Wealth Distribution in Off-Market Share Buybacks: The Effects of Corporate Governance and Institutional Ownership

34 Pages Posted: 22 Aug 2011 Last revised: 2 Nov 2011

See all articles by Karen Alpert

Karen Alpert

University of Queensland - Business School; Financial Research Network (FIRN)

Thomas Lawler

University of Queensland

Irene Tutticci

University of Queensland - Business School

Date Written: October 25, 2011

Abstract

While share buybacks in the classical perfect markets context are well understood, tax rules often distort the wealth transfer in non-obvious ways. Unique Australian tax rules for off-market share buybacks allow buyback participants to receive tax credits and reduced capital gains tax. These rules provide an ideal setting to explore the relative bargaining power of buyback participants versus non-participants. We investigate this tension by examining the influence of institutional holdings on the distribution of wealth in the buyback and investigate whether the strength of a firm’s corporate governance systems has a moderating influence. The results show that higher levels of institutional ownership and excess franking credits lead to a disproportionate distribution of wealth to participants in the buyback. Additionally, firms with stronger corporate governance are able to extract more value for non-participants from the tax credits distributed in the buyback.

Keywords: share buybacks, dividend imputation, corporate governance

JEL Classification: G3

Suggested Citation

Alpert, Karen and Lawler, Thomas and Tutticci, Irene, Wealth Distribution in Off-Market Share Buybacks: The Effects of Corporate Governance and Institutional Ownership (October 25, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1914131 or http://dx.doi.org/10.2139/ssrn.1914131

Karen Alpert (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

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

Thomas Lawler

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Irene Tutticci

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia
+617-3365-6587 (Phone)
+617-3365-6788 (Fax)

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