A generous amount of research on payout policies has reported that the trends of payout policies
have changed overtime. The common pattern in most of these studies is that fifty years ago cash
dividend was the most dominant and favourable form of payout, but this pattern was not
maintained and saw some changes in the 1980s. The 1980s was a period where the use of
repurchases increased significantly in both the US and the UK and this increment was paired
with a declining propensity to pay dividends. It is this observation that impelled researchers to
suggest that share repurchases were substitutes for cash dividends as they were being finance
with reductions in cash dividends.
Share repurchases are a new concept in South Africa compared to other international capital
markets. The implementation of the Companies Amendment Act 37 of 1999 has made it possible
for companies to carry out open market stock repurchase programmes in South Africa and since
then, share repurchases have become an intricate part of payout policy for South African firms.
This study tests whether indeed the declining propensity to pay dividends and the increasing
propensity to repurchase patternsare observable in South Africa and whether share repurchases
are indeed substitutes for cash dividends in today’s markets. This study examines the payout
policies of 116 companies listed on the Johannesburg Stock Exchange (JSE henceforth) between
2002 and 2009.
Overall, this study finds that the use of share repurchases has increased substantially in South
Africa during the sample period. Dividends have also increased significantly and the total payout
ratio exhibited an upward trend between 2002 and 2009. This implies that the increase in
repurchase activity was not financed by the decrease in dividends, as dividends had also
followed an upward trend. There is sufficient evidence that repurchases and dividends are
certainly not substitutes in South Africa.In addition to the observation thatdividend and
repurchase payout ratios moved in the same direction for most parts of the sample period, a
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positive relationship between the dividend forecasting error and repurchase activity was realized,
thus, dividends and repurchases weredeclared complements.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:wits/oai:wiredspace.wits.ac.za:10539/11078 |
| Date | 18 January 2012 |
| Creators | Ramorwa, Botsang Phomolo |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | application/pdf |
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