Stock Repurchase Announcements Research Articles

Why do undervalued firms repurchase shares? Evidence based on the market-timing effect in China

It is puzzling that few undervalued firms in China make repurchase announcements despite the value-adding motive of share repurchases. Inspired by this conundrum, this study explores the market-timing effect of repurchase signaling. Our sample consists of A-share listed firms that made stock repurchase announcements in China between 2005 and 2019, as well as their comparable peers obtained through the Mahalanobis distance matching. Changes in market indices before and after the repurchase announcements are used to measure overall market timing, followed by regression analyses. We find a positive relationship between post-announcement price reactions and market performance measures, suggesting that firms time repurchase announcements based on historical pricing information as well as overall market trends. We further propose that firms' timing capabilities are honed through attention to the capital market, which significantly increases the willingness to announce repurchase plans. Our findings help to explain why firms in China with undervalued shares make repurchase announcements.

The effect of asymmetric information disappears: Evidence in share repurchases and market efficiency

This article aims to measure the wealth effect centered on stock repurchase announcements in U.S. companies and combine it with the concept of market efficiency, which means that information can be fully disclosed and circulated. We find that the higher the market efficiency, the lower the information asymmetry between internal managers and external investors and the lower the company opacity, resulting in the disappearance of abnormal returns after stock repurchases. Furthermore, we show that when market uncertainty decreases, the lower the information asymmetry opacity, the lower the abnormal returns after stock repurchases. Our findings have important policy implications for governments and investors.

A Study on the Relationship between Insider Trading and Stock Repurchase Firms

This study analyzes insider trading and stock price reactions before and after announcements of stock repurchases and empirically analyzes whether additional information could be provided to the market. In addition, the market response to stock repurchase announcements was analyzed to verify whether there was a difference in the entire stock market, KOSPI market, and KOSDAQ market. By examining insider trades in the stock market from 2005 to 2014, we verified that insider trading is affected by the degree to which company’s stock is undervalued. In addition, the market response to the disclosure of stock repurchase was positive, confirming that companies perceived stock repurchase as a good signal. In particular, the market reaction to stock repurchase in the KOSDAQ market is statistically significant, while that in the Kospi market is not. Finally, in all stock markets, if insider trading behavior before the announcements of stock repurchase for undervalued purposes is a strong selling position, there is no significant long-term return, indicating that market information is an incorrect signal. These findings provide evidence that insider trading behavior around stock repurchases can be used as an additional signal.

The relationship between stock repurchase completion rates, firm reputation and financial reporting quality: a commitment‐trust theory perspective

AbstractIn this study, we examine firms' commitment to stock repurchase announcements as a proxy for trust within the investing community. Using a commitment‐trust theory perspective, we show that firms with higher repurchase (share buyback) completion rates have higher financial reporting quality. We proxy financial reporting quality using a composite measure of financial reporting aggressiveness and also using management’s propensity to meet or beat analysts' expectations. These firms mitigate (enhance) the negative (positive) effect of repurchases on financial reporting quality. Higher completion rates mitigate the negative effect of accretive stock repurchase on financial reporting quality. Further results show that higher corporate governance and financial constraints dampen this relationship between completion rates and financial reporting quality. Our results, which are robust to various sensitivity tests, indicate that higher stock repurchase completion rates reflect good business morality and a firm’s commitment to its investors, as exhibited by higher financial reporting quality.

Study on Announcement Effect of Stock Repurchase from the Perspective of Configuration Analysis

This paper takes the stock repurchase cases in 2018-2019 after the promulgation of the New Company Law as the research object. Using the qualitative comparative analysis method and PSO-ICA-GARCH model, we analyze the influencing factors of the stock repurchase announcement market reaction. Through the analysis of the degree of premium (DP), repurchase ratio (RR), natural logarithm of total assets (LAS), return on net assets (ROE), top 10 shareholder equity ratio (CR10), and executive shareholding ratio (MSL), it is found that the paths of high CAR stock repurchase effect include repurchase clause-oriented type and centralization-proportional matching type; the path of nonhigh CAR stock repurchase effect includes size-premium limit type, profit-proportion limit type, and repurchase clause limit type. Compared with GARCH model, it has higher separation accuracy and more accurate model prediction effect.

Impact Of Stock Repurchase Announcement On Indonesia Stock Market Reaction 2015-2019

The negative global sentiment, Corona Virus Disease 2019 (COVID-19) caused several listed companies in Indonesia to conduct a stock repurchase in the hope of maintaining and increasing the company's stock price. The research objective is to analyze the effect of stock repurchase announcements on market reactions that are reflected in abnormal return and trading volume activity in 2015-2019 as a guide for companies to make decisions in the present and the future regarding the same issue. This research uses a sample of 64 companies listed on the Indonesia Stock Exchange (IDX) during the observation period. This study uses the event study method with the significance of the hypothesis test of 0.05. The results showed that there is no significant difference between before and after stock repurchase announcements for both variables. This is caused by the presence of negative sentiment throughout the observation period such as the Brexit tragedy, elections in the US won by Donald Trump, and the issue of the trade war by the US-China, this makes the market does not yet have full trust in the Indonesian capital market. Based on the results of the study, it can be concluded that the stock repurchase announcement did not have a significant effect on the market reaction.

Impact Of Stock Repurchase Announcement On Indonesia Stock Market Reaction 2015-2019

The negative global sentiment, Corona Virus Disease 2019 (COVID-19) caused several listed companies in Indonesia to conduct a stock repurchase in the hope of maintaining and increasing the company's stock price. The research objective is to analyze the effect of stock repurchase announcements on market reactions that are reflected in abnormal return and trading volume activity in 2015-2019 as a guide for companies to make decisions in the present and the future regarding the same issue. This research uses a sample of 64 companies listed on the Indonesia Stock Exchange (IDX) during the observation period. This study uses the event study method with the significance of the hypothesis test of 0.05. The results showed that there is no significant difference between before and after stock repurchase announcements for both variables. This is caused by the presence of negative sentiment throughout the observation period such as the Brexit tragedy, elections in the US won by Donald Trump, and the issue of the trade war by the US-China, this makes the market does not yet have full trust in the Indonesian capital market. Based on the results of the study, it can be concluded that the stock repurchase announcement did not have a significant effect on the market reaction.

Information content of insider filings after stock repurchase and seasoned equity issue announcements

AbstractThis paper examines the information content of insider filings after stock repurchase and seasoned equity issue (SEOs) announcements. We find that when firms and insiders trade in the same directions, the absolute value of the market reaction to insiders' purchase filings after stock repurchase announcements is larger than that to insiders' sale filings after SEO announcements. Thus, although insiders' sale filings after SEO announcements still suggest that the stocks are overvalued, the signals may be less informative owing to the confounding effect of some insiders' liquidity needs. When the firms and insiders trade in opposite directions, insiders' purchases after a firm's sale dominate insiders' sales after a firm's purchase, since insiders' purchase always convey positive information about a firm's future. When the firms and insiders trade in the same direction, the abnormal returns following purchases (or sales) depend on the type of insiders who make the trade. The positive (negative) abnormal returns following purchases (sales) decrease in absolute value according to the category of insiders, which is consistent with the information hierarchy hypothesis. When firms and insiders trade in opposite directions, the results are similar, but the magnitude is weak. Based on our results, the insiders who are more familiar with the day‐to‐day operations of the firm would trade on more valuable information than other insiders. Although following CEO trades more closely results in CEOs trading more cautiously, CEOs face less litigation risk and trade more on their informational advantages after event announcements.

Unexpected Share Repurchase Announcements

Open-market stock repurchase announcements are generally perceived by the stock market as a signal of firm undervaluation. Our study shows that repurchase announcements that were preceded by SEOs of other firms in the same industry within the prior six months (namely SEO-RPs) are more likely the result of lacking investment opportunities than signaling undervaluation, especially in concentrated industries. Specifically, we find investors response negatively to SEO-RP announcements while react positively to regular repurchase announcements. The higher the intensity of SEO activities in the industry, the more negative market reaction to SEO-RP announcements. We argue that the market doesn’t expect a repurchase announcement when other rival firms are raising more capital via SEOs. These SEO-RPs represent a negative surprise to the market and lead to a downward adjustment in value of the repurchasing firms in the announcement window. In the three-year post-announcement periods, the SEO-RP firms underperform regular repurchasing firms in both stock return and operating performance. Moreover, while regular repurchasing firms gradually increase their capital expenditures, SEO-RP firms significantly reduce their capital expenditures. These findings support our arguments that repurchase announcements that immediately follow SEOs of rival firms (SEO-RPs) more likely indicate the announcing firms entering a slower growth rate with fewer investment opportunities than signal the undervaluation problem. The underperformance in stock return and operation combined with a significant reduction in capital expenditures in the post-announcement periods are consistent with this logic and also explain why the market reacts negatively to SEO-RP announcements.

Three effects of stock repurchase on rival firms in Vietnam

Purpose The purpose of this paper is to examine the effects of share repurchase announcements on the stock price of rival firms in the same industry in Vietnam during 2010–2017. Design/methodology/approach Both event study and t-test are employed to test the effects of share repurchase announcements on rival firms. In addition, cross-sectional analysis by ordinary least square regression is also applied for investigating the heterogeneous effects due to information transfer. Findings The finding shows that stock repurchase announcements result in a positive and significant valuation effect for both announcing firms and rival firms in Vietnam. Furthermore, the degree of signal to the industry is conditional on the degree of signal about the announcing firms as a contagious effect. Intra-industry effects are more favorable when profit performance of rival firms is good and when leverage of rival firms is low. Practical implications Rival firms can seize opportunities surrounding share repurchase announcements in the same industry in Vietnam. However, due to firm characteristics, intra-industry effects of stock repurchases differ among industries. Originality/value By examining different methods, the paper attributes valuable results to investigate the stock price behavior of rival firms in the same industry when firms announce stock repurchase in Vietnam.

R-square로 측정한 시장과의 동시성이 자사주매입공시 수익률에 미치는 영향

본 연구는 RSUP2/SUP 로 측정한 시장과의 동시성이 자사주매입공시 수익률에 미치는 영향을 분석하였다. 주가에 내재되어 있는 기업의 사적 정보가 많을수록 시장에 대한 동시성이 떨어져서 시장모형의 결정계수인 RSUP2/SUP 값이 낮게 나타나는데, 기업의 RSUP2/SUP 값이 낮을수록 자사주매입 공시에 대한 시장의 추가적인 정(+)의 반응이 있을 것이라는 판단을 검증하고자 한다. 연구의 주요 결과는 다음과 같다. 첫째, 분석대상 기업들은 자사주매입 공시 직후에 유의한 양의 비정상수익률이 나타났다. 둘째, 분석대상 기업들은 자사주 매입 공시 후 3개월간 유의한 양의 초과수익률을 보였으며 RSUP2/SUP 값이 낮을수록 초과수익의 정도가 높게 나타남을 보였다. 마지막으로, 분석대상 기업들은 자사주매입 공시 후 t+1 년에 MB비율로 측정한 기업가치의 유의미한 상승을 보였고, 기업군의 RSUP2/SUP 값이 감소할수록 기업가치의 증가량은 더 커짐을 보였다.BR 이상의 분석 결과들이 기업의 사적 정보가 많다는 요인이 자사주 매입 공시 이후의 초과수익을 유도했음을 보이고 있고, RSUP2/SUP로 측정한 시장과의 동시성이 기업의 사적 정보와 미래 주식수익률에 대한 종합적인 지표로 사용 가능함을 보였다는 점에서 의미가 있다.

Do open-market stock repurchases convey firm-specific or industry-wide information? Evidence from REITs

This study examines the extent of firm-specific and industry-level information conveyed in open-market stock repurchases announced by REITs. We measure information revealed in open-market stock repurchase announcements using stock return and decompose the stock return into firm-specific, industry-wide, and market components. We find that the announcement period return is mainly attributed to the firm-specific component. However, long-term returns following the announcement are largely due to the industry return components. We also find that changes in profitability are not related to the announcement abnormal return. Our results suggest that the repurchase signal is about the intrinsic value of a REIT rather than the REIT’s future prospect. Moreover, the repurchase signal is fully incorporated into the pricing process at the announcement.

The influence of undervaluation, free cash flow, leverage and dispersion of ownerships toward company’s stock repurchase (An empirical study of Indonesia stock exchange public listed companies)

The objective of this research is to study the influence of undervaluation, free cash flow, leverage and dispersion of ownerships toward company’s stock repurchase (An empirical study of Indonesia stock exchange public listed companies). Many researchers have shown that the Stock repurchase is the best alternatives for the company to recover the decrease of stock value by doing ‘buyback’ the stock from the market which mostly caused by the negative sentiment, especially during the crisis. The research methodology approach has use 26 sample of manufacturing companies by using a purposive sampling method which means its sampling technique is based on the ‘sample criteria’. Samples are from the public listed companies which listed on Indonesia Stock Exchange (IDX) during the period of 2010–2014. The major criteria is that companies are consistently published their stock repurchase announcement. In order to conduct the hypothesis test, it use a multiple linear regression analysis to analyze the influence of independent variables undervaluation, free cash flow, leverage and dispersion of ownerships towards stock repurchase. The findings show that R-Square amount is 0.783, which means that the independent variables have influences of 78.3% toward its dependent variable. And, on F-test shows the significant simultaneous impact between undervaluation, free cash flow, leverage and dispersion of ownerships toward company’s stock repurchase. And, t-test only leverage, dispersion of ownerships has a partial influence toward company’s stock repurchase. Others, undervaluation, free cash flow shows negative and above significant level of (α), or more than the confidence level 95%. This study may contribute in providing an overview of the factors of undervaluation, free cash flow ownerships toward company’s stock repurchase in Indonesia which can be used by the managers and shareholders to take the decision making and also supporting the best fundamental preparation on stock repurchase.

CEO Optimism and the Credibility of Open-Market Stock Repurchase Announcements

ABSTRACTGiven their low-cost and low level of commitment, open-market stock repurchase announcements are often viewed by the market with a degree of skepticism, leading to a weak initial market reaction followed by positive stock price drifts. The authors argue that the repurchase announcements made by optimistic CEOs should be more credible than those made by nonoptimistic CEOs. Our results show that optimistic CEOs are more likely to actually buy back their shares after the announcements and the abnormal returns following repurchase announcements are larger for optimistic CEOs. This evidence suggests that CEO optimism is an important factor that the market seems to overlook while evaluating the credibility of open-market repurchase announcements. Our main contribution is to link one of the most important managerial traits, optimism, to the open-market repurchases.

Share Repurchases in Vietnam: Why Do Firms Repurchase Shares?

This paper empirically investigated the effect of share repurchases announcement on the Vietnam stock market. Using a sample of share repurchases for the period 2005-2014, this paper provided evidences that the cumulative abnormal return (CAR) of firms’ stock repurchases gradually increased from -30 to +30 days around the stock repurchase announcement day. Examining if the announcement of stock repurchases would have more effect on small firms compared to large firm, this study found that there exist a temporary small firm effect but not over all period. To determine the motives of firms in implementing share repurchases, this study checked the CAR by using prior return, net operating cash flow (NOCF) and degree of leverage. The result supported the undervaluation hypothesis. In order to confirm this result after controlling firm characteristic variables, a regression analysis was used. From the regression results, it confirmed that the coefficient of EBIT is statistically significant at 5% level. This implies that undervaluation is the main reason why firms repurchase its stocks.

Anomalous Price Behaviour around Open Market Stock Repurchase Announcements in India

Executive Summary This article examines the impact of open market share repurchase announcements on stock returns in the Bombay Stock Exchange (BSE). The main objective is to examine whether share repurchase announcements under the open market route have any significant impact on the returns of the stocks traded in the BSE. The article covers the period from 2009 to 2013. For sample selection, two criteria were used: first, the firm should have been listed in the BSE for at least 28 trading days before the repurchase announcement date, and second, the firm should have all relevant data required by this study. A total of 95 repurchase announcements fulfilled these criteria. The analysis period extended from –28 to +28 trading days relative to the repurchase announcement date ( t = 0). The findings of the study will help us to understand how the market responds to share repurchase announcements in India and whether a firm actually benefits by repurchasing its own shares from the market. This study uses a standard event methodology based on an ordinary least squares market model with the aim of finding out whether repurchase announcements generate any abnormal return around the repurchase announcement date. While applying the market model for estimating the abnormal returns, the regression is estimated based on the stock return of the firm and market return of the previous 120 trading days. So, here the estimation window takes into account 120 observations. Using this, the expected returns are generated and then the abnormal returns are derived for the event window, 28 days prior to the event date and 28 days after the event date. The findings of the study indicate that share repurchase announcements do not necessarily generate abnormal stock returns in the Indian equity market unlike developed economies like the US, Canada, and Australia. The whole sample is further divided into various subsamples on the basis of firm size and size of repurchase. The subsample analyses reveal that smaller firms do not necessarily experience higher abnormal stock returns following repurchase announcements than that of the larger firms. The findings weakly support the view that larger repurchase size generates greater abnormal stock returns than the smaller ones.

The post-repurchase announcement drift: an anomaly in disguise?

Purpose – The purpose of this paper is to reexamine the stock price drifts after open-market stock repurchase announcements by differentiating actual repurchases from repurchase announcements and by controlling for the repurchasing firms’ earnings improvement in the announcement year relative to the prior year. Design/methodology/approach – The authors use the calendar-time method and matching method based on different criteria to calculate the post-announcement abnormal returns. Findings – The results show that only firms actually repurchasing their shares exhibit a positive post-announcement drift. More importantly, the authors find that these repurchasing firms have the same post-announcement drift as their matching firms that have similar size and earnings performance but do not repurchase. This supports the argument that the post-repurchase announcement drift found in previous studies is not a distinct anomaly but the post-earnings announcement drift in disguise. Social implications – The post-repurchase announcement drift found in previous studies is the post-earnings announcement drift in disguise. Originality/value – The study shows that because high earnings performance positively relates to real repurchase activities, controlling for earnings performance in examining whether a drift occurs after repurchase announcements.

A Study on the Effects of Stock Repurchase Announcement on the Stock Return

A Study on the Effects of Stock Repurchase Announcement on the Stock Return

Closing the value gap by the means of stock repurchase announcement – the case of Warsaw Stock Exchange

This article shows that announcement of share repurchase programs on Polish market is used as a price catalyst when the spread between intrinsic and market value is large. The article presents determinants, conditions and results of 77 open market share repurchase programs conducted on Warsaw Stock Exchange (WSE) between 2005 and 2010. We find the behaviour of management boards of companies listed on WSE consistent with the market timing theory assumptions, as in most cases managers passed the information to the market without any additional economic costs. Investors who adopted the strategy to invest in undervalued stocks and hold the securities for 6 months realized a total return of 61.15% in the analyzed period.

Tsx Stock Repurchase Announcements and the Impact of TSX Disclosure Requirements

This paper examines the market reaction to Toronto Stock Exchange (TSX) stock repurchase announcements. The findings indicate that TSX stock repurchase announcements result in a significant market reaction and provide mixed support for the TSX requirements to disclose the reason(s) for a stock repurchase program and to report actual share repurchases on a timely basis.