does prior record matter in the wealth effect of open.pptVIP

Does Prior Record Matter in the Wealth Effect of Open-Market Share Repurchase Announcement? Shao-Chi Chang National Cheng Kung University, Taiwan Sheng-Syan Chen National Taiwan University, Taiwan Li-Yu Chen National Cheng Kung University, Taiwan Main Idea Motivation (1/2) Positive wealth effect of share buybacks (Vermaelen, 1981; Comment and Jarrel, 1991; Nohel and Tarhan, 1998; Stephens and Weisbach, 1998) undervaluation redistribution of excess cash flow capital structure changes takeover attempts deterrence The amount of actual repurchases achieving above goals managerial motives of share repurchase Motivation (2/2) No actual completion of the repurchase program only 20% of their buyback programs following their announcements (Fortune, 1995) no acquisitions of shares made by most of the announcing firms in the 3 years following the announcements of repurchase programs (Stephens and Weisbach, 1998) The evidence of incomplete actual repurchases difficult to achieve above goals Motives for failure of complete buyback Boosting share price without the intention of actual completion (Wall Street Journal ,1995) Increase in earnings-per-shares by reducing total shares outstanding (Bens, Nagar, Skinner and Wong, 2003) improvement of stock performance The amount of actual repurchases ?Sorting managers into those that signal truthfully and those that signal falsely 1st Purpose Main Idea Motivation Undervaluation as the most cited reason for share repurchases (Ofer and Thakeor, 1987; Comment and Jarrel, 1991; Stephens and Weisbach, 1998; Ikenberry, Lakonishok, and Vermaelen, 2000) An average buy-and-hold yearly return of 26.2% following the announcement date (Chan, Ikenberry and Lee, 2004) Not meeting market expectation no improvement of stock price managers’ intentionally sending incorrect signals their optimistically biased toward the intrinsic equity value 2nd Purpose Data The announcements from Securities Data Corporation (SDC) during 1986 to 2005 Cri