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Using Two-Part Quantile Regression To Analyze How Earnings Shocks Affect Stock Repurchases

Author

Listed:
  • CHIH-YI CHI

    (Department of Finance, National Chung Hsing University, 250, Kuo Kuang Rd., Taichung 402, Taiwan R.O.C.)

  • SHIH-TI YU

    (Department of Quantitative Finance, National Tsing Hua University, 101, Sec. 2, Kuang Fu Rd., Hsinchu 300, Taiwan R.O.C.)

  • YI TZU LI

    (Eastspring Securities Investment Trust Co. Ltd, 19F-1, No. 489, Sec. 2, Taiwan Blvd, Taichung 403, Taiwan R.O.C.)

  • YU-LUNG LU

    (Department of Economics, National Tsing Hua University, 101, Sec. 2, Kuang Fu Rd., Hsinchu 300, Taiwan R.O.C.)

Abstract

We examine whether firms tend to buy back their stocks to a greater extent when the managers learn there will be positive earnings impacts. We use a two-part model (Duan et al., 1983) to address this issue. First, we use a Probit model to estimate the decision of stock repurchase. Then we use Koenker and Bassett's (1978) quantile regression to estimate the dollar amount of stock repurchases. We find that when the earnings impacts are in the low quantiles, stock repurchases and earning impact are positively correlated. However, when the impacts are in the high quantiles, the relation becomes reversed.

Suggested Citation

  • Chih-Yi Chi & Shih-Ti Yu & Yi Tzu Li & Yu-Lung Lu, 2014. "Using Two-Part Quantile Regression To Analyze How Earnings Shocks Affect Stock Repurchases," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-13.
    • Handle: RePEc:wsi:afexxx:v:09:y:2014:i:02:n:s2010495214400107
    DOI: 10.1142/S2010495214400107
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    References listed on IDEAS

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    1. 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.
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    Cited by:

    1. Chia-Lin Chang & Shing-Yang Hu & Shih-Ti Yu, 2014. "Recent Developments In Quantitative Finance: An Overview," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-7.
    2. Kola Ijasan & Peterson Owusu Junior & George Tweneboah & Tunbosun Oyedokun & Anokye M. Adam, 2021. "Analysing the relationship between global REITs and exchange rates: Fresh evidence from frequency-based quantile regressions," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(3), pages 58-91, September.

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