A Study of Signaling Effects on Sequential Stock Repurchases in Taiwan

Abstract

Companies outside Taiwan rarely execute sequential stock repurchase programs on a short-term basis. Sequential stock repurchase programs arise from a special stock repurchase regulatory environment. This study adopts an event study methodology to investigate the signaling effects of sequential stock repurchase programs in Taiwan. Specifically, this study evaluates signaling effects among sequential stock repurchase programs and determines if the stock repurchase programs signal to the market that stock prices are undervalued. The major findings of this study are as follows: (1) stockholders earn a significantly positive abnormal return when stock repurchase programs are announced or executed; (2) the signaling effect on the announcement window gradually decreases if the frequency of stock repurchase programs increases, but this is not statistically significant; and (3) the empirical results of this study do not support the small-capital company effect of stock repurchase programs. Instead of discussing the long-term effects of stock repurchases, this study focuses on the effect of sequential stock repurchase programs. The results of this study imply that sequential stock repurchase programs cannot continuously send positive signals to the stock market. On the other hand, the practice of sequential stock repurchases creates ＂noise＂ in the stock market. If the managers of listed firms attempt to use the announcement of sequential stock repurchase programs to manipulate stock prices, they may produce the opposite result.