A leck-G a es, J. F.; Bu , G. H.; Cleasby, J. M.
A icle
An empi ical s udy o he pe o mance o Sou h A ican
conglome a es
Sou h A ican Jou nal o Business Managemen
P o ided in Coope a ion wi h:
Uni e si y o S ellenbosch Business School (USB), Bell ille, Sou h A ica
Sugges ed Ci a ion: A leck-G a es, J. F.; Bu , G. H.; Cleasby, J. M. (1989) : An empi ical s udy o he
pe o mance o Sou h A ican conglome a es, Sou h A ican Jou nal o Business Managemen , ISSN
2078-5976, A ican Online Scien i ic In o ma ion Sys ems (AOSIS), Cape Town, Vol. 20, Iss. 1, pp. 1-6,
h ps://doi.o g/10.4102/sajbm. 20i1.932
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h ps://hdl.handle.ne /10419/218009
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S.A .J.Bus.Mgm .1989,20(1)
An
empi ical s udy
o
he pe o mance
o
Sou h A ican conglome a es
J.F. A leck-G a es, G.H. Bu and J.M. Cleasby
G adua e
School
o
Business, Uni e si y
o
Cape Town, P i a e Bag, Rondebosch, 7700 Republic
o
Sou h A ica
Accep ed
13
June 1988
~xi~ ~n inancial heo y
is
unable o explain whe he on agg ega e conglome a ion
is
bene icial o ei he
md1 1dual
s?a eholde s
o
. ~ he
econom .
Bo h ad an ages and disad an ages can be lis ed o he
conglome a on p~ocess
and_
,
s
hus an empmcal ques ion as o whe he
o
no sha eholde s eally
do
bene i
om c~nglome a on. In h s pape he long- e m p o i abili y
o
conglome a es
is
examined
in
an a emp o
de e mine whe he
o
no such sha eholde s ea n supe io e u ns on agg ega e. This
is
done
by
con as ing he
s ock ma ke pe o mance
o
a sample
o
Sou h A ican (SA) conglome a es o e a six-yea pe iod wi h he
pe o mance
o
he o e all ma ~e . In .addi ion, hei pe o mance
is
con as ed wi h ha
o
a andom po olio
o
non-congl~me a e companies. Fmally, a pseudo-conglome a e po olio was cons uc ed o each
conglome a e m such a way ha each po olio had he same asse s uc u e as i s ma ched conglome a e. The
pe o mance
o
he conglome a es was hen con as ed wi h ha
o
he pseudo-conglome a e po olio using
ma ke e u ns, e u n on asse s, and e u n on equi y. The esul s indica e ha on agg ega e, he
conglome a es signi ican ly unde pe o m non-conglome a es. This
is
consis en wi h he iew ha
conglome a ion
is
in
he in e es
o
managemen a he han ha
o
he sha eholde s.
Beskikba e inansiele eo ie kan nie e duidelik
o
die o ming an konglome a e, agg egaa beskou,
'n
posi iewe byd ae lewe aan die indi iduele aandeelhoue
o
die ekonomie as geheel nie. Beide oo dele en
nadele an konglome asie kan genoem wo d en di
is
dus 'n empi iese aag o aandeelhoue s we klik oo dcel
ek ui die p oses. Hie die s udie onde soek die lang e myn winsgewendheid an konglome a e
in
'n poging om
as e s cl
o
aandeclhoue s we be e on angs e e k y. Di wo d gedoen deu die p es asie an
'n
mons e an
Suid-A ikaanse konglome a e
op
die aandelema k e kon as ee me die ma k as geheel,
oo
'n pc iode an
ses jaa . Ve de wo d hulle p es asie e gelyk me 'n ewekansige po olio an nie-konglome aa -maa skappye.
Laas ens,
'n
pseudo-konglome aa -po olio
is
saamges el i elke konglome aa ,
op
so 'n wyse da elke
po olio diesel de ba es uk uu as die e gelykende konglome aa gehad he . Die p es asie an die
konglome a e
is
e gelyk deu middel an ma kopb engs, opb engs op ba es en opb engs op eienaa sbelang.
Die esul a e oon da agg egaa beskou, konglome a e nie so goed aa soos nie-konglome a e nie. Di
be es ig die beeld da konglome a e
in
die belang an bes uu en nie die an aandeelhoue s
is
nie.
* Co espondence add ess: G.D.I. Ba , Depa men o Ma hema ical S a is ics, Uni e si y o Cape Town, P i a e Bag,
Rondebosch, 7700 Republic o Sou h A ica
In oduc ion
Me ge s and acquisi ions ha e always played a majo
ole in he g ow h
o
bo h indi idual i ms and he
economy as a whole. By enabling success ul co po a ions
o g ow apidly, me ge s and acquisi ions assis in he
op imal alloca ion
o
economic esou ces o hose
manage s and i ms bes able o u ilize he esou ces
in
a
p oduc i e manne , he eby esul ing
in
bene i s o all
o socie y. I is, he e o e, no su p ise ha
in
a g owing
economy such as he Sou h A ican economy o e he
pe iod 1960
o
1985, a conside able deg ee
o
me ge
ac i i y has been e iden .
The op imal alloca ion
o
esou ces and he abili y o
ce ain i ms o u ilize hei asse s mo e e icien ly a e
clea and ob ious easons o he exis ence
o
bo h
ho izon al and e ical me ge s. in addi ion, a gumen s
such as di e en ial e iciencies, syne gy, ma ke powe ,
and s a egic ealignmen (Copeland & Wes on,
1983:562-568) all p o ide alid jus i ica ion o his ype
o me ge ac i i y.
Howe e , a hi d ype
o
me ge ac i i y has been
dominan in Sou h A ica
in
ecen yea s, namely
conglome a ion, which occu s when wo un ela ed
business uni s combine
o
me ge. Many possible
ad an ages which can esul om conglome a ion ha e
been sugges ed. These include in e alia, he inancial
gains esul ing om imp o ed ea nings
pe
sha e (EPS)
o he acqui ing i m (B igham & Gapenski, 1985: 857),
syne gy
in
he gene al managemen unc ion (Copeland
& Wes on, 1983: 569), isk educ ion h ough
di e si ica ion (B ealey & Mye s, 1985: 706), he
educed isk
o
inancial dis ess wi h i s accompanying
bene i o cheape deb (Lewellen,
1971:
522), and easie
access o he capi al ma ke s esul ing om he inc eased
size
o
he co po a ion (Le y & Sa na , 1970: 798).
Subsequen esea ch has shown, howe e , ha many
o
hese jus i ica ions may no be uni e sally alid and
indeed ha in many conglome a e me ge s hey may
ac ually p o e disad an ageous (B ealey & Mye s, 1985:
706). Fo example, Mye s (1976:679) has shown ha
imp o emen in EPS wi hou any
o he
e iciency
o
syne gis ic bene i s
will
no esul in imp o ed
sha eholde e u ns. Also, Galai & Masulis (1976) ha e
shown ha in he absence
o
syne gy, he educ ion in
inancial isk and cheape deb do no e en ua e.
Indeed, hey show ha he equi y
is
mo e isky as, in
essence, each se o sha eholde s mus now gua an ee
he
o he
i m's deb in addi ion o hei own deb . Thus,
hey a gue ha i
is
he bondholde s and
o he
deb
p o ide s and no he equi y holde s who ecei e he
bene i s
o
he educ ion in inancial isk. Shas i (1982)
has ex ended he wo k
o
Galai & Masulis o show ha
2
unde some condi ions he alue
o
equi y in he
conglome a e i m may be la ge han he sum
o
he
equi ies
in
he wo p e-me ge i ms, e en in he
_absence
o
syne gy. Howe e , Shas i's esul s also con i m
ha
he e a e many ci cums ances when his will no be he
case and, in he absence
o
syne gy, he alue
o
he
combined i m
will
be less han he sum
o
he p e-
me ge alues o he componen i ms.
Addi ional a gumen s agains he bene i s
o
conglome a e me ge s o he sha eholde s
o
he
acqui ing company can be made in e ms
o
Agency
Theo y (Jensen & Meckling, 1976). In e ms
o
his
heo y, an agency p oblem a ises when manage s own
only a ac ion
o
he i m. This may cause hem o ac in
hei own in e es s a he han in hose
o
he
sha eholde s. While compensa ion a angemen s in he
ma ke o manage s may o e come some
o
hese
agency p oblems (Fama, 1980), incen i es s ill exis o
manage s o
en e
conglome a e me ge s in he absence
o
syne gis ic bene i s. Fo example, Muelle (1969) has
a gued ha manage s a e mo i a ed o inc ease he size
o
he co po a ion since hei compensa ion
is
a unc ion
o
size. While his has no been empi ically alida ed in
he
US
(Lewellen & Hun sman, 1970), Naude & Hipkin
(1985) showed ha in he SA con ex , size was a mo e
signi ican p edic o
o
managemen compensa ion han
was p o i abili y. Addi ional a gumen s in a ou
o
managemen 's desi e o conglome a ion would include
he desi abili y o di e si ica ion in
o de
o educe hei
indi isible pe sonal employmen isk.
F om he abo e, i
is
appa en ha heo e ical
a gumen s can be made bo h o and agains he bene i s
o
conglome a ion om he o dina y sha eholde 's
pe spec i e. I hus emains an empi ical ques ion o
asce ain whe he ,
on
agg ega e, conglome a ion has,
ex
pos , esul ed in bene i s o he o dina y sha eholde .
This pape con ibu es o he deba e by p o iding
e idence on he p o i abili y
o
conglome a e companies
in he SA con ex o e he pe iod 1977 o 1983.
Backg ound
Nume ous s udies
o
he pe o mance
o
conglome a es
ha e been conduc ed using US da a. These s udies can
be oughly di ided in o wo g oups: hose
ha
examined
he pe o mance
o
conglome a es in e ms
o
hei
accoun ing pe o mance and
o he
ope a ing
cha ac e is ics, and hose ha examined conglome a e
pe o mance in e ms
o
s ock ma ke pe o mance.
S udies in he o me g oup ha e ocused on a iables
such as e u n on asse s, ea nings
pe
sha e, o al asse s,
deb capaci y, e c. Fo example, Reid (1968) showed
ha in he US, conglome a ion did no esul in
inc eased EPS al hough o al asse size was inc eased;
Wes on & Masingha (1971) showed ha conglome a ion
esul ed in inc eased e u n
on
asse
(ROA),
while
Meliche & Rush (1974) demons a ed ha
conglome a e acqui e s made g ea e use
o
la en deb
capaci y han did non-conglome a e acqui e s.
On
he
o he
hand, Mason & Goudzwaa d (1976) ound
ha
hei sample
o
22
conglome a es
had
signi ican ly
S.
-A . Tydsk . Bed y sl
.1989
,20(
1)
poo e
pe o mance in e ms
o
bo h
ROA
and
e u n
on
equi y
(ROE)
when
compa ed
o
unmanaged
po olios
o
simila indus y in es men s.
The
second g oup
o
s udies
examined
he
pe o mance
o
conglome a es in e ms
o
s ock
ma ke
pe o mance.
Fo
example,
Wes on,
Smi h & Sch ie es
(1972) compa ed he pe o mance
o
conglome a es wi h
ha
o
mu ual unds
o e
he pe iod 1960 -1969. They
concluded
ha
on
a isk-adjus ed basis he
conglome a es
ea ned
highe e u ns. This esul was
con i med in a la e s udy (Smi h &
Wes on,
1977).
On
he
o he
hand,
Meliche & Rush (1973)
compa ed
he
pe o mance
o
conglome a es wi h a ma ched sample
o
non-conglome a es
o e
he
pe iod
1965 -1971,
concluding
ha
he e we e
no
signi ican di e ences in
he e u ns
ea ned
by sha eholde s in
ei he
g oup.
In
a
simila ein,
Joehnk
& Nielsen (1974) ound no
signi ican di e ences when compa ing
21
conglome a es wi h a sample
o
23 non-conglome a es
o e he pe iod 1962 -1969. Finally, Mason &
Goudzwaa d (1976) ound
ha
hei
sample
o
22
conglome a es
unde pe o med
a
g oup
o
andomly
selec ed po olios ha ing simila asse s uc u es.
As can be seen om he abo e, he e idence om he
US
is
unclea as o he ac ual bene i s esul ing om
conglome a ion. E idence
ha
conglome a es ha e
bo h
highe accoun ing e u ns and s ock
ma ke
e u ns
has
been p esen ed as has e idence
o
he
con a y
(i.e.,
lowe accoun ing e u ns and lowe s ock
ma ke
e u ns).
In
his s udy,
an
a emp
is
made
o
examine
he
pe o mance
o
conglome a es in
he
SA
con ex ,
he eby enabling compa ison
o
be
made
be ween
he
SA
and US en i onmen s.
In
addi ion, he
pape
con ibu ed by es ablishing a well-ma ched pseudo-
conglome a e po olio which pe mi s
an
unambiguous
e alua ion
o
he po en ial syne gis ic bene i s
o
conglome a ion.
The
me hodology by which his
is
accomplished
is
discussed in he ollowing sec ion.
Finally, i should
be
poin ed
ou
ha
his s udy
examines he long- e m e ec s
o
conglome a ion.
I
is
he e o e no conce ned wi h
ei he
he
sho - e m
e ec s
o
ake-o e s
o
wi h me ge s in gene al.
The
as
body
o
li e a u e dealing wiih hese wo aspec s
is
well
summa ized in Jensen &
Ruback
(1983)
and
is
no
discussed u he in his pape .
Fo
esul s
on
he
sho -
e m eac ion in he Sou h A ican con ex , he
eade
is
e e ed
o
A leck-G a es, Flach & Jacobson (1988).
Me hodology and Da a
The
hypo hesis es ed in his s udy can be
s a ed
as:
Ho:
Managemen con ol con e s ad an ages
o
he
conglome a e i m
and
hence
e u n
o sha eholde s will
be
highe o conglome a e i ms
han
o non-
conglome a e i ms.
This hypo hesis
is
es ed
o e
he
pe iod
Janua y
4,
1977 o Janua y 4, 1983. This pe iod was selec ed as
i
is
easonably ep esen a i e
o
he di e en phases
o
he
business cycle.
The
s udy was es ic ed
o
companies
quo ed
on
he Johannesbu g S ock Exchange
(JSE)
o e
he en i e pe iod.
S.A .J.Bus.Mgm .1989,20(1)
Biso o (1980) iden i ied
31
companies quo ed on he
JSE as conglome a es. These
31
companies (see
Appendix
A)
comp ised he sample o conglome a es
s udied
in
his pape and a e e e ed o as he
CONGLOMERATE
g oup. The pe o mance o each
conglome a e was compa ed o ha o h ee benchma k
po olios, namely:
1.
A andomly selec ed po olio o single o dominan
p oduc companies (called he RANDOM po olio);
2.
The o e all ma ke as ep esen ed
by
he JSE
Ac ua ies Indus ial Index (called he MARKET
po olio) ; and
3.
A g oup
o
po olios whe e each po olio was chosen
o ma ch one o he conglome a e po olios
in
e ms
o asse composi ion ( called he PSEUDO-
CONGLOMERA
TE
po olio).
The andomly selec ed po olio comp ised
20
secu i ies chosen a andom om he Indus ial Sec o o
he JSE. The only es ic ions imposed on hese wen y
secu i ies we e ha hey we e con inuosly aded e e
he
six
yea s
o
he s udy and ha hey we e single
o
dominan p oduc companies. The wen y selec ed
secu i ies a e lis ed in Appendix
B.
This po olio was
cons uc ed assuming equal and in es men s
in
each o
he wen y secu i ies.
The o e all ma ke was ep esen ed
by
he JSE
Ac ua ies Indus ial Index and p o ides an indica ion o
he pe o mance o he conglome a es ela i e o he
ma ke as a whole. I should be no ed, howe e , ha his
does no p o ide an objec i e es o he hypo hesis as
he index includes bo h conglome a e and non-
conglome a e companies. Indeed, since i
is
a alue-
weigh ed index and i
is
easonable o assume ha he
conglome a e companies a e, on a e age, la ge han he
non-conglome a e companies, i ollows ha he JSE
Indus ial Index will be biased owa ds he pe o mance
o he conglome a e po olio.
The pseudo-conglome a e po olio was cons uc ed
as ollows. Fo each o he
31
conglome a es an a emp
was made o de e mine he ela i e asse sizes o he
di isions wi hin he conglome a e. Because o
di e ences
in
epo ing s anda ds, his was only possible
o
15
o he
31
conglome a es. Fo each o hese
15
conglome a es a pseudo-conglome a e po olio was
cons uc ed by choosing single
o
dominan p oduc
i ms o ep esen he di e en di isions o he
conglome a e. The weigh s assigned o each o hese
single p oduc i ms was se equal o he p opo ion o
ha di ision's asse s o he o al asse s o he
conglome a e. Thus,
15
pseudo-conglome a e po olios
we e cons uc ed o ma ch he
15
conglome a e i ms o
which asse size pe di ision was known. These
15
pseudo-conglome a e po olios indica e he e u ns ha
an in es o could ha e achie ed had he pe o med he
di e si ica ion himsel a he han elying on he
conglome a e o pe o m he di e si ica ion on his
behal .
Compa isons beween he conglome a e po olio and
he ma ke and he andom po olio we e done on bo h
3
an unadjus ed and a isk-adjus ed basis.
The
isk
adjus men was pe o med using he Sha pe (1966) isk-
adjus ed pe o mance measu e:
whe e
SP=
he Sha pe isk-adjus ed pe o mance
measu e;
Rp
= he a e age annual e u n on he po olio
in
he six-yea pe iod; and
SDP
= he s anda d de ia ion o he annual e u ns on
he po olio o e he six-yea pe iod.
Compa isons be ween he conglome a e and pseudo-
conglome a e po olios we e also made on a isk-
adjus ed basis once again using he Sha pe isk-
adjus men p ocedu e. The compa isons we e made by
examining he di e ences be ween he isk-adjus ed
e u n ea ned
by
a sha eholde in he conglome a e and
he isk-adjus ed e u n ha would ha e been ea ned by
an in es o
in
he ma ched pseudo-conglome a e
po olio. This was done o each o he
15
pai s analysed
and he hypo hesis es ed using he amilia pai ed es
o es we he he mean di e ence was di e en om
ze o.
In addi ion o compa ing di e ences
in
s ock ma ke
e u ns, he conglome a e and pseudo-conglome a e
po olios we e also examined o di e ences in wo
accoun ing measu es o e u n, namely e u n on asse s
(ROA) and e u n on equi y
(ROE).
Fo he pseudo-
conglome a e po olios,
ROA
and
ROE
we e aken as
he weigh ed a e age o he
ROA
and
ROE
o he
componen secu i ies whe e he weigh s we e once again
assigned on he basis o he di isional asse s o he
conglome a e ela i e o he conglome a e's o al asse s.
Once again, he null hypo hesis o no di e ence be ween
conglome a es and pseudo-conglome a es was es ed
using he pai ed es .
Resul s
In his sec ion, he pe o mance o he conglome a e
i ms
is
con as ed wi h ha o he h ee benchma ks
discussed
in
he p e ious sec ion, namely he ma ke
po olio, he andom po olio, and inally he pseudo-
conglome a e po olios. We begin by compa ing he
a e age annual e u n on each conglome a e wi h he
a e age annual e u n on he ma ke (JSE Ac ua ies
Indus ial Index) and a e age annual e u n on he
andom po olio. Summa y s a is ics a e p esen ed in
Table
1.
F om Table 1 i
is
appa en ha o e he pe iod
Janua y
1977
-Decembe 1983, he conglome a es
yielded lowe e u ns on a e age han ei he he ma ke
po olio
o
he andom po olio. Howe e , i
is
impo an o emphasize he ollowing poin s:
1.
The compa ison
is
being made be ween indi idual
conglome a es and po olios o secu i ies. This
accoun s o he highe a e age s anda d de ia ion in
he case o he conglome a es.
2.
In no case a e he di e ences s a is ically signi ican a
he 5% le el. In addi ion, when compa ing each
4
Table 1 Compa ison o conglome a es, andom
po olios and he ma ke
A e age e u n S anda d de ia ion
Po olio (% P.A.) o e u n s a is ic
Conglome a es
Random po olios
Ma ke
26,98
28,89
27,54
59,77
25,04
22,61
-0,16
-0,05
Table 2
Risk
adjus ed compa ison
o
conglome a es
Random po olio Ma ke
# Conglome a es # Conglome a es
Pe o mance wi h la ge wi h la ge
measu e e u ns (EX 31) z e u ns (EX 31) z
Non- isk adjus ed
12
-1,26
17
0,54
Sha pe Index 4 -4,13* 6 -2,16*
• Signi ican a he 5% le el
indi idual conglome a e wi h he andom po olio, a
signi ican di e ence
was
ound
in
only one case ou
o he
31
which
is
no mo e han would be expec ed
by
chance.
3.
Risk
has been igno ed
in
he abo e es s. I
is
pe cei able ha conglome a es a e less isky han
indi idual p oduc i ms and ha in es o s a e
p epa ed o accep he lowe a e age e u n because
o he lowe isk in ol ed.
Thus, he esul s
in
Table 1 should be in e p e ed wi h
he u mos cau ion. Table 2 p o ides a compa ison
be ween he conglome a e i ms and he andom and
ma ke po olios on a isk-adjus ed basis, using he
Sha pe isk-adjusmen p ocedu e. In his able, he
numbe o conglome a es ( ou o 31) ha ing g ea e isk-
adjus ed e u n han he andom po olio and he
ma ke po olios
was
coun ed.
Unde he null hypo hesis o no di e ence be ween
conglome a es and non-conglome a es, he coun s
would
all
be expec ed o be 15,5. Thus, he signi icance
o he esul s can be easily es ed using he no mal
app oxima ion o he binomial, i.e.,
Z =
(P
-50)/(P(lOO -P)/n)112
whe e
Z=
a s anda d no mal (0;1) andom a iable; P =
he pe cen age
o
conglome a es wi h e u n g ea e
han he compa ison po olio ( ei he andom o
ma ke ); n = he sample size (i.e. 31).
The esul s
in
Table 2 con i m he esul s
in
Table 1
in
ha , on an unadjus ed basis, he di e ences be ween he
conglome a es and he andom and ma ke po olios
a e no s acis ically signi ican . Howe e , on a isk-
adjus ed basis i
is
appa en ha he conglome a es'
pe o mance
is
s a is ically di e en om ha o bo h
he andom po olio and he ma ke po olio.
Mo eo e , he
nega i e
sign
indica es ha his di e ence
S.
-A . Tydsk . Bed y sl.
1989
,20(
)
is
in
he di ec ion o unde pe o mance. Thus, i
is
concluded ha he esul s p esen ed
in
Tables 1 and 2
indica e ha , on a e age, conglome a es unde pe o m
in
compa ison o he non-conglome a es on a isk-
adjus ed basis.
While he abo e esul
is
o in e es because i
con i ms much o he empi ical e idence om o he
exchanges such as New Yo k and London, he es s a e
weak
in
ha hey con as he pe o mance
o
indi idual
conglome a es wi h ha o po olios. Mo eo e , he
esul s a e subjec o a possible selec ion bias
in
e ms o
he andom po olio wi h espec o, o example, he
di e si ica ion o his po olio and he size
o
he sample
companies.
Fo hese easons i was decided o eexamine he
pe o mance o he conglome a es
in
compa ison o
pseudo-conglome a es. This was done o each
conglome a e sepa a ely and p o ides a s onge
s a is ical es o he ollowing easons. Fi s ly, i
o e comes many o he selec ion p oblems since each
pseudo-conglome a e po olio has a simila asse
cons uc ion o i s ma ched conglome a e. This
o e comes he p oblems
o
selec ion bias wi h espec o
indus ial sec o s. Secondly, i enables a di ec
compa ison o he e u ns a sha eholde could ha e
achie ed had he pe o med his own di e si ica ion a he
han le he di e si ica ion o he managemen o he
conglome a e. I should be no ed ha his esul s
in
a
sligh bias
in
a ou
o
he conglome a es
in
ha i
assumes ha he deg ee and ype o di e si ica ion he
in es o desi ed we e exac ly he same as hose ac ually
implemen ed
by
he managemen o he conglome a e.
Finally, he use o a ma ched pai design allows o he
mo e powe ul pai ed es app oach o be used
in
he
signi icance es s.
The esul s o he compa ison be ween he
conglome a es and he pseudo-conglome a e po olios
a e summa ized
in
Table 3. This able p o ides a
compa ison o he pe o mance
o
conglome a es on
bo h a ma ke e u ns basis and on he basis
o
wo
accoun ing measu es
o
e u n, e u n on asse s and
e u n on equi y.
The esul s p esen ed
in
Table 3 indica e ha (a he
10% le el o signi icance), he pseudo-conglome a e
po olios p o ide g ea e ma ke e u n han hei
Table 3 Compa ison
o
conglome a es wi h pseudo-
conglome a es
Pe o mance measu e
Ma ke e u n
Re u n on asse s
Re u n on equi y
• Signi ican a 10% le el
b Signi ican
a
1 % le el
alue Di ec ion o di e ence
-1,80" Pseudo-conglome a es
supe io
-5
,01
b Pseudo-conglome a es
supe io
-3
,85b
Pseudo-conglome a es
supe io

S.A .J .Bus.Mgm .1989,20(1)
ma ched conglome a es. Since ma ke -de e mined
e u n is he p ima y conce n
o
sha eholde s, his
p o ides s ong e idence agains he bene i s
o
conglome a ion. As such, hey se iously ques ion he
alue
o
conglome a ion
in
he SA con ex om he
o dina y sha eholde s' pe spec i e.
I
is
some imes a gued ha s udies such
as
he abo e
do no p o ide an adequa e es because many
sha eholde s may ha e a longe ime ho izon han, o
example, he
six
yea s s udied in his s udy. P oponen s
o
his iew a gue ha i one examines he longe e m
bene i s
o
conglome a ion, one
will
e en ually ind
highe e u ns due o he mo e e icien use
o
asse s and
he g ea e deb capaci y
o
conglome a es. These
should be e lec ed by highe e u n on asse s (u iliza ion
e iciency) and e u n on equi y. Al hough we do no
ag ee wi h he a gumen s o many easons which a e
well documen ed
in
he li e a u e ( o example, B ealey
and Mye s, 1985), he abo e me hodology p o ides a
eady es o hese asse ions. Acco dingly, he ma ched
conglome a es and pseudo-conglome a es we e
compa ed
on
a e u n on asse s and e u n on equi y
basis. These esul s a e p esen ed in he second and hi d
ows
o
Table 3. As can be seen, he hypo hesis
o
no
di e ence be ween conglome a es and pseudo-
conglome a es
is
e en mo e s ongly ejec ed han
in
he
case
o
ma ke e u ns. Once again, he di ec ion
o
ejec ion indica es ha he pseudo-conglome a es
p o ide e u ns supe io o hose
o
he conglome a e
companies
on
he basis
o
ROA
and
ROE.
Conclusions
In his pape , he long- e m p o i abili y
o
conglome a es has been examined bo h in e ms
o
accoun ing and ma ke - ela ed measu es
o
pe o mance.
The
esul s p esen ed clea ly indica e ha
conglome a es
in
he Sou h A ican con ex ha e
signi ican ly unde pe o med in compa ison
o
non-
conglome a e companies in e ms
o
bo h bases
o
measu emen .
I
is, he e o e, concluded ha
conglome a ion pe se
is
no
in
he long- e m in e es s
o
Sou h A ican sha eholde s.
Why hen, does conglome a ion con inue o be a
ea u e
o
he SA capi al ma ke s? The esea ch
p esen ed in his
pape
does no allow a de ini i e
answe o his ques ion as i me ely p o ides e idence
o
subop imal pe o mance by he conglome a e g oup.
Howe e , hese esul s a e consis en wi h he agency
heo y a gumen s ha conglome a ion, while no in he
o e all in e es s
o
he sha eholde s,
is
in he in e es s
o
managemen . By he p ocess
o
conglome a ion,
manage s inc ease he asse base unde hei con ol,
he eby possibly p o iding non- inancial bene i s such as
s a us, powe , e c., o hemsel es. In addi ion, Naude &
Hipkin (1985) ha e shown ha managemen
compensa ion may be mo e highly co ela ed wi h i m
size han wi h p o i abili y. Consequen ly,
conglome a ion can esul in bo h non- inancial and
inancial bene i s
o
manage s. Thus, manage s ha e
clea mo i es o inc easing he size o hei companies.
5
The
esul s in his pape indica e ha hey may
do
so
o
he de imen
o
he common s ockholde s.
I
mus be s essed, howe e , ha his
is
only
one
possible explana ion
o
he empi ical e idence p esen ed
in his pape . Se e al
o he
explana ions a e possible. In
pa icula , i
is
possible ha he pe iod s udied was oo
sho o p o ide a de ini i e es
o
he alue
o
conglome a ion. Al e na i ely i
is
easible ha because
i ms compe e o e icien manage s
in
he o e all
pe sonnel ma ke , sha eholde s may be p epa ed
o
pay
addi ional compensa ion o he mos e icien manage s
in o de o a ac hem o he co po a ion. Pa
o
his
compensa ion may be
in
he o m
o
allowing he i m
size o inc ease (Fama, 1980).
O
cou se, his doesn'
ully explain why such sha eholde s should be p epa ed
o accep lowe e u ns han hey could ea n by doing
hei own di e si ica ion. The only a ional explana ion
would be ha hey belie ed ha
in
he longe e m
(g ea e han he
six
yea s co e ed in his s udy) hey
would indeed be compensa ed in e ms
o
s ock ma ke
e u ns
as
a esul
o
hei in es men in such highly
e icien manage s.
Finally, i
is
ob ious ha he esul s p esen ed in his
pape only p o ide an ini ial examina ion
o
he alue
o
conglome a ion in he SA con ex . Much addi ional
esea ch
is
necessa y be o e many
o
he ques ions aised
abo e can be answe ed.
Acknowledgemen
The au ho s wish o acknowledge he inancial assis ance
ende ed
by
he Human Sciences Resea ch Council
owa ds he cos s
o
his esea ch. Opinions exp essed
and conclusions d awn a e hose
o
he au ho s and a e
no o be ega ded as hose
o
he HSRC.
The
au ho s
also wish o acknowledge he assis ance and aluable
commen s
o
G.D.I.
Ba and R.C. an den
Hone
in
he p epa a ion
o
his pape .
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Appendix
A The sample
o
conglome a es
Abe com In es men s L d.
Ad anced Holdings L d.
Adcock Ing am L d.
Amalgama ed In es men Co po a ion L d.
Anchusa Holdings L d.
Anglo Ame ican Indus ial Co po a ion L d.
S.-A .Tydsk .Bed y sl.1989,20(1)
Appendix A Con inued
Anglo-T ans aal Indus ies L d.
Ba low Rand L d.•
Bonusko Bpk. •
Blue Ci cle
L d.•
B omain Holdings
L d.•
Ca an
L d.••
Cu ie Finance Co po a ion L d.
Di oyal In es men s L d.
Fede ale Volksbeleggings Bpk. •
Hule 's Co po a ion
L d.•
Indus ial and Comme cial Holdings
G oup
L d.
Lucem Holdings
L d.•
O ens one In es men s L d.
Pica di Beleggings Bpk. •
P emie Indus ies L d.
P o ea Holdings L d.
The
Remb and
G oup
L d.
Rennies Consolida ed Holdings L d.
Ren mees e beleggings Bpk.
Sea del In es men Co po a ion L d.
C.G. Smi h L d.
The Sou h A ican B ewe ies
L d.•
Suide land De elopmen Co po a ion L d.
The Tongaa
G oup
L d.•
The Unisec G oup
L d.•
W. & A. In es men Co po a ion L d.
• Indica es inclusion in he pseudo-conglome a e compa ison
• • Included
in
pseudo-conglome a e compa ison
bu
no
in
o he
compa isons
Appendix
B The andom po olio sample
I. Al ech
2.
B adlows
3. Claude Neon
4. Cu ie Mo o s
5.
Elle ine
6. F ase s
7. Gene al Op ic
8.
Gen ec
9.
G oup 5
10. Gypsum
11. I.C.S.
12. Kanhym
13. Lion Ma ch
14. Me al Box
15. O.K. Bazaa s
16. Piccan
17. P e o ia Po land Cemen
18. Sa icon
19.
T.E.J.
20.
Willem Ba ends