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An Analysis Of Stock Repurchase Transaction Using A Panel Data Sample Selection Model

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  • CHII-SHYAN KUO

    () (Department of Business Administration, College of Management, National Taiwan University of Science and Technology, 43, Keelung Road Section 4, Taipei 106, Taiwan, R.O.C.)

  • SHIH-TI YU

    () (Department of Quantitative Finance, College of Technology Management, National Tsing Hua University, 101, Kuang Fu Road Section 2, Hsinchu 300, Taiwan, R.O.C.)

  • CHE-CHING LIAO

    () (Tai An Insurance Co. LTD., No. 59, Kwantsien Road, Taipei 100, Taiwan, R.O.C.)

Abstract

Prior studies have examined repurchase decisions (i.e., whether to repurchase or not) and the determinants of repurchase amount (i.e., if yes, then how much is the repurchase amount), separately. However, this approach overlooks the fact that, in practice, firms most likely will take both decisions into consideration simultaneously. We argue that to ignore simultaneity features in repurchase decisions could lead to suspicious conclusions. In this study, we incorporate the two related decisions referenced above into a panel data sample selection model and analyze the determinants of stock repurchases. Further, we test whether managers make use of inside information in determining the timing of repurchases. We first find that the decision whether to repurchase is correlated with the decision of how much to repurchase. This finding supports the position that the omission of either decision when analyzing the data could lead to incorrect inferences. Second, we find cash, leverage, and market-to-book (MKBK) ratios are the most important factors related to firm repurchase transactions. More importantly, we find that leverage plays the key role in determining the dollar amount of repurchase. That is, financial structure is a firm's main concern when facing a repurchase decision. Third, we find that the larger the firm size is, the greater the amount of stocks firms will repurchase. Finally, we find that earnings shock plays no role in the decision to repurchase.

Suggested Citation

  • Chii-Shyan Kuo & Shih-Ti Yu & Che-Ching Liao, 2014. "An Analysis Of Stock Repurchase Transaction Using A Panel Data Sample Selection Model," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-24.
  • Handle: RePEc:wsi:afexxx:v:09:y:2014:i:01:n:s2010495214500031
    DOI: 10.1142/S2010495214500031
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    More about this item

    Keywords

    Stock repurchases; panel data sample selection model; earnings shock; G32; M41;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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