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Short-run performance of recent Australian on-market share buy-back announcements

conference contribution
posted on 2003-01-01, 00:00 authored by Samson Ekanayake
Share buy-backs (or share repurchases) have become increasingly popular among Australian companies during the recent times. One of the aims of share buy-back is to increase the shareholders' wealth by increasing the market price of company shares. While there are several ways of buying backs shares, on-market buy-backs is the most popular method of share repurchase in Australia. Australian listed companies have announced more than two hundred on-market share buy-backs over the past three years. The aim of this paper is to examine the short-run market performance of these recent on-market buy-back announcements.

Short-term effect of on-market buy-back announcements on the share price is an issue, which is theoretically interesting and practically important. Buy-back announcements are believed to convey a signal to the market (i.e., signalling effect). If the market considers this signal positively, the short-run price of the shares would increase. If the signal were considered negatively, the short-run price of shares would decrease. If there is no signalling content or the signal is neutral the price would remain the same. In this study, signalling effect of share buy-back announcements is empirically examined using most recent Australian data. The total population of on-market buy-back announcements that have been lodged with Australian Stock Exchange by Australian listed companies during the period from 1 January 2000 to 10 March 2003 are included in this study. The abnormal market return over the short-run (announcement day and 10 trading days centred on the announcement date) is examined using the All Ordinaries Accumulation Index as the reference portfolio. The daily abnormal returns (AR) and cumulative abnormal returns (CAR) during the event period are computed. The results indicate that the Australian market generally positively reacts to on-market buy-back announcements.

History

Title of proceedings

Proceedings of the Emerging Financial Services in Asia-Pacific Conference

Event

Emerging Financial Services in Asia-Pacific Conference (2003 : Sydney, Australia)

Pagination

1 - 9

Publisher

University of Western Sydney

Location

Sydney, Australia

Place of publication

Sydney, N.S.W.

Start date

2003-05-14

End date

2003-05-16

ISBN-13

9781741080209

ISBN-10

1741080207

Language

eng

Publication classification

E1 Full written paper - refereed; E Conference publication

Editor/Contributor(s)

S Hettihewa, D Ross

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