Mimicking Repurchases

Massa, Massimo; Rehman, Zahid; Vermaelen, Theo

doi:10.2139/ssrn.674501

Cited by 34 publications

(57 citation statements)

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“…The existence of intra-industry competitive effects, whereby one firm's value-increasing actions decrease the value of its rivals are well documented, and cover a wide range of firm actions such as new product introductions (Chen, Ho and Ik, 2005), management forecasts (Kim, Lacina, and Park, 2008), mergers (Becher, Mulherin and Walkling, 2012), and stock repurchases (Massa, Rehman and Vermaelen, 2007) to name a few. 3 This literature implies that when a financial firm votes on an industry rival, it 2 Consider, for example, the March 31, 2005 re-election of the notoriously combative Lehman CEO Dick Fuld to the company's board.…”

Section: Most Often Because Of Lack Of Sufficient Independence Of Insmentioning

confidence: 99%

Frenemies: How Do Financial Firms Vote on Their Own Kind?

2014

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Management Science, forthcoming Permanent repository link: AbstractThe financial sector is unique in being largely self-governed: the majority of financial firms' shares are held by other financial institutions. This raises the possibility that monitoring of financial firms is especially undermined by conflicts of interest due to personal and professional links between these firms and their shareholders. To investigate this possibility, we scrutinize the aspect of the financial sector's self-governance that is directly observable: mutual fund companies' voting of their peers' stock. We find that considerations specific to investee firms' membership in the same industry as their investors do indeed impact voting. This impact is in the direction of supporting the investee's management. We show that the own-industry effect reduces director efficacy and lowers firm value as a result. We extend our analysis to other financial companies and show that they also tend to vote more favorably when it comes to their peers. Our results suggest that peer support is a corrupting factor in the financial sector's governance.

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Section: Most Often Because Of Lack Of Sufficient Independence Of Insmentioning

confidence: 99%

Frenemies: How Do Financial Firms Vote on Their Own Kind?

2014

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“…This disagreement may be due to the uncommitted nature of repurchase intention announcements (Lie, 2005), or may be due to difficulties in forecasting the number or value of shares actually to be repurchased following each announced intention (Stephens and Weisbach, 1998;Jagannathan, Stephens, and Weisbach, 2000). Moreover, firms may simply announce repurchase intentions to mimic competitors that have previously made such announcements (Massa, Rehman, and Vermaelen, 2007). Consequently, it is the actual repurchase announcements and not the repurchase intention announcements that are correlated with changes in systematic risk and operating performance (Lie, 2005;Wang and Johnson, 2009).…”

Section: Uk Repurchase Regulations and Prior Studiesmentioning

confidence: 99%

“…In addition to the uncommitted nature and nonstandard structure of US repurchase intention announcements, the mixed results regarding share repurchases may also be attributable to the tendency of firms to mimic the repurchase intention announcements of their competitors (seeMassa, Rehman, and Vermaelen, 2007).…”

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confidence: 99%

Share Repurchases, the Clustering Problem, and the Free Cash Flow Hypothesis

Wang

Strong

Tung

et al. 2009

Financial Management

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"We examine the market reaction to announcements of actual share repurchases, events that cluster both within and across firms. Using a multivariate regression model, we find that the market reacts positively to the events, indicating that these announcements provide additional information to that contained in the initial repurchase intention announcements. Further, the market response is especially favorable for firms with overinvestment problems as measured by Tobin's q , and is not related to signaling costs as measured by the size of the repurchase. Our findings generally support the hypothesis that share repurchases reduce the agency costs of excessive free cash flow". Copyright (c) 2009 Financial Management Association International.

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“…Studies based in the United States or other developed markets focus on announcements of significant events, such as firm bankruptcy (Lang and Stulz, 1992), dividends (Firth, 1996), stock splits (Caton, Goh, and Kohers, 2003), earnings releases (Foster, 1981), earnings restatements (Gleason et al, 2008), corrective disclosures (Akhigbe, Madura, and Newman, 2006), mergers and acquisitions (Akhigbe and Martin, 2000), stock repurchases (Otchere and Ross, 2002;Massa, Zahid, and Theo, 2007), bank loan ratings (Merli and Schatt, 2003), bank failures (Aharony and Swary, 1983;Allen and Gale, 2000), and Securities and Exchange Commission (SEC) enforcement actions (Nourayi, 1994). Studies based in the United States or other developed markets focus on announcements of significant events, such as firm bankruptcy (Lang and Stulz, 1992), dividends (Firth, 1996), stock splits (Caton, Goh, and Kohers, 2003), earnings releases (Foster, 1981), earnings restatements (Gleason et al, 2008), corrective disclosures (Akhigbe, Madura, and Newman, 2006), mergers and acquisitions (Akhigbe and Martin, 2000), stock repurchases (Otchere and Ross, 2002;Massa, Zahid, and Theo, 2007), bank loan ratings (Merli and Schatt, 2003), bank failures (Aharony and Swary, 1983;Allen and Gale, 2000), and Securities and Exchange Commission (SEC) enforcement actions (Nourayi, 1994).…”

Section: A Contagion Effect Hypothesismentioning

confidence: 99%

Corporate Governance, Political Connections, and Intra‐Industry Effects: Evidence from Corporate Scandals in China

Yu¹,

Zhang²,

Zheng

2015

Financial Management

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This paper investigates intra‐industry spillover effects of corporate scandals in China. We demonstrate how a contagion effect spreads to peer firms depending upon the quality of corporate governance and their political connections. Good corporate governance in peer firms reduces the contagion effect of scandals. External governance has a stronger influence on reducing the contagion effect of both financial and non‐financial scandals, while ownership concentration and the quality of auditors play a more pronounced role in mitigating the contagion effect of financial scandals. State ownership helps to mitigate the negative influence of non‐financial scandals in individual‐owned firms, but not in state‐owned enterprises.

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Mimicking Repurchases

Cited by 34 publications

References 0 publications

Frenemies: How Do Financial Firms Vote on Their Own Kind?

Frenemies: How Do Financial Firms Vote on Their Own Kind?

Share Repurchases, the Clustering Problem, and the Free Cash Flow Hypothesis

Corporate Governance, Political Connections, and Intra‐Industry Effects: Evidence from Corporate Scandals in China

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