Buybacks-Secondaries
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? These blog entries relate to stock buybacks and secondary offerings.
Do What the Company Does? May 30, 2006
The most informed investors in a firm’s stock are the executives and board members of the company. They have access to more, and more current, private information than anyone else. Do their actions in buying or selling equity or debt on behalf of the company reliably indicate its concurrent stock valuation? Do financial analysts accurately interpret these signals for investors? In the June 2005 update of their paper entitled “The Relation Between Corporate Financing Activities, Analysts’ Forecasts and Stock Returns”, Mark Bradshaw, Scott Richardson and Richard Sloan investigate the relationships among: (1) a simple cash flow-based measure of corporate financing activities; (2) analyst reactions to these activities; and, (3) stock returns. Corporate financing activities include selling and buying back of common stock, preferred stock, convertible debt, subordinated debt, notes payable, debentures and capitalized lease obligations. Using financial data spanning 1971-2000 and analyst forecast data spanning 1975-2000, they conclude that: More…
What Drives Buybacks and Insider Trading? August 27, 2005
In their recent paper entitled “Stock Market Anomalies: What Can We Learn from Repurchases and Insider Trading?”, John Core, Wayne Guay, Scott Richardson and Rodrigo Verdi investigate whether the operating accrual anomaly (investor overreaction to the volatile accrual component of earnings) and the post-earnings announcement drift anomaly (investor underreaction to surprising earnings announcements) drive corporate buyback and personal trading decisions of company officers. These insiders are best positioned to detect the emergence of such anomalies. Using data for the NYSE and AMEX over the period 1989-2001, they find that: More…
Dumb Individual Investors and Smart Companies? May 11, 2005
In their April 2005 paper entitled “Dumb money: Mutual Fund Flows and the Cross-section of Stock Returns”, Andrea Frazzini and Owen Lamont tackle a range of analyses tied to mutual fund inflows and outflows to determine whether or not these flows represent rational behavior on the part of individual investors. Do the flows predict abnormal returns for the underlying stocks? What do they mean for the wealth of the individuals causing them? By studying flows associated with domestic mutual funds from 1980 to 2003, they find that: More…
