Share repurchases announcement and the signaling effect in South Africa

Abstract

This research sought to test whether the observed evidence and documented academic thinking on share repurchases around the signaling hypothesis could be applied in a country like South Africa among the firms listed on the Johannesburg Stock Exchange (JSE). The study also sought to ascertain whether there is a statistically meaningful outperformance of a portfolio composed of shares mimicking firms that announced share repurchases against the Equal Weighted All-Share Index (J203) over the research period. 209 share buyback announcement conducted by 82 JSE listed companies from January 2003 to December 2016 were analysed for the study. The study concluded that the South African repurchase activity largely reflects the global observed evidence and the modern academic thinking around buybacks. The regulatory climate was found to be having components which contributed to South Africa not fully reflecting the observed evidence and the modern academic thinking around buybacks. The study found that the share repurchases announcement portfolio relative to the Equal Weighted All-Share Index (J203) benchmark shows a 2.7% outperformance. The results reveal that share buyback announcements convey important information to investors