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Stock Repurchase Announcements repurchase sends a positive signal, then fir ms may use this method to increase the market value. Thus, the com pany uses the stock repurchase a nnouncement as an implicit signal to the m arket with the objective of raising the value of their stock (Liano, 2003). There are other reasons why companies repurchase their stock. The most common reason is excess cap ital. The com pany can feel that the stock is undervalued, so the best use of ex cess cash is to purchase stock back thereby resulting in higher stock prices for that company. Another purpose of the repurchase decision is to revise the firm’s capital structure. Repurchases can cause adjustments in firm s’ capital structures by increasing leverage and adjus ting ownership interest. Buying in stock reduces the firm’s equity while at the same time increases the level of debt in the capital structure. The increased level of debt (or financial leverage) allows the firm to increas e profitability and earnings per shar e (Dittmar, 2000). Stock repurchases also r esult in favorable tax treatment for the indiv idual investor since an y gains are generally taxed at the lower capital gains rate. Firms that participate in stock repurchases typically have less leverage, poor operating performance, and slow growth compared to companies that do not purchase back stock. Research on the impact and efficiency of stock repurchase announcements on stock price is mixed. Studies based on large tender offer stock repurchase s resulted in an i mmediate and significant positive effect on stockhol ders’ wealth (Dielman, 1980). Likewise, Masulis (1980) suggests stock repurchase announcem ents illicit signi ficant positive stock price reactions at the semi-strong level of market efficiency. Comment (1991) argues that there is a positive reaction to the announcement of a sto ck repurchase agreemen t. Through the use of a regression anal ysis, Comment defends his posit ion that stock repurchases announcem ents supports increases in stock prices. Hi s research sup ports the idea that a firm’s stock price will increase because o f the signaling sent by management that their stock is undervalued. Using a random coefficient regression, Diel man (1980) investigated the effects of stock repurchasing on the rates of return on the stock be ing repurchased. His findings conclude that open market repurchases resulted in no econo mic significance with the rate of returns for e ach firm studied being negli gible (Dielman, 1980). Stewart (1976) discovered that in the short term , stock prices remain neutr al fro m the effects of the repurchase. His study concludes that the market remains rather inefficient in regards to the stock repurchase and takes several months for the benefits of the repurchase to appear. By stud ying b oth open market and tender offer repurchases, Marks (1976) was able to conclude that open market repurchases had no signif icant price effect on the market and tender offers had a temporary positive price effect for the length of the offer. However, Rosenberg (1976) found th at tender offer stock repurchases resulted in a neutral price effect for his sam ple. Overall, most literature supports th e idea that an investor cannot earn an abnormal return from the announcement of a stock repurchase. This study extends previous studies by examining the effects of a sam ple of 85 stoc k repurchase announcements on the firms’ stock price to determine if an investor is able to earn an abnormal return by acting this type of information. METHODOLOGY AND STUDY SAMPLE In order to te st the level of market efficiency surrounding a sam ple of stock repurchas e announcements this study uses the standard event study methodology from the finance literat ure. As such, the first goal of t he event study is to select either a common event with a single e vent date or a common event with different event da tes. For the purpose of this study, a comm on event with different event dates applies. Th e common event is the firm ’s announcement of a stock repurchase. Since fir ms make these announcements at random , t he dates of the announcements will differ. ASBBS E-Journal, Volume 4, No.1, 2008 96
Kinsler and Bacon The study selects a sample of com panies that have announced a stock repurchase fro m http://finance.yahoo.com/ or other business and finance sources. In order to provide the sufficient number of daily price observations before and after the repurchase announcem ent to accommodate the event study methodology, the sample of repurc hase announcements is li mited to firms at least a y ear old. Likewise, t he sample of companies announcing the repurchase must be traded on a major exchange such as the NYSE, NASDAQ, or the AMEX. Table 1: DESCRIPTION OF STUDY SAMPLE Ticker Symbol Firm Name Announcement Date Trade Index KO Coca-Cola Corporation April 11, 1996 NYSE MCD McDonald's Corporation September 29, 1998 NYSE BBT BB&T Corporation January 27, 1999 NYSE AAPL Apple Incorporate July 15, 1999 NASDAQ GM General Motors Corporation February 1, 2000 NYSE BUD Anheuser-Busch Companies Incorporate February 23, 2000 NYSE SMP Standard Motor Products Incorporate Hanover Capital Mortgage Holdings March 6, 2000 NYSE HCM Incorporate April 20, 2000 AMEX STLD Steel Dynamics Incorporate June 7, 2000 NASDAQ PTIX Performance Technologies Incorporate August 14, 2000 NASDAQ IOM Iomega Corporation September 8, 2000 NYSE F Ford Motor Company September 14, 2000 NYSE WWE World Wrestling Entertainment Incorporate September 28, 2000 NYSE JAKK Jakk's Pacific Incorporate April 23, 2001 NASDAQ CSCO Cisco System September 14, 2001 * NASDAQ SCSC ScanSource Incorporate September 27, 2001 NASDAQ ESST ESS Technology October 24, 2001 NASDAQ ENWV Endwave Corporation January 23, 2002 NASDAQ AVSR Avistar Communications Corporation July 1, 2002 NASDAQ HCC HCC Insurance Holdings Incorporate July 10, 2002 NYSE ENTU Entrust July 29, 2002 NASDAQ AMWD American Woodmark Corporation September 4, 2002 NASDAQ COGN Cognos Incorporate October 3, 2002 NASDAQ ASVI ASV Incorporate October 7, 2002 NASDAQ AZO AutoZone Incorporate October 17, 2002 NYSE ARBA Ariba Incorporate October 22, 2002 NASDAQ ACXM Acxiom November 14, 2002 NASDAQ UTEK Ultratech Incorporate January 30, 2003 NASDAQ PETD Petroleum Development March 13, 2003 NASDAQ ECL Ecolab Incorporate March 18, 2003 NYSE ZLC Zale Corporation March 18, 2003 NYSE PEP Pepsico Incorporate May 28, 2003 NYSE ASBBS E-Journal, Volume 4, No.1, 2008 97
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ASBBS eJournal Volume 4, No.1, 2008
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THE SUPREME COURT GRANTS CERTIORARI
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Deductibility of investment fees…
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Mellon Bank, N.A. v. United States,
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Browning Questions for consideratio
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Browning to fully realize each of t
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Browning email and document exchang
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Browning VirtualOfficeInternational
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Dhareshwar and Bacon poor earnings
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Dhareshwar and Bacon study as it is
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Dhareshwar and Bacon AER 0 -0.02 -0
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Dhareshwar and Bacon shows the exis
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Fekula and Hornyak of qualit y rese
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Fekula and Hornyak order of authors
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Fekula and Hornyak Cumulative % of
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Fekula and Hornyak 3 Figure 3 allow
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Fekula and Hornyak Alonso, C.J., Da
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Fekula and Hornyak WA St Louis 4.1
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Property Taxes in Indiana In 20 03
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ABSTRACT Major trends in hotel gues
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Hotel Guestroom Technology The impa
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Hotel Guestroom Technology ourselve
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Hotel Guestroom Technology booking
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Hotel Guestroom Technology Most peo
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AN HISTORICAL PERSPECTIVE OF ACCOUN
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Accounting for Income Taxes 1920-19
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SUSTAINABLE GROWTH MODELING: A LONG
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Growth …Analysis of Harley-Davids
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Growth …Analysis of Harley-Davids
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FIRM EXPANSION AND REGIONAL DEVELOP
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INNOVATIVE HRM: HOW HR ACTIVITIES C
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Innovative HRM intention would be t
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strategy implementation best. It se
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Innovative HRM It must be noted tha
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approach to compensation does not o
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Allied Signal, Dupont, Honeywell, B
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Figure 5: General Schemata of BSC:
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Innovative HRM where open communica
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Zomorrodian, A (1999) “Learning O
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