The impact of black economic empowerment on the performance of listed firms in South Africa

• BEE shows a small positive impact on firm turnover, but no effect on profits. • Its effect on labour productivity is neither causal nor robust. • BEE effects are less robust in a more homogenous scorecard sample. • Larger JSE-listed firms drive the positive turnover effects of BEE. • Lower compliance costs and focus on key subscores can improve BEE effectiveness. Black Economic Empowerment (BEE) is a policy that aims to empower previously disadvantaged individuals and decrease racial economic inequality in South Africa. As the program puts reformation pressure on firms, it might strongly influence firm performance. This article examines how BEE affects turnover, profits, and labour productivity of firms listed on the Johannesburg Stock Exchange (JSE). We use an extensive dataset covering a major share of listed firms between 2004 and 2019. The analysis employs fixed-effects regressions and the system GMM approach to account for endogeneity. Subsample analyses are used to account for heterogeneity in BEE scores. Overall, we find that BEE tends to have a small positive impact on firms’ turnover, a positive but not robust impact on labour productivity, and no impact on profits. Larger JSE-listed firms drive the positive effect on turnover. We conclude that BEE had a slightly positive effect on large JSE firms in the best case but also did not harm JSE firms in the worst case. To increase the benefits of BEE, we propose that the policy should be further adapted to reduce the cost of compliance and focus on areas that enhance structural change in South African companies, like skills development.