This paper investigates the price and volume behaviour around the announcement of a type of off-market repurchase (equal access repurchases) in Australia. In contrast to US studies which document abnormal returns of around 8% for off-market repurchases, we find much smaller but significant abnormal returns of around 1.2% on the announcement date for equal access repurchases. The evidence suggests that the abnormal returns are related to the discount-to-market price at which the offer is made (which reflects special taxation arrangements). We also document a dramatic increase in trading volume on the announcement and subsequent day and argue that this trading may be motivated by the level of tax benefits passed on to participating shareholders.
Anderson, A., & Dyl, E.2004, ‘Determinants of premiums on self-tender offers’, Financial Management, vol. 33, no. 1, 25–45.
2.
Bagwell, L.1992, ‘Dutch auction repurchases: An analysis of shareholder heterogeneity’, Journal of Finance, vol. 47, no. 1, 71–105.
3.
Balachandran, B., & R. Faff, 2004, ‘Special dividends, bonus issues and on-market buybacks: Signalling in an imputation environment’, Finance Letters, vol. 2, pp. 23–6.
4.
Barclay, M., & Smith, C.1988, ‘Corporate policy payout: Cash dividends versus open market repurchases’, Journal of Financial Economics, vol. 22, pp. 61–82.
5.
Brown, D.1988, ‘The construction of tender offers: Capital gains taxes and the free rider problem’, Journal of Business, vol. 61, no. 2, 183–96.
6.
Brown, C.2007, ‘Informed trading and equal access share repurchases’, Working Paper, Department of Finance, The University of Melbourne.
7.
Brown, C., & Efthim, K.2005, ‘The effect of taxation on equal access repurchases in Australia’, International Review of Finance, vol. 5, pp. 199–218.
8.
Brown, C., & Davis, K.2006, ‘Share buybacks and shareholder equity’, Working Paper, Department of Finance, The University of Melbourne.
9.
Brown, C. and O'Day, J.2007, ‘The dividend substitution hypothesis: Australian Evidence’, working paper, Department of Finance, The University of Melbourne.
10.
Brown, S., & Warner, J.1985, ‘Using daily stock returns: The case of event studies’Journal of Financial Economics, vol. 14, pp 3–31.
11.
Chen, M., Chen, C. & Cheng, W.2004, ‘The announcement effects of restricted open market share repurchases: Evidence from Taiwan’, Review of Pacific Basin Financial Markets and Policies, vol. 7, no. 3, 335–54.
12.
Christiano, C., Clarke, A. W. & Mitchell, J.1997, ‘Short and long-run performance of Australian share buy-backs’, paper presented at AAANZ Conference, July 1997.
13.
Comment, R., & Jarrell, G.1991, ‘The relative signalling power of Dutch-auction and fixed-price self-tender offers and open-market share repurchases’, Journal of Finance, vol. 46, no. 4, 1243–71.
14.
Dann, L.1981, ‘Common stock repurchases: An analysis of returns to bondholders and stockholders’, Journal of Financial Economics, vol. 9, pp. 113–38.
15.
D'Mello, R. & Schroff, R.2000, ‘Equity undervaluation and decisions related to repurchase tender offers: An empirical investigation’, Journal of Finance, vol. 55, pp. 2399–424.
16.
Grullon, G., & Michaely, R.2004, ‘The information content of share repurchase programs’, Journal of Finance, vol. 59, pp. 651–80.
17.
Grullon, G., & Ikenberry, D.2000, ‘What do we know about stock repurchases?’, Journal of Applied Corporate Finance, vol. 13, pp. 31–51.
18.
Hatakeda T. & Isagawa, N.2004, ‘Stock price behavior surrounding stock repurchase announcements: Evidence from Japan’, Pacific-Basin Finance Journal, vol. 12, pp. 271–90.
19.
Harris, T., & Ramsay, I.1995, ‘An empirical investigation of Australian share buybacks’, Australian Journal of Corporate Law, vol. 4, pp. 393–416.
20.
Hodrick, L.1999, ‘Does stock price elasticity affect corporate financial decisions?’, Journal of Financial Economics, vol. 52, pp. 225–56.
21.
Ikenberry, D., Lakonishok J. &. Vermaelen, T.1995, ‘Market underreaction to open market share repurchases’, Journal of Financial Economics, vol. 39, pp. 181–208.
22.
Ikenberry, D., Lakonishok J. & Vermaelen, T.2000, ‘Stock repurchases in Canada: Performance and strategic trading’, Journal of Finance, vol. 55, pp. 2373–97.
23.
Income Tax Assessment Act 1936.
24.
Income Tax Assessment Act 1997.
25.
Jensen, M.1986, ‘Agency costs of free cash flow, corporate finance and takeovers’, American Economic Review, vol. 76, pp. 323–9.
26.
Lamba, A. S. & Ramsay, I.2005, ‘Comparing Share buybacks in highly regulated and less regulated market environments’, Australian Journal of Corporate Law, vol. 17, no. 3, pp. 261–80.
27.
Lakonishok, J. & Vermaelen, T.1986, ‘Tax-induced trading around ex-dividend days’, Journal of Financial Economics, vol. 16, pp. 287–319.
28.
Lakonishok, J. & Vermaelen, T.1990, ‘Anomalous price behavior around repurchase tender offers’, Journal of Finance, vol. 45, pp. 455–77.
29.
Lie, E.2002, ‘Do firms undertake self-tender offers to optimize capital structure?’, The Journal of Business, vol. 75, no. 4, pp. 609–39.
30.
Mitchell, J., & Watson, I.2004, ‘An investigation of insider trading around Australian buy-backs’, working paper, University of Michigan.
31.
Oswald, D., & Young, S.2004, ‘What role taxes and regulation? A second look at open market share buyback activity in the UK’, Journal of Business Finance & Accounting, vol. 31, pp. 257–92.
32.
Rau, P., & Vermaelen, T.2002, ‘Regulation, taxes and share repurchases in the United Kingdom’, Journal of Business, vol. 75, no. 2, 245–82.
33.
Stephens, C., & Weisbach, M.1998, ‘Actual share reacquisitions in open-market repurchase programs’, Journal of Finance, vol. 53, pp. 313–33.
34.
Vermaelen, T.1981, ‘Common stock repurchases and market signalling: An empirical study’, Journal of Financial Economics, vol. 9, pp. 139–83.
35.
Vermaelen, T.1984, ‘Repurchase tender offers, signaling and managerial incentives’, Journal of Financial and Quantitative Analysis, vol. 19, pp. 163–81.
36.
Young, A.1969, ‘Financial, operating and security market parameters of repurchasing firms’, Financial Analysts Journal, vol. 25, pp. 123–8.
