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Camouflaged Compensation: Do South African Executives Increase Their Pay through Share Repurchases?

Author

Listed:
  • Gretha Steenkamp

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

  • Nicolene Wesson

    (Stellenbosch Business School, Bellville 7530, South Africa)

  • Eon v. d. M. Smit

    (Stellenbosch Business School, Bellville 7530, South Africa)

Abstract

Increasingly, researchers in developed economies are associating the exponential growth in share repurchases with executives’ desire to increase company share price and thus the value of their own share-based compensation. As research on this topic in emerging economies is sparse, this paper investigates the relationship between share repurchases and executive share-based compensation in South Africa. Certain weaknesses in South African corporate governance relating to share repurchases exacerbate the risk of camouflaged rent extraction and unethical behaviour. Regression analyses were executed, using data on share repurchases and executive share-based compensation variables for listed South African companies for the period 2002–2017. Statistically significant positive relationships were identified between share repurchases and executive share-based compensation. The results support the proposition that South African executives may be repurchasing shares in a bid to increase the value of their share-based compensation (in line with the managerial power theory), rather than maximising long-term shareholder value. This paper emphasises the need for improved corporate governance relating to share repurchases in South Africa. Given the income inequality in South Africa, the findings also have social justice implications.

Suggested Citation

  • Gretha Steenkamp & Nicolene Wesson & Eon v. d. M. Smit, 2023. "Camouflaged Compensation: Do South African Executives Increase Their Pay through Share Repurchases?," JRFM, MDPI, vol. 16(3), pages 1-17, March.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:3:p:177-:d:1090059
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    References listed on IDEAS

    as
    1. Wesson, N. & Smit, E.v.d.M. & Kidd, M. & Hamman, W.D., 2018. "Determinants of the choice between share repurchases and dividend payments," Research in International Business and Finance, Elsevier, vol. 45(C), pages 180-196.
    2. Alex Edmans & Vivian W. Fang & Allen H. Huang, 2022. "The Long‐Term Consequences of Short‐Term Incentives," Journal of Accounting Research, Wiley Blackwell, vol. 60(3), pages 1007-1046, June.
    3. Lee, Inmoo & Park, Yuen Jung & Pearson, Neil D., 2020. "Repurchases after being well known as good news," Journal of Corporate Finance, Elsevier, vol. 62(C).
    4. Cook, Douglas O. & Zhang, Weiwei, 2022. "CEO option incentives and corporate share repurchases," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 355-376.
    5. Ndayisaba, Gilbert A. & Ahmed, Abdullahi D., 2021. "Demystifying the paradoxical popularity of stock buybacks in a market environment characterised by high stock prices," International Review of Financial Analysis, Elsevier, vol. 78(C).
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