Finally, discretionary current accruals (DCA) are computed simply by subtracting non discretionary current accruals (NDCA) from current accruals (CA). Discretionary current accruals will be used as proxies of earnings management prior to the share repurchase announcements. Thus, represent the amount of earning management of firm i in year t. Model Regressions Regression with 2 days CAR [0, +1] The Cumulative Market-Adjusted Returns (CAR) [0, +1] around the Share Repurchase Announcements (dependent variable) is used to regress against the Corporate Governance Dummy Variable, Earning Management (Discretionary Current Accruals) 1 year before Share Repurchase Announcements, Price-To-Book Ratio, Market Capitalization and Return on Assets. All values are based on the Singapore Dollar Currency. Companies in portfolio 4, which contains the companies with the worst corporate governance practices, are rated as 1 for the Corporate Governance Dummy Variable. The other companies in the three portfolios are rated as 0.
34 In the Regression Model, represents the Cumulative Market-adjusted Returns [0, +1]; is the Corporate Governance Dummy variable; represents the Discretionary Current Accruals - 1 year before Share Repurchase Announcements, represents the Price-To- Book Ratio; is the log of market capitalization of the company in millions of dollars; and signify the Return on Assets. All values are based on the Singapore Dollar Currency. CG Sub Index A, B, C, D and E refers to the scores on five different categories on the Singapore Corporate Governance Index namely ―Rights of Shareholders, Equitable tr eatment of Shareholders, Roles of Stakeholders in Corporate Governance, Disclosure and Transparency, and Responsibilities of the Board‖ respectively. 5 different sector dummy variables are assigned to companies in different industries in order to control for industry specific level of governance. The dummy variable means the number 1 is assigned for the particular company belonging to the sector while the number 0 is assigned for the other companies not in the sector. Sector 1 refers to companies in the Manufacturing industry; Sector 2 refers to companies in the Hotels, Restaurants and Service industries; Sector 3 refers to
35 companies in the Commerce and Finance industries; Sector 4 refers to companies in the Construction and Properties industries; and Sector 5 refers to companies in the Agriculture, Multi-Industries, Transportation, Storage and Communication industries. Pearson Correlation Pearson Correlation Coefficients are shown for the variables used in the regression models. The variables included are the Cumulative Market-adjusted Returns (CAR) [0, +1], Corporate Governance Dummy variable, Corporate Governance scores from the Singapore Corporate Governance Index, Earning Management (Discretionary Current Accruals) 1 year before Share Repurchase Announcements, Price-To-Book Ratio, Log of Market Capitalization, and Return on Assets.
36 Chapter 8: Results and Analysis