Off-Market Buybacks in Australia: Evidence of Abnormal Trading around Key Dates

Hue Hwa Au Yong, Christine Brown and Chloe Choy Yeing Ho

International Review of Finance, 2014, vol. 14, issue 4, 551-585

Abstract: Off-market share buybacks in Australia are often structured with the buyback price comprising a large dividend component (which may carry imputation tax credits) and a small capital component. This unique structure has the consequence that institutions on low tax rates stand to benefit most from selling shares into the buyback. In this article, we explore evidence of abnormal trading activities around key dates in the conduct of off-market buybacks and investigate the drivers of these activities. We find evidence of abnormal trading activities around the initial announcement and the final announcement dates of the buyback. The significant differences in abnormal volumes between the buybacks with and without imputation tax credits highlight the importance of tax motivations in explaining abnormal trading activities in the shares of companies conducting off-market buybacks, and are consistent with observed buying pressure around the announcement of the buyback.

Date: 2014
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