The South African government policy of Broad-Based Black Economic Empowerment (B-BBEE) has been criticised in terms of its effectiveness, bureaucracy and corruption, and criticised for the risks that B-BBEE is perceived to create for the businesses and industries that implement it. The objective of this study was to evaluate the statistical relationship between financial risk and B-BBEE compliance in South African industrial firms listed on the Johannesburg Stock Exchange. Multivariate panel regressions were performed using the seven elements of the B-BBEE scorecard, as well as the overall B-BBEE score. The findings demonstrate that only two elements of a South African industrial firm’s B-BBEE compliance - its Management Control ratings and its Preferential Procurement ratings - have a statistically significant, positive association with its financial risk. The overall B-BBEE score and the other five B-BBEE elements hold no statistically significant relationship with financial risk. Industrial companies are encouraged to manage their financial risk surrounding B-BBEE by improving their human resource retention strategies, tightening the screening process for recruitments and new appointments, and following industry-accepted best practice in their supply chain management, while considering B-BBEE credentials merely as a secondary factor when choosing suppliers. This study contributes to the existing body of B-BBEE and risk research through the scoping, sourcing and replicability of the financial risk metrics and B-BBEE data used.

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Keywords

black economic empowerment; economic empowerment; BEE; B-BBEE; financial risk; risk