<P>FACULTY RESEARCHFACULTY RESEARCH tock buybacks, a way to return cash to shareholders, are reaching record-high levels. New research ?nds that managers of undervalued ?rms use stock repurchases as a mechanism to signal ?rm value. Assistant Professor of Finance Stacey Jacobsen and her co-author ?nd a large number of ?rms that announce share repurchases never follow through with the buyback. Their research, recently published in Review of Finance, examines why some ?rms announce share repurchases but fail to repurchase any, and why stock prices increase upon announcement. In our sample, the average abnormal return surrounding the repurchase announcement is 2.5 percent, says Jacobsen. So the market views the repurchase announcement as good news, even though the announcement does not commit the ?rm to follow through with the repurchase program. The authors suggest that the announcement of share repurchases attracts investor attention. An ignored undervalued firm may separate itself from an overvalued ?rm by announcing share repurchases and attracting scrutiny. Popular ?rms, with a potential for only small mispricing, cannot attract more attention, says Jacobsen. Such ?rms, if undervalued, have to use a costly signal—actually repurchasing shares—to credibly signal their undervaluation. In the ?rst two months of 2014, $11 billion dollars of debt was issued for stock buybacks, with ensuing credit downgrades and negative outlook changes. In 2013, credit ratings agency Fitch downgraded six U.S. companies because of buybacks. The researchers theoretical model predicts that ?rms with large mispricing use repurchase announcements to attract scrutiny from speculators who discover their true value. And, ?rms with small mispricing must announce and repurchase shares to signal their true value. The authors analyzed 7,602 ?rms that announced an open market stock repurchase program between January 1985 and September 2012. Forty percent of ?rms that announced a repurchase program did not repurchase a single share in the ?scal quarter of the announcement; in the entire ?scal year of the announcement, 24 percent did not repurchase. Jacobsen offers, For non-repurchasers, the mere announcement of an open market share repurchase attracts scrutiny from speculators, who search and discover the underpricing, then trade. These trades lead to price corrections. Why Do Some Firms Announce Stock Buybacks But Not Follow Through? Stacey Jacobsen, Assistant Professor of Finance S he conventional method used by the oil and gas industry to report on upstream operations and results distorts pro?tability and valuations. Industry practice uses barrels of oil equivalent or BOE—a measure that combines oil and gas volumes based on thermal parity, or the energy content of the source. Research forthcoming in The Energy Journal by Finance Professor James Smith, the Cary M. Maguire Chair in Oil and Gas Management, shows why and how the BOE convention has overstated the cost of adding reserves, the principal asset held by these ?rms. Since 2008, when natural gas prices declined precipitously—from $14 per mcf (thousand cubic foot) to under $3 today— distortions due to reliance on the BOE convention have increased. Performance and valuation differences between ?rms, when measured on the basis of thermal parity versus relative prices of oil and gas, distort shareholder perception of operational ef?ciency. Smith and the likes of British Petroleums CEO John Browne acknowledge this industry problem—that in actuality "barrels of oil equivalent" is a ?ction. A new approach by Smith offers a workable alternative. Smith proposes that the value of oil and gas reserves be calculated based on the market-based equivalence of these two resources, capturing the speci?c, real economic values and costs of oil and gas. According to Smith, Thermal parity implicitly assumes the Btu (British thermal unit) of gas commands the same market price as oil, which is not true. From the producer side, the cost of ?nding oil needs to be measured relative to the price of oil. If oil is more valuable than the resources expended to ?nd and develop it, thats what companies and their investors care about. By separating out oil and gas, and comparing apples to apples, we see the industry has not been overspending to ?nd oil because oil is more valuable than the mixture of oil and gas—a mixture that no one sells in the marketplace for a 6-to-1 price, which is what thermal parity implies, says Smith. Outdated Convention Distorts Oil and Gas Firms Bottom Lines: Valuing Barrels Better James Smith, Cary M. Maguire Chair in Oil and Gas Management T 21 cox.smu.edugo to</p> <UL><LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/1/1/">Front-Cover</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/2/2/">Inside-Front-Cover</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/3/3/">Page-1</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/4/4/">Page-2</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/5/5/">Page-3</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/6/6/">Page-4</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/7/7/">Page-5</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/8/8/">Page-6</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/9/9/">Page-7</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/10/10/">Page-8</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/11/11/">Page-9</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/12/12/">Page-10</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/13/13/">Page-11</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/14/14/">Page-12</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/15/15/">Page-13</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/16/16/">Page-14</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/17/17/">Page-15</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/18/18/">Page-16</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/19/19/">Page-17</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/20/20/">Page-18</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/21/21/">Page-19</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/22/22/">Page-20</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/23/23/">Page-21</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/24/24/">Page-22</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/25/25/">Page-23</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/26/26/">Page-24</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/27/27/">Page-25</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/28/28/">Page-26</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/29/29/">Page-27</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/30/30/">Page-28</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/31/31/">Page-29</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/32/32/">Page-30</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/33/33/">Page-31</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/34/34/">Page-32</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/35/35/">Page-33</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/36/36/">Page-34</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/37/37/">Page-35</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/38/38/">Page-36</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/39/39/">Page-37</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/40/40/">Page-38</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/41/41/">Page-39</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/42/42/">Page-40</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/43/43/">Page-41</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/44/44/">Page-42</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/45/45/">Page-43</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/46/46/">Page-44</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/47/47/">Page-45</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/48/48/">Page-46</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/49/49/">Page-47</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/50/50/">Page-48</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/51/51/">Page-49</a></LI> <LI><a href="http://www.mzines.net/publication/1089/qaeivcdmc/52/52/">Back-Cover</a></LI> <LI><a href="http://www.mzines.net/publications/1089/x/sitemap.xml" target="_blank">site map</a></LI> </UL>

 

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