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The Causes and Consequences of Accelerated Stock Repurchases

International Review of Finance, Forthcoming

40 Pages Posted: 25 Aug 2008 Last revised: 13 Apr 2015

Ali C. Akyol

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Jin San Kim

Kyungpook National University - School of Business Administration

Chander Shekhar

University of Melbourne; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: April 7, 2014

Abstract

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.

Keywords: Stock Repurchase, Takeovers, Firm Performance, Signaling

JEL Classification: G30, G35

Suggested Citation

Akyol, Ali C. and Kim, Jin San and Shekhar, Chander, The Causes and Consequences of Accelerated Stock Repurchases (April 7, 2014). International Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1252922 or http://dx.doi.org/10.2139/ssrn.1252922

Ali C. Akyol

University of Melbourne - Department of Finance ( email )

198 Berkeley Street
Faculty of Economics and Commerce
Carlton VIC 3010, Victoria 3010
Australia
+61 (3) 8344-5318 (Phone)
+61 (3) 8344-6914 (Fax)

HOME PAGE: http://www.aliakyol.com

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jin San Kim

Kyungpook National University - School of Business Administration ( email )

Sankyuk-dong, Puk-ku
Daegu, 702-701
Korea, Republic of (South Korea)

Chander Shekhar (Contact Author)

University of Melbourne ( email )

185 Pelham Street, Carlton, Victoria 3053
Melbourne, Victoria 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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