Abstract
This study examined the long-term performance of open market share repurchase announcements made by companies listed on the JSE during their reporting periods including 1 July 1999 to 2009. A total of 195 open market share repurchase announcements were identified. A maximum outperformance of about 35% was found on day t+550 (about two years subsequent to the announcement). After splitting the sample into 'value' (low P/E ratio) and 'growth' shares (high P/E ratio), it was found that the outperformance was almost entirely confined to the value portfolio, reaching a maximum of about 80% by day t+630 (about two-and-a-halfyears subsequent to the announcement). This study applied a more robust research methodology than used in earlier South African research on this topic; it also used an improveddataset and extended the research period, compared to other research. The results of this study showed much higher positive abnormal returns than were found in earlier international and South African studies. Investors should takeadvantage of the informational value of open market repurchase announcements and the related significant abnormal returns to be earned.
Highlights
Share repurchases have globally become an important financial tool for listed companies
Prior to the announcement date, !he CAlls remained marginally below zero at about ·1%. ln the days surrounding the event itself, t·3 to t+3, we observed a small increase of about 1%. ln the period following the announcement, from t+10 to t+22, the ctunulative abnormal return (CA):Rs declined a further 2%
We identified 195 open market share repurchase announcements over the period 1 July 1999 to the 2009 financial year-ends of JSE-listed companies included in this study
Summary
Share repurchases have globally become an important financial tool for listed companies. In the United States of America (US), share repurchases by companies, except financials and utilities listed on Compustat, equalled dividends for the first time in 1998, overtook dividends in 2005 and widened the margin significantly in 2006 (Dittmar, 2008: 27). Many studies have been conducted to ascertain the motivation for share repurchases. The most commonly attributed motive is signalling of the company's shares as being undervalued (Dann, 1981; Vermaelen, 1981; Ofer & Thakor, 1987). In support of the signalling hypothesis, the underreaction hypothesis was postulated by Ikenberry, Lakonishok and Vermaelen (1995), who found that the market treats open market share repurchase programmes with scepticism, leading to prices adjusting slowly over time
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
