Payout policy in the 21st century Brav, Alon; Graham, John R.; Harvey, Campbell R. ...
Journal of financial economics,
09/2005, Letnik:
77, Številka:
3
Journal Article
Recenzirano
We survey 384 financial executives and conduct in-depth interviews with an additional 23 to determine the factors that drive dividend and share repurchase decisions. Our findings indicate that ...maintaining the dividend level is on par with investment decisions, while repurchases are made out of the residual cash flow after investment spending. Perceived stability of future earnings still affects dividend policy as in Lintner (1956. American Economic Review 46, 97–113). However, 50 years later, we find that the link between dividends and earnings has weakened. Many managers now favor repurchases because they are viewed as being more flexible than dividends and can be used in an attempt to time the equity market or to increase earnings per share. Executives believe that institutions are indifferent between dividends and repurchases and that payout policies have little impact on their investor clientele. In general, management views provide little support for agency, signaling, and clientele hypotheses of payout policy. Tax considerations play a secondary role.
•Liberalization heightens stock price crash risk, prompting firms to engage in share repurchases as a signalling strategy.•Includes market-level factors to explore the interaction between capital ...market openness and corporate behavior.•Enhances understanding of the consequences of global market integration on firm-level behaviors.
The inclusion of Chinas A-shares in the MSCI Emerging Markets Index (hereafter referred to as the MSCI index) represents a significant milestone in the opening of China's capital market. Using this inclusion as a quasi-natural experiment, this study examines the impact of capital market liberalisation on share repurchases. Our findings indicate that the opening of the capital market has a significantly positive effect on share repurchases, a conclusion that remains robust across a series of robustness tests. Mechanism analysis reveals that capital market liberalisation increases the risk of a stock price crash and encourages firms to repurchase shares as a signalling mechanism.
Taxing share repurchases Dayanandan, Ajit; Donker, Han; Nofsinger, John
Economics letters,
December 2022, 2022-12-00, Letnik:
221
Journal Article
Recenzirano
The US Inflation Reduction Act of 2022 imposed a 1% excise tax on share repurchases. We can learn from corporate reaction to such a new policy in India. The Indian federal government recently levied ...a 20 percent tax, plus surcharge, on share repurchases. We show that companies did not slow down their share repurchase initiation. However, to offset the added taxes, they increased their capital investment. The combination of the share repurchase and capital investment decreased their free cash flow.
•The Inflation Reduction Act imposed a 1% excise tax on share repurchases.•After enacting a tax on share repurchases, Indian companies did not slow down their initiation.•Companies shifted their activities to avoid an increase in taxes from the repurchase tax.•Indian firm share repurchase and capital investment decreased their free cash flow.
This literature review aims to address the critical knowledge gap in the field of share repurchase executions, a financial activity involving companies repurchasing trillions of dollars' worth of ...their own shares. The significance of understanding these mechanisms and their impact is underscored by their potential influence on the global economy. The paper employs a comprehensive analysis of existing literature, focusing on share repurchase mechanisms and motivations. It scrutinizes both open-market repurchases and Accelerated Share Repurchase contracts. Methodological approaches in current research, such as the use of partial differential equations and tree methods, are also evaluated. The review reveals that the execution phase of share repurchases remains largely unexplored. Unanswered questions persist about trading schedules, implications, costs, broker and corporate performance, and psychological effects of beating a buyback benchmark. Additionally, the review identifies significant limitations in current research methodologies. The paper advocates for the application and development of more advanced tools like machine learning and artificial intelligence to address these gaps. It also suggests potential areas for future research, including the role of technology in share repurchase execution, psychological factors influencing corporate buybacks, and the development of performance metrics for brokers and corporations. The review serves not only to highlight existing gaps in literature but also to suggest avenues for future research that could fundamentally enhance our understanding of share repurchase executions.
JEL classification
G1, G12, G14, G02, G4.
Investor demand has promoted share repurchases to the dominating payout instrument for U.S. firms. However, critics worry that the repurchase boom leads to firms neglecting long-term investments. ...Even worse, scholars have shown that investor pressure also motivates firms to cut marketing investments with the aim of boosting short-term income, a practice called myopic marketing management. Extant theory still lacks an understanding of whether and how the cooccurrence of share repurchases and myopic marketing affects firm stakeholders such as investors and consumers. Using a large-scale cross-industry sample, the authors reveal that there is a higher share of firms cutting marketing investments among repurchasing firms than among nonrepurchasing firms. Furthermore, investors immediately respond negatively to myopic firms that also repurchase shares. Finally, repurchases and myopic marketing are also associated with an increase in product recalls. This first study to assess share repurchases through a marketing lens hence reveals negative effects on both the stock and the consumer markets.
This study examines the relationship between institutional blockholders’ stewardship code adoption (the stewardship code adoption) and firms’ treasury-share-related decisions. Using the data of firms ...listed on the Korea Exchange from 2017 to 2019, this study finds that the stewardship code adoption has a negative relationship with share repurchase and a positive relationship with treasury share cancellation, and that the negative relationship between the stewardship code adoption and share repurchase is more pronounced for institutional blockholders with long-term investment stance. In addition, this study further finds that the stewardship code adoption can affect the timing of firms’ decisions on treasury share cancellation, reducing the risk from long-term holding or opportunistic disposition of treasury shares. The results from this study implies that the increase in shareholder activism triggered by the stewardship code adoption is to enhance shareholder value.
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•Stewardship code adoption is negatively related to share repurchase.•Stewardship code adoption is positively related to treasury share cancellation.•Stewardship code adoption affects the timing of treasury share cancellation.
•This paper examines the relationship between share repurchases and capital market pricing efficiency.•This paper find that the effect is more pronounced in state-owned enterprises.•We further find ...that the effect is more pronounced with a lower degree governance efficiency.
Share repurchase has become essential to distribute dividends, optimize long-term incentive mechanisms and improve governance structure. This paper selects the sample data from 2007 to 2021 to investigate stock repurchase in promoting the pricing efficiency. Stock repurchase can reduce the synchronicity. The mechanism test points out that stock repurchase plays an inhibitory role by improving stock liquidity and the quality of information disclosure. The heterogeneity test shows that the mechanisms are significant in state-owned enterprises and enterprises with low internal and external governance efficiency due to the substitution effect of stock repurchase on governance to a certain extent.
