Managements' Views on Share Buy-Backs: An Australian Survey

Abstract

Share buy-backs are a relatively new concept in the Australian business environment. This study surveys managements' motivations and various other aspects concerning share buy-back activity. The results reveal that these motivations vary across the five different types of buy-backs. For on-market buy-backs the most relevant motivations are to improve financial performance (i.e., earnings per share) and financial position (i.e., net asset backing per share) followed by signalling of future expectations or underpricing. Interestingly, managements' response regarding the relevant motivations is similar regardless of whether their companies had conducted a buy-back or not. This provides evidence of widespread support for the relevant motivations. In addition, Australian managers believe that they are familiar with the potential benefits and legislative requirements of buy-backs, but that their shareholders often do not understand or are not favourably disposed towards buy-back events. Finally, two major explanations are identified for the initial conservatism towards buy-backs. Those explanations are (i) legal complexity and cost and (ii) the perceived negative disposition of the sharemarket towards buy-backs.