Stock Repurchase in Korea: Market Reactions and Operating Performance

This study examines the motive for stock repurchase. We examine four hypotheses — undervaluation, signaling, free cash flow, and optimal leverage hypotheses — using both short-run and long-run market reactions. We find that the undervaluation hypothesis is most consistent with both short-run and long-run tests. Improvement in operating performance following repurchase suggests the signaling hypothesis. However, the signaling hypothesis is supported only in the long-run test, not the short-run test, suggesting that market underreaction exists to the signaling initially. Of the control variables, the target purchase ratio and ownership by the largest shareholders are found significant, suggesting that the magnitude of repurchase and the ownership increase motive by the largest shareholders are also important factors that explain the repurchase.

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Where Did All the Dollars Go? The Effect of Cash Flows on Capital and Asset Structure

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109011000512 ◽

2011 ◽

Vol 46 (5) ◽

pp. 1259-1294 ◽

Cited By ~ 40

Author(s):

Sudipto Dasgupta ◽

Thomas H. Noe ◽

Zhen Wang

Keyword(s):

Cash Flow ◽

Economic Effect ◽

Balance Sheet ◽

Cash Flows ◽

Long Run ◽

Goods Market ◽

Short Run ◽

Debt Market ◽

Short And Long Term

AbstractThis paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial sensitivity to cash flows, investment does not absorb the entire cash flow shock. In fact, the tighter the financial constraints, the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction. Firms stage their response to increases in cash flow, delaying investment while building up cash stocks and reducing leverage. These results suggest that much of the short-run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market, especially when financing constraints tighten.

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Information Content of Dividend Changes in an Emerging Market

International Journal of Banking and Finance - Vol. 15, Number 2, 2020 ◽

10.32890/ijbf2004.2.1.8341 ◽

2004 ◽

Author(s):

Nur Adiana Hiau Abdullah ◽

Rosemaliza Abdul Rashid ◽

Yusnidah Ibrahim

Keyword(s):

Cash Flow ◽

Emerging Market ◽

Abnormal Returns ◽

Agency Cost ◽

Free Cash Flow ◽

Cross Sectional ◽

Market Reactions ◽

Dividend Announcements ◽

Stock Market Reactions ◽

Relationship Of

Supports on the free cash flow and agency cost theory from dividend announcements studies have been heavily discussed in the Western literature, but they have not been given much attention in the Asian countries, particularly in Malaysia. This paper focuses on examining the relationship of the stock market reactions due to dividend announcements and ten company-specific variables identified from the literature as potential determinants. The results from cross-sectional and stepwise regressions both showed that none of the determining variables could explain the variation in cumulative abnormal returns (CARs) for the increasing dividend announcements. For decreasing dividend announcements, both regressions identified the degree of anticipation to be significant and inversely related to CARs. In addition, the indigenous population ownership, which is a unique characteristic of the Malaysian equity market is also found to be significant in influencing the effect of decreasing dividend announcements. The findings provide no support for the free cash flow and agency cost theory.

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The Exploratory Mindset and Corporate Innovation

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109020000800 ◽

2020 ◽

pp. 1-43

Author(s):

Zhaozhao He ◽

David Hirshleifer

Keyword(s):

Research And Development ◽

Chief Executive Officer ◽

Stock Prices ◽

Operating Performance ◽

Chief Executive ◽

Market Reactions ◽

Managerial Incentive ◽

Corporate Innovation ◽

Long Run

Abstract We propose that chief executive officer (CEO) exploratory mindset (inherent desire to search for novel ideas and long-term orientation) promotes innovation. Firms with CEOs with PhD degrees (PhD CEOs) produce more exploratory patents with greater novelty, generality, and originality. PhD CEOs engage less in managing earnings and stock prices, invest more in research and development (R&D) and alliances, generate higher long-term value of patents, and experience more positive market reactions to R&D alliances. Their firms achieve superior long-run operating performance. They tend to be hired by research-intensive firms with poor financial performance. Evidence from managerial incentive shocks and turnovers suggests that these effects do not derive solely from CEO–firm matching.

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Cash Acquirers: Can Free Cash Flow, Debt and Institutional Ownership Explain Long Run Performance?

SSRN Electronic Journal ◽

10.2139/ssrn.1793094 ◽

2011 ◽

Author(s):

Alan Gregory ◽

Yuan-Hsin Wang

Keyword(s):

Cash Flow ◽

Institutional Ownership ◽

Free Cash Flow ◽

Long Run

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Operating Performance and Free Cash Flow of Asset Buyers

Financial Management ◽

10.2307/3666137 ◽

2003 ◽

Vol 32 (4) ◽

pp. 87 ◽

Cited By ~ 17

Author(s):

Steven Freund ◽

Alexandros P. Prezas ◽

Gopala K. Vasudevan

Keyword(s):

Cash Flow ◽

Operating Performance ◽

Free Cash Flow

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Economic Sources of Gain in Stock Repurchases

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109000003987 ◽

2004 ◽

Vol 39 (3) ◽

pp. 461-479 ◽

Cited By ~ 142

Author(s):

Konan Chan ◽

David Ikenberry ◽

Inmoo Lee

Keyword(s):

Cash Flow ◽

Market Reaction ◽

Free Cash Flow ◽

Stock Repurchases ◽

Initial Reaction ◽

Cross Sectional ◽

Economic Role ◽

Related Information ◽

Long Run ◽

Free Cash Flow Hypothesis

AbstractPrevious studies offer a mixed understanding of the economic role of stock repurchases. This paper investigates three key economic motivations—mispricing, disgorging free cash flow, and increasing leverage—by evaluating cross-sectional differences in both the initial market reaction and long-run performance. The initial reaction provides some support for the mispricing story. However, subsequent earnings-related information shocks suggest that the initial market reaction is incomplete and that long-run performance may be informative. The long-horizon return evidence is most consistent with the mispricing hypothesis and, to some degree, the free cash flow hypothesis. We find little support for the leverage hypothesis.

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Investigation on the value relevance of accounting information: evidence from incorporated companies in the Singapore capital market

Investment Management and Financial Innovations ◽

10.21511/imfi.13(3).2016.01 ◽

2016 ◽

Vol 13 (3) ◽

pp. 9-21 ◽

Cited By ~ 2

Author(s):

Basil Abeifaa Der ◽

Petr Polak ◽

Masairol Masri

Keyword(s):

Earnings Management ◽

Cash Flow ◽

Capital Market ◽

Value Relevance ◽

Accounting Information ◽

Book Value ◽

Valuation Model ◽

Long Run ◽

Short Run ◽

Asset Turnover

The purpose of this study is to investigate the relative, incremental and the systematic changes in value relevance of the accounting information. This study also attempts to investigate the effect of earnings management on the value relevance of accounting information. It basically uses Ohlson’s (1995) valuation model to test the conceptual framework. The findings of this paper reveal that book value is more value relevant and incremental followed by earnings and, then, cash flow. Cash flow, however, performs a lesser valuation role. The results also show that combined book value and earnings are more value relevant than combined book value and cash flow. As a third contribution, the paper also finds that the value relevance of some accounting variables has increased over time, while others showed no evidence of their inclined or declined patterns in the value relevance of accounting information. Finally, the paper finds that earnings management has no effect on the value relevance of accounting information. Further analyses suggest that earnings management is opportunistic in the short run, but efficient in the long run, when firms are small or have high asset turnover

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Cash Flow Problems Can Kill Profitable Companies

International Journal of Business Administration ◽

10.5430/ijba.v8n6p46 ◽

2017 ◽

Vol 8 (6) ◽

pp. 46 ◽

Cited By ~ 3

Author(s):

Derrald Stice ◽

Earl K. Stice ◽

James D. Stice

Keyword(s):

Cash Flow ◽

Financial Reporting ◽

The United States ◽

Cash Flows ◽

Free Cash Flow ◽

Net Income ◽

Strategic Decisions ◽

Significant Discrepancy ◽

Flow Problems ◽

Long Run

Although the cash flow statement has been required in public financial reports since 1988 in the United States (and since 1994 according to International Financial Reporting Standards), these important cash flow data are still often overlooked in standard financial analyses. Accounting net income measures economic performance which does not necessarily match up with the timing of cash flow. Many profitable businesses have been killed by cash flow problems, often in the start-up phase. A business has three types of cash flows: operating, investing, and financing. A key measure of cash flow health is free cash flow, the amount of operating cash flow generated in excess of the cash needed for important spending such as for capital expenditures. Managers must pay particular attention to the difference in timing between when cash is collected from customers from the sale of inventory and when cash must be paid to suppliers for the purchase of that inventory. A significant discrepancy between those numbers indicates a potential cash flow problem. Managers and owners of a business that is burning through cash spend much of their time worrying about cash flow survival and are therefore distracted from making the tactical and strategic decisions important to the long-run success of their business.

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Private public distinction of the target and the long run operating performance of acquirers

Pacific Accounting Review ◽

10.1108/par-02-2014-0004 ◽

2016 ◽

Vol 28 (1) ◽

pp. 38-58 ◽

Cited By ~ 2

Author(s):

Syed M. M. Shams ◽

Abeyratna Gunasekarage

Keyword(s):

Stock Returns ◽

Operating Performance ◽

Cash Flows ◽

Content Type ◽

Organisational Form ◽

Long Run ◽

Two Samples ◽

Short Run ◽

Private And Public ◽

Abnormal Stock Returns

Purpose – The purpose of this study is to examine whether the acquirers of private targets outperform their peers that acquire public targets in the long run. Design/methodology/approach – Using two samples of acquirers of private and public targets, this paper analyses their short-run market performance and long-run operating performance. Univariate analyses and multiple regressions are used to analyse abnormal stock returns and abnormal cash flow performances of bidders. Findings – Acquirers of private targets earn significantly higher abnormal return than acquirers of public targets during the announcement period. Similarly, the long-run operating performance of acquirers of private targets is significantly higher than that of the acquirers of public targets. However, the performance difference between two groups is more pronounced when cash flows are scaled by the market value of acquirers. Originality/value – This is the first Australian study to examine whether the long-run operating performance of acquirers depends on the organisational form of the target acquired.

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