The Motivation of Share Repurchasing and Shareholder Equity Valuation
Asian Tax Journal Vol. 12 No. 2 (2011), pp. 611-640
Abstract
This paper empirically investigates whether there is stock price reflection of managers’ share repurchase incentives. Managers' open market share repurchasing choices would influence market response to components of shareholders' equity. The sample of this study consists of 2,740 observations(firm－years), which are selected from KSE firms with a December fiscal year－end over the period of 2000－2006. The repurchase－induced components of shareholder' equity(contributed capital；CC vs. retained earnings；RE) appears to be discounted differently by managers’ open market share repurchasing incentives. This discount is larger when the repurchasing activities seem to be motivated by manager’ opportunistic behavior than signaling inside superior information.
Keywords
- stock repurchase
- contributed capital
- retained earnings
- capital surplus
- capital adjustments