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Information
Signalling of Common Stock Repurchase Announcements: Australian
Evidence
-- Samson Ekanayake
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.
©
2004. The IUP Journal of Applied Finance.
Does
Stock Market Promote Economic Growth in Nigeria?
-- Tokunbo Simbowale Osinubi
The
stock market is a common feature of a modern economy and it
is reputed to perform some necessary functions, which promote
the growth and development of the economy. This study examines
whether stock market promotes economic growth in Nigeria.
To achieve this objective, Ordinary Least Squares regression
(OLS) was employed using the data from 1980 to 2000. The results
indicated that there is a positive relationship between growth
and all the stock market development variables used. With
99% R-squared and 98% adjusted R-squared, the result showed
that economic growth in Nigeria is adequately explained by
the model for the period between 1980 and 2000. By implications
98% of the variation in the growth of economic activities
is explained by the independent variables. The results of
the study, which established positive links between the stock
market and economic growth, suggests the pursuit of policies
geared towards rapid development of the stock market. Also,
all sectors of the economy should act in a collaborative manner
such that the optimum benefits of linkages between stock market
and economic growth can be realized in Nigeria.
©
2004. The IUP Journal of Applied Finance.
How
Do the Indian Stock Prices React to Quarterly Earnings?
-- T Mallikarjunappa
Efficient
Market Hypothesis (EMH) has been examined in three different
forms—the weak, semi-strong and strong. This paper examines
the efficiency of the Indian stock market in the semi-strong
form. The June 2003 quarterly earnings announcement dates
were taken as the event-day. The study is based on sensitive
index (Sensex) based companies of the Stock Exchange, Mumbai
(the BSE). Returns were computed using the price data of companies
and the Sensex (the market index). The Abnormal Returns (AR),
Average Abnormal Returns (AAR), and Cumulative Average Abnormal
Returns (CAAR) were computed based on the single index model.
The behavior of these variables was examined for 30 days before
and after the event-day. The results indicated that AARs have
been fluctuating widely yielding more number of positive than
negative returns. The CAAR has been fluctuating some days
before the event-day. However, after the event-day, CAAR has
been falling and rising continuously forming successive bottoms
and tops which are higher than the previous ones. In an efficient
market, CAAR should flatten out after the event-day to indicate
that the market has absorbed the results quickly. The results
of this study show that positive ARs persisted after the event-day.
The trend of CAAR indicated that it rose continuously even
several days after the event-day. Therefore, the Indian market
is not efficient in the semi-strong form. The results further
indicated that June 2003 quarterly results gave positive signals
to Indian markets and anyone who studied the market could
earn abnormal returns.
©
2004. The IUP Journal of Applied Finance.
Operating
Performance and the Method of Payment in Takeovers
-- Randall Heron and Erik Lie
This
study investigates the relation between the method of payment
in acquisitions, earnings management, and operating performance
for a large sample of firms that conducted acquisitions between
1985 and 1997. Prior to their acquisitions, acquirers exhibit
levels of operating performance that exceed that of their
respective industry peers. We find no evidence that acquirers
manage their earnings prior to acquisitions, despite the possible
incentives of managers who plan stock-based acquisitions to
temporarily inflate their stock's purchasing power. Subsequent
to acquisitions, acquirers continue to exhibit superior performance
relative to their industry and experience significantly higher
levels of operating performance than control firms with similar
pre-event operating performance. Although the extant literature
documents significant relations between the form of acquisition
payment, announcement returns, and the post-acquisition excess
return of acquirers, we find no evidence that the method of
payment conveys information about the acquirer's future operating
performance.
©
2002, School of Business Administration, University of Washington,
Seattle, WA, 98195 (www.bus.indiana.edu). The paper was published
in the Journal of Financial and Quantitative Analysis,
Vol. 37, No. 1, March 2002. Reprinted with permission.
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