عملکرد عملیاتی بدنبال اطلاعیه خرید مجدد سهم بازار باز
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|14020||2005||26 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Accounting and Economics, Volume 39, Issue 3, September 2005, Pages 411–436
I document that operating performance improves following 4,729 announcements of open market share repurchase programs from 1981 to 2000. Moreover, the capital market responds favorably to earnings announcements after the program announcements. Further analysis reveals that both the operating performance improvement and the positive earnings announcement returns are limited to those firms that actually repurchase shares during the same fiscal quarter. Last, I report that a subsample of firms that initiate the repurchases in quarters following the program announcements experience improvements after the initiation quarter, suggesting that actual repurchases, and not announcements per se, portend future performance improvements.
The last two decades have witnessed a dramatic increase in the use of open market repurchases, and by 1998 the total value of share repurchases (led by open market repurchases) exceeded that of dividends (Grullon and Michaely, 2002). According to the survey evidence in Brav et al. (2003), managers regard undervaluation of the stock to be the most important reason for repurchasing shares. If the stock is truly undervalued, share repurchase programs represent positive NPV projects that benefit shareholders. Any undervaluation likely stems from managers expecting future operating performance to be better than the capital market expects. Thus, a side effect of share repurchases is that they convey favorable information to the market about future performance. Consistent with the notion that open market share repurchases convey favorable information to the capital market, Vermaelen (1981) and Comment and Jarrell (1991) report that the stock market reaction to announcements of open market share repurchase programs is positive. Bartov (1991) provides some evidence that the positive wealth impact is attributable to an improvement in earnings. In particular, he reports that analysts revise upward their earnings forecasts around open market share repurchase announcements relative to control firms and that earnings improve during the announcement year. However, using a much larger sample, Grullon and Michaely (2004) find no evidence that analysts revise their earnings forecasts upward around open market share repurchase program announcements, and only weak evidence that earnings improve during the announcement year. In addition, neither Bartov nor Grullon and Michaely find any evidence of earnings improvements during post-announcement years. Overall, there is little evidence in extant literature that announcements of repurchase programs portend improvements in operating performance. If there is an improvement, it appears to primarily take place during the announcement year. It is difficult, however, to interpret any changes during the announcement year, because they might occur during the fiscal quarters before the announcement or the fiscal quarters afterward. This distinction is important, because it might tell whether decisions to launch open market repurchase programs depend on insiders’ expectations of future performance changes and whether performance changes can explain the positive average stock price reaction upon program announcements. I reexamine changes in operating performance around open market repurchase program announcements using quarterly data. Quarterly data permit me to better disentangle changes in performance immediately before and after the announcements. In addition to reporting performance changes for firms that announce repurchase programs and performance changes net of corresponding changes for industry peers, I report performance changes net of changes for firms with similar pre-event performance. Fama and French (2000) show that past performance patterns affect future performance changes. For example, a firm with superior performance will likely experience a subsequent reversion to the industry norm as other firms imitate its strategy and products. As a result, Barber and Lyon (1996) and Lie (2001) report that when analyzing whether future performance changes unexpectedly for firms with superior performance, the failure to compare the performance changes to those for firms with similar past performance generates biased test-statistics. Because firms that announce repurchases generally exhibit superior performance, I primarily rely on the changes for the sample firms net of the changes for the firms with similar pre-event performance when making inferences and drawing conclusions. My sample consists of 4,729 open market share repurchase program announcements from 1981 to 2000. Consistent with prior studies, I find that the stock price reaction to the announcements is positive. The mean and median abnormal stock returns during the 3 days centered on the announcements are 3.0% and 1.9%, respectively. Thus, repurchase program announcements clearly convey favorable information to the capital market. Relative to industry peers, firms that announce repurchases exhibit superior operating performance, but the relative performance declines following the program announcements. The declining performance appears to be attributable to mean reversion, however. Relative to control firms with similar pre-event performance, firms that announce repurchases actually exhibit subsequent performance improvements. The relative performance improvement of the sample firms occurs within two quarters after the program announcements, and appears to persist for at least 2 years thereafter. In other words, both the sample firms and the control firms experience subsequent declines in performance as a result of mean reversion, but the decline is less pronounced during the two quarters after the announcements for the sample firms. If the decline for the control sample accurately measures the expected performance decline in the absence of repurchase program announcements, the sample firms exhibit a performance improvement relative to prior expectations. Thus, my study provides evidence that announcements of open market repurchase programs convey an improvement in subsequent operating performance relative to prior expectations. In practice, firms that announce intentions to repurchase shares in the open market might not actually do so (Ikenberry and Vermaelen, 1996; Stephens and Weisbach, 1998). Unless a firm “puts its money where its mouth is” by actually repurchasing shares, it is less likely that managers believe that future performance will be better than the market expects and that the shares are undervalued. Consequently, for an announcement to convey favorable information about future performance, it has to be bonded with actual repurchases. To examine the notion that an open market share repurchase program announcement has to be coupled with actual repurchases to foretell performance improvements, I separately examine two subsamples. The first subsample consists of firms that announce an open market repurchase but do not repurchase any shares in the same fiscal quarter. The second subsample consists of firms that repurchase shares in excess of 1% of total asset value during the announcement quarter. The results are markedly different across these subsamples. Firms that do not repurchase shares during the announcement quarter do not exhibit any improvement in operating performance. In stark contrast, firms that repurchase shares during the announcement quarter exhibit a significant improvement in performance relative to firms with similar pre-event performance. The average relative improvement for these firms is 6–15%, which, if permanent, should give rise to a similar percentage increase in total firm value and an even greater increase in equity value. I also examine whether actual repurchases in later quarters convey information about performance. I find that even though firms with no share repurchase during the announcement quarters do not experience performance improvements after the announcement quarters, the subsample of these firms that initiate repurchases in subsequent quarters experience relative performance improvements after the initiation quarters. Thus, the actual repurchases, rather than the announcements of the repurchase programs per se, appear to foreshadow performance improvements. If firms that announce share repurchase programs exhibit improvements in operating performance and the capital market does not fully capitalize these improvements into the stock prices upon the announcements, the capital market should respond favorably to earnings announcements that follow the repurchase program announcements. In the last part of my study I test this joint hypothesis. The average abnormal stock price reaction to quarterly earnings announcements in the 2 years following repurchase program announcements hovers around 0.3–0.6%. Further inspection reveals that these positive abnormal earnings announcement returns are driven by firms that repurchase shares during the announcement quarter, for which the average returns are 0.5–1.1%. Interestingly, the highest average return of 1.1% is for the repurchase program announcement quarter, consistent with the notion that valuable information about recent repurchases is revealed at this time. In any event, the results corroborate the results on operating performance changes. In sum, there is strong evidence that firms that couple announcements of open market share repurchase programs with actual share repurchases experience subsequent operating performance improvements. My results have several important implications. First, they suggest that decisions to launch an open market repurchase program and subsequently repurchase shares depend on insiders’ expectations of future performance. Second, they suggest that the positive average price reaction upon announcements of share repurchase programs occurs, at least partially, because capital market participants revise upward their expectations for future performance. Last, the results justify the SEC's efforts to regulate repurchases to mitigate the potential for firms to take advantage of inside information about future performance when engaging in open market transactions. The remainder of the paper proceeds as follows. The next section discusses the hypotheses and past research. Section 3 describes the sample. Section 4 presents empirical results. Finally, Section 5 summarizes and concludes.
نتیجه گیری انگلیسی
Although conventional wisdom suggests that announcements of open market repurchase programs signal favorable information about future operating perfor- mance, the extant empirical evidence of performance changes is inconclusive. Most recently, Grullon and Michaely (2004) undertake a comprehensive study of open market repurchase program announcements, and report scant operating perfor- mance improvements during the fiscal year of the announcements, and no subsequent improvements. Instead, they find evidence that firms that announce open market repurchase programs face deteriorating investment opportunities, in which case repurchases effectively curb overinvestment. However, even under thisexplanation for the positive wealth impact of repurchase program announcements, one might expect that the performance would be better than it would have been in the absence of the programs. I reexamine the changes in operating performance around open market share repurchase announcements. My study differs from prior studies along three dimensions. First, I examine quarterly rather than annual data. If a performance improvement occurs around repurchase program announcements, past evidence suggests that it primarily happens shortly after the announcement (i.e., during the fiscal year of the announcement), pointing to the importance of using finer grids than annual data provide to conceal subsequent improvements. Second, I partition the sample into categories depending on the actual repurchase behavior during the announcement quarter. Firms that merely announce a repurchase program without actually repurchasing shares are less likely to experience a subsequent performance improvement, and the inclusion of these observations in the overall sample might weaken the results. Third, I attempt to validate the analysis of performance changes with an analysis of the capital market’s reaction to subsequent earnings announcements. These differences are critical in the sense that my analysis leads to a conclusion that stands in contrast to that of Grullon and Michaely (2003) . Collectively, my results paint a cohesive and intuitive picture. Relative to control firms with equally good performance at the time of the repurchase program announcement, firms that announce repurchases experience a subsequent perfor- mance improvement. The improvement mostly occurs within two quarters and persistsforatleast 2years thereafter.Further, thecapitalmarket responds favorably to earnings announcements for the fiscal quarters after the repurchase program announcements, presumably because the operating performance is stronger than anticipated. However, these results only hold for firms that bond their initial announcement with an actual repurchase in the same quarter. Firms that announce repurchase programs without repurchasing shares in the same quarter experience neither subsequent performance improvements nor positive stock price reactions to subsequent earnings announcements. I therefore conclude that announcements of repurchase programs that are accompanied by actual repurchases forerun performance improvements. One might also be tempted to conclude that firms should announce repurchase programs even if there are no intentions to actually repurchase shares, because merely announcing a repurchase has no implication for future operating performance but induces an immediate stock price increase. However, it is unlikely that such a stock price increase would be permanent. As the capital market learns that the firm has no intention to repurchase shares, the stock price would likely revert. While further investigation of this issue and potential trading rules around repurchase program announcement could be a fruitful avenue for future research, it is hampered by the endogeneity problem that actual repurchase decisions depend on what happens to stock prices immediately after the announcements of repurchase programs. In any event, such an investigation is beyond the scope of this paper.