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Are executives good market timers on behalf of their companies? Do they initiate share repurchases (seasoned equity offerings) when their stocks are undervalued (overvalued)? In other words, can they reliably time the market with respect to their stocks? Here is a listing of past blog entries related to stock buybacks and secondary offerings:
Fama and French Dissect Anomalies ...some anomalies are stronger and more consistent than others. Momentum appears to be the strongest and most consistent.
An International Test of Share Buyback and Secondary Offering Effects on Stock Returns ...in international markets, secondary share offerings reliably predict poor future stock returns, but share buybacks predict good future returns only for small firms.
Increased Reliability for Buyback Announcements? ...share repurchase announcements are now more reliable indicators of actual buyback activity, and consequent beneficial impact on earnings per share, than they were before 2004.
The Buyback Indicator Still Going Strong? ...share repurchase announcements persist as good indicators of stock undervaluation, most significantly amplified by poor returns over the prior six months.
The Stock Supply Cycle ...there is a cycle of cash flow between companies and investors, as the former first sell shares, then buys the shares of other companies and finally buys back their own shares.
Net Flow of Cash from Company to Investors as a Return Indicator ...investors should augment dividends with measures of stock repurchases and issuances when relating equity yields to expected returns.
When a Secondary Stock Offering Is (or Is Not) Bad News ...secondary offerings are bad news for companies in financial management mode and neutral news for companies in growth mode. Firm accounting data indicate a company's mode.
Stock Buybacks Are Set-ups? ...prior downward management of earnings (via accruals) is one reason that firms repurchasing shares generate subsequent abnormal stock returns.
Avoid Companies Stretching for Diminishing Returns? ...the stocks of companies issuing equity and convertible debt tend to underperform over several years as they invest "easy money" into projects of diminishing returns.
Combining Value Indicators with Stock Repurchasing ...an exchange traded fund that focuses on value stocks with repurchase activity would be an attractive long-term investment vehicle.
Do What the Company Does? ...firms sell (buy back) company financial assets when their stocks are overvalued (undervalued), and analysts misinterpret or underreact to these actions. Investors should focus on the actions of corporate executives and not the forecasts of analysts.
Reader Comments/Question: Returns After Secondary/Convertible Issuance? ...research indicates that dilution (secondary offerings) and potential dilution (issuance of convertibles) correlate with abnormally low future stock returns.
What Drives Buybacks and Insider Trading? ...the quality (more than the quantity) of emerging earnings moves corporate officers to adjust repurchasing and personal trading of company stock.
Dumb Individual Investors and Smart Companies? ...mutual funds may function mostly as passive vehicles through which active individual investors (reallocators) voluntarily transfer wealth to public corporations.
Returns for Investors (Rather Than Markets) ...the actual aggregate (timing) experience of equity investors is inferior to passive buy-and-hold stock market returns. An active approach of buying after pronounced capital outflows from the market and selling after pronounced capital inflows to the market is likely to be successful.
In summary, recent research indicates that stock buybacks (secondaries) are often, but not always, good (bad) news for stockholders. Company executives show some ability to time the market with respect to their stocks.
