The Causes and Consequences of Accelerated Stock Repurchases
Ali C. Akyol
University of Melbourne - Department of Finance; Financial Research Network (FIRN)
Jin San Kim
Kyungpook National University - School of Business Administration
University of Melbourne; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)
April 7, 2014
International Review of Finance, Forthcoming
We examine the choice between accelerated share repurchase (ASR) and open market repurchase (OMR) as repurchase mechanisms between 2004 and 2007. For a sample of ASRs and OMRs that actually buy shares in the announcement quarter, we find that ASR firms have lower market-to-book ratios, less cash, but greater managerial entrenchment. Prior to repurchase, ASR firms are subject to significantly more takeover rumors than OMR firms are, and this, along with entrenchment and undervaluation, affects the choice to use ASRs. ASR firms experience positive average abnormal returns both before and after the announcement. Moreover, the latent takeover probability is significantly lower for both ASR and OMR firms (when compared with pre-announcement levels), but the reduction for ASR firms is more pronounced. Our results suggest that repurchases, and especially ASRs, indeed make a firm a less attractive prospect for takeover.
Number of Pages in PDF File: 40
Keywords: Stock Repurchase, Takeovers, Firm Performance, Signaling
JEL Classification: G30, G35Accepted Paper Series
Date posted: August 25, 2008 ; Last revised: April 30, 2014
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