Share Repurchases Research Articles

The impact of the share buyback process on financial performance: An economic and accounting perspective. Evidence from Egypt

The impact of the share buyback process on financial performance: An economic and accounting perspective. Evidence from Egypt

The Impact of the Share Buyback Process on Financial Performance: An Economic and Accounting Perspective: Evidence from Egypt

The Impact of the Share Buyback Process on Financial Performance: An Economic and Accounting Perspective: Evidence from Egypt

Trend of Short-term Returns Generated through Share Buyback Offers in India

The present paper intends to examine the trend of short-term returns generated by buyback offers in India; and other related aspects to such offers like investors’ response, and the method of repurchase used. A sample of 589 companies has been selected for the study. These are the “Indian companies across sectors which have initiated buyback offers, and are listed at Bombay Stock Exchange, and/or National Stock Exchange” from 1999-00 to 2020-21. The secondary data has been derived from the PRIME database for a time period of 22 years. Descriptive Statistics, Moving Average, and Bi-variate Regression analysis has been employed for investigation. The analysis has revealed an irregular trend of short-term returns which have been created through buyback events. The corporate sector is seen to be moving from the Stock Exchange Method of buyback to the Tender Method, along with encouraging shareholders’ response rate to buyback offers.

Do French Companies Cater to Share Buyback and Dividend Demand?

Do French Companies Cater to Share Buyback and Dividend Demand?

Factors Impact on Stocks Repurchase of Enterprises Listed on the Stock Market of Vietnam Period of 2015-2019

The report assessed the stock repurchase activities of companies listed on the Vietnamese stock market in 2015 - 2019. The article uses Tobit's regression model and FEM - Fixed Effect Model regression model. To determine the motivation of the business to buy back, build a model based on the existing models to evaluate the impact of the share buyback on the enterprise's business performance. The research results show that the sharing repurchase by enterprises lowers valuation or reduces the cost of free cash flow and capital structure of the enterprise. It will determine the repurchase of shares of that enterprise; Along with that, the company's stock repurchase will pay fewer dividends. With the impact of stock repurchases on the enterprise's business performance, the results show that stock repurchases have potential implications for future earnings and the profitability ratios on the business books.

Do intangibles matter for corporate policies? Evidence from organization capital and corporate payout choices

Organization capital represents the stock of knowledge, capabilities, culture, and business processes, and systems that integrate human skills with physical capital to enhance organizational efficiency. We investigate whether and how a firm's payout choices are related to its level of organization capital. Using a large sample of U.S. firms during the period 1980–2017, we find that both the likelihood and the levels of cash dividend distribution and share repurchases are significantly higher for firms with more organization capital. Our findings hold up to a battery of robustness checks and endogeneity tests. We further explore related channels and find strong evidence that the positive association between organization capital and dividend payments (share repurchases) is largely attributable to agency problems (executive compensation incentives). We find weak evidence for the signaling argument for corporate payouts. Overall, we document that organization capital plays a central role in shaping corporate payout choices.

CEO option incentives and corporate share repurchases

In this paper, we study the effects of CEOs option incentives on firms' payout and investment policies. On the company's payout side, we find strong evidence that high CEO option sensitivity to stock prices causes more share buybacks and fewer cash dividends. Furthermore, the impact of option incentives on share repurchases is more pronounced when the stock is undervalued. On the investment side, we find that higher exercisable option-delta CEOs direct fewer resources to R&D investments and employment. We use instrument variables two-stage least square regressions and simultaneous system equations regressions to address remaining endogeneity concerns and establish causality. Further analyses reveal that firms in the top exercisable option-delta quintile experience deterioration in performance following buybacks, suggesting that CEOs' repurchasing decisions are significantly influenced by stock price concerns and that they may not act in the best interest of shareholders in the long-term.

Assessing the impact of market logic and long-term strategic plans of top management in share buyback decisions

PurposeThis paper investigates stakeholders' perspectives of share buybacks in the context of time-horizons of investment decisions and strategy.Design/methodology/approachWe use in-depth interviews with stakeholders from eight listed UK firms as well as examine their publicly available data.FindingsFindings suggest that share buybacks involve a wide range of stakeholders' rational interests and long-term management perspectives as they enable firms to strategise operational plans towards their long-term corporate goals.Research limitations/implicationsThe findings are based on interviews with a small number of share buyback firms and the findings, therefore, may not be generalised to all firms.Practical implicationsThe results show that share buybacks may be part of the long-term interests of firms and not necessarily used as part of short-term EPS increases as suggested in the extant literature.Originality/valueThe findings contribute to the literature on corporate pay-out policies in the context of short-term financial objectives vs long-term strategic objectives of stakeholders. They show that share buybacks can be an important part of firms' long-term strategic considerations.

Caught in the crossfire: How the threat of hedge fund activism affects creditors

Firms under the threat of hedge fund activism on average experience significant losses of outstanding bondholder wealth: their bond yields rise while prices fall and ratings deteriorate. Under-threat firms receive inferior terms when initiating new loans. These observations are more prominent in firms with weaker creditor rights protection and firms that experience more significant improvement in stock performance without accompanying real improvements. These findings are consistent with the manifestation of agency problems. Share repurchases funded by cash, investment cutbacks, and new debt issuances elevate share price, which increases the cost of intervention for activists but jeopardizes the interest of existing bondholders.

Looking for the Economy‐Wide Effects of Stock Market Short‐Termism

To investigate the widespread claim that stock market “short‐termism” is a major drag on U.S. corporate investment and the broad economy, the author examines the evidence on long‐run trends in corporate capital investment, buybacks, and R&D. As critics of market‐driven corporate short‐termism have pointed out, U.S. corporate investment in capital equipment and other tangible assets has been falling steadily since the late 1970s and buybacks are rising. But if the story of economy‐wide decline due to short‐termism were valid, we would expect to see the following: (1) investment spending in the United States declining faster than in Europe and Japan, where large companies depend less on stock markets for capital and shareholder activists are less influential; (2) cash from all the large share buybacks bleeding out from the U.S. corporate sector; and (3) economy‐wide declines in corporate R&D spending.What the author reports, however, is that real U.S. corporate R&D spending, has been steadily rising since the 1970s and rising faster than the economy is growing. And even as corporate distributions of capital through dividends and buybacks have also been rising sharply for decades, corporate cash holdings (as a percentage of total assets), are at near record‐high levels. The explanation for such high cash holdings together with record‐high payouts—and perhaps the author's most striking finding—is that such distributions, which tend to be concentrated among larger, mature companies, are closely matched by new corporate borrowings and stock issuance—the latter often by smaller (non‐S&P 500) companies. What's more, while there's an outflow of cash from the S&P 500 from net buybacks and borrowing, there's a substantial cash inflow into the non‐S&P 500 from net stock issuances and borrowing.Finally, the fact that capital spending by European and Japanese companies—which face neither U.S.‐style quarterly‐oriented stock markets nor aggressive activist investors—has been falling more rapidly than in American companies suggests that U.S. capital markets are not a major reason for declining capital investment. And, while there's good reason for further R&D support, the author suggests in closing, reversing the U.S. government's sharply declining spending on R&D since the global financial crisis is the low‐hanging R&D fruit that should be bolstered first.

The relationship between stock repurchase completion rates, firm reputation and financial reporting quality: a commitment‐trust theory perspective

AbstractIn this study, we examine firms' commitment to stock repurchase announcements as a proxy for trust within the investing community. Using a commitment‐trust theory perspective, we show that firms with higher repurchase (share buyback) completion rates have higher financial reporting quality. We proxy financial reporting quality using a composite measure of financial reporting aggressiveness and also using management’s propensity to meet or beat analysts' expectations. These firms mitigate (enhance) the negative (positive) effect of repurchases on financial reporting quality. Higher completion rates mitigate the negative effect of accretive stock repurchase on financial reporting quality. Further results show that higher corporate governance and financial constraints dampen this relationship between completion rates and financial reporting quality. Our results, which are robust to various sensitivity tests, indicate that higher stock repurchase completion rates reflect good business morality and a firm’s commitment to its investors, as exhibited by higher financial reporting quality.

The Tax Cuts and Jobs Act: Searching for Supply-Side Effects

The Tax Cuts and Jobs Act of 2017 (TCJA) instituted the most substantial changes in taxation in decades and was designed to boost the economy via supply-side incentives. This paper reviews these changes and examines the impacts on economic aggregates through 2019. The act clearly reduced revenue. The effect on gross domestic product is difficult to tease out of the data. Investment growth rose after the TCJA was enacted, but it was driven by trends in aggregate demand, oil prices, and intellectual capital that were unrelated to the TCJA’s supply-side incentives. Growth in business formation, employment, and median wages slowed after the TCJA was enacted. International profit shifting fell only slightly, and the boost in repatriated profits primarily led to increased share repurchases rather than new investment.

Trading Applications Using EVA Style Analysis

The authors apply economic value added (EVA) style analysis to four corporate actions: acquisitions, share repurchases, stock splits, and dividend announcements. Firms acquiring public targets provide significant shorting opportunities on value-destroying growth and “wise” restructurers. Acquiring firms with private targets provide longing opportunities on underinvesting and wise restructurers. For share repurchases, the authors find consistent alpha opportunities on repurchasing firms by longing their stocks, with the highest alpha on the wise restructurers. The post-announcement returns for stock splits were negative for value destroyers and positive for restructurers. For dividend increases, post-announcement effects are small except for positive alpha on the wise restructurers. For dividend decreases, negative abnormal returns continue for the value destroyers and restructurers. The best longing opportunity is on the stocks of share-repurchasing companies in a wise restructurer position, while the best shorting opportunity is on the stocks of dividend-decreasing companies in a value-destroyer position. For active investors, EVA style analysis illuminates the naiveté of a “one size fits all” trading strategy on corporate actions.

Firm, institutional and short sellers’ trading behavior around share repurchases

PurposeThis study investigates the valuation motive for increasing share repurchases: the authors analyze the trading dynamics between short sellers, institutional investors and the firm itself around share repurchases.Design/methodology/approachThe authors examine the valuation motive for share repurchases through an analysis of firm, institutional and short sellers’ trading behavior. The firm-level panel regression models using firm-quarter observations in the sample period are estimated.FindingsThe authors find that firms repurchase more intensely against increased short selling and that institutional investors trade in parallel with the repurchasing firm.Originality/valueResults suggest that firms disagree with short sellers’ intrinsic valuation of the firm, which is consistent with findings of recent studies such as Muzere (2019) and Bargeron and Bonaimé (2020).

Determinants of dividend policy of pharmaceutical companies in India

The pharmaceutical industry plays a considerable role in developing vaccines and medications for prevention and reduction in disease incidence, treatment of ailments and enhancement in quality of life by contributing to innovative research and engaging in technological advancements to meet the complex healthcare demands of the population. India globally occupies 3rd position in pharmaceutical production by volume and 14th by value. The domestic pharma industry consists of 3,000 drug companies with 10,500 manufacturing units. It delivers drugs to maintain health or prevent infections and alleviate diseases distressing the global population. The current research study aimed to reveal the determinants of dividend pay-out of Indian pharmaceutical companies. Dividend policy is a crucial financial policy on paying cash dividend presently or paying an increased dividend at a later stage. At times of cash surplus, the management could pay out a portion or all of those surplus earnings in the form of cash dividends or to repurchase the company's stock through a share buyback program. The objectives of the current research study are, to identify the factors determining dividend payout of pharmaceutical companies in India, to examine the relationship between dividend payout and corporate profitability and to analyse the impact of dividend policy on the firm value. Secondary data was collected from the published annual reports for the years 2015-16 to 2019-20.

Дисфункціональність ринку акцій в Україні: фактор ваучерної приватизації

The author determines the peculiarities of privatisation processes in transformational economies compared with mature ones and considers the difference of the goal – to accelerate the development of the already existing stock market, and in fact, to create the market anew. Socio-economic transformations, privatisation of property and creation of market infrastructure are prerequisites but not a guarantee for the emergence of the domestic stock market as a specific institutional phenomenon, especially in the absence of adequate incentives for public equity. It is established that some local stock markets are degraded against the background of increasing size, globalisation, liquidity, and integration of world capital markets, including the Ukrainian one. It is stated that, unlike the neighbouring post-socialist states (firstly, Poland), the stock market has not been built in Ukraine as a basis for compelling attraction and allocation of capital. Paper substantiated that this is primarily a consequence of inefficient and protracted privatisation, mainly over-the-counter sale of shares, inconsistency of state and regulatory policy, optional iterations in the development of market infrastructure, the creation irrationality of privatised enterprises (even the smallest) exclusively in the form of open joint-stock companies, which die to their objective inability to raise public capital faced inadequate financial burden and coercion of listing on exchanges. The author identified the main problems of the Ukrainian stock market laid down during privatisation: excessively consolidated share capital structure, insecurity of minorities, meagre free-float and liquidity, conditional exchange pricing, the predominance of over-the-counter circulation of shares, etc. Emphasis is placed on the consequences of the attempt to implement the squeeze-out procedure in Ukraine. In the absence of market prices and the acquisition of control by dominant shareholders long before the legislative changes, the share buyback did not protect minorities. However, it led to significant investors’ losses, termination of circulation of shares of most issuers, even greater conditionality of indices, capitalisation and other indicators of market development. It is noted that the effectiveness of the announced state plans for the development of the stock market due to the privatisation of state property remains in doubt in the absence of prerequisites for balancing economic interests between market participants, the objectivity of pricing, incentives for public capital raising and effective institutional environment. It is concluded that in Ukraine, the focus on privatisation procedures in the stock market development has no prospects in the absence of adequate incentives for the public raising of capital.

What Is the True Valuation Motive for Increasing Share Repurchases? An Analysis of Firm, Institutional and Short Selling Trading Behavior

This study investigates the valuation motive for increasing share repurchases: we analyze the trading dynamics between short sellers, institutional investors, and the firm itself around share repurchases. We find that firms repurchase more intensely against increased short selling and that institutional investors trade in parallel with the repurchasing firm. Results suggest that firms disagree with short sellers’ intrinsic valuation of the firm, which is consistent with findings of recent studies such as Muzere (2019) and Bargeron and Bonaime (2020).

The association between ownership concentration and payout behaviour: Evidence from South Africa

Orientation: The study investigated the association between ownership concentration and different payout methods of selected companies listed on the Johannesburg Stock Exchange (JSE) in South Africa for the financial reporting periods 2012 to 2019.Research purpose: The research objective was to investigate whether payout behaviour differed when low and high ownership concentration was compared.Motivation for the study: An understanding of the association between ownership concentration and payout policies is an important corporate governance aspect that could reveal the agency conflict between majority and minority shareholders. No previous South African empirical study has considered testing or investigating the two opposing agency-based hypotheses, namely the monitoring and rent extraction hypotheses, with reference to different payout methods.Research design, approach, and method: An empirical research design was followed, which is descriptive in nature. Descriptive statistics and a mixed-model analysis of variance were employed to describe the different payout methods – that is ordinary dividends, special dividends, capital distributions, additional shares, general share repurchases, and specific share repurchases – employed by companies listed on the JSE based on a distinction between low and high ownership concentration.Main findings: High ownership concentration was found to be associated with statistically significant lower ordinary dividends and capital distributions in support of the rent extraction hypothesis. Rent extraction highlights the agency conflict between majority and minority shareholders.Practical/managerial implications: Findings of the present study revealed agency conflicts that may be informative to those charged with corporate governance to help them resolve agency conflict.Contribution/value-add: This study is the first to consider the association between ownership concentration and payout behaviour in South Africa subsequent to the introduction of the dividends tax regime in 2012. The descriptive evidence submitted can serve as a basis for further explanatory research relating to ownership concentration and payout behaviour of companies.

The integration of share repurchases into investment decision-making: Evidence from Japan

Share repurchases have become a significant global transaction and skepticism persists about their ambiguous effect on investment. We enter this debate motivated by inconclusive relevant empirical evidence and the remarkable evolution of share repurchases in Japan. Accordingly, we explore the investment-share repurchases nexus using panel data from Japanese listed firms between 2000 and 2019. We document a negative relationship consistent with the notion that firms curtail repurchases in the presence of investment spending and vice versa. We establish this contention by using subsamples stratified according to financing constraints, growth opportunities and cross-shareholdings. The findings endure after controlling for self-selection, endogeneity and heterogeneity and suggest that firms' investment decision precedes share repurchases which are adjusted accordingly. The results highlight how the widely criticized feature of cross-shareholdings, which is a distinct trait of the Japanese market, affects the integration of share repurchases into investment decision making.

Effect of Earnings Management and Stock Options on the Disclosure Effect of Share Repurchases

Effect of Earnings Management and Stock Options on the Disclosure Effect of Share Repurchases