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Loews Philadelphia, Commonwealth Hall A2
American Finance Association
Saturday, Jan. 6, 2018 2:30 PM - 4:30 PM
- Chair: Joan Farre-Mensa, Cornerstone Research
What is Revealed When Firms Repurchase Against Short Selling?
AbstractWe investigate the causes and consequences of firms disagreeing with short sellers by repurchasing company stock. Though short sellers are generally adept at identifying overvalued equity and agency problems can bias managerial decisions, these repurchases contain positive, private information that dominates short sellers' information on average. Information channels include future earnings, changes in risk, and acquisition activity. Repurchases are not informative if an activist investor recently identified the management team as inefficient or if repurchases are dilution-motivated or conducted under a preset plan. Our results suggest that short sellers and other investors can glean information from publicly available repurchase disclosures: An implementable trading strategy based on our findings yields annual abnormal returns of approximately 7.5%.
The Dark-Side of Banks' Nonbank Business: Internal Dividends in Bank Holding Companies
AbstractOur study highlights the liquidity and capital pressures created by non-banking activities on banks residing within the same bank holding company (BHC). We use a sample of BHCs with large non-bank subsidiaries between 2002 and 2007 to show that banks bear the pressures of dividend smoothing. Banks in BHCs increase internal dividends to parents regardless of their own income. In contrast, non-banks in BHCs appear to be shielded from the pressures of inflexible external dividend policies. We also show that when faced with declining incomes, the banks fund their internal dividends through increased borrowing. Using a difference-in-differences, we show that banks in BHCs increase their payout ratios by 7 percentage points in response to major non-bank acquisitions during an expanded sample period of 1993-2007. Our evidence on the extraction of cash from banks to fund non-bank activities and capital market pressures to smooth dividends sheds new light on the debate on the optimal scope of BHCs. These observations support the arguments of a dark-side to internal capital markets in which the federally insured banks become a source of strength to the BHC and its non-bank segment.
Singapore Management University
Federal Reserve Board
- G3 - Corporate Finance and Governance