The effect of heteroskedasticity on factors affecting stock repurchases

Anup M. Nandialath, Bernardo da Veiga, Madan Annavarjula and Ramesh Mohan

Global Business and Economics Review, 2014, vol. 16, issue 2, 142-156

Abstract: We demonstrate the effect of ignoring the role of heteroskedasticity modelling in applied corporate finance studies and show that it may have important consequences in corporate financial decisions. In this paper, we specifically focus on the effect of heteroskedasticity on the factors affecting the open market operations of the firm. We show that in the absence of modelling heteroskedasticy results from prior research are consistent. By explicit modelling of heteroskedasticity some results are reversed. In particular, we find that the effect of key variables such as dividends, leverage and the likelihood of takeover on the probability of repurchase differs after controlling for heteroskedasticity.

Keywords: open market stock repurchases; takeover deterrence; discrete choice models; heterosekdastic probit; heteroskedasticity modelling; corporate financial decisions; dividends; leverage. (search for similar items in EconPapers)
Date: 2014
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