Market reaction to tender and private offers on the JSE

Abstract

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 signallingeffect, 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.

Equity issuance and share price performance on the Johannesburg Stock Exchange

“…Subsequently, this may result in share price variation within the scope of the research. For example, research conducted by Wesson, Muller and Ward (2018) has identified that standard errors limit certain conclusions about whether the price changes are temporary or permanent. Although the statistical interpretation method aims to mitigate the effect of external occurrences, some factors might not be accounted for.…”

Post-recession share repurchase behaviour by JSE-listed companies: transparent or not?

“…The repurchase can be executed by the holding company itself or, in some jurisdictions, by subsidiaries and share trusts controlled by the holding company (Bester et al , 2008; Cassim, 2003). Directors state that they repurchase shares to signal to the market that a company is undervalued (and therefore, the share price of a company usually increases subsequent to a share repurchase announcement) (Bhana, 2007; Manconi et al , 2018; Wesson et al , 2014, 2017). Open-market share repurchases create a demand for the company's shares, which can also drive up the share price due to supply-and-demand forces.…”