The Effects of Labour Strikes on the Share Returns of JSE Top 40 Companies.

Labour strikes are a platform that enables workers to demonstrate their disagreement and/or their dissatisfaction towards their employer, concerning 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 occurrence of global financial crises of 2008/2009 exposed South Africa's well-hidden vulnerabilities of poverty, unemployment and inequality and resulted in a significant rise in the number of labour strikes. Therefore, the article analyses the effect that labour strikes between 2010-2017 have on the share return of companies that were list on the Johannesburg securities exchange (JSE) index during this timeframe. The results indicate that resolve of protected and unprotected labour strikes affects the share return of JSE Top 40 companies. From an investment perspective, it can be concluded that labour strikes can have severe effects on the share returns of companies listed on a stock exchange. Thus, influencing investor confidence in those companies experiencing the labour strike. Objectives The main objective of this article is to determine the effects of protected and unprotected labour strikes, collectively, on the share return of JSE Top 40 companies. The resolve of labour strikes results in the disruption of the day-to-day operations of a firm, loss in market share and subsequently profitability of a firm. The article aims to bridge the gap in academic knowledge on the effects of labour strikes have on the share return of companies list on the JSE Top 40 index. Prior Work Researchers have in the past decade examined the effects of labour strikes at length, focusing on the effects of labour strikes on the shareholder value, equity returns, economic performance, and investor confidence of affected companies. Various methods of testing including regression analysis, event study methodology and accounting-based ratio analysis were employed. Approach To obtain the research objective, the article made use of a literature review and an empirical study. Secondary data from INET BFA IRESS, the annual industrial action report, newspaper articles and news feeds were used to achieve the articles' empirical analysis. An event study methodology was employed to analyse the secondary data over an event window of 61 days. Thirty days before and after the day of the announcement of the strike, the 1 day of the strike considered day zero. To achieve the articles' objectives a trend analysis, z-statistical significance test, a periodic analysis of cumulative average abnormal return (CAAR) and summary significance test on the effects of protected and unprotected labour strikes on the share return of JSE Top 40 companies was conducted. Results The trend analysis revealed that the share returns of affected JSE Top 40 companies deteriorate at the start of the wage negotiations, continuing past the day of the announcement and the commencement of the strike. The share returns of affected companies rebound at day 5, taking on a growth trajectory throughout the remainder of the event window. At a 95 per cent confidence interval and 1.96 critical value, the article rejects the null hypothesis with a z-statistic of - 2.46, making the statement true for the alternative hypothesis. This affirmed that the resolve of protected and unprotected labour strikes affects the share return of JSE Top 40 companies. Implications The article's findings provided knowledge on the effects that protected and unprotected labour strikes have on the share return of JSE Top 40 companies. Due to the unavailability of settlement dates of labour strikes. The article was unable to analyse the effects of short and long term strikes on the share return of affected companies. This further prevents the research from observing at what point do the share returns of affected companies return to equilibrium. The limitation in the lack of data creates the opportunity for further possible research in areas of interest. Value The key contribution of the article is to bridge the gap in financial markets' understanding of the effects of protected and unprotected labour strikes, collectively, on the share return of JSE Top 40 companies. The article's findings intend to assist investors and portfolio managers to optimise their share returns during periods of labour strikes. The article further raises consciousness of the impact of wage negotiations on companies and implore bargaining agents to employ an integrative approach when engaging in wage negotiations. [ABSTRACT FROM AUTHOR]