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.

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.

Do Share Repurchases Distort Stock Prices? Evidence from the United States and Malaysia

Heavy share buyback years after the global finance crisis 2008–2009 drew criticism from scholars and financial press that share repurchases were being used by firms to manipulate their stock prices. This paper examines whether a greater firm’s repurchase intensity distorts stock prices reflecting to information. We analyse 2 sets of unbalanced panel data that contain a sample of 337 US and another sample of 167 Malaysian repurchasing firms between 2012 and 2016. Contrary to the criticism, we find that a greater firms’ share buyback intensity in the USA stimulates faster incorporation of information in price and results in more efficient stock prices. The main findings hold true and are robust when an alternative measure of share repurchase intensity was used. The findings of US sample support the notion that share repurchase serves as a signalling tool and price support to promote more efficient stock prices. We also find no strong evidence supporting the notion that shares repurchased by Malaysian firms distort stock prices. JEL Classification: G10, G14, G35

Do Share Repurchases Promote Efficient Stock Price?

Purpose: This paper examines whether a greater firm’s repurchase intensity translates into more efficient stock price. Design/ Methodology/ Approach: An unbalanced panel data, that consists of a sample of 337 US repurchasing firms between 2012 and 2016, was analyzed. Based on the result of the Hausman test, fixed effects estimator was employed to estimate the coefficients. To address heterogeneity across time and firms, time effect and standard error clustered by firms were applied. Findings:Agreater firms’ share buyback intensity stimulates faster incorporation of information in price and results more efficient stock prices. The main findings were further confirmed with robustness test and supports the notion that share repurchase serves as signalling tool and price support to promote more efficient stock price. Practical implication: The finding has implication on how share repurchase can be used in three ways: to ease panic selling and deep selling pressure during the downtime; enhance informed trading in which is a result of information signalled by managerial share repurchases; and attract investors’ attention on neglected and undervalued stock. Originality/value: This research provides new insight and empirical evidenceto reject public cynicism about share repurchases used by firms to manipulate their share prices.

The Impact of Share Repurchase on the Value of Listed Companies Take Alibaba Group as an Example

Share repurchase is a common dividend policy and financial policy in western listed companies. The share repurchase policy has some positive and negative effects on the company. Therefore, this paper takes Alibaba Group as an example, and studies its share repurchase policy from 2014 after its listing to 2019. A theoretical and empirical analysis on the profitability, market value and stock price of listed companies through share repurchase is conducted. The result shows that it has positive effects on corporate profitability, market value and capital structure. At last, suggestions based on the analysis are proposes.

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.