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Do Share Repurchases Crowd Out Internal Investment in South Africa?

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  • Gretha Steenkamp

    (School of Accountancy, Stellenbosch University, Stellenbosch 7600, South Africa)

  • Nicolene Wesson

    (Stellenbosch Business School, Stellenbosch University, Bellville 7530, South Africa)

Abstract

Researchers in developed countries have questioned whether share repurchase activity influences internal investment. The aim of this study was to investigate the relationship between share repurchases and internal investment (defined as capital expenditure, employment expenditure, and research and development) in South Africa, as little was known about this relationship in developing countries. A quantitative research methodology was followed, employing the data of South African listed companies during the 2002–2017 period. A significant negative relationship was noted between share repurchases and employment expenditure when considering all companies, while high-growth companies exhibited a significant negative relationship between share repurchases and capital expenditure. The negative relationships could indicate that companies increase share repurchases to the detriment of internal investment (especially employment). Alternatively, it may imply that share repurchase and internal investment decisions are determined simultaneously, with companies decreasing internal investment and increasing share repurchases in the absence of identifiable profitable projects (or increasing internal investment and decreasing share repurchases when growth opportunities are available). These findings could be useful to shareholders, corporate governance regulators and activists. Given the high unemployment and income inequality in South Africa, the results support a call for the improved regulation of share repurchases to ensure effective monitoring.

Suggested Citation

  • Gretha Steenkamp & Nicolene Wesson, 2023. "Do Share Repurchases Crowd Out Internal Investment in South Africa?," IJFS, MDPI, vol. 11(3), pages 1-16, July.
    • Handle: RePEc:gam:jijfss:v:11:y:2023:i:3:p:95-:d:1204392
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    References listed on IDEAS

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    1. Gretha Steenkamp & Nicolene Wesson, 2020. "Post-recession share repurchase behaviour by JSE-listed companies: transparent or not?," Journal of Accounting in Emerging Economies, Emerald Group Publishing Limited, vol. 10(3), pages 465-486, July.
    2. VanDalsem, Shane A., 2019. "Sacrificing corporate investment for stock repurchases: Are family firms different?," Journal of Economics and Business, Elsevier, vol. 104(C), pages 1-1.
    3. Janina Hundenborn & Ingrid Woolard & Jon Jellema, 2019. "The effect of top incomes on inequality in South Africa," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 1018-1047, October.
    4. Tim Adam & Vidhan K. Goyal, 2008. "The Investment Opportunity Set And Its Proxy Variables," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 31(1), pages 41-63, March.
    5. Ihsaan Bassier & Ingrid Woolard, 2021. "Exclusive Growth? Rapidly Increasing Top Incomes Amid Low National Growth in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 89(2), pages 246-273, June.
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