The wealth effects of accelerated stock repurchases

2014 ◽  
Vol 40 (5) ◽  
pp. 434-453
Author(s):  
Ken C. Yook ◽  
Partha Gangopadhyay
Keyword(s):  
Abnormal Returns ◽  
Wealth Effect ◽  
Wealth Effects ◽  
Open Market ◽  
Stock Repurchase ◽  
Content Type ◽  
Number Of Factors ◽  
The Press ◽  
Completion Date ◽  
Sampling Problems

Purpose – The wealth effect of accelerated stock repurchase (ASR) documented by previous studies is not as large as the authors would have expected. The authors believe that there are potentially important sampling problems in the previous studies, which make the results less reliable. Identifying a number of factors that can possibly affect the announcement-period returns, the purpose of this paper is to reexamine the wealth effect of ASRs. Design/methodology/approach – The paper identifies a number of factors that can possibly affect the announcement-period returns to ASRs which include: whether an ASR announcement in the press is the initiation date or the completion date of the ASR; the size of the ASR program; whether an ASR is part of an open market repurchase (OMR) program; the frequency of ASR announcements by a firm; whether other corporate news is announced simultaneously with an ASR. The paper partitions the ASR sample into three groups, and then examines the wealth effect of these groups. Findings – The empirical results show that the market reacts differently to the announcement of ASR in these three groups. The three-day announcement-period CAR (t=−1, +1) is 3.59 percent for the high-wealth-effect group, 2.01 percent for the medium-wealth-effect group, and 1.48 percent for the low-wealth-effect group. The paper also identifies the size of the ASR program, whether the ASR is announced simultaneously with an OMR or not, and the frequency of ASR announcements are the most important determinants of the announcement-period abnormal returns. Originality/value – These findings suggest that the weaker wealth effects of ASRs that have been documented in previous studies are due to sampling related issues.

The post-repurchase announcement drift: an anomaly in disguise?

2015 ◽  
Vol 41 (2) ◽  
pp. 205-224 ◽  
Author(s):  
Thanh T. Nguyen ◽  
Ninon K. Sutton ◽  
Dung (June) Pham
Keyword(s):  
Stock Price ◽  
Abnormal Returns ◽  
Open Market ◽  
Calendar Time ◽  
Stock Repurchase ◽  
Earnings Announcement ◽  
Content Type ◽  
Post Earnings Announcement Drift ◽  
Earnings Performance ◽  
Repurchase Announcements

Purpose – The purpose of this paper is to reexamine the stock price drifts after open-market stock repurchase announcements by differentiating actual repurchases from repurchase announcements and by controlling for the repurchasing firms’ earnings improvement in the announcement year relative to the prior year. Design/methodology/approach – The authors use the calendar-time method and matching method based on different criteria to calculate the post-announcement abnormal returns. Findings – The results show that only firms actually repurchasing their shares exhibit a positive post-announcement drift. More importantly, the authors find that these repurchasing firms have the same post-announcement drift as their matching firms that have similar size and earnings performance but do not repurchase. This supports the argument that the post-repurchase announcement drift found in previous studies is not a distinct anomaly but the post-earnings announcement drift in disguise. Social implications – The post-repurchase announcement drift found in previous studies is the post-earnings announcement drift in disguise. Originality/value – The study shows that because high earnings performance positively relates to real repurchase activities, controlling for earnings performance in examining whether a drift occurs after repurchase announcements.

Cryptocurrency bubble risk and the FOMC announcements during COVID-19 black swan event

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anis Jarboui ◽  
Emna Mnif
Keyword(s):  
Federal Reserve ◽  
Abnormal Returns ◽  
Relevant Information ◽  
Future Research ◽  
Open Market ◽  
Predictive Capacity ◽  
Federal Open Market Committee ◽  
Content Type ◽  
Cumulative Abnormal Returns ◽  
Practical Implications

Purpose After the COVID-19 outbreak, the Federal Reserve has undertaken several monetary policies to alleviate the pandemic consequences on the markets. This paper aims to evaluate the effects of the Federal Reserve monetary policy on the cryptocurrency dynamics during the COVID19 pandemic. Design/methodology/approach We examine the response and feedback effects via an event study methodology. For this purpose, abnormal returns (AR) and cumulative abnormal returns (CARs) around the first FOMC (Federal Open Market Committee) announcement related to the COVID-19 pandemic for the top five cryptocurrencies are explored. We, further investigate the effect of the eight FOMC statement announcements during the COVID19 pandemic on these cryptocurrencies (Bitcoin, Ethereum, Tether, Litecoin, and Ripple). In the above-mentioned crypto-currency markets, we investigate the presence of bubbles by using the PSY test. We then examine the concordance of the dates of these bubbles with the dates of the FOMC announcements. Findings The empirical results show that the first FOMC event has a negative significant effect after 4 days of the announcement date for all studied cryptocurrencies except Tether. The results also indicate that cumulative abnormal returns are significant during the event windows of (−3,8), (−3,9), and (−3,10). Besides, we find that Bitcoin, Ethereum and, Litecoin lived short bubbles lasting for a few days. However, Ripple and Tether markets present no bubbles and no explosive periods. Research limitations/implications This paper presents trained proof that FOMC announcements have a positive effect on volatility's predictive capacity. This work therefore promotes the study of the data quality of volatility in future research as well. Practical implications The justified effect of the FOMC announcements on cryptocurrency as a speculative asset has practical implications for investors in building their trading strategies in anticipation of the next FOMC announcement. Therefore, this study implies that the FOMC announcements contain very relevant information for investors in the cryptocurrency market. This research may not only encourage a better understanding of the evolution of the expectations of policymakers, but also facilitate a better understanding of how these expectations are developed. Originality/value The COVID-19 pandemic has disturbed the stability of financial markets, inciting the Fed to take some monetary regulations. To the best of our knowledge, this study is the first one that analyses the response of five major cryptocurrencies to FOMC announcements during COVID 19 pandemic and associates these dates with bubble occurrences.

The effect of corporate governance mechanisms on European Mergers and Acquisitions

2018 ◽  
Vol 18 (5) ◽  
pp. 965-986 ◽  
Author(s):  
Ioannis Tampakoudis ◽  
Michail Nerantzidis ◽  
Demetres Soubeniotis ◽  
Apostolos Soutsas
Keyword(s):  
Corporate Governance ◽  
Mergers And Acquisitions ◽  
Economic Impact ◽  
Abnormal Returns ◽  
Voting Rights ◽  
Shareholder Wealth ◽  
Wealth Effects ◽  
Board Size ◽  
Content Type ◽  
Acquiring Firms

Purpose The purpose of this study is twofold: First, to assess the economic impact of Mergers and Acquisitions (M&As) on European acquiring firms from the beginning of the sixth merger wave onward. And second, to investigate the effect of CG mechanisms such as board size, voting rights and anti-takeover provisions (ATPs) on acquirers’ gains, along with a set of control variables. Design/methodology/approach For the purpose of the study, the authors use a sample of 349 completed M&As across all business sectors between European firms from 01/01/2003 to 31/12/2017. Abnormal returns are estimated by applying an event study methodology, and the effects of CG mechanisms are assessed with univariate and multivariate cross-sectional regressions. Findings The authors present evidence that acquirers realize significant positive excess returns upon the announcement of M&As. The authors find past profitability to be a strong indicator of value creation, while most of the traditional firm-specific and deal variables fail to interpret the results. The authors’ analysis indicates that the examined CG measures have a significant effect on acquirer’s gains. More specifically, the authors find that boards in excess of eight directors are negatively related to announcement-period abnormal returns. In contrast, the wealth effects for acquiring firms are positively related to shareholders’ voting rights and/or to the number of ATPs. The estimated coefficients of all three CG mechanisms are statistically significant across alternative model specifications. Research limitations/implications A clear implication is that the existence of certain CG mechanisms leads to value-enhancing strategic decisions for European acquirers. In terms of policy direction, the authors’ findings assist practitioners and/or national and transnational institutions in perceiving the efficacy of certain CG practices. Practical implications This study indicates that Corporate Governance Statements (CGSs) fail to provide adequate information to investors to understand in-depth the CG mechanisms that companies apply. Thus, the authors recommend that CGSs should provide not only narrative information but also information that may generate value for shareholders and other stakeholders as well. Such information should be qualitative and/or quantitative in nature and be made available to market participants to support their decision-making. Originality/value To the authors knowledge, this is the first study that investigates the effect of CG on the economic impact of M&As for European acquirers, using three widely examined CG mechanisms, namely, the board size, the voting rights and the ATPs. The authors’ empirical findings form the basis for further examination of the linkage between M&As and CG, with the intention of establishing the appropriate CG framework that will ensure shareholder wealth creation. This line of research could produce new insights in the field, allowing investors and policymakers to appreciate the benefits of effective CG.

scholarly journals Underreaction to open market share repurchases,

2019 ◽  
Vol 30 (80) ◽  
pp. 172-185 ◽  
Author(s):  
F. Henrique Castro ◽  
Claudia Yoshinaga
Keyword(s):  
Factor Model ◽  
Abnormal Returns ◽  
Open Market ◽  
Stock Repurchase ◽  
Long Run ◽  
Average Abnormal Return ◽  
Fama And French ◽  
Repurchase Announcements ◽  
Buy Back ◽  
Term Performance

ABSTRACT This article aims to investigate the long-term performance of a portfolio of firms that announced the repurchase of their own stocks in the Brazilian market from 2003 to 2014. Open market stock repurchase is a means to distribute cashflow to shareholders. Some of the reasons for a firm to buy back its own stocks are: to adjust its capital structure; to reduce excessive cash levels; as an alternative to dividends; and signaling to the market in order to reduce information asymmetry between the firm and its investors. If the signaling hypothesis is true, then forming a portfolio with shares that announce repurchases generates abnormal returns in the long run. Our results show that repurchase announcements in the open market signal stock underpricing, and abnormal returns can be earned using this strategy. Results are inconsistent with the semi-strong form of the efficient markets hypothesis, which states that one cannot earn abnormal returns with publicly available information. We obtained abnormal returns using the capital asset pricing model (CAPM) and Fama and French three-factor model. Additionally, we divided the sample in growth and value firms. We found that the average abnormal return for firms that announce repurchase programs ranges from 5.4% to 7.9% for up to a 3-year period after the announcement. For value companies (more likely to repurchase stocks due to undervaluation), abnormal returns can reach up to 11.5% per year.

scholarly journals The impact of divestitures on shareholder wealth – The DACH case

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nils Teschner ◽  
Herbert Paul
Keyword(s):  
Positive Impact ◽  
Relative Size ◽  
Abnormal Returns ◽  
Shareholder Wealth ◽  
Wealth Effects ◽  
Wealth Creation ◽  
Publicly Traded ◽  
Content Type ◽  
Publicly Traded Companies ◽  
The Impact

PurposeThe purpose of this research is to study the impact of divestitures on shareholder wealth. This study covers selloffs of publicly traded companies in Germany, Austria and Switzerland (DACH region) during the period 2002–2018. It aims to understand the overall effect of selloffs on shareholder wealth as well as the impact of important influencing factors.Design/methodology/approachThis study is part of capital market studies which investigate shareholder wealth effects (abnormal returns) using event study methodology. To determine the significance of abnormal returns, a standardized cross-sectional test as suggested by Boehmer et al. (1991) was applied. The sample consists of 393 selloffs of publicly traded companies with a deal value of at least EUR 10m.FindingsThe findings confirm the overall positive impact of selloffs on shareholder wealth. The average abnormal return on the announcement day of the sample companies amounts to 1.33%. The type of buyer, the relative size of the transaction as well as the financial situation of the seller in particular seem to influence abnormal returns positively.Originality/valueThis study investigates shareholder wealth creation through selloffs in the DACH region, a largely neglected region in divestiture research, but now very relevant due to increasing pressure of active foreign investors. Sophisticated statistical methods were used to generate robust findings, which are in line with the results of similar studies for the US and the UK.

A Study of Wealth Effects of Takeover Announcements in India on Target Company Shareholders

2013 ◽  
Vol 38 (3) ◽  
pp. 23-50 ◽  
Author(s):  
T Mallikarjunappa ◽  
Panduranga Nayak
Keyword(s):  
Strategic Alliances ◽  
Stock Price ◽  
Statistical Significance ◽  
Abnormal Returns ◽  
Wealth Effect ◽  
Market Model ◽  
Wealth Effects ◽  
Event Window ◽  
Target Company ◽  
The Impact

The business strategy of inorganic growth is carried out by companies by resorting to actions which prominently include mergers, takeovers, and strategic alliances. There is a rapid growth of both mergers and takeovers in India subsequent to the economic liberalization. The companies consider takeover activity as the quickest means of corporate growth to enhance their size and face the domestic and global competition. In spite of several decades of vast research, researchers have not come to the final conclusion on the wealth effect of announcements of takeovers on the shareholders of participating companies. While some studies justify takeover as a socially productive activity which creates value for the shareholders, others provide contrary evidences to show that they destroy value for the shareholders. In India, only some studies have analysed the impact of M&A announcements on the stock return performance of companies involved and there is lack of evidences on wealth effects on shareholders. Therefore, this paper assesses the impact of takeover announcement on the stock price performance of target companies by taking a sample of 227 companies which received takeover bids during 1998–2007. The stock price reaction is examined for a period of 61 days surrounding the bid announcement day employing standard market model. BSE- 200 index is used as a proxy for the market. The regression co-efficient and the constant terms are estimated over a period of 250 days (-280 to -31) and the statistical significance of the results of the study is determined by non-standardized and standardized abnormal return methods. Both raw returns and log returns are examined. Results of the study show that target company shareholders experience substantial and statistically significant cumulative average abnormal returns (CAARs) of 27-37 percent — 37 percent when raw returns are employed and 27 percent when log returns are employed. The conclusions remain unchanged irrespective of the testing procedure used (i.e., non-standardized or standardized abnormal returns method) and even for several shorter event window periods within a broader event window of 61 days. The results for target companies are consistent with the evidence of extant research that major benefits from M&As accrue to target company shareholders. The practical implication of the study is that there is a large and significantly positive wealth effect on the target company shareholders in response to the announcement of takeovers. Takeovers offer an opportunity to shareholders of target companies and general investors to make profits both in the period before and after the announcement of the takeover bid.

scholarly journals Wealth effects of business takeover announcements: The case of Australian acquirers’ shareholders

2010 ◽  
Vol 8 (1) ◽  
pp. 758-771
Author(s):  
Shrimal Perera ◽  
Jayasinghe Wickramanayake ◽  
Ankit Mehta
Keyword(s):  
Mergers And Acquisitions ◽  
Abnormal Returns ◽  
Wealth Effect ◽  
Wealth Effects ◽  
Asia Pacific ◽  
Pacific Region ◽  
Asia Pacific Region ◽  
Cross Border ◽  
Short Horizon

Australia has accounted for over 51 percent of mergers and acquisitions in the Asia Pacific region (excluding Japan) during 2004-2006. This paper investigates the short-horizon and long-horizon wealth effects experienced by shareholders of Australian acquirers following these domestic and cross-border business takeover announcements. The sample consists of 197 announcements. Results for domestic acquisitions suggest that acquirers’ shareholders endure abnormal returns in the range of -1.07% and -1.86% per day in the short-horizon. The long-horizon wealth effects, however, were found to be inconclusive. Results for cross-border acquisitions show that acquirers’ shareholders endure abnormal returns in the range of 1.02% and 1.26% per day in the short-horizon. This positive wealth effect, however, dissipates in the long-horizon.

Does the revolving door swing both ways? The value of political connections to US firms

2015 ◽  
Vol 41 (10) ◽  
pp. 1002-1031 ◽  
Author(s):  
Reza Houston ◽  
Stephen Ferris
Keyword(s):  
Government Regulation ◽  
Abnormal Returns ◽  
Revolving Door ◽  
Wealth Effects ◽  
Political Connections ◽  
Corporate Boards ◽  
Public Office ◽  
Content Type ◽  
For Profit ◽  
Political Office

Purpose – The purpose of this paper is to analyze the value of corporate political connections resulting from the revolving door of employment between political office and the for-profit corporation. The authors test whether there is value to firms from political connections provided by the appointment of former politicians to corporate boards or management teams. The authors also test to see if passage through the door in the other direction, from the corporate world to public office, generates value for firms. Do firms whose former employees gain public office earn excess returns following their appointment or election to these positions? Design/methodology/approach – The methodology used in this study focusses on an empirical analysis of the political connections of US firms over the sample period 1996-2011. The analysis emphasizes the wealth effects associated with the announcement of hiring former politicians to corporate boards or the gaining of political office by former corporate employees. Findings – The authors find that politicians becoming corporate directors is 2.5 times more common than corporate executives gaining public office. The authors determine that industries with extensive government regulation most often hire former politicians. The authors find that the office held by former politicians matters. The authors find that longevity in a cabinet position is important while formal Congressional or Senate leadership positions are not. Surprisingly, the authors determine the longer politicians are out of office, the more value they are able to provide to the firm. Finally, the authors discover that firms which hire former politicians have significantly positive long-term abnormal returns, but firms whose managers enter politics do not. Originality/value – This study is highly original in its examination of political connections resulting from door swing in both directions. Further, the analysis of longevity, time out of office, and position held adds to the contributions made by this study.

Stock price movements and trading behaviors around merger and acquisition announcements

2019 ◽  
Vol 15 (4) ◽  
pp. 593-610 ◽  
Author(s):  
Jin Young Yang ◽  
Reuben Segara ◽  
Jingwei Feng
Keyword(s):  
Stock Price ◽  
Abnormal Returns ◽  
Wealth Effects ◽  
Individual Investors ◽  
Cross Sectional ◽  
Foreign Investors ◽  
Content Type ◽  
Announcement Date ◽  
Target Firms ◽  
Price Movements

Purpose The purpose of this paper is to examine the relationship between price movements of target firms’ stocks and behaviors of local individual, local institutional and foreign investors in trading target firms’ stocks around mergers and acquisitions announcements in Korea. Design/methodology/approach This study uses event study methodology and cross-sectional regressions for abnormal returns. Findings Results reveal that the average abnormal return becomes significantly positive three days prior to the announcement date and becomes insignificant after the announcement date. Results also show that local individual investors tend to sell more intensely prior to announcements for target firms with larger wealth effects. In contrast, foreign investors tend to buy target stocks with larger wealth effects more intensely prior to the announcement date, and then they sell them more intensely in the post-announcement period. Originality/value This paper provides evidence that foreign investors are able to identify target stocks with large wealth effects prior to the announcement date and they realize short-term profits by selling them following the announcement.

Share classes, families and asset purchases: Canadian evidence

2019 ◽  
Vol 46 (2) ◽  
pp. 217-236
Author(s):  
Lingfeng Guo ◽  
Lawrence Kryzanowski ◽  
Yinlin Nie
Keyword(s):  
Abnormal Returns ◽  
Wealth Effects ◽  
Single Class ◽  
Content Type ◽  
Corporate Decisions ◽  
Simultaneous Equations Models ◽  
Endogenous Variables ◽  
Primary Determinant ◽  
Asset Purchases ◽  
Dual Class

Purpose The purpose of this paper is to test if relative asset purchase values (RAPVs) differ between single- and dual-class purchasers (not) differentiated by family ownership for Canadian firms. Design/methodology/approach The paper uses multivariate regressions and 2SLS estimations of simultaneous equations models with both continuous and dichotomous endogenous variables. Data on share structures and family involvements are hand collected. Findings RAPVs for dual-class purchasers are significantly different (larger) than their single-class counterparts only for family-controlled samples. Larger RAPVs for dual-class purchases are associated with higher degrees of dual-class structures, higher family ownerships and with boards with no more than one family member. Research limitations/implications RAPV is important because of its common use as a primary determinant of the wealth effects of M&As, its use as an exchange-rate proxy in two-stage regressions used to determine the amount of abnormal returns attributable to short selling activity around M&A announcements, and its use as a channel for conveying information about deal complexity, seller’s bargaining power, additional monitoring benefits from purchase and/or greater challenges in incorporating a purchase into existing assets. Larger sample size would facilitate more differentiated examinations. Practical implications Findings imply that dual-class share structures assist family shareholders in elevating their control over corporate decisions involving asset purchases. Social implications This paper furthers the authors’ knowledge about the effects of agency issues on corporate decisions. Originality/value It provides an extension and robustness test of the US evidence for asset purchases by providing evidence for Canada given its greater preponderance of families as the ultimate controlling shareholders, restricted or subordinated voting shares issued and pyramidal structures.

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