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Type: Theses
Title: Explaining the information content and completion rates of on-market repurchase programs conducted in Australia
Author: Gould, Graeme Paul
Issue Date: 2015
School/Discipline: Business School
Abstract: This dissertation investigates on-market repurchase programs conducted in Australia and explores whether conditions of transparency in the Australian environment are conducive to firms wishing to signal undervaluation of their shares. A sample consisting of 789 programs that are announced over the period 2000 – 2010 are identified and information contained in relevant repurchase disclosures to the market, including program announcements, completion notices and daily trading notices are hand collected for investigation. In this study I examine the share price reaction around the period of a program announcement and the subsequent completion of a program as well as the number of shares repurchased. Share returns are examined by employing an event study methodology and the determinants of the share reaction is established using multiple regression analysis. Tobit regression analysis is employed to investigate the determinants of program completion rates. Results demonstrate that program announcements are accompanied by positive abnormal returns and announcement returns are greater for ‘initial’ programs than for ‘repeat’ programs. Of interest, firms which indicate an unlimited duration earn a greater market response to announcements than firms indicating a fixed period duration. Examination of program completions reveal that completion notices are not accompanied by returns significantly different from zero, a result that is consistent with the notion that they do not impart new information to the market. Examination of announcements demonstrate that the fraction of shares sought or repurchased in a program is not a determinant of announcement returns and firms do not earn a repurchase reputation from prior programs. This finding undermines the importance of program size as a potential cost of false signalling in the Australian environment. Instead, I find evidence that program duration is used by the market as a signal of firm quality. Results demonstrate a negative association between announcement returns and intended program length, consistent with the notion that the shorter the period of time a firm intends to execute a program the more credible a signal to the market that its shares are undervalued. Investigation of completion rates demonstrate that firms are more likely to achieve their repurchase targets if a shorter program length is indicated in an announcement and also the sooner a program is terminated ahead of time. Evidence shows that completion rates are increasing with the range in price a firm pays for its shares and is consistent with the notion that firms repurchase shares out of management’s disagreement with the market over the valuation of its shares rather than to arrest falling share prices. A concern that is often raised in connection with on-market repurchases is that stocks with volatile share prices are particularly suited to firms wishing to acquire shares at ‘cheap’ prices to the benefit of non-selling shareholders, however I find that the transparency of on-market repurchase programs conducted in Australia are effective in deterring firms from engaging in opportunistic behaviour.
Advisor: Zurbruegg, Ralf
Brockman, Paul
Dissertation Note: Thesis (Ph.D.) -- University of Adelaide, Business School, 2015.
Keywords: on-market share repurchases
completion rates
intended program duration
share price
Provenance: This electronic version is made publicly available by the University of Adelaide in accordance with its open access policy for student theses. Copyright in this thesis remains with the author. This thesis may incorporate third party material which has been used by the author pursuant to Fair Dealing exceptions. If you are the owner of any included third party copyright material you wish to be removed from this electronic version, please complete the take down form located at:
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