Share buybacks, total returns and shareholder equity

Rathie, Alister. (2008). Share buybacks, total returns and shareholder equity Honours Thesis, School of Business, The University of Queensland.

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Author Rathie, Alister.
Thesis Title Share buybacks, total returns and shareholder equity
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 2008
Thesis type Honours Thesis
Total pages 72
Language eng
Subjects 1503 Business and Management
150205 Investment and Risk Management
Formatted abstract
This thesis examines the wealth effects of Australian Equal Access Off-Market Buybacks. Specifically, this thesis determines whether managers act in the interests of non-participating shareholders when franking credits are exclusively distributed to participants in the buyback. Using daily stock return data for Australian publically listed firms between 1997 and 2007, the equity of this capital management technique is analysed in two parts. First, the stock price reaction to a sample of 44 buyback announcements is compared to a sample of 149 special dividend announcements, where franking credits are distributed evenly to all shareholders. After controls are applied, an insignificantly larger market response exists for the buyback sample. Second, the examination of the stock price response to the implementation of the buyback at expiration of the offer shows that non-participants receive small significantly positive abnormal returns. Expiration date abnormal returns are used to solve for the implied market value of franking credits incorporated in the Brown and Davis (2006) model of shareholder equity to determine whether distributed franking credits represent value given up by non participants. Using the Brown and Davis (2006) framework, the price response observed at expiration implies that the market does not value franking credits. A sub-sample of 24 Dutch auction dividend paying buybacks provided non-participants with a significant 9.6% wealth transfer from participants willing to sell shares at a discount price to receive franking credits. Regression analysis reveals that a significant negative relationship between wealth transfers to participating shareholders and the percentage dividend component of the buyback price that contains franking credits.

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Created: Tue, 30 Nov 2010, 12:23:55 EST by Muhammad Noman Ali on behalf of The University of Queensland Library