An event study : the market reactions to share repurchase announcements on the JSE

Abstract

This study examines the market reactions to share repurchase announcements made by companies listed on the Johannesburg Stock Exchange from 2003 to 2012. We use an event study methodology and the Capital Asset Pricing Model to determine if there is an announcement effect when a share repurchase announcement is made. Our analysis show that consistent with signalling theory and the announcement effect, share repurchase announcements are associated with positive abnormal returns. The average abnormal return and cumulative average abnormal return noted was 0.46% and 3.81% respectively for the event period (t -20, t +20). There was an observable trend of declining share prices before the share repurchase announcement however the decline in the shares prices was not significant. We found some evidence of market timing ability in 2005 and 2010 however as a collective, we found no significant difference in timing a share repurchase announcement.