The Causes and Consequences of Accelerated Stock Repurchases

Akyol, Ali; Kim, Jin San; Shekhar, Chander

doi:10.2139/ssrn.1252922

Cited by 4 publications

(7 citation statements)

References 19 publications

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“…I view this as an advantage for ASRs. This advantage is even more interesting considering the shorter time frame of completing the repurchase in an ASR and the empirical evidence that the choice to conduct ASRs has been linked to EPS manipulation (Marquardt, ) and takeover avoidance (Akyol, ). This further underlines that the market participants do not see the investment bank as an informed participant in an ASR.…”

Section: Resultsmentioning

confidence: 99%

“…The information asymmetry in the trades with the investment bank is not related to the true price of shares or any other information about future plans of the firm. However, there is some evidence to suggest that ASR announcements are associated with short‐term financial reporting benefits and EPS manipulation (Marquardt, ), signaling undervaluation (Chemmanur, ), and takeover attempt rumors (Bargeron, ; Akyol, ). The specialist may also protect herself from information asymmetry related to these trades by other market participants.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…I aim to fill this gap. In view of the empirical evidence relating ASRs to EPS manipulations and takeover attempt rumors, (e.g., see Marquardt, ; Akyol, ), looking at changes in microstructure measures can help us understand how market participants react to ASR announcements. Looking at changes in trading costs, liquidity, and information asymmetry can help us understand some potential costs and benefits of ASRs that have not been covered by the “lost flexibility” and “credibility and immediacy” hypotheses of Bargeron, Kulchania, and Thomas.…”

Section: Introductionmentioning

confidence: 99%

“…Michael, Oded, and Shaked () find a positive abnormal return on announcement of ASRs but a negative postannouncement drift. Akyol, Kim, and Shekhar () find avoiding takeover attempts to be a prominent motivation for announcing ASRs. Overall, this nascent literature finds that an ASR permits the firm to move much faster in accomplishing certain goals of a repurchase program, for example, credibly signaling undervaluation, returning cash to shareholders, adjusting capital structure, defending against an unwanted takeover attempt, avoiding dilution from the exercise of employee stock options, or managing reported EPS through changes in shares outstanding.…”

Section: Introductionmentioning

confidence: 99%

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Market Micrsotructure Changes Around Accelerated Share Repurchase Announcements

Kulchania

2013

J of Financial Research

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I investigate the impact on trading characteristics of firms announcing share repurchases using a relatively new buyback method-accelerated share repurchases (ASRs). I find that trading costs decrease and market quality improves following an ASR announcement. The improvement in liquidity is not accompanied by significant changes in information asymmetry or price volatility. Multivariate tests show that the change in volatility and the presence of price constraints in the ASR agreement are significant in explaining the changes in spreads, but the reasons given by firms for conducting the ASRs are not. Thus, in the case of ASRs, the announced involvement of an investment bank buying shares on behalf of the firm improves liquidity without significantly affecting the level of information asymmetry.

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Section: Resultsmentioning

confidence: 99%

Section: Hypotheses Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Market Micrsotructure Changes Around Accelerated Share Repurchase Announcements

Kulchania

2013

J of Financial Research

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“…Until the end of the 80s, share repurchases were predominantly made via fixed-price tender offers and Dutch auctions. 1 Then, in the 90s, open market repurchases (OMRs) took over and represented the vast majority of share buyback programs (see [29]). However, as reported for instance in [7], after a share repurchase announcement, a substantial number of companies usually do not commit to it.…”

Section: Introductionmentioning

confidence: 99%

Accelerated share repurchase and other buyback programs: what neural networks can bring

Guéant

Manziuk

Pu³

2020

Quantitative Finance

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When firms want to buy back their own shares, they have a choice between several alternatives. If they often carry out open market repurchase, they also increasingly rely on banks through complex buyback contracts involving option components, e.g. accelerated share repurchase contracts, VWAP-minus profit-sharing contracts, etc. The entanglement between the execution problem and the option hedging problem makes the management of these contracts a difficult task that should not boil down to simple Greek-based risk hedging, contrary to what happens with classical books of options. In this paper, we propose a machine learning method to optimally manage several types of buyback contracts. In particular, we recover strategies similar to those obtained in the literature with partial differential equation and recombinant tree methods and show that our new method, which does not suffer from the curse of dimensionality, enables to address types of contract that could not be addressed with grid or tree methods.

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