Abstract
Share repurchases, rather than dividend payments, are increasingly becoming the globally favoured payout method. This has prompted a renewed interest in the field, and raises questions about the actual motivation for share repurchases and whether companies are now repurchasing shares in preference to investing in future growth. This study set out to ascertain whether South African company payout behaviour mirrors global company behaviour. Comprehensive data on share repurchases are, however, not compiled by South African financial data sources or by the Johannesburg Stock Exchange Ltd. In preparation for this study, the authors thus compiled the first comprehensive share repurchase database for companies in selected JSE-listed sectors for the first 11 years (i.e. 1999 to 2009) since share repurchases were first allowed in this country.Share repurchases were found to be a popular payout method, especially in the more recent periods covered in the study. Payout value was dominated by a few companies paying dividends every year and regularly repurchasing shares. Aspects unique to the South African regulatory environment, however, resulted in the South African share repurchase experience not fully mirroring current global practice. The main constraint in the South African share repurchase environment is that comprehensive, actual-time-based share repurchase data are not available. Recommendations are made on how to align the South African regulatory environment with global best practice. Regulatory changes, as well as continued research in the field, will equip stakeholders to make informed decisions.
Highlights
The amounts spent on share repurchases have increased dramatically over the last decade
The value of share repurchases in the United States of America (USA) exceeded the value of new shares issued since 2000, and in 2014 exceeded the value of new shares issued by five times (Barnes, 2015; Brennan, 2007: 2)
This study found that the first share repurchases only occurred in the reporting periods ending in 2000 in respect of the companies included in this study
Summary
The amounts spent on share repurchases have increased dramatically over the last decade. The highest value of share repurchases occurs in the United States of America (USA), where share repurchases have been allowed for the past four decades, but only became popular in the 1980s and accelerated in the 1990s (Dittmar, 2008: 27). In the USA share repurchases will top the one trillion mark for the first time in 2015 and have, since 2005, exceeded dividend payouts (Barnes, 2015; Dittmar, 2008). The United Kingdom (UK), where share repurchases were legalised in 1981, shows the highest growth in share repurchase value (Kim, Schremper & Varaiya, 2004: 5). Most other jurisdictions allowed share repurchases only in the 1990s
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