The short-term market reaction to share repurchase announcements on the Johannesburg Stock Exchange (JSE)

Abstract

Given the increased use of share repurchases to pay out excess cash to shareholders, this study aims to examine the short-term market reaction to share repurchase announcements on the Johannesburg Stock Exchange (JSE). In particular, the study examines the link between repurchase motives and the short-term reaction of the market, as well as other characteristics which may have an effect on the market reaction. Using event study methodology, the study covers 146 general share repurchases on the JSE from 2004 to 2014. The findings suggest that the market reacts positively to repurchase announcements, although the market does tend to underreact at the time of the announcement, consistent with past literature. The study provides support for the information signalling, market timing and free cash flow hypotheses. Furthermore, the reaction of the market is seen to not be affected by capital gains tax changes, ownership concentration and shareholder protection, considerations.