Information signalling of common stock repurchase announcements: Australian evidence

Stock repurchases (or share buy-backs) have become increasingly popular among Australian companies. One of the main aims of announcing a stock repurchase by a listed company is signalling the market that its shares are currently underpriced. When market reacts to the signal, price of the shares is expected to increase immediately after the announcement. While there are several ways of repurchasing shares, 'on-market buy-backs' is the most popular method of stock repurchases in Australia. Australian listed companies have announced more than two hundred on-market share buy-backs over the past three years. The aim of this paper is to examine the information signalling effects of these on-market buy-back announcements. If the signal is considered positively (negatively) by the market, the price of the repurchasing company's shares should increase (decrease) immediately after the announcement. If there is no information content in the announcement, the price will remain the same. In this study, signalling effect of share buy-back announcements was examined using most recent Australian data. The total population of on-market buy-back announcements during the period from January 1, 2000 to March 10, 2003 was included. The abnormal market return over the short-run (announcement day and 9 trading days centred on the announcement date) was computed using the All Ordinaries Accumulation Index as the reference portfolio. The daily Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR) during the event period were computed. The results strongly support the information-signalling hypothesis of share buy..backs. Australian market generally considers announcement of on~market share repurchases as signalling of insider information that shares are currently underpriced.

Short-run performance of recent Australian on-market share buy-back announcements

Share buy-backs (or share repurchases) have become increasingly popular among Australian companies during the recent times. One of the aims of share buy-back is to increase the shareholders' wealth by increasing the market price of company shares. While there are several ways of buying backs shares, on-market buy-backs is the most popular method of share repurchase in Australia. Australian listed companies have announced more than two hundred on-market share buy-backs over the past three years. The aim of this paper is to examine the short-run market performance of these recent on-market buy-back announcements.

Short-term effect of on-market buy-back announcements on the share price is an issue, which is theoretically interesting and practically important. Buy-back announcements are believed to convey a signal to the market (i.e., signalling effect). If the market considers this signal positively, the short-run price of the shares would increase. If the signal were considered negatively, the short-run price of shares would decrease. If there is no signalling content or the signal is neutral the price would remain the same. In this study, signalling effect of share buy-back announcements is empirically examined using most recent Australian data. The total population of on-market buy-back announcements that have been lodged with Australian Stock Exchange by Australian listed companies during the period from 1 January 2000 to 10 March 2003 are included in this study. The abnormal market return over the short-run (announcement day and 10 trading days centred on the announcement date) is examined using the All Ordinaries Accumulation Index as the reference portfolio. The daily abnormal returns (AR) and cumulative abnormal returns (CAR) during the event period are computed. The results indicate that the Australian market generally positively reacts to on-market buy-back announcements.

Merger announcements and insider trading activity in India: an empirical investigation

Insider trading activity is investigated prior to merger announcement in Indian capital market. An attempt is made to check it out whether trading takes place on the basis of asymmetric and private information. For examining the behaviour of stock prices a modified market model is used to estimate the parameters for the estimation window. These estimates are used to compute average return and cumulative average returns for the event window, which are measures of abnormal returns. Besides price run-ups, it is also common to see unusually high levels of share trading volume before public announcement of merger. Daily trading volume pattern of the target companies is also investigated. The analysis carried out in this study is based on a sample of 42 companies for which merger announcement date was announced during the period of 1996-1999. Based on the analysis for each company individually, we recommend investigation in six companies for existence of possible insider trading.

Information leakage and informed trading around unscheduled earnings announcements

While there has been much judicial discussion regarding the competency of Australia's continuous disclosure regime with reference to contemporaneous international standards, there has to date been limited empirical analysis of the Australian system's effectiveness in preventing selective disclosure and information leakage. This paper presents an empirical study of information content and trading behaviour around unscheduled earnings announcements - comprising of profit upgrades, profit warnings and neutral trading statements - made by ASX-listed companies during 2004. The contention is that informed trading impacts on the stock returns and trading volumes of listed entities, and hence abnormal returns or trading volumes observed prior to an announcement provide evidence of information leakage. The paper models a range of factors that potentially influence firm disclosure practices and contribute to the level information asymmetry in the market during the pre- announcement period. Previous research has investigated the influence of firm size and information content in contributing to information leakage. This study further considers the variables of firm growth, capital structure and industry group.

The global financial crisis and the centro properties group earnings revision and refinancing announcements : an event study

This study analyses the impact of the global financial crisis using Centro Properties Group's earnings revision and refinancing announcements on December 17th 2007 as the event date to investigate the change in risk profile for A-REITs that were included in the S&P/ASX 300. The study finds that nine of the 25 A-REIT constituents on the S&P/ASX 300 recorded statistically significant negative abnormal returns on 17th December 2007 and that the systematic risk for many A-REITs moved significantly higher after this date. This increased systematic risk has major implications for the cost of capital to the sector.

An analysis of trading in target stocks before successful takeover announcements

In this paper we examine both informed and contraire trading preceding successful takeover announcements on US target firms from 2001 to 2006. We find that both informed trading and contraire trading exist within the period preceding successful takeover announcements on the stock market, as evident through abnormal returns and trading volumes and on the option market by analyzing only abnormal trading volume. In regard to contraire trading, we investigate possible explanations for its existence. This study finds, through analysis of an unbiased sample of rumored target firms, that deliberate contraire trading appears to be profitable which is likely an explanation for such trading.

An investigation into the drivers of Australian REIT merger and acquisition announcements

Purpose – The purpose of this paper is to use Australian Real Estate Investment Trust (A-REIT) data to empirically examine potential influencing factors on A-REITs becoming a bidder or a target in the mergers and acquisitions (M&A) area.

Design/methodology/approach – This study uses logistic regression analysis to investigate the odds of publically traded A-REITs being either a bidder or a target as a function of a number of financial and corporate governance variables.

Findings – Prior research in the US REIT M&A area has shown that target size is inversely related to takeover likelihood; in contrast, the authors’ Australian results show that size has a positive impact. Prior research on share price and asset performance has shown that underperformance increases the odds of an entity becoming a target, but this paper’s results further support these findings and provide confirmation of the inefficient management hypothesis. For acquirers it was found that leverage, cash balances, management structure, the level of shares held by related parties and the global financial crisis have an important impact on bidder likelihood.

Practical implications – Given that the literature suggests that investors can earn significant positive abnormal returns by owning targets, but incur significant abnormal losses by owning bidders, at announcement, this study will be useful to fund managers and other investors in A-REITs by investigating the characteristics of those firms that become targets and bidders.

Originality/value – This paper adds to the recent US REIT M&A literature by examining the second biggest REIT market in the world and reporting a number of factors that might influence A-REITs to become targets or bidders.

The Christmas effect-special dividend announcements

This paper examines the Halloween effect in special dividend announcements. We find that firms are more likely to announce special dividends at the end of a year, especially in the months of November and December. There is a Halloween effect in the announcements, but more importantly, there is a Christmas effect in the propensity and abnormal returns of special dividends. This paper provides initial evidence on the Christmas effect of special dividend payments. It links monthly effects in stock returns and corporate events to explain the likelihood of the occurrence of special dividend announcements. The results of this paper shed light on why corporate events are more likely to occur in some periods, but less likely to occur in others.

Another January effect—evidence from stock split announcements

This paper examines whether there is a January effect in the propensity and abnormal returns of stock split announcements. It provides primary evidence in the investigation of using monthly effects to explain the patterns of stock splits. The results show that the January effect exists in the likelihood of the occurrence of share splits and in the associated short-term abnormal returns. We also find that another monthly effect—the Halloween effect—exists in stock split announcements. However, the January effect has a much larger and considerably more significant impact on the probability and returns of these announcements. The results of this paper shed light on why we observe patterns in the announcement of corporate events.

A macro-analysis of financial decisions : an examination of special dividend announcements

This paper investigates macro-level explanations for why firms pay special dividends. We find both the business cycle and market condition affect the propensity and abnormal returns of special dividends. Firms are more likely to announce special dividends in market or economic downturns than upturns. They tend to use additional cash for business growth in expansions and distribute it to reduce agency costs in contractions. The signaling effect of special dividends is stronger and companies with these announcements are better performers in recessions than in expansions. This research sheds light on and enhances the understanding of why firms disburse extra cash dividends at the aggregate level.

Southeast Asian perceptions of Australia's foreign policy

This article argues that while the US alliance remains at the forefront of Australian security policy, the deepening of ties between the United States and Australia has the potential to complicate Australia's relations with its Southeast asian neighbours. Moreover, the manner in which the Howard government has attempted to manage this shift in policy has only exacerbated the problem. Australian pronouncements of support for the US policy of pre-emption, the perceived preference of the Australian Prime Minister to take on the role of ‘Deputy Sheriff’, and the unwieldy approach taken by the Australian government in policy announcements pertaining to maritime and security policy have caused unnecessary tension and mistrust between Australia and some Southeast asian states.

Fiscal responsibility and Australian Commonwealth, State and Territory government budgets

The government sector in Australia has seen the introduction of accrual accounting principles in recent years. However, this process has been complicated by the presence of two alternative financial reporting frameworks in the form of a) the Government Finance Statistics (OFS) uniform framework and b) the accrual accounting rules specified in Australian professional accounting standards, principally AAS 31. While a variety of cash and accrual based measurements are available pursuant to these frameworks, there has been no prescription of the manner in which the alternative measures should be presented. This paper presents the findings from a case study of the 2005-06 annual budgets prepared by the Australian Commonwealth government and the governments of the six Australian States and the two Australian Territories. The study examined the headlined financial outcome (general government sector budget surplus or deficit) announced in the budget papers of the nine governments. Findings indicate the adoption of varying measurement bases and a consequent lack of inter-government comparability. A number of variations to the measurements prescribed in the accounting frameworks were also observed. The paper analyses these government budget surplus and deficit numbers in the context of fiscal responsibility, the Commonwealth government's Charter of Budget Honesty and the AASB's current GAAPIGFS Convergence project.

"Information effect" of economic news: SPI futures

The present study investigates the behaviour of Share Price Index (SPI) futures returns, volatility, and trading volume behaviour around the announcement of Current Account Deficit (CAD), Gross Domestic Product (GDP), and Inflation (CPI). The futures market data are sampled at 1-, 5-, and 10-min intervals at the announcement time. After controlling for risk, a significant positive abnormal return can be earned based on the good news release. However, it is unlikely that traders could make an economic profit by exploiting this effect. In this sense, this futures market returns are found to react efficiently to good news. Volatility behaviour around announcements provides the same conclusion. As for the relationship between returns, volatility, and volume upon information arrival, returns are positively related to trading volume, which is inconsistent with the ‘short sales constraint’ theory. Trading volume is found to increase as the level of volatility rises. The redenomination of the SPI futures and options contract from A$100 to A$25 per basis point is found to increase trading volume in excess of that expected due to the redenomination. However, market return and volatility are unaffected by the redenomination.