Accelerated share repurchases: value creation or extraction

Tao-Hsien Dolly King () and Charles E. Teague ()
Additional contact information
Tao-Hsien Dolly King: University of North Carolina at Charlotte
Charles E. Teague: Eastern Michigan University

Review of Quantitative Finance and Accounting, 2022, vol. 58, issue 1, No 6, 216 pages

Abstract: Abstract In this paper, we examine firms’ motivation to conduct an Accelerated Share Repurchase (ASR) comparing to an OMR. ASRs have become the second most popular method of share repurchases in the US. Based on a comprehensive sample of ASR contracts, we find that the cumulative abnormal stock returns surrounding ASR announcements are positive and significantly higher than those for OMR, and ASR market reaction is positively linked to pre-repurchase stock return. The results suggest that firms use ASR to signal short-term undervaluation. We also find support for an earnings management explanation. Our findings strongly support the agency theory of free cash flow explanation for ASR comparing to OMR. The likelihood of conducting an ASR is higher for firms with a larger firm size, higher levels of cash and free cash flow, better operating performance, but a declining investment set. The use of ASR serves as a more efficient method to convey the short-term equity undervaluation and management’s commitment to return excess cash to shareholders.

Keywords: Payout policy; Accelerated share repurchases; Signaling; Earnings management; Free cash flow (search for similar items in EconPapers)
JEL-codes: G32 G35 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11156-021-00989-y Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:58:y:2022:i:1:d:10.1007_s11156-021-00989-y

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-021-00989-y

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().