Share Repurchases and Firm Performance

This assignment delves into the concept of share repurchases and their influence on firm performance. It critically analyzes existing academic research on the topic, exploring the relationship between share repurchases and various financial metrics such as profitability, agency costs, and market reaction. Furthermore, the assignment offers recommendations for future research and practical applications in the field of corporate finance.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

CORPORATE FINANCE
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Table of Contents
a) Discussing these hypotheses related to dividend policy:.......................................................2
b) Discussing five reasons for companies to choose repurchase rather dividends under a
classical tax system:...................................................................................................................3
c.i) Identifying final dividend for Cardno Limited:...................................................................3
c.ii) Calculating three-day return earned by the firm through day before and after the
announcement:...........................................................................................................................4
c.iii) Calculating the market return for the corresponding periods:...........................................5
c.iv) Calculating excess returns:................................................................................................6
c.vi) Discussing relevant theory with the findings:....................................................................7
Reference and Bibliography:......................................................................................................8

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a) Discussing these hypotheses related to dividend policy:
Signalling Hypothesis:
The hypothesis mainly revolves around the dividend that is paid by the organisation to
its shareholders. In addition., the signalling hypothesis indicates that any increment or decline
in the dividend value directly effects the actual share price of the organisation. The investors
value share price on the basis of dividend that is provided by the company. Moreover, if the
market infers are any increment or decline in company’s share value the signalling
hypotheses take control and changes share value of the organisation (Wright et al. 2015).
Free Cash Flow Hypothesis:
The free cash flow hypothesis is mainly used by organisation to depict the extra cash
available after conducting its operations. The investors by detecting the free cash flow after
the dividend payment are able to understand the actual value of the company and identify its
actual share value. The manager when investing in new projects use low dividend policy,
while on occasion to meet investor expectation the management increases the dividend level
to boost its share price and acquire additional funds (Bhandari and Adams 2017).
The clientele effect:
Clientele or investors mainly needs different dividend policy from organisation, as it
helps in improving their return from investment. Any changes in dividend policy by the
organisation could directly affect its clientele and reduce demand among investors (Bodie,
Kane and Marcus 2014).

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b) Discussing five reasons for companies to choose repurchase rather dividends under a
classical tax system:
The five reasons for companies choosing repurchase rather than dividend is provision
for flexibility, providing executive compensation, decrease in stock dilution, improving
undervaluation of stock and tax advantage. The above five reasons mainly instigate
companies to use repurchase rather than dividends, as it allows the company to improve their
performance in the stock market and raise their stock valuation. Moreover, tax benefits
provided by the move also allows the company to reduce tax outflow for the fiscal year and
strengthen its market valuation. Magin (2015) mentioned that repurchases directly reduces
the supply of share in the market, while its demand being same, which helps in raising its
value among investors. This allows the company to raise their share value and increase the
level of market capitalisation in the stock market.
c.i) Identifying final dividend for Cardno Limited:
Balance Date Dividend Type Cent Per Share dollar per share percentage change
30/06/2015 Final 7.00 0.07 -10.00%
30/06/2014 Final 17.00 0.17 -1.00%
30/06/2013 Final 18.00 0.18 0.00%
30/06/2012 Final 18.00 0.18 1.00%
30/06/2011 Final 17.00 0.17 2.00%
30/06/2010 Final 15.00 0.15 1.00%
30/06/2009 Final 14.00 0.14 0.00%
30/06/2008 Final 14.00 0.14 1.50%

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c.ii) Calculating three-day return earned by the firm through day before and after the
announcement:
Date ANN return
17-Aug-15 1.273885%
18-Aug-15 -6.918239%
19-Aug-15 -1.351351%
18-Aug-14 1.436782%
19-Aug-14 3.966006%
20-Aug-14 4.087193%
19-Aug-13 1.699717%
20-Aug-13 -0.278552%
21-Aug-13 0.000000%
13-Aug-12 0.212314%
14-Aug-12 -0.211864%
15-Aug-12 -1.273885%
15-Aug-11 1.718213%
16-Aug-11 2.702703%
17-Aug-11 0.986842%
16-Aug-10 -1.369863%
17-Aug-10 2.314815%
18-Aug-10 3.167421%
17-Aug-09 2.654867%
18-Aug-09 4.741379%
19-Aug-09 1.646091%
18-Aug-08 3.896104%

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19-Aug-08 6.666667%
20-Aug-08 0.000000%
c.iii) Calculating the market return for the corresponding periods:
Date ASX return
17-Aug-15 0.209092%
18-Aug-15 -1.203495%
19-Aug-15 1.453867%
18-Aug-14 0.370071%
19-Aug-14 0.656870%
20-Aug-14 0.192041%
19-Aug-13 -0.027376%
20-Aug-13 -0.670905%
21-Aug-13 0.429286%
13-Aug-12 0.140275%
14-Aug-12 0.207784%
15-Aug-12 -0.256279%
15-Aug-11 2.643436%
16-Aug-11 -0.831212%
17-Aug-11 1.332611%
16-Aug-10 -0.473137%
17-Aug-10 0.867410%
18-Aug-10 -0.046906%

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17-Aug-09 -1.627438%
18-Aug-09 -0.154954%
19-Aug-09 -0.182582%
18-Aug-08 0.066242%
19-Aug-08 -2.379137%
20-Aug-08 1.296646%
c.iv) Calculating excess returns:
Excess return
Date ANN return ASX return Excess Return
17-Aug-15 1.273885% 0.209092% 1.064794%
18-Aug-15 -6.918239% -1.203495% -5.714744%
19-Aug-15 -1.351351% 1.453867% -2.805218%
18-Aug-14 1.436782% 0.370071% 1.066711%
19-Aug-14 3.966006% 0.656870% 3.309135%
20-Aug-14 4.087193% 0.192041% 3.895152%
19-Aug-13 1.699717% -0.027376% 1.727093%
20-Aug-13 -0.278552% -0.670905% 0.392353%
21-Aug-13 0.000000% 0.429286% -0.429286%
13-Aug-12 0.212314% 0.140275% 0.072039%
14-Aug-12 -0.211864% 0.207784% -0.419648%
15-Aug-12 -1.273885% -0.256279% -1.017607%
15-Aug-11 1.718213% 2.643436% -0.925223%
16-Aug-11 2.702703% -0.831212% 3.533915%

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17-Aug-11 0.986842% 1.332611% -0.345769%
16-Aug-10 -1.369863% -0.473137% -0.896726%
17-Aug-10 2.314815% 0.867410% 1.447405%
18-Aug-10 3.167421% -0.046906% 3.214327%
17-Aug-09 2.654867% -1.627438% 4.282305%
18-Aug-09 4.741379% -0.154954% 4.896333%
19-Aug-09 1.646091% -0.182582% 1.828672%
18-Aug-08 3.896104% 0.066242% 3.829861%
19-Aug-08 6.666667% -2.379137% 9.045804%
20-Aug-08 0.000000% 1.296646% -1.296646%
c.vi) Discussing relevant theory with the findings:
From the evaluation of above table relevant policy affecting share price of Cardno
Limited can be identified, which indicates that the organisation is affected by dividend policy
theory. The share price movement of the company in the day of announcement mainly shows
that increment or decline in its value (Evgeniou, Vermaelen and Yue 2016). This directly
states that the shareholders are using the dividends provided by the organisation to determine
its price levels.

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Reference and Bibliography:
Au.finance.yahoo.com. (2018). ^AXJO Historical prices | S&P/ASX 200 Stock - Yahoo
Finance. [online] Available at: https://au.finance.yahoo.com/quote/%5EAXJO/history?
period1=1218306600&period2=1219343400&interval=1d&filter=history&frequency=1d
[Accessed 26 Jan. 2018].
Au.finance.yahoo.com. (2018). CDD.AX Historical prices | CARDNO FPO Stock - Yahoo
Finance. [online] Available at: https://au.finance.yahoo.com/quote/CDD.AX/history?
period1=1218306600&period2=1219343400&interval=1d&filter=history&frequency=1d
[Accessed 26 Jan. 2018].
Bhandari, S.B. and Adams, M.T., 2017. On the Definition, Measurement, and Use of the Free
Cash Flow Concept in Financial Reporting and Analysis: A Review and
Recommendations. Journal of Accounting and Finance, 17(1), pp.11-19.
Bodie, Z., Kane, A. and Marcus, A.J., 2014. Investments, 10e. McGraw-Hill Education.
Chong, W.L., Hassan, T., Ting, K.H. and Cheng, F.F., 2015. Free cash flow and its impacts
on agency costs and performance of REITs in Asia. In 25th International Business
Information Management Association Conference-Innovation Vision 2020: From Regional
Development Sustainability to Global Economic Growth, IBIMA 2015. International Business
Information Management Association, IBIMA.
Evgeniou, T., Vermaelen, T. and Yue, L., 2016. Network Centrality and Managerial Market
Timing Ability: Evidence from Open-Market Repurchase Announcements.
Isa, M., Ghani, Z. and Lee, S.P., 2017. Market reaction to actual share repurchase in
Malaysia. Asian Journal of Business and Accounting, 4(2).