The impact of the Johannesburg Stock Exchange's alternative exchange on listed firm's performance and entrepreneurship

Abstract

This study’s primary objective is to determine the impact that the JSE’s AltX has on listed firm’s performance and the level of entrepreneurship in South Africa. Its secondary objective was to quantitatively determine whether there exists a link between increased capitalisation of the AltX and the expansionary drive of listed firms, as well as to ascertain the impact that the listing requirements of the AltX has on the broad-based black economic empowerment (B-BBEE) score performance of listed firms. In order to achieve the methodological objectives of this study, mixed methods was used to measure this phenomenon which led to the development of an integrated model for the JSE’s AltX listed firms, as well as for intending small and medium enterprises (SMEs) that might want to list. Accordingly, the researcher employed pragmatic research paradigm and conducted two types of analysis. Firstly, quantitative analysis which is based on primary and secondary data was conducted followed by a qualitative analysis based on a qualitative semi-structured case study. It was found that the JSE's AltX positively impacts on the performance of listed firms and the level of entrepreneurship in South Africa. Most especially as increased capitalisation levels was positively linked with the expansionary drive of these registered firms. And that the listing requirements of the AltX had a net positive effect on the B-BBEE score performance of these companies. Practically, by virtue of being listed many SMEs would generate enough capital and buzz to facilitate their expansion. This study also contributes to new knowledge by recommending that the JSE's AltX develop a custom-made business-friendly targeted listing procedure. Just as policy makers are encouraged to create a one-stop-shop investment portal which would streamline the activities of government agencies for the benefit of Small, Medium and Micro-Enterprises (SMMEs) in South Africa. The researcher proposes that future research would extend beyond South Africa, across the SADC, Africa or even across continents. Besides, a 3-level multi-level modelling (MLM) equation testing procedure was conducted to test the efficacy of firm listing, using IBM SPSS Statistics version 27 statistical software package. Quantitative analysis, comprising: quantitative analysis of primary data from survey questionnaire (investigated whether location or sector impacts on firm performance), and quantitative analysis of secondary data (determined if the number of both SMMEs and the JSE's AltX listed companies impacts on firm performance and the level of entrepreneurship in South Africa). Using participants' sample from sixty JSE's AltX listed firms who were either CEOs/directors/top management team members, and ten interviewees (i.e. for the qualitative analysis, comprising: qualitative analysis of primary data from semi-structured case study), this study's triangulated findings and conclusions became more valid and reliable. Evidence provided by the ensuing econometric analysis suggests that: Firstly, firms that are listed on the JSE’s AltX were more likely to perform better than their unlisted peers (i.e. both formal and informal SMMEs). Thus, this helped listed firms to improve their company’s performance, corporate profile, loan amount and profits, as well as assisted in securing a major investor for the firm. Besides, it was observed that the variation in the dataset occurred within sectors between the JSE's AltX variable parameters at Level 1. This positively impacted on the AltX market capitalisation, total number of employed personnel, foreign assets, as well as the total equity and liabilities of the JSE's AltX listed firms. Secondly, listing on the JSE’s AltX was found to be positively associated with the level of entrepreneurship in South Africa. There was evidence that listing boosted the level of creativity and innovation in South Africa, as well as encouraged entrepreneurial risk taking, and also increased business confidence levels. Furthermore, it was observed that the variation in the dataset occurred within sectors between the JSE's AltX variable parameters at Level 1. Likewise, the turnover, AltX market capitalisation, the total investments and loans, as well as the earnings yield of the JSE's AltX listed firms were positively linked with the level of entrepreneurship in South Africa. Thirdly, the rising share capitalisation of listed firms on the AltX was linked to an increased likelihood for company expansion. In addition, listing led to international firm exposure and industry position consolidation. However, the corporate bonds and equities sold by these listed firms on the AltX did not guaranty the long-term sustainability of their business. Also, it was observed that the variation in the dataset occurred within sectors between the JSE's AltX variable parameters at Level 1. Correspondingly, the qualitative case analysis indicated that listing on the AltX led to a high yield but with lower multiples, higher return on equity, joint ventures and acquisitions, share ownership dilution, debt reduction, more capital disbursement and risk diversification, and it also led to firm growth and economic development, which was good. Fourthly, higher compliance requirements for listing on the AltX, increased the likelihood that there would be improvements in quoted B-BBEE performance score. Equally, the implementation of good governance systems like the B-BBEE by listed firms made them more attractive to stakeholders. On the other hand, when the B-BBEE score of these listed firms becomes the regressand, listing had an undesirable effect on their value added, patents and trademarks in relation to company performance. This study therefore opens-up a new vista for examining the performance of listed firms in South Africa, which is a significant contribution to new knowledge.