Stock Repurchases Research Articles

Impact of Stock Repurchase on the Capital Markets

This study intends to examine, from an economic and accounting standpoint, how the share repurchase procedure affect financial markets by specifically testing their effects on the financial performance of the specific companies. The OLS regression analysis was used on 66 companies that were traded on the American Stock Exchange between 2009 and 2020 as part of the study sample. The results reveal that share repurchases improve financial results, as evidenced by return on equity (ROE) and Added Economic Value (EVA). The results, however, show that share repurchases have little effect on the return on assets (ROA). The study found that the management's justifications for share buybacks affect a company's financial success. The study also found that the management's aim to produce a cash surplus improves the company's financial performance. The management objective of increasing earnings per share, which also improves the firm's financial success, was found to be one of the most significant motivations for the company to repurchase shares, according to the study. The study also showed that share repurchases significantly outperform returns on assets or returns on equity in terms of the Economic Value Added (EVA), one of the most important measures of financial success. The study, however, found little proof that the companies' share repurchases caused by higher financial leverage have an effect on their financial performance. This research, therefore, provided an insight on how share purchases affect the capital markets is dependent on the source of the surplus cash, and relatedly, share purchases through improved earnings per share increases the desirability of the company from their improving their financial standpoint.

The Unbearable Cost of Drug Development

The Unbearable Cost of Drug Development

Tax clientele and share repurchase execution

This study hypothesizes that low-tax clientele firms are reluctant to engage in share repurchases because their shareholders’ dividend tax penalty is less than the expropriation of strategic trading in share repurchases. As a result, firms formed by low-tax clientele execute share repurchases in a cost minimization strategy when they consider the tax status of most of their shareholders. Using novel data from Taiwan, this research finds that, compared to high-tax clientele firms, low-tax clientele firms tend to use market timing skills to repurchase stocks and get a larger price discount in the repurchase execution. The findings enrich the dividend tax penalty and market timing literature and offer practical implications for shareholder activism.

Pengaruh Dividen Payout Ratio, Debt To Equity Ratio, Free Cash Flow, dan Earning Per Share Terhadap Keputusan Perusahaan Melakukan Stock Repurchase Pada Perusahaan yang Terdaftar di Bursa Efek Indonesia tahun 2019 – 2021

This study aims to analyze the effect of the Dividend Payout Ratio, Debt to Equity Ratio, Free Cash Flow and Earning Per Share on the decision to purchase Stock Repurchase in companies listed on the IDX in 2019-2021. The population in this study are go public companies that have repurchased stocks that are listed on the IDX for the 2019-2021 period. The sample in this study amounted to 54 companies that went public. The research design used was quantitative research and the sampling method used in this study was purposive sampling method. The data used in this research is secondary data. The data analysis method used in this study is multiple regression analysis with the help of the IBM SPSS version 25 application program. The results of the analysis show that (1) the dividend payout ratio has no effect on stock repurchase purchasing decisions, (2) the debt to equity ratio has no effect on stock repurchase decisions. purchase of stock repurchase, (3) Free cash flow affects the decision to purchase stock repurchase, (4) Earning per share does not affect the decision to purchase stock repurchase and (5) Dividend payout ratio, Debt to equity ratio, Free cash flow and Earning per share does not influence simultaneously on the stock repurchase purchase decision.

How did a Previously Unscrupulous Tactic Become a Popular Corporate Strategy?….. Time to Discuss the Impact of an Excise Tax on Treasury Stock

The problematic history of stock buybacks, known more familiarly as Treasury Stock acquisitions, has at times been described as unscrupulous transactions resulting in stock manipulation tactics engaged in by corporate America (Kotter, 1952). However, when the Securities and Exchange Commission (SEC) passed rule 10b-18, the definition of share buybacks changed from problematic manipulative strategies to brilliant corporate maneuvers (SEC Act 1934.). The SEC’s enactment of Rule 10b-18 opened Pandora’s Box for corporations to engage in unfettered access of their own issued stock shares. The 10b-18 SEC Rule provided a pathway for corporations to buyback their own previously sold stock shares within an accepted legal framework. Unfortunately, the SEC Rule 10b-18 has been viewed as sanctioning the use of corporate funds for valueless purchases depleting the liquidity of the corporate balance sheet. But should these transactions, be subject to tax as a means to rectify the problematic buyback mania?

Open-market stock repurchases, insider trading, and price informativeness

Open-market stock repurchases, insider trading, and price informativeness

Share repurchases on trial: Large‐sample evidence on share price performance, executive compensation, and corporate investment

AbstractUsing a large sample of US stocks covering more than three decades, we empirically examine common criticisms of and rationales for stock repurchases. Repurchases account for a tiny fraction of the trading volume in a typical stock, making their price impact too small to generate short‐term price manipulation. Price appreciation following repurchases is modest and does not reverse on average, suggesting the small price increases following repurchases signal firms’ good prospects. Also, we find no evidence that CEOs of repurchasing firms are paid excessively or that repurchases crowd out valuable investment opportunities. Because repurchases do not appear to be systematically abusive, enforcement action should be sufficient to deal with any bad actors, and significant regulation seems unwarranted.

Competitive Effects of Intra-Industry Public Equity Offerings on Stock Repurchases and Bond Issuance Decisions of Rival Firms: Empirical evidence from the Nordic Region

Competitive Effects of Intra-Industry Public Equity Offerings on Stock Repurchases and Bond Issuance Decisions of Rival Firms: Empirical evidence from the Nordic Region

Stock buybacks and credit default swap spread changes

The authors investigate whether the effects of stock buyback announcements on credit default swap (CDS) spread changes for US firms depend on macroeconomic conditions. The authors find that abnormal CDS spreads increase for small-sized firms announced to repurchase a higher share ratio during the normal period. In contrast, abnormal CDS spreads decrease for big-sized firms regardless of the magnitude of the repurchase ratio during the crisis period. The results of this study suggest that the wealth transfer effect dominates the signaling effect for small-sized firms with higher target ratios during the normal period. In contrast, the signaling effect is stronger for bondholders of big-sized firms during the crisis period.

Cash Induced Demand

AbstractI show that cash distributions through cash mergers, dividend payments, and stock buybacks are, in principle, similar to investor fund flows in generating demand for investable assets. Abnormal returns on certain assets can be forecasted because delegated investors predictably reinvest cash returns toward certain holdings. Novel measures of stock-level demand constructed using proportional reinvestments by mutual funds predict abnormal returns and issuances in noncash-paying stocks. These results highlight an alternative and substantial source of price fluctuations in the cross section of equities.

Rounding of earnings per share and managerial insider selling

ABSTRACT We hypothesize that managers anticipate a disproportionately larger price increase associated with rounded earnings per share (EPS) and make additional effort to round EPS when they plan to sell shares after the earnings announcement. Consistent with this hypothesis, we find that managers who round diluted EPS have higher managerial insider sales following the earnings announcement compared to managers who do not. Furthermore, we find that the positive association between rounding of diluted EPS and subsequent stock sales undertaken by chief financial officers (CFOs) is stronger when the level of abnormal stock repurchases is higher, consistent with managers’ strategic behavior.

Major Questions Raised by New US Excise Tax on Stock Buybacks

The United States has adopted a new 1% excise tax on the fair market value of stock repurchased by certain publicly traded corporations during a tax year. The statute has been drafted broadly, with the result that the tax may apply more widely than intended.

Hedge Strategy Analysis and Financial Analysis of Yunnan Baiyao

Plenty of companies actively employ financial instruments to hedge looming risks. Although hedging may reduce risks such as exchange rate risk and potential price risk, hedging is also likely to make companies suffer from loss. Options, one of the financial derivatives, bring holders rights instead of obligation to buy or sell the underlying asset at a fixed price. In 2020, Yunnan Baiyao declared that the group intended to conduct stock buybacks hedge the stock price risk of its repurchase plan. The cost of buyback was reduced in that this repurchase plan was combined with OTC put options. Yunnan Baiyao is the leading company in the pharmaceutical and health industry and its market value reached ￥134.24bn which ranked second among its peers as of 2021. Based on this stock purchase plan of Yunnan Baiyao, this article aims to analyze the financial situation of the company and the application of put options in the plan.

A Momentum to the Tender Offer Method of Buyback in India – An Analytical Study

There are a number of methods of stock buyback by a limited company. However, tender offer and open market repurchases are widely adopted and known methods in India. The present paper concentrates on tender offer. Purpose of the paper is to outline the existing literature exclusively on tender offer and to examine effect of revised guidelines in choosing the method for buyback. The data on number of tender offer repurchases made by the companies in India from 1998 to 2022 have been gathered to analyze and to interpret the effect of the revised guidelines to achieve the objective of the paper. The paper finds that there is a positive effect of the revised guidelines on the choice of the method. The paper concludes that the use of the tender offer method of buyback is increased over a period of time due to the guidelines revised from time to time by the regulatory body to curb the loopholes in the methods.

ANALISIS THE EFFECT OF STOCK BUYBACKS ON STOCK PRICES IN COMPANIES LISTED IN INDONESIA STOCK EXCHANGE DURING THE COVID-19 PANDEMIC PERIOD IN 2020

Stock repurchase is a corporate action carried out to withdraw part of the outstanding stocks in the market. There are several purposes of this action, including to increase the market price of the company's stocks. This research was to analyze the effect of stock buybacks carried out by corporations on the stock prices of companies listed on the IDX during the Covid-19 pandemic period 2020. There are 21 companies selected to be the object of this study. The collected stock price data was tested for normality and found that it was not normally distributed, so the statistical tools used were non-parametric statistics. The mean difference test is used to test the effect of the corporate action on the stock price. The results of the mean difference test show that the stock repurchase action was able to increase the stock price, although it has not matched the stock prices before the implementation of this corporate action.

Regulating stock buybacks: the $6.3 trillion question

ABSTRACT Corporate resource allocation decisions shape business investment, income distribution, and productivity growth. Stock buybacks––a term denoting when a corporation repurchases its own shares on the open market––manipulate stock prices and enrich senior corporate executives and hedge fund managers. We argue that the growing distribution of corporate funds to share-sellers via stock buybacks is a source of productivity fragility in the US economy. This article presents new data on the use of stock buybacks by US corporations in 2010–2019. We show the widespread and growing use of stock buybacks across industries and sectors and describe policies that will curb the excessive use of corporate funds on stock buybacks.

Stock repurchasing and corporate social responsibility

Stock repurchases are controversial. Researchers often view the positive association between free cash flow and the volume of the stock repurchases to be in the shareholders’ interest and the positive association between executive options and stock repurchases to be in the managers’ interest. Using firms’ corporate social responsibility (CSR) ratings as a measure of ethical culture—one that increases the cost of self-serving behavior for managers— we examine whether a firm’s CSR rating is related to its stock repurchase decisions. Although the baseline regression shows a positive association between CSR and repurchases, we find that CSR amplifies the positive association between free cash flow and stock repurchases and lessens the positive association between executive options and stock repurchases. These results indicate that ethical culture might play a role in repurchase decisions: it may encourage repurchases aligned with shareholders’ interests and discourage those primarily in managers’ interest. Furthermore, we also find that high CSR firms are associated with a greater completion rate of announced repurchase programs and receive more favorable stock market reaction to their repurchase announcements.

Accelerated Share Repurchases Under Stochastic Volatility

Accelerated share repurchases (ASRs) are a type of stock buyback wherein the repurchasing firm contracts a financial intermediary to acquire the shares on its behalf. The intermediary purchases the shares from the open market and is compensated by the firm according to the average of the stock price over the repurchasing interval, whose end can be chosen by the intermediary. Hence, the intermediary needs to decide both how to minimize the cost of acquiring the shares, and when to exercise its contract to maximize its payment. Studies of ASRs typically assume a constant volatility, but the longer time horizon of ASRs, on the order of months, indicates that the variation of the volatility should be considered. We analyze the optimal strategy of the intermediary within the continuous-time framework of the Heston model for the evolution of the stock price and volatility, which is described by a free-boundary problem which we derive here. To solve this system numerically, we make use of deep learning. Through simulations, we find that the intermediary can acquire shares at lower cost and lower risk if it takes into account the stochasticity of the volatility.

Tunneling through trademarks

This study documents how trademarks can be used to benefit controlling families at the expense of outside minority shareholders. Using a sample of Korean business group firms from 2017 to 2020, we find evidence to support this. First, firms are more likely to be licensor firms if the family holds higher cash flow rights. Second, we find that the association between a firm's sales and the likelihood of it being a licensee firm (or the amount of trademark royalty payments) gets stronger when the family's cash flow rights in the firm fall further below those in the licensor firm (i.e., higher cash flow rights differentials). Third, we find that the negative association between a firm's trademark royalty payments and shareholder distribution (i.e., dividend payouts and stock repurchases) gets stronger when family's cash flow rights differentials widen. Fourth, we find that the share prices of licensee firms react negatively on the day when the full disclosure of trademark royalty payments became mandatory, and that this tendency is stronger in firms with higher trademark royalty payments and higher cash flow rights differentials. Finally, these results manifest more significantly in pure holding company groups, where alternative tunneling channels are limited.

REAKSI PASAR ATAS PENGUMUMAN BUYBACK SAHAM PADA SAAT PANDEMI COVID-19 DI BURSA EFEK INDONESIA

This study aims to determine whether the market reaction to the announcement of share buybacks has a positive effect during the covid-19 pandemic. The population of this research is 68 companies. The sampling technique used purposive sampling method, the samples obtained were 60 companies. The proxy in measuring market reaction uses cumulative abnormal return (CAR). The data analysis technique used is descriptive analysis, one sample t-test. The market reacted negatively at the time of the announcement of the stock buyback, before the event and after the event. This situation is different from normal conditions if investors receive good information then the market will react positively. The Covid-19 outbreak has made market conditions uncertain, resulting in a decline in IHSG. Information on share buyback announcements and capital information issued by companies to conduct share buybacks is good information or positive information, but the information has little effect compared to the impact of covid-19 and has not been able to give confidence to investors.