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1. How does the source of funding for stock repurchases affect their stock market performance?
In Chapter 3, I examine the impact of the source of financing of repurchases on their stock performance based on 1,799 stock repurchase events between 1985 and 2018. To estimate this impact, I use the event study method. The main results indicate that share repurchases financed by bank loans, debts, and equities have higher, similar, and lower accumulative abnormal returns than repurchases financed by corporate cash, respectively. This differentiated performance is particularly significant for companies with significant agency problems between shareholders and managers. Additionally, the impact of stock repurchases on the stock market is primarily determined by changes in the excess cash held by firms, rather than by changes in cash flows. In this sense, the results are consistent with the hypothesis based on the agency problem between shareholders and managers.
2. What are the implications of the sources of financing for repurchases for the operating performance of the firms?
Following on from Chapter 3, Chapter 4 examines the effect of the source of funding on the operating performance of the companies. Firms that finance repurchases with bank loans perform better than those that use cash. However, I find no significant differences between bonds, equity, and cash financing in terms of operating performance. To reduce the possibility of self-selection bias, I also utilize the propensity score matching method. Based on similar propensity score values, each firm in the sample is matched with a peer firm without any repurchase activities, and the results support my findings. The results are generally consistent with those predicted by the theory of the agency problem between manager and shareholder.
3. As a source of funds for stock repurchases, how does bank lines of credit, a special form of bank financing, affect the firms’ stock market performance?
To examine the impact of the bank lines of credit financing, in Chapter 5, I manually collect data of 1,369 stock repurchases related firms over the period 1996-2016. This data is collected from the firms’ annual financial statements (10-K) and specifically includes the total and unused amounts of bank lines of credit. Results show that bank lines financing can reduce the agency problem between shareholders and managers, allowing share repurchases to outperform. This advantage is more pronounced when the percentage of bank lines used is higher.
4. At present, analysts forecast earnings per share are based not only on firms’ financial data, but also on their environmental, social, and management (ESG) information. Moreover, do analysts refer to the ESG information of other companies they cover?
To address this question, Chapter 7 examines the spillover effects of ESG information (from other firms held by analyst) disclosure mirrored in earnings forecasts. The spillover effect associated with ESG information can be divided into two aspects: companies in the same industry and companies in different industries. It has been found that analysts do not only consider a company’s ESG disclosures when predicting its earnings per share but also refer to disclosed ESG information of peer companies. As a result of this information spillover effect, analysts’ forecast errors are reduced. Additionally, there is no robust evidence that non-peer firms ESG information has a significant impact on analysts’ forecast accuracy. |
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