Date of access: 15 Jan. 2019.
Israelstam, I. 2017. What is the impact of strikes for employers and employees?.
https://www.skillsportal.co.za/content/what-impact-strikes-employers-and-employees Date of
access: 14 Dec. 2019.
Jegadeesh, N. & Titman, S. 1993. Returns to buying winners and selling losers: implications
for stock market efficiency. The Journal of Finance, 48(1): 65-91.
Jensen, M. 1978. Some anomalous evidence regarding market efficiency. Journal of
Financial Economics, 6(1): 95-101
Johannesburg Security Exchange, 2019. Headline category: Indices.
https://www.jse.co.za/services/market-data/indices/ftse-jse-africa-index-series/headline Date
of access: 29 Oct. 2019.
Johnson. A. 2014. Collective bargaining- definition, characteristics, objectives.
http://www.nsgmed.com/management/collective-bargaining-definition-characteristics-
objectives/ Date of access: 14 Jul. 2019.
Jones, R. C. 1998. Why most active managers underperform (and what you can do about It).
(In Bruce, B. Enhanced Index Strategies for the Multi-Manager Portfolio. New York:
Institutional Investor).
Jonsson, R. & Radesching, J. 2014. From market efficiency to event study methodology. An
event study of earnings surprises on Nasdaq OMX Stockholm. Malardalen University
Sweden. (Thesis-Masters).
Jorge, J. & Adams, S. 2018. Industrial action in 2017: A zero-sum game?
.https://www.cliffedekkerhofmeyr.com/en/news/publications/2018/Employment/employment-
alert-13-august-industrial-action-in-2017-a-zero-sum-game.html Date of access: 06 Dec.
2019.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 149
Jurek, M. & Marszaùek, P. 2014. Subprime mortgages and the MBSs in generating and
transmitting the global financial crisis. http://fessud.eu/wp-
content/uploads/2013/04/Subprime-mortgages-and-the-MBSs-in-generating-and-
transmitting-the-global-financial-crisis_Working-Paper-40.pdf Date of access: 24/01/2020
Justiniano A., Primiceri, G. & Tambalotti, A. 2015. Credit supply and the housing boom.
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr709.pdf. Date of
access: 25 Jan. 2020.
Kartasova, J., Remeikiene, R. Gaspareniene, L. & Venclauskiene, D. 2014. Transformations
of efficient market hypothesis under the influence of behavioural finance. Mediterranean
Journal of Social Science, 5(27): 1769-1773.
Karz, G. 2010. Historical stock market anomalies. http://www.investorhome.
com/anomaly.htm Date of access: 10 April 2014.
Karz, G. 2012. The efficient market hypothesis and random walk theory.
http://www.investorhome.com/emh.htm Date of access: 22 Feb. 2018.
Katz, H. C., Kochan, T. A. & Colvin, A. 2015. The negotiations process and structures.
https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=2055&context=articles.
Katz, H. C. & Kochan, T. A. 2000. An introduction to collective bargaining and industrial
relations. 2nd ed. Boston: Irwin McGraw-Hill.
Kehinde, J. 2012. Share price change: The efficient market hypothesis and the white-noise
hypothesis dichotomy. International Journal of Humanities and Social Science, 22(2): 195-
200.
Kennen, J. 1986. The economics of strikes. (In Ashenfelter, O., & Layard, R. Handbook to
Labour Economics. Amsterdam: Oxford. p. 1091-1137).
Kenton, W. 2018. Neglected firm effect.
https://www.investopedia.com/terms/n/neglectedfirm.asp Date of access: 02 Dec. 2018.
Kenton, W. 2020. Confidence interval. https://www.investopedia.com/terms/c/confidenceinterval.asp Date of access; 24 Apr.2020.
Kerruish, M. 2017. Labour relations act: strikes.
file:///C:/Users/HP/Downloads/GUIDE%20Strikes%20(1).pdf Date of access: 31 Jul. 2019.
Khan, A. Q. & Ikram, S. 2010. Testing semi-strong form of efficient market hypothesis in
relation to the impact of foreign institutional investors’ (FII’s) investments on Indian capital
market. International Journal of Trade, Economics and Finance, 4(1); 373-379.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 150
Kliger, D. & Gurevich, G. 2014. Event studies for financial research: a comprehensive guide.
New York. Palgrave Macmillan.
Kojucharov, N., Martin, C., Martin, R. & Xu, l. 2008. The subprime mortgage crisis: irrational
exuberance or rational error?. https://www.frbsf.org/economic-research/files/Kojucharov-
Martin-Martin-Xu.pdf Date of access: 31 Jan. 2020.
Kothari, S. P., & Warner, J. B. 2006. The econometrics of event studies.
http://www.bu.edu/econ/files/2011/01/KothariWarner2.pdf Date of access: 29 Aug. 2016.
Kotze, A. 2017. FTSE/JSE Top 40 index long-term returns.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2978093 Date of access: 28 Oct.
2019.
Krikler, J. 2006. The Rand Revolt – The 1922 insurrection and racial killings in South Africa.
Johannesburg: Jonathan Ball Publishers.
Krivin, D., Patton, R., Rose, E. & Tabak, D. 2003. Determination of the appropriate event
window length in individual stock event studies.
https://www.researchgate.net/publication/228236118_Determination_of_the_Appropriate_Ev
ent_Window_Length_in_Individual_Stock_Event_Studies/link/5a8db15f0f7e9b2fac82914e/d
ownload Date of access: 13 Sep. 2019.
Kujinga, T. & Van Eck, S. 2018. The right to strike and replacement labour: South African
practice viewed from an international law perspective. file:///C:/Users/HP/Downloads/4413-
Article%20Text-28624-1-10-20181102.pdf Date of access: 23 Jun. 2019.
Kwatiah, N. 2009. The circular flow of economic activity. Economic discussion.
http://www.economicsdiscussion.net/circular-flow/the-circular-flow-of-economic-
activity/18159 Date of access: 23 Jun. 2017.
Kynge, J. 2015. Emerging market capital outflows eclipse financial crisis levels.
https://www.ft.com/content/cd212164-f429-11e4-bd16-00144feab7de. Date of access: 15
Feb. 2020.
Labour Relations Act of 1995.
Labour Relations Act 66 of 1995.
Labour Relations Act 11 of 2002.
Laing, D. 2011. Labour economics. 1st ed. New York: W.W. Norton & Company, Inc.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 151
Lakonishok, J. & Smidt, S. 1988. The effects of dividends on common stock prices: tax
effects or information effects?. Journal of Finance, 12(1): 57-67.
Latif, M., Arshad, S., Fatima, M. & Rarooq, S. 2011. Market efficiency, market anomalies,
causes: evidences and some behavioural aspects of market anomalies. Research Journal of
Finance and Accounting, 2(1) 1-14.
Le Bon, G. 1982. The crowd: a study of the popular mind. Marietta, GA: Cherokee
Publishing Company.
Le Grange, M. 1996. collective bargaining in the public sector with specific reference to
South African Police. Port Elizabeth: University of Port Elizabeth. (Thesis-Masters)
Lester, D.B. 2014. Employee participation in decision making in the mining sector. Western
Cape: University of the Western Cape. (Dissertation-Masters).
Lewicki, R., Saunders, D. M. & Barry, B. 2006. Negotiation. 5th ed. Boston. McGraw-Hill.
Lewin, D., Mitchell, O. S. & Sherer, P. D. Research frontiers in industrial relations and
human resources. Industrial relations research association. The University of Wisconsin.
Linder, C., Fischer, C., Felix, A., Scherer, V. & Warkentin, A. 2010. Investment valuation of
firms: market efficiency theory. http://uhu.es/45151/temas/unit%204_1.pdf Date of access:
3 Apr.2018.
Lipton, 2018. Gramm and the ‘Enron Loophole.
https://www.nytimes.com/2008/11/17/business/17grammside.html Date of access: 29 Jan.
2020.
Liu, L. 2013. The turn-of-the-month effect in the S&P 500 (2001-2011). Journal of Business
& Economics Research, 11(6).
Lo, A. W. 2005. Reconciling efficient markets with behavioural finance: the adaptive markets
hypothesis. Journal of Investment Consulting, 7(1): 21-44.
Lorie, J. H., Dodd, P. & Kimpton, M.H. 1985. The stock market: theories and evidence. 2nd
ed. New York. Irwin.
Lucas, F. A. 1933. The determination of wages in South Africa. South African Journal of
Economics, 1(1):49-57.
Lyddon, D. 2007. Strike statistics and the problems of international comparison. (In Van der
Velden, S., Dribbusch, H., Lyddon, D., & Vandaele, K. Strikes around the world, 1968-2005:
Case-studies of 15 countries. Amsterdam: Aksant, 24-39.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 152
Maddux, D. A. 1967. Lockouts, fresh perspective on an old controversy. The Business
Lawyer, 22(4):1095-1103.
Madubeko, V. 2011. The global financial crisis and its impact on the South African economy.
University of Fort Hare. (Masters-Dissertation).
MacKay, C. 1980. Extraordinary popular delusions and the madness of crowds. New York,
NY: Crown Publishing Group.
Mackinlay, A. 1997. Event studies in econometrics & finance. Journal of Economic
Literature, 35(1): 13-39.
Mamoria, C.B., Mamoria, S. & Gankar, S.V. 2008. Dynamics of industrial relations. India:
Mumbai.
Malinowski, M. 2013. Capital market efficiency- An event study on the incorporation of
football transfers. University of Kristianstad. (Dissertation: Bachelor).
Malkiel, B.G .1992 .Passive investment strategies and efficient markets. European Financial
Management, 9(1): 1-10.
Malkiel, B.G. 2003. The efficient market hypothesis and its critics. Journal of Economic
Perspective, 17(1): 59 – 82.
Marumoage, M. 2014. The effect of the global economic recession on the South African
labour market. Mediterranean Journal of Social Sciences, 5(23) 380-389.
Mas, A. 2008. Labour unrest and the quality of production: evidence from the construction
equipment resale market. Review of Economic Studies, 75(2): 229-258.
Massey, A. and Miller, S.J. 2006. Tests of hypotheses using statistics. Mathematics
Department. Brown University. Providence.
Maxym, D. 2000. The efficient market hypothesis and the Ukrainian stock market. National
University of Kyiv-Mohyla Academy. (Dissertation: Masters).
Mbona, M. D. 2014. A critical analysis of the law on strikes in South Africa. Kwazulu-Natal:
University of KwaZulu-Natal. (Dissertation-Law).
McConnell, R.C., Brue, L.S. & Macpherson. 2009. Contemporary labour economics. 8th ed.
New York: McGraw-Hill.
McConnell, S. 1989. Strikes, wages and private information. American Economic Review,
79(4):801-51.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 153
McGregor, B. 2018. The significance of strikes: pressure, time and change.
http://www.unw.ca/sites/default/files/mcgregor_essay.pdf Date of access: 09 Dec. 2019.
McKibbin, W. & Stoeckel, 2009. The global financial crisis causes and consequences. Asian
Economic Papers, 9(1): 54-86.
McWilliams, A. & Siegel, D. 1997. Event studies in management research: theoretical and
empirical issues. The Academy of Management Journal, 40(3): 626-657.
Michael, B. & Michael, R. 2012. Interest-based bargaining: innovating from the basics.
International Journal of Business and Social Science, 3(9):40-48.
Miller, M. & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. Journal of Business, 34(4), 411-433.
Moberek, A. & Keasey, K. 2000. Weak-form market efficiency of an emerging market:
evidence from Dhaka stock market of Bangladesh, ENBS Conference paper, Oslo, Norway.
Montoya, D. 2015. Collective bargaining.
https://rua.ua.es/dspace/bitstream/10045/48227/1/Unit%203%2C%20Collective%20Bargaini
ng%20%28last%20version%29.pdf Date of access: 14 Jun. 2019.
Morgenson, G. 2011. The bank run we knew so little about.
https://www.nytimes.com/2011/04/03/business/03gret.html Date of access: 11 Feb. 2020.
Mohr, P. & Fourie, L. 2008. Economics for South African students. 4th ed. Pretoria: Van
Schaik.
Molatlhwa, O. 2017. Num in battle to win back membership in Rustenburg platinum belt.
Timeslive. http://www.timeslive.co.za/news/south-africa/2017-06-04-num-in-battle-to-win-
back-membership-in-rustenburg-platinum-belt/ Date of access: 16 Sept. 2017.
Muhammad. M. N. & Rahman, N. M. N. A. 2010. Efficient market hypothesis and market
anomaly: evidence from day-of-the week effect of Malaysian exchange. International Journal
of Economics and Finance, 2(2): 35-42.
Nanto, D. 2009. The global financial crisis: analysis and policy implications.
https://fas.org/sgp/crs/misc/RL34742.pdf Date of access: 31 Jan. 2020.
National Treasury, 2010. Annual report 2009/2010.
http://www.treasury.gov.za/publications/annual%20reports/national%20treasury/nt%20annua
l%20report%202009-10.pdf Date of access: 05 Feb. 2020.
Nash, J. F. 1950. The bargaining problem. Econometrica, 18(2):155-162.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 154
Nash, J. F. 1953. Two-person cooperative games. Econometrica, 21(1):128-140.
Nasser, M. 2015. The efficient market hypothesis: a critical review of the literature.
file:///C:/Users/Maunmoa/Downloads/2015-TheEfficientMarketHypothesis.pdf Date of
access: 17 Apr. 2020.
Nayar, R. 1996. Indonesian labour legislation in a comparative perspective: a study of six
APEC countries. Policy Research Working Paper. The World Bank.
Nelson, M., Amoako-Adu, B. & Smith, B. 1994. Impact of labour strikes on equity values;
Canadian evidence. Journal of Economics and Business, 46():153-165.
Neuhierl, A., Scherbina, A., & Schlusche, B. 2011. Market reaction to corporate press
releases. http://ssrn.com/abstract=1556532 date of access: 27 Jun. 2020.
Neumann, G. R. (1980). The predictability of strikes: evidence from the stock market.
International Labour Relations Review, 33(4), 525–535.
Ndenze, B. 2014. Strike hit economy hard. Business Report. http://www.iol.co.za/business-
report/economy/strikes-hit-economy-hard-1720137 Date of access: 8 Jun. 2017.
Ndumo, M. E. 2005. The duty to bargain and collective bargaining in South Africa, Lesotho
and Canada: comparative perspectives. Dissertation. The University of Cape Town.
Nel, P. S. 2002. South African employment relations. 4th ed. Pretoria: Van Schaik.
Neumann, G. R. (1980). The predictability of strikes: evidence from the stock market.
International Labour Relations Review, 33(4), 525–535.
Neuhierl, A., Scherbina, A., & Schlusche, B. 2013. Market reaction to corporate press
releases. Journal of Financial and Quantitative Analysis, 48(04):1207-1240.
Ngidi, N. 2011. Market reaction to industrial actions In South Africa. Johannesburg.
University of the Witwatersrand. (Dissertation – Masters).
Nikkinen, J., Sahlstrom, P. & Aijo, J. 2007. Turn of the month and intra-month effects:
explanation from the important macroeconomic news announcements. Journal of Futures
Markets, 27(2): 105-26.
Norman, H. 1966. The Revolt on the Rand. 1st ed. Johannesburg. Blue Crane Books
Norton Rose Global. (2009). Unprotected strikes: remedies available to employers [online].
http://www.nortonrose.com/knowledge/publications/43454/unprotected-strikesremedies
available-to-employers Date of access 23 Jun. 2020.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 155
Olotuah, D. E. & Olotuah, A. O. 2016. Collective bargaining and negotiation for congenial
industrial relations in Nigeria. International Journal of Current Research, 8(9):39512-39514.
O’Meara, D. 1975. The 1946 African mineworkers’ strike and the political economy of South
Africa. The Journal of Commonwealth & Comparative Politics, 13(2):146-173.
Padayachee, V. 2010. Global economic recession: effects and implications for South Africa
at a time of political challenges.
http://www.lse.ac.uk/internationalDevelopment/20thAnniversaryConference/ImpactoftheGlob
alFC.pdf Date of access: 18 Feb. 2020.
Pantsios, A. L. & Polacheck, S. W. 2017. How asymmetrically increasing joint strike costs
need not lead to fewer strikes. http://ftp.iza.org/dp10723.pdf Date of access: 23 Jun. 2019.
Patterson, L. & Koller, C. 2011. Diffusion of fraud through subprime lending: the perfect
storm. Journal of Sociology of Crime, Law and Deviance, 16(1) 25–45.
Pettengill, G. N. & Clark, J. M. 2001. Estimating expected returns in an event study
framework: evidence from the dartboard column. Quarterly Journal of Business and
Economics, 40(3): 3 -21.
Petrusheva, N. & Jordanoski, I. 2016. Comparative analysis between the fundamental and
technical analysis of stocks. Journal of Process Management, 4(2). http://scindeks-
clanci.ceon.rs/data/pdf/2334-735X/2016/2334-735X1602026P.pdf Date of access: 3 Jan.
2018.
Pham, C. & Pham, T. V. 2017. How do corporate social responsibility announcements affect
firm value?. Norway: University of Stavanger. (Thesis – Masters).
Phiri, A. 2015. Efficient market hypothesis in South Africa: evidence from Linear and
nonlinear unit root tests. Managing global transitions. University of Primorska. Faculty of
Management Koper, 13(4): 369-387.
Phiri, A. 2015. Asymmetric cointegration and causality effects between financial
development and economic growth in South Africa. Studies in Economics and Finance,
32(4), 464-484.
Phoshoko, D. 2018. Unions’ significance in Africa’s mining industry.
http://www.africanmining.co.za/2018/09/05/unions-significance-in-africas-mining-industry/
date of access: 20 Jun.2020.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 156
Power, I. 2013. Six reasons your employees will go on strike – expert. BizNews.com.
http://www.biznews.com/thought-leaders/2013/2012/03/six-reasons-employees-will-go-stike-
expert/ Date of access: 11 Dec. 2018.
Pring, M. J. 2002. Technical analysis explained. 4th ed. New York, NY: McGraw-Hill.
Pritchard, J. 2019. Interest-only loans: pros and cons. https://www.thebalance.com/interest-
only-loans-315680 Date of access 31/01/2020.
Quercia,R. & Ratcliffe J. 2009. The community reinvestment act: outstanding and needs to
improve. https://www.frbsf.org/community-
development/files/cra_outstanding_needs_improve.pdf Date of access: 25 Jan. 2020.
Raje, S. 2019. Collective bargaining.
https://thefactfactor.com/facts/law/civil_law/labour_laws/collective_bargaining/collective-
bargaining-01/255/ Date of access: 6 Jul. 2019.
Reiff, M. 2013. Exploitation and economic justice in the Liberal capitalist state. United
Kingdom. Oxford University Press.
Reilly, F.K. & Brown, K.C. 2015. Analysis of investment portfolios and management of
investment portfolios. United Kingdom. Cengage Learning.
Rena, R. & Msoni, M. 2014. Global financial crises and its impact on the South African
economy: a further update.
https://www.researchgate.net/publication/321222183_Global_Financial_Crises_and_its_Imp
act_on_the_South_African_Economy_A_Further_Update/citation/download Date of access:
13 Fab. 2020.
Ricciardi, V. & Simon, H. 2000. What is behavioural finance?. Business, Education &
Technology Journal, 2(2): 1-9.
Rice, P. 1977. A note on the Hicks theory of strike bargaining. Journal of Institutional and
Theoretical Economics, 133(2): 236–244.
Riddell, W. C. 1980. The effects of strikes and strike length on negotiated wage settlements.
Industrial Relations, 35(1):115-120.
Rosa, J. J. 2013. The economics of trade unions: new directions. New York. Springer
Science+Business Media, LLC.
Roschkow, S. 2013. Empirical analysis of microstructural dynamics across cross-listed
stocks on the London and Moscow exchanges. London: City University (Thesis-PhD).
Effect of labour strikes on the share returns of the JSE Top 40 Companies 157
Ross, A. M. 1948. Trade union wage policy. University of California Press. Los Angeles.
Rossi, M. 2007. Calendar anomalies in stock returns: evidence from South America.
Lappeenranta University of Technology. (Thesis-Bachelors).
Roze, G. 2017. Cognitive biases.
https://school.stockcharts.com/doku.php?id=overview:cognitive_biases Date of access: 14
Apr. 2020.
Russel, P. S. & Torbey, V. M. 2002. The efficient market hypothesis on trial: a survey.
https://www.westga.edu/~bquest/2002/market.htm Date of access: 4 Apr. 2018.
Rycroft, A. Jordaan, B. 1992. A guide to South African labour law. 2nd ed. Cape Town: Juta.
Rycroft, A. & Jordaan, B. 1994. A guide to South African labour law. Cape Town: Juta.
Ryngaert, M. & Netter, J. 1990. Shareholder wealth effects for the 1986 Ohio Antitakeover
revisited: its real effects. Journal of Law Economics & Organization, 6(1), 253-262.
Sahistory, 2011. Rand Rebellion of 1922. https://www.sahistory.org.za/article/rand-rebellion-
1922 Date of access: 4 May 2019.
Sahistory, 2011. 1946 African mineworkers strike. https://www.sahistory.org.za/article/1946-
african-mineworkers-strike Date of access: 4 May 2019.
SAHO. 2012. Marikana massacre 16 August 2012. South Africa history online.
http://www.sahistory.org.za/article/marikana-massacre-16-august-2012 Date of access: 11
Jun. 2017.
SAHO. 2014. South African platinum strike: longest wage strike in South Africa. South Africa
history online. http://www.sahistory.org.za/article/marikana-massacre-16-august-2012 Date
of access: 15 Jun. 2017.
Sandhar, S. K., Nathi, N. & Holani, U. 2009. Testing semi-strong from of market efficiency: a
study of NSE. Apeejay Journal of Management and Technology, 4(1): 1-15.
Sapa.2013. Labour unrest leads to weak output growth. Available at:
http://www.sowetanlive.co.za/news/2013/02/27/labour -unrest-leads-to-weak-
outputgrowth?filter=all_comments Date of access: 17 Dec. 2019.
Sapsford, D. 1980. The theory of bargaining: A selective survey with particular reference to
union-employer negotiations and occurrence of strikes.
https://www.esri.ie/system/files?file=media/file-uploads/2012-07/MEMO134.pdf Date of
access: 23 Jun. 2019.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 158
Sapsford, D. and Tzannatos, Z. 1993. The economics of the labour market. Basingstoke:
McMillian.
Saraydar, E. 1965. Zeuthen’s theory of bargaining: a note. Econometrica, 33(4): 803-813.
Schnabel, C., Zagelmeyer, S. & Kohaut. 2005. Collective bargaining structure and its
determinants: An empirical analysis with British and German establishment data.
http://doku.iab.de/discussionpapers/2005/dp1605.pdf Date of access: 17 Jun. 2019.
Schwert, G. 2003. Anomalies and market efficiency. (In Constantinides, G.M., Harris, M., &
Stulz, R. ed. Handbook of the Economics of Finance. North Holland. p. 937- 972).
Seedat, A. 2013. The effects of strikes in the South African gold mining industry on
shareholder value. Dissertation. University of the Witwatersrand.
Selden, G. C. 1996. Psychology of the stock market, Fifth Printing. Burlington, Vermont:
Fraser Publishing Company.
Sienert, W. S., Bertrand, P. V. & Addison, J. T. 1985. The political model of strikes: a new
twist. Southern Economic Journal, 52(1):23-33.
Simelane, B. C., Lekgowa, T. & Nicolson, G. 2014. Platinum strike no more: after losing
R10.6 billion in wages, miners claim victory. Daily Maverick.
https://www.dailymaverick.co.za/article/2014-06-23-platinum-strike-no-more-after-losing-
r10.6-billion-in-wages-miners-claim-victory/#.Wb694rIjHIU Date of access: 17 Sept. 2017.
Simons, D. & Laryea, A. 2006. Testing the efficiency of selected African stock markets.
Finance India, 20 (2): 553-571.
Silzle, C. D., & Ung, M. R. 2016. The announcement effect and long-run post-Issue
performance following seasoned equity offerings: a study on the Belgian, Dutch, French and
German market between 1990 and 2012.
Shaheen, I. 2006. Stock market reaction to acquisition announcements using an event study
approach.
https://pdfs.semanticscholar.org/087b/105a097231ce3ffd1d98dec16d451a3d076a.pdf Date
of access: 24 Sep. 2019.
Sharma, A. K. 2015. Stock market anomalies: A challenge to efficient market hypothesis.
International Journal of Trends in Finance, 3(5): 222-230.
Sharma, A. 2016. Role of behavioural finance in the financial market. International Journal of
Business and Management Invention 5(1)
Effect of labour strikes on the share returns of the JSE Top 40 Companies 159
Shefrin, H. 2000. Beyond greed and fear. Understanding behavioural finance and the
psychology of investing. 1st ed. New York: Oxford University Press.
Shove, G.F. 1989. A review of the theory of wages by J.R. Hicks. (In Wood, J.C. and Wood,
R.N. (eds.) Sir John Hicks: Critical Assessments, London: Routledge. Economic and Social
Research Institute).
Slabbert, J. A. & Swanepoel, B. J. 1998. Introduction to employment relations management.
Durban: Butterworth.
Sloane, P., Latreille, P. & O’Leary. 2013. Morden labour economics. London: Routledge.
Smith, D. 2010. South African public sector strike ‘endangering lives. The guardian.
https://www.theguardian.com/world/2010/aug/23/south-africa-public-sector-strike Date of
access: 5 Jun. 2014.
Smriti, C. 2004. Collective bargaining: meaning objectives and importance.
http://www.yourarticlelibrary.com/hrm/collective-bargaining-meaning-objectives-and-
importance/35472 Date of access: 8 Jan. 2019.
Somers, G.G. 1980. Collective bargaining: contemporary American experience. Madison-WI:
Industrial Relations Research Association.
Solibakke, P. B. 2002. Calculating abnormal returns in event studies: controlling for non-
synchronous trading and volatility clustering in thinly traded markets. Managerial Finance,
28(8): 66-86. Copenhagen: Copenhagen Business School. (Thesis – Masters).
South Africa. 1996. Constitution of the republic of South Africa 1996.
Statistic South Africa, 2014. Labour market dynamics: press release.
http://www.statssa.gov.za/?p=4445 Date of access: 10 Feb. 2020.
Stein, J.G. 1989. Getting to the table: the process of international pre-negotiation, London:
The John Hopkins University Press.
Steyler, N. & Powell, D. 2010. The impact of the global financial crisis on decentralised
government in South Africa. https://www.cairn.info/revue-l-europe-en-formation-2010-4-
page-149.htm# Date of access: 03 Feb. 2020.
Stotz, O. 2005. Active portfolio management implied expected returns, and analyst optimism.
Financial Markets and Portfolio Management, 19(3):261-275.
Stout, L. 1988. The unimportance of being efficient: an economic analysis of stock market
pricing and securities regulation. Michigan Law Review, 87(3): 613-709.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 160
Stroddard, E. 2014. South Africa miners return to work after longest platinum strike. Reuters.
http://www.reuters.com/article/us-safrica-mining/south-africa-miners-return-to-work-after-
longest-platinum-strike-idUSKBN0F00DC20140625 Date of access: 17 Sept. 2017.
Suffield, L., Templer, A. & Gannon, G. L. 2019. Labour Relations, Unit 6: Negotiations.
https://www.studocu.com/en/document/university-of-the-free-state/labour-relations-
management/summaries/unit-6-negotiations/4148749/view Date of access: 23 Jun 2019.
Suresh, A. S. 2013. A study on fundamental and technical analysis. International Journal of
Marketing, Financial Services & Management Research, 2(5): 44-59.
Svejnar, J. 1980. On empirical testing of the Nash-Zeuthen bargaining solution. Industrial
and Labour Relations Review, 33(4): 536-542.
Swepston, L. 2013. Crisis in the international labour organisation supervisory system:
Dispute over the right to strike. International Journal of Comparative Labour Law and
Industrial Relations, 29(2):199-218.
Tabak, D. 2010. Use and misuse of event studies to examine market efficiency.
https://www.nera.com/content/dam/nera/publications/archive2/PUB_Use_Misuse_of_Event_
Studies_0410_final.pdf Date of access: 24 Sep. 2019.
Taylor, G. S. 2004. The internal disclosure policies of private-sector employers: The initial
look at their relationship to employee whistle blowing. Journal of Business Ethics, 12(2): 127-
136.
Taylor, J. 2008. The financial crisis and the policy responses: an empirical analysis of what
went wrong. https://web.stanford.edu/~johntayl/FCPR.pdf Date of access 01 Feb. 2020.
Temin, P. 2010. The great recession & the great depression.
file:///C:/Users/Maunmoa/Downloads/SSRN-id1537764.pdf Date of access: 25/01/2020.
Temming, M. 2014. Effects of pre-crisis capital on stock abnormal return at acquisition
announcements: The case of the Eestern European banking sector during the 2008 crisis.
Netherlands. (Thesis-Masters).
Thaler, R. 1990. Advances in behavioural finance. Journal of political economy, 98(6): 703-
730.
Thompson, L., Peterson, E., Miller, N. & Brodt, S. 1996. Team negotiation: An examination
of integrative and distributive bargaining. Journal of personality and social psychology,
70(1):66-78.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 161
Thompson, L. 1991. Information exchange in negotiation. Journal of Experimental Social
Psychology, 27(2):161-179.
Thompson, R. 1993. Empirical methods in corporate finance used to conduct event studies.
https://pdfs.semanticscholar.org/cb38/15d9dd02d6222a6077f7e5bb656f1f1a184d.pdf Date
of access: 17 Sep. 2019.
Thushara, S. & Perera, P. 2013. The month of the year effect: empirical evidence from
Colombo stock exchange. Paper delivered at the 2nd annual International Conference on
Management and Economics 2013.
https://pdfs.semanticscholar.org/b906/45cfff85fe89c8f1c21a56582fc079b54a19.pdf Date of
access: 11 Nov. 2019.
Timmermann, A. & Granger, C.W.J. 2004. Efficient market hypothesis and forecasting.
International Journal of Forecasting, 20(1): 15-27.
Titan, A. 2015. The efficient market hypothesis: review of specialized literature and empirical
research. Procedia Economics and Finance, 32: 442 – 449.
Tobak, M. 2010. The financial crisis for dummies. https://www.cbsnews.com/news/the-
financial-crisis-for-dummies/ Date of access: 25 Feb. 2020.
Towers, N. 2002. Evidence of predictability in financial markets. (In Shadbolt, J. & Taylor
J.G. eds. Neural Networks and the Financial Markets. Perspectives in Neural Computing.
Springer, London. p. 23-34).
Urbach, J. 2010. The nature causes and outcomes of strike action in SA. Moneyweb.
http://www.mineweb.co.za Date of access: 20 Jun. 2016.
Urquhart, A. 2013. An empirical analysis of the adaptive market hypothesis and investor
sentiment in extreme circumstances. England: Newcastle University Business School.
(Thesis-PhD).
Valticos, N. 2013. International labour law. Netherlands: Springer Science & Business
Media. https://books.google.co.za/books?hl=en&lr=&id=Xnl3BQA Date of access: 10 Jul.
2019.
Van Wyk, K., Botha, Z. & Goodspeed, I. 2012. Understanding South African financial
markets. Hatfield. Pretoria. Van Schaik.
Varian, H.R. 2010. Intermediate microeconomics; a Morden Approach. 8th ed. New York:
W.W.Norton & Company.
Venter, R. & Levy, A. 2014. Labour relations in South Africa. Goodwood: Oxford University
Press.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 162
Venturini, A. 1981. Strikes in Europe; an attempt at implementing the bargaining theory
model and some empirical tests: France, Italy and the United Kingdom. European University
Institute. (Thesis-PhD).
Verick, S. Unravelling the impact of the global financial crisis on the South African labour
market. http://www.ilo.int/wcmsp5/groups/public/---
ed_emp/documents/publication/wcms_122402.pdf Date of access: 05 Feb. 2020.
Vestchera, R. 2018. Zeuthen-Hicks bargaining in electronic negotiations. Journal on
Decision and Negotiation, 28(2): 255-274
Visser, W. P. 2003. The South African labour movement’s responses to declarations of
martial law, 1913-1922.
Wakelin, E. 2012. Pre-Negotiations: a necessary pre-requisite for success in diplomatic
negotiations. https://www.e-ir.info/2012/08/15/pre-negotiations-a-necessary-pre-requisite-for-
success-in-diplomatic-negotiations/ Date of access 15 Jun. 2019.
Walden, M.L. 2015. Active versus passive investment management of state pension plans:
implications for personal finance. Journal of financial Counselling and Planning, 26(2): 160-
171.
Webb, C. 2012. History of South Africa’s cheap labour economy: the 1946 Miners strike and
the Marikana massacre. https://www.globalresearch.ca/history-of-south-africa-s-cheap-
labour-economy-the-1946-miners-strike-and-the-marikana-massacre/32431 Date of access:
26 May 2019.
Wilder, J. W. 1978. New concepts in technical trading systems. Greensboro, NC: Trend
Research. Warwick, R. 2012. White-on-white violence: The 1922 Rand Revolution.
https://www.politicsweb.co.za/opinion/whiteonwhite-violence-the-1922-rand-revolution Date
of access: 18 May 201
Williams, W. E. 1989. South Africa’s war against capitalism. New York. Praeger.
Woolridge, J. 2013. Introduction to econometrics. United Kingdom. Cengage Learning
Woon, W.S. 2004. Introduction to the event study methodology.
http://users.telenet.be/webdesignsite/Bachelorproeven/Bronnen/analyst%20recom
mendations/Introduction_to_the_Event_Study_Methodology%5B1%5D.pdf Date of access:
17 Sept. 2017.
World Bank, 2018. Overcoming poverty and inequality in South Africa: an assessment of
drivers, constraints and opportunities.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 163
http://documents.worldbank.org/curated/en/530481521735906534/pdf/124521-REV-OUO-
South-Africa-Poverty-and-Inequality-Assessment-Report-2018-FINAL-WEB.pdf Date of
access: 15 Jan. 2020.
Zartman, I. W. 1989. ‘Pre-negotiations: phases and functions. (In Stein, J.G. Getting to the
Table: The Process of International Pre-negotiation, London: The John Hopkins University
Press, pp.1-17).
Zeuthen, F. 1930. Problems of monopoly and economic warfare. London: Routledge.
Zini, M. 2008. The Impact of the financial crisis on South Africa.
https://blogs.worldbank.org/africacan/the-impact-of-the-financial-crisis-on-south-africa Date
of access: 11 Dec. 2019.
Zondo, R. M. 2009. The requirement of notice of industrial action in South African labour law.
http://uir.unisa.ac.za/bitstream/handle/10500/1563/02dissertation.pdf?sequence=2&isAllowe
d=y Date of access: 18 Jul. 2019.
Effect of labour strikes on the share returns of the JSE Top 40 Companies 164
ANNEXURE 1:ETHICAL CLEARANCE
Effect of labour strikes on the share returns of the JSE Top 40 Companies 165
ANNEXURE 2: DECLARATION