The Causes and Consequences of Accelerated Stock Repurchases*
Ali Akyol(Department of Finance, The University of Melbourne)
Jin S. Kim(School of Business Administration, College of Economics & Commerce, Kyungpook National University)
Chander Shekhar(Department of Finance, The University of Melbourne)

We examine the choice between accelerated share repurchase (ASR) and open market repurchase (OMR) as repurchase mechanisms between 2004 and 2007. For a sample of ASRs and OMRs that actually buy shares in the announcement quarter, we find that ASR firms have lower market-to-book ratios, less cash, but greater managerial entrenchment. Prior to repurchase, ASR firms are subject to significantly more takeover rumors than OMR firms are, and this, along with entrenchment and undervaluation, affects the choice to use ASRs. ASR firms experience positive average abnormal returns both before and after the announcement. Moreover, the latent takeover probability is significantly lower for both ASR and OMR firms (when compared with pre-announcement levels), but the reduction for ASR firms is more pronounced. Our results suggest that repurchases, and especially ASRs, indeed make a firm a less attractive prospect for takeover.

*This paper was previously titled ‘Do Accelerated Stock Repurchases Deter Takeovers? An Empirical Analysis.’ We thank Vladimir Atanasov and Sudipto Dasgupta, seminar participants at the College of William & Mary and at the University of Melbourne, participants at 2008 EFMA Conference, 2008 AFB Conference, 2009 Asian Finance Association Meeting, and 2009 FMA International Conference, for many helpful comments and suggestions. This research was also supported by Kyungpook National University Research Fund, 2009. All remaining errors are our own.

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Realized Volatility Forecast: Structural Breaks, Long Memory, Asymmetry, and Day-of-the-Week Effect*
Ke Yang(College of Economics & Management, South China Agricultural University)
Langnan Chen(Lingnan College (University) and Institute for Economics, Sun Yat-Sen University)

We investigate the properties of the realized volatility in Chinese stock markets by employing the high-frequency data of Shanghai Stock Exchange Composite Index and four individual stocks from Shanghai Stock Exchange and Shenzhen Stock Exchange, and find that the volatility exhibits the properties of long-term memory, structural breaks, asymmetry, and day-of-the-week effect. In addition, the structural breaks only partially explain the long memory. To capture these properties simultaneously, we derive an adaptive asymmetry heterogeneous autoregressive model with day-of-the-week effect and fractionally integrated generalized autoregressive conditional heteroskedasticity errors (HAR-D-FIGARCH) and use it to conduct a forecast of realized volatility. Compared with other heterogeneous autoregressive realized volatility models, the proposed model improves the in-sample fit significantly. The proposed model is the best model for the day-ahead realized volatility forecasts among the six models based on various loss functions by utilizing the superior predictive ability test.

*This research is supported by China Natural Science Foundation and Grant No. 71203067 and 71241019, Guangdong Soft Science under Grant No. 0204, Guangdong Social Science Foundation under Grant No. GD10CYJ01, and Guangdong Social Science Project under Grant No. 08JDXM79001.

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Corporate Governance and the Cost of Capital: An International Study*
Feifei Zhu(College of Business Administration, Hawai‘i Pacific University)

This study shows that firms with good corporate governance are consistently associated with both lower cost of equity and cost of debt capital in an international setting. The association between corporate governance and the cost of equity is more pronounced in countries with strong legal systems, extensive disclosure practices, and good government quality. However, the relation between corporate governance and the cost of debt is stronger in countries characterized by weak legal protection, low transparency, and poor government quality. The differential relations can be attributed to asymmetric payoffs received by creditors and shareholders.

*I thank Lilian Ng, Valeriy Sibilkov, Keshab Shrestha, Sudipto Dasgupta, an anonymous referee, and seminar participants at the University of Wisconsin – Milwaukee, 2009 Financial Management Association meeting and 2009 Southern Finance Association meeting for many helpful comments and suggestions. All mistakes remain mine.

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Market Discipline and Deposit Guarantee: Evidence from Australian Banks*
Xing Yan(Department of Banking and Finance, Monash University)
Michael Skully(Department of Banking and Finance, Monash University)
Katherine Avram(Department of Banking and Finance, Monash University)
Tram Vu(Department of Banking and Finance, Monash University)

This study examines depositor market discipline of Australian banks and its interaction with the 2008 deposit and wholesale funding guarantee. Prior to 2008 market discipline is found for Australian-incorporated banks. Depositors did not distinguish between major and small banks, but some differences in the degree of market discipline were found for foreign bank subsidiaries. Following the introduction of the 2008 guarantees, market discipline was reduced except for nonhousehold depositors at banks that did not access the wholesale guarantee. Market discipline is also evidenced at foreign bank branches, but weaker for those accessing the wholesale guarantee.

*The authors are grateful to Sudipto Dasgupta (editor) and an anonymous associate editor and reviewer for their helpful comments and suggestions. We thank the Australian Prudential Regulation Authority (APRA) for the provision of data. We would also like to thank David Tripe, Robert Faff, Necmi Avkiran and participants of the MCFS-Finsia Banking and Finance Conference and the 24th Australasian Finance & Banking Conference for their valuable comments. The findings, interpretations, and conclusions expressed in this paper are entirely those of authors.

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A Quiet Revolution in Corporate Governance: An Examination of Voluntary Best Practice Governance Policies
Vishaal Baulkaran(Faculty of Management, University of Lethbridge)

This paper investigates the effects of several voluntary best practice corporate governance principles on firm performance and firm risk. Using a sample of Standard & Poor’s/Toronto Stock Exchange Composite Index firms from 2003–2010, I show that firms with individual director election and detailed disclosure of voting results in director elections have a higher firm value or performance. Firms with independent chairman, majority voting, and detailed disclosure of voting results in director elections have lower idiosyncratic risk. In addition, the results from the panel regression show that detailed disclosure of voting results in director election leads to lower systematic and total risk.

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