نهادهای حقوقی، تمرکز مالکیت، و خرید مجدد سهام در اطراف جهان: مسیر سیگنال؟

One of the central puzzles of signaling theory is how to assess signal quality, in particular the potential for signal mimicking. Our study provides evidence of signal mimicking in the context of stock repurchases. Employing an ex-ante proxy for the likelihood of mimicking stock repurchases and data on open market stock repurchases from 30 countries, we find that long-term operating and market performance following stock repurchases improve less for suspected mimicking firms. This finding contradicts the conventional characterization that managers use stock repurchases to signal undervaluation and enhanced future performance. We find that mimicking firms have smaller capital investments, need greater external financing, buy back fewer shares, and issue more new shares (and/or resell more treasury shares) in the year of the repurchase. Our analysis further shows that mimicking is more likely in countries with weak investor protections and in firms with higher ownership concentration. Further, mimicking associated with concentrated ownership is mitigated in countries with stronger investor protections and by the adoption of International Financial Reporting Standards (IFRS). Altogether, our findings provide evidence of signal mimicking in stock repurchases in international data that is influenced by market, ownership, legal, and financial reporting characteristics of countries.

Open market stock repurchases have become increasingly frequent corporate transactions, especially in the U.S., and this activity has received considerable attention from both academics and practitioners. Grullon and Michaely (2002) report that since 1999, U.S. firms have spent more money annually on stock repurchases than on dividends. Since the late 1990s, an increasing number of countries outside the U.S. have adopted similar laws allowing firms to buy back their shares. As a result, repurchase programs have become more common worldwide. Eije and Megginson (2008) find that while the proportion of European firms paying dividends has declined significantly, the proportion of firms repurchasing their own shares has grown steadily. A similar trend can be observed in East Asia. Following a revision of the Commercial Law, Japanese firms have been able to execute stock repurchases without the approval of a shareholders' meeting since 1997. Despite the growing popularity of stock repurchases as a payout method, little international research has been conducted on the subject. Given the high degree of institutional variation across countries, any conclusions applicable to stock repurchases in the U.S. might not be generalizable elsewhere. Stock repurchases are a flexible and discretionarily temporary payout method. Firms can immediately offset any discretionary capital payout to the degree they choose by selling offsetting treasury shares or issuing new shares, whereas firms treat dividends as longer-term commitments (Jagannathan, Stephens, & Weisbach, 2000). Previous studies identify several motives for stock repurchases, such as to signal undervaluation, distribute free cash flows, achieve an optimal leverage ratio, fund stock options, defend against takeovers, or exploit tax advantages (e.g., Bagwell and Shoven, 1988, Comment and Jarrell, 1991, Gup and Nam, 2001, Ikenberry et al., 1995, Lie, 2005 and Lie and Lie, 1999). Although firms repurchase stocks for various motives, the literature maintains that the signaling of undervaluation is a dominant rationale (Chan et al., 2004 and Dittmar, 2000).5Brav, Graham, Harvey, and Michaely (2005) show that managers commonly time the market when they believe their stock price is low. The signaling hypothesis suggests that when information asymmetry exists, corporate insiders use repurchases to signal undervaluation or better future performance. It is argued that for this reason stock repurchase announcements are followed by positive price movements and positive changes in the firm's expected future operating performance. However, a number of recent studies argue that some managers also use stock repurchase announcements as a tool to mislead investors. Hribar, Jenkins, and Johnson (2006) document that some firms use stock repurchases to meet or beat analysts' earnings per share (EPS) forecasts. Chan, Ikenberry, Lee, and Wang (2010) note that for a subset of repurchasing firms, no improvement in operating and market performance follows repurchase programs. Massa, Rehman, and Vermaelen (2007) argue that repurchases are a defensive reaction to avoid potential stock price declines following other firms' repurchase decisions in concentrated industries. Gong, Louis, and Sun (2008) find that managers manipulate earnings downward before stock repurchases, suggesting the coordinated management of EPS. Motivated by this emerging literature on opportunistic or mimicking repurchases, this study has two objectives: first, to identify a subset of repurchasing firms that are likely to use stock repurchases to mislead investors, and second, to investigate the roles played by countries' investor protection institutions, firms' ownership structures, and the adoption of International Financial Reporting Standards (IFRS) in shaping the quality of signaling via repurchase activities in an international setting. As the literature provides little prior evidence on these questions, this study attempts to provide evidence. In particular, we provide evidence on whether repurchases are opportunistic or mimicking and driven by a manager's intention to mislead the market, rather than by the conventional motives of signaling undervaluation or distributing free cash flows. In his seminal research on labor market signals, Spence (1973) shows that educational background can serve as a signal differentiating the quality of job applicants in labor markets. He emphasizes that a signal will not effectively distinguish one applicant from another unless the costs of signaling are reliably and negatively correlated with productive capability; otherwise the signal is subject to manipulation. Furthermore, Spence (2002) observes that high-quality product owners have an incentive to distinguish themselves, while low-quality product owners have an incentive to imitate this signal and thereby mimic the distinction. Breed (2001) argues that honest signals in communication are given when both sender and receiver have the same interest in the result, and deceptive signals appear when the sender can exploit the receiver. In the context of stock repurchases, corporate insiders have incentives to undertake mimicking repurchases if mimicking can bring them private benefits. Examples of such private benefits range from the enhancement of stock-based remuneration to inducements for the conversion of convertible bonds. Stock-based payments account for a large portion of executives' total remuneration, and the long-term cumulative financial gain to CEOs from unexpectedly good stock price performance is positive and significant (Boschen, Duru, Gordon, & Smith, 2003). Moreover, CEO turnover is associated with poor stock returns (DeFond & Hung, 2004). Because stock repurchases are commonly characterized as “good news” signals, and markets react positively to repurchase programs, corporate insiders have incentives to announce repurchases to manipulate EPS (Hribar et al., 2006) and stock prices. Jung, Kim, and Stulz (1996) argue that agency problems may lead managers to ignore the costs of issuing equity with buybacks prior to the issue of new shares as a means of boosting the offering price. Anecdotal evidence shows that firms often buy back shares during the conversion period of convertible bonds, and stop buybacks after conversion expiry dates. Although stock repurchase can be costly as a mimicking tool due to the cash consumed, it is less costly to insiders as long as the private benefits obtained are greater than that consumed and the expense is borne by outside investors. Following the approach used by Biddle, Hilary, and Verdi (2009), Gong et al. (2008), and Chan et al. (2010), we construct a proxy for the likelihood of mimicking repurchases based on the ex-ante characteristics of repurchasing firms. Specifically, we focus on (i) the market-to-book ratio; (ii) the operating cash flows to total assets; and (iii) the discretionary accruals prior to stock repurchases. We focus on these factors because previous studies indicate that repurchasing firms are undervalued, have free cash flows, and tend to manipulate their earnings downward prior to stock repurchases. Consequently, we predict that the higher the market-to-book ratio, the lower the operating cash flows to total assets, and the higher the discretionary accruals prior to stock repurchases, the more likely it is that the repurchases are opportunistic or mimicking in nature. Using this approach and data on 11,422 repurchasing firm–year observations between 1998 and 2006 across 30 countries, we identify a subset of firms that are likely to undertake mimicking repurchases. Our empirical results show that for suspected mimicking firms, the long-term operating and market performances do not improve following actual repurchases. In contrast, post-repurchase performance does improve for non-mimicking repurchasing firms. Our analysis indicates that the suspected mimicking firms exhibit poorer operating performance, fewer repurchases, lower capital expenditures, greater need for external financing, and lower levels of intangible assets. Moreover, we find that insiders minimize the costs of false signaling via repurchases by reselling treasury shares, or by issuing new shares in the year of the repurchase. We further test for the effects of country-level legal institutions and firm-level ownership structures on the quality of signaling in the context of repurchases. We find that mimicking repurchases are more likely to occur in countries with weaker investor protections, and in firms with greater ownership concentration. Our results provide a partial explanation for recent findings that stock repurchases are less effective than dividends in mitigating agency conflicts in countries with weaker investor protections (e.g., Haw, Ho, Hu and Zhang, 2011 and Pinkowitz et al., 2006), and that stock price reactions to the repurchases are lower in countries with weak investor protections than those in the U.S. We also report that mimicking behavior induced by ownership concentration is restrained by stronger investor protections. Our additional analyses provide some evidence that the adoption of IFRS helps constrain mimicking repurchases, possibly due to the effect of enhanced transparency in reducing information asymmetry. Our findings are robust to a series of sensitivity tests including alternative measures for mimicking repurchases, legal protections, stock repurchasing activity, and also to the control for endogeneity. Our study contributes to the literature in several ways. First, it extends the scope of the literature on the motives and economic consequences of repurchase programs by enlarging the focus from U.S. firms to the international context, in which ownership structures are more concentrated and country-level institutional environments vary significantly. Our results suggest that a country's legal institutions and a firm's ownership structure both influence insiders' mimicking behavior in repurchase activities. This study also complements the work of Massa et al. (2007), which identifies mimicking repurchases in concentrated industries in the U.S. Second, our work augments signaling theory addressing the signal quality (e.g., Breed, 2001, Dawkins and Guilford, 1991 and Spence, 2002). This study provides empirical evidence that legal institutions and ownership structures jointly affect signal quality in the context of stock repurchase programs. Furthermore, as Spence (2002) argues, low-quality product owners have an incentive to imitate the signals of high-quality products. Our study provides empirical evidence of this in capital markets and further evidence on factors that can mitigate mimicking behavior. Third, our study provides a partial explanation for the lower effectiveness of stock repurchases in mitigating agency conflicts and the lower valuation of stock repurchases in countries with weak investor protections (Haw, Ho, Hu and Zhang, 2011, Haw, Ho and Li, 2011 and Pinkowitz et al., 2006). The remainder of this study is organized as follows. In Section 2, we develop our major hypotheses. The research design and methodology are described in Section 3, with the data and sample selection presented in Section 4. Section 5 reports the empirical results and Section 6 concludes the paper.

Previous studies identify the intent to signal undervaluation and/or distribute free cash flows as major motives for undertaking stock repurchases. They generally find that long-term operating and market performance improve following stock repurchases. However, previous empirical and theoretical findings suggest that other motives can arise, which encourage false signaling or mimicking. In augmenting this interpretation, our study has two aims. First, by using a composite measure to proxy for the likelihood of mimicking repurchases, this study identifies a subset of repurchasing firms that are likely to use stock repurchases as a tool to mislead the markets for the private benefits of corporate insiders. Second, we use international data to investigate the respective roles of country-level investor protections, ownership structures, and the adoption of IFRS in mitigating signal mimicking and thus improving signal quality in the context of stock repurchases. We construct a composite measure of the likelihood of mimicking repurchases, based on the ex-ante characteristics of repurchasing firms. Using this measure on a sample of repurchasing firms across 30 countries outside the U.S. between 1998 and 2006, we find that both the levels of, and changes in, operating and market performance decrease monotonically with the likelihood of mimicking repurchases during the three years following actual stock repurchases. Instead of signaling motives of undervaluation and free cash distribution, suspected mimicking firms exhibit lower capital investment and greater need for external financing. They repurchase fewer shares, and issue more new shares (or resell more treasury shares) in the year of the repurchase. These phenomena indicate a lower cost associated with mimicking versus genuine repurchases. Considered together, these findings provide evidence that firms engage in mimicking repurchases internationally. Further findings reveal that mimicking is more likely in countries with weak investor protections and in firms with highly concentrated insider ownership. We also find that stronger legal institutions and the adoption of IFRS enhance the signaling credibility of stock repurchases by curbing mimicking behavior by corporate insiders. Consistent with the Spence (2002) argument that low-quality product owners have an incentive to imitate the signals of high-quality products, our study provides empirical evidence of it in the context of the capital markets and further evidence on the factors that can mitigate mimicking behavior. Given the limited international research to date on stock repurchases, our study highlights the importance of a country's legal institutions, firm ownership structures, and the adoption of IFRS in enhancing signal quality in the context of stock repurchase programs. Our empirical findings are subject to two caveats. First, our proxy for mimicking repurchase (Mimic) is subject to remaining measurement error. Second, we use closely held blocks of shareholdings to proxy for corporate insider ownership. One weakness of this measure is that it includes all block holdings, some of which may be unrelated to controlling shareholders, so this measure may not accurately capture the degree of control rights concentration.