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).

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.

Reregulating Indonesian Stock Buyback: A Lesson From United States

This article compares the corporate income tax cuts enacted by the Indonesian COVID-19 Relief Law and the US Tax Cuts and Jobs Act. It investigates the correlation between the tax cuts in the Tax Cuts and Jobs Act, economic development, and share repurchases in the US. It seeks to identify appropriate limitations on share repurchases in Indonesia following the enactment of the COVID-19 Relief Law. This research was carried out using the juridical normative method by tracing the literature and laws concerning share repurchase arrangements in Indonesia and the US. The results show that there is a slight positive correlation between the reduction of corporate income tax and economic development in the US and that the US income tax cuts have caused significant growth in share repurchases. After the enactment of the Indonesian COVID-19 Relief Law, which also reduced corporate income taxes, Indonesia may be on the verge of extensive share repurchase activity, as occurred in the US. To tackle this problem, we recommend amending Law No. 40 of 2007 concerning limited liability companies to re-regulate the restriction on share repurchases.

Ownership and Governance

Shareholders have, in recent years, imposed considerable influence on firms and the managers that run them. Their role has become so prevalent that hedge funds, activist investors, and short sellers dominate the headlines of the popular business press. Academics are desperately trying to keep up with the furious pace of change and incorporate emerging phenomena into theories of corporate governance. To facilitate this process, this chapter reviews the key forms of corporate ownership and describes ways in which they affect firm-level outcomes. The chapter identifies five issues about which ownership scholars disagree: the competitive influence of common shareholding, the costs and benefits of excess control, the consequences of share repurchases, the threat of short sellers, and the value-creating prospects of shareholder-nominated directors. The chapter describes the state of each debate with the hope that strategy scholars, in the years ahead, will add nuance to what we know about these pressing matters.

Long-term performance following share repurchase, signaling costs and accounting transparency: Korean evidence

Purpose Existing studies show that firms may have an incentive to use share repurchases opportunistically, thereby taking advantage of market participants’ confirmation bias that share repurchase is a signal of undervaluation. This study aims to investigate whether signaling costs and accounting transparency can serve as tools to identify opportunistic share repurchases. Design/methodology/approach The authors measure signaling costs by using two share repurchase methods (direct and indirect share repurchase) with different share repurchase costs, and measure accounting transparency using the history of earnings timeliness. The authors further measure long-term performance following share repurchases using operating performance and stock returns. Lastly, the authors compare the long-term performances between the groups defined by share repurchase method and earnings timeliness level. Findings The authors find that indirect share repurchase firms with a history of poor earnings timeliness experience unfavorable long-term performance, while other share repurchase firms do not. This finding reinforces the view that some share repurchases may be driven by managerial opportunism. In particular, when firms with a history of poor earnings-reporting behavior choose a low-cost repurchase method, their share repurchases may be motivated by managerial opportunism. Originality/value The findings suggest that past earnings timeliness and the signaling costs of a repurchase together are useful predictors of false signaling. Moreover, they suggest that investors can – at least in part – predict opportunistic share repurchases by using signaling costs and accounting transparency.