Hostname: page-component-78c5997874-fbnjt Total loading time: 0 Render date: 2024-11-08T04:53:41.708Z Has data issue: false hasContentIssue false
  • English
  • Français

Repurchases, Reputation, and Returns

Published online by Cambridge University Press:  17 January 2012

Alice Adams Bonaimé
Alice Adams Bonaimé*
Affiliation:
Gatton College of Business and Economics, University of Kentucky, Lexington, KY 40506. [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper examines whether a firm’s reputation is a determinant of repurchase completion rates (the ratio of actual to announced repurchases) and whether the stock market discounts announcements made by less reputable firms. Prior completion rates are positively correlated with current completion rates and announcement returns, suggesting consistency in repurchases and implying a reputational effect. Further, a nascent literature regarding accelerated share repurchases (ASRs) finds them to be more credible than open market repurchases. I show that the probability of announcing an ASR is greater for firms likely to be concerned about reputation because of low past completion rates.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 47 , Issue 2 , April 2012 , pp. 469 - 491
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Akyol, A.; Kim, J. S.; and Shekhar, C.. “Do Accelerated Stock Repurchases Deter Takeovers? An Empirical Analysis.” Working Paper, University of Melbourne and Winston-Salem State University (2009).Google Scholar
Bagwell, L. S., and Shoven, J. B.. “Share Repurchase and Acquisitions: An Analysis of Which Firms Participate.” In Corporate Takeovers: Causes and Consequences, Auerbach, A. J., ed. University of Chicago Press (1988).Google Scholar
Banyi, M. L.; Dyl, E. A.; and Kahle, K. M.. “Errors in Estimating Share Repurchases.” Journal of Corporate Finance, 14 (2008), 460–474.CrossRefGoogle Scholar
Bargeron, L.; Kulchania, M.; and Thomas, S.. “Accelerated Share Repurchases.” Journal of Financial Economics, 101 (2011), 68–89.CrossRefGoogle Scholar
Bonaimé, A. “Mandatory Disclosure and Firm Behavior: Evidence from Share Repurchases.” Working Paper, University of Kentucky (2010).CrossRefGoogle Scholar
Brav, A.; Graham, J. R.; Harvey, C. R.; and Michaely, R.. “Payout Policy in the 21st Century.” Journal of Financial Economics, 77 (2005), 483–527.CrossRefGoogle Scholar
Chan, K.; Ikenberry, D.; and Lee, I.. “Economic Sources of Gain in Stock Repurchases.” Journal of Financial and Quantitative Analysis, 39 (2004), 461–479.CrossRefGoogle Scholar
Chan, K.; Ikenberry, D. L.; Lee, I.; and Wang, Y.. “Share Repurchases as a Potential Tool to Mislead Investors.” Journal of Corporate Finance, 16 (2010), 137–158.CrossRefGoogle Scholar
Chemmanur, T.; Cheng, Y.; and Zhang, T.. “Why Do Firms Undertake Accelerated Share Repurchase Programs? “ Working Paper, Boston College and Florida State University (2010).CrossRefGoogle Scholar
Comment, R., and Jarrell, G. A.. “The Relative Signalling Power of Dutch-Auction and Fixed-Price Self-Tender Offers and Open-Market Share Repurchases.” Journal of Finance, 46 (1991), 1243–1271.Google Scholar
Dittmar, A. K. “Why Do Firms Repurchase Stock? “ Journal of Business, 73 (2000), 331–355.CrossRefGoogle Scholar
Grullon, G., and Michaely, R.. “The Information Content of Share Repurchase Programs.” Journal of Finance, 59 (2004), 651–680.CrossRefGoogle Scholar
Guay, W., and Harford, J.. “The Cash-Flow Permanence and Information Content of Dividend Increases versus Repurchases.” Journal of Financial Economics, 57 (2000), 385–415.CrossRefGoogle Scholar
Ho, L.-C. J.; Liu, C.-S.; and Ramanan, R.. “Open-Market Stock Repurchase Announcements and Revaluations of Prior Accounting Information.” Accounting Review, 72 (1997), 475–487.Google Scholar
Hutton, A., and Stocken, P.. “Prior Forecasting Accuracy and Investor Reaction to Management Earnings Forecasts.” Working Paper, Boston College and Dartmouth College (2009).CrossRefGoogle Scholar
Jagannathan, M., and Stephens, C.. “Motives for Multiple Open-Market Repurchase Programs.” Financial Management, 32 (2003), 71–91.CrossRefGoogle Scholar
Jagannathan, M.; Stephens, C. P.; and Weisbach, M. S.. “Financial Flexibility and the Choice between Dividends and Stock Repurchases.” Journal of Financial Economics, 57 (2000), 355–384.CrossRefGoogle Scholar
Jensen, M. C. “Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers.” American Economic Review, 76 (1986), 323–329.Google Scholar
Kahle, K. M. “When a Buyback Isn’t a Buyback: Open Market Repurchases and Employee Options.” Journal of Financial Economics, 63 (2002), 235–261.CrossRefGoogle Scholar
Louis, H., and White, H.. “Do Managers Intentionally Use Repurchase Tender Offers to Signal Private Information? Evidence from Firm Financial Reporting Behavior.” Journal of Financial Economics, 85 (2007), 205–233.CrossRefGoogle Scholar
Marquardt, C.; Tan, C.; and Young, S.. “Accelerated Share Repurchases, Bonus Compensation, and CEO Horizons.” Working Paper, Baruch College and Fordham University (2009).CrossRefGoogle Scholar
Michel, A.; Oded, J.; and Shaked, I.. “Not All Buybacks Are Created Equal: The Case of Accelerated Share Repurchases.” Working Paper, Boston University and Tel Aviv University (2009).CrossRefGoogle Scholar
Ng, J.; Tuna, I.; and Verdi, R.. “Management Forecast Credibility and Underreaction to News.” Working Paper, MIT Sloan School of Management and London Business School (2008).Google Scholar
Oded, J. “Why Do Firms Announce Open-Market Repurchase Programs? ” Review of Financial Studies, 18 (2005), 271–300.CrossRefGoogle Scholar
Peyer, U., and Vermaelen, T.. “The Nature and Persistence of Buyback Anomalies.” Review of Financial Studies, 22 (2009), 1693–1745.CrossRefGoogle Scholar
Stephens, C. P., and Weisbach, M. S.. “Actual Share Reacquisitions in Open-Market Repurchase Programs.” Journal of Finance, 53 (1998), 313–333.CrossRefGoogle Scholar
Vermaelen, T. “Common Stock Repurchases and Market Signalling: An Empirical Study.” Journal of Financial Economics, 9 (1981), 139–183.CrossRefGoogle Scholar