Stock repurchases and treasury share sales: Do they stabilize price and enhance liquidity?

Cesari, Amedeo De; Espenlaub, Susanne; Khurshed, Arif

doi:10.1016/j.jcorpfin.2011.08.002

Cited by 26 publications

(11 citation statements)

References 87 publications

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“…The prices adjust to the new information quickly, thereby, offering no opportunity to book abnormal profits on a sustained basis; it perhaps signifies an indication of in insider trading (Li and McNally, 2007). This aspect further favors the semi-strong form of efficiency in the Indian stock market (Dua et al (2010) and lend credence to 'price support hypothesis' (Cesari et al, 2011).These findings also confirm with the survey evidences by Wansley et al (1989), signifying managers' confidence in the firms with respect to share repurchase announcements. 7.5.…”

Section: Concluding Observations and Implicationssupporting

confidence: 75%

“…The motive here appears to increase in promoters' stake using the funds which belong to the company (Mishra, 2005). The findings also suggest that by trading their own stock, companies can successfully reduce short-term price instability, thereby smoothening price discovery and lending credence to 'price support hypothesis' (Cesari et al, 2011). Besides undervaluation, the repurchasing decisions of Indian firms may be attributed to excess cash flows.…”

Section: Analysis Of Share Repurchase Announcementsmentioning

confidence: 79%

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Signaling mechanism of corporate payout policy: A case of Indian firms

Anwar¹,

Singh²,

Jain³

2016

10.5267/j.ac

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Historically, cash dividends are the most important form of payout policy; however, they have been losing popularity relative to share repurchases. This paper examines the signaling effect of the payout decisions namely, cash dividends and share repurchases by BSE 500 index companies. It attempts to uncover the underlying forces behind the firm's choices of payout policy in the Indian context. Using the standard 'Event Standard Methodology', a strong case of positive signaling is reported in case of repurchase announcements vis-a-vis cash dividend announcements. It is observed that cash dividends are not perceived by investors as positive signals as they prefer their earnings to be retained by the companies for growth prospects. In case of share repurchases, the existence of undervaluation, signaling and wealth transfer hypotheses is reported, consistent with the fact the share repurchases are welcomed by the Indian companies. The results would provide insights into the economics of the choice between cash dividends versus share repurchases as payout mechanism adopted by the sample companies. The findings would also be useful to the academia as well as industry in understanding the payout practice and the extent to which the Indian managers use the assumptions, models and decision rules regarding payout.

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Section: Concluding Observations and Implicationssupporting

confidence: 75%

Section: Analysis Of Share Repurchase Announcementsmentioning

confidence: 79%

Signaling mechanism of corporate payout policy: A case of Indian firms

Anwar¹,

Singh²,

Jain³

2016

10.5267/j.ac

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“…Panel B shows that this drop is highly significant relative to the remaining periods, in line with our predictions in hypothesis H4. The results suggest that, by enabling firms to keep repurchased shares as treasury shares, which could be floated again in the market, thereby smoothing the price discovery (De Cesari et al, 2011), the signaling role of share repurchases became weaker. This is because before this regulation firms were required to cancel the repurchased shares, thus, leaving smaller room for potential market interference, and low quality firms would be less likely to mimic good firms.…”

Section: Reaction To Initial Vs Subsequent Announcementsmentioning

confidence: 99%

The market valuation of share repurchases in Europe

Andriosopoulos

Lasfer

2015

Journal of Banking & Finance

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We analyze a uniquely constructed data set of open market share repurchases across a sample of European firms. We find that the announcement date market reaction is lower than that in the US, mainly because of (i) the relatively large number of recurring announcements which generate significantly lower returns than the initial announcements of intention to repurchase shares; (ii) the rather low market reaction in France, due probably to specific governance and corporate cultural issues; and (iii) the regulatory reform that allowed UK firms to keep the repurchased shares as treasury stock, which decreased their market impact. Across our countries, taxation, shareholder protection, and the European Union's Market Abuse Directive do not affect significantly the market valuation of repurchases. Ultimately, domestic institutional specificities and reforms play significant roles in the market valuation and popularity of share repurchases

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“…De Cesari et al . () report that, in addition to the free cash flow, a firm's size and growth opportunities are important determinants of the stock repurchase decision. Gong et al .…”

Section: Sample and Key Variablesmentioning

confidence: 99%

Opportunistic Stock Repurchases for Owner–Manager Control: Evidence from the Korean Stock Market

Kim

Chung

Lee

et al. 2016

Asia-Pac J of Fin Stud

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We examine whether opportunistic earnings management before a repurchase and long-term performance after a repurchase depend on repurchase options and insider ownership. We find that the negative association between pre-stock repurchase earnings management and abnormal long-term performance after stock repurchase is more pronounced when firms choose the direct stock repurchase method over an indirect repurchase through a trust fund. Our findings also show that the negative association between pre-repurchase accruals and long-term performance under direct stock repurchases is only evident when the ownership percentage of managers and their affiliates is less than 50%. In addition, our main findings are more pronounced in firms with a high degree of corporate information asymmetry.

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Stock repurchases and treasury share sales: Do they stabilize price and enhance liquidity?

Cited by 26 publications

References 87 publications

Signaling mechanism of corporate payout policy: A case of Indian firms

Signaling mechanism of corporate payout policy: A case of Indian firms

The market valuation of share repurchases in Europe

Opportunistic Stock Repurchases for Owner–Manager Control: Evidence from the Korean Stock Market

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