Determinants of the choice between share repurchases and dividend payments

Increased share repurchase activity has raised renewed concerns as to whether the positive share price effect generally associated with share repurchase announcements is motivating companies to repurchase shares rather than to invest in future growth. This study focused on ascertaining the significant determinants of the choice between share repurchases and dividend payments to establish whether short-term share price manipulation affects the payout choice in South Africa. The significant determinants for the overall sample were shareholder heterogeneity, the size of the distribution and the level of company undervaluation. The significance of these variables were confirmed when disaggregating the data into sector and size categories. Additionally to this, the agency cost and history of dividend payment determinants were identified as significant determinants in the disaggregated analyses. Short-term share price manipulation was not found to be the driver of the payout choice.