Pierre Erasmus

Stellenbosch University, Business Management, Faculty Member

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Papers by Pierre Erasmus

Sustainable Thematic Investing: Identifying Opportunities Based on an Analysis of Stewardship Reports

Sustainability, May 22, 2023

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The relative and incremental information content of the value-based financial performance measure Cash Value Added (CVA)

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2008

This study investigates the relationship between the measure Cash Value Added (CVA) and market-ad... more This study investigates the relationship between the measure Cash Value Added (CVA) and market-adjusted share returns, and compares it to that of Economic Value Added (EVA), residual income, earnings and operating cash flow. Relative information content tests suggest that earnings have the strongest relationship with share returns. The results from the incremental information content tests indicate that although the CVA and EVA components provide statistically significant information content beyond that provided by residual income, the level of significance is low.

An assessment of the accuracy of financial researchers' estimates of the replacement value of a firm's non-current assets

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2010

Earnings, dividends and cash flow volatility: A South African perspective

Corporate Ownership and Control, 2010

This study investigates the relationship between share prices and the volatilities of earnings pe... more This study investigates the relationship between share prices and the volatilities of earnings per share, dividends per share and cash flow per share. The relationships between the three measures and share prices are also investigated. The results indicate that the volatilities of earnings and dividends have a significant relationship with share prices, while the volatility of cash flows does not have a statistically significant relationship. The results also indicate a significant positive relationship between share prices and earnings per share, dividends per share and cash flow per share.

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Working capital management and profitability : the relationship between the net trade cycle and return on assets

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2010

The combined effect of changes in the South African business environment on capital structure

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2011

The management of a firm's capital structure is an important aspect of the financial manager&... more The management of a firm's capital structure is an important aspect of the financial manager's responsibilities. Various factors in the business environment can have an influence on a firm's financing decisions. This study considered the impact of various economic and firm-specific factors on the finance decisions of firms. A census of Johannesburg Securities Exchange (JSE Ltd) listed industrial firms was considered over the period 1989 to 2008. Profound changes occurred in the South African business environment during the study period, thus providing the ideal capital structure research environment in a developing country. A time-series cross-section regression procedure with one-period lags was used. The results of this study indicate that the effects of economic changes on capital structure are often indirect and only seen after a period of time. It was also noted that the trade-off and pecking-order capital structure models are not mutually exclusive. Over time, mana...

Investor short-termis and managerial myopia : irrational behaviour or human nature

The qualities most useful to ourselves are, first of all, superior reasons and understanding, by ... more The qualities most useful to ourselves are, first of all, superior reasons and understanding, by which we are capable of discerning the remote consequences of all our actions; and, secondly, self-command, by which we are enabled to abstain from present pleasure or to endure present pain in order to obtain a greater pleasure in some future time.

format_quoteShort-termism leads to under-saving, over-borrowing, and reduced long-term investment, undermining economic growth.format_quote

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Financial Management: Turning Theory into Practice

OUP Catalogue, 2014

Financial management: Turning theory into practice is an accessible and principles-based financia... more Financial management: Turning theory into practice is an accessible and principles-based financial management textbook for undergraduate and Honours Accounting students. The book takes cognizance of changes in the economic environment and their implications for the role of financial management and the teaching of the subject. Financial management follows the SAICA syllabus for financial management but also takes the skills required by the CIMA syllabus into account. It acknowledges the intent behind the SAICA Competency Framework to develop problem-solving, critical thinking and ethical business leaders, but at the same time provides academic and financial literacy support to students. This guided approach serves to produce both technically competent students as well as students who will be capable financial leaders in the workplace. Financial management supports students in the following ways: - Opening case studies engage student interest and illustrate why the principles that wil...

The influence of firm characteristics and economic factors on capital structures : a comparison between book value and market value leverage

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2012

The goal of maximising shareholders' wealth implies that financial managers must structure a ... more The goal of maximising shareholders' wealth implies that financial managers must structure a firm's financing sources in an optimal manner. Various factors can have an effect on these financing decisions. The objective of this study was to investigate the effect of firm characteristics and economic factors on the capital structures of South African listed industrial firms. Panel data methodology was applied to a sample of 280 firms, covering the period from 1995 to 2008. The results indicate that some of the identified firm characteristics and economic factors do have an effect on capital structure formation. The combined effect of these factors is even stronger when their values for the preceding year are included. Management therefore appears to take some of the factors into consideration when making capital structure decisions. Furthermore, capital structure adjustments are, in some cases, introduced over time by incorporating both the current and past values of these fac...

Factors that affect South African real estate price growth

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2011

South African real estate prices have experienced some degree of variability during the past 30 y... more South African real estate prices have experienced some degree of variability during the past 30 years. The ability to identify indicators that could be used to predict changes in the residential real estate price cycle would aid managers, industry specialists and investors to make informed decisions about the timing of real estate investments. The objective of this study was to identify the relevant indicators of residential real estate prices by considering existing research studies on this topic and assessing their suitability to be used as predictors of future price levels by means of an ordinary least square regression model. The results of this study indicate that eight of the indicators identified from a survey of the literature provide either good or acceptable predictions of future residential real estate cycles. The major contribution of this study is, therefore, that financial decision-making could be improved by focusing on these predictors of future residential real esta...

The relationship between working capital management and profitability for South African listed industrial firms

EVA and CFROI : a comparative analysis

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2006

Enterprises endeavouring to maximise shareholder value often employ Net Present Value (NPV) techn... more Enterprises endeavouring to maximise shareholder value often employ Net Present Value (NPV) techniques in an attempt to achieve their financial objectives. Since Economic Value Added in monetary terms (EVAmon), Economic Value Added in real terms (EVAreal), and the measure Cash Flow Return on Investment (CFROI) focus on the maximisation of NPV, their implementation could contribute to the creation of shareholder value. In this study, these measures are critically compared. Firstly, the advantages and the disadvantages of the methods are discussed briefly. Secondly, the assumptions of the model developed to compare the measures, and the calculations to be made in order to arrive at meaningful conclusions are highlighted. The study finds that EVAmon is not always suited for use as a financial performance measure. The measures EVAreal and CFROI provide very similar results in the majority of cases investigated. The study identifies those situations where conflicting results are obtained...

Measuring corporate governance in South Africa : developments, concerns and suggestions

Southern African Journal of Accountability and Auditing Research, 2016

A large and increasing number of corporate governance guidelines have emerged on the African cont... more A large and increasing number of corporate governance guidelines have emerged on the African continent over the last two decades. Limited research has, however, been conducted to comprehensively assess the corporate governance policies and practices of listed African companies. The researchers hence compiled a unique corporate governance database for 230 companies that were listed on the Johannesburg Stock Exchange over a nine year study period. Attention was given to both disclosure and acceptability dimensions for nine corporate governance categories. Positive developments were noted for the director-related categories, while reporting on sustainability and corporate culture aspects showed less improvement. A number of unacceptable practices were also observed. Enhanced training for directors, managers and auditors is recommended to improve their understanding of their roles and responsibilities. Furthermore, the media can encourage more active corporate governance-related dialogu...

Sustainable company growth as measured by cash flow

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2013

This study focuses on the sustainable growth planning of firms based on cash flow constraints - a... more This study focuses on the sustainable growth planning of firms based on cash flow constraints - a distinct variation on traditionally-published studies on sustainable growth that are based on income statement and statement of financial position variables. The traditional concept is useful for capital-intensive firms but less useful for working-capital-intensive firms, especially those with long working capital cycles. Such firms have to monitor cash from operating activities (CFO) rather rigorously. Considering sustainable growth from this cash flow angle is rare in the literature. The present study compares and builds on two of the few published examples: the self-financeable growth (SFG) rate proposed by Churchill and Mullins (2001), and the cash flow sustainable growth rate (CFSGR) proposed by Hamman (1996). The study demonstrates that by calculating a specific break-even growth point in the case of the CFSGR, a more accurate growth rate is estimated than with the SFG rate, which...

International Business Valuation

International business valuation has become a vital part of today’s international corporate finan... more International business valuation has become a vital part of today’s international corporate finance activities. Within the scope of continued globalization, financial experts face the perpetual challenge of measuring country-specific risks and including these risks in valuation models. This book is based on the fundamental principle of traditional business valuation and demonstrates how companies and business units are to be assessed outside their domestic markets. It presents different approaches of modelling a country risk premium as developed by investment banks and auditing companies and explains how an international corporate assessment is being conducted using South Africa as an example of an emerging/high growth market.

The effect of perceptions of corporate identity and corporate social responsibility practices on investment intention

Journal of Economic and Financial Sciences, 2021

Porter and Kramer (2011) also emphasised that investing in social responsibility can result in sh... more Porter and Kramer (2011) also emphasised that investing in social responsibility can result in shared value creation for several stakeholders, including investors, consumers and employees. A growing number of companies around the globe are acknowledging the benefits of corporate social responsibility (CSR) and invest in such activities to, inter alia, generate financial returns, cultivate a favourable reputation and improve employee productivity (Dowling & Moran 2012). Orientation: Given the growing importance of sound corporate social responsibility (CSR) and considerable corporate investment in such activities, it is essential to understand the perceived impact thereof on stakeholder behaviour. Research purpose: As young individuals are particularly passionate about social responsibility, the effect of their perception of corporate identity (corporate values and corporate expertise) and CSR practices (relational, moral and discretionary actions) on their investment intention was investigated within an emerging market context. Motivation for the study: Previous researchers mainly focused on the effects of CSR on consumers' intention to purchase products. Limited research has been conducted to understand the effect of CSR on decisions made by other key stakeholders, including investors. Research approach/design and method: Based on the theory of planned behaviour, a consumer behaviour-based dual-process model was adapted and tested in the investment context. An electronic questionnaire was distributed to potential young investors in the country to determine the effect of their perceptions of the CSR practices of a well-known South African financial company (Nedbank) on their intention to invest. The 1 649 responses were assessed through partial least squares structural equation modelling. Main findings: The adapted model was deemed reliable and valid in the investment context. Discretionary and relational CSR practices had more predictive relevance towards the corporate values dimension than the corporate expertise dimension of corporate identity. Moral CSR practices predicted the perception of both dimensions, which, in turn, influenced investment intention. Practical/managerial implications: Focus should be placed on communicating moral CSR practices, as it had a stronger prediction value (than discretionary and relational CSR practices) towards potential investors' perceptions of the corporate expertise and values dimension of corporate identity which, in turn, strongly predicted investment intention. Contribution/value-add: This study makes a methodological contribution, as a dual-process model accounting for corporate identity and a range of CSR practices, based on consumer behavioural constructs, was applied in the context of investment decision-making within an emerging market.

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Assessing the business case for environmental, social and corporate governance practices in South Africa

South African Journal of Economic and management Sciences, 2019

Background: By focusing on sustainable financial and environmental, social and corporate governan... more Background: By focusing on sustainable financial and environmental, social and corporate governance (ESG) returns, companies and investors can do well by doing good. Despite growing interest in sustainable corporate practices, limited ESG-related research has been conducted in South Africa. Previous researchers have mainly focused on corporate governance. All three ESG aspects should, however, be addressed to ensure corporate sustainability. It is possible that the consideration of a composite ESG measure can conceal varying levels of consistency in the individual aspects. Aim: The main objective was to investigate the relationship between ESG and corporate financial performance (CFP) measures. Setting: Firms listed on the Johannesburg Stock Exchange between 2011 and 2016. A total of 66 firms were considered from six sectors. Methods: Data for the sample (359 firm-year observations) were analysed by conducting panel regressions. In line with international research, ESG was considered as the independent variable, while eight measures of CFP were individually considered as the dependent variables. Composite and individual ESG disclosure scores were obtained from Bloomberg. The respective accounting-based, market-based and value-based CFP measures were sourced from IRESS. Results: Two main trends emerged from this study. The majority of the significant relationships identified between variables were only observed: (1) once the composite ESG disclosure score was disaggregated and (2) when a distinction was made among sectors. Conclusion: The empirical evidence suggests that ESG aspects are not homogeneous across sectors. Firm leaders should hence employ a differentiated approach to address the most important risks relevant to their operating environments.

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Does investing in sound corporate governance pay? A South African study

South African Journal of Business Management, 2017

Despite increased recognition of the importance of sound corporate governance practices in emergi... more Despite increased recognition of the importance of sound corporate governance practices in emerging markets, previous researchers reported inconclusive evidence on the association between corporate governance and financial performance. Authors that predominantly focused on board-related variables might, however, have failed to reflect the complex nature of corporate governance. The financial performance measures employed in the majority of previous studies also ignored the potential risk-reducing benefits that sound corporate governance could hold for emerging market firms. The purpose of this article was thus to investigate the relationship between a comprehensive measure of corporate governance and the risk-adjusted performance of selected South African companies. A unique corporate governance database was compiled by conducting content analysis on the considered companies’ annual reports over the period 2002 to 2010. Aspects related to nine corporate governance categories were ta...

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The influence of dividend yield and dividend stability on share returns: Implications for dividend policy formulation

Journal of Economic and Financial Sciences, 2013

The relevance of the dividend decision has been a contentious issue in corporate finance research... more The relevance of the dividend decision has been a contentious issue in corporate finance research, partly due to contradictory views reported in existing literature. When faced with the dividend decision, management should understand its impact on shareholder value maximisation. This paper investigates the influence of the dividend decision on share returns for a sample of firms listed on the JSE from 1990 to 2010. Firms are allocated to portfolios based on dividend yield and dividend stability, and risk-adjusted abnormal returns for these portfolios are estimated. Results indicate that share returns were influenced not only by dividend payments levels, but also by the stability of these payments over time. The nature of a firm’s dividend decision could therefore have an effect on its share return. Although these results contribute to understanding the dividend characteristics that are relevant to investors, future research should investigate different types of dividend policies in ...

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Advances in the corporate governance practices of Johannesburg Stock Exchange companies

Southern African Business Review, 2019

Since the 20th century, corporate governance mechanisms have been developed globally to curb the ... more Since the 20th century, corporate governance mechanisms have been developed globally to curb the negative effects of the agency problem. South Africa was a pioneer with the publication of the first King Report on corporate governance in 1994. Given the paucity of research on corporate governance in the country, the researchers set out to investigate the corporate governance practices of 230 companies listed on the Johannesburg Stock Exchange over the period 2002 to 2010. Annual corporate governance scores were compiled by means of content analysis of the sample companiesâ€™ annual reports. The empirical findings revealed an increasing compliance trend towards 2010. Although the sample companies tended to improve the disclosure of their corporate governance practices over time, their practices were not per se acceptable (where acceptability implies meeting the King II recommendations). Inexperienced directors and managers might benefit from more training to enhance their understandin...

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