Testing the Real Option Hypothesis on the Declining Open-Market Repurchase Announcement Returns

Abstract

Recent studies report that open-market repurchase announcements have become less attractive to stock investors. This study documents that lower announcement returns are attributed to subsequent repurchase announcements, which have increased in number in recent years. Using the real-option-to-delay framework proposed by Ikenberry, D and T Vermaelen (1996). The option to repurchase stock. Financial Management, 25, 9–24, this study finds evidence consistent with decreasing value of the option to repurchase shares prior to subsequent open-market repurchase announcements. This explains the decreasing market reactions to such announcements.