The Effects of Cash, Debt, and Insiders on Open Market Share Repurchases

11 Pages Posted: 5 Apr 2013

See all articles by Liang Feng

Liang Feng

Concordia University, Quebec

Kuntara Pukthuanthong

University of Missouri, Columbia

Dolruedee Thiengtham

Concordia University, Quebec - John Molson School of Business; University of Exeter Business School - Department of Finance

H. J. Turtle

affiliation not provided to SSRN

Thomas John Walker

Concordia University, Quebec - Department of Finance

Date Written: Winter 2013

Abstract

The findings of the authors' recent study suggest, on balance, that stock repurchases function much like tax‐efficient special dividends, increasing when free cash flow is large and when debt levels are low, but not replacing regularly scheduled dividends. Repurchasing companies experience median event returns of about 2% around the repurchase announcements, with a related mean effect of roughly 3%. Companies with greater free cash flow and less debt are more likely than otherwise comparable companies to repurchase their shares. Furthermore, repurchasing companies that exhibit substandard preannouncement stock price returns and seek to buy back higher percentages of shares tend to elicit more positive stock price reactions. At the same time, the study provides some evidence that corporate managers attempt to use their inside information to profit from buybacks. For example, managing insiders in repurchasing firms decrease their selling activity and increase their buying activity two weeks before repurchase announcements to a greater extent than non‐managing insiders. But perhaps the most remarkable finding from this part of the study is how little insiders as a group seem to profit from their short‐term trading behavior - a finding that suggests that the market appears to anticipate much of this behavior.

Suggested Citation

Feng, Liang and Pukthuanthong, Kuntara and Thiengtham, Dolruedee and Turtle, H. J. and Walker, Thomas John, The Effects of Cash, Debt, and Insiders on Open Market Share Repurchases (Winter 2013). Journal of Applied Corporate Finance, Vol. 25, Issue 1, pp. 55-63, 2013, Available at SSRN: https://ssrn.com/abstract=2245435 or http://dx.doi.org/10.1111/j.1745-6622.2013.12006.x

Liang Feng

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Kuntara Pukthuanthong

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: https://www.kuntara.net/

Dolruedee Thiengtham

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

University of Exeter Business School - Department of Finance

Streatham Court
Exeter, EX4 4PU
United Kingdom

H. J. Turtle

affiliation not provided to SSRN

No Address Available

Thomas John Walker

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
532
PlumX Metrics