Frequent Stock Repurchases, False Signaling, and Corporate Governance: Evidence from <scp>K</scp>orea

Han, Seung Hun; Lee, Bongsoo; Song, Minji

doi:10.1111/corg.12069

Cited by 14 publications

(8 citation statements)

References 79 publications

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“…Thus, our research provides new evidence to explain the decline of dividends. Moreover, we take into account the increasing importance of share repurchases as a way of distributing cash to shareholders (Eije & Megginson, 2008;Han, Lee, & Song, 2014;Leary & Michaely, 2011).…”

Section: Introductionmentioning

confidence: 99%

Do Shareholder Coalitions Modify the Dominant Owner's Control? The Impact on Dividend Policy

López‐Iturriaga

Martín

2015

Corporate Governance

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Manuscript Type: EmpiricalResearch Question: We examine the effect of shareholder coalitions on the corporate payout policy in Spain, a context characterized by the presence of dominant shareholders. Research Findings: Our results show that shareholder coalitions affect payout policy negatively (both for dividends and shares repurchases). We also find that the divergence between the voting rights involved in the coalition and the dominant owner's voting rights is negatively related to dividends. Theoretical/Academic Implications: Our findings suggest that shareholder coalitions can serve as an instrument for the dominant shareholders to extract private benefits. Our results also mean that the dominant owner uses the coalition as a mechanism to amplify his or her control over the firm and reduce the cost of expropriation. Practitioner/Policy Implications: Regulators should pay attention to the double role of shareholder agreements, as these coalitions could become an entrenchment mechanism for dominant shareholders. Our results highlight the importance of considering shareholder agreements when investors analyze the corporate dividend policy.

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Section: Introductionmentioning

confidence: 99%

Do Shareholder Coalitions Modify the Dominant Owner's Control? The Impact on Dividend Policy

López‐Iturriaga

Martín

2015

Corporate Governance

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“…As repurchases may be motivated either by signaling or managerial opportunism, several researchers have attempted to disentangle these motivations. Han et al (2014) find that frequent repurchase behavior is an indicator of managerial opportunism, and that the possibility of a repurchase being a false signal of undervaluation is lower among firms with good corporate governance.…”

Section: Introductionmentioning

confidence: 85%

“…A widely accepted explanation for this phenomenon is the signaling hypothesis. However, it is possible for managers to misuse repurchases for managerial opportunism (Fried, 2000(Fried, , 2005Hribar et al, 2006;Burnett et al, 2012;Han et al, 2014) [1]. The managerial opportunism hypothesis holds that firms use repurchase as a false signal to inflate stock prices; managers then make profits selling shares at the inflated price (Fried, 2000(Fried, , 2005.…”

Section: Introductionmentioning

confidence: 99%

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

Kim

Park

2021

RAF

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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.

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“…Yarram (2014), Evgeniou and Vermaelen (2017), and Hsu and Huang (2020) find that a large board, high board independence, and high gender diversity increase firms' share repurchases. Han et al (2014) also show that a high level of board independence mitigates the false signal that a firm's shares are undervalued. By contrast, Moin et al (2020) argue that board independence is unrelated to the probability of share repurchases.…”

Section: Introductionmentioning

confidence: 85%

“…Hamouda and Arab (2013) find that firms that exhibit CEO duality, high director tenure, high executive compensation and high director ownership experience a change in insider trading when share buybacks are announced. However, Han et al (2014) show that a high level of board independence can mitigate this false signal. Evgeniou and Vermaelen (2017) find that more female directors on the board lead to increased stock repurchases; however, abnormal returns in the long term are lower in firms with more female directors on the board.…”

Section: Stock Repurchases and Board Characteristicsmentioning

confidence: 96%

Stock repurchases, ownership structure and board composition: evidence from Thailand

Kumpamool

2024

JABS

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Purpose This study aims to examine the influence of ownership structure and board composition on the probability and intensity of stock repurchases. The study’s sample comprises 3,744 firm-year observations, consisting of 53 repurchasing firms with 96 firm-year observations from 2008 to 2019. Design/methodology/approach Probit and fixed-effects regression models are used to obtain empirical results. Moreover, a probit model with a continuous endogenous regressor (IV-probit) and an instrumental variable method with two-stage least squares (IV-2SLS) estimation are used to address endogeneity. Findings Corporations with high family or state ownership tend to inhibit stock repurchases to hoard excess free cash flow, supporting agency theory. Conversely, firms with high board independence tend to repurchase their stocks at least once to distribute free cash flows to shareholders, confirming agency theory. Nonetheless, corporations with more female directors on the board or CEO duality tend to conduct stock repurchases at least once but do not repurchase stocks with high values. Interestingly, more female directors on the board may send false signals about undervalued stocks. Originality/value This is the first study to reveal that firms with CEO duality repurchase their stocks at least once but avoid repurchasing shares with high values. It is also the first study to explore whether women on a board may cause false signaling about undervalued stocks. Furthermore, this study reveals that family and state ownership are potential determinants of stock repurchases in countries with high ownership concentration. This is the first study to address this issue in Thailand.

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Frequent Stock Repurchases, False Signaling, and Corporate Governance: Evidence from Korea

Cited by 14 publications

References 79 publications

Do Shareholder Coalitions Modify the Dominant Owner's Control? The Impact on Dividend Policy

Do Shareholder Coalitions Modify the Dominant Owner's Control? The Impact on Dividend Policy

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

Stock repurchases, ownership structure and board composition: evidence from Thailand

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