Directors’ Share Dealings in Listed Industrial Companies in South Africa

Erlwanger, Gladys Nomusa
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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
MBA thesis - WBS
Directors share dealings, Listed companies