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An Analysis of SEC Guidelines for Executing Open Market Repurchases

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Author Info

  • Douglas O. Cook

    (University of Mississippi)

  • Laurie Krigman

    (Babson College)

  • J. Chris Leach

    (University of Colorado)

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    Abstract

    Rule 10b-18 is the only guidance the Securities and Exchange Commission provides for open market stock repurchases. Fashioned as a safe harbor without disclosure, 10b-18 conformity is unverifiable with public data. We use privately disclosed data to document claimed and actual compliance. While the level of compliance is relatively high, only two firms in our sample consistently comply for all repurchases. Even firms that publicly declared compliance violate the safe harbor's bounds. We document that violations of the safe harbor are more likely to occur following price declines. Our investigation questions the regulatory effectiveness of safe harbors without mandatory disclosure.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 76 (2003)
    Issue (Month): 2 (April)
    Pages: 289-316

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    Handle: RePEc:ucp:jnlbus:v:76:y:2003:i:2:p:289-316

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Bargeron, Leonce & Kulchania, Manoj & Thomas, Shawn, 2011. "Accelerated share repurchases," Journal of Financial Economics, Elsevier, vol. 101(1), pages 69-89, July.
    2. Edith Ginglinger & Jacques Hamon, 2009. "Share repurchase regulations: do firms play by the rules?," Post-Print halshs-00143974, HAL.
    3. Ben-Rephael, Azi & Oded, Jacob & Wohl, Avi, 2011. "Do firms buy their stock at bargain prices? Evidence from actual stock repurchase disclosure," CFS Working Paper Series 2011/17, Center for Financial Studies (CFS).
    4. Edith Ginglinger & Jacques Hamon, 2007. "Actual share repurchases, timing and liquidity," Post-Print halshs-00136568, HAL.
    5. Dennis Y. Chung & Dušan Isakov & Christophe Pérignon, 2005. "Repurchasing Shares on a Second Trading Line," FSES Working Papers 391, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    6. Agarwalla, Sobhesh Kumar & Jacob, Joshy & Vasudevan, Ellapulli, . "Market Timing Ability of Indian Firms in Open Market Repurchases," IIMA Working Papers WP2013-11-10, Indian Institute of Management Ahmedabad, Research and Publication Department.
    7. Mitchell, Jason D. & Dharmawan, Grace V., 2007. "Incentives for on-market buy-backs: Evidence from a transparent buy-back regime," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 146-169, March.
    8. Jung, Sung-Chang & Lee, Yong-Gyo & Thornton, John Jr., 2005. "An empirical comparison between operations of stabilization funds and stock repurchases in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 13(3), pages 319-341, June.
    9. Lie, Erik, 2005. "Operating performance following open market share repurchase announcements," Journal of Accounting and Economics, Elsevier, vol. 39(3), pages 411-436, September.
    10. De Cesari, Amedeo & Espenlaub, Susanne & Khurshed, Arif & Simkovic, Michael, 2012. "The effects of ownership and stock liquidity on the timing of repurchase transactions," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1023-1050.
    11. Hribar, Paul & Jenkins, Nicole Thorne & Johnson, W. Bruce, 2006. "Stock repurchases as an earnings management device," Journal of Accounting and Economics, Elsevier, vol. 41(1-2), pages 3-27, April.
    12. Bens, Daniel A. & Nagar, Venky & Skinner, Douglas J. & Wong, M. H. Franco, 2003. "Employee stock options, EPS dilution, and stock repurchases," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 51-90, December.

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