The Causes and Consequences of Accelerated Stock Repurchases

25 Pages Posted: 28 Aug 2014

See all articles by Ali C. Akyol

Ali C. Akyol

University of Ottawa; University of Melbourne; Financial Research Network (FIRN)

Jin S. Kim

Kyungpook National University

Chander Shekhar

University of Melbourne; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2014

Abstract

We examine the choice between accelerated share repurchase (ASR) and open market repurchase (OMR) as repurchase mechanisms between 2004 and 2007. For a sample of ASRs and OMRs that actually buy shares in the announcement quarter, we find that ASR firms have lower market‐to‐book ratios, less cash, but greater managerial entrenchment. Prior to repurchase, ASR firms are subject to significantly more takeover rumors than OMR firms are, and this, along with entrenchment and undervaluation, affects the choice to use ASRs. ASR firms experience positive average abnormal returns both before and after the announcement. Moreover, the latent takeover probability is significantly lower for both ASR and OMR firms (when compared with pre‐announcement levels), but the reduction for ASR firms is more pronounced. Our results suggest that repurchases, and especially ASRs, indeed make a firm a less attractive prospect for takeover.

Suggested Citation

Akyol, Ali C. and Kim, Jin S. and Shekhar, Chander, The Causes and Consequences of Accelerated Stock Repurchases (September 2014). International Review of Finance, Vol. 14, Issue 3, pp. 319-343, 2014. Available at SSRN: https://ssrn.com/abstract=2488237 or http://dx.doi.org/10.1111/irfi.12035

Ali C. Akyol (Contact Author)

University of Ottawa ( email )

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HOME PAGE: http://www.aliakyol.com

University of Melbourne ( email )

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HOME PAGE: http://www.aliakyol.com

Financial Research Network (FIRN)

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

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

Jin S. Kim

Kyungpook National University

Chander Shekhar

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Financial Research Network (FIRN)

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

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

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