Korean Firms’ Share Repurchase Activities: Firm Characteristics, Financing and Investment

This study examines Korean listed firms’ share repurchasing activities over the period 2006~2016 using the amount of net share repurchases from annual statements of cash flow. Korean firms use dividends rather than share repurchases as their primary payout method. Each year, the proportion of share repurchasing firms is lower than 20%, whereas the proportion of dividend-paying firms is around 70% or higher. Univariate analysis and Tobit regressions reveal that the incidence and amount of share repurchases increase with firm value, size, and cash flow. Our findings do not suggest that low valuations (or poor stock performance) or low debt ratios motivate share repurchases. Korean firms use primarily internal funds to finance share repurchases, as share repurchasing firms experience substantial increases in retained earnings. Share repurchasing firms do not invest less than other firms do, suggesting that share repurchases do not result in underinvestment. Compared to dividends, share repurchases are more positively associated with firm value. Compared to share repurchase, dividends are more positively associated with cash flow and financial maturity, but more negatively associated with stock return volatility. Finally, firms with high controlling shareholders’ ownership tend to choose dividends over share repurchases in their payout policy.

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Debt holdings and investment cash flow sensitivity of listed firms

International Journal of Emerging Markets ◽

10.1108/ijoem-04-2017-0126 ◽

2018 ◽

Vol 13 (5) ◽

pp. 943-958 ◽

Cited By ~ 6

Author(s):

Johnson Worlanyo Ahiadorme ◽

Agyapomaa Gyeke-Dako ◽

Joshua Yindenaba Abor

Keyword(s):

Cash Flow ◽

Empirical Modeling ◽

Empirical Literature ◽

Data Set ◽

Content Type ◽

Listed Firms ◽

Flow Sensitivity ◽

Cash Flow Sensitivity ◽

Cash Flow Sensitivities ◽

Internal Funds

Purpose The purpose of this paper is to examine the effect of debt holdings on the sensitivity of firms’ investment to availability of internal funds. Design/methodology/approach For a panel data set of 27 Ghanaian listed firms for the period 2007–2013, the paper applies the Euler equation approach to the empirical modeling of investment. Findings The study finds support for the assertion that listed firms face less severe corporate control problems and lower financing constraints, and thus, have lower investment cash flow sensitivities. The study also finds that a significant positive sensitivity of investment to internal funds is associated with firms that have high debt holdings. Practical implications An implication of this study is that firms with high debt holdings face greater challenges in accessing external finance. These firms are likely to experience under-investment which at a macro level would translate into lower investments and economic growth for the country. Originality/value Empirical literature document that in the presence of market imperfections, investments of financially constrained firms become sensitive to the availability of internal finance. There are also contradictory evidences regarding the pattern of the observed investment cash flow sensitivity. This study examines the effect of debt holdings on the sensitivity of firms’ investment to availability of cash flow. This is yet to be empirically tested despite some theoretical explanations.

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The Role Of Cash Holdings, Working Capital, Dividend Payout On Capital Investment

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v34i3.10165 ◽

2018 ◽

Vol 34 (3) ◽

pp. 419-426

Author(s):

Andrew Chan

Keyword(s):

Cash Flow ◽

Firm Value ◽

Capital Investment ◽

Stock Exchange ◽

Cash Holdings ◽

Payout Policy ◽

Working Capital ◽

Dividend Payout ◽

Investment Spending ◽

The Relationship

An objective of this paper is to investigate the relationship between firms' capital investment spending, cash holdings, and working capital in an expanding Asian financial market. A sample of publicly traded manufacturing firms on the Hong Kong Stock Exchange was examined during the period 2005-2014. The empirical results provide strong and statistically significant evidence on the effect of cash flow on investment. Working capital also exhibits significant relationship with capital investment spending, though the relationship is not as strong and significant as that with cash flow and cash holding. Firms with low dividend payout policy over the sample period depended heavily on cash flow, changes in cash flow and, to a lesser extent, on working capital to finance spending on fixed plant and equipment. These results suggest that the effect of capital investment spending financed by internal cash flow on firm value may depend on a firm's dividend payout.

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Signaling hypotheses of share repurchase – life cycle approach. The case of Polish listed companies

Equilibrium ◽

10.24136/eq.v12i2.13 ◽

2017 ◽

Vol 12 (2) ◽

pp. 245 ◽

Cited By ~ 1

Author(s):

Elżbieta Wrońska-Bukalska ◽

Bogna Kaźmierska-Jóźwiak

Keyword(s):

Life Cycle ◽

Growth Stage ◽

Value Added ◽

Payout Policy ◽

Free Cash Flow ◽

Mature Stage ◽

Share Repurchases ◽

Life Cycle Approach ◽

Share Repurchase ◽

Financial Policies

Research background: Payout policy has attracted a great deal of research, how-ever it still has not been satisfactorily explained why corporations repurchase their shares. The most popular explanation for share repurchases is their signaling power. An alternative explanation for share repurchases is related to free cash flow. We assume that both theories are not competitive, due to the fact that the motives for share repurchases may differ depending on the firm’s life cycle stage.Purpose of the article: The aim of the paper is to test the hypotheses that companies in growth stage are more prone to repurchase their shares due to the their undervaluation.Methods: Our analysis focuses on 116 repurchase on WSE and 47 repurchase on NewCon-nect in Poland during the period 2004–2016 to test the hypothesis. We assume that companies listed on WSE are in their mature stage while listed on NewConnect are in the growth stage. We use market value to book the value ratio (M/BV) and the relation of M/BV ratio for the repurchasing company to the M/BV ratio for the whole market at the date of implementing share repurchase program as a proxies for firm valuation.Findings & Value added: Our study does not confirm that repurchased companies at a growth stage are more undervalued than repurchased companies at a mature stage (at statistically significant level), however there are more repurchased companies at a growth stage with lower M/BV value than repurchase companies in mature stage. Adding corporate life cycle theory into the study, our result can contribute to the literature by more distinctly understanding the motivation of share repurchases. The results might be helpful for companies to determine their financial policies and for investors to determine their investment decisions.

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Are dividends disappearing and is the life-cycle theory of dividends relevant to Canadian stock market?

Corporate Ownership and Control ◽

10.22495/cocv8i4c4art6 ◽

2011 ◽

Vol 8 (4) ◽

pp. 444-450

Author(s):

Sazali Abidin ◽

Krishna Reddy ◽

Jiani Wang

Keyword(s):

Life Cycle ◽

Stock Market ◽

Significant Relationship ◽

Payout Policy ◽

Industrial Firms ◽

Dividend Payout ◽

Listed Firms ◽

Life Cycle Theory ◽

Fama And French ◽

Retained Earnings

We investigated the dividend payout policy of the companies listed in the Canadian stock market to establish the relevancy of life-cycle theory of dividends among the sample stocks. While investigating whether dividend is disappearing in the Canadian stock market, we analyzed the proportion of firms paying cash dividends as in Fama and French (2001) and the aggregate real dividends paid by industrial firms as in DeAngelo, DeAngelo and Skinner (2004). Our sample ranges from 182 firm-years data in 1997 and to 999 firm-years in 2007. For the life-cycle theory of dividends, we also estimate a firm’s stage in its financial life cycle by the amount of its retained earnings as in DeAngelo, DeAngelo and Stulz (2006). Our findings indicate that proportion of dividend paying firms to total firms is on a decline but the aggregate real dividends of dividends payers is increasing. Our findings support the view provided by DeAngelo et. al. (2004) that dividends in Canadian listed firms are not disappearing. In addition, we report a positive and statistically significant relationship between the probability that a firm pays dividends and its earned/contributed capital mix, thus supporting the life-cycle theory of dividends.

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Organizational Form and Corporate Payout Policy

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109017001211 ◽

2018 ◽

Vol 53 (2) ◽

pp. 789-813 ◽

Cited By ~ 2

Author(s):

Bradford D. Jordan ◽

Mark H. Liu ◽

Qun Wu

Keyword(s):

Mergers And Acquisitions ◽

Cash Flow ◽

Cash Flows ◽

Payout Policy ◽

Organizational Form ◽

Share Repurchases ◽

The Cross

We examine how organizational form affects corporate payouts. Conglomerates pay out more than pure plays in both cash dividends and total payouts (cash dividends plus share repurchases). Furthermore, their payouts are more sensitive to cash flows compared to pure-play firms. The sensitivity of payouts to cash flow increases as the cross-segment correlation in a conglomerate decreases. Corporate payouts increase after mergers and acquisitions (M&As), especially among M&As in which acquirers and targets are less correlated. These results suggest that the coinsurance among different divisions of a conglomerate allows them to pay out more cash flow to their shareholders than pure-play firms.

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Speed of Adjustment in Dividend Payout Decisions: A Comparative Analysis of Developed and Developing Countries

Journal of Corporate Finance Research / Корпоративные Финансы | ISSN 2073-0438 ◽

10.17323/j.jcfr.2073-0438.13.2.2019.7-24 ◽

2019 ◽

Vol 13 (2) ◽

pp. 7-24

Author(s):

Nicos Koussis ◽

Vladislav Ruzinskii

Keyword(s):

Payout Policy ◽

Share Repurchases ◽

Share Repurchase ◽

Net Income ◽

Specific Level ◽

Financial Modeling ◽

Speed Of Adjustment ◽

Working Paper ◽

Top Managers ◽

Dividend Smoothing

The analysis of dividends payout policy has been apopular subject of research since the middle of the 20thcentury. Despite a huge number of investigations thereis no consensus opinion as to the best practices in thefield. Over the years, different hypotheses have been putforward proposing various methodologies. Some workingpapers underline share repurchase as the best approachtowards payout policy [1]. On the other hand, there aresome investigations which emphasize the opposite pointof view: that dividends are more preferable [2]. Anotherexplanation states that there is no qualifiable difference intypes of payout policy [3]. However, the majority of recentworking papers argue that the best approach is to combine share repurchases and dividends [4].Academic investigations into payout policy began withLintner’s working paper [5]. This research includes notonly financial modeling and results based on regression analysis, but also presents information concerningthe preferences of top-management in payout policydecisions. As a result of interviews with top managers,Lintner identified the existence of a target value fordividend payouts. So, managers tried to maintain theshare of net income attributed to dividends instead ofthe value of dividends themselves. Moreover, Lintnerfound that there is a pertinent speed of adjustment1individend policy. This phenomenon is described by thefact that in case of significant net income changes, firmsdo not pay all the dividends targeted at a specific level ofnet income. Companies only adjust the level of dividendsin the direction of the changes. Lintner also providedan explanation of this fact. It was noted that companies’top management was sure that significant changes in dividends can be negatively appraised by the stock market,especially in case of a fall in the value of dividends. So,managers understate the changes in dividends to betterassure that next year’s profit can cover the new dividends. However, next year’s net income also incurs somefluctuations, so it it is necessary to make some adjustments to dividends. As a result the process of dividendadjustment becomes permanent.The investigation of Brav et al. [6] also was devoted to theanalysis of payout policy, and included interviews with alarge number of CFOs. This research confirms the mainresults of Lintner’s work, but with some limitations. Thestudy carefully analyzed the existence of any target level inpayout decisions. The authors found that only 6% of CFOsdo not target dividends at all. However, in contrast toLintner’s work the majority of CFOs (approximately 40%)answer that their key target is dividends per share. Only28% try to target a dividends payout, and 27% of managers target dividends per share growth. This investigationshows that nowadays, targeting dividends per share is amore common practice than targeting payouts. Despite the fact that these results display some differences fromLintner’s one, they do not reject the hypothesis aboutexistence of dividend smoothing.

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A Diagnosis of the Determinants of Dividend Payout Policy in India

Banking, Finance, and Accounting ◽

10.4018/978-1-4666-6268-1.ch064 ◽

2014 ◽

pp. 1202-1211

Author(s):

Raj Kumar ◽

Pawan Kumar Jha

Keyword(s):

Corporate Finance ◽

Cash Flow ◽

Stock Exchange ◽

Payout Policy ◽

Analytical Tool ◽

Critical Factors ◽

Dividend Payout ◽

Earnings Per Share ◽

Retained Earnings ◽

Dividend Tax

Dividend decision involves the portion of a firm's net earnings that are paid out to the shareholders, and the remaining is ploughed back in the company for its growth purpose. Despite comprehensive theoretical and empirical explanations, dividend policy and its determinants are a puzzle to be fixed in corporate finance. This chapter is an attempt to assess the dynamics and determinants of dividend-payout policy using a factor analytical tool and a multiple regression analysis as a supportive tool. The authors take into account the sample of ten automobile companies based on Market Capitalization listed on the Bombay Stock Exchange (BSE) for a period of 10 years from 2002-2003 to 2012-2013. The results of the factor analysis show that six factors, current ratio, cash flow, retained earnings per share, earnings per share, equity dividend, and corporate dividend tax, are identified as the most critical factors determining dividend payout in Indian automobile companies. However, regression results depict only three factors (i.e. cash flow, equity dividend, and corporate dividend tax) have been found statistically significant in determining dividend payout policy.

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Faktor-Faktor yang Mempengaruhi Share Repurchase Decisions Pada Perusahaan yang Terdaftar di Bursa Efek Indonesia

Media Riset Bisnis & Manajemen ◽

10.25105/mrbm.v19i1.5363 ◽

2019 ◽

Vol 19 (1) ◽

pp. 24

Author(s):

Laras Gita Wulandari ◽

Bahtiar Usman

Keyword(s):

Research And Development ◽

Cash Flow ◽

Stock Exchange ◽

Institutional Ownership ◽

Share Repurchase ◽

Analysis Model ◽

Negative Effect ◽

Beta Coefficient ◽

Retained Earnings

AbstractPurpose –This study examines determinants of share repurchase decisions. The samples are obtained from the companies listed in Indonesian Stock Exchange (IDX) in the year of 2010-2017. The independent variables in this study acquisitions, depreciation, dividends, earning before interest and taxes, retained earnings, revenue, research and development, cash flow, and beta coefficient. The control variables in this study are long term debt to assets, debt to assets, and institutional ownership. The dependent variable is share repurchase decisions.Design/Methodology/Approach: The sample of this study included 18 (out of 555) in all sectors by using purposive sampling method. This study used panel regression analysis model for the empirical result. The study also found acquisitons, depreciation, dividends, retained earnings, long term debt to assets, and debt to assets had non-significant effect on share repurchase.The Finding - The results of the study revealed that earning before interest and taxes, revenue, research and development had a significant negative effect on share repurchase decisions and cash flow, beta coefficient, and institutional ownership had a significant positive effect on share repurchase decisions. A decrease in earnings before interest and tax expenses, research and development will encourage companies to share repurchase. To increase share repurchase, companies should increase in cash flow and pay attention that high systematic risk can increaseshare repurchase decisions.

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EFFECT OF OWNERSHIP CHANGE AND GROWTH ON FIRM VALUE AT THE ISSUANCE OF BONDS WITH DETACHABLE WARRANTS

Journal of Business Economics and Management ◽

10.3846/16111699.2015.1072109 ◽

2016 ◽

Vol 17 (6) ◽

pp. 901-915

Author(s):

Sekyung OH ◽

Woo Sung KIM

Keyword(s):

Cash Flow ◽

Ownership Structure ◽

Flow Condition ◽

Firm Value ◽

Convertible Bonds ◽

Panel Regression ◽

Strongly Correlated ◽

Market Reactions ◽

Listed Firms ◽

The Relationship

This paper empirically explores the relationship between the issuance of bonds with detachable warrants and firm value and the relationship between growth and firm value at the issuance of such bonds. Twelve years of data for 721 issuances of 451 Korean listed firms are analyzed using a panel regression model. We find that at the issuance of bonds with detachable warrants, the change in firm value is strongly correlated with large shareholder ownership concentration and issuance form, and the effect of growth on firm value is strongly correlated with the cash flow condition of the issuing firm. The results indicate that the ownership structure and the cash flow condition of the issuing firm and the form of issuance are important determinants of the relationship between the issuance of bonds with detachable warrants and firm value; these results are applicable to an analysis of the mixed market reactions of convertible bonds or bonds with warrants issues across different countries. They also offer the policy implication that the Korean government’s decision to entirely prohibit firms from issuing bonds with detachable warrants may have been excessive.

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