Directors’ Share Dealings in Listed Industrial Companies in South Africa
Date
2012-02-10
Authors
Erlwanger, Gladys Nomusa
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Abstract
This research report seeks to provide some quantifiable evidence on the effects
of share trades by directors of companies listed on the JSE Securities
Exchange’s J257 industrial index. The event study methodology was used to
investigate the share price changes related to directors’ share transactions
around announcement day for the period June 2004 to June 2006. This study
found no significant price reaction to directors’ share transactions during the 5-
day event window centred on announcement day. This is consistent with most
previous international findings that concluded that the market ignores directors’
share trades when they are announced. Small sized firms that were expected
to outperform their larger sized counterparts following their directors’ share
trades were found to have small positive abnormal returns that were
insignificant. This inconsistent with most previous local and international studies
that found that small firms outperform their large counterparts following
directors’ share trades. The stock market’s reaction to directors’ share dealings
depends on whether a director has sold or bought shares. The 5-day event
window Average Cumulative Abnormal Returns for both purchases and sales
were positive but not significantly different from zero confirming findings in
Australia but contrary to most previous international studies. Although both
directors’ purchases and sales did not send strong signals to the market, there
was evidence of short-term market timing, as directors tend to purchase shares
following price declines and sell shares following a run up in share prices. The
findings on short-term market timing are consistent with previous international
findings
Description
MBA thesis - WBS
Keywords
Directors share dealings, Listed companies