514 companies have delisted from the JSE
New research from the University of Cape Town (UCT) shows that 514 companies have left the Johannesburg Stock Exchange (JSE) since 1989, and that companies are increasingly choosing to delist.
Haroon Bhorat, professor of economics at the University of Cape Town, said the study sought to understand how companies access capital to grow and ultimately create jobs, focusing specifically on trends among companies leaving the JSE.
One of the headline findings is that companies have delisted from the exchange at nearly twice the global average over the long term.
However, Bhorat stressed that the data needs to be carefully reviewed and placed in the appropriate context.
The researchers compared the JSE with a broad sample of global exchanges over the period from 1997 to 2021.
According to Bhorat, the results show a key difference between earlier years and more recent performance.
“Over that period, we find that the mean value of net listings for the global sample is positive and for the JSE is negative, but very similar to each other in the post-2005 period,” he said.
He explained that much of the divergence between the JSE and international exchanges occurred between 1997 and 2005.
“Most of the divergence, where you get higher rates of delistings by market cap, is driven by the 1997 to 2005 period,” Bhorat said.
“In the post-2005 period, our performance is relatively similar to a global sample of exchanges.”
The research identified several factors influencing whether companies remain listed or choose to delist. These include both firm-level and macroeconomic conditions.
“Firms that were the largest seem to have stayed on the exchange—firms with higher market cap, firms that were more profitable, and firms that had higher leverage,” Bhorat said.
Bhorat believes structural changes in South Africa’s economy after the early democratic era also contributed to shifts in listing behaviour.
“We think it’s partly to do with the reorganisation of the JSE in the post-1994 period when we’re now a normal functioning small open economy, and firms start to reorganise,” he said.
Beyond the control of the JSE
Another key finding of the research is that market concentration on the JSE has increased over time, meaning fewer firms dominate the exchange.
While rising concentration is not unique to South Africa, he warned that it has implications for innovation and economic growth.
“It’s not a good thing that we’ve got growing concentration levels, and it’s not a good thing that it’s mainly larger market-cap firms and dominant firms that have stayed on the exchange,” he said.
Part of the shift may reflect changes in how companies raise capital.
“Access to capital is either being diverted away from listed exchanges and found elsewhere,” he said, pointing to private equity and other forms of capital markets outside the listed environment.
But South Africa’s slow economic growth also plays a role. “You’ve got a low growth rate that is not encouraging small innovative firms to actually access these listed exchanges in the way that you perhaps find in the US market,” Bhorat said.
He added that this can result in capital being directed primarily toward larger, safer companies.
He noted that the concern is that innovation and long-term economic growth often come from riskier investments in smaller firms.
“Innovation comes through taking risks through firms that you invest in that are risky bets. Many of them will fail, but others won’t, and that access to capital is critical for growth.”
Bhorat acknowledged that the JSE has taken steps to make listings more attractive, including lowering initial listing fees and considering tax incentives.
However, he emphasised that many of the forces shaping listing trends are beyond the exchange’s direct control.
“Yes, you do want to focus on regulation, but it’s far more than that. A lot of it is beyond the control of the JSE—such as global GDP growth, South African growth rates, business confidence and policy uncertainty,” he said.
“These factors all feed into the propensity for firms to delist,” Bhorat added.
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