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Outline

Title
Abstract
Introduction
Literature Review and Hypothesis Development
Earnings Management Hypothesis
Signaling: Undervaluation Hypothesis
Free Cash Flow Hypothesis
Data Description
Data Sample and Descriptive Statistics
Methodology
Discussion of Results
Univariate Results
Multivariate Results
Conclusion
References

Accelerated share repurchases: value creation or extraction

Profile image of Tao-hsien KingTao-hsien King

Review of Quantitative Finance and Accounting

https://doi.org/10.1007/S11156-021-00989-Y
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65 pages

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Abstract

The "signaling value, or more generally, the information content, of ASRs relative to conventional OMRs" remains unsettled in the literature (Farre-Mensa, Michaely, and Schwartz, 2014, p.125). Using a handcollected sample of 716 privately-negotiated Accelerated Share Repurchases (ASR) contracts from 2004 thru 2015, we find ASRs have now become the second largest method of share repurchase in the U.S., representing approximately 10% of all repurchases. We examine managements' motives to initiate an ASR to manage quarterly reported EPS and/or as a signaling mechanism. We find univariate support for the use of ASRs to meet quarterly analyst EPS forecasts. However, multivariate logit regressions reveal that firms are more likely to initiate an ASR if they would have met analysts' forecasts without the accretive effects of a repurchase. Contrary to the literature, we find both 5-day CARs and 1-year BHARs surrounding ASR announcements are significantly higher than those of non-ASR firms. However, post-announcement operating performance is declining for both ASR and non-ASR firms. Taken together, our results support the use of ASRs to send a stronger signal of management's commitment to avoid overinvestment.

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The many facets of privately negotiated stock repurchases☆
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