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1. Introduction
In an accelerated stock repurchase (ASR) a firm buys its own shares from an investment bank, who borrows a specified number of the firm's shares from its institutional clients and immediately delivers them in exchange for cash based on an agreed upon price per share (normally the closing market price on that day). The investment bank then purchases shares of the firm from the open market to cover its short position over the next several months. Depending on the volume-weighted average purchase price of the shares during this period, the repurchasing firm is required either to compensate, or to receive compensation from the investment bank to adjust for the difference in price. If the average price that the investment bank pays for the shares to cover the short position is higher than the initial price that was paid to the investment bank, the firm is required to compensate the investment bank with additional cash or shares. Conversely, if the average price is lower than the initial purchase price then the investment bank compensates the firm in extra cash or shares.
The number of firms announcing stock repurchase programs has increased steadily since the mid-1980s, and repurchasing activity has escalated since 2000. Along with this intensified stock repurchasing activity we have observed two new trends in the share repurchase market in recent years. The first trend is that the vast majority of repurchase programs are executed via open market repurchases (OMRs), instead of other methods such as tender offers and privately negotiated offers. The second one is a dramatic increase in accelerated stock repurchase (ASRs) programs. [10] Dickinson et al. (2012) report that ASRs as a percentage of aggregate repurchases increased from approximately 0.5 percent in 2002 to approximately 14 percent in 2007. ASR is a new innovative method of share repurchase which was almost non-existent before 2004. Recent repurchase programs commonly include an ASR as a possible method by which the repurchase programs will be executed ([3] Bargeron et al. , 2011). While ASRs are becoming an important repurchasing method, we do not have an adequate understanding of ASRs. We can find only a few studies on ASR programs in the literature. The dearth of studies in this area is the main...