Off-Market Buybacks in Australia: Evidence of Abnormal Trading around Key Dates
27 Pages Posted: 21 Jan 2013
Date Written: November 30, 2012
Off-market share buybacks in Australia are often structured with the buyback price comprising a large dividend component (which may carry imputation tax credits) and a small capital component. This unique structure has the consequence that institutions on low tax rates stand to benefit most from selling shares back to the company. In this paper, we explore evidence of abnormal trading activities around key dates in the conduct of off-market buybacks and investigate the drivers of these activities. We find evidence of abnormal trading activities around the initial announcement and the final announcement dates of the buyback. The significant differences in abnormal volumes between the buybacks with and without imputation tax credits highlight the importance of tax motivations in explaining abnormal trading activities in the shares of companies conducting off-market buybacks.
Keywords: tax arbitrageurs, off-market share buybacks, imputation credits, trading volume
JEL Classification: G14, G35
Suggested Citation: Suggested Citation