Have the anomalies following share buybacks disappeared?

Although several empirical studies report significant positive long-run abnormal stock returns following share buybacks, a recent event study paper claims that such anomalies have disappeared in the most recent decade and this disappearance of abnormal performance is not sensitive to the methods used. The present paper makes an attempt to investigate this claim using 63 Indian share buybacks which took place between July 2008 and June 2012. We consider the application of several event study methods and our findings are a bit mixed. We conclude that the long-run anomalies following stock repurchases in India are still sensitive to the employed methodologies.©2015 the author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license.fi=vertaisarvioitu|en=peerReviewed

[[alternative]]Long-Horizon Event Studies: The Taiwan Evidence

計畫編號：NSC92-2416-H032-012研究期間：200308~200407研究經費：381,000[[abstract]]本研究試圖以 1985 年1 月至1999 年12 月，台灣股票市場上市(櫃)月資料，模擬出不同情境的樣本(隨機、非隨機樣本、樣本橫斷面的相依性)，探討四種計算長期異常報酬的方法(累積異常報酬法、買進持有異常報酬法、平均每月日曆時間異常報酬法、因子模式日曆時間投資組合法)、二種檢定方法(母數檢定、無母數檢定)以及二種求算基準的方法(對照投資組合法、控制公司法)，針對台灣股票市場在事件日後3 年內之平均長期異常績效，尋找適當的長期異常報酬計算方法、長期異常報酬檢定方法與求算基準報酬的方法。 結果發現，平均每月日曆時間異常報酬法的拒絕率多較累積異常報酬法、買進持有異常報酬法接近理論顯著水準；而傳統T檢定方法的拒絕率也較無母數的檢定方法接近理論值。結果建議，不論何種情境的樣本，以平均每月日曆時間異常報酬法搭配控制公司法的基準，對台灣股票市場會得到較適切的衡量結果。[[abstract]]It is intended to detect the average long-run abnormal returns after the one to three years of the event day, and also to discover the suitable long-run abnormal return computational method, the test and the benchmark. This research period was from January 1985 to December 1999. The monthly data are used to simulate the different sample group, including random sample, non-random sample, cross-sectional dependence of sample observations. Four kinds of computational methods of long-run stock abnormal returns were discussed including accumulation abnormal returns, buy-and-hold abnormal returns, mean monthly calendar-time abnormal returns, the factor model and calendar-time portfolios. Two test, conventional t-statistic and Wilcoxon signed-rank test and two benchmark, reference portfolios, and control firm are used to study. It is found that mean monthly calendar-time abnormal returns will be well specified. The use of the Wilcoxon signed-rank test was found to yield more empirical rejection levels exceeding theoretical rejection levels. It is suggested that mean monthly calendar-time abnormal returns matched with control firm will reduce most of the misspecification in test statistic.[[sponsorship]]行政院國家科學委員會[[notice]]補正完

Share Repurchases as a Tool to Mislead Investors: Evidence From Earnings Quality and Stock Performance

Several studies find that share repurchases are associated with positive wealth effects, both in the shortand long-run. By the same token, the credibility of buyback announcements as quality signals, particularly those to be executed on the open market, has been questioned. In this paper, we consider whether a sub-set of repurchase programs are perhaps motivated by an intent to mislead the market. Although intentions are not observable, we indirectly accomplish this by separating firms by their earnings quality. Firms which aggressively employ discretionary accruals, particularly those which also show lagging stock price performance, exhibit traits which suggest that executives may have been under pressure to boost stock prices. In the short-term, these programs are effectual as the market does not appear to initially distinguish firms on the basis of earnings quality. Over longer horizons, firms with poor earnings quality suffer from poor operating performance and tend to repurchase relatively fewer shares. More importantly, unlike the positive return drift generally observed after a repurchase announcement, long-horizon stock performance for poor earnings quality firms is not significant. The evidence is consistent with the notion that in some cases, company executives may be using repurchase programs to manipulate market opinion. The fact that some buyback programs, ex-ante, may be manipulative in intent provides some insight into why market underreaction is often observed in the empirical literature. The evidence here provides some justification for investor skepticism when open market buyback programs are initially announced.published_or_final_versio

Behavioral Corporate Finance: A Survey

Research in behavioral corporate finance takes two distinct approaches. The first emphasizes that investors are less than fully rational. It views managerial financing and investment decisions as rational responses to securities market mispricing. The second approach emphasizes that managers are less than fully rational. It studies the effect of nonstandard preferences and judgmental biases on managerial decisions. This survey reviews the theory, empirical challenges, and current evidence pertaining to each approach. Overall, the behavioral approaches help to explain a number of important financing and investment patterns. The survey closes with a list of open questions.

Essays on Corporate Financial Reporting

This dissertation examines changes in managers’ financial reporting around two major corporate financing events, accelerated share repurchases (ASRs) and seasoned equity offerings (SEOs). The first essay provides evidence on managerial motives for initiating ASRs, a recent and important innovation in repurchase methods, by examining managers’ financial reporting behavior around ASRs and post-ASR performance. ASR firms report positive discretionary accruals in the quarter of the repurchase announcement and that the upward earnings management increases with the percentage of equity repurchased, initiation of the repurchase earlier in the quarter, and CEO’s bonus compensation as a fraction of total compensation. There is however a negative association between the ASR announcement returns and pre-repurchase positive discretionary accruals, suggesting that investors perceive the positive discretionary accruals as the result of managerial opportunism (i.e., boosting EPS) rather than managerial optimism (i.e., signaling undervaluation). Further, ASR announcements are not followed by an increase in operating performance. There is also no evidence of positive long-run abnormal stock performance during the post-ASR period. The results suggest that managers use ASRs along with positive discretionary accruals to manage reported EPS rather than to signal their favorable private information about firms’ prospects. The second essay examines the relation between firms’ financial constraints and their financial reporting during periods when they attempt to raise equity capital. Specifically, I investigate whether financially constrained firms tend to manage their earnings more aggressively around SEOs as compared to financially unconstrained firms. By using different measures of financial constraints, I document that constrained issuers, which cannot credibly signal the absence of aggressive earnings management, report higher income-increasing accruals than unconstrained issuers. I also find that investors correctly conjecture this greater earnings inflation and adjust issuers’ stock prices accordingly at the time of the offering. The evidence suggests that the aggressive earnings management by constrained issuers is not simply the result of managerial opportunism but rather a rational response to anticipated market behavior at offering announcements

The Acquisitions of Information Technology Firms by M&A Intents: An Empirical Analysis

Over the last decades, a large number of firms have undertaken mergers and acquisitions (M&As) to create synergies through increased production efficiency, increased market power, and quality improvements. Moreover, we have also recently witnessed that an increasing number of firms acquire information technology (IT) firms to create synergies from the customer side as well as the production side. In this study, we examine the post-merger risk of the acquiring firm, measured as its return volatility when IT firms are acquired, and seek to understand the dynamics surrounding M&A transactions. We also identify the conditions under which acquiring firms can mitigate the risks resulting from M&A transactions. We find that a strong run-up in risk occurs before M&A transactions are initiated, but this risk begins to decline over the post-merger years. However, we expect that post-merger risks tend to persist when firms seek M&A transactions with a customer-side motive, whereas this does not occur with a production-side motive. Moreover, we expect to find the conditions under which a firm can mitigate risk from the acquisition of IT firms contingent on its M&A motives

Debt Issuances, Capital Structure Changes and Stock Return Performance

Debt financing is a major source of corporate financing in many emerging countries including Malaysia. However, the knowledge on shareholders wealth created from debt financing decision and sources of the wealth creation is scant and inconclusive. The scarcity of literature is more noticeable in emerging market environment and market where Islamic debt securities coexist with conventional debt securities. In response to this knowledge gap, this study attempts to examine the short and long run stock return performance of debt security issuers as well as the determinants of the long run stock return performance. Samples of 136, 165, 145, and 126 bond issues during January 2001 to October 2009 are used for analyzing short run announcement effects, as well as one, two, and three year performance, respectively. Using event study method, this study finds that the shareholders of bond-issuing firm experience significantly positive wealth creation around the announcement of the issues. Value weighted average of cumulative abnormal return and buy and hold abnormal return of the portfolio of debt issuers as well as the intercept of Fama-French three factor model is used for estimating the long run performance. The significance of buy and hold return is tested by implementing bootstrapped skewness adjusted, and heteroscedasticity and serial correlation consistent t-statistics. Results show that the shareholders of bond issuing firms experience significant long run performance in three-year period after the issue. Among the significant determinants, capital structure change, growth opportunity, and ownership concentration influence long run performance positively. The effects of growth opportunity and ownership concentration are significantly moderated by capital structure changes. Some variables only affect the long run performance when the debt issuance is associated with capital structure change. Among them, choice of Islamic debt, debt tax shield. and free cash flow which influence the long run performance negatively, while firm size influences positively. As a whole, this study finds evidence for partial applicability of trade off and agency costs theory in explaining long run wealth creation by the debt financing decision in Malaysia. The results of this study indicate that large companies and high ownership concentration companies should issue debts for meeting their financial requirement. Large companies can enjoy the benefits of issuing debts, such as interest tax saving, without facing severe financial distress costs, while high ownership concentration companies that issue debts can retain control on the companies' activities and overcome usage of free cash flows for private benefits