Short-Term Return Impact of Share Repurchase Announcements

Ahmet Nuri Tasdemir ,Erkan Alsu

doi:10.7176/rjfa/10-12-03

Abstract

Share repurchase transactions are seen as a corporate financing tool that plays a substantial role in the distribution of idle cash within the company, and are often considered as an alternative to cash dividend payments. The purpose of this study is to determine the effect of the share repurchase programs announcements on stock returns in Turkey stock market. In this study focused on, the effect of the 146 announcements on the stock returns of the companies that are traded in Borsa Istanbul between the years 2010-2018 which initiated share repurchase programs was examined by the event study method. As the conclusion of the study, it was determined that share repurchase announcements produced statistically significant cumulative abnormal returns before and after the announcement date. Also, considering CAAR values calculated in the realization of the share repurchase announcements result in international markets, the impact on stock returns of the share repurchase announcements in Turkey, compared to many other countries, were found to be suggestively higher. Keywords: Share Repurchase, Stock Returns, Abnormal Return, Cumulative Abnormal Return, Event Study. DOI : 10.7176/RJFA/10-12-03 Publication date :June 30 th 2019

Highlights

Nowadays, companies are expected to make a choice between retaining a portion of their earnings within the company in the name of maintaining a continuity in their operations or distributing those to their partners in order to appeal to the interest of investors
Where all share repayment announcements made in Borsa Istanbul (BIST) are discussed, firstly, the average abnormal return calculations belonging to the total of 41 days including 20 days before, 20 days after the announcement day and the day of the announcement, as well as their pertinent statistical values are given at the table and graph below
As seen in the table, it was found that abnormal return (AAR) values were generally negative in the twenty days period until the day (0) which indicates the date of announcement

Summary

Introduction

Companies are expected to make a choice between retaining a portion of their earnings within the company in the name of maintaining a continuity in their operations or distributing those to their partners in order to appeal to the interest of investors. When companies prefer to distribute their earnings to their partners, two options appear before them; to give cash to shareholders directly in the form of dividends or to make share repurchases. It was observed that before 1980's, companies preferred mostly to pay dividends to their shareholders, whereas after 1980's, this situation was reversed and they rather favored to engage in share repurchasing practices (Skinner, 2008). This situation was influenced by the adoption of rule 10b-18 by the US Securities and Exchange Commission (SEC) in 1982. This rule in particular, determines the principles of engaging in share repurchasing activities and abridging the barriers to initiating a program (Grullon and Michaely, 2002)

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Conclusion