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Article
Publication date: 31 December 2015

Does dividend policy drive repurchases? An empirical study

Nan Liu and Jamshid Mehran

The purpose of this paper is to investigate whether firms repurchase shares to meet or just beat their dividend target as managers perceive share repurchases are more…

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Abstract

Purpose

The purpose of this paper is to investigate whether firms repurchase shares to meet or just beat their dividend target as managers perceive share repurchases are more flexible than dividends and managers have a strong desire to maintain dividend levels and dividend payout ratio of the firms.

Design/methodology/approach

The authors first run a Tobit regression to examine whether firms meeting or just beating the quarterly dividend per share threshold exhibit unusually high repurchases, controlling for the factors shown to affect repurchases. The authors then calculate abnormal repurchases and compare firms that would otherwise miss the benchmark with other firms.

Findings

The authors find that firms meeting or just beating the quarterly dividend per share threshold repurchase more shares than other firms, after controlling for the substitution effect, investment opportunities and financial performance. In addition, firms otherwise missing the quarterly dividend per share threshold repurchase abnormally more shares to meet the threshold.

Originality/value

The study contributes to the payout policy literature in the following ways. First, it extends the understanding of the association between dividend payout and repurchase. Second, it contributes to the threshold literature by showing that firms manipulate repurchases in addition to earnings to meet their quarterly dividend per share threshold. Third, it provides support to the survey evidence that firms have a strong desire to maintain their dividend policies.

Details

Managerial Finance, vol. 42 no. 1
Type: Research Article
DOI: https://doi.org/10.1108/MF-10-2015-0258
ISSN: 0307-4358

Keywords

  • Dividends
  • Benchmark
  • Repurchase

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Article
Publication date: 10 November 2020

Intensive distribution and sales promotion for improving customer-based brand equity (CBBE), re-purchase intention and word-of-mouth (WOM)

Ande Langga, Andriani Kusumawati and Taher Alhabsji

Investigating the influence of intensive distribution and sales promotion towards customer-based brand equity, repurchase intention and word-of-mouth (WOM) (study on…

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Abstract

Purpose

Investigating the influence of intensive distribution and sales promotion towards customer-based brand equity, repurchase intention and word-of-mouth (WOM) (study on Suzuki car owners in PT Surya Batara Mahkota Wilayah Nusa Tenggara Timur).

Design/methodology/approach

The research was conducted in East Nusa Tenggara (NTT) and the analysis unit was customers of PT. Surya Batara Mahkota NTT (PT SBM NTT) as the owner of the Suzuki car. The population is 1,782 Suzuki car owners who bought their cars from PT SBM NTT, based on data from 2015. The sampling technique is the multi-stage area sampling.

Findings

Incentives distribution had significant and positive influence towards brand equity and repurchase intention. Sales promotion had significant and positive influence towards word-of-mouth (WOM), but it did not have influence towards brand equity. Brand equity had significant influence towards repurchase intention and WOM. On the other hand, repurchase intention did not have influence towards WOM.

Originality/value

The originality of this study was that the researchers did not find a previous study that discussed the relationship between intensive distribution and repurchase intention, between sales promotion and WOM and between customer-based brand equity and WOM. Previous studies used different variables as determinants of positive WOM.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
DOI: https://doi.org/10.1108/JEAS-03-2019-0041
ISSN: 1026-4116

Keywords

  • Intensive distribution
  • Sales promotion
  • Brand equity
  • Repurchase intention
  • Word of mouth

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Article
Publication date: 28 September 2020

How does real earnings management respond to the 2007-2008 financial crisis?

Zhigang Li, Yuan-Teng Hsu and Xiang Gao

This paper aims to investigate the dynamics of repurchase-based earnings management vis-à-vis other real activities manipulations during the 2007–2008 financial crisis.

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Abstract

Purpose

This paper aims to investigate the dynamics of repurchase-based earnings management vis-à-vis other real activities manipulations during the 2007–2008 financial crisis.

Design/methodology/approach

This paper adopts a Probit model to regress alternate real earnings management (REM) methods on a dummy variable indicating whether a firm falls in the crisis event window or not, during our 15-year sample period. This paper also detects switches made by suspected firms from repurchasing to other REM tools such as reducing discretionary expenditures.

Findings

This paper provides solid evidence indicating that firms suspected of earnings management have the tendency to decrease accretive share repurchases after the onset of the crisis. Conversely, the above pattern is neither observed in non-suspect firms nor over non-crisis periods. A further investigation documents that firms that switch REM during crisis can be characterized by less cash holding, smaller size, more severe liquidity shortage and/or tighter financial constraint.

Originality/value

This paper contributes to the literature on understanding the respective and interactive implications of both share repurchases and global financial crisis on firms’ REM activities.

Details

Pacific Accounting Review, vol. 32 no. 4
Type: Research Article
DOI: https://doi.org/10.1108/PAR-09-2019-0119
ISSN: 0114-0582

Keywords

  • Financial crisis
  • Real earnings management
  • Accretive share repurchase
  • G01
  • G35
  • M41

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Book part
Publication date: 19 October 2020

Annual Report Readability and Share Repurchases Under a Temporary Tax Holiday

Xin Zhao, Greg Filbeck and Ashutosh Deshmukh

Prior studies document increased share repurchase activity after the temporary tax holiday under the American Jobs Creation Act (AJCA) of 2004. Our study examines the…

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Abstract

Prior studies document increased share repurchase activity after the temporary tax holiday under the American Jobs Creation Act (AJCA) of 2004. Our study examines the moderating effect of financial statement readability on share repurchases in response to a temporary reduction in repatriation tax. Building on prior literature, we argue that firms with excess cash overseas, despite the lack of investment opportunities, produce less readable financial statements to hide bad news. We find that firms with less readable financial statements initiated higher levels of share repurchases after the AJCA. Our results contribute to the existing literature showing (1) firms hold excess cash overseas mainly for tax reasons rather than for nontax reasons such as precautionary motives or empire-building concerns and (2) firms return excess funds to investors rather than squander the funds once the tax cost of repatriation is reduced. Firms that suffer from the overinvestment problem using hard-to-read financial statements to hide the bad news of a lack of investment opportunities are more likely to benefit from the tax cut. Our study provides timely evidence of potential firm response to the 2017 Tax Cut and Jobs Act, which permanently removes the repatriation tax.

Details

Advances in Taxation
Type: Book
DOI: https://doi.org/10.1108/S1058-749720200000027003
ISBN: 978-1-83909-185-8

Keywords

  • American jobs creation act (AJCA)
  • share repurchase
  • shareholder payout
  • tax holiday
  • difference-in-differences
  • readability

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Article
Publication date: 17 July 2020

Post-recession share repurchase behaviour by JSE-listed companies: transparent or not?

Gretha Steenkamp and Nicolene Wesson

Share repurchases are increasingly employed in South Africa. Disclosure on share repurchases in annual reports is poor, and a high percentage of share repurchases are not…

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Abstract

Purpose

Share repurchases are increasingly employed in South Africa. Disclosure on share repurchases in annual reports is poor, and a high percentage of share repurchases are not announced in real time on the Johannesburg Stock Exchange (JSE). A comprehensive database of share repurchases by JSE-listed companies has been created up to 2009, but post-recession repurchase behaviour is not known. This study aims to examine South African share repurchase behaviour (activity, repurchase entity, repurchase type and transparency) in the post-recession period and compare this to the 2000–2009 period.

Design/methodology/approach

Comprehensive share repurchase data for all JSE-listed companies (excluding those in the basic materials and financial industries) were obtained by scrutinising annual reports and JSE announcements.

Findings

The repurchasing of shares reached a peak during the financial recession of 2008/2009, with share repurchases stabilising at a lower level post-recession. Repurchases executed by subsidiaries have decreased post-recession, probably owing to the introduction of dividends tax. However, 45% of the share repurchase value was not announced via the JSE (compared to 22% in 2000–2009).

Practical implications

Real-time JSE announcements of all share repurchases are required to improve transparency.

Originality/value

Owing to low announcement rates, a lack of transparency relating to share repurchases was observed in South Africa post-recession. Enhanced corporate governance requirements could improve transparency.

Details

Journal of Accounting in Emerging Economies, vol. 10 no. 3
Type: Research Article
DOI: https://doi.org/10.1108/JAEE-02-2020-0040
ISSN: 2042-1168

Keywords

  • Share repurchases
  • JSE
  • Post-recession behaviour
  • Transparency
  • Dividends tax
  • Repurchase entity
  • Repurchase type

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Book part
Publication date: 16 June 2008

An analysis of dividend and capital gains tax rate differentials and their effect on the structure of corporate payouts

Teresa Lightner

This study investigates whether corporations consider shareholder-level taxes when setting corporate distribution policy. I investigate the relation between the tax-rate…

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Abstract

This study investigates whether corporations consider shareholder-level taxes when setting corporate distribution policy. I investigate the relation between the tax-rate differential on dividend and capital gains income and its effect on firms’ distribution policies. I find that firms consider shareholder-level taxes and that this association varies with the percentage of the firm owned by individual shareholders. Hence, firms increase share repurchases and decrease the percentage of total corporate payout in the form of a dividend as the tax-rate differential increases. Thus, an increased substitution effect occurs as capital gains become relatively more tax-advantaged compared to dividends. Furthermore, I find a positive association between the percentage of the firm owned by individual investors and the percentage of total corporate payout distributed as a repurchase. These findings are consistent with personal income taxes influencing managerial decisions regarding the payout of excess corporate funds.

Details

Advances in Taxation
Type: Book
DOI: https://doi.org/10.1016/S1058-7497(08)18002-4
ISBN: 978-1-84663-912-8

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Article
Publication date: 1 August 2020

Deception by commission or by omission – management forecasts surrounding share repurchases

Anthony Chen and Hung-Yuan (Richard) Lu

In this study, the authors extend upon Brockman et al. (2008), who provide evidence that managers opportunistically accelerate bad news prior to share repurchases, but…

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Abstract

Purpose

In this study, the authors extend upon Brockman et al. (2008), who provide evidence that managers opportunistically accelerate bad news prior to share repurchases, but provide limited evidence that managers withhold good news until after repurchases. The authors examine management forecasts surrounding share repurchases in periods when companies must disclose detailed repurchase information. The authors argue these disclosures increase managers' legal and reputation risks of accelerating bad news, but have a lesser effect on delaying good news.

Design/methodology/approach

First, the authors examine whether managers alter the information released to the market before buying back shares by comparing managerial forecasts made within 30 days before the beginning of a repurchasing period with those made outside of this window. Second, the authors examine whether managers are more likely to provide good news forecasts, in terms of both magnitude and frequency, after buying back shares. Lastly, the authors examine the impact of CEO stock ownership on managerial forecasting behavior surrounding share buybacks.

Findings

Consistent with the authors’ hypotheses and contrary to Brockman et al. (2008), the authors find limited evidence that the likelihood or magnitude of bad news forecasts is greater in the period before share buybacks. Instead, the authors document that the frequency and magnitude of good news forecasts increase in periods following share buybacks and that these associations are positively moderated by managerial equity incentives. The authors also find that the withholding of good news is associated with lower average repurchase prices and greater repurchase volume. The authors further show that, when litigation risk is greater, managers are less likely to accelerate bad news prior to repurchases and more likely to withhold good news until after. Overall, the study results are consistent with managers balancing the benefits of opportunistic repurchase behavior with the costs.

Originality/value

This study contributes to the management forecast and share repurchase literatures by providing evidence consistent with managers opportunistically releasing earnings forecasts in the period after buying back shares. Most importantly, the authors show that after the rule revision, managers refrain from actively disclosing bad news that carry higher legal costs. Instead, they opt for the omission of good news to repurchase stocks at lower prices. The study results reconcile the conflicting evidence of Brockman et al. (2008) and Ge and Lennox (2011).

Details

Asian Review of Accounting, vol. 28 no. 4
Type: Research Article
DOI: https://doi.org/10.1108/ARA-08-2019-0149
ISSN: 1321-7348

Keywords

  • Repurchase
  • Managerial opportunism
  • Management forecasts
  • Securities litigation

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Book part
Publication date: 4 April 2005

OPEN MARKET STOCK REPURCHASES AT SÃO PAULO STOCK EXCHANGE – BOVESPA

Jairo Laser Procianoy and Luis Fernando Moreira

This paper examines stock prices reaction to open market repurchases announcements at the São Paulo Stock Exchange between May 30, 1997 and October 31, 1998. This…

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Abstract

This paper examines stock prices reaction to open market repurchases announcements at the São Paulo Stock Exchange between May 30, 1997 and October 31, 1998. This institutional scenario is a good testing ground for some theoretical hypotheses about stock repurchases announcements, because during this period there were taxes on capital gains but not on dividends. Using an event study methodology, we examined 110 episodes and found very small abnormal returns. Those results can not be explained by two main competing theoretical explanations. The Cumulative Abnormal Returns pattern found clearly suggests that repurchase announcements affected the behavior of stock prices in ways not described in previous studies.

Details

Latin American Financial Markets: Developments in Financial Innovations
Type: Book
DOI: https://doi.org/10.1016/S1569-3767(05)05016-8
ISBN: 978-1-84950-315-0

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Book part
Publication date: 15 August 2007

Share Repurchases in New Zealand

Hardjo Koerniadi, Ming-Hua Liu and Alireza Tourani-Rad

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…

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Abstract

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.

Details

Issues in Corporate Governance and Finance
Type: Book
DOI: https://doi.org/10.1016/S1569-3732(07)12018-1
ISBN: 978-1-84950-461-4

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Article
Publication date: 21 February 2020

Repurchase intentions in Y generation: mediation of trust and e-satisfaction

Shrawan Kumar Trivedi and Mohit Yadav

Research on online businesses has focused on the adoption of e-commerce and initial purchase behavior; repurchase intention and its antecedents remain underresearched. The…

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Abstract

Purpose

Research on online businesses has focused on the adoption of e-commerce and initial purchase behavior; repurchase intention and its antecedents remain underresearched. The present study develops an empirical model to explore the extent to which trust and e-satisfaction mediate the effect of vendor-specific attributes and customer intention to repurchase from the same online platform.

Design/methodology/approach

The proposed model is tested and validated in the context of Generation Y in India. A self-administrated online survey was employed, and the students aged between 20 and 35 at universities in Northern India are selected as subject. The data is analyzed using SPSS 20.0 and AMOS 20.0, where structural equation modeling is used to examine the model and test the hypothesis.

Findings

The results of this study suggest that trust mediates fully between security concerns, privacy concerns, and repurchase intention. E-satisfaction mediates between security and ease of use (EOU).

Practical implications

This study reveals the fact that security, EOU, and privacy concerns are the critical determinants that have the most impact on consumer's purchasing behavior. Gen Y consumers of India need some strong security features, an easy-to-use interface, a trusted privacy policy. Furthermore, it may be beneficial to observe e-satisfaction and trust as a mediator when identifying potential problems; online satisfaction is essential for the group in this study, and the results show that it impacts on the relation between repurchase intention and some determinant of repurchase intentions.

Originality/value

This research determines the impact of security, privacy concerns, EOU on the online repurchasing behavior of Gen Y in India. The mediation effect of e-satisfaction and trust has also been determined.

Details

Marketing Intelligence & Planning, vol. 38 no. 4
Type: Research Article
DOI: https://doi.org/10.1108/MIP-02-2019-0072
ISSN: 0263-4503

Keywords

  • Repurchase intention
  • Trust
  • E-satisfaction
  • Security
  • Privacy concerns
  • Ease of use
  • Structural equation modelling

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