Accelerated Share Repurchases

54 Pages Posted: 17 Mar 2009 Last revised: 20 Sep 2010

See all articles by Leonce Bargeron

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics

Manoj Kulchania

Wayne State University - Finance Group

Shawn Thomas

University of Pittsburgh - Katz Graduate School of Business

Date Written: August 18, 2010

Abstract

Between 2004 and 2008, $131 billion of stock was repurchased via accelerated share repurchases (ASRs), and in 2007, ASR announcements represented about 26% of the total number of repurchase program announcements. ASRs are credible commitments by firms to repurchase shares immediately. Including an ASR in a repurchase program reduces the flexibility that firms have to alter an announced program in response to subsequent changes in the price and liquidity of its stock, unexpected shocks to cash flow and/or investment, etc. Thus, we investigate whether firms’ decisions to include ASRs in their repurchase programs are associated with factors expected to influence the costs of lost flexibility and the benefits of enhanced credibility and immediacy. Consistent with the costs of lost flexibility being important determinants of ASR adoption, we find that the choice to undertake an ASR is significantly negatively (positively) associated with the variability of the firm’s share price and the stock market illiquidity of the firm’s shares (the size of the repurchase authorization). We also find that firms are more likely to undertake ASRs in situations where the benefits of credibility and immediacy are larger, e.g., as defenses against unwanted takeover attempts and as distributions of the proceeds of asset sales. Additionally, we document that ASR announcements are associated with positive average abnormal stock returns.

Keywords: Payout Policy, Accelerated Share Repurchase, Liquidity

JEL Classification: G35, G32

Suggested Citation

Bargeron, Leonce and Kulchania, Manoj and Thomas, Shawn, Accelerated Share Repurchases (August 18, 2010). AFA 2010 Atlanta Meetings Paper, Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1360729 or http://dx.doi.org/10.2139/ssrn.1360729

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4397 (Phone)

Manoj Kulchania

Wayne State University - Finance Group ( email )

2771 Woodward Ave
Detroit, MI 48201
United States
313-577-7837 (Phone)

HOME PAGE: http://ilitchbusiness.wayne.edu/profile/fr3472

Shawn Thomas (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

246 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1648 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~shthomas/index.htm

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