The integration of share repurchases into investment decision-making: Evidence from Japan

Do Share Repurchases Crowd Out Internal Investment in South Africa?

“…Iyer et al (2017), using data from the US from 1971 to 2014, found that share repurchases and capital expenditure were negatively related. Similarly, a negative relationship between share repurchases and capital expenditure was noted using Japanese data from 2000 to 2019 (Apergis et al 2021) and data from the United Kingdom during the period 1999-2019 (Chasiotis and Georgantopoulos 2022). Wang et al (2021) employed global data, excluding data from the US, and similarly reported a negative relationship between share repurchases and capital expenditure, and research and development.…”

“…The regression analyses to test hypothesis H1 employed the methodology of Almeida et al (2016) and Wesson and Botha (2019), adjusted to measure the dependent variables more appropriately, taking into account the higher inflation rate in South Africa. Moreover, while Wesson and Botha (2019) employed only a limited number of control variables, the present study included additional control variables-as determined from prior studies on the relationship between share repurchases and internal investment (Almeida et al 2016;Apergis et al 2021;Chasiotis and Georgantopoulos 2022;Iyer et al 2017;Wesson and Botha 2019).…”

“…Many companies prefer not to raise dividend levels since this creates an expectation that the raised level will be maintained and because the market reacts unfavourably when companies reduce their dividends (Andriosopoulos and Hoque 2013). Companies therefore frequently prefer to maintain dividend levels while adopting share repurchases as a more flexible form of distribution (Apergis et al 2021;Brav et al 2005;Jagannathan et al 2000). The aforementioned explains the increased popularity of share repurchases globally.…”

“…One of the most commonly used and information-rich proxies for growth opportunities is the market-to-book ratio (Adam and Goyal 2008). Companies with high growth opportunities and wanting to increase investment spending while having limited resources, are more likely to reduce share repurchases to channel cash towards internal investment (Apergis et al 2021). It is thus expected that companies with high growth opportunities would exhibit a stronger negative relationship between share repurchases and internal investment than low-growth companies, and the following hypothesis was articulated:…”

“…Globally, researchers are questioning whether share repurchase activity curtails internal investment (Almeida et al 2016;Wang et al 2021). Several earlier studies conducted in developed countries have reported a negative relationship between share repurchases and internal investment (Almeida et al 2016;Apergis et al 2021;Chasiotis and Georgantopoulos 2022;Iyer et al 2017;Wang et al 2021). In South Africa, it is especially important to study the relationship between share repurchases and internal investment in view of the high unemployment, high income inequality, and low economic growth in the country, which could be alleviated by higher internal investment.…”