Cap Firms Research Articles

SHARE REPURCHASES AND FIRM BEHAVIOR

Share repurchases have become an increasingly popular method for companies to distribute cash to its shareholders as many countries have removed restrictions related to this activity. By using a new and unique data set with complete information of each repurchase program, the long-run share price performance following actual share repurchases and whether managers trade strategically are examined for a sample of Swedish firms. I find that the announcement effect surrounding the first repurchase date is small but that repurchasing firms on average outperform several benchmarks during the first three years and thereby exhibit superior information of the stock price. Evidence of strategic trading is documented in small market cap firms. Finally, I document that Swedish firms repurchase more in the first half compared to the second half of the program and also that a higher completion rate is associated with high abnormal return.

The Month-of-the-Year Effect in the Australian Stock Market: An Analysis of the Market, Industry and Firm Size Impacts

This letter examines the month-of-the-year effect in Australian daily stock returns at the market and industry levels and for small capitalisation stocks from Monday 9 September 1996 to Friday 10 November 2006. A regression-based approach is employed. The results indicate that marketwide returns are significantly higher in April, July and December combined with evidence of a small cap effect with systematically higher returns in January, August and December. The analysis of the sub-market returns is also partially supportive of disparate month-of-the-year effects in the diversified financials, energy, retail, telecoms and transport industries. However, only in the case of small cap firms and the telecoms industry do these coincide with the higher returns associated with the January effect as typified in work elsewhere.

Employee Stock Options (ESOPs) and Restricted Stock: Valuation Effects and Consequences

In the last decade, firms have increasingly turned to offering employees options and restricted stock (often with restrictions on trading) as part of compensation packages. Some of this trend can be attributed to the entry of young, cash poor technology firms into the market, many of which have to use equity because they have no choice. However, many larger market cap firms that can afford to pay cash compensation have used stock based compensation as a way of aligning managerial interests with stockholder interests. In this paper, we begin by looking at motives, good and bad, for using equity based compensation, and trends over the last few years. We then turn to the accounting rules, old and new, that govern how equity compensation is recorded and reported. Finally, we consider how best to incorporate employee options and restricted stock - both past and prospective - into discounted cash flow and relative valuation models.

Market capitalisation, cross-correlations, the lead/lag structure and microstructure effects in the Indian stock market

The lead/lag relationship between portfolios comprising large and small cap firms is analytically derived in terms of their speeds of adjustment and degrees of thin trading. Using a number of Indian equity index series that differ in their market capitalization characteristics, large cap indices are found to lead small cap indices and to have higher speeds of adjustment towards intrinsic values. However, pure thin trading effects and an interaction effect between thin trading and speeds of adjustment are found to make significant contributions to the lead/lag effect. An empirical analysis of the underlying intrinsic value process using a reduced form model developed in the paper indicates that a small degree of overreaction is present in intrinsic values series.

Market Capitalization, Cross Correlations, The Lead/Lag Structure and Microstructure Effects in the Indian Stock Market

The lead/lag relationship between large and small cap firms is investigated by using a number of Indian equity index series that differ in their market capitalisation characteristics. Large cap indices are found to lead small cap indices and to have higher speeds of adjustment towards intrinsic values. Pure thin trading effects and a thin trading/adjustment interaction effect are found to make significant contributions to the lead/lag effect. The intrinsic value processes themselves, are found to be characterised by a small degree of overreaction.