Motivation for Repurchases: A Life Cycle Explanation

Liang, Woan-lih; Chan, Konan; Lai, W. H.; Wang, Yanzhi

doi:10.1007/s10693-011-0126-7

Cited by 19 publications

(31 citation statements)

References 50 publications

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“…Besides undervaluation, the repurchasing decisions of Indian firms may be attributed to excess cash flows. It also signifies that the firms' repurchasing shares are in their mature stage of their life cycle to dispense excess free cash flow (Liang et al, 2011). The results also provide some support for leverage adjustment hypothesis because repurchasing firms use less debt compared to non-repurchasing firms (Medury et al, 1992).…”

Section: Analysis Of Share Repurchase Announcementsmentioning

confidence: 75%

“…The repurchasing decisions of Indian firms may be attributed to excess cash flows. It also signifies that the firms' repurchasing shares are in their mature stage of their life cycle to dispense excess free cash flow (Liang et al, 2011). 7.6. Share repurchases can be construed as a strategy/tactic that enables management to realign their business and should not be viewed as a replacement or substitution strategy (Dixon et al, 2008).…”

Section: Concluding Observations and Implicationsmentioning

confidence: 99%

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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: Analysis Of Share Repurchase Announcementsmentioning

confidence: 75%

Section: Concluding Observations and Implicationsmentioning

confidence: 99%

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

Anwar¹,

Singh²,

Jain³

2016

10.5267/j.ac

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“…Researchers believe that such price changes occur as the market perceives repurchases as positive signals or solutions for agency problems. More recently, Chua (2010), Chen and Wang (2012) and Liang et al (2012) find that short-term price reactions to stock repurchases still exhibit a positive pattern in the US market. Bonaimé et al (2014) intend to explore the relationship between market reactions to stock repurchases and capital structure policies and they find that underlevered and undervalued firms witness more reaction as opposed to overlevered and overvalued ones.…”

Section: Theoretical Implicationsmentioning

confidence: 99%

Short-Term Price Effects of Stock Repurchases in Turkish Capital Markets

Pirgaip¹,

Karacaer²

2015

IJEF

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Stock repurchase, as a corporate finance tool and a substitute for cash dividends, plays an important role in distributing excess cash. Following a prohibited period due to its potentially negative outcomes for shareholders and creditors, stock repurchase has recently been regulated within the company law systems of many countries pursuant to its increasing popularity in satisfying special financing requirements of companies. That the regulatory improvements have removed the uncertainty inherent in such transactions has increased the volume of, especially, the open market stock repurchases. Turkish legislation, i.e. Commercial Code and Capital Markets Law, has latterly been updated in accordance with EU acquis communautaire in order to allow stock repurchase for listed firms. We analyse movements in stock prices after stock repurchase transactions in order to make inferences about why stock repurchase is used and what its impacts/signals are in Turkish market at their infancy stage. Having followed a standard event study methodology, the results reveal that investor reaction to stock repurchase transactions is generally positive in the short-term. These results support the notion of a signaling hypothesis as a motivator behind stock repurchase decisions.

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“…Jensen, 1986), takeover defensive strategy (e.g. Denis, 1990;Dittmar, 2000;Ginglinger & L'her, 2006;Liang et al, 2012;Neuhauser, Davidson & Glascock, 2011), and avoid dividend taxation (Baker et al, 2003). 8 In Dittmar's (2000) view, motive behind repurchases depends upon the firm specific situation.…”

Section: Share Repurchases: a Theoretical Debatementioning

confidence: 99%

“…Benhamouda & Watson, 2010;Thirumalvalavan & Sunitha, 2006), takeover defensive mechanism (e.g. Denis, 1990;Ginglinger & L'her, 2006;Liang, Chan, Lai & Wang, 2012), and puffiness in earnings-per-share (EPS) whilst distributing surplus cash to the shareholders (e.g. Benhamouda & Watson, 2010).…”

Section: Introductionmentioning

confidence: 99%

Share Repurchases, Signalling Effect and Implications for Corporate Governance: Evidence from India

Reddy

Nangia

Agrawal

2013

Asia-Pacific Journal of Management Research and Innovation

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It is worth mentioning that a great deal of financial liberalization, privatization and internationalization policies in emerging economies have significantly increased the corporate restructuring activities like mergers, acquisitions, share repurchases, and stock splits, among others. Indeed, the activity that is investigated in this paper is 'share repurchases' and its effect on stock returns and price-to-earnings (P/E) ratio. More deeply, this paper will answer the research question-does a share repurchase offer abnormal returns around the announcement? Thus, it is performed in one of the Asian emerging markets-India. To do so, we use event-study method to examine abnormal returns and P/E signaling around the announcement of 64 share repurchases, announced during 2008-2009. It is found that stock performance does not adequate, and notices lower as well as negative earnings during post-buyback period. Briefly, we conclude that share repurchases assure short-term returns, and observe lower P/E compared to pre-buyback period. In addition, we show some interesting results that derived from industrial and services sectors. The outcome of this paper would help financial analysts, financial advisors, corporate enterprises and regulatory bodies in designing policies on earnings distribution, managerial incentives, takeovers, and so forth of regulatory aspects.

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Motivation for Repurchases: A Life Cycle Explanation

Cited by 19 publications

References 50 publications

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

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

Short-Term Price Effects of Stock Repurchases in Turkish Capital Markets

Share Repurchases, Signalling Effect and Implications for Corporate Governance: Evidence from India

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