Share repurchases in South Africa : reasons and returns

Master Thesis


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University of Cape Town

Share repurchases have long been permitted in the United States of America, but it is only relatively recently that they have become a frequently-used means of returning funds to shareholders in that country. In other countries, it was also only relatively recently that share repurchases were even permitted, and in South Africa, repurchases have been permitted only since 1999, when the Companies Act was amended to allow for them. Repurchases in South Africa are fairly closely regulated, not only by statute, but also, in the case of listed shares, by regulations contained in the Listing Requirements of the Johannesburg Stock Exchange. In essence, the regulations, read with the legislation, allow for three types of repurchase, namely, a specific repurchase incorporating a pro-rata offer; a specific purchase incorporating a specific offer, and a general repurchase. Specific repurchases have more demanding requirements than general repurchases as far analysis in the context of the "signalling hypothesis," and for that reason, the focus of this study is on specific repurchases. Studies in the USA and elsewhere have shown that repurchases may be carried out for any of a number of reasons. Most studies in the USA have also shown that repurchases are associated with significant positive abnormal returns on the share prices; the increase in prices is usually attributed to the signalling hypothesis, which holds that managers use repurchases as a means of signalling to the market that they believe that the shares are underpriced. The objectives of the present study are twofold: - To identify the reasons for South African companies carrying out repurchases; and - To determine whether such repurchases create shareholder value.

Includes bibliographical references.