Global Business and Economics Review   »   2014 Vol.16, No.2

 

 

Title: The effect of heteroskedasticity on factors affecting stock repurchases

 

Authors: Anup M. Nandialath; Bernardo da Veiga; Madan Annavarjula; Ramesh Mohan

 

Addresses:
College of Business Sciences, Zayed University, P.O. Box 19282, Academic City, Al Ruwayyah, Dubai, UAE
School of Economics and Finance, Curtin Business School, Curtin University, GPO Box U1987, Perth, WA 6845, Australia
Department of Management, Bryant University, 1150 Douglas Pike, Smithfield, RI 02917, USA
Department of Economics, Bryant University, 1150 Douglas Pike, Smithfield, RI 02917, USA

 

Abstract: We demonstrate the effect of ignoring the role of heteroskedasticity modelling in applied corporate finance studies and show that it may have important consequences in corporate financial decisions. In this paper, we specifically focus on the effect of heteroskedasticity on the factors affecting the open market operations of the firm. We show that in the absence of modelling heteroskedasticy results from prior research are consistent. By explicit modelling of heteroskedasticity some results are reversed. In particular, we find that the effect of key variables such as dividends, leverage and the likelihood of takeover on the probability of repurchase differs after controlling for heteroskedasticity.

 

Keywords: open market stock repurchases; takeover deterrence; discrete choice models; heterosekdastic probit; heteroskedasticity modelling; corporate financial decisions; dividends; leverage.

 

DOI: 10.1504/GBER.2014.060183

 

Global Business and Economics Review, 2014 Vol.16, No.2, pp.142 - 156

 

Available online: 31 Mar 2014

 

 

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