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RETURN OF CAPITAL: CASH FLOW, WEALTH TRANSFER AND INFORMATION SIGNALLING EFFECTS
Author(s) -
Coombes Robert J.,
Tress Richard B.
Publication year - 1983
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.1983.tb00223.x
Subject(s) - cash flow , monetary economics , return on capital employed , shareholder , business , capital (architecture) , economics , return on capital , cost of capital , free cash flow , return of capital , rate of return , finance , financial economics , microeconomics , investment performance , financial capital , return on investment , capital formation , incentive , corporate governance , profit (economics) , archaeology , production (economics) , history
This paper examines the price effects of an announcement to distribute cash to shareholders via the return of capital procedure currently applying under Australian company law. The impact of such announcements on the market value of ordinary shares is analysed in terms of three hypothesised effects: the cash flow effect, the wealth transfer effect and the information signalling effect. Using data from 17 companies which announced a return of capital between 1970–1978, and applying the “comparison period” methodology, significant positive returns were observed at the time of the announcement of a return of capital. Possible explanations for this result are considered.