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I 'I III-I IIII III III IIIIIII IIIII‘III IIIIIIII IIIIIIIIIIIIII . “" - . III ’« III“: I. 43:13 I, . IIIII;‘IIII ' . [IyIRIII'I II. III" III I 'IW II III II II IIIIII III I W.I IIIfiI IIIII I I., ."III II-I‘ . II' II- HI I V ,I II II' I IIIIII'II IIIIIIIII :II. II“ I”I I. I IIIIIII III "III III, III III . II IIIIII 'I‘IIIIII IIII‘ w. A w WI W“ III I III I ' II II ”I I I. ' . II III III I III" IIIII III II 'IIIII III III III III I ""' J ., . I. ”I I I II In I . III | .. M I. III-I III. .IIIIIII I II I IIIhIIIII IIIIIIII III IIIIILIII III III m'II III IIIHIfiI IIIIIIIIIIIIIIII‘ IIIIIII- kIIHIIHIII” .m [J L I B R A R Y ;, "‘i University - 7"va THFS". This is to certify that the thesis entitled THE REDISTRIBUTION OF REACQUIRED CORPORATE COMMON STOCK presented by Ben L . Trykowski has been accepted towards fulfillment of the requirements for Ph.D. degreein Business, Finance m Major professor Date February 7, 1979 0-7639 OVERDUE FINES ARE 25¢ PER DAY PER ITEM Return to book drop to remove this checkout from your record. C) Copyright by Ben L. Trykowski 1979 THE REDISTRIBUTION OF REACQUIRED CORPORATE COMMON STOCK BY Ben L. Trykowski A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Accounting and Financial Administration 1979 , ; , U / ' “ ABSTRACT THE REDISTRIBUTION OF REACQUIRED CORPORATE COMMON STOCK BY Ben L. Trykowski The purpose of this study is to analyze the reaction of common stock market prices to announcements of a redistribution of previously reacquired corporate common stock. The study is, as an examination of the announcement effect of newly released financial information, a test of the efficient market hypothesis in its semi-strong form. The study also addresses the validity of the corporate anti~dilution strategy by which shares needed for distribution for various purposes are reacquired by the issuing company and then distributed. The study population originated with the New York Stock Exchange (NYSE) monthly report Of listed firms that experienced corporate common stock reacquisitions and/or redistributions from 1964 to 1977. Companies in the NYSE report which redistributed a quantity of shares ranging from 1% to 5% of their shares outstanding are identified as the study's pOpulation. Redistribution by a firm of less than 1% of its shares outstanding is assumed to have insignificant effects on the firm's market price; redistributions greater than 5% necessitate concurrent reporting to the Securities and Exchange Commission. Defining the population by this range to eliminate insignificant transactions and duplicate reporting generated 417 announcements. The testing methodology employed in this study is a time series analysis of daily stock price changes : 30 days around the NYSE report announcement date. The Time Series Processor regression analysis program developed by the Massa- chusetts Institute of Technology is used to test the reaction of the data to the study‘s market model. Daily stock prices were obtained from the CRSP files of the University of Chicago's Center for Research in Security Prices. The study's market model is based on the capital asset pricing model and is designed to explain the price relatives of companies engaging in share disposition decision (SDD) activity to those of the general market. The Standard and Poor's Corporation 500 Composite Index is used as a measurement of the general market. The model tests market efficiency in the context of the efficient market hypothesis through the null hypothesis that the share price before the critical event is statistically equal to the share price after the critical event. The critical event in the study is the release date of the monthly NYSE report on SDD activity. The alternate hypothesis that reported SDD activity has a depressing effect on the share price is designed to test the claim that firms engage in SDD activity to prevent stock price dilution. The study population is subdivided into four percentage categories of net shares redistributed to shares outstanding and four prOportional categories of net shares redistributed to average daily trading volume. The resulting sixteen groups of observations form the basis for a test of the market model to identify significant relationships between SDD transaction size and price relatives. The results of the study indicate the market model's price relatives for the SDD~transacting companies, while contrary to that of the general market, do not support the claim that SDD activity results in depressed share prices for the entire study pOpulation. But the subdivided data reveal a statistically significant share price decrease when the redistribution is between 3% and 5% of the shares outstanding and more than 22 times the average daily trading volume. This study isolated and identified share redistribution activity levels which possess returns significantly different from the general market. The findings revealed the share redistribution activity levels which were large relative to outstanding shares and trading volume possess statistically signifiance negative share price responses. The evidence in this study indicated such large SDD activity may form the basis of a stock trading rule to achieve superior returns to that of the general market. For all SDD companies in the study pOpluation, however, the non— existence of superior or inferior returns implies that investors cannot apply a similar stock trading rule unconditionally to firms engaging in share redistributions. DEDICATION To my mother, whose degree of spiritual encouragement, academic direction, metaphysical Optimism, and strategic manuevering was a major force in the completion of this work. iii ACKNOWLEDGMENTS Many persons assisted me in the completion of this thesis and I am extremely grateful for having received their help and guidance. I thank my committee members for their support of this dissertation. Dr. Alan E. Grunewald, Professor of Financial Administration and committee chairperson, was continually enthusiastic about the theme and provided a degree of direction and encouragement that made its completion possible. Dr. Roland F. Salmonson, Professor of Accounting, offered many valuable suggestions for improving the document during its development. Dr. Robert H. Rasche, Professor of Economics, provided helpful insights in the structuring of the testing methodology and the theoretical efficacy of the model. Gerald St. Amand, computer specialist for the Graduate School of Business Administration, provided an immeasurable amount of assistance in idea formulation, data collection, statistical testing, and moral support throughout the dissertation development and completion. The generosity of his time, energy, and facilities is appreciated most of all iv received by me at Michigan State University. I wish to also acknowledge the continual professional and personal support of Steven L. Huyser, manager of the User Information Services in the Michigan State University Computer Laboratory. His incessant concern and unselfish efforts sustained my presence in the doctoral program. Lastly, I am grateful for the particular encouragement of Dr. James F. Rainey, Associate Dean - Academic Programs in the Graduate School of Business Administration; the faculty members of the Department of Accounting and Financial Administration who made my selection, retention, and completion in the doctoral program possible; the political and economic system in the United States that allowed the undertaking and financing of my education; the God Consciousness that guided this work into completion; and the support of wonderful friends, colleagues, and family during the doctoral years. LIST OF LIST OF CHAPTER VI. II. III. TABLE OF CONTENTS TABLE S I O O O O O O Q O O O FIGURES O I O O O O O O O O INTRODUCT ION O I O O O O O O A. Background of Problem . B. Statement of Purpose . . C. Design Outline . . . . . 1. Procedure for Generating Data Base . . . . . 2. Procedure for Applying Testing Methodology PRIOR RESEARCH . . . . . . . A. Financial Press . . . . B. Academic Research . . . C. Textbook Recognition . . SHARE DISPOSITION ACTIVITY . A. Growth . . . . . . . . . 1. Level of Activity . 2. Issue/Reissue Differentiation B. Nature of Activity . . . l. Anti-dilution Motives 2. Non Anti-dilution Motives C. Significance . . .'. . . . . . vi vii viii m p» h' h» 13 15 15 19 24 26 26 26 32 38 38 40 44 1. Dilution of Control . . . . 2. Trafficking . . . . . . . . IV. RESEARCH DESIGN . . . . . . . . . . A. Parameter Selection . . . . . . B. Data Sources . . . . . . . . . C. Methodology . . . . . . . . . . V. ANALYSIS OF FINDINGS . . . . . . . A. Presentation . . . . . . . . . B. Evaluation . . . . . . . . . . VI. SUMMARY . . . . . . . . . . . . . . A. Conclusions . . . . . . . . . . 1. Implications . . . . . . . 2. Contributions . . . . . . . B. Limitations . . . . . . . . . . C. Recommendations . . . . . . . . APPENDICES A. THE STUDY POPULATION . . . . . . . B. THE NUMBER OF OBSERVATIONS IN THE STUDY BY INDUSTRY . . . . . . . . . C. RESIDUALS OF THE MODEL'S EQUATIONS LIST OF REFERENCES A. ACADEMIC RESEARCH . . . . . . . . . B. POPULAR PERIODICALS . . . . . . . . C. BOOKS . . . . . . . . . . . . . . . D. PERSONAL INTERVIEWS . . . . . . . . E. DATA REFERENCES . . . . . . . . . . vii 44 51 53 53 55 58 67 67 94 102 102 104 106 107 110 113 134 142 147 152 156 157 158 LIST OF TABLES Table Page 3-1 The Growth of Net Share Dispositions . . . . 27 3-2 Comparison of Net Share Dispositions to New Issues . . . . . . . . . . . . . . . 28 4-1 Distribution of Observations in a Two-way Classification . . . . . . . . . . . 65 5-1 Statistics for Equation (10) . . . . . . . . 91 viii Figure 1-1 LIST OF FIGURES The Derivation of the PrOportional Price Decrease x/(l+x) . . . . . . . . . Content of the New York Stock Exchange Monthly Report on Corporate Stock Reacquisitions and Redistributions . . . Graph of Net Share Dispositions and New Issues 0 O O I O O O O O O O O O 0 O A Listing of the Model's Equations . . . Statistics for Equation (23) . . . . . Graph for Equation (23) . - . - . . - - New York Stock Exchange Composite Index Dow Jones Industrial Index . . . . . . . Statistics for Equation (24) . . . . . . Graph for Equation (24) . . . . . . . . Statistics for Equation (25) . . . . . . Graph for Equation (25) . . . . . . . . Statistics for Equation (28) . . . . . . Graph for Equation (28) . . . . . . . . Statistics for Equation (31) . . . . . . Statistics for Equation (32) . . . . . . Statistics for Equation (33) . . . . . . Graph for Equation (33) ... . . . . . . ix Page 29 64 66 67 69 70 73 74 75 76 78 79 81 82 84 85 5-16 5-17 5—18 5-19 5-20 Graph for Equation (10). Statistics for Equation (33) One Day Lead . Statistics for Equation (33) One Day Lag . Statistics for Equation (33) One Week Lead Statistics for Equation (33) One Week Lag . with Q with with with 92 97 98 99 100 CHAPTER I INTRODUCTION Background of Problem During the past seventeen years, academic research and the popular financial press have demonstrated a proliferating interest in common stock reacquisitions. Many aspects of the corporate share reacquisition decision (SRD) have been widely discussed in the financial press and some of these have been subsequently examined by academic researchers. For example, the following financial press tOpiCS were later analyzed in the professional literature.1 a. share reacquisition during bear markets [76, 91, 101] b. employment of tender offers in an SRD [93, 96] c. reverse stock splits [97, 105] d. increases in the market price [58, 59, 69, 72, 73] e. reduction in the cost of capital [6] f. SRD as a surrogate investment Opportunity [6, 72, 88] g. SRD strategy prior to merger activity [61, 95, 100] h. retirement of reacquired common stock [82] i. ethical and legal considerations of the SRD [44] j. accounting for SRD transactions [35, 83] k. lowering of shareholder transaction costs [27] 1. SRD as an alternative to a cash dividend [2, 102] 1 . . DiscuSSion of significant studies is c ' ' . . ontained 1n the Prior Research section. For direct reference, however the subsequent academic counterparts to the above articles in t e t1nanc1al press are, respectively, a. [75, 78, 92], b. [52, 53]. c. [18] d [14 25 f. [2] g, [84] h_ ' . . . 53, $9. 77]. e. [51] k. [541, and 1.’[12]F20]"1' [9' 34]: 3. [39. 57, 105]: 2 One frequently cited reason [22, 55, 67, 94, 99, 103] for share reacquisition that has not been similarly explored is the prevention of dilution upon the issuance1 of additional shares for various purposes.” The common claim found in these articles is that some firms have a need to issue additional common shares and a concurrent desire to maintain an undiluted equity base, earnings per share, and market price. They enter into share reacquisition/redistri- bution programs for the expected non-negative effect on the company‘s price per share. Examination of the price effects of the first portion of this two part corporate anti-dilution strategy has provided support to the claim that no significant price increase has occurred after reacquisition [14, 26, 53, 59, 77]. This study preposes to analyze the second portion of the strategy: the claim that issuance of reacquired common stock has no dilutive effect on the share price, by testing the announcement effect of the redistribution of reacquired corporate common stock. Prior studies of announcement effects have tested the theory 1 Although commonly employed to describe reacquired common shares subsequently released into the marketplace, the term "reissued stock" is a misnomer because the reacquired shares have maintained their "issued" status and are not literally reissued. They are redistributed, released, redispositioned, but not reissued. See Chapter III, section A.2 for a discussion of this differentiation. 2 See the Nature of Activity section for examples. of efficient securities markets. This study contributes to that body of information by analyzing the effect of announcing a corporate share disposition decision (SDD). In 1934, the New York Stock Exchange (NYSE) began requesting companies to report their trading activity in their own stock. The stock list department of the exchange has compiled a publicly available file of this reported activity, on a monthly basis, beginning with the May, 1940, report. The NYSE report's release date will be designated the critical event in this study and be the basis for the announcement investigation. Statement of Purpose The market price dilution that anti-dilution strategy (ADS) companies1 are attempting to prevent is the share price .5. 1+): decrease2 that would result, ceteris paribus, from releasing authorized but unissued shares into the marketplace.3 There are two price movement situations which would indicate that this strategy was successful. The first case is the counterbalancing effect of a price increase after a share reacquisition decision (SRD) and a commensurate price decrease after a share disposition decision (SDD). The second case is no significant price decline after an SDD regardless of the price movement after an SRD. Examination by others [14, 26, 53, 59, 77] of the frequent claim that an SRD would increase the market price per share [58, 59, 69, 72, 73] has provided support to reject that claim: no significant price increase has occurred after reacquisition. Thus, empirical evidence is insufficient to sustain the first case for a successful anti-dilution strategy. 1 Those companies which need to distribute additional shares of common stock and want to prevent dilution of their equity base and market price per share will be referenced as anti-dilution strategy (ADS) companies. See Figure 1-1 for the explanation of this prOportional price decrease. 3 See the Issue/Reissue Differentiation section for a discussion of the differences between the reissuance of reacquired shares and the issuance of new shares. 5 Eliminating the first case from consideration reduces the second situation to an examination of the share price movement for ADS companies around the SDD activity date. One of the purposes of this study is to address this issue of SDD activity on share prices by examining the price movements around the public announcements of such transactions. In an efficient market, security prices fully reflect all available information. The information with which the market is concerned is divided into three subsets and is associated with a particular test of the three forms of the efficient market hypothesis (EMH). For the information sub- set of past security prices or returns history, weak form tests have supported the EMH.‘ For the second information subset of other obviously available public information (e.g., announcements of dividend policy, mergers, annual and quarterly reports, etc.), semi-strong form tests have been offered.2 Lastly, the subset of monopolistic access to information by any investor is examined in strong form tests. The empirical analysis of this study is directed at the test of the semi-strong form of the EMH. The NYSE's announcement of 1 See Fama [15] for a summary of the EMH tests. See Fama, Fisher, Jensen, and Roll [16], Pettit [33], as well as Melvin C. O'Connor's "On the Usefulness of Financial Ratios to Investors in Common Stocks," Accounting Review, April, 1973, and LeRoy D. Brooks' "Additional Evidence on the Market Reaction to Accounting Numbers," The Financial Review, 1977. net share disposition belongs to the second information subset defined above; accordingly, this study's analysis of the effect on a company's share price of such publicly available information is a test of the semi-strong form of the EMH. Thus, the primary purpose of this research is to offer additional evidence about the validity of the EMH by estimating the speed and accuracy with which market share prices respond to announcements of corporate dispositions of previously reacquired common stock. Figure 1-1 The Derivation of the Proportional Price Decrease 1:; Let x = the percentage of new shares issued to the shares outstanding prior to the new issue P0 = the market price per share prior to the issue P1 = the market price per share after the issue 5 = the number of shares outstanding prior to the issue V = the market value of the firm Then since V = (PO)(s) prior to the issue and assuming the market value of the firm does not change as a result of the issue, V = (Pl)(s + x-s) also. . v (Po) (5) Po Solv1ng for P1, P1 = m = m = m . The decrease in price is expressed as P-P o _ 1 AP — P0 P0 P _ _ _ l _ _ 1+x _ _ _l_ ’1 '13—’1 P '1 l+x o o x Design Outline To ascertain whether the corporate anti-dilution strategy (ADS) has been successful, a time series statistical analysis of the ADS companies' price performance was made.1 The procedures involved in generating the data base and applying the testing methodology are outlined below. Procedure for Generating the Data Base The population for this study consists of all New York Stock Exchange (NYSE) firms that experienced net share disposition activity between 1964 and 1977.2 Net share disposition activity occurs when there is an excess of redistributed shares over reacquired shares in a given reporting quarter. The NYSE reacquisition and disposition reports3 [136] serve as the origin of the population. First, those companies which have a net decrease in their reacquired holdings are identified from the report.“ Since the NYSE does not distinguish in its announcement between a reduction in holdings due to a redistribution and a reduction resulting from retirement of the shares, a second step in the 1 The procedures to filter non-ADS companies from the data base and to test the study's hypothesis outlined in this section are employed in the Research Design section. 2 The NYSE reports prior to 1964 did not include the amount of shares listed on the exchange (See Figure 1.1). This 14 year period contains major market movements in both directions and is employed in this study, as is the S&P 500 index, to explain market influence on individual share prices. See Figure 1.1 for a description of the NYSE report contents. “ There are 7,756 such transactions for the 1964-77 period. 9 Figure 1-2 Content of the New York Stock Exchange Monthly Report on Corporate Stock Reacquisitions and Redistributions Period February, 1940 to March, 1953 April, 1953 May, 1953 to April, 1963 May, 1963 to October, 1975 November, 1975 to Present Content Company name Class of stock Shares previously reported Shares per latest report Company name Class of stock Increase in holdings Decrease in holdings Shares per latest report Company name Class of stock Shares previously reported Increase in holdings Decrease in holdings Shares per latest report Company name Class of stock Increase in holdings Decrease in holdings Shares per latest report Total shares listed on the exchange Company name Class of stock Increase in holdings Decrease in holdings Shares per latest report Total shares listed on the exchange Shares per latest report as a percentage of total shares listed 10 population identification process is required to eliminate those companies which have retired their reacquired shares. The Securities and Exchange Commission (SEC) reports [140] indicate the motive for the transaction and are used in this study to identify retirements. Defining the price performance of ADS companies as the relative price trend before and after the NYSE report date, a third filter is necessary to purge those share dispositions disclosed on other dates.1 Distributions resulting from stock dividends or stock splits are identified through Moody's [135] and Standard and Poor's [142, 143] services. Since the SEC requires disclosure2 of dispositions that return to market 5% or more of the shares outstanding, the proportion of shares redistributed to shares outstanding prior to the redistribution is calculated for all companies in the revised population. Those company transactions with a proportion greater than 5% have been reported elsewhere on a date other than the NYSE report date and are accordingly removed from this study's data base. The resulting population contains 6,073 transactions that have a net share 1 Since a time series analysis will be performed on the NYSE report's announcement date, companies which have had previous announcements of their share dispositions would constitute statistical 'noise' in the data base. 2 Prior to February 29, 1977, disclosure was required on the SEC's Current Report (Form 8-K). A major amendment transferred the share disposition disclosure to the quarterly form lO-Q on that date. See the Federal Register, volume 42, number 6, January 25, 1977, page 4424 for details. ll disposition announced through the NYSE report and form the data base for the announcement effect investigation. The NYSE report is released monthly but companies are required to report to the exchange only on a quarterly basis. Thus a company's September, October, and November, 1978, activity would be forwarded to the exchange in December, 1978, and placed on the December, 1978, report. Since most firms observe a calendar quarter for their fiscal period, the January, April, July, and October reports contain the greatest activity. The report is released regularly without cost by the NYSE through its Stock List Department to approximately 400 interested parties (e.g., member firms, institutions, individuals, and news reporting agencies). The NYSE maintains a subscription/distribution list for regular users, but any interested person or firm desiring a single copy of the monthly report may request it in person or by telephone. The monthly report is released early in the fourth week to the previously mentioned distribution list. As a test of the semi-strong form of the efficient market hypothesis, this study investigates the flow of the announced SDD information to the marketplace through this NYSE release using the release date as the critical event. The designation of the release date as the study's critical 12 event is consistent with an investigation into the efficacy of the efficient market hypothesis. During the reporting quarter, there are many distribution dates on which the firms' reacquired shares are actually returned to the marketplace, but there is only one announcement date of such transactions. 13 Procedure for Applying the Testing Methodology The price performance of the companies' shares in the study's population was examined using a time series analysis. First, daily stock prices1 were obtained for i 30 days around the New York Stock Exchange report date2 for a total of 61 observations per share disposition decision transaction. Next, Standard and Poor's Corporation Index of 500 common stocks was selected to represent the market movement and to explain any change in the stock price of an SDD company which may have been caused by the marketplace. The working hypothesis of no price dilution as a result of an SDD transaction translates into the model's null hypothesis that the price trend before the critical event is statistically equal to the price trend after the critical event. The alternative hypothesis states that the announcement of the SDD activity had a depressing effect on the market price per share. An expresssion for a multiple regression model was developed 1 These were obtained from the CRSP file of the University of Chicago's Center for Research in Security Prices [131]. 2 which is designated the "critical event" for design purposes. 14 through a series of regression equations to test the null hypothesis and provide evidence to evaluate the working hypothesis. A series of tests was Performed on the model, with dummy variables for intercept and slope reaction, using the pooled share prices and their associated market indices. Analysis of the statistical significance of the variables' coefficients, autocorrelation, and homoscedascity then forms the basis for statements about the working hypothesis in the Analysis of Findings section. CHAPTER II PRIOR RESEARCH The reacquisition of common stock necessitates a subsequent decision to reissue, retain, or retire the reacquired shares. The increased level of activity in net share disposition within the last fifteen years has followed the substantial growth in stock reacquisition and now provides a basis for organized study.1 The treatment SRD/SDD activity has received in the three areas of the financial press, academic research, and finance textbooks is reviewed below. Financial Press Prior to the recent academic studies, belief developed [34, 58, 61] that there is a positive effect on security prices caused by a share reacquisition decision (SRD) and a nega- tive effect caused by a share disposition decision (SDD). Proffered justification for the argument of increases in security prices includes the following: a. the improvement of earnings per share which, assuming a constant price/earnings ratio, will result in a higher market price [61], b. the lowering of the firm's cost of capital by increasing the debt to equity ratio and producing a higher value of the firm [34], 1 SRD activity growth has been well documented elsewhere [20, 26, 48, 112] and SDD activity growth is documented in the Level of Activity section. 16 c. the investing in one's own stock when other 0p- portunities have lower projected rates of return effecting a greater return on assets [34], and d. the reduction of dividend payments without decreasing the per share dividend or necessitating an announced change in dividend policy. The converses to the above justifications provide arguments for a negative price reaction to an SDD. Also offered as a reason for the negative price expectation is the impact of transferring shares from an 'issued but not outstanding' status to an 'issued and outstanding' basis [26].1 Reacquired shares retain the classification of being issued and listed, but not outstanding. Authorized shares which have never been issued are not classified as issued, listed, or outstanding. Although there are other differences between newly issued stock and reacquired stock subsequently redistributed,2 a negative earnings and price dilution effect has been associated with the share disposition decision. 1 This is not the same status change which results from releasing authorized but never previously issued shares: the dilution effect associated with using shares not previously issued is avoided. See the Issue/Reissue Differentiation section. The pre-emptive right does not apply on the release of reacquired shares and reacquired shares may be released without regard to par or stated value. Unissued shares may generally (except in California) not be issued for less than par value [9]. The Securities and Exchange Commission reporting rules also differ for these two conditions and are discussed in the Research Design section. 17 LeO A. Guthart, in his third paper on SRD/SDD activity, surveyed participating managements to ascertain reasons for such activity [22]. One prime motivation in undertaking such transactions was the desire Of companies to avoid increasing their equity base in the future while honoring commitments for common stock: stock options, acquisitions, convertible debentures, warrants, and stock dividends. In summing the attitude expressed by many financial managers, Guthart wrote that tO counteract the dilution caused by the issuance Of new shares, corporations went into the market and bought back already outstanding shares tO redistribute. Guy Agrati, a manager Of New York's Chemical Bank, advised that an SRD/SDD program would offset the dilution that would result from stock Options, acquisitions, and convertible Obligations Of a company [55, pg. 36]. The most prolific SRD/SDD writer in the financial press is Anna Merjos, a vice president Of Merrill, Lynch, Pierce, Fen- ner, & Smith. She has repeatedly maintained that an SRD/SDD strategy prevents dilution Of earnings, equity, and share price when additional common stock is needed for mergers, acquisitions, stock Options, employee stock purchase programs, or conversion Of convertible preferreds or debentures [94, 99]. Likewise, Other financial publications, such as Financial World [67], The Magazine of Wall Street [61], and Business 18 Week [58] have promulgated the dilution avoidance effect Of SDD as a corporate strategy whenever the firm needs common stock for distribution. Joel M. Stern, however, was the only financial press writer to question the popular concept Of dilution prevention in a 1973 Commercial and Financial Chronicle article [103], but did not pursue it beyond one paragraph. TO summarize, the financial press - as represented by a wide background Of interests - almost universally accepts and promotes the dilution prevention reasoning Of companies engaging in SDD activity. A critical question then follows such acceptance and promotion: Is there evidence to support this position? The academic research outlined in the next section has begun to address this question. 19 Academic Research The emphasis Of academic research to date has centered On the share reacquisition decision (SRD) and not the share disposi- tion decision: specifically, pre-SRD conditions and post-SRD effects, but not pre-SDD conditions and post-SDD effects. In 1965, the first academic inquiry into corporate reacquisi- tion activity was made by Richard A. Stevenson in a doctoral dissertation [45]. He examined 160 New York Stock Exchange (NYSE) industrial compnaies which reduced their outstanding common stock by at least one percent in any year from 1956 to 1963. His work has been cited in most subsequent studies as a pioneering effort into the previously unexplored area Of corporate share reacquisition.1 Other organized doctoral research which followed Stevenson's spans a range Of tOpics within the SRD and is outlined below: a. a descriptive study of NYSE firms which repurchased a portion of their outstanding common stock between 1954 and 1965 [20], b. a tabulation Of advantages, disadvantages, character- istics, uses, and methods Of reacquiring shares through a questionnaire study of 45% Of 1,217 NYSE firms between 1951 and 1963 [34], 1 The only previous academic research located was a 1927 J.D. thesis which examined the repurchase Of stock from a legal viewpoint [36] and a 1934 article which reported on 40 repurchases occurring over a three year period [23]. 20 c. a nonstatistical behavioral study of managerial, market, and investor problems associated with 152 cash tender Offers from 1944 tO 1965 [52], d. a 1969 descriptive and historical study of the regu- lation surrounding the SRD [9]. e. an analysis Of a questionnaire directed tO 50 un- listed industrial companies from 1965 to 1968 [1], _ f. a descriptive inquiry into the investment implica- tions Of share reacquisition from 1957 to 1968 [49], g. a 1974 nonrigorous analytical investigation Of the SRD to aid managerial decision making [14], h. an empirical evaluation Of the price impact of re- verse stock splits for 44 listed companies during the period 1960 to 1973 [18], and i. a test Of market efficiency of the SRD for 227 listed companies which acquired their shares through either a tender Offer or Open market purchases [26]. The published articles in professional journals and research studies have concentrated on historical studies Of actual price movements prior and subsequent to reacquisition [30, 37, 46, 53], valuation models examining the relationship Of security prices and reacquisition activity [2, 12], volatili- ty and risk measurement Of securities subject to reacquisi- tion [38, 41], and descriptive analyses Of the SOOpe and significance of reacquisition [22, 112]. The professional literature also includes studies on the behavioral charac- 21 teristics of reacquiring companies [32] and comparisons Of the expectations and realizations of companies engaging in share reacquisition activity [48]. In some of these studies, evidence has been presented re- futing the hypothesis that a SRD results in positive share price movements. Marks [26] has shown that superior returns have not been achieved by firms reacquiring their stock through tender Offers or Open market purchases. Escobar [14] found that repurchases Of common stock did not have signifi- cant effect on share price relative to the rest of the mar- ket. Admission from corporate management that market reality has not met their share price expectations is also available: a Conference Board survey [48] of firms engaging in SRD re- ported that 63.1% Of the respondents indicated little or no success achieved in their Objective Of supporting the price of their company's stock by reacquiring it. The other 36.9% Of the managers queried categorized themselves as either only moderately successful (31.6%) or highly successful (5.3%) in achieving their price Objective. Of all the reasons presented by management for reacquiring shares, the price Objective pinnacled the Conference Board's list of "Little or NO Success Achieved." When the conclusions reached in the academic research are assimilated with the anti-dilution strategy proposed in the financial press, several questions form. For example, if 22 one Of the prime motivations for corporations engaging in SRD/SDD transactions is dilution prevention when they honor the firm's common stock distribution requirements, then does the expected post-SDD share price decline really occur? More broadly, is it futile for management tO engage in SRD/SDD anti-dilution strategy? Other empirical investigations have attempted the measurement Of market absorption and reaction tO financial information released on identifiable dates and have related such absorption and reaction to the efficient market hypothesis (EMH). For example, Fama, Fisher, Jensen, and Roll [16] investigated the speed Of common stock price adjustment tO stock splits and anticipated diVidend increases. They tested the validity Of market efficiency through an analysis Of price residuals around the announcement date. Ray Ball and Philip Brown1 assessed the speed at which prices respond tO accounting income information in an EMH framework using monthly data twelve months prior and six months subsequent tO their study's designated announcement date. Melvin C. O'Connor2 analyzed the value Of financial 1 See "An Empirical Evaluation Of Accounting Income Numbers," Journal of Accounting Research, Autumn, 1968. 2See "On the Usefulness Of Financial Ratios tO Investors in Common Stock}" Accounting Review, April, 1973. 23 ratios to predict future rate Of return rankings as a test Of market efficiency using one, three, and five year holding periods. R. Richardson Pettit [33] examined price effects of dividend announcements using daily data : 10 days around the critical event and monthly data 1 20 months around the critical event. 24 Textbook Recognition Textbook recognition Of the extensive corporate participation in SRD/SDD activity has not been universally achieved in the past, but new entries into the basic finance course textbook market and recent revisions Of Older volumes have been addressing the issue. These works present the reasons why, and methods by which, corporations reacquire their own shares. Some introduce the SDD as well, but only the post-SRD/pre-SDD price effects are rigorously explored. For example, R.w. Johnson [116, pg. 470] describes how a larger number Of shares outstanding reduces the market price per share (i.e., through a stock dividend or a stock split) which can be extrapolated tO the SDD when a similar increase in shares outstanding occurs. Hampton [114, pg. 455] discusses the SDD for use in stock Options and acquisitions only, but presents a case which effects a decrease in the price per share. Using his premise, assume a firm has 1,000,000 shares outstanding and a current market price Of $40/share. If stock Options are allowed up to 10,000 shares @ $20/share, then the post-SDD market price will be $40,000,000/l,010,000 shares, or $39.60/share. If the proceeds from the transaction increase the total value Of the firm, then the new price per share will be $40,200,000 divided by 1,010,000 shares, or $39.80/share. In either case, there 25 is a post-SDD share price decline. SOlOdOlfsky and Olive [120, pg. 620, 624] indicate that the effect Of an SDD is to decrease the market price Of the common stock as a function Of the increased number of shares out- standing. Most recently, Kroncke, Nemmers, and Grunewald [117, pg. 410], in their revised edition, discuss the redis- tribution Of reacquired stock "in mergers and acquisitions, for stock Options, and for employee stock-purchase plans." Their example of a post-SRD share price rise resulting from fewer shares outstanding, higher earnings per share, and a constant price/earnings ratio, can be extended tO the post-SDD situation Of more shares outstanding, lower earnings per share, constant price/earnings ratio, and, therefore, lower price per share. The question thus raised by the discussion above is "Is the post-SDD share price the same as the pre-SDD price?" If so, then is the share price decrease experienced by releasing previously reacquired shares a readjustment tO outstanding share price levels prior to reacquisition and not an inde- pendent dilution? This study addresses the issue Of whether there is a share price decline after SDD activity that is Of a dilutive nature. CHAPTER III SHARE DISPOSITION ACTIVITY Growth Level of Activity The increased level Of net share disposition decision (SDD) activity can be measured by the number and value Of reacquired common shares returned to the marketplace. While some firms both reacquire their shares from and return them tO the market in the same fiscal quarter, there has been an increas- ing number Of companies engaging in net SDD transactions. Net SDD levels are calculated by subtracting the number Of shares reacquired, if any, from the number Of shares returned tO the 'Outstanding' category during the same time period. Table 3.1 was compiled from the data in the monthly NYSE reports [136] over the twenty year period 1958/1977. Since the concurrent reacquisition and disposition has a counter- balancing effect frequently resulting in either no, or a very small, net SDD, only those transactions that had a net SDD greater than 1% Of total shares outstanding are included in the study. The share volume figures in Table 3.1 represent companies' share distribution in excess Of share reacquisitions, climb- ing tenfold from less than three million shares in 1958 tO 26 27 Table 3-1 The Growth Of Net Share Dispositions Year Volumea Market Value 1958 2,734,027 $150,781,580 1959 5,041,580 265,287,930 1960 4,348,375 206,678,260 1961 5,389,425 294,909,330 1962 7,045,176 318,089,690 1963 5,522,490 280,155,910 1964 8,922,932 364,055,540 1965 9,112,750 369,066,370 1966 14,549,557 650,367,120 1967 18,349,237 796,359,620 1968 15,886,339 698,998,960 1969 14,026,178 572,268,140 1970 27,144,352 879,479,940 1971 19,466,542 687,168,860 1972 17,520,398 634,238,400 1973 19,280,378 653,604,880 1974 36,994,962 969,267,950 1975 26,028,913 777,223,250 1976 26,932,960 920,231,911 1977 29,491,530 931,637,433 aSource: New York Stock Exchange Monthly Reports [136] 28 Table 3-2 Comparison Of Net Share Dispositions to New Issues Common Stock Net Share Dispositions _Y_ear_ New Issues a to New Issues 1958 $1,334,000,000 11.30% 1959 2,027,000,000 13.09 1960 1,664,000,000 12.42 1961 3,294,000,000 8.45 1962 1,314,000,000 24.21 1963 1,022,000,000 21.41 1964 2,679,000,000 13.59 1965 1,547,000,000 23.86 1966 1,939,000,000 33.54 1967 1,959,000,000 40.65 1968 3,946,000,000 17.71 1969 7,714,000,000 7.42 1970 7,240,000,000 12.15 1971 9,291,000,000 7.40 1972 7,750,000 000 8.18 1973 7,642,000,000 8.55 1974 3,994,000,000 24.27 1975 7,405,000,000 10.50 1976 8,305,000,000 11.08 1977 8,135,000,000 11.45 Mean 16.06 aSource: The monthly Federal Reserve Bulletin, Table 1.47, New Security Issues. Graph Of Net Share Dispositions and New Issues 29 Figure 3-1 a Market Value (in millions) $107000 7,500 5,000 2,500 1,000 750 500 250 aSource: -» New Issues 1. l f I! , ' .' ‘ .l /\.\\’/l ‘V Net Share Dispositions L71 1 1 I 1.1 l L,l o I l 1,1 1 l J J L_ l I ' 1 I 1 1958 1962 1967 1972 1977 Tables 3-1 and 3-2. 30 nearly 30 million shares in 1977. A similar growth in SDD activity is Observed in the market value Of the shares returned to market, where the average market price per share is used tO approximate the aggregate value Of the trans- actions.1 In table 3.2, the market value Of new common stock issues is provided and compared to the market value Of net share dispositions in table 3.1. The comparison, which is graphed in figure 3.1, reveals a commensurate increase in net SDD shares to new shares. The prOportion Of the shares returning to the marketplace ranges from 7.40% to 40.65% and averages over 16% Of the issues entering the market for the first time. The average for the fourteen year period of this study, 1964 tO 1977, is 16.45%. Since the Federal Reserve data are compiled for companies listed on all exchanges and the SDD data are just for NYSE companies, the percentage is actually an understatement. Individual annual percentages are greater than shown in table 3.2 and the true average is above 16% The importance Of this comparison is that in the past twenty years, a significant source Of common stock entering the 1 This method Of approximation was first used tO measure SRD activity by Guthart in his frequently cited 1965 paper [21]. 31 marketplace has been the reissuance Of reacquired shares. 32 Issue/Reissue Differentiation In the development Of this study's hypothesis on the dilutive effect Of a share disposition decision (SDD), it would be appropriate to identify the differences between the reissuance Of reacquired shares and the issuance Of new shares. First, reacquired shares that are subsequently returned to the market have continually maintained their issued and listed status. The relationship Of the status Of common shares follows the pattern below: s_>_s._>_sl_>_s a l 0 where Sa = the number Of shares authorized for issue 8, = the number Of shares authorized and 1 issued S1 = the number Of shares listed S0 = the number Of shares outstanding The total number Of shares listed on an exchange is equal tO the number Of shares in the original issue plus additional shares issued thereafter which were authorized but not previously issued, listed, or outstanding. The share reacquisition decision (SRD) does not delist or retire the shares automatically; it temporarily transfers their status from authorized, issued, listed, and outstanding to authorized, issued, listed, and not outstanding. Since the prime reason for reacquisition is reissuance [56, p. 53], 33 unless reacquired shares are retired after reacquisition,1 they are viewed by the marketplace as imminently returning to the outstanding category. Second, newly issued shares must proceed through Securities and Exchange Commission (SEC) registration requirements that differ from those applicable to reissued shares. Specifically, disclosure Of the number Of shares involved in the redisposition is an ex post facto notice in the firm's annual 10-K report at the end Of the firm's fiscal year. When the reissuance is greater than 5% Of the shares outstanding or the accumulation Of previously undisclosed reissued shares exceeds 5% Of the shares outstanding, then reporting is required on a quarterly 10-Q form. Newly issued shares, however, must conform tO more rigid ex ante disclosure rules through the registration requirements for previously unissued shares entering the public marketplace for the first time.2 Acknowledging the preceding two differences introduces a third: timing. The actual redisposition Of reacquired shares may be realized immediately after a share disposition decision is made since the shares are already issued and listed whereas the disposition Of newly 1 In a firm's announcement Of the implementation Of a share reacquisition program, the choice Of retirement or reissuance is stated. 2 Code Of Federal Regulations, Title 17 (Commodity and Securities Exchanges), Chapter II (SEC), Part'240. 34 issued shares must Observe the filing requirements Of the SEC. Initial disclosure Of a new issue is required before the disposition; disclosure Of a reissuance is not. New issues also necessitate a new listing on the stock exchange in the form Of an increase in the shares authorized for trading, whereas reissued shares maintain their listed status throughout the term Of their reacquisition. Also affecting the timing Of the release Of additional shares is the Observance Of the pre-emptive right in a new issue which is not present in a reissuance Of reacquired stock [9, 25, 108]. This fourth differentiation between the two alternatives has substantial control implications as well. A firm's management, any current shareholder, or a group Of shareholders may be interested in preventing dilution Of control during a redisposition Of previously reacquired common stock. The degree Of control held after the reissuance will be a function Of the number Of shares returned tO the marketplace, the amount Of the reissued shares acquired by the interested party, the proportional control held prior to the SDD, and the percentage Of the shares outstanding necessary for the desired level Of control.1 1 See the Dilution Of Control section for a discussion Of this aspect Of share redisposition. 35 A fifth distinction between new issues and redispositions is the number Of transactions or Offerings per year.l The number Of new issue Offerings marketed is substantially smaller than the number Of transactions Of reacquired shares that are redistributed. New Offerings Of seasoned issues, the subset Of all new issues which is the direct alternative tO redisposition under discussion, is by definition even smaller. The nature Of the uses2 Of reacquired stock [22, 34, 48, 65, 111], as compared tO the reasons3 for issuing new shares [4], lends itself tO a substantial amount of transactions. Lastly, an important difference between the two alternatives is the market anticipation and related pricing effect that exist for reacquired shares, but not for authorized yet unissued shares. Information exists for the market tO discount the return Of reacquired shares tO the outstanding category in the retention rather than the retirement Of them. The last distinction introduces the question Of market anticipation for the redistributed shares. Specifically, in what direction does the market anticipate share price movement after an announced redistribution? There has been l o o o The distinction here concerns the number Of transactions, not the volume Of transactions. 8 See the Nature Of Activity section for examples. 9 See also Frank K. Reilly's article "New Issues Revisited" in the Winter, 1977, issue of Financial Management for a supportive bibliography. 36 evidence already presented1 indicating some managements believe that share prices will decline after an announced redistribution. This claim is based upon a two part anti- dilution strategy in which shares are reacquired creating a share price increase and then returned to the market creating a commensurate price decrease. Further rationale for this downward price speculation includes the argument that the proceeds to the issuing firm from the redistribu- tion may be lower than market value. This latter situation will lower the overall value Of the firm and hence the price per share Of the firm's common stock. There also has been evidence presented2 supporting the claim that stock prices do not rise after a share reacquisition. In fact, the findings show no significant price movement in any direction. This evidence is the basis for a claim that announced redistributions do not have significant price movement in either direction as well. Further rationale for this non-movement speculation includes the argument that the market has already discounted the return Of the reacquired shares to the marketplace. Firms that reacquire common stock and do not retire them are expected to return them to the marketplace. ' See the Prior Research section for references. 2 See the Academic Research section for references. 37 Thus, there are two different share price anticipations existing in the marketplace on the matter Of share redis- tribution. One expects a share price decline and the other anticipates nO share price movement at all. This study addresses this conflict Of divergent market expectations. 38 Nature Of Activity Anti-dilution Motives The increase in corporate net share disposition decision (SDD) activity has resulted from management's desire to release common stock for a number Of reasons. They include the supplying Of shares for a convertible preferred stock issue without increasing the number of outstanding shares and avoiding the dilution Of the common equity. For example, the Ethel Corporation said a 750,000 share repurchase, which is about 8.3% of its current common stock outstanding, was designed "primarily to Offset future dilution from conver- sion Of the outstanding shares Of convertible preferred stock; the conversion Of which has become more likely as the common stock dividend rate has increased."1 Another frequent use is in acquisitions, mergers, and stock swaps. In 1973, however, companies were forced to Observe a minimum two year holding period on reacquired stock used in acquisitions where the firm wanted tO use pooling-Of- interest accounting for the business combination. Such firms as General Mills and the Sun Company announced share disposition programs tO effect mergers, acquisitions, and swaps.2 1 The Wall Street Journal, March 7, 1977, pg. 2. General Mills: Business Week, April 4, 1977, pg. 110, and the Sun Company: The Wall Street Journal, November 22, 1976, pg. 6. 39 A third reason for redistributing shares is for employee stock purchase plans. Wachovia Corporation's open market purchase authorization of up to 350,000 shares of its common stock was for the distribution of shares for its employee stock purchase plan.1 Another employee redistribution involves employee stock owner- ship programs (ESOPs) instituted in accordance with the 1976 Tax Reform Act. Provisions of that act provide that a firm may use part of its investment tax credits each year through 1980 to Obtain and distribute stock to its employees. For example, Dow Chemical purchased 186,700 shares of its common stock on the Open market "to give them to its employees for free."2 Some SDD are involved in a work incentive compensation program. Levi Strauss & Company announced a program to award its employees, every five years, one share Of company stock for each year Of service, using reacquired common.3 While some Of the shares in a work incentive compensation program may be reversionary in nature,“ they still possess The Wall Street Journal, October 25, 1977, pg. 25. The Wall Street Journal, November 18, 1977, pg. 12. The Wall Street Journal, December 8, 1977, pg. 26. Kessler [25, pg. 647] describes the case for distributing shares of stock to employees as a temporary incentive devise which may require "the employee to surrender his shares upon termination Of his corporate connection" because the basic reason for the stock "disappears once the latter leave the corporation's employ." #th-a 40 all other rights attributed to publicly held shares. Related programs found in this employee category are savings and stock bonus plans as well as awards in lieu Of cash. CBS Inc.'s open market purchase Of 500,000 common shares was for reissuance under shareholder-approved employee benefit/bonus plans.1 Redistribution Of previously reacquired shares as an anti- dilution strategy has also been advanced in rights Offerings, warrant Offerings, stock dividends, stock splits, employee stock Option plans, and employee pension plans. Non-anti-dilution Motives The anti-dilution reasons in the paragraphs above, which are offered by companies engaging in SDD activity, form the basis for investigating the post-SDD share price effect in this study. There are, however, other reasonsz for, and effects Of firms' participation in the share disposition decision. For example, SDD activity may be instituted to effect a change in the firm's capital structure quickly without a prospectus, and without going to the capital market. If there is a desired weighted average after tax cost Of capital that management wishes to achieve, and injecting the previously reacquired shares into the marketplace will effect 1 The Wall Street Journal, September 15, 1977, pg. 9 2 The motives may exist coincident with or disjoint from the anti-dilution reasons presented above. 41 that result, then a byproduct would be the Optimization of the firm's cost of capital. The decrease of a firm's financial leverage may be desirable if the firm has been increasing its debt ratio in violation of restrictive covenants in a bond indenture or of some other indebtedness. A second reason for engaging in SDD activity is to alter control of a company by redistributing shares to selected owners and circumventing the pre-emptive right. Although recognition of the pre-emptive right has been argued for 1 there is no distributions of previously reacquired shares, requirement to Observe such a rule.2 Maintenance of share- holders relative voting positions as in footnote 1 below, however, would require acceptance of the offer by all share- holders. If there was such uniform acceptance, then distribu- tion of even small amounts of stock would necessitate fraction- al shares - one of the reasons frequently cited by management for the decision to reacquire shares initially. More recently, the American Bar Association Model Business Corporation Act allows management discretion on the distribution of reacquired 1 Kessler [25, pg. 672] recommends Observance of the pre- emptive right and suggests that a "pro rata Offer insures that relative voting positions will be maintained even when voting shares are involved." 2 The first apparent court test of the SDD yielded a dictum stating that "shareholders had no pre-emptive rights when the corporation chose to sell the shares again." [Hartridge vs Rockwell, R.M. Chalt. 260 (Georgia 1828) cited in Nemmers [31, pg. 161]]. 42 shares.1 Also, the effect of redistribution of control may be to broaden the ownership base (e.g., when used in mergers and acquisitions, convertible preferred or bond issues, warrant sales, newly initiated employee stock purchase plans, or pension plans when the plan did not previously own stock in the employees“ company). And lastly, there are some cases which would not broaden or narrow the ownership base, but merely maintain it, such as a stock split, stock dividend, rights Offering, and stock options and employee pension plans where shares are already held and the increase is in proportion to that previous number of shares. Another reason firms participate in SDD activity is to lower reported earnings per share. A firm might engage in SDD activ- ity if it had an exceptionally profitable year and wanted to stabilize the appearance of earnings growth or if it had a targeted percentage growth (as measured by the earnings per share) and the interim year figures were in excess of that projection. Also, if a company wished to maintain a specified dollar dividend payout without lowering its dividend payour ratio, it could decrease the earnings per share component of the payout ratio to avoid stockholder requests for increased per share dividends. 1 Model Business Corporation Act by the Committee on . Corporation Laws of the American Bar Association, sections 23 and 24. 43 If the shares redistributed are not restricted from trades in the public secondary markets, then another effect of an SDD is to increase the volume of trading activity in the firm's stock: the greater the number of shares outstanding, the higher the potential daily trading volume. A further consideration for some firms is the saving of time and money undertaking an SDD versus a new issue to satisfy the company's requirements to distribute common shares for whatever purpose. And lastly, some firms seek the SDD as a vehicle for raising additional cash. The pre-SDD period may be considered a temporary employment of excess cash or an alternative invest- ment. Nevertheless, when shares are sold in the Open market or through private programs, the cash position of a firm is increased. 44 Significance Dilution of Control A firm's management, any current shareholder, or a group of shareholders may be interested in preventing dilution Of control during a redisposition Of reacquired stock. Since there is no uniform observance of a pre-emptive right [9, 25, 108] in the share disposition decision (SDD), the degree of control held after the reissuance will be a function of the number of shares returned to the market,1 the amount of the reissued shares acquired by the concerned party, the proportional control held prior to the SDD, and the percentage of the shares outstanding necessary for the desired level Of control. Management's position will be considered in developing a mathematical expression for the maximum number Of shares in an SDD without loss of a specified percentage of control. Let m = the percentage of the shares outstanding controlled by management p = the percentage of the shares outstanding necessary for the desired degree of control x = the total number of shares outstanding M = the total number of shares outstanding controlled by management 1 Since the concerned party may be denied the Option of any Of the reissued shares, the desired post-reissuance degree of control will inherently depend on how much excess control it had before the SDD. This is discussed as case A in the model. 45 P = the total number of shares outstanding necessary for the desired degree of control n = the percentage of the newly reissued shares controlled by management1 Y = the total number of newly reissued shares ' = post-reissuance status Then M = (m) (X) P = (p) (X) X' = x + Y M' = (m) (X) + (n) (Y) P' = (p)(x') Note that m can result directly from the proportional % , where S is the number of shares outstanding owned by management or, when 3 < p, from the percentage of the shares controlled2 by management in excess of those owned, g , where C is the number of shares outstanding controlled, but not owned, by ownership of the outstanding shares, management. Thus, _ S C m — — + — . X X Now locate Y such that MI = Pl 1 n is assumed to be less than p. Otherwise, reissuance of any amount of reacquired stock will increase the degree of management's control. i.e., shares maintained by management for others, proxies regularly voted for management, etc. 46 Substituting, (m) (X) + (n) (Y) (p) (x + Y) (m) (X) - (p) (X) p - n Y with an associated1 maximum percentage increase i in the shares outstanding as g—E—E . Note that m is assumed to be greater than p in this model. Otherwise, management doesn't have any control now and, consequently, will not be losing it. If m < p, then management must purchase [(p) (x) (S + C)] shares prior to the SDD for m to equal p and attain a minimum degree of control. If m = p, then m would have to apply to Y on either a pro rata basis or a proportion greater than m. Several cases of participation in the reissuance program are possible: A - Management can control none of the redistributed shares B - Management can obtain partial control of the redistributed shares C - Management can Obtain entire control of the redistributed shares These cases will be discussed in an example using the following values: m — . . (TE) (x) . . Since Y can be written as p n , the coeffiCient of X represents the proportional maximum increase in the number of shares outstanding. I 47 X = 60,000,000 shares m = 0.55 = 0.51 Thus, M = 33,000,000 shares P = 30,600,000 shares Case A If management can control none of the redistribution, or n = 0, then Y = (m) (X) - (p) (X) P = 4,705,882 shares Now, X' = 64,705,882 shares M' = 33,000,000 shares P' = 33,000,000 shares 1 = 7.84% Here, an SDD greater than 7.84% of the outstanding shares will result in a loss of P' - P control shares1 yielding a diluted control proportion of m' = X E Y . 1 Since m > p initially, M - P represents the excess of shares controlled over those necessary for the desired level Of control. After a reissuance greater than Y occurs, (p)(x’) > (m)(X) , or P' - M is the number of shares now needed by management to achieve its desired degree of control. Hence, total loss in the transaction is (M-P)+(P'-M) or P'-P. 48 Case B If management can Obtain partial control n Of the shares returning to the marketplace, then for n = 40%. y = (m)(X) ' (P)(X) p - n = 21,818,181 shares Now X' = 81,818,181 shares M' = 41,727,272 shares P' = 41,727,272 shares i = 36.36% A greater number of shares can be reissued than in case A since there is management participation in the redisposition. Any SDD consisting of 21,818,131 shares or less will secure management's control at or above the desired 51% level. However, if more than Y shares are reissued, then there will be a P' - P share control loss resulting in an M' < P' . In either case A or B, if more than Y shares are reissued, then in order to Obtain the desired level Of control, management must acquire [(p)(X') - {(m)(X) + (m)(Y)}] shares, or the number of shares required for control less the combined total of the existing shares and additional shares controlled by management. 49 Case C If management can Obtain p or more control of the redistributed shares, then Y has no limit. Since m > p initially, any increase in management's control by p or more will strengthen that control. Here, 1n' will have a (m) (x) + (f) (Y) X + Y redistributed shares controlled by management and p i f < 1. When Y is totally secured by management, m' = (m)(X) + . X + Y Under any value of f, m' Z p , or management maintains value of where f is the percentage of K | a proportion equal to or in excess of the required minimum for control. This follows from m 3 p Un)(X) (m) (X) + (f) (Y) |v (P) (X) (p) (X) + (p) (Y) Iv MI > P! M' P' >77 3 2" m. 3 p' or1 m' 3 p However, in the other two cases, when the maximum number of shares computed are actually reissued, the post-redisposition percentage of shares controlled by management, m' , is lowered to p. I I p' = p, Of course, since p' = $7 = ( ;(X ) = p . l To illustrate, Since p and But after the SDD, P' so p It is possible, therefore, 50 Ml YT (m) (X) + (n) (Y) x + Y before redisposition ll XI'U = , after redisposition 'U >< PI X+Y = M. (m) (X) + (n) (Y) x + Y to determine the size of a SDD with respect to the growth, maintenance, or loss of control over a specified number of outstanding shares. The mathematical expressions developed above also indicate the- strategy to follow when the concerned party does not possess the minimum level of control prior to a share redisposition. 51 Trafficking The increased volume Of SDD transactions was introduced earlier in the Level of Activity section. This heightened growth in a corporation's trading in its own common shares, or trafficking, has not been unnoticed by the Accounting Principles Board,1 the Securities and Exchange Commission, or the Internal Revenue Service. In August of 1970, the Accounting Principles Board (APB) issued Opinion Number 16 on business combinations which prohibited the use of the pooling-of-interests method of. accounting for mergers in certain situations. Specifically, when any net share disposition for mergers results from direct share reacquisition to effect that exchange of stock, such transactions are deemed to be contrary to the idea of combining existing stockholder interests. That Opinion was the basis of an SEC ruling2 which directed companies that had SRD/SDD activity during the two years prior to a business combination to account for the merger as a purchase rather than as a pooling Of interests. Although the SEC interpretation includes all acquisitions of treasury stock during the specified two year period, "the SEC acknow- ledges that this presumption may be overcome if there is sufficient evidence of corporate intent to reacquire shares 1 Although the APB has been dissolved, its duties have been assumed by the Financial Accounting Standards Board. 2 Accounting Series Release #146 on August 24, 1973. 52 for purposes other than business combinations (e.g., stock options, stock purchase plans, or stock dividends)." [48, pg. 25] Thus, unless a company could offer acceptable evidence that shares reacquired were to be redistributed in a preplanned manner, the SEC would consider them "tainted" for merger accounting purposes. Separately, the IRS does not permit the regular reacquisition of common stock as an alternative to dividend payments. This tradeoff assumes the tax paid by the shareholder on the capital gain resulting from the sale back to the company is less than the tax paid by the same individual on the dividend received. This is indeed the case when stock reacquisition causes an increase in the value per share by the amount of the foregone dividend. Hampton [114, pg. 456] and Solomon and Pringle [121, pg. 552] Offer examples of such shareholder benefits from repurchase of stock instead of dividend payments. Since the IRS will treat any reacquisition deemed to be in lieu Of a dividend accordingly, most companies justify continuous reacquisition programs on grounds "other than as an alternative to a dividend." [121, pg. 552] The strategy to fulfill frequent corporate common stock requirements through regular reacquisitions and redistributions can satisfy both the SEC and IRS condition mentioned above. CHAPTER IV RESEARCH DESIGN Parameter Selection There were 7,756 New York Stock Exchange (NYSE) announcements between January, 1964, and December, 1977, reporting net share dispositions. A share disposition decision (SDD) activity range of 1% to 5% Of the total shares outstanding was established to identify the relevant transactions affected by the NYSE announcement. Small percentage SDD transactions are assumed to have insignificant effects on the price movement and, accordingly, are purged from the data base. The rationale for this action also includes the assumption that if the SDD transactions greater than 1% do not have an announcement effect, then the activity in the less than 1% category will not have an effect either. Since the Securities and Exchange Commission (SEC) requires disclOsure of redispositions that return to the market 5% or more of the shares outstanding, those companies transacting with a proportion greater than 5% are accordingly removed from this study's data base.1 1The use of the range of 1% to 5% is also consistent with previous studies in treasury stock activity, such as Allen Young's study of the financial, Operating, and security market parameters of repurchasing [51]. 53 54 The resulting 1,683 announcements were then filtered by purging those companies which were included in the NYSE report due to the retirement of reacquired shares. This purge was accomplished by checking the records of the NYSE Stock List Department [124] and the SEC's lO-K reports [140] for disclosure of retired common stock. The NYSE Stock List Department includes share retirement as one item in its corporate seriatim file. Retirements are recorded in a firm's lo-K filing with the SEC in item #6 - Increases and Decreases in Securities Outstanding, in the Statement of Liabilities and Equities, or in the footnotes to the latter. These announcements were further screened by eliminating those reported transactions which were concurrently explained by dividend disclosures through either Moody's [135] or Standard and Poor's [142] reporting service. Rationale for this exclusion includes the desire to focus on the singular effect of the NYSE announcement: share dispositions resulting from publicly reported stock dividends and stock splits are assumed to have been expected in the monthly NYSE release. The remaining 417 announcements formed the basis of the population for this study. A complete list of the firms comprising the observed transactions is provided in Appendix A. 55 Data Sources There are two important data items essential to this study: the announcement Of share disposition activity and the market price movement around the announcement for both the transacting firm and a general market index. Both the New York Stock Exchange and the American Stock Exchange (AMEX) were approached as sources of corporate share disposition decision (SDD) announcements. Although both exchanges were very cooperative in granting access to their files containing these transactions, the NYSE maintained separate records of the SDD announcements whereas the AMEX intermingled SDD reports with all other information maintained in its stock list department. The NYSE's announcement file is chronologically arranged by month and is an orderly, self-contained record of SDD activity. The AMEX file arrangement, however, reveals inconsistent reporting by the transacting firms and an incomplete master file. Thus, the more efficiently organized NYSE announcement file was selected as the source Of SDD announcement information.1 The daily price and return file of the CRSP tapes from the Center for Research in Security Prices [131] were used to 1 Unlike the NYSE, the AMEX does not regularly publish a summary of share reacquisition or disposition transactions in corporate common stock. Thus, the AMEX compilation and reporting procedure does not lend itself to an announcement effect study. 56 generate the market price per share, investment relatives required in the model, and the market composite information. An examination of the companies included either in the NYSE reports or the smaller population of this study extracted from them reveals a heterogeneous mixture Of firms by industry, asset size, and age. In Appendix B, the number Of observations in the study are listed by the Standard Industrial Classification (SIC) industry codes. The firms span over 100 four-digit SIC categories with no one industry possessing more than 6% of the study's observations. Since many of the four-digit SIC categories are similar in nature, a broader industry grouping is provided using the first two digits of the SIC code. Lastly'in Appendix B, a distribution of observations by major division is Offered. Since this heterogeneous list extends beyond industrial corporations, the broader1 Standard and Poor's 500 Composite Index was chosen as a measurement of market movement. Of the firms selected for the study,2 36.1% are included in the Standard and Poor's (S&P) index. This proportion not only makes the use of the S&P 500 a relevant measurement of market movement, but also prevents the market index from ‘ The S&P 500 Composite Index consists of 400 industrials, 40 utilities, 20 transportation firms, and 40 financial concerns. 2 See Appendix A for a complete listing of all companies. 57 being completely dominated by the companies comprising the study population. 58 Methodology The test of market efficiency has been described notationally1 as 'b E(Bi,t ' ¢t-1) ' [1 + E(ri,t ' ¢t-l)] Pi,t-l ‘1) where E is the expected value Operator Bi t is the price of security i in time period t I (pt-1 is the set of information which is the basis for the investigation as to whether the information is fully reflected in the price Of security i at time period t-l. f1 t-l is the investment relative of security i I in time period t, or (Pt - Pt-l) / Pt-l Pi t-l is the price of security i in time period t-l I % denotes random variables in the time period t-l In an efficient market, market prices are assumed to fully reflect all available information, ¢t-l' and trading systems based only on information in ¢ designed to yield t-l expected returns in excess of equilibrium expected returns are accordingly disregarded. 1 See, for example, Downes and Dyckman [8] or Fama [15]. 59 Thus, if t-l) (2) then E(x = 0 (3) i,t I ¢t-l) 1 which says the expected value of excess returns on security i is zero, or the sequence {xi t} is a "fair game" I with respect to the information set {4}. To test the effect of the information contained in the net share disposition announcement on the common stock market price, a time series analysis2 was performed on the population using the market model . = . + . . Ri,t 0‘1 Bi Rm,t + u1,t (4) where Ri t is the investment relative Of security i in I time period t, or (Pt - Pt-l) / Pt-l R m,t is the investment relative of the market in time period t a. is the y axis intercept 1 The excess return is the difference between the Observed return on security i in time period t and the expected value of the return on security i projected in time period t. . . . y . . The econometric statistical package Time Series Processor, TSP, developed by the Massachusetts Institute of Technoloav was used in this study. 60 Bi is the slope coefficient which measures the response Of the ith security's return to that of the market ui,t is the random error term which possesses the usual characteristics Of zero expectation, variance independence of t, serial independence, and is independently distributed to Rm,t A series of TSP tests on the model was performed designating the critical event as the SDD announcement date around which the changes in the stock price were measured. The logarithmic form Of (4) 1n Ri,t = oi + Bi 1n Rm,t + ui,t (5) was also developed to counter any skewness found in the investment relatives themselves.1 ‘ Fama, Fisher, Jensen, and Roll [16] discovered their stock split announcement data had distributions for the price and market relatives skewed to the right. They also found the logarithmic form of the model appealing in that the sample residuals confromed well to the assumptions Of the simple linear regression model. The distributions of the natural logarithms, however, were fairly symmetric which was desirable since symmetrically distributed variables present fewer estimation problems than models involving variables with skewed distributions. 61 The general time series analysis equation is Y = X F + s (6) where the dependent variable Y the SDD firm's investment t, relative in this study, is explained by the independent variables Xt = {X0t , X1t , x2t , x3t , X4t}, their coefficients P = "a0] and an estimate of the residuals st. Equation (6) is used to generate a representation for the SDD analysis Yt = aoxot + alx1t + azx2t + a3x3t + a4x4t + at (7) where Yt = Ri,t the investment relative of security i x0t = l unity x1t = t time x = R the investment relative of the market 2t m,t x3t = Dt a dummy intercept x = W a slope dummy which yields D + a W + u. (8) The model expressed in equation (8) was used to test the null hypothesis that the market price before the critical event (c) is statistically equal to the market price after the critical event: Pc-t = Pc +t The alternate hypothesis states that the announcement of the SDD activity had a depressing effect on the market price: *U) c-t > 1:c-I-t (9) If the null hypothesis holds, then there is support to the claim that there is no price effect to the announced disposition of previously reacquired common stock. If the hypothesis is rejected, then there is evidence to support the alternative hypothesis that the market views negatively the return to the marketplace of reacquired shares. The values of the independent variable t, time, range : 30 days around the critical event for a total of 61 observations per SDD company. 'The test of the model involves determination of a trend before and after the announcement Of SDD activity. Accordingly, sufficient Observations were desired to identify the market's reaction to the NYSE 63 release without defining the time range so broadly as to include other events which also may influence the market price. The intercept dummy assumes the following values: at t < c, Dt = 0 at t 3 c, Dt = 1 This coding aligns the announcement date with the post- announcement period. The rationale for this positioning of the critical event includes compliance with the null hypothesis. The announcement is released by the NYSE during trading hours; consequently, closing prices on the announcement date would include any initial market reaction to the information. Since the hypothesis is not designed to test immediate market reaction, but to examine a 30 day trend of prices, statistical acceptance of the null hypothesis of price equality should not be adversely affected by the coding. But the alternate hypothesis of price inequality and the statistical rejection of the null hypothesis may be significantly influenced by the positioning of the announcement date. 64 The values of the slope dummy variable are as follows: at t < c, Wt = 0 at th, Wt=t where Wt = (Dt)(t)- The rationale for the positioning of the announcement date for_the slope dummy are identical to those Offered above for the intercept dummy variable. rne general times series analysis equation (6) was also used to develop a cross sectional analysis of the data. All observations were grouped accordingly to (1) their percentage of net shares redistributed to shares outstanding and (2) their prOportion of net shares redistributed to average daily volume.1 Table 4-1 displays the distribution of observations in this two way cross tabulation. Each of the sixteen cells in table 4-J.was coded as a dummy variable Ci,j where i = l,2,3,4 for the rows and j = l,2,3,4 for the columns. Equation (6) then becomes Ri.t g “i + alt + BiRm,t + a3°11,t * "° + C44.t + ui,t (10) All data were coded on the following basis: 1.0 if the firm appeared in cell ci,j when i = l,2,3,4, and j = l,2,3,4 0.0 otherwise. 1 See Appendix A 65 Table 4-1 Distribution of Observations in a Two-Way Classification? Percentage of Net Shares Net Shares Redistributed to Shares Redistributed Outstanding to Average Daily Trading Volume 1 - 2% 2 - 3% 3 - 4% 4 - 5 % Total (times) 0 - ll 80 ll 3 4 98 12 - 21 78 20 7 2 105 22 - 39 53 37 ll 6 109 40 - w 29 33 26 17 105 Total 240 101 47 29 417 aSource: The study population, Appendix A. 66 The string of independent dummy variables in equation (10) was then used to test the data for significant coefficients. Smaller subsets of the study's entire pOpulation may contain data that react differently or more strongly to the study's model. CHAPTER V ANALYSIS OF FINDINGS Presentation The study's data were examined through equation (6) by first using the ordinary least squares (OLS) technique and then the Cochrane-Orcutt Iterative (CORC) routine of massachusetts Institute of Technology's econometric statistical package TSP, Time Series Processor [112]. The degree of explanation of each independent variable on the model was measured separately and in various combinations generating a series of ten equations, enumerated in Figure 5-1. This series serves to explain stock price movement by seriatim examining individual relationships in the model culminating in equation (19). Equations (20) through (22) are verifications of the general market movement during the period of the study. For example, equation (13) is represented in Figure 5-2 as A Rt = 0.0025 - 0.0015 t (23) (1.73) (-1.62) which indicates that the investment relatives of the study's companies decreased slightly over the study period. This decline is also visible in the plot of equation (23) in Figure 5-3. Although the statistics for equation (23) 67 ) ) ) > ) > 68 Figure 5-1 A Listing of the Model's Equations + + a0 alt ut which will explain the investment relative trend over time. a + a t + a O l which will explain the investment relative trend relative to the market over time. + a0 alt + a3Dt + ut which will explain the investment relative trend intercept relative to the SDD announcement date. + + a0 a1t + a4wt ut which will explain the investment relative trend slope relative to the SDD announcement date. a + a t + a R + a D + u O m 1 2 ,t 3 t t which will explain the investment relative trend intercept relative to the announcement date and market conditions over time. + + + a0 alt asz't a4wt + ut which will explain the investment relative trend slope relative to the announcement date and market conditions over time. (13) (14) (15) (16) (17) (18) 69 Figure 5-1 (con't) Rt = a0 + alt + aZRm,t + 3391; + a4wt + “t which will explain the investment relative trend relative to all the independent variables. A = + Rm,t aO alt + ut which will explain the market's investment relative trend over time. A Rm,t = a0 + alt + a3Dt + ut which will explain the market's investment relative trend intercept relative to the announcement date. A m,t = a0 + alt + a4wt + ut which will explain the market's investment relative trend slope relative to the announcement date. (19) (20) (21) (22) 70 Figure 5-2 ' (23) lCHl for Equat Statistics whafimo.ul «omhmh.« UHbmHECkm lb poem. n mmuquu no wzmmh 2H Qumazcmim Coooo. ooooo.l mhzmhomuuucu amhcszmu LC xHahcz MUZCHadbooimoZ¢Hzcb no whcthmw mommoc. n zcmmmuzowa m2» no 161mm aaca2¢hm mmofioo. n mJQDGHmma auacacm no :29 .om n mZSHFCmemmO no mumzzz moao.~ u Awaco .0 men .fiadv UHhmHFCHm zomPCBEZHQEDD emsafim.m u A.hm ..fi VUHhmHhcbmlu mono. u awmcncmlm Qwhuwmmou whee. n ammczcmim mvoooo. acoooc.l h om¢aoo. .mdmmoo. U mommm bzuHUHuuon ugmcHKCD az¢GZCPm :uhcznkmm azczlhoHz omnmewfi. u 011 «on uHhoubchmlh QOLHOMu. H CIE no «exam DKQDZCFm H u monkczmbH no .cz Nh~n¢mo. u oza Lo u24¢9 chHu moancmo. H *** ********x elm ZCHhccwhH Rococo. mm wamchcb hzmazmmma no zcmt k U 4mm ...mmqmcHa¢> chszuwh MDHhczwhH thUaOIwzchuou 00 a n Jozm §§§4********* 00000.1 00000. ‘ l ACIUOL .113100F-01 .QZlOfiil-cF .169904C"02 .696963L-0? .402843F-0h .4.7"‘E-02 .69.-3135 C? .4051.'F“02 .SooTfilE-OQ .103470L-02 .4ll?}/C-O.‘ 6’12027E-O- :31922“L“C. .40’7C’L—C? .2701CZE-02 .910832E-02 .381167E-0: 533°45E-02 PdCtOCE-OT 05¢13.4: 01°?OCLE .437626E .902113 .432022. .6’381‘L ISJC'CSIE— -- rant: l .JUJI)!J (.1 3.: u U .. . -7... L A- > o.‘ 'I. _ I I OCI'Dfi’DCI'DOOkPO'J') (fifJ'Jf). \ 0 037.1»!— .97??1;C 4031101 .SdlSELL .193129L .11b221E-01 .3°192¢L'C2 .9337?LE~“3 .25-‘1-9‘0 ’E ’T‘" .46)384£-0 .2769‘::-“ 0....- .44378éE-0 .977398E-C .433641F‘0 .3750975~0 .10?240E"0 .113527E”O .423149E~O .3041395'02 .121041E°03 .ETRTCCE-O” l l | ‘. . O I'll‘lt‘IllL”(\\-‘ o .571: "lyn'h "2'? 1 n w:- .‘zL Puts/Jan. r.) o$.:"-:‘J-;L":_’ 0::11‘) uf‘ ‘31.) WdJi QC'OF , . :Sqwzu‘g': 'C': .69978?L*02 .103¢34E-01 .1670845-03 71 Figure 5-3 Graph for Equation (23) PLOT OF ACTUAL(¥) AND FITTED(+) UALUFS FITTED ..37661l-02 + .-57‘17L-0? 3 + 1",0’ firsjr’-n:3 * + .. '~~7oor-cr + * .”3”64?: 0? t t .1:1‘(1F O- t .1677HRFw-O .171371F -0? .17"91’[ ~02 1‘ C. .uF- -03 .‘r"7”'F-O“ t 131‘41E-4 113995 c- 02 131-1411—02 t + .10:-'"’C 03 .11 (615-62 # + .915‘33E- “3 t .q.-\-\:\r-lr-'-_ 03 ‘ .911775E- O3 75419F‘O3 QESECTF O3 I 0127‘.- 31:: ,3 ‘ o-:‘]-‘.ler—'-‘3 ‘ vZUCKCPC—OV .(003LTC'03 V .Tl:111[~03 .375477K-03 ~«n2f9r-03 :\".'v.‘ E)()HL' _03 .-7Al:l z-os t + 3331195“04 I 23134OV-04 .2?7595E-Ol .7SICISE-Ofl 6L3UTQE-04 -+4-+-4-+ n + 'I + I r! +-e4-+ +4-+-+-* 0' +-§-+ + +-+-94-+ & , . .?I_\Q‘7{F.. fix t .3ca;:3:-33 .11]W\\1F O3 .31T'HL‘Z‘l -.- -O3 .431?‘"E-03 +~F4-+ * 4. --.I‘v~371‘l'-O[I*'33 * + 217177.395 - O? .sastiar-oa .530210t—03 t .ST‘OTlL-Oé x .R4H‘f23-o3 x t:.‘:)" 'f ...") VA.»- to 5A- .nnz~ .' K3 # .i‘\[ "0 +-+4-+ .:?;'"ar~or a o]:".;~"("/'L 0:? t + .174834E-03 + 1 72 are not statistically significant, the direction of the investment relatives and their associated market prices is opposite that of the general market movement as measured by the Standard and Poor's (S&P) 500 Composite, the New York Stock Exchange (NYSE) Composite, and the Dow Jones Industrial (DJI) Index. Figure 5-4 displays the history of the broad NYSE index movement including the study's 1964 - 1977 period. Likewise, Figure 5-5 indicates the trading range of the DJI index. Although both graphs of market price activity contain advancing market movements as well as declining ones, the fourteen year trend is a positive one. The S&P 500 Composite reveals a similar trend with an increase in the index from 69.87 in 1964 to 94.75 in 1977. Thus the market indices confirm the results of the model's market equations (20) through (22) and reveal a 10% increase through the DJI index, a 25% increase through the NYSE index, and a 35% increase through the S&P index during the same time period that this study's SDD companies experienced a downward movement. Figure 5-2 provides an illustration of TSP's statistical information to validate the explanation of the relationship of the variables. In the initial iterations using the OLS routines, positive autocorrelation was revealed in the 73 Figure 5-4 New York Stock Exchange Composite Index as so so so 45 ' 4o 35 40 -— so —-4 25 zs—~zo annual—1' 35 30 5 0 7770 II II 72 71 I4 I! 75 M | "W l 74 ' 11'! N Y S E. COMPOSITE INDEX Monthly Ranges 9 .4 ' I' 1W ' I ‘ ' 5’ 50 ‘I ‘2 ‘1 Cl ‘3 5‘ 6’ ‘0 5.9 70 0050 5! 52 53 54 5.5 56‘ 37 50 L 1' 1- 0‘ body Volomo when d ”an i i Monthly Average ‘4‘ E Z r. ‘\ 6K 5 ’ CD I") 0 IO 0 O I) O on C CD ID ID V 9 IO N ‘- '- n n N Source: Moody's Handbook of Common Stocks, Spring, 1973, Moody's Investor Services, New York. (used by permission) 74 Figure 5-5 Dow Jones Industrial Index LLI L9 <, (z LU >' *‘< _J ‘5 O! F— U') D. C) .2: U) LU »21 2 31 ‘C3 C3 Source: Moody's Handbook of Common Stocks, Spring, 1978, Moody's Investor Services, New York. (used by permission) 75 Durbin-Watson test. To correct for this, the same model and data were run using the CORC technique. As verified by a second application of the Durbin-Watson test, CORC removed the statistically significant autocorrelation while yielding like sign and statistically significant coefficients in the regression model. An anlysis of the statistical error is accomplished by examining the sum of squared residuals, standard error of the regression, and the variance/covariance matrix. The low value in the latter two statistics from Figure 5-2 is evidence that there is no heteroscedascity in the model, or no explanation is needed from the variance since it is constant . Such measurements of explanation, autocorrelation, and error were evaluated in each regression expression in Figure 5-1 as the analysis progressed toward the complete market model in equation (19). The values and graphs of the residuals of the model's equations are contained in Appendix C. Using the data in equation (14) to relate the investment relatives from the market index to the stock prices of the study's companies, the following relationship is found: R = 0.0032 - 0.0001 t + 1.1365 Rm t (24) ,t (2.71) (-2.02) (5.07) 76 The statistically significant coefficients of the market index variable indicate that there is some explanative value in the index and that it should be retained in the full model, equation (19). The statistics for equation (24) are offered in Figure 5-6 and the graph is presented in Figure 5-7. Since the coefficient of the market index variable is positive and significant, and the slope of equation (23) is negative, it could be interpreted that the evidence suggests the effect of the market was to raise the rate of decline in the study's companies' investment relatives during the period studied. Next, two applications of the data to the equation series in Figure 5—1 tested the interaction of the announcement date with the price trend's intercept and slope. For the intercept, the statistics from Figure 5-8 for equation (15) yield A Rt = 0.0045 - 0.0003 t + 0.0076 Dt (25) (3.36) (-3.76) (3.17) To illustrate the shift in the intercept that occurs at the announcement date, equation (25) is recomputed for the two possible values of Dt' At t < c, Dt = 0 and equation (25) becomes Rt = 0.0045 - 0.0003 t (26) 77 Figure 5-6 (24) Statistics for Equation omcmco.m mcwcmo.ml nmmHHN.H UHhmHhchm sh Race. n mwozczu no mzmwb 2H awm¢acmlm cnomo. 00000. 00000. 00000. noooo. ooooo.l mkzmHUHumwou :whcthww no Xnmb¢t MUZ¢HK¢>DUlez¢HKc> no MPQZHhmm moncoo. u ZCmewuowK ark no mamzw nacQZCHm cnfiuoo. N mdczanmwa :xacscw no :3m .0m u monHCDzwmmo no mwmtzz mmmo.m u Amado .o mom .fia¢v Quhmmhchm zothBIZHmzsn manomh.ca h A.cm ..N VUHPQHhChmiu Damn. u szcrcmim amhummmcu 0¢¢n. n ammczcmim oomcmm. ocmcmu.u Ham cmoooo. meccoo.l h menace. finance. 0 commm hzmhuHuumoo MJmCHKCD Gacazqhw Gwhcthmw QZ<1IhIon mcmmmom.i u Ola «on QHhmHk¢Pmih CM¢fiomfi. u DIE no mozzw nzcazchm a u monh¢zuhm no .02 mmmmcmo.l n 011 no MDAQD chnu mmmmomo.x H *** ********* Dz“ onh¢mwhH mecooo. mm mngHmcb hzmazmmua no z¢m£ mam k 0 4mm ,-s ...muqmcumcb mncszumh wbuhcmwhn hh30m01w2¢mzuou 00 a u Jazm **§*&****§**u noooo. 00000.: 00000. ACTUAL .113100E-01 .16? 9011 .696719t-07 ’0402943L‘O -.449834L'CT .6923235~C2 .24L51IL-C? .56CS4IE-OQ .IOZQTOL"OQ .411677C-03 .712027L‘02 .343JZGL OJ .4063U7L 02 270403L- C2 .910832E C2 038116/L-‘02 .533944'.~C2 0240.”?2?» ('3 .56137fiL-32 .1090C6L-33 .43762£C 02 .90211LE-'I»3 .43202tL .603810:"02 .SSSOSIL-OJ .39499L£"Q: ”31209-2: -..:2 .9777 ~1.7E ~23 .403110'~(3 .S‘QC}: 25-03 .198123E-33 .1152215~01 .9333755-03 .285°07L-03 .664531C 02 .890é13t~02 .2769426'03 .44378LE-02 .97738§I«U3 .423641E~02 .37LC97L-C3 .1092??E*01 .IIFLZTC-CQ .422169L-02 .30o137[~03 .121u41F~02 .532792L U: .3918’15‘02 .nfly'quq -O') QSEQLTL Z; .6?93'JL’29 -.S’1"‘L- 014?19 DE 05 .5C338é' 02 . 69? 7.15 f. 01' “.108934L (1 .167084E-02 78 Figure 5-7 Graph for Equation (24) FITTED 95403362’02 .130334E‘0? .229133C’02 .437522C‘02 299858E‘03 .210912E- 0? oS/CBIOE A: .30: We? 04 .SCIOL4E-O? .4a2337r 02 .1119‘1£ n2 .23012aL-02 .1212295- -04 .52z0z22w— no .12233sr o .‘2713 L 03 .2221“9L'02 02(13161L-02 .972172C*03 .37?"s~r-o: .1171—02 .;:110.1r— —op .2“1¢ (L-oz . '3:{314!U-053 .3r- 0095-02 .11'733'F-03 T 3“ ”OE—7" .147704L-0 .1730215-02 .915709E-0? .2:z°.25-02 TTBFSOE-OF .601051E-03 .4225055—02 .2n0224t-o2 o¢"'2"r 03 .1647:;T-J1 .2": :20: or .2733 :L- o2 .129032r—o H'fl7(l\ or r _I,.‘ .h 'u. .120111L o: (“,W ICCME '7‘21.L b3 .365037L~03 .4: J“3;‘r is .55”:2~2 on I‘fi~.n.l 0L _ 3‘.“ .‘nl's \- .4.)4\'J:‘: "f" "'3." .(;IT: -Plugj :33SS17F—G? fi-o ‘ r- .31 C;L~-JT .3t1‘9‘7'2E' (£7 -.53/'"30K-Of‘ .131241L—02 PLOT 0F ACTUAL(#) AND FITTED(+) VALUES t+ 79 Fiaure 5-8 Statistics for Equation (25) Nemoeu.n n~mmmn.m! MBHNQN.H UHhmHkCEm !h comm. u mmczqzu no m:KMF 2H aumcacwlm H0000. 00000.! 00000.! 00000. 00000. 00000.! mhzuHUHuuwou thmummo LO awmzaz mmm0.N n Amado .0 «on .1:¢0 UHkahckm zcmkcziszzsa ehmcho.w n A.323: 0&0000. n0m000.! h ennuoo. Naccoo. U acmmm thHUHuumou MAmcwch chcz hzwazmmma no Z¢mz >ZZDQ k U qua ...mudmcnmc9 mscszom. usthaubH Phaumoumzmrzuou on H u Jazm .......§..... 00000. 00000.! 00000. ACTUAL .1131055-01 02:18’IiL O3 .15?901L'02 0696(2'33L“ ('2 'oflOZJJZL'VZ “.44TQOC: OZ .692523F'03 .2415135-02 “.SbLSGLE'OQ -.1074”U£~02 o411°7’[-§2 .712027E-0? .3433205'C2 .4067CTE'OZ ‘o3704035 02 .910332L O? .38115L‘C-433 “.533?fi4C-C: .2 CIOCC'CQ “.561373E-C3 ~.10900£C'03 —.437695K‘CJ .902117Ew03 .433379C’02 ~o60331‘:"92 -.JSLOSIL-OQ ~o394997E—02 .375337K-02 -.9777QQL'03 'o403110fl C: .514CLCK-02 .108439E-03 .1152215-01 'o391?29 “02 'o9377755’03 o282¢07:'03 .661583C*02 .890539f-02 c27¢942£~93 ‘o4433955"0? .9773CFF-0? .423£415*?2 “.37309/Y-03 .109240E"01 '0113627E"02 .42214Vt’92 ".30é1315“03 .3912712»02 -.273a9;ruo; ».4fiaca':-nn -.¢90153y-ourmuzc~mcb no wh¢tHhmm «wanoo. u zoummmmoum uzh L3 temcm Dmcazchm menace. u m4¢2aHmmz Suz¢23m LO tam .om u mZOHHCDzuumc LC mwmznz cmoc.m n Amtco .0 men .fiacv UHhmHPCFm zcmhczlemmsa ¢¢cfimm.¢ u A.om ..m VUHkaFCFmsL Qfiofi. H ammczcmsm awhuucaco cmma. u amz¢scmim non¢¢.N choooo. mmfiooo. 3 cmommo.ml nowooo. m0m000.! h whomfifi.m emhfico. mnmmoc. u UHHmHhchm macaw hnguHuuwou uqmcumc> 3» . QKCGZCHm cubcthmw DZCIIPIOHZ honofime.l a 0:3 20; UHFmHh¢hmth cmmoamfi. n DIE LO KCfifim 5&CDZCPQ a u mchbcmubn no .32 mmmcmco.l u 01m u: mZACD chHu Numemco.l H §§& *i*§***** 0:1 zcnhcath mccooo. mm m4mcma<> hzmazmaun no 2cm: 3 k U 4mm ...mw4m¢ma¢> mDGszumh wDHhQEMHH thumOImzchUDU 00 d u Adxm **********§** nCTUfiL .1131506-01 CZICléfi-OZ .163VO'F-0? .696CLEL-O? -.40334JL-0 “.449300E-02 .692533E'92 .C4LSII’Il-QC ~.S¢:fl:1L-03 ’olOJQVCC-OT O411??I’C'(2 .7120?7E-02 .343'3'1... f-f.’) .4067C’! :3 27000? t- 0’ .91C3JJL- 03 .381167[ C'C -05339‘4E’OL) oafiOéOCL-OC -.561374f-(2 “o10¢OOLC'i3 -.437626E-02 o902113£”03 .QSCOCSL-O” -.6OCSICI'”? -03SL5\Slr.-'-: '93‘1’”)€ ,t“'.\2 o3.’bi;’-i_".‘t- C‘-’ -.977742£-CC -.40311?F“TC .544951'1'.-'.'2 .19942°£-03 .11'CCIL'01 .03'?1’ a:tl.“:’2 -.93?77£E-01 .CBSGOTE'OC .6643U-3: .8905 Ci 3: c-7LD'CL" :3 -.44"" ". "‘3: .9q/3JL: :3 .42301'33 ’037509;’C‘C': .10?C4'3‘L Cl 'o113637C CC .4221f'i'II ’C‘\: ’oSOlll’E'nC 0161. . 1!. U.‘ -053.,T‘\I.. [h‘:..l 3919/1L CC ~.373‘”LL~0J ~.084$635~07 —.¢9§CLZK 0? “-5.74155. 0.3 'olflrlCVC-OJ o50558£§~02 -.699’S7E-02 -.108?31L~01 .167984C'02 83 Figure 5—11 Graph for Equation (28) FITTED .491377r— .437wnar 0? .474'25L 02 .4. 111! 0? .3fi7393!I-02 .40101.£—02 .3752101-02 .??143Uf-0“ l."‘11’lf -I‘.') . -. Oop' .fir""'\- ‘I—fi? .221517F—02 .163023E- a: .10:..on- 03 .90042?[ 03 .czs1asu—os .73”335L«03 “.3243CIL-03 ‘0 3150C“ -.144?C“[‘04 -.871925E-03 -.6921172 03 ~.133¢29"-02 - .1«:14-‘f)E-OT3 ~- .-Z‘\.«7 lF-(‘nX 1?C-02 - w'ozenh_n: Os — 22'zgsr: .. "C’L 405‘“- 0:2 0.1.} -.30J3’"E~07 ~.3SDSScC-02 9) . ..C‘ onF ('2 .2C3'3‘-1[-03 .1361265- -02 554é3L~OC '730rA1E-.3 .1' W71 cE- 32 . 1C5‘7”.- 3L- 9.? .9V6335E°03 .SSZ’COE'OB .250770F-03 “091393F~ <:*13§_-03 051‘. __ H111‘In/f-_ {‘3 .27:“:”5--01 220?:1s—03 130735-01 .177811H-03 "04"31J'AF'03 “.1121705-03 -.2: '70” Jl'-.‘,§ ‘O' \ 02..., J)..'. W‘.‘ “fincvar.nr I , I a ‘ - 'nylFOLC-cVK of .w‘3'¢3 I -07 . fi'v' r ' ‘.-".U ,‘| {\3 ~.9?24vvr-01 -.l'."!f"'-1Fl-(‘." w 1""“12"-0'I —.11 Ollfl ~.1001oOL-02 PLOT 0F ACTUAL(¥) AND FITTED(+) VALUES 84 slope before and after the announcement date. The combined two last tests of the model's equations (15) and (16) are evidence that there is explanative value at the critical event of the SDD activity announcement date in the investment relatives trend of participating companies' common stock. The next two equations tested from the model, equations (17) and (18), examine the relationship of three independent variables: time, the market relative, and one of the dummy variables. Applying the data to equation (17) generates the statistics in figure 5-12 and appears as R = 0.0040 - 0.0001 t + 0.9799 Rm + 0.0037 D (31) t t t (3.32) (-2.42) (4.14) (1.59) There is not sufficient significance in equation (31)'s intercept coefficient to support the full model and it collapses to equation (24). Using the data to test equation (18), the statistics as presented in figure 5—13 generate Rt = 0.0043 - 0.0002 t + 1.0404 Rm,t + 0.0001 Wt (2.83) (-1.77) (4.40) (1.12) (32) As with equation (31), the lack of statistical significance precludes support of equation (32) and no conclusions can 95 Figure 5-12 Statistics for Equation (31) nonmmw.a hohmcfi.¢ uocfimc.ml Hommmn.m lomHhchm 1% H0000. NN000.1 00000.1 00000. NN000.I 00000.! wowmo. ”0000. #0000. 00000. n0000.l 00000.1 mhszUHummou auhcthmm no Xuzhcz muzcam¢>oolmoz¢~m¢> no uh¢znhmw HD6600. u zowmmmmoum mzh no aommm Gmcaz¢hm 000a00. u wJCDDHmmm ammczcm no :20 .0n n mZOHhcvmmmmc no zmmzzz hmm0.m u Amm¢o .0 man .fiacv UHbmHhCPm zawthIZHmmDa memomm.0fi n A.BW ..m qubmHhCPmlu uhmn. n Qwacscmim thumzmou «Hum. u auac:cm1m ocnmoo. emhmoo. >z23n mmm¢mm. mmoako. Ham hcoooo. n£«000.1 k mumfioo. hnccoo. 0 «01mm hzmHUHLumou mecmmCD QKQEZCPm athIHhmw chzohzeum 00m¢mec.l n 01¢ mom UHhmechmlh amoeba“. n 01m LO zcmmm amcaz¢hm H n wonhczubH Lo .02 W¢oocm0.l u 022 no MZJCD 4¢2Hu weoeewo.l a §** *§******* OIK zombcmmbm moeooo. mu wdmcwaCD PZMEZMLUQ no zcw: >xtDD Ham k U . 4mm ...mquchcb UZGHZIQMF mbahcawbH hEDUKOImzchUOU 00 a u szm §********§§** 00000. m0000.I 00000.I 00000. 86 Figure 5-13 Statistics for Equation (32) tooomfi.u WNNNO¢.¢ n—cvhh.al ocmcmm.m Unhmwhchm I» 00000. «0000. 00000. 00000. th0. n mmozczu no mzmwh 2H ammcncmlm «0000.I 00000.! I mnmwo. «0000. I #0000. 00000. 00000.1 00000.I whzmHUHuumcu Gubernhmw no xHthz wozcmz¢3001uuchmc> no whcthmU hoccoc. n zenmmmacua Nib no locum cacazcbw Nauaoo. u m4¢Dcmmwm autczcw mo 23m .om u mzomkcbz was no mmmzsz 0000.N u Ammco .0 mom .fi:¢0 Uwhmchhm zcwh¢31zhmzzn mmmmmm.0« u A.mm ..m VuHhmHPCFmIL mmmm. u Quacscmla awhuwmmcu mam . u ammcncwlm 0h0000. oncoco. 3 chocmm. 0¢¢0¢0.fi Ham moocco. m£fi000.1 » mmmfioo. nameco. U zoamu hzuwonuuwou m4mzzza _omfiao. Ham cefiooc.- » .nkmco. u pzweuHuumcu ugqumca cmecszmu azczuezofim efimnmne.) u ozz mo; ufipmehchm-» emmcomfi. u axe to mcmam macachm a n monecawPH do .oz ammommo.u u oza to usnca chHu ouncemo.» a *** ********* oza chpcampH mecooo. mH udmcHx¢> ezmazmawa no 2cm: 3 >=zna Haw » . 0 4mm ...mmgmcmzcb MZCHZIUUP MDHhcmwkH bhzomOimzchuoo 00 H h Jazm §*§*****§§**§ 00000. 00000.! n0000.I 00000.) 00000. ACTUOL .1131005-01 .ZZIOQLLHOJ .16990¢[-02 .696960!’02 -.402€43[ 02 -.44?804E"02 .6925?€L-02 .2465125 02 -.56&81lE-02 -.10347OC~02 .411977E—02 .71202?E~52 .3432PCf-02 .406797C'CD -.270403E-O2 .9108£?E-02 .381167E-0? -.533940E—02 02‘060'3C‘O: -.561374F-0? -.10?006E~O3 -.4376?:K~02 .9071135-03 .4320235~02 ...éOQ'IIO': A" ~.35?C‘“!‘-0" -.391?97f-O? .37199“C-0” -.97774?C'?7 -.4031}C:-OI .54JCQTC'0? .1°94?¢C-03 .115??]E>31 -.391?2fF-03 -.93’77VF-03 .285°07£’02 .666034! 03 0890541‘:' U: .27¢?4?T 03 -.4437S«;»03 .977339L-0? .4236415u02 -.3750¢7F-03 .IOQCAOF 01 -.11362"E"9? .4?:14s"-02 -.30:1:v:-02 ’01?10-‘1;‘.' r'.‘ —.53:*cr:-02 .3”1?7£;-“? -.2',’_2.‘A‘;‘,' ,' ~(‘r’ - 404“ . O? - . 6991’!) .d‘I.’ Hf“ ’0574353C*0" ‘0 14219.41“- 0? .5033fifir ”3 ‘o699fiC“Y*03 " 0108?.54l'. 0] 0167094E-02 89 Figure 5-15 Graph for Equation (33) FITTED .530690E-0? .ILZTCIF-OB .288047F-02 .471471C~07 .700401I-03 .9L910?C 03 .554334L"0? .6095757'07 .9827?1E-03 ‘.13751?F‘02 .125 éSC-Od .424SUJC~02 .PéOOKUE-OQ .1067175-0? .2 SbBQE-OQ -.3?S991E"03 .3 2537E"02 .541052K-03 .5906195"07 -.4QO”0WC-0? .161155f"02 -.161717E-0? .TASJCSF—O? .39d585L-03 -.31331-F- T - zfizovvr-o" .n01435ru02 ".70905?r-or .543202L-O? .zvoooct-oz .300fi11r 03 23912"r~0? .231101f-01 -.Sé?OI‘E-03 .7 )JETL-O3 .52772AE-0? .204S4“K—02 .14017C[n02 .474%7.t-02 .103?9SF~01 .2‘3OUTF-02 .1pq7ont-og . 13$‘1l-1f-wfi? —.CA"GW?F~0? .1400? "F ~01? .1(‘14‘5T= .9)393T(-0! .231’53‘ii-02 .1"115?F~03 —.74T’-7;‘OI"-fif( -.?4JKX‘C 0? .. , .14‘1'..l.1l‘- (‘7‘ -.?n)1.'! O? -.36$471l-07 —.4ZLRW1F “T —,4H7AIo)—02 -- .CJZ’:.()I 2‘1.» ().3 -.222798f—02 I .1\') .- # PLOT 0F ACTUAL(#) flND FITTED(+) VALUES 4! W .’ .“if'v‘; c 1r. 90 announcement date for the entire set of observations. The cross sectional model developed in equation (10) was then used to test for significance of the same data by groups according to the percentage of net shares redistribu- ted to shares outstanding and the prOportion of shares redistributed to average daily trading volume. The results A are summarized in table 5-1 and the graph of equation (10) is presented in figure 5—16. Of the sixteen dummy variables expressed in the equation, five contain statistically significant coefficients: c22, C33, c34' c43, and C44, Four of these variables correspond to the quadrant in table 5-1 where the share disposition activity is highest relative to both the shares outstanding and the average daily volume. The findings lend support to the claim that there is a significant decrease in market price when SDD activity is large relative to the volume of the transactions and of the holdings. The investment relative of the market index (coded SPI) possesses a positive-signed coefficient indicating an up- ward effect on share prices. Conversely, the coefficient for time t in the model is negative indicating a decreasing price trend overall for the data. The coefficient for the market relative is statistically significant at the a = .05 Table 5-1 91 Statistics for Equation (10) Variable Explanation Coefficient t-Statistic a constant y-intercept 0.0051 1.13 t time -0.0014 -1.87 Rm t market index 0.5744 2.38 net shares redistributed to i' shares average daily 3 outstanding trading volume (percent) (times) C11 1 - 2 0 - 11 0.0121 1.44 c21 1 - 2 12 - 21 0.0008 1.54 c12 2 - 3 0 - 11 0.0029 1.20 c22 2 - 3 12 - 21 0.0047 2.09 c13 3 - 4 0 - 11 0.0007 0.81 c23 3 - 4 12 - 21 -0.0005 -1.36 C14 4 - 5 0 - 11 0.0001 1.26 c24 4 — 5 12 - 21 -0.0042 -1.81 C31 1 - 2 22 - 39 -0.0002 -0.96 C41 1 - 2 40 - w -0.0089 -l.01 c32 2 - 3 22 - 39 -0.0021 -1.42 C42 2 - 3 40 - w -0.0016 -l.47 C33 3 — 4 22 — 39 -0.0091 -2.67 C43 3 - 4 40 - w -0.0083 -3.33 c34 4 - 5 22 - 39 -0.0187 -1.98 C44 4 - 5 40 - w -0.0203 -2.11 I 1 .711“ .320702E—01 .164147E-02 .3274475-02 .752‘795-02 .392258E—02 .t21591E‘02 .7325785—02 .285929E-02 .61293SE-O: .970030E-03 .3036295-02 .695427E-02 .4¢OaSSE—02 .435711E-02 .‘?¢c23t-Cf .5936495-02 .33- Sci-‘2 .g. :t' :47“:- 'L .37.:1353'E‘CS 4-‘€T$£«OZ .2‘4’335-02 ‘QlQ‘o-IE—O: ..942‘J{"02 .'«°”23E'02 -fl43SSE*C: .431§:°E-02 q -I ‘ ,. ,.- .-03 ...-.3 A f “— .-41" ‘-».-—b :. )—_~ c.‘-. r,‘, .. -- - L}-7- ‘s \3 ~ ---0 ~-_- 'n 3 4.. Je ‘ A. ..-. -..... .— _N :—:L' J “. - .- 0 ". : -‘H'- 1c. ;.-".;-’.i:-." -. o. --.- -.. ‘q . .-- - - J, . 9-'-’\.~‘—1— '. .. ... .fowu . OJaacdfii‘-‘ I. ‘ ...- ' 33¢“L.C- I ---q- - O-3-v~:—Q' - a.-Q.;T-n‘ ____. '.- .. ~-— ~2“ ‘ .3 P. .... ..- -... .--. - a . ~ ---~‘-- - 'V -...-...-— - . n , ..- , - a v I- h ‘J --7 ,— 1H 9 L" - ~: “Jr', 0 .JJD J- ‘_ 1.-.? ‘s..l_— W .. a. .su . .b ‘- -- , \ ""‘ ~a~ ‘1- 1.. ,-y .\- ‘~‘. A _ .._ . .' :_- an , ,'(~ --.._--. ,-._ —. ‘. .5;-J~ .. .- . ..- . .,. u. - - — -.- -- , x d-‘ -..i— .- o .. . .- L. n a. ... 592 Figure 5-15 Graph for Equation (10) .2094OOE-02 .5262705-02 01‘67116—02 .180306E‘03 .582833E-02 .605344E-02 .109728E-02 .120435E-02 .1706525-03 .421351E-02 .3461045-02 .120951E-02 .248249E-02 .4766215-03 .3553125-02 .584870C-03 .4;4147E-03 .365743E-02 .184BoOE-OZ .2051155-02 .25513?E-O2 .2o747SE-03 .321591E-02 .351489E-02 .4092325-02 .347951E-02 .333485E-02 .5407135-02 .373é97E-02 .271391E-02 .283782E-02 418350E~03 .4631205‘03 .344243E-03 .4705878-02 .1o21805*02 .1443125-02 .4173é7E-C2 .968”115‘02 .IZOLSZE-OE .191275E‘02 .117933E-02 .2643735-02 .léofciE-OB .SQS7OGE—03 .12335~E-02 .2352905-02 .133196E-O3 .4304425-03 ..181785E*03 .333172E-c: .::ao4aE-): .2443765-0: c-573WFEEO4 ‘§j‘lc~‘u-—C\-‘ _~-. - J- -- _ _\H «4-- ~; -- a . .- _- .. -3; - A. +1 + + + * ¥+ +t 93 level, but the coefficient for the time variable is not. These results are consistent with the findings of the full model in equation (33). The other eleven cells in table 4-1, as evidenced by the response of the data to the cross sectional analysis, have no statistically significant coefficients. When they were collapsed into the reduced equation (14), the results indicated that there was no significant price drOp for the entire group of observations collectively. Cell c22 indicates a negative share price response to redistribution, but the upper right quadrant in which it lies does not possess sufficient significance to support a claim of share price movement for small levels of redistributed common stock. 94 Evaluation The purpose of testing the preceding model was to provide evidence on the common stock price response to announced share disoosition decision (SDD) activity. The results support the claim that there is a downward trend in the market price of shares of companies engaging in SDD activ- ity over the fourteen year period of the study. Further, the results indicate a significant relationship between the size of the SDD activity and share price declines after the SDD announcement date. But there is no support to the claim that there is a downward shift for the entire popula- tion at the announcement date itself.1 Evaluating the data in terms of relative prOportion to shares outstanding and trading volume, a significant relationship was revealed. SDD firms that have a large number of shares involved in the SDD activity relative to shares outstanding and trading volume possess a different price relative behavior than firms which have a small number of shares involved. Those firms experiencing a SDD level of activity which is 3% to 5% of the shares outstanding and greater than 22 times 1 Tests performed but not presented in the preceding . section revealed statistically Significant negative price reaction at the critical event for some indiVidual years. however. 95 the average daily volume also experienced a significant price decrease. Firms having smaller levels of SDD activity relative to outstanding shares and trading volume possessed no significant share price movement. This reaction of a small subset of the study population challenges the claim made for the entire population. The evidence supports the claim that while the New York Stock Exchange announcement of SDD activity does not result in a price decrease for all transactions in the study, the announcement does effect a negative price adjustment in certain transactions. The speed with which the market reacts to the population subset may be interpreted as support of the efficient market hypothesis that stock prices adjust rapidly to fully reflect all available information. One interpretation of the evidence is that the market has not only anticipated the net share disposition prior to the NYSE public information release, but also anticipated it correctly. The results in the preceding section indicate that at the announcement date, there was no significant movement in the SDD companies' market prices. The results obtained from using the announcement date as the study's critical event lend support to conclude that the stock market is efficient with stock prices fully reflecting all available information. 96 Additional evidence for the claim of efficiency was provided by varying the critical event around the NYSE announcement date. To ascertain whether there was a time lag effect in this information, the same series of tests on the model was performed redefining the critical event as the announcement date 1 1 day and i 1 week. The statistics for the additional iterations' equation equivalent to the full model equation (33) are provided in figures 5-17 to 5-20, They, as well as the statistics and graphs for the iterations' other equations not presented, indicate that there is no stronger reaction of the market price on a date close to the announcement date. This provides further support for the claim that the market fully reflects the information contained in the NYSE report. The implication of the additional tests is that an investor acting on the information would not have experienced, within the first month, a price movement yielding significant returns compared to the market. Accordingly, since the announcement information is completely absorbed by security prices before, on, and after the critical event, the market is said to fully reflect that information. The results of the study may also be interpreted to represent the NYSE announcement as a confirmation to the —--—-—-— 1 For example, the dummy variable assumed a value of either 1.0 or 0.0 and some investment relatives had zero or negative values. 97 Figure 5—17 Statistics for Equation (33) with One Day Lead nfloomm.! 00NOH0.H hhu¢««.¢ 0¢00¢H.N! hhomcm.m UHbmHhchm !P ooooo. cocoo.r oooco. ccocc.u ocooo. mafiooo. camcoo. muonmm. nmoooo. onvfioc. Ecamw :zcczchm come. u wwuzczo no mzmwh 2H nwmcnchm 00000.! 00000. 00000.! N0000. 09000.! 00000.. 0H000.: #hoco. 00000. 00000. 00000. 00000. 00000.! H0000.! 00000.! thUHUHuumoo awhczmhmu no xHakcr uuchKQDDUIMUZ¢HzCD no mbcszmm 0mmeoo. 0 ZCwmmmmum: th no moazm QKCDZCHm haofioo. u mJCDQHmmm :umczcw to 23m .0“ n wonhcbzwamo no awmxnz mmn0.u u Ammco .0 non .0000 UHFmHFCbm ZOOhczngmzaa ecocnm.o u A.¢m ..c uuHhmHFCbmiu noun. 0 Dwacncmlm awkummmou amac. H Quacscmoz 0h0000.! . 3 mennoo. >zz30 hhmhfia. Ham 0hfi000.! h mmccco. u hszUHuuuou MJmCHmcD awhcthmw azazlkonm nocemn0.! 0 01m mom uHhmHhcbmlh 0¢¢fioufi. 0 Dim no zczcw nmcaz¢hm N n monh¢ZMhH no .02 moonoma.! 0 02m LO MZJCD AczHu moomcufl.i N onommma.l « §** *§§*«**** CIK ZDHhcmuhH mccooo. mH w4m¢Hmcb hzwazmama mo.zt330 Ham k U me ...mMJmcHKCD mchZIuwh wDHh¢KMFH khaumolmzcmxuou 0Q fi nu Jun-2m **********§** 00000. 00000.): «0000.! 00000.! 00000. announcement date - one day Critical event came. 0 mMOZQIU no mZKUh 2H ammczcmlm 93 Figure 5-18 Statistics for Equation (33) with One Day Lag 00000. 00000.! 00000.! 00000.! 00000. 00000.! N0000. ¢H000.! 00000. 00000.! 00000.! «~000.! commo. "0000. m0000.! 00000.! 00000. H0000. 00000. 00000.! 00000. 00000.! $0000.! 00000.! 00000. Gunman.) emonoc. nwhmmm.¢ 0¢RMNN.! mmmchm.n uthHhchm (h mhzmHUHkumoo amhcthwu no mehct muz¢HKCDDUlwuzc~a¢> no whcthmw : zcammmmome m2» no «seam azcazqhm OND¢Coo I unfiuoo. u msczaammm :uzc:0m no ::m .0w 0 mZSHhCDammmc no mumtnz memo.m u Amaco .0 «on .macv uHhmHhckm zcmec312Hmaaa momnom.h u ..ew ..¢ vcHhmecpmtu mean. u ammcscmim amhuummcu fiecn. n amzczcm:a emfiooo. oncooo.! 3 «mmqoo. mocmoc. >322: omeocm. onunoo.a «L0 meaooo. “00000.! b moefioo. emdmco. u zomzm hzuHuHuumou wumcmmco aacazqhm :uhczabmw azczlhzeam flamm~mn.! 0 0:1 «on qumphcamnh. ammoonw. 0 01a no momma aaqczcbm « u m20~r¢mu- as .02 moomo¢0.! 0 01a u: uSJCD chHu moomo¢o.l fl *ni ********* ozm zomhcmwhu wceooc. wH ubcchcb hzwazmaua a: zcwz 3 >2::: Ham » . a 4mm ...mwbmcHK¢> MDGHZIUUP MDHHCZMFH hh30m0!wzzzon ommcum. €B€«m«.« H10 0m«000. 0««000.! b enowoo. Hemmco. o toxin hzupowumuco mgmcuxc0 ozCCZChm :LPCZHhmu QZQIIFECHK 3000m¢m.! n DIM zou lomHthmlh man00m«. moeeeee.z ifik ozz m00000. A. ..h oIa no momma DKCQZCPW « u mZOchmmrH no .02 omfi¢¢0.! n ozc no uzgcb E¢ZHL « *e******* ZDHF¢KmHH mH moachcb hzmozmama no 20m: 3 rtzoo «mm b u .._ mm ...mMJmCHaCD u:c~z:uuh wbwhczmHH hFDUKO!mzcazooo 00 « r Jwa ¥¥****¥**%+¥* 00000. 00000.! «0000. 00000.! 03000. Critical event = announcement date + one week 10] marketplace that the corporate common stock reacquired for later distribution has indeed been distributed (i.e., returned to the outstanding category). There may be an anticipation effect resulting from company announcements correlated with or before the NYSE report. To the extent that the systematic change in the firm's share price was caused by such concurrent or early announcements by the firm itself, the anticipation effect is consistent with an efficient market. The attempt to utilize logarithms in the model proved inappropriate for two reasons. First, the investment relatives were not all positive values and some logarithmic operations resulted in error messages of undefined arithmetic computations with the results set to zero by the TSP program.1 Second, the investment relatives were not skewed, necessitating an alternate way of describing the study's data. CHAPTER VI SUMMARY Conclusions One purpose of this study was to provide evidence to support or refute the claim that there is a market price change resulting from the announcement of a redistribution to the marketplace of reacquired common stock. SPBCif13311Y: this study was to find (1) whether there is a downward price adjustment conforming to the frequently cited1 two-part corporate anti-dilution strategy and (2) whether market prices fully reflect the information of redistribution in an efficient market hypothesis (EMH) framework. The results offer evidence to support the claim that a nega- tive price adjustment occurs after an announcement of redistribution activity for companies engaged in large redistributions relative to both their shares outstanding and trading volume. For a more inclusive set of observations, the results offer evidence to refute the claim that a nega- tive price adjustment occurs after an announcement of redistribution activity. The rejection of the alternate hypothesis expressed in equation (9) implies that the share diSposition decision (SDD) activity did not have a depressing effect on the market price. 1 See page 2 and pages 38 to an, 102 103 The evidence for the full set of data observations lends support to a claim of an efficient market. From the absence of significant negative price reaction to the announcement, it may be concluded that there is a full reflection of the small levels of SDD transactions in the share price prior to, as well as after, the announcement date. The evidence for the subdivided set of data observations is not as supportive of the efficient market hypothesis. From significant share price adjustments to an announce- ment of relatively large levels of SDD transactions, it appears that there is an opportunity for an investor to generate superior returns to the general market by fol- lowing a stock trading rule based on the announced redistribution. The conclusion drawn from this evidence, however, must be framed in the context of the definition of the study's critical event: the date of the share redistribution is not designated the critical event, the date of the announcement of the redistribution is. Conclusions made. from the analysis of findings must be phrased to reflect this designation. Statements offered about the share price performance resulting from corporate SDD activity are more correctly stated as being about share price performance resulting from SDD activity as measured by the surrogate announcement of such activity. 104 Implications The results of this study indicate there is evidence not to follow an anti-dilution strategy in redistributing shares to the marketplace unless the transaction is of a certain magnitude relative to the shares outstanding and trading volume. As the second half of a two-step corporate anti- dilution strategy, these findings extend the research 1 performed by others on the first half: the share price performance resulting from reacquisition. The previous research provided evidence to refute the anti-dilution strategy claim that there is a positive share price reaction to share reacquisition decision (SRD) activity. This study's findings offer evidence to refute the anti-dilution strategy claim that there is a negative share price reaction to the share disposition decision (SDD) activity at certain proportional levels of SDD transactions. One implication from combining the results of both research areas is that management in the achievement of its corporate objectives should not engage unilaterally in SRD/SDD activity and expect to avoid dilution. Further, the combined research results are consistent with the efficient market hypothesis that share prices 1 See page 2 for examples. 105 fully reflect all available information, Since the returns of the SDD transacting companies, as measured by the market model,1 are not statistically significant to those of other firms, the marketplace cannot be said to be inefficient. For those firms engaged in large SDD activity relative to shares outstanding and trading volume, the study's statistically significant negative returns are not as supportive of the claim that share prices reflect the information available in the NYSE announcement in an efficient manner. This study isolated and identified share redistribution activity levels which possess returns significantly different from the general market. The findings revealed the share redistribution activity levels in the lower right quadrant of exhibit I possess statistically signifi- cant negative share price responses. The evidence in this study indicated large SDD activity relative to shares out- standing and trading volume may form the basis of a stock trading rule to achieve superior returns to that of the general market. For all SDD companies in the study popula- tion, however, the nonexistence of superior or inferior returns implies that investors cannot apply a similar stock trading rule unconditionally to firms engaging in share redistributions. 1 See page 59 for the develOpment of the study's market model, the capital asset pricing model. 106 Contributions This study provides new research and evidence in an area of common stock activity that has had little research effort to date: the redistribution of reacquired corporate common stock. In addition to documenting the increased level of SDD activity, it analyzes the impact on share prices of the announcement of the decision to return previously reacquired common stock to the marketplace in a context of market efficiency and as a test of a corporate anti-dilution strategy. The research offers support to the efficient market hypoth- esis that the market is efficient in adjusting rapidly to new information about a company's stock through a test of the semi-strong form of the hypothesis. Its results complement earlier studies of a related theme refuting the claim that share prices increase after a share reacquisition and decrease after a share resdistribution. 107 Limitations The results and implications of this study are, by definition, constrained by the time period, data population, and methodology selected. Although the fourteen year span incorporated major market movements in both directions,1 using the results of ex post data to make ex ante generalizations must be approached cautiously and may not be relevant if the market moves outside the trading range witnessed in this study. Also, the limitation of data : 30 days around the NYSE announcement date was designed to emphasize the immediate effect of the reported SDD activity. Relaxing that restriction by broadening the time pericd around the critical event will provide additional evidence to support or refute the claim that capital markets are efficient and the claim that companies engage in share redistribtion to effect an anti-dilution strategy in their common stock. Further, the date of the share redistribution is not designated as the critical event, the date of the announcement of the redistribution is. The results are accordingly applicable to share price movement around the announcement of an activity rather than the activity itself. 1 See figures 5-4 and 5-5. 108 Statements made and conclusions drawn about share price movement due to the activity are actually extensions of the reaction from the date of the activity announcement. For a test of the announcement effect of a publicly released report, the study's population was appropriately based on the firms in the released report. The elimination of some firms1 found in the report naturally limits the results of the analysis to the remaining companies in the data set. For example, firms with SDD activity below 1% of the company's outstanding shares were purged from the study population. If the assumption that these small percentage transactions are insignificant is not acceptable, then the data base may be expanded in subsequent research to include firms with SDD activity below 1% The selected model and testing methodology are well suited for the stated purpose of this study: to analyze the stock price movement around an announcement date of companies engaging in a particular financial transaction. The set of equations in figure 5-1, and the time series calculations performed on them, measure the direction and magnitude of the trend before and after the critical event. The analysis is therefore restricted to the hypothesis formulated by the model and to the statistics provided by the time series ‘ 1 See page 53 for parameter selection. 109 program. Alternate hypotheses would yield additional infomation about the announcement data complementing or extending the original model and its results. Likewise, the generation of alternate statistics would provide additional support to the model's hypotheses. 110 Recommendations Further academic research using the data base of net share dispositions may take several directions. Additional announcement effects on market prices may be explored by dichotomizing share disposition decision (SDD) firms into those that received a cashflow from the SDD activity (e.g., employee stock ownership programs (ESOP), executive stock options, etc.) and those that did not (e.g., award programs, stock dividends, etc.). The dollar amount received by the firm could also be compared to the market value for rela- tionships since some users of the reacquired shares may be at market value (e.g., mergers, acquisitions, etc.) and some may be exercised below market value (e.g., executive stock options, warrant offerings, etc.). Isolating firm characteristics through factor analysis may identify uniqueness among the SDD companies and aid in the explanation of reactionary differences in market prices to SDD activity. For example, those companies announcing the disposition method of their reacquired shares may be grouped for analysis by method (e.g., stock dividend, exercised warrant, employee stock purchase plans, etc.). The ethics of SDD activity may be examined from the vieWpoint of pre-emptive right circumvention. The common stock rights clause in a corporate charter may state that the pre-emptive 111 right must apply to previously unissued shares, but not to reissued shares. The regulations surrounding net share dispositions may be examined for effects. For example, what prOportion of company employee stock ownership plans deny the right of private sale or other disposition of the shares by the employee? Do any corporate debt instruments have restrictive covenants prohibiting or limiting the reacquisition and/or disposition of reacquired stock? This study's prior research section disclosed a previously held belief that share reacquisition had a positive price effect and share disposition had a negative one. A survey of corporate management may be performed to compare the reasons now versus the early 1960's for reacquisition and subsequent disposition of their firm's own common stock. An investigation may be made to determine the degree of correlation, if any, between SDD activity and insider trading activity. Also, what is the effect, if any, of the share reacquisition decision and/or subsequent share disposition decision on the firm's credit ratings as an investment attraction? Does SRD/SDD activity have any effect on other companies‘ share prices in the same industry? 112 The common stock SDD analysis presented in this study may be extended to the companies engaging in preferred share reacquisition/share retirement activity. In addition to examining the price effects and announcement effects of preferred stock reacquisition/retirement activity, investigation may be made to address the issue of circumvention of the call provision. Specifically, is preferred stock reacquired in the market and retired in lieu of employing the call option? APPENDICES APPENDIX A THE STUDY POPULATION Appendix A THE STUDY POPULATION Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Comganx Redistributed Outstanding Volume 1964 Allied Products 47,200 4.65% 77.00 Allis-Chalmers 112,500 1.27 11.43 American Can 170,975 1.06 14.88 American Enka 44,210 1.69 12.88 Avnet Electronics 59,141 1.93 12.13 {Baxter Labs 40,414 1.50 11.04 :Becton,Dickinson 96,234 3.23 44.78 Berman Leasing 21,808 2.00 26.40 Blaw Knox 32,300 1.64 16.45 Borden Co 210,900 1.93 93.61 Bulova Watch 42,080 2.28 4.81 Consolidated Foods 85,059 1.70 29.72 Eagle-Picher 22,365 1.12 31.15 Fairmont Foods 60,782 2.00 38.74 Fawick 47,143 4.01 86.51 General Amer Oil 69,635 1.89 18.47 General Mills 118,443 1.57 35.84 Hart Schaffner 19,625 1.70 41.93 Hertz 91,396 2.50 17.19 113 114 PrOportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding; Volume 1964 Hess Oil 100,000 1.60 42.35 Intl Shoe 80,729 2.30 27.61 Kerr-McGee 94,869 1.48 17.75 Lehn & Fink 17,563 1.51 16.68 Miles Labs 100,000 2.51 64.47 Miss River Fuel 154,341 3.92 74.92 Pacific Intermtn 34,083 2.00 17.39 Purolator 24,950 1.30 7.63 Ryan Aero 18,600 1.30 32.80 Stauffer Chem 126,374 1.34 41.34 J.P. Stevens 99,135 2.09 29.00 20th Century Fox 101,834 4.00 20.18 1965 American Metal 16,900 1.21 21.61 Associated Spring 13,902 1.26 14.41 Avco 431,600 3.25 29.14 BVD 43,974 1.39 11.72 Combustion Engr 36,903 1.18 10.11 Cook Coffee 61,718 4.06 30.19 Crane Co 36,600 3.29 57.46 Diamond Intl 244,786 2.59 73.29 115 PrOportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1965 Eastern Gas 38,811 2.87 54.74 Engelhard 22,200 1.11 18.12 Eversharp 41,633 2.02 9.63 Foote Cone 23,506 1.55 10.08 Gen Refractories 34,300 1.18 9.24 Hammermill 26,953 1.47 24.93 Harsco 40,405 1.13 23.84 Hertz Corp 41,551 1.13 8.21 Hess Oil 107,587 1.15 14.24 Intl Mining 58,284 2.30 7.06 Johnson & Johnson 70,713 1.19 84.58 Lorillard 67,094 1.02 17.30 MSL Industries 18,100 1.18 3.37 Parker Pen 23,568 1.90 32.78 Phillips Petro 643,947 1.96 53.90 Rorer William H 36,465 1.09 8.92 Textron 122,545 2.28 24.97 1966 American Tobacco 1,062,772 4.19 103.42 Bates Mfrg 50,000 3.97 31.87 Carey Philip 12,684 1.26 16.65 116 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1966 Combustion Engr 34,877 1.06 4.43 Continental Ins 343,275 2.95 73.30 Cook Coffee 42,222 2.65 37.10 Crown Cork & Seal 54,802 1.37 21.84 Dymo Industries 40,002 1.91 7.19 Eastern Gas 29,376 2.15 86.40 Foote Cone 37,170 1.73 17.72 Glidden 84,700 1.33 39.52 Hammermill 33,000 1.77 34.92 Hercules 242,449 1.26 29.78 Hershey Chocolate 106,017 2.40 56.54 Hess Oil 129,074 1.38 14.79 Howmet Corp 115,143 3.65 18.21 Kinney Services 25,000 1.45 20.96 Koppers Co 47,834 2.11 22.83 Lear Sigler 49,434 1.15 5.34 National Distiller 204,300 1.65 36.20 Norris Industries 96,569 3.80 46.05 Norton Co 95,500 1.71 89.17 Paramount Pictures 28,915 1.83 8.22 Parker Pen 25,484 2.02 45.35 Purolator 75,725 4.02 93.84 117 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding_r Volume 1966 Rheem Mfrg 38,294 1.89 5.77 Textron 155,208 1.26 21.87 Tootsie Roll 49,224 2.95 89.92 United Industrial 21,495 1.01 1.96 Warner-Lambert 368,867 1.59 53.44 Woodward Iron 54,950 1.79 93.29 1967 Amphenol 40,162 1.36 1.65 Atlantic Richfield 200,000 1.76 23.76 Beatrice Foods 135,312 1.53 44.36 Bell & Howell 80,000 1.94 5.54 Bulova Watch 20,327 1.01 5.54 Chicago Pneumatic 80,800 1.69 25.01 Continental Ins 408,682 3.67 44.83 Cook Coffee 28,521 1.74 20.27 Devilbiss Co 17,271 1.13 55.36 Diamond Intl 246,482 2.54 62.89 Eagle-Picher 65,834 3.25 51.88 Eastern Gas 32,975 2.44 70.01 E G 8 G Inc 24,600 1.45 1.22 Electric Bond Share 91,531 1.88 27.06 Net Shares Company Redistributed 1967 Federal-Mogul 63,158 Foremost Dairies 258,778 Helme Products 26,800 Hoover Ball 153,850 Keller Industries 44,695 Lear Sigler 82,559 Liggett & Myers 67,616 Miles Labs 52,500 Minerals & Chem 55,923 Montana Power 220,888 Olin Mathieson 660,102 Reynolds Tobacco 551,200 Rheem Mfrg 24,155 Schlumberger 83,304 Sunray DX 226,059 Tandy Industries 57,413 Texas Industries 32,000 United Shoe 24,130 US 8 Foreign SE&UR 75,615 United Whelan 20,636 Univ Leaf Tobacco 43,625 Varian Associates 100,000 118 Percentage of Net Shares Redistributed to Shares Outstanding 1.22 3.33 1.85 4.27 2.72 1.84 1.76 1.24 1.18 2.96 4.54 1.40‘ 1.19 1.10 1.24 4.71 1.71 1.08 2.34 1.69 1.86 1.63 Proportion of Net Shares Redistributed to Average Daily Trading Volume 24.92 14.75 21.30 115.94 24.41 4.99 36.71 10,46 5.38 43.46 67.11 36.89 1.87 17.05 9.86 8.69 18.24 15.52 52.36 5.13 30.13 5.57 119 PrOportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1967 Wallace & Tierman 69,996 1.69 29.30 Warner & Swasey 39,000 1.17 6.49 Wometco Enterp 36,966 2.74 16.06 1968 American News 17,011 1.11 9.44 Amer Ship Building 39,883 3.33 4.15 Amer Standard 352,865 3.49 22.49 Asso Transport 17,565 1.14 2.10 Certainteed Prod 150,000 4.24 8.14 Clevite 28,297 1.50 5.18 Cluett, Peabody 95,675 1.49 13.45 Colorado Intrst Gas 98,300 2.54 15.96 Continental Ins 475,000 4.28 33.73 Conwood Corp 26,020 1.90 42.73 Eastern Gas 139,423 3.36 91.73 Ex-Cell-O 74,546 1.02 18.90 Foote Cone 62,329 2.98 62.20 Foremost-McKesson 510,274 4.99 33.95 Garlock 51,330 2.81 37.91 Harsco 154,300 2.00 26.19 Hotel Corp of Am 127,387 4.97 6.28 inri d 120 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1968 Indian Head Inc 38,300 1.33 11.50 Joy Mfrg 46,122 1.02 10.13 Lytton Finance 34,631 1.36 2.22 McCrory 95,839 2.02 15.21 Meredith Corp 29,955 1.11 13.49 National City Lines 15,625 1.44 24.49 Northwest Bankcorp 75,500 1.34 86.19 St Regis Paper 154,935 1.15 8.88 Seeburg 50,143 2.01 2.13 Singer 195,079 1.83 18.24 Tenneco 852,610 1.63 34.08 Tishman Realty 21,980 1.32 19.56 Tootsie Roll 23,080 1.30 18.43 Torrington Co 78,750 2.43 30.57 Tri Continental 162,200 1.05 20.17 USM 51,280 1.16 17.74 US Pipe & Foundry 127,300 3.60 13.04 Univ Leaf Tobacco 35,200 1.50 30.77 1969 Acme Markets 81,250 2.68 37.93 Amer Distilling 50,930 3.53 73.49 121 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstandinge Volume 1969 American News 51,317 3.10 12.81 Amer Standard 164,066 1.54 8.66 Ancorp National 18,939 1.18 7.41 Becton,Dickinson 166,668 1.03 19.88 Bliss & Laughlin 27,600 1.02 17.52 Cabot Corp 51,200 1.02 18.91 Canal-Randolph 45,450 3.03 56.18 Corn Products 443,969 1.98 35.54 Dayco Corp 47,500 1.64 24.57 Del Monte 129,218 1.12 22.94 DiGorgio Co 25,122 1.37 5.24 Diners Club 49,972 2.47 18.77 Dresser Ind 348,334 3.75 39.48 Eagle-Picher 46,854 1.06 20.43 Eastern Gas 232,896 2.69 13.35 Franklin Stores 41,330 2.71 16.11 Garlock 66,052 3.55 98.29 Genesco 134,834 1.41 14.86 Handy & Harmon 23,793 1.16 29.27 Kroger 135,500 1.03 7.93 MCA 240,000 3.02 26.07 Mead 92,086 1.56 8.72 122 PrOportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1969 McCrory 112,200 2.50 31.78 National Presto 42,104 2.89 25.09 Neptune Meter 39,500 1.63 12.64 Pueblo Super 36,515 1.77 10.58 Staley AE 58,752 2.28 52.32 Textron 313,079 1.15 15.29 USM 63,085 1.41 21.61 Upjohn 343,746 2.34- 22.41 US Gypsum 120,000 1.46 14.11 Wallace & Tierman 49,645 1.07 17.02 1970 Alberto-Culver 79,184 1.73 9.19 Amer Standard 285,230 2.37 16.07 Borden 326,600 1.15 19.79 Brown Shoe 147,475 2.16 89.05 CNA 1,329,883 4.69 73.61 Cenco 49,412 1.30 9.54 CPC Intl 418,948 1.79 34.67 Consolid Freight 126,434 2.27 33.12 Continental Can 700,000 3.78 54.37 Cummins Engine 60,801 1.01 36.43 123 PrOportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1970 Curtiss-Wright 183,935 2.26 30.20 Dayco Corp 52,287 1.78 44.12 Del Monte 170,000 1.44 44.35 Dentsply Intl 22,750 1.23 9.62 DiGorgio Corp 121,323 1.95 59.13 Fed Sign & Signal 32,000 2.10 29.57 Ferro 51,435 1.57 36.48 Franklin Stores 31,489 1.95 17.49 Gerber Products 178,567 2.16 35.91 Harsco 226,700 2.96 126.65 Interco Inc 197,374 2.72 60.12 Koppers Co 144,461 2.98 69.22 Lamson & Sessions 26,354 1.92 47.92 Martin Marietta 371,191 1.62 22.28 Monogram Ind 81,424 1.58 8.97 Morris Philip 322,164 1.38 18.53 Olin 535,123 2.35 60.48 Oxford Ind 98,800 4.54 217.14 Pullman 78,739 1.63 38.73 Rockwell Mfrg 78,600 1.32 35.81 Standard Intl 123,687 3.56 72.89 Super Valu Stores 26,500 1.30 20.11 124 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding, Volume 1970 061 42,168 1.14 13.52 USM 203,198 4.43 104.26 United Fruit 311,318 3.93 173.73 US Industries 422,357 1.90 22.99 US Smelt Refinery 36,500 1.41 11.32 Wallace-Murray 78,520 2.90 38.62 Weyerhaeuser 1,135,637 1.91 45.77 Winn-Dixie Stores 134,005 1.67 57.17 Wometco 140,035 3.72 76.15 1971 Aetna Life 385,000 1.46 10.76 Amerace 40,200 1.69 46.26 Ametek 52,000 1.02 15.05 Ancorp National 28,725 2.02 27.41 Apache 84,439 2.92 23.38 Bard CR 88,056 2.17 25.37 Belding Heminway 39,272 3.07 15.44 Brown Shoe 335,556 4.62 87.73 Continental Can 1,265,349 4.61 50.65 Eagle-Picher 45,514 1.03 25.19 Eastern Gas 260,050 2.68 12.47 125 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding, Volume 1971 Ferro Corp 50,000 1.49 8.53 Firestone Tire 776,740 2.67 44.11 Foremost-McKesson 250,089 2.01 14.51 Garlock 63,158 3.25 72.02 Gen Amer Transport 303,675 2.69 33.90 Gen Port Cement 140,400 2.30 16.66 Joy Mfrg 79,533 1.70 8.63 Katy Industries 86,902 1.94 13.79 Kinney Services 141,213 1.18 3.80 Londontown Mfrg 23,660 1.56 9.93 Reliance Elec 80,096 1.28 8.83 Revlon 149,373 1.18 11.63 Schering Plough 376,042 1.51 19.52 Scot Lad Foods 28,021 1.34 7.05 Stand Prudential 55,128 1.11 10.45 Trans Union 111,984 1.18 19.95 Univ Computing 75,000 1.03 2.28 Ward Foods 63,448 2.03 12.59 Warnaco 135,580 3.97 39.41 Watkins-Johnson 100,000 3.45 5.48 126 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1972 Amer Distilling 43,950 3.00 56.20 Ancorp National 44,740 3.03 45.98 Apache Corp 44,441 1.47 16.06 Archer-Daniels 125,195 3.93 43.70 Borg-Warner 296,411 1.61 24.86 Dover Corp 78,600 1.76 27.08 Equimark 98,563 2.63 74.00 Esquire 51,872 2.23 24.87 First Penn Corp 126,111 1.05 23.54 Halliburton 178,523 1.03 12.06 Levitz Furniture 450,000 2.67 9.00 Libbey-Owens 113,800 1.05 7.84 Liggett & Myers 163,166 2.05 16.40 MCA 152,110 1.86 41.63 Reliance Elec 86,142 1.30 7.55 Royal Crown Corp 171,108 2.49 9.83 Seagrave Corp 32,317 2.50 13.44 Scott & Fetzer 111,565 1.65 7.34 Sparton Corp 27,862 1.56 18.76 Suburban Propane 30,127 1.07 8.44 Univ Computing 298,776 4.00 8.23 Wallace-Murray 75,001 2.62 43.23 127 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1972 Winn-Dixie Stores 128,040 1.52 19.07 Wometco Enterp 164,824 4.24 38.80 1973 Arlen Realty 538,025 2.68 47.46 Castle & Cooke 186,393 1.44 35.53 Crocker National 207,835 2.03 28.00 Crown Cork & Seal 836,547 4.61 72.45 Dana Corp 230,575 1.70 53.39 Donaldson Luf 107,950 2.54 39.51 Eagle-Picher 52,593 1.24 40.12 Eastern Gas 269,977 2.98 11.30 Evans Products 369,700 2.28 33.92 Fidelity Union Bank 77,451 2.70 134.70 Foote Cone 30,468 1.43 24.01 Gamble-Skogmo 106,061 2.53 16.34 Gen Amer Invt 51,000 1.07 19.98 Gen Amer Transport 160,684 1.39 18.73 Ill Central Ind 583,704 4.66 63.92 Intl Harvestor 298,453 1.09 11.57 Johns-Manville 230,019 1.27 9.72 Keene Corp 175,380 4.75 35.61 128 PrOportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1973 Marcor 324,909 1.18 15.66 McGraw Edison 244,188 1.64 34.67 Nat Aviation 65,700 1.54 24.71 Nat City Lines 28,900 1.38 11.32 Norton Co 119,140 2.26 35.02 Ponderosa System 54,435 1.24 1.25 Ryder System 172,040 1.39 9.30 Sunstrand Corp 67,799 1.24 6.21 Teledyne 397,545 1.25 18.31 UV Industries 28,800 1.09 5.78 United Industrial 25,700 2.10 23.66 US Industries 436,688 1.50 15.48 VSI Corp 115,767 3.89 95.91 Veeder Industries 39,925 3.24 36.23 Ward Foods 71,297 , 2.14 14.53 Witco Chemical 75,260 1.48 25.82 1974 Amer Medicorp 400,000 4.19 46.84 Apache Corp 38,144 1.08 14.17 Belding Heminway 74,335 2.64 35.18 Castle 8 Cooke 169,162 1.30 39.47 129 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1974 Chromalloy Amer 147,922 1.48 32.95 Continental Corp 370,082 1.47 34.71 COOper Ind 153,718 3.67 25.59 Crown Cork & Seal 789,200 4.45 97.23 Emhart Corp 189,651 3.81 56.18 Fred S. James 187,802 4.35 133.95 Harcourt Brace 43,168 1.10 42.36 Harsco 100,000 1.20 51.07 Litton Ind 647,714 2.03 26.51 MacDonald E F 82,350 2.24 30.85 Marathon Mfrg 40,800 1.10 20.13 McLouth Steel 60,000 1.72 14.85 Metromedia 106,534 1.67 16.85 Northwest Ind 121,000 1.85 26.25 Pioneer Gas 160,000 2.20 9.88 Pope & Talbot 103,495 3.61 51.11 Quaker State Oil 199,314 1.41 35.15 Richardson-Merrill 528,402 2.33 65.84 Servomation 109,499 2.24 40.15 Sun 011 443,798 1.22 83.15 Tappan Co 109,574 3.72 38.76 UGI Corp 56,560 1.38 38.19 130 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Coppany Redistributed Outstanding Volume 1974 US Tobacco 202,800 2.46 75.59 1975 Albertson's 84,081 1.34 18.23 Amer Bakeries 34,660 2.16 20.21 Ameron 56,055 2.53 24.95 Anderson Clay 180,111 2.97 58.80 Belding Heminway 100,370 3.50 82.27 Castle & Cooke 251,975 1.82 29.43 Crouse-Hinds 55,630 1.28 13.61 Fairmont Foods 44,900 1.13 44.37 General Host 50,000 3.20 16.40 Gulf & Western 643,818 4.50 21.95 Kirsch Co 31,728 1.30 14.94 Liggett 8 Myers 108,332 1.32 28.08 Marlennan 150,488 1.13 9.97 Northwest Ind 184,183 2.91 10.02 Norton Co 104,879 1.95 42.55 Penn-Dixie Ind 101,898 2.18 37.31 Rollins Inc 517,795 4.06 66.03 St Joe Mineral 284,762 1.43 12.40 Trans Union 176,464 1.75 18.29 A .’.A‘1Cw o. ‘I. 131 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1975 US Home Corp 170,638 1.85 12.17 Univar Corp 59,371 2.78 48.59 Varian Asso 102,086 1.49 2.20 Warnaco 115,000 3.23 44.80 Warner Co 74,200 2.65 129.04 Witco Chemical 54,565 1.01 22.71 Woods Corp 27,540 1.04 3.14 1976 Amer Bakeries 34,010 2.10 16.39 Amer Standard 306,496 2.61 14.29 Conwood Corp 45,280 3.11 9.45 Eagle-Picher 64,764 1.35 28.36 Esmark 232,437 1.33 18.50 Fred S. James 61,000 1.33 22.09 Fuqua Industries 132,500 1.51 3.66 Globe-Union 22,896 1.12 3.08 Hospital Affliates 89,796 4.08 24.71 INA Corp 841,438 3.70 39.37 Inland Steel 205,875 1.04 11.19 Interpublic Group 30,998 1.37 18.89 Liberty Corp 152,638 2.31 48.97 132 Proportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding Volume 1976 MCA 190,642 2.24 9.43 McKee Arthur 17,486 1.15 8.76 Mead Corp 339,081 2.34 11.98 Pet Inc 250,000 3.90 52.81 Stone & Webster 90,400 2.42 30.04 Studebaker Worth 105,695 3.12 43.41 Varian 101,572 1.44 5.87 Vulcan Materials 116,191 2.11 27.00 Winn-Dixie Stores 144,033 1.08 29.94 Zale 115,490 1.39 10.67 1977 Amcord 235,000 3.89 41.54 Amer Brands 467,177 1.82 36.30 Amer Gen Ins 407,481 1.96 17.12 Ametek 52,845 1.04 5.89 Bard CR 103,718 1.11 3.55 City Investing 800,000 3.73 21.90 Cole National 23,456 1.07 11.29 Culligan Intl 96,000 3.00 25.47 Entex 231,566 2.83 64.59 Fred S. James 58,659 1.03 12.18 133 Fraportion of Percentage of Net Shares Net Shares Redistributed Redistributed to Average Net Shares to Shares Daily Trading Company Redistributed Outstanding_ Volume 1977 Norton 82,200 1.52 13.59 Premier Ind 109,988 1.57 72.46 P. .2 Standex Intl 58,957 2.09 41.26 Studebaker Worth 77,252 1.28 5.10 Tandycrafts 77,520 1.87 19.28 Triangle Pacific 29,050 1.60 15.84 APPENDIX B THE NUMBER OF OBSERVATIONS IN THE STUDY BY INDUSTRY lF‘V'l-‘_nn'l . . q o. . \7. 4 Digit SIC 1211 1311 1520 1531 1600 2000 2010 2020 2030 2046 2050 2065 2070 2085 2086 2111 2200 2300 2400 2510 2600 Appendix B THE NUMBER OF OBSERVATIONS IN THE STUDY BY INDUSTRY Industry Name Bituminous Coal & Lignite Mining Crude Petroleum & Natural Gas General Building Contractors Operative Builders Construction - Nonbuilding Food & Kindred Products Meat Products Dairy Products Canned Fruits & Vegetables Wet Corn Milling Bakery Products Candy & Other Confectionery Fats & Oils Distilled Beverages Soft Beverages Cigarettes Textile Mill Products Apparel Lumber & Wood Products Household Furniture Paper & Allied Products 134 Number of Observations 9 4 b, u: +4 (a H NWNN b04350) 2650 2721 2731 2800 2810 2830 2844 2890 2911 2950 3000 3079 3140 3210 3221 3241 3270 3290 3310 3341 3350 3390 3430 3449 3452 3480 135 Paperboard Containers & Boxes Periodicals & Publishing Books & Publishing Chemicals & Allied Products Industrial Inorganic Chemicals Drugs Perfumes & Cosmetics Misc Chemical Products Petroleum Refining Paving & Roofing Materials Rubber & Plastic Products Misc Plastic Products Footwear Except Rubber Flat Glass Glass Containers Cement Hydraulic Concrete Gypsum & Plaster Abrasive Asbestos Blast Furnaces & Steel Works Secondary Smelting Rolling & Draw Nonferrous Metal Misc Primary Metal Products Heating Equip & Plumbing Fixtures Misc Metal Work Bolts Nuts & Screws Ordnance & Accessories )a F! J> .s 0‘ (b a: .a k) (n a) to n. h) .5 F' +4 to WNO‘ 3494 3499 3510 3520 3533 3540 3550 3560 3580 3610 3630 3640 3662 3670 3679 3699 3713 3714 3730 3760 3811 3841 3843 3861 3870 3940 13‘ Valves & Pipe Fittings Fabricated Metal Products Engines & Turbines Farm & Garden Machinery Oil Field Machinery Metalworking Machinery Special Industry Machinery General Industrial Machinery Refrig & Service Industry Machinery Elec Transmission & Distr Eq Household Appliances Electric Lighting & Wiring Equip Radio & TV Transmitting Equip Electronic Components & Acce Electronic Components N E C Electrical Machinery Truck & Bus Bodies Motor Vehicle Parts Ship/Boat Building/Repairing Guided Missiles & Space Vehicles Engr Lab & Research Equip Surg 8 Medical Instruments Dental Equip & Supplies Photographic Equip & Supplies Watches Clocks & Parts Toys & Amusement Sport Goods F4 .3 a. PI F4 .5 u: re b) U1 to a. P‘ K: Id H M NH“) NNl-‘HO‘LQ _ all“).-. 3950 4011 4210 4700 4830 4912 4922 4924 5050 5063 5099 5120 5140 5199 5211 5311 5411 5712 5812 5944 5962 5999 6023 6025 6027 6200 137 Pens Pencils & Other Office Materials Railroads Trucking Transportation Services Radio & TV Broadcasters Electric Utilities Natural Gas Transmission Natural Gas Distribution Wholesale Metals & Minerals Wholesale Electric Apparatus Wholesale Durable Goods Wholesale Drugs Wholesale Groceries Wholesale Nondurable Goods Retail Lumber Retail Department Stores Retail Grocery Stores Retail Furniture Stores Retail Eating Places Retail Jewerly Stores Retail Automatic Merchandising Retail Stores N E C Banks - Regional Eastern Banks - Regional Midwestern Banks - Regional West Coast Security & Commodity Brokers N F‘ pa +4 ,5 w 0) F4 as (b m Ha #4 !a N Ha F4 ya !« a Ha h) N H F4 Pd 6312 6332 6400 6500 7311 7392 7393 7500 7810 8060 8911 9997 138 Life Insurance Property & Casualty Insurance Insurance Agents Real Estate Advertising Agencies Management Consulting Detective & Protective Agencies Automotive Repair Motion Picture Production Hospitals Engr & Architect Agencies Conglomerates Ha rd u: ,3 u) (b 17 2 Digit SIC 12 13 15 16 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 139 Major Group Name Bituminous Coal 8 Lignite Mining Oil 8 Gas Extraction Building Construction Construction Other Than Building Food 8 Kindred Products Tobacco Manufactures Textile Mill Products Apparel Lumber 8 Wood Products Furniture 8 Fixtures Paper 8 Allied Products Printing 8 Publishing Chemicals 8 Allied Products Petroleum Refining Rubber 8 Misc Plastics Leather 8 Leather Products Stone Clay Glass 8 Concrete Primary Metal Industries Fabricated Metal Products Machinery Electrical 8 Electronic Transportation Equip Measuring 8 Analyzing Instruments Misc Manufacturing Industries Number of Observations 9 4 32 meb \l 15 10 17 10 14 19 20 14 17 40 42 47 48 49 50 51 52 53 54 57 58 59 60 62 63 64 65 73 75 78 80 89 99 140 Railroad Transportatidn Motor Freight Transportation Transportation Services Communication Electric Gas 8 Sanitary Services Wholesale Trade - Durable Goods Wholesale Trade - Nondurable Goods Retail Trade - Building Materials Retail Trade - General Merchandise Retail Trade - Food Stores Retail Trade - Furniture Retail Trade - Eating 8 Drinking Misc Retail Trade Banking Security 8 Commodity Brokers Insurance Insurance Agents Real Estate Business Services Automotive Repair Motion Pictures Health Services Misc Services Nonclassifiable Establishments a. ha !a a. F4 quu hl—‘l—‘U‘l l-‘w l—‘NU‘I—‘xl 17 SIC Division D‘JUO I'D '13 141 Division Name Agriculture Mining Construction Manufacuturing Transportation 8 Communication Wholesale Trade Retail Trade Financial Insurance 8 Real Estate Services Public Administration Nonclassifiable Establishments Number of Observations 0 13 3 291 11 10 15 14 16 17 APPENDIX C RESIDUALS OF THE MODEL'S EQUATIONS Appendix C Residuals of the Model's Equations PLOT RESIDUAL .8733E-02 -.237?E-0? -.5588E—03 .4743E-02 -.6317E—02 -.6452E~02 .5049E“02 .37795'03 .7581E-02 .2683E-CQ .2426E"02 oS3695‘02 016745-02 02466E”O? .4255E'02 .7789E”02 .2272E“02 .66845-0? .1351E-03 .6791E”02 .1020E-02 .5359E‘02 .9034CWO2 o 3447E—C‘? .6978E“02 o41515"0? .4314f"02 .3270E~02 .10376-‘01 .4245z-02 .5162E*O? .2519Ew03 .1127E~01 .4384£«on .9601E-O3 .2831E"09 .659?E*02 .8827E‘02 .2096E*03 .4229E"02 .1016E“01 .43485-0: -.6207Em04 .1142F~01 .8524£«03 .436HE*02 .24PIENOQ o3864fi~03 .4489E'02 04931F”02 .IQGOEWO? .3766F~02 .5793fiw02 .44?4E~02 .0559E*04 .6354H”02 .5770E"02 .9307E*02 0F RESIDUALS - Equation (23) 142 O O O O I . I I . I - I I . I. I I I . I . I . I . I I . I . I I . I I 1 I. I . ' I I I I . l I . I . I I I . I . I . I. I I . I . I . _ I I . I I I . I I I I I . I I I . .'.-- :r ‘1’“ :LLfi-'”IZ' ‘ c 'n . Aghi 143 PLOT 0F RESIDUALS ' Equation (24) RESIDUAL .5907E-02 -.1081E-02 . '05823E‘03 o .2393E-02 .4328E-02 . .2390E~02 . .1142E~02 .4324E-02 . .62385-0? . .1126E‘02 .4159E-02 .1902E-02 01°91F'02 o .2649E-02 .5088F-03 . .9096E-02 .1258E-02 . .6563E-OR . 02934E”02 .1816E~02 . .2741E-02 . .3404E-02 . 02882E’02 o .274BE-02 .3847E-02 . . .6635E-03 . .5118E-03 . .6779E-02 .7904F~02 . .7356E~02 . .3978E-02 .ISSQEWOB . .1061E-01 .2370E-02 . .18856u02 .3460E-02 .1920E—02 .7814E-02 .6216E-03 - . .8249E-02 . .6594E~03 . .2368E—02 .9743E-02 .1643E~02 .60?3E~02 .2214E~02 . 02140E‘02 o .8378E~02 . .4343E~02 02729E‘02 o .‘02478E"02 o ~-.2447E~02 . -.3459F-02 . .19745'02 .4118Ew02 -.3118E—02 . -.5526E-02 . .2983E-02 O O O O I O O H’fih‘HlfiFflHiflhéHfdhfiHfidhiHidhiHidhithPHflFflh.HfidhflHfidhiHfiflhfldehdHfidthldhiHiflhdHidhdHFfiF‘HfidF‘Hifi o O IFI F1..- 3144 PLOT 0r RESIDUALS '- Equation-(25) RESIDUAL .7466E-02 -.2930E-02 ~.2437E-02 .3297E-02 -.6802E~02 . ‘08245E-02 o .3417E-02 .5647E-03 'O7789E"02 o ~.3799E-02 . .2181E-02 .6068E-02 .3018Fw02 .352?E~02 -.2884E~02 .8442E-02 .4797E-02 -.4671E-02 . .23145-02 -.4521Ew02 . .3531E-03 '02988E“02 o .2092E-02 .6411Ee0? '03312E’0? o -.1709E~O? . -.l4°7F-02 . .6462E-02 -.5894E~02 . «.8977E-02 . .5864E-03 'OBBQOF’OR o .7732E—02 -.6113E-02 . '94616E'02 o -.1832E~03 .4333E-02 .7323E—02 -.7S4OE"O3 -.6169E~02 . .7793E~02 .4184E-02 -.7725E-03 01029E’01 -.1784E~03 .4084E—02 -.2289E—02 . ~.9840E~03 ‘04596E’O’3 o .4470Ew02 -.8268Ew03 “03414E‘02 ' o -.5509E-02 . -.4?13E“02 . .5451E~03 .7793E-02 -.3205E-02 . -081936'02 o .4216E-02 HHHHHI-flrd HHHHHHHO HHHHHHHHO HHHHHHHHHHHHHHHHHHHHHHQHHHHHHHHHHHHH PLOT RESIDUAL .6396E-02 -.4152E-02 ".3047E-02 .2638E-02 “.7707E-02 -.8543E-02 .3173E-02 ~.2492£-03 ~.834OE~02 -.3893E-02 .1874E-02 .5520E-02 .2342E-02 .3069E-02 " o 3340E"02 .8370E-02 .4136E-02 -.5024E~02 .2471E~02 -.4742E-02 .5831E-03 -.3017E-02 .2317E-02 .6388E—02 -.3484E~02 " o 1305:5022 -.119éE-02 .6812E-02 -.5919E~02 ’ o 62605”02 .3368Ew02 -.1163E~02 .9957E~02 -.4649E-02 -.2509E"02 .1600F*02 ,57505-02 .8373E-02 .1016E-04 -.5120E*02 .8922E-02 .4400E-02 -.4327.-03 .107OE-01 -.5?42F~03 .42045-02 ~.2618E‘02 -.10985-02 -.4974E-02 .4140E-02 -.18095~02 —.4214£-02 -.6366E~02 -.5125E-02 " o 5994E-03 .6254E-02 —.5250£~02 -.9773E~02 .267?E~02 2145 OF RESIDUALS HHHH. HHHHHHHHHO HO HHHO HHHHHHHHHHHHHHHHHHHHHHHHHHHHQHO HHHHHHH - Equation (28) .. g u . - .. «.---- «-- .....- 146 PLOT 0F RESIDUALS - Equition (33) RESIDUAL .6003E-02 '01401E”02 o -.1181E-02 o .2255En02 -.4737E-02 o “03529E’02 o .1282E-02 “03631E‘02 o -.6651E-02 . .2405E~03 .4107E-02 .2875E—02 -.2081E~03 .3001E-02 -.3472E-03 .93975-02 .4863E-03 -.5800E—02 . .3093E-02 -.1405E-02 . ’01721E‘02 o -.2759E~02 o -.1579E-02 . 03934E‘02 -.2749E-02 . ~.4953E*04 o3333E~03 .7773E-02 -.6179E-02 . -.9467E~02 . .1539E~02 '03087E“02 o .8701En02 -.3688E~02 o -.3687E~03 . .1925E-02 01369E‘02 .68615-02 -.1125E-02 o -.8782E-02 . -.6056E—03 o .1406E-02 .1522E-02 .9543E-02 .156PEw02 .56225-02 -.2042E-02 o -.?124E~02 . "0790?E"02 o .40?5E~02 -.]9895"0? . —.?403Ew02 . —.2538E~02 o ”03132F_’02 o I .2243E-02 .5453E-02 ~o2122E~2 o I -.5133E*02 o .3899E"02 I o O H thhdHlflhdHrdthfidhndhflHFflFflHFfiF‘HFflF‘HFfiO otflhflHhflh‘HfidhflHfifiO H0 FOHO F‘HfidkiHfidh‘Hfid. FOH o F! 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"Statutory Influence on Treasury Stock Accounting," Accounting Review, volume 35, number 3, July, 1960. Downes, David and Thomas R. Dyckman. "A Critical Look at the Efficient Market Empirical Research Literature as It Relates to Accounting Information," Accounting Review, volume 48, number 2, April, 1973. Eckel, Leonard G. "The Regulation of Treasury Stock Transactions," Ph.D. dissertation, The University of Michigan, 1969. Ellis, Charles D. "Repurchase Stock to Revitalize Equity," Harvard Business Review, volume 43, number 4, July-August, 1965. 147 148 11. Elton, Edwin and Martin Gruber. "The Cost of Retained Earnings: Implications of Share Repurchase," Industrial Management Review, volume 9, Spring, 1968. 12. . "The Effects of Share Repurchase on the Value of the Firm,” The Journal of Finance, volume 23, number 1, March, 1968. 13. . "The Effect of Share Repurchase on the Value of the Firm: Reply," The Journal of Finance, volume 23, number 5, December, 1968. 14. Escobar, Manuel. "The Price Effects of Corporate E‘ Share Repurchases," Ph.D. dissertation, ‘ The University of Pennsylvania, 1974. 15. Fama, Eugene F. "Efficient Capital Markets: A Review of Theory and Empirical Work," The Journal of Finance, volume 25, number 2, May, 1970. 16. , Lawrence Fisher, Michael Jensen, and Richard Roll. "The Adjustment of Stock Prices to New Information," International Economic Review, volume X, number 2, February, 1969. l7. Finnerty, Joseph E. "Insiders and Market Efficiency," The Journal of Finance, volume 31, number 4, September, 1976. 18. Gillespie, William B. "The Price Impacts of Reverse Stock Splits," Ph.D. dissertation, University of Florida, 1974. 19. Granger, C. W. J. "What the Random Walk Model Does Not Say," Financial Analysts Journal, volume 26, May—June, 1970. 20. Guthart, Leo A. "Corporate Repurchases of Already Outstanding Common Stock," Ph.D. dissertation, Harvard University, 1966. 21. . "More Companies Are Buying Back Their Stock," Harvard Business Review, volume 43, number 2, March-April, 1965. 22. . "Why Companies Are Buying Back Their Own Stock," Financial Analysts Journal, volume 23, number 2, March-April, 1967. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 149 Holt, Walter A. and Edwin L. Morris. ”Some Aspects of Reacquired Stock, 1931-1933," Harvard Business Review, volume 12, number 4, July, 1934. Horwitz, Bertrand and Allan Young. "The Case for Asset Disclosure of Treasury Stock," CPA Journal, volume 45, March, 1975. Kessler, Robert A. "Share Repurchase Under Modern Corporate Law,” Fordham Law Review, Winter, 1959-60. Marks, Kenneth R. "The Stock Price Performance of Firms Repurchasing Their Own Shares," Ph.D. dissertation, New York University, 1975. Marshall, Wayne S. and Allan E. Young. "A Mathematical Model for Re-acquisition of Small Shareholdings," Journal of Financial and Quantitative Analysis, volume 3, number 4, December, 1968. '1‘!“ Meyer, Philip E. "Some Accounting Ramifications of Treasury Stock," CPA Journal, volume 43, November, 1973. Mock, Edward J. and Donald H. Shuckett. "Decision Models for the Acquisition of Treasury Shares," Management Services, volume 5, March-April, 1968. Nantell, Timothy J. and Joseph E. Finnerty. "Effect of Stock Repurchase on Price Performance," Paper Presented at the Financial Management Association Meetings, San Diego, 1974. Nemmers, Erwin E. "The Power of a Corporation to Purchase its Own Stock," Wisconsin Law Review volume 17-161, 1942. Norgaard Richard and Corine Norgaard. "A Critical Examination of Share Repurchase," Financial Management, volume 3, number 1, Spring, 1974. Pettit, R. Richardson. "Dividend Announcements, Security Performance, and Capital Market Efficiency," The Journal of Finance, volume 27, number 5, December, 1972. RapP. Wilbur A. 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