SHARE REPURCHASE IN SINGAPORE: A REVISIT

Abstract

Since the legalisation of share repurchase in Singapore in 1998, three amendments have been made to the share repurchase law to make it more market-driven. They are namely the inclusion of paid-up capital in the funding of share repurchase, and the introductions of contingent purchase contracts and treasury shares. This study seeks to investigate the motivations of share repurchase and management’s opinions and understanding of share repurchase in the recent time frame, under the enhanced share repurchase law. We find that share repurchases in Singapore are used to distribute free cash flow, similar to studies on more developed market such as the United States. Although past literature on these developed markets has reported that information signalling is the most prominent motivation for share repurchase, our study shows that it is not a significant motivation in the context of Singapore. Past studies also document different signals sent out by share repurchases and dividend payouts. We find some evidence that share repurchases in Singapore are not used to substitute dividends. In addition, we find that the managers and the Singapore share market are still unfamiliar with the legislation, hence the slow adoption of share repurchase.