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This paper aims to extend the work by Vafeas and Lie and Lie by developing an empirical model of choice among four alternative mechanisms for distributing cash from corporations to shareholders: a fixed‐price self‐tender offer, a Dutch auction self‐tender offer, an open market share repurchase, and a special dividend.

A multinomial logit (MNL) model adapted for choice‐based sampling is used to examine the factors that influence a firm's choice among the four methods.

Firms with a high degree of heterogeneity in shareholder valuations tend to select an open market repurchase, while firms with low levels of heterogeneity choose a special dividend. Firms already paying high dividends are more likely to issue a special dividend than institute an open market repurchase. A firm with poor stock performance prior to the announcement is more likely to choose a fixed‐price self‐tender offer or open market share repurchase. On the other hand, firms are more likely to follow strong performance with a special dividend. Contrary to Persons' model, it is found that firms facing a takeover threat are more likely to choose a fixed‐price tender offer than a Dutch auction.

It is shown that the ownership structure, current payout level; the size of the distribution, and the degree of stock undervaluation are among the most important determinants of a firm's choice among alternative payout methods.

This study adds to the existing literature by developing the first empirical model of choice among all four one‐time (or infrequent) corporate cash disbursement methods. It is also the first to adjust the MNL estimates for the choice‐based sampling method used to collect the data.

The paper seeks to examine changes in daily return volatility associated with open market share repurchases.

Univariate analyses, control sample analyses, and multiple regression analyses are employed to explore relations between daily return volatility and a number of variables.

This study finds evidence that an open market share repurchase firm, by actively buying back its shares when the share price falls, reduces daily return volatility. The results suggest that it is the subsequent actual buyback trading activity, not the announcement, that is significantly negatively associated with changes in daily return volatility. CAPM beta, a measure of systematic risk, decreases only when the firm is in the market actively repurchasing its shares.

To the best of the author's knowledge, this study is probably the first to connect changes in daily return volatility to actual buyback trading activities of share repurchase announcing firms. Changes in daily return volatility, or total risk, not only affect systematic risk, but also are important to underlying option holders, arbitrageurs, and investors who hold undiversified portfolios.

Due to insufficient disclosure on open market share repurchases in the USA, at any given point in time, outside shareholders have no knowledge of whether their firm is executing open market share repurchase trades. It is hypothesized that such information disparity between outside shareholders and insiders of a repurchasing firm creates asymmetric opportunities for insiders to time their sell trades in a period when the firm is engaged in buyback trading of its own shares. Insiders have an incentive to sell when the firm is in the market supporting the price by repurchasing its shares. The purpose of this study is to examine this hypothesis (insider timing hypothesis) by investigating insiders' trading activities during the periods of corporate share buyback trading.

Multiple regression analyses are used to explore relations among trades by insiders, corporate share buyback trades, and a number of other control variables.

This study finds evidence that insiders do increase the net number of shares sold in a fiscal quarter when the firm is in the market engaged in share buyback trading.

This study suggests the possibility of insiders' opportunistic trading behavior during the periods of corporate open market share buyback trading.

In this paper, we investigate the New Zealand stock market reactions to both on-market and off-market share repurchase programmes for the period 1995–2004. Share repurchases have become more frequent in New Zealand in recent years, though the size and the number of repurchases are still small by international standards. The main reason appears to be the presence of the dividend imputation system which diminishes the tax consequences of cash dividends compared to capital gains. On the whole, we observe that the market reacts positively and significantly to the share repurchase announcements. The magnitude of average abnormal returns for the on- and the off-market repurchases on the announcement day are 3.25 and 3.12% respectively. We further observe the reasons companies undertake stock repurchase are consistent with the investment and free cash flows agency hypotheses.

The purpose of this paper is to examine differences in market performance of Swedish firms that initiate repurchase programs infrequently (1-2 programs), occasionally (3-4 programs) and frequently (5 or more programs) over the sample period and examine the relationship between abnormal return and repurchase size in repurchase months.

Standard event study methodology is used to detect abnormal return surrounding initiation announcements of repurchase programs. Ibbotson's RATS-methodology and the calendar-time portfolio methodology are used to estimate long-term abnormal performance.

The authors find differences in market performance of firms that initiate repurchase programs infrequently, occasionally and frequently. As with Jagannathan and Stephens, the authors find that infrequent repurchase programs are greeted with a stronger positive reaction than occasional and frequent programs. However, over long term, infrequent repurchase programs show no abnormal return, while occasional and frequent repurchase programs show a significant positive abnormal return. A positive relationship between abnormal return and repurchase size in repurchase months is documented on average for all types of repurchase programs.

By using the detailed data on repurchase activities, the authors are able to examine share repurchases with high precision and relate the performance to repurchase size. Since the duration of a repurchase program is pre-determined in Sweden, the authors are able to classify the programs by frequency and study market performance within the programs.

This study seeks to examine the role of firm characteristics and insider private information in affecting Canadian firms’ repurchase decision and the associated announcement period stock return.

Past studies of announcement returns employ a standard event‐study methodology, which produces biased parameter estimates when the corporate event is voluntary. This study employs the conditional event study methodology, which is free of self‐selection bias. The conditional model also provides a direct test of whether private information is conveyed through the announcement.

It is found that firms are more likely to buy back shares if they have greater free cash flows, lower market‐to‐book ratios, poor prior stock performance, and their insiders have large shareholdings. It is shown that the announcement period returns are strongly and positively related to the private information possessed by company insiders. The market reacts to the reason given for the repurchase and reacts less positively to repeat repurchases. Overall, the evidence is consistent with Isagawa's model which argues that repurchases signal that the insiders are not the type to waste their free cash flow.

This methodology should also be applied to US open market repurchases.

This is the first study to: explicitly test whether the abnormal return is attributable to private information; employ the conditional event study methodology in examining the announcement return; and study the returns to Canadian repurchase announcements.

The purpose of this paper is to examine whether firms engage in earnings decreasing management before share repurchases to mislead investors or to smooth earnings and improve earnings informativeness.

The authors examine discretionary accruals and cash flows around open-market share repurchases. The primary discretionary accruals measure is industry- and performance-adjusted discretionary current accruals estimated from cash-flow data.

Results show that, firms experience temporary increases in operating cash flows and use negative discretionary accruals to smooth earnings before share repurchases. Firms with the highest pre-repurchase cash flows use the lowest pre-repurchase discretionary accruals. Moreover, pre-repurchase discretionary accruals reflect expectations about future operating cash flows. Firms with the strongest deterioration in operating cash flows after repurchases use the lowest pre-repurchase discretionary accruals. These findings suggest that repurchasing firms use earnings management to increase smoothness and predictability of reported earnings rather than to mislead investors.

This paper provides an alternative explanation to the finding of negative discretionary accruals before share repurchases. It adds to the literature on repurchases and earnings smoothing by showing that firms use earnings management around share repurchases to smooth earnings.

Most research on share repurchases is based on the USA. Recently, the rate of share repurchases by UK companies has increased significantly; such a marked increase in activity would suggest a change in strategic factors generating this activity. This paper aims to focus on UK practice, the motivations of UK companies to repurchase shares and compares similar research in the USA.

Strategic motives for share repurchase activity are examined by a questionnaire survey of the finance directors of the top UK 200 companies. The outcome is compared to equivalent US research. The theoretical underpinning of the survey is based on six prominent hypotheses from the academic literature.

The results indicate that a primary motive of share repurchases in the UK is to achieve an optimal capital structure, and that the requirement to cancel shares is fundamental to buy‐back decisions in the UK.

USA/UK comparison has limitations, nevertheless it highlights differences and possible reasons. A follow‐up study in the current market conditions may give further clarity. Also, a survey of smaller quoted companies may further enhance our understanding of the motives.

The likelihood is of this trend being maintained, especially in view of legal development.

Individual respondents indicated that finance directors have a genuine interest in this topic and that further research would be beneficial in both practical and academic use. Share buy‐backs can be an effective part of the overall strategy of a company, however the effects of a repurchase are ultimately short term.

Existing studies show that firms may have an incentive to use share repurchases opportunistically, thereby taking advantage of market participants’ confirmation bias that share repurchase is a signal of undervaluation. This study aims to investigate whether signaling costs and accounting transparency can serve as tools to identify opportunistic share repurchases.

The authors measure signaling costs by using two share repurchase methods (direct and indirect share repurchase) with different share repurchase costs, and measure accounting transparency using the history of earnings timeliness. The authors further measure long-term performance following share repurchases using operating performance and stock returns. Lastly, the authors compare the long-term performances between the groups defined by share repurchase method and earnings timeliness level.

The authors find that indirect share repurchase firms with a history of poor earnings timeliness experience unfavorable long-term performance, while other share repurchase firms do not. This finding reinforces the view that some share repurchases may be driven by managerial opportunism. In particular, when firms with a history of poor earnings-reporting behavior choose a low-cost repurchase method, their share repurchases may be motivated by managerial opportunism.

The findings suggest that past earnings timeliness and the signaling costs of a repurchase together are useful predictors of false signaling. Moreover, they suggest that investors can – at least in part – predict opportunistic share repurchases by using signaling costs and accounting transparency.

The purpose of this paper is to investigate the relative preference for dividends vs share repurchases based on managers’ personal wealth and control benefits.

The paper presents an analytical model of managerial preferences and information advantages, and analyses how the choice between dividends and repurchases relates to the manager's personal objectives in this setting. The approach specifies preferences consistent with the agency theory of economics.

It is found that, when managers can influence share price prior to a repurchase, due to their superior information, repurchases present an opportunity to increase managerial wealth relative to dividends. In addition, if managers can influence the post‐repurchase share price, due to an upward sloping supply curve for the company's stock, repurchases present an opportunity to protect the managers’ personal benefits of control. The ability to protect control depends on the toehold purchased by potential acquirers, and on the source of the upward‐sloping supply. Repurchases are less protective when toeholds are small and the supply curve reflects tax lock‐in effects.

The results indicate that managerial concerns over their personal wealth or ability to maintain control of the firm can influence the method of corporate distributions. As such, market valuations and the market reaction to distribution announcements may reflect these managerial concerns. This could be an important determinant of investor stock choices.

The factors determining firms’ payout methods remains a topic of significant importance and debate. The method of analysis here is new, and the insights into managerial preferences, toeholds and payout decisions help to inform this debate.