Repurchase Method Research Articles

건물분양주택의 발전방안에 관한 연구

This study studied the plan for expanding and supplying pre-sale housing through the analysis of advanced cases. The analysis results are as follows. First, providing publicity and marketability at an affordable pre-sale price and land rental for residential stability is essential. A plan to appropriately recover the market profit is needed. Second, the continuity of supply requires a continuous supply of land in the housing demand area and continuous supply to the vulnerable housing class. Third, it is necessary to set a reasonable pre-sale price considering high-quality materials during initial supply. Fourth, it is necessary to break away from the LH repurchase method, recognize some capital gains, calculate realistic rent, and extend the lease period. As for policy implications, it is necessary to clarify the policy goals of building pre-sale housing, long-term plans for securing public land, and practical support measures to enable social and economic actors to participate in the supply of Building pre-sale housing.

Long-term performance following share repurchase, signaling costs and accounting transparency: Korean evidence

Purpose Existing studies show that firms may have an incentive to use share repurchases opportunistically, thereby taking advantage of market participants’ confirmation bias that share repurchase is a signal of undervaluation. This study aims to investigate whether signaling costs and accounting transparency can serve as tools to identify opportunistic share repurchases. Design/methodology/approach The authors measure signaling costs by using two share repurchase methods (direct and indirect share repurchase) with different share repurchase costs, and measure accounting transparency using the history of earnings timeliness. The authors further measure long-term performance following share repurchases using operating performance and stock returns. Lastly, the authors compare the long-term performances between the groups defined by share repurchase method and earnings timeliness level. Findings The authors find that indirect share repurchase firms with a history of poor earnings timeliness experience unfavorable long-term performance, while other share repurchase firms do not. This finding reinforces the view that some share repurchases may be driven by managerial opportunism. In particular, when firms with a history of poor earnings-reporting behavior choose a low-cost repurchase method, their share repurchases may be motivated by managerial opportunism. Originality/value The findings suggest that past earnings timeliness and the signaling costs of a repurchase together are useful predictors of false signaling. Moreover, they suggest that investors can – at least in part – predict opportunistic share repurchases by using signaling costs and accounting transparency.

Determinants of the choice of share buyback methods: A study in India

This study examines signaling, excess cash flow, substitution, leverage, agency cost, stock and liquidity hypotheses by considering firm-specific parameters to find out their impact on selection between tender offer and open market method while doing buyback. This study is based on the basic premise that the rules and regulations those govern these two methods are completely different and have different objectives. This study takes 430 non-financial buybacks from 1998–1999 to 2017–2018 for analysis and these buybacks segregated in terms of tender offer (176) and open market methods (254). In this study, both univariate and multivariate tests have been employed. T-test and Wilcoxon rank sum test are used for univariate analysis, and logistic regression is used for multivariate analysis. The empirical findings corroborate the evidence that free cash flow hypothesis, leverage hypothesis, agency cost hypothesis and liquidity hypothesis are the prime motivators for choosing of tender offer than open market share repurchase. This study finds that dividend paid and choosing of tender offer are substitutes. The results also support the notion that for correcting short-term undervaluation firms choose tender offer rather than open market methods. This study is the first comprehensive analysis in the Indian context to find out the motivations behind the selection of share repurchase methods.

Managing EPS and signaling undervaluation as a motivation for repurchases

PurposeAccelerated share repurchases (ASRs) represent an important recent innovation in repurchase methods. Although executives often mention signaling undervaluation as a motivation for ASRs, managing earnings per share (EPS) has been argued as a key alternative motivation in the financial press. This paper aims to investigate whether ASRs are driven by managerial opportunism (i.e. managing EPS) or managerial optimism (i.e. signaling undervaluation) and whether stock market participants see through these motives.Design/methodology/approachThe sample consists of 293 ASRs conducted between 2004 and 2011. Firms suspected of using ASRs to manage EPS (EPS-suspect firms) were identified by examining actual reported EPS, as-if EPS (i.e. EPS that would have been reported in the absence of an ASR), and analysts’ consensus EPS forecasts. A logistic regression of EPS-suspect versus non-EPS-suspect ASR transactions was performed. Analysts’ reactions to ASR announcements and investors’ reactions to post-ASR earnings announcements were examined. Changes in post-ASR operating performance were also analyzed.FindingsTwenty-nine per cent of ASR firms (EPS-suspect firms) would have missed the consensus EPS forecasts had they not implemented the repurchase. Managerial incentives – securing bonuses and maintaining reputation by avoiding EPS misses – appear to lie behind this opportunistic use of ASRs. Upward revision observed in analysts’ EPS forecasts upon the announcement of ASRs is short-lived, indirectly facilitating firms’ use of ASRs to meet or beat consensus forecasts. Investors, however, are not fooled by managers’ use of ASRs as an earnings management device. Unlike EPS-suspect firms, non-EPS-suspect firms exhibit positive abnormal operating performance during the post-ASR period, suggesting that these firms use ASRs as a signaling device rather than as an earnings management device.Practical implicationsASRs can be used by managers to signal better future performance to investors. However, managers who intend to do so should carefully consider the timing of an ASR. Initiating an ASR when the company is facing the risk of missing analysts’ EPS forecasts may be interpreted as the ASR being motivated by EPS management concerns rather than signaling, diminishing the credibility of a positive signal intended to be conveyed through the ASR. Further, when considering payout policy and executive compensation decisions, corporate boards need to be cognizant of managers’ incentives for undertaking ASRs. The use of ASRs opportunistically to boost EPS is prevalent, and this action is followed by poor performance.Originality/valueA number of novel results are documented using tests that are methodologically distinct from those used in related previous research. Notably, this is the first study to distinguish between EPS-suspect and non-EPS-suspect ASR firms and examine the determinants as well as consequences of using ASRs as an earnings management versus signaling device. One out of every four ASR firms are EPS-suspects. Analysts react to ASR announcements by only temporarily increasing their short-term EPS forecasts. Investors see through managers’ use of ASRs as an earnings management device. While ASRs are prone to managerial opportunism, a large number of firms use ASRs to communicate favorable information about their future operating performance to investors.

Bond repurchase objectives and the repurchase method choice

This study investigates how firm׳s bond repurchase objective affects its choice of repurchase method. Unlike tender offers, open-market repurchases are not pre-announced and buyer׳s identity is unknown to the seller. We provide evidence that firms are likely to repurchase on the open-market when bonds are mispriced and when firms seek to manage their financial reports, either to meet earnings targets or avert debt covenant violations. When firms seek to amend indenture terms, they prefer tender offers. We also find that firm׳s information quality affects the likelihood of mispricing exploitation behavior and that insiders buy firm׳s stocks around open-market repurchases.

Opportunistic Stock Repurchases for Owner–Manager Control: Evidence from the Korean Stock Market

AbstractWe examine whether opportunistic earnings management before a repurchase and long‐term performance after a repurchase depend on repurchase options and insider ownership. We find that the negative association between pre‐stock repurchase earnings management and abnormal long‐term performance after stock repurchase is more pronounced when firms choose the direct stock repurchase method over an indirect repurchase through a trust fund. Our findings also show that the negative association between pre‐repurchase accruals and long‐term performance under direct stock repurchases is only evident when the ownership percentage of managers and their affiliates is less than 50%. In addition, our main findings are more pronounced in firms with a high degree of corporate information asymmetry.

Introduction of ToSTNeT-3 and Management Motivation for Choosing it

This study discusses stock market share repurchase with prior announcement from the viewpoint of a firm management between February 2010 and December 2013 and focuses on share repurchase with prior announcement from among the three repurchase methods in the present TSE. The three types are 1) repurchase on auction market, 2) closing price transaction, and 3) Tokyo Stock Exchange Trading NeTwork System for off-auction own share repurchase transaction (ToSTNeT-3). This study develops hypotheses about the motivation for choosing a method of share repurchase, based on the particular Japanese conditions, and uses share repurchase data to test the hypotheses. We develop a new certainty and immediacy hypothesis associated with stock liquidity using examples from the American hypothesis (Bargeron, Kulchania, and Thomas, 2011). Moreover, we decide whether the block holder or management plays a leading role in choosing ToSTNeT-3 (block holder requirement type or management requirement type). If we can obtain evidence relating to selling share requirement of block holders, it is not necessary to analyze these in either testing hypotheses. However, because we cannot obtain such data, we test these hypotheses from available data. We find that of the about 781 share repurchases for firms listed on the first section of the Tokyo Stock Exchange (TSE), lower liquidity firms are likely to use ToSTNeT-3. This result supports a certainty and immediacy hypothesis. Furthermore, if we focus on the motivations of both the share seller and the buyer, we also find evidence that management chooses ToSTNeT-3 by accepting requests from block-holders (mainly general corporations other than financial institutions).

Managerial Optimism Versus Opportunism as a Motivation for Repurchases: The Case of Accelerated Share Repurchases

Accelerated share repurchases (ASRs) represent an important recent innovation in repurchase methods. While corporate managers and investment bankers often cite signaling undervaluation as a motivation for ASRs, the financial press highlights managing earnings per share (EPS) as an alternative motivation. I find that 29 percent of ASR firms (“EPS-suspect” firms) would have missed the consensus EPS forecasts had they not implemented the repurchase. Managerial incentives — securing bonuses and maintaining reputation by avoiding EPS misses — appear to lie behind this opportunistic use of ASRs. Upward revision observed in analysts’ EPS forecasts upon the announcement of ASRs is short-lived, indirectly facilitating firms’ use of ASRs to meet or beat consensus forecasts. Unlike EPS-suspect firms, non-EPS-suspect firms exhibit positive abnormal operating performance during the post-ASR period, suggesting that these firms use ASRs as a signaling device rather than as an earnings management device. I also find evidence that investors see through both motives. Evidence also suggests that, despite being prone to managerial opportunism, ASRs have an edge over regular open market repurchases with respect to sending a more credible signal of undervaluation to investors.

Conflicting Managerial Incentives and Financial Reporting: The Case of Accelerated Share Repurchases

Prior studies suggest that managers of repurchasing firms use their financial reporting discretion to either reinforce the undervaluation signal (via positive discretionary accruals) or reduce the repurchasing price (via negative discretionary accruals). This study examines whether managers of firms undertaking accelerated share repurchases (ASRs), a recent and important innovation in repurchase methods, use their reporting discretion around the repurchase and if so, what is the motivation behind their reporting behavior. I find that ASR firms report positive discretionary accruals in the quarter of the announcement and that the upward earnings management increases with both the percentage of equity repurchased and CEO’s bonus compensation as a fraction of total compensation. However, there is a negative association between positive discretionary accruals and ASR announcement returns, suggesting that investors perceive positive discretionary accruals as the result of managerial opportunism (i.e., increasing EPS) rather than managerial optimism (i.e., signaling undervaluation). Accordingly, investors discount positive earnings surprises reported in the quarter of and the quarter following the ASR announcement.

Empirical Evidence On The Motivation For Dutch Auction Versus Fixed Price Tender Offers

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-hyphenate: none;"><span style="mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Batang;">Persons (1994) presents a model in which firms choose between the Dutch auction and fixed price repurchase methods.<span style="mso-spacerun: yes;">  </span>We examine the empirical implications of the model and document a number of findings that are consistent with the model. For instance, takeover activity prior to repurchase announcements is significantly higher for firms announcing Dutch auctions.<span style="mso-spacerun: yes;">  </span>However, takeover activity significantly declines after Dutch auctions but is not significantly different after fixed price offers.<span style="mso-spacerun: yes;">  </span>Moreover, using a logistic regression analysis, we find that Dutch auctions are more likely to be adopted by large firms with low Tobin’s q ratios, low inside ownership, and that were subject to prior takeover pressure.<span style="mso-spacerun: yes;">  </span>When we split the sample between repurchases with and without prior takeover activity, we find that repurchases without prior takeover activity result in a permanent increase in value while those with prior takeover activity result in only a temporary increase in value.<span style="mso-spacerun: yes;">  </span>We also find that the higher incidence of takeover battles following defensive fixed price repurchases results in lower post-repurchase returns relative to defensive Dutch auctions.<span style="mso-spacerun: yes;">  </span>These findings indicate that if the repurchase is used as a takeover deterrent, Dutch auctions are the more effective repurchase method.</span></span></span></p>

Management choice of buyback method: Australian evidence

AbstractThis study investigates management choice of repurchase method for large Australian industrial companies from 1997 to 2007. We show that managers favour off‐market buybacks to distribute excess franking credits to shareholders when the buyback is larger and when the firm is generating more cash. On‐market buybacks are more likely when the firm is undervalued. These findings have implications for understanding how corporate managers approach the repurchase decision, the impact of taxes on corporate financial policy, and how transaction costs can influence the choice between an off‐market and an on‐market buyback.

Not All Buybacks Are Created Equal: The Case of Accelerated Stock Repurchases

The authors documented the characteristics and market performance of ASR (accelerated share repurchase) stock. They found that post-announcement ASR stock performance is poor, unlike that documented in the literature for other repurchase methods, which implies that ASRs do not signal undervaluation, a frequently suggested motivation for repurchases.

Not All Buybacks are Created Equal: The Case of Accelerated Stock Repurchases

This paper investigates the new and growing practice of accelerated share repurchases (ASRs). In an ASR a firm hires an investment bank to borrow shares from existing investors. The investment bank delivers these shares to the firm, and the firm eliminates the shares immediately. The bank then repurchases shares in the open market over a period of several months and returns them back to the lenders. We document the characteristics and market performance of ASR stock. ASRs are primarily used to accelerate existing open-market repurchase programs. While the announcement return on ASRs is positive, it is very small when compared to other repurchase methods. Interestingly, the post-announcement performance of ASR stock is poor, unlike that documented in the literature for other repurchase methods. Our findings suggest that ASRs do not signal undervaluation, a motivation frequently suggested by analysts and academics for repurchases. The firm is getting the shares today but only will pay tomorrow's price.

Repurchasing Shares on a Second Trading Line*

This paper studies a unique buyback method allowing firms to reacquire their own shares on a separate trading line where only the firm is allowed to buy shares. This share repurchase method is called the Second Trading Line and has been extensively used by Swiss companies since 1997. This type of repurchase is unique for two reasons. First, unlike open market programs, the repurchasing company does not trade anonymously. Second, all transactions made by the repurchasing firm are publicly available in real time to every market participant. This is a case of instantaneous disclosure which contrasts sharply with other markets characterized by delayed or no disclosure. We document that the daily repurchase decision is statistically associated with short-term price changes and the release of firm-specific news. We also find that repurchases on the second trading line have a beneficial impact on the liquidity of repurchasing firms. Exchanges and regulators may consider the second trading line an attractive share reacquisition mechanism because of its transparency and positive liquidity effects.

Repurchasing Shares on a Second Trading Line

This paper studies a unique buyback method allowing firms to reacquire their own shares on a separate trading line where only the firm is allowed to buy shares. This temporary trading platform is opened concurrently with the original trading line on the stock exchange. This share repurchase method is called the Second Trading Line and has been extensively used by Swiss companies since 1997. This type of repurchase is unique for two reasons. First, unlike open market programs, the repurchasing company does not trade under the cover of anonymity. Second, all transactions made by the repurchasing firm are publicly available in real time to every market participant. This is a case of instantaneous disclosure which contrasts sharply with other markets characterized by delayed or no disclosure. Using actual repurchase data from all buybacks implemented through second trading lines, we find that managers exhibit timing ability for the majority of programs. We also document that the daily repurchase decision is statistically associated with short-term price changes. However, we reject the opportunistic repurchase hypothesis and find no evidence that managers exploit their information advantage when reacquiring shares. We also find that repurchases on the second trading line have a beneficial impact on the liquidity of repurchasing firms (i.e., higher trading volumes, smaller bid-ask spreads, and thicker total depths). Exchanges and regulators may consider the second trading line an attractive share reacquisition mechanism because of its transparency and positive liquidity effects.

Does stock price elasticity affect corporate financial decisions?

This paper considers whether stock price elasticity affects corporate financial decisions. Basic economic principles and the existing theoretical literature predict that firms choosing the Dutch auction instead of the fixed price tender offer should be those firms expecting to face greater stock price elasticity. Econometric analysis suggests that firms choosing the Dutch auction instead of the fixed price tender offer between 1984 and 1989 are indeed those firms expecting to face greater stock elasticity, even though the average realized elasticities of the firms conducting the various tender offers fail to be significantly different. The expected elasticity remains an important determinant of the tender offer choice even when allowing for firm characteristics associated with the choice of repurchase method. Firms facing greater elasticity are also characterized. The findings suggest that expected stock price elasticity may be an important determinant of corporate financial decisions that affect the supply of, or demand for, stock.

Does Stock Price Elasticity Affect Corporate Financial Decisions?

This paper considers whether stock price elasticity affects corporate financial decisions. Basic economic principles and the existing theoretical literature suggest that firms choosing the Dutch auction instead of the fixed price tender offer are those firms that expect to face greater stock price elasticity. While the average realized elasticities of the firms conducting the various tender offers between 1984 and 1989 fail to be significantly different, multivariate econometric analysis suggests that firms choosing the Dutch auction instead of the fixed price tender offer are indeed those firms that expect to face greater stock elasticity. The expected elasticity remains an important determinant of the tender offer choice even when allowing for firm characteristics associated with the choice of repurchase method. Firms facing greater elasticity are also characterized. The findings suggest that expected stock price elasticity may be an important determinant of corporate financial decisions that affect the supply of or demand for stock.

Determinants of the Choice between Alternative Share Repurchase Methods

This study provides an empirical examination of the determinants of the choice between alternative share repurchase methods. It is shown that the likelihood of selecting a self-tender offer over an open market share repurchase increases with the repurchasing firm's agency costs of free cash flow, inside ownership percentage, leverage, prebuyback stock performance, and the magnitude of cash involved in the transaction. The empirical evidence is consistent with the free cash flow, information-signaling, and managerial entrenchment hypotheses contributing toward explaining the choice of repurchase method among firms. The study concludes that the two repurchase methods appear to serve different purposes for the repurchasing firm.