An integrated management framework to enhance the financial performance of parastatals : evidence from South Africa

Abstract

The primary reason for the study was to build up a management framework for improving the financial performance of parastatals in South Africa. Over the past two decades, parastatals in South Africa have not yielded the normal returns for improving economic development and wellbeing. There is a restricted understanding of the pertinent factors causing corporate failure in parastatals. It was therefore fundamental to establish a management framework that may positively affect the financial performance of parastatals. This study used panel data modeling techniques to break down the relationship between parastatal performance and different determinants considering the effect of firm-related factors (financial leverage and liquidity), corruption levels, corporate governance, managerial performance, and macro-economic fundamental factors for twenty-two years from 1996-2018. This investigation adopted a positivist paradigm and followed quantitative research methods. Panel data techniques were used in constructing econometric models specified. Findings showed that corporate performances of parastatals have a little positive effect on the economic performance of parastatals in South Africa. Furthermore, it shows that the current corporate governance system exerts a little positive effect on the overall performance of parastatals. Also, the findings uncovered that corruption has a huge negative effect on the overall financial performance of parastatals. Financial leverage was found to have both negative and positive effects on the performance of parastatals. The Granger causality test discoveries recommend that a good corporate system has a strong and positive effect on the overall profitability of parastatals. This shows that the level of corporate governance is a determinant of the profitability of parastatals despite that it probably would not immediately affect financial performance. Besides, the Granger causality test additionally confirmed that corporate governance, corporate liquidity, and financial leverage improvement essentials independently and together contribute to better performance of parastatals. It can therefore be concluded from above that South Africa is currently described by poor economic growth and high corruption levels, weak corporate governance, ineffective legal systems, lack of good governance, low levels of financial markets development, and unstable macroeconomic fundamentals. It is therefore recommended that parastatals could make a possible contribution towards economic growth if they use an integrated management framework which supports robust legal systems, good governance, reduce political interference, investor activism, maintain debt levels below equity value, ethical culture to levels of corruption, efficient financial markets, macro-economic factors and the hiring of effective top managers and executives in South Africa.