The information content of share repurchases – evidence from Poland (original) (raw)
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Effect of Repurchase Announcement on the Polish Alternative Stock Market
2017
In recent years open-market share repurchase programs have become an important payout policy not only for U.S. firms, but also European. Vast literature has examined the effect of share repurchase announcement on developed countries, especially the U.S. Relatively little research has yet been published examining the emerging markets reaction on share repurchase programs. This study attempts to extend the knowledge with the information content of buy back announcements in Poland. The main aim of the study is to test the informational content of share repurchase announcements on the Polish alternative stock market using event study methodology. Our sample was formed by identifying share repur-chase announcements reported by companies listed on the NewConnect Stock Exchange over the period 2007-2016. Due to the results of prior studies which give support for positive market reaction on share repurchase announcements (i.a.
The article aims to present the meaning of the share repurchase programs and to identify the reasons of share repurchase and information share repurchase convey to investors. The information comprises the following: signalling better financial prospects or signalling intrinsic value. The article analyses selected statistical data on the listed companies that repurchased their shares. Having carried out research for the selected listed companies, I found that companies are not willing to disclose the reasons for share repurchases. However, if they reveal the reason it is not only cash transfer to shareholders.
Signaling hypotheses of share repurchase – life cycle approach. The case of Polish listed companies
Equilibrium. Quarterly Journal of Economics and Economic Policy, 2017
Research background: Payout policy has attracted a great deal of research, however it still has not been satisfactorily explained why corporations repurchase their shares. The most popular explanation for share repurchases is their signaling power. An alternative explanation for share repurchases is related to free cash flow. We assume that both theories are not competitive, due to the fact that the motives for share repurchases may differ depending on the firm's life cycle stage. Purpose of the article: The aim of the paper is to test the hypotheses that companies in growth stage are more prone to repurchase their shares due to the their undervaluation. Methods: Our analysis focuses on 116 repurchase on WSE and 47 repurchase on NewConnect in Poland during the period 2004-2016 to test the hypothesis. We assume that companies listed on WSE are in their mature stage while listed on NewConnect are in the growth stage. We use market value to book the value ratio (M/BV) and the relation of M/BV ratio for the repurchasing company to the M/BV ratio for the whole market at the date of implementing share repurchase program as a proxies for firm valuation.
The market reactions to share repurchase announcements on the JSE: an event study
Investment Management and Financial Innovations, 2016
This study examines the market reactions to share repurchase announcements made by companies listed on the Johannesburg Stock Exchange from the years 2003 to 2012. The authors use an event study methodology and the Capital Asset Pricing Model to determine if there was an announcement effect when a share repurchase announcement is made. The analyses reveal that consistent with signalling theory and the announcement effect, share repurchase announcements are associated with positive abnormal returns. The average abnormal return and cumulative average abnormal return noted was 0.46% and 3.81%, respectively, for the event period (t-20, t+20). There was an observable trend of declining share prices before the share repurchase announcement. The authors also found no significant evidence that repurchasing firms have market timing ability when executing a share repurchase announcement. From a value investor’s perspective, a share repurchase program conveys a very strong signal of a healthy ...
Short-Term Return Impact of Share Repurchase Announcements
Research Journal of Finance and Accounting
Share repurchase transactions are seen as a corporate financing tool that plays a substantial role in the distribution of idle cash within the company, and are often considered as an alternative to cash dividend payments. The purpose of this study is to determine the effect of the share repurchase programs announcements on stock returns in Turkey stock market. In this study focused on, the effect of the 146 announcements on the stock returns of the companies that are traded in Borsa Istanbul between the years 2010-2018 which initiated share repurchase programs was examined by the event study method. As the conclusion of the study, it was determined that share repurchase announcements produced statistically significant cumulative abnormal returns before and after the announcement date. Also, considering CAAR values calculated in the realization of the share repurchase announcements result in international markets, the impact on stock returns of the share repurchase announcements in Turkey, compared to many other countries, were found to be suggestively higher.
Short-Term Price Effects of Stock Repurchases in Turkish Capital Markets
SSRN Electronic Journal, 2015
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.
Market Reactions to Share Repurchase Announcements in Malaysia
Asian Academy of Management Journal of Accounting and Finance, 2014
This paper examines share price behaviour surrounding share repurchase announcements in the context of information asymmetry and signalling hypothesis. We use event-type analysis to examine abnormal returns around three related repurchase announcements: announcement of the board’s decision, announcement of shareholder approval and announcement of actual share purchase. The results show that stock prices increase significantly in response to each of the three repurchase announcements, but there is no significant difference in the market reaction to firms that eventually make a repurchase versus firms that do not. We conclude that our results are consistent with the underpricing signalling hypothesis. Our results also show that small firms earn greater abnormal returns than large firms during each of the announcements, lending support to the information asymmetry hypothesis. Our multivariate regressions indicate that firm characteristics such as firm size, return on assets and the m...
Why do Firms Repurchase Shares? Evidence from Actual Share Repurchases
In practice, the share repurchase announcement is not a commitment to managers. To this end, the large difference between the actual and announced share repurchases is often observed in markets. In this paper, we explore the implications from actual share repurchase activities, different from the existing methods which focus on the announcements of share repurchases and hence largely ignore the managers' actual repurchasing activities. By considering actual share repurchases and controlling variables, the new empirical evidence found in this paper clearly supports the agency and investor divergence of opinion hypotheses, but not for the information asymmetry hypothesis.
Business and Economic Horizons, 2013
This article shows that announcement of share repurchase programs on Polish market is used as a price catalyst when the spread between intrinsic and market value is large. The article presents determinants, conditions and results of 77 open market share repurchase programs conducted on Warsaw Stock Exchange (WSE) between 2005 and 2010. We find the behaviour of management boards of companies listed on WSE consistent with the market timing theory assumptions, as in most cases managers passed the information to the market without any additional economic costs. Investors who adopted the strategy to invest in undervalued stocks and hold the securities for 6 months realized a total return of 61.15% in the analyzed period.
The objective of this study is to investigate the short and long-run valuation effects of stock repurchase announcements in Germany for the period from 1998 to 2008. Our sample includes established firms (DAX/MDAX) as well as initial public offerings (NM IPOs) which we both analyze and compare on various dimensions. Most importantly, these two samples reveal significant differences with respect to return behavior as well as with respect to explanatory factors. We also test the common theories to explain these valuation effects and examine the factors that may rationalize these stock returns and the motives. In addition, we explain the magnitude of the stock price reactions with company specific and market wide factors. To a large extent, overall short-run valuation effects are best explained with undervaluation signaling for established firms as well as for IPOs. However, the abnormal returns for repurchase announcements are significantly higher for NM IPOs compared to DAX/MDAX firms. In addition, IPOs have a significantly inferior pre-and postannouncement performance compared to DAX/MDAX firms. Our findings of buy-and-hold abnormal returns of -4.53% for IPOs and of 25.45% for established firms for the 2 year period [-250; 250] around the announcement and of -4.53% for IPOs and of 22.05% for established firms for the 2 year period [2; 500] following the announcement are in line with the results of Ikenberry, . These results are also supported by calendartime portfolio analysis and Fama-French alpha estimates. We also analyzed IPOs separately and find that free cash flow problems and owners' participation ratio at the time of the IPO are a significant determinant of share repurchases. We argue that free cash flow problems, i.e. agency problems, rather than undervaluation signaling drives the decision of initial public offerings to engage in repurchases.