Data Analysis and Methodology

Sample selection
The study is based on the performance of the USA construction firms during the
financial crisis of 2006 – 2008. The construction and engineering company data has
been identified from Cass website based on the stock repurchase during the financial
crisis.
The companies’ data that I will use during the study will be from 2000 to 2008. The
database provides performance of several industries across United States but main
focus will be on the construction and engineering industry during the given period of
financial recession. Incomplete data will be eliminated to avoid biasness and errors
within the data analysis. Stephens and Weisbach (1998) have proposed numerous
buyback policies. One being the shift in the amount of excellent stocks recorded on
the records of the "Security Price Research Center (CRSP)" or Compustat. The
buyback policy understates the real quantity of buybacks when a company
repurchases stocks and sells them concurrently. The second step, as indicated in the
company's financial statement, seems to be the total dollar figure incurred on
buybacks. The measure's limitation is that it could include all inventory forms such as
favourite stocks. The shift in Marketable securities is also another metric. the
method is a partial indicator since many companies are withdrawing the securities
they buy back instead of placing them in Marketable securities. We will be using the
real buybacks. Whether on the secondary market or contracted individually) and non-
tender operations to prevent these issues. Data products involve approved, stated and
real value as well as inventory, purchase intent, item definition, full business profile,
capital raises, funding data, after-market marketing data, following-market
performance data, official approval and closing dates, associated purchases and public
offering changes.

revenue ebti cashflow 1bookvalueinternal

1 cash
book to market
leverage
70.987 6.964 7.944 7.2 06 0.288023042
0.460721868
58.311 3.529 4.469 7.6 0 0.257365 0.437642
58.311 3.529 4.469 7.6 0 0.258301 0.437642
962.163 36.565 40.213 20.6 0 0.117505 0.618685
989 39.3 59.3 23.3 0 0.133199 0.619995
1616.58 83.531 95.639 24.3 0 0.020507 0.435346
1770.189 128.374 140.721 25.4 1 0.014455 0.428229
3245.169 198.192 243.476 19.6 0 0.030507 0.563699
1394.074 87.269 92.777 43.6 0 0.268609 0.60146
The table shows the sample of companies and their share repurchases during the
recession period. The data indicates the company’s real trading data during the
periods of 2000 to 2016.
Prior research finds that the public response to both the buyback of free-market share
differs with the destination proportion launched for buyback. Instinctively, the
magnitude of an real buyback as well as the extent to which a buyback is a'' mystery''
may have an effect on the response of the sector.
Empirical setup
The fundamental configuration of the analyses will indeed be given throughout this
chapter with either the sample and the primary indices. First will be provided the
fundamental system used in the primary analysis of the hypotheses, accompanied by
the building of the buyback operation as well as the fundamental presumed
undervaluation criteria. Finally, the building of undervalued indices is described using
various fundamental apparent undervalued indices.
Evaluation of real share buybacks Two significant accounts can be used for stock buy
backs. The inputs that are built from Compustat repository data lead in company
estimators of real stock buyback activity. . The fundamental system for analyzing
enhanced share buyback exercise is outlined in this section. After those references are
integrated in the same module data sets, this fundamental model is implemented to
evaluate both real share buyback rises and share buyback press releases.
First, the information is described as a data sets panel to I and t sizes. The time
element t is described as a component comprising the corresponding findings year and
section and is planned to have periodic measures. Businesses may have omitted
findings within the raw data section, leading in an imbalanced data sets board.
Specific regression configurations or variables may involve that firms be used for
with a minimal amount of remarks.

Repurchase (K)i,t = Bo + B1 cashflow + B2 revenue + B3ebti + B4 book value +

B5financialcrisis + B6 risk + E
Cashflow

The cash flow of a company which dictates the amount of working capital
of the company. According to previous studies cash low has been a major
drive for companies to repurchase shares. According to signalling theory
and undervaluation theory which bases its assumption on the asymmetry
of information between the shareholders and the management of the
company.
According to capital allocation theory, Almeida, Fos & Kronlund (2016)
observes that companies may repurchase stock to distribute excess cash
flow within the company. The rationale for capital allocation is that
stakeholders might distribute more resources efficiently than corporate
managers. If the money market distribution is right, then corporations
promoting repurchases initiatives might face a reduction in the business
opportunities.
According to Voss 2012, a company corporate decision to allocate
surplus cash streams in either the combination of stock buybacks or
divided payments is premised on permanence of both the surplus cash
balances.

Revenues
The company revenue may be as a factor of share repurchases within a
firm. The company may decide to repurchase its extra to increase its
revenues. According to vamalaen (2005) a company may repurchase its
share to reduce the agency costs associated with dividend payments of the
company. By repurchasing its shares the company will reduce the
operating costs of the company and also increase the revenues of the
company.
EBIT
The Earnings Before Interest and Taxes of a company determines the
stock repurchases of a company. The company may repurchase its stock
to boost its income per share. Dedman, Hua & Kungwal 2019 noted that
investment bankers and stock analysts often mention Earnings Per Share
increase as an important factor that determine stock repurchases. They
also noted that as soon as income decreases by about the same proportion
of excellent stock, the earnings per share will actually increase. The
markets dictate that at different sizes and rates across the sector by
particularly focusing on published EPS, inventory rates would also
increase which implies the company has unused resources.
Book value of the company.
The book value of the company determines the assets at disposal of the
firm to determine the amount shares it is going to repurchase. According
to signalling theory and undervaluation theory a company’s stock might
be used to determine the value of the company. The firm may repurchase
stock to deal with solvency problems.
The enhanced repurchase model.
Repurchase (K)i,t = Bo + B1 cashflow + B2 MV1+ B3ebti + B4 CAR +
B5financialcrisis + B6 risk + B7leverage + B btm + E

CRISIS. Its the indicator value during the crisis period which equals to 1 for purposes
of observation from 2006, and 0 in other cases.

CHAPTER 4: DATA ANALYSIS

Introduction
Data analysis chapter holds a vital role in the entire research process as the
outcome of the study is determined through this chapter based on the data collected
and analysed. In the subsequent paragraphs, data collected from the present research
has been analysed and interpreted so that readers can understand the outcome.

Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
Abnormal Returns at 0 11704 -.57 2.79 .012 .06
CAR 11704 -.73 2.63 .021 .08
MV1 11705 .02 2924722.00 7165.42 36642.82
Book to Market 11705 -12.94 288227.09 28.22 2681.70
Cash flow to Assets 11705 -2.75 187.05 .13 1.77
Cash flow to Book 11693 -33840.00 147910.00 83.77 1497.35
Valid N (listwise) 11692

As per the descriptive statistics table, the minimum and maximum abnormal
return reported was -0.57 and 2.79 respectively with an average mean of 0.012 (SD =
0.06). The mean for Cumulative abnormal returns for the firm (i) at the time (t)
(CAR) was 0.021. The firm’s market value showed much variation as the minimum
and maximum market value reported was 0.02 and 2924722.00 respectively with a
mean market value of 7165.42 (SD = 36642.82). Finally, the mean for cash flow to
assets was 0.13, and that of cash flow to the book was 83.77.

Graphical Representation of the Dependent and Independent Variables

Correlation Analysis
In order to determine inter-item correlation, correlation analysis between the
independent variables was performed. Following table shows the results of correlation
analysis:
Book to Cash flow to Cash flow to
CAR MV1 Market Assets Book
CAR Pearson 1 -.020*
.011 -.011 -.004
Correlation
 Sig. (2-tailed) .032 .232 .217 .635
N 11704 11704 11704 11704 11692
MV1 Pearson -.020*
1 -.002 .002 .132**

Correlation
Sig. (2-tailed) .032 .824 .808 .000
N 11704 11705 11705 11705 11693
Book to Pearson .011 -.002 1 -.001 -.001
Market Correlation
Sig. (2-tailed) .232 .824 .942 .949
N 11704 11705 11705 11705 11693
Cash flow to Pearson -.011 .002 -.001 1 .064**

Assets Correlation
Sig. (2-tailed) .217 .808 .942 .000
N 11704 11705 11705 11705 11693
Cash flow to Pearson -.004 .132**
-.001 .064**
1
Book Correlation
Sig. (2-tailed) .635 .000 .949 .000
N 11692 11693 11693 11693 11693

As per the above correlation analysis, there is no significantly strong

correlation between any of the independent variables. If there had been a correlation
of coefficient of 0.7 or higher between any pair, there would have been changes of
multicollinearity. However, in the present case, since none of the pair's shares
statistically strong association, there is no possibility of multicollinearity.

Regression Analysis
Regression analysis was performed to determine the impact of independent
variables; that is, CAR, MV1, Book to Market, Cash flow to Assets, and Cash flow to
Book on the dependent variable Abnormal Returns. The subsequent paragraphs
discuss the results of the regression analysis.

Regression Model
Model R R Square Adjusted R Square Std. The error of the Estimate
1 .656a
.430 .430 .0471291

As per the above table, the regression coefficient R comes out to be 0.430.
2

This shows that with 100% change in the independent variables, that is, CAR, MV1,
Book to Market, Cash flow to Assets, and Cash flow to Book, there will be 43%
change in the dependent variable abnormal returns. However, whether this variation
in the dependent variable due to independent variables is significant or not can be
seen from the ANOVA analysis below:

ANOVA
Model Sum of Squares df Mean Square F Sig.
1 Regression 19.613 5 3.923 1766.006 .000 b

Residual 25.956 11686 .002

Total 45.569 11691
 As per ANOVA analysis, F(5, 11686) = 1766.006; p = 0.000. Since the p-
value or the significance value is coming out to be 0.000, which is less than the
critical alpha value of 0.05, it can be said that the above relationship is statistically
significant. That is, the independent variables CAR, MV1, Book to Market, Cash flow
to Assets, and Cash flow to Book have a statistically significant impact on the
dependent variable Abnormal Returns. Now to determine the impact of the individual
independent variable on the dependent variables, let us consider the coefficient table
below:

Coefficient
95.0%
Unstandardized Standardised Confidence
Coefficients Coefficients Interval for B
Std. Lower Upper
Model B Error Beta t Sig. Bound Bound
1 (Constant) .003 .000 6.077 .000 .002 .004
CAR .475 .005 .655 93.674 .000 .465 .485
MV1 -1.408E-8 .000 -.008 -1.174 .241 .000 .000
book_to_market -4.861E-7 .000 -.021 -2.992 .003 .000 .000
cashflow_to_assets -.003 .001 -.018 -2.575 .010 -.005 -.001
Cashflow_to_Book -3.052E-8 .000 -.001 -.104 .917 .000 .000

As per the above coefficient table, the coefficient of all the independent
variables except CAR is coming out to be negative. This shows that apart from CAR,
all the independent variables have a negative association with the dependent variable
abnormal returns. Further, p-value or the significance value for CAR, Book to Market
and Cash flow to Assets is coming out to be less than the critical alpha value of 0.05;
this shows that CAR, Book to Market and Cash flow to Assets have a statistically
significant impact on the dependent variable abnormal returns. On the other hand, the
p-value or the significance value MV1 and Cash flow to Book are coming out to be
more than the critical alpha value of 0.05; this shows that MV1 and Cash flow to
Book do not have a statistically significant impact on the dependent variable
abnormal returns. Finally, the regression model comes out to be as:

mal Returns0= 0.003+ 0.457*CAR-1.408E-8 *MV1- 4.861E-7*B/M- 3.052E-8*CF/BV- 0.003*CF/A