Share Buy-Backs: An Empirical Investigation

38 Pages Posted: 20 Jul 2000

See all articles by Ian Ramsay

Ian Ramsay

Melbourne Law School - University of Melbourne

Asjeet S. Lamba

University of Melbourne; Financial Research Network (FIRN)

Date Written: May 2000

Abstract

Studies of share repurchases, or share buy-backs as they are referred to in Australia, have been an important part of financial research. In addition, there is increasing interest in the relationship between legal regulation and finance. In this Research Report, we combine these areas of research and examine the effects of the changing legal regulation of share buy-backs in Australia. Prior to 1989 Australian companies were prohibited from repurchasing their shares, and until 1995 they were heavily regulated with few companies repurchasing their shares. In December 1995 the legal regulation of share buy-backs was simplified making it considerably easier for companies to repurchase their shares. The changing Australian regulation of share buy-backs provides a unique opportunity to test the effects of legal regulation on companies' financing decisions. In particular, we examine whether the highly regulated environment for share buy-backs that existed during 1989-95 meant that companies were unable to undertake buy-backs for the purpose of information signalling. In the less regulated environment, which existed after 1995, we examine whether companies have been able to undertake buy-backs for the purpose of information signalling. Our results indicate that the stringent regulation of share buy-backs during 1989-95 made them less effective as a credible signalling mechanism. Further, we find that the market generally reacts the most positively to on-market buy-backs, while the reaction to other types of share buy-backs is positive but not statistically significant. Finally, we also find that the abnormal returns earned by resource sector companies announcing share buy-backs are generally higher than the abnormal returns earned by share buy-backs announced by companies in the industrial and financial services sectors.

JEL Classification: G30, G32, G35

Suggested Citation

Ramsay, Ian and Lamba, Asjeet S., Share Buy-Backs: An Empirical Investigation (May 2000). Available at SSRN: https://ssrn.com/abstract=227930 or http://dx.doi.org/10.2139/ssrn.227930

Ian Ramsay (Contact Author)

Melbourne Law School - University of Melbourne ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 5332 (Phone)

HOME PAGE: http://law.unimelb.edu.au/about/staff/ian-ramsay

Asjeet S. Lamba

University of Melbourne ( email )

Department of Finance
Faculty of Business and Economics
Parkville, Victoria 3010
Australia
(61 3) 8344-7011 (Phone)
(61 3) 8344-6914 (Fax)

HOME PAGE: http://www.finance.unimelb.edu.au/who/staffweb.cfm?StaffNo=7

Financial Research Network (FIRN)

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

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

Register to save articles to
your library

Register

Paper statistics

Downloads
1,272
Abstract Views
4,615
rank
15,189
PlumX Metrics