Browsing by Author "Wesson, N."

Now showing 1 - 7 of 7
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    The effect of share repurchases on corporate investment policies : the South African experience
    (AOSIS, 2019) Wesson, N.; Botha, Merwe J.
    Orientation: The study analysed the investment behaviour of companies that enter into share repurchases. Research purpose: The study examined the effect of share repurchases on corporate investment policies for companies listed on the Johannesburg Stock Exchange (JSE). Motivation for the study: Empirical evidence suggests that companies repurchasing shares subsequently reduce their investment in employment, capital, and research and development. South Africa is a developing country with slow economic growth and high unemployment rates. Share repurchases have increased over time, but studies have not yet analysed the effect of share repurchases on investment policies in this country. Research design, approach and method: The study applied a panel regression analysis technique to establish the effect of share repurchases on investment policies of JSE-listed companies. The sample comprised the 108 companies (listed in sectors other than basic materials and financials) that repurchased shares during the period 1999–2009. Main findings: When growth opportunities are available, JSE-listed companies increase research and development expenditure. Practical/managerial implications: The practical implication is that South African share repurchases should not be discouraged because companies repurchasing shares also increase their investment in future growth. The policy implication is that South African share repurchase regulations differ from global practice, which may affect the assessment of investment behaviour of companies that enter into share repurchases. Contribution/value-add: Contradictory to global evidence, this study revealed that South African share repurchases have a positive effect on corporate investment policies. Investment and share repurchase behaviour may well be country-specific.
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    Market reaction to tender and private offers on the JSE
    (AOSIS, 2017) Wesson, N.; Muller, C.; Ward, M.
    Investors can benefit when incorporating the information-signalling effect of share repurchases in their investment strategies. Previous South African studies on open market share repurchases confirmed the globally observed signalling-effect, but found open market share repurchases not to be the outright favoured share repurchase type in this country – as is the case globally. The present study is the first to examine the market reaction to the preferred share repurchase type, namely specific (or tender and private offers) share repurchases, in the South African regulatory environment. Abnormal returns were calculated using a 12-parameter benchmark over a four-year event window, for share repurchases announced from 1999 to 2009. Pro rata tender offers were found not to possess information-signalling benefits, but significant excess returns subsequent to the announcement date were reported for the two private offer types (namely other specific offers and the repurchase by the holding company of shares held by subsidiaries). The other specific offers were found to possess significant information-signalling benefits – especially over the long term and in respect of value companies.
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    Market underreaction to open market share repurchases on the JSE
    (AOSIS, 2014) Wesson, N.; Muller, C.; Ward, M.
    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 improved dataset 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 take advantage of the informational value of open market repurchase announcements and the related significant abnormal returns to be earned.
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    The repurchase by a holding company of treasury shares held by subsisiaries : a South African perspective
    (AOSIS, 2012) Wesson, N.; Hamman, W. D.
    This study aims to establish whether the repurchasing of treasury shares by a holding company is a regular occurrence for companies listed on the Johannesburg Stock Exchange (JSE); whether these repurchasing companies have complied with the relevant legal and reporting requirements; and what their stated motivations were for these repurchases. In a sample of 251 companies listed on the JSE from 1999 till their 2009 financial year-end, 120 (47,8%) companies executed share repurchases. Thirty-six (30%) of the 120 companies repurchased treasury shares from their subsidiaries in 55 different transactions, representing 22% of the total number of shares repurchased. Companies which repurchase treasury shares do not always comply with the legal requirements (such as obligatory Security News Agency (SENS) announcements and circulars); and the accounting requirements of International Financial Reporting Standards (IFRS) (relevant to the disclosure of the reconciliation of the number of shares in issue) are applied in an inconsistent manner in annual reports. The most common reason for the repurchase of treasury shares was that the 10% limit (on treasury shares held by subsidiaries) had nearly been reached. Various business purposes were also given. Income tax implications did not seem to be a conclusive motivation for repurchasing treasury shares. The repurchase of treasury shares by the holding company is not allowed in most other countries, like the UK, and presents unique challenges to the South African share repurchase environment. More stringent application of the JSE Listing Requirements, as well as better guidance on the IFRS disclosure requirement on the reconciliation of the number of shares in issue, is needed in South Africa. This will enable stakeholders to make better-informed decisions and will also assist research on share repurchases. This material is based upon work supported financially by the National Research Foundation. However, any opinions, findings, conclusions and recommendations expressed in this article are those of the authors alone, and the NRF does not accept any liability in regard thereto.
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    Share buy-backs for a selection of JSE listed companies : an exploratory study
    (AOSIS, 2010) Bester, P. G.; Wesson, N.; Hamman, W. D.
    This study undertook to derive share repurchase trends from a small sample of JSE-listed companies over the nine years, 1999-2008. The study also draws attention to the particular obstacles to be overcome when conducting research into the unique South African share repurchases environment. The study finds that 33 companies made 71 repurchase announcements (47 general and 24 specific) via the Securities Exchange News Service (SENS) over the period July 1999 until financial year-end in 2008. On average, 59,0% of the total number of shares (and 49,3% of the total value) repurchased under a general authority is not included in the 3% SENS announcements. General share repurchases represent 47,9% of total repurchases in volume (and 60,5% in terms of value). The total number of shares repurchased (excluding share trust purchases) by the 33 companies shows that 56,8% were repurchased by subsidiaries and 17,1% were subsequent repurchases by companies from subsidiaries. (In value, these repurchases represent 53,7% and 17,2%, respectively.) This study therefore concludes that research based on only the 3% SENS announcements of general share buy-backs results in significant understating of actual total share buy-back activities, and that the South African share repurchase environment presents unique challenges. The main obstacle for future South African research in this field however is the lack of comprehensive and accurate share repurchase data as supplied by South African financial data sources. This material is based upon work supported financially by the National Research Foundation. Any opinion, findings and conclusions or recommendations expressed in this material are those of the authors and therefore the NRF does not accept any liability in regard thereto.
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    Share repurchase and dividend payout behaviour : the South African experience
    (AOSIS, 2015-09-30) Wesson, N.; Bruwer, B. W.; Hamman, W. D.
    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.
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    Share repurchases : which number of shares should be used by JSE-listed companies when publishing market capitalisation in annual reports?
    (AOSIS, 2008) Bester, P. G.; Hamman, W. D.; Brummer, L. M.; Wesson, N.; Steyn-Bruwer, B. W.
    The legalisation of share repurchases in South Africa since July 1999 introduced additional complexity to financial reporting. The repurchasing of shares by subsidiaries or share trusts has led to a new concept: the number of company shares differs from the number of group shares. Ratios like earnings per share and headline earnings per share are governed by accounting standards and circulars, and prescribe the use of the (weighted) number of group shares. No guidance exists on the calculation of market capitalisation. This article aims to determine the methods used by companies listed on the JSE Securities Exchange South Africa (JSE) to calculate their number of shares when publishing market capitalisation. It was found that only about 25% of companies participating in share repurchases and publishing market capitalisation in their annual reports calculated market capitalisation based on the number of group shares. About 75% of the companies did not calculate their market capitalisation based on the number of group shares (i.e. they omitted to deduct subsidiary repurchases and/or trust consolidations in their calculation of the number of shares). It was also found that the JSE, when compiling the Top 40 index, calculates market capitalisation based on the number of company shares (i.e. ignoring subsidiary repurchases and trust consolidations). Accounting guidance is needed on the reporting of market capitalisation to ensure that this aspect is not overstated by the reporting entities.