Investment Management and Financial Innovations
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Date
2016
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
LLC CPC Business Perspectives
Abstract
This study examines the market reactions to share repurchase announcements made by companies listed on the Johannesburg Stock Exchange from the years 2003 to 2012. The authors use an event study methodology and the Capital Asset Pricing Model to determine if there was an announcement effect when a share repurchase announcement is made. The analyses reveal that consistent with signalling theory and the announcement effect, share repurchase announcements are associated with positive abnormal returns. The average abnormal return and cumulative average abnormal return noted was 0.46% and 3.81%, respectively, for the event period (t-20, t+20). There was an observable trend of declining share prices before the share repurchase announcement. The authors also found no significant evidence that repurchasing firms have market timing ability when executing a share repurchase announcement. From a value investor's perspective, a share repurchase program conveys a very strong signal of a healthy company.
Description
Keywords
Average abnormal returns, Share repurchase announcement, Market reaction, Cumulative average abnormal returns
Citation
Punwasi, K., & Brijlal, P. (2016). The market reactions to share repurchase announcements on the JSE: An event study. Investment Management and Financial Innovations, 13(1), 191-205. doi:10.21511/imfi.13(1-1).2016.06