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A research on the economic effect and operating risk of buying back company shares by TSE-listed and OTC-listed companies
|上傳時間: ||2009-09-18 17:32:11 (UTC+8)|
Seeing that sometimes our stock markets are disturbed by non-economic factors makes the price of stock come down. The Securities and Futures Commission (SFC) has been committed to developing a sound stock market. It began to consider establishing the treasury stock system since July 1996. The amendment of The Securities Law, promulgated on July 19, 2000, includes the treasury stock system. SFC announced the“Guidelines for Buying Back Company shares by TSE-listed and OTC-listed Companies”on August 7,2000.
The treasury stock system is an adjustment mechanism of stable market, in order to avoid the unreasonable falling in stock price of TSE-listed and OTC- listed Companies by non-financial or financial factors, influence company credit and shareholders' equity. The company can buy back shares when it is necessary. It is positive that the company invites qualified personnel, the warrants are issued and the stability of the stock market is maintained.
Since Kwong Fong Industries Corporation started to declare buying back shares on August 10, 2000. By the end of Nov. 2001, a total of 3 09 TSE-listed and OTC-listed companies carried out the treasury stock system. These companies buy back shares for the purpose of transferring to employee, conversion of stock equity, maintaining company trust and stockholders' equity. We have carried out the treasury stock system for two years. How are effects of the treasury stock system? Did it come up to expectations of SFC? How are risks of these companies operating? Such these topics are focus of this research.
These TSE-listed companies of buying back company shares from August 2000 to September 2001 are objects of this study. An event study methodology is used to examine the excess returns to evaluate the announcement effects of treasury stock. By CAPM, it can compare the changes on market risk before and after these companies carried out the treasury stock system. Nonparametric method is used to analyze the relationship between the cross holding and the stock repurchase.
The results of this study are as follows:
1.The stock price is often descending before the announcement on buying back company shares, the accumulative abnormal returns reach -11.080% from 30 days to I day before stock-repurchase announcement, but the accumulative abnormal returns are increasing gradually after stock-repurchase announcement. The abnormal returns have significantly from the day of announcement to 3 days after the announcement. The accumulative abnormal returns reach -1.93% on 30 days after stock-repurchase announcement. So, it exists the stock price stability effect on carrying out the treasury stock system.
2.The market risk after company buying back shares is lower significantly. In the short term, the company using the treasury stock system can reduce market risk.
3.There are significant relation between Cross-holding and stock-repurchase. Furthermore, the ratio of parent company's shares held by its subsidiary company has positive correlation with that of parent company buy back shares of its own.
Key words: Treasury stock ; Stock repurchase ; Cross holding