Managerial Responses to Initial Market Reactions on Share Repurchases

2009 ◽  
Vol 12 (03) ◽  
pp. 455-474 ◽  
Author(s):  
Hung-Kun Chen ◽  
Yan-Shing Chen ◽  
Chia-Wei Huang ◽  
Yanzhi Wang
Keyword(s):  
Market Share ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Open Market ◽  
Market Reactions ◽  
True Value ◽  
Long Run ◽  
The Moment ◽  
Buy Back ◽  
Timing Hypothesis

While most papers in finance literature investigate how the stock market reacts to announcements of corporate events, very few study the opposite, how namely, the manager responds to the information from outside investors. In this paper, we examine this issue, using open market share repurchases. Open market share repurchase offers flexibility for the manager to decide whether or not to buy back shares. Therefore, the manager may refer to the opinions of outside investors and make the decision, based on actual buyback activities. We propose learning, over-confidence and timing hypotheses to interpret the behavior of the managerial response to initial market reaction on the share repurchase announcement. Empirically, if a repurchase announcement abnormal return is low, then the manager tends to achieve the repurchase announced ratio by purchasing more shares. In addition, the investor will positively react to this repurchase in the long run. These empirical findings are consistent with the market timing hypothesis, which implies that managers know the true value of their firms better than the market at the moment of the share repurchase announcement.

Informed Repurchases, Information Asymmetry and the Market Response to Open Market Share Repurchases

2018 ◽  
Vol 21 (03) ◽  
pp. 1850021 ◽  
Author(s):  
Bong Soo Lee ◽  
Nathan Mauck
Keyword(s):  
Information Asymmetry ◽  
Market Share ◽  
Abnormal Returns ◽  
Share Repurchases ◽  
Specific Information ◽  
Share Repurchase ◽  
Open Market ◽  
Forecast Dispersion ◽  
Size Number ◽  
Causality Tests

This paper relates informed repurchases to firm information asymmetry. We propose a new measure of informed repurchases, which is based on causality tests relating repurchase information to firm returns. Our results indicate that informed repurchases show larger abnormal returns surrounding the announcement of an open market share repurchase, which suggests the market at least partially recognizes informed repurchases. This holds after controlling for conventional information asymmetry proxies, such as firm size, number of analysts following, and analyst forecast dispersion, indicating that the market is aware of repurchase specific information not captured by traditional information asymmetry proxies. Informed repurchases demonstrate larger long-term abnormal returns at one, two, and three-year windows than high traditional information asymmetry repurchases.

scholarly journals Market reaction to tender and private offers on the JSE

2017 ◽  
Vol 48 (4) ◽  
pp. 1-11 ◽  
Author(s):  
N. Wesson ◽  
C. Muller ◽  
M. Ward
Keyword(s):  
South African ◽  
Market Share ◽  
Market Reaction ◽  
Abnormal Returns ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Open Market ◽  
Significant Information ◽  
Tender Offers ◽  
Open Market Share Repurchases

Investors can benefit when incorporating the information-signalling effect of share repurchases in their investment strategies. Previous South African studies on open market share repurchases confirmed the globally observed signalling-effect, but found open market share repurchases not to be the outright favoured share repurchase type in this country – as is the case globally. The present study is the first to examine the market reaction to the preferred share repurchase type, namely specific (or tender and private offers) share repurchases, in the South African regulatory environment. Abnormal returns were calculated using a 12-parameter benchmark over a four-year event window, for share repurchases announced from 1999 to 2009. Pro rata tender offers were found not to possess information-signalling benefits, but significant excess returns subsequent to the announcement date were reported for the two private offer types (namely other specific offers and the repurchase by the holding company of shares held by subsidiaries). The other specific offers were found to possess significant information-signalling benefits – especially over the long term and in respect of value companies.

scholarly journals Testing the Information-Based Trading Hypothesis in the Option Market: Evidence from Share Repurchases

2019 ◽  
Vol 12 (4) ◽  
pp. 179 ◽  
Author(s):  
Badshah ◽  
Koerniadi ◽  
Kolari
Keyword(s):  
Stock Returns ◽  
Market Share ◽  
Private Information ◽  
Stock Prices ◽  
Implied Volatility ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Open Market ◽  
Option Prices ◽  
Abnormal Stock Returns

The informed options trading hypothesis posits that option prices lead stock prices. In this paper, we extended the research on this hypothesis to open-market share repurchases. Empirical tests showed that the implied volatility spread was not significantly related to buy-and-hold abnormal stock returns. However, further evidence reveal a significant relationship between implied volatility spread and subsequent stock return volatility around open-market share repurchase events. We concluded that option traders have private information on the volatility of stock returns and superior information processing ability that accounts for prescient pricing behavior in options relative to stocks.

scholarly journals Market underreaction to open market share repurchases on the JSE

2014 ◽  
Vol 45 (4) ◽  
pp. 59-69 ◽  
Author(s):  
N. Wesson ◽  
C. Muller ◽  
M. Ward
Keyword(s):  
South African ◽  
Market Share ◽  
Abnormal Returns ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Open Market ◽  
Repurchase Announcements ◽  
Long Term Performance ◽  
Term Performance

This study examined the long-term performance of open market share repurchase announcements made by companies listed on the JSE during their reporting periods including 1 July 1999 to 2009. A total of 195 open market share repurchase announcements were identified. A maximum outperformance of about 35% was found on day t+550 (about two years subsequent to the announcement). After splitting the sample into 'value' (low P/E ratio) and 'growth' shares (high P/E ratio), it was found that the outperformance was almost entirely confined to the value portfolio, reaching a maximum of about 80% by day t+630 (about two-and-a-halfyears subsequent to the announcement). This study applied a more robust research methodology than used in earlier South African research on this topic; it also used an improveddataset and extended the research period, compared to other research. The results of this study showed much higher positive abnormal returns than were found in earlier international and South African studies. Investors should takeadvantage of the informational value of open market repurchase announcements and the related significant abnormal returns to be earned.

Managerial discretion in authorising open market share repurchases: empirical evidence from the Italian context

2016 ◽  
pp. 95-116
Author(s):  
Elisa Roncagliolo
Keyword(s):  
Board Of Directors ◽  
Market Share ◽  
General Meeting ◽  
Stock Option ◽  
Share Repurchases ◽  
Share Repurchase ◽  
Open Market ◽  
The Board Of Directors ◽  
Italian Context ◽  
Open Market Share Repurchases

This paper contributes to existing literature on open market share repurchases in Italy by studying authorisations that the board of directors needs to obtain from the shareholders' general meeting in order to acquire company's own shares. In such a context, I investigate whether the buyback purpose that managers disclose in their report affects number of shares to be repurchased. Particularly, since managers could potentially benefit from share repurchase programmes carried out in the presence of stock option plans, I explore whether this motivation influences the number of shares they require to include in the buyback programme. In pursuit of my objectives, I analyse reports managers provide shareholders' meeting to obtain the authorisation to acquire company's own shares over a 6-year period (2004-2009) in Italian listed companies. Main results suggest that the buyback motivation affects number of shares managers intend repurchasing, highlighting the role of the quality of the board of directors in this issue.

Asymmetric Information, Financial Reporting, and Open-Market Share Repurchases

2016 ◽  
Vol 51 (4) ◽  
pp. 1165-1192 ◽  
Author(s):  
Matthew T. Billett ◽  
Miaomiao Yu
Keyword(s):  
Asymmetric Information ◽  
Market Share ◽  
Financial Reporting ◽  
Abnormal Returns ◽  
Reporting Quality ◽  
Wealth Effects ◽  
Share Repurchases ◽  
Open Market ◽  
Long Run ◽  
Open Market Share Repurchases

We explore the link between open-market share repurchases (OMRs) and asymmetric information based on financial reporting quality and find thatopaquefirms experience positive abnormal returns of twice the magnitude of those oftransparentfirms. These significant differences remain after controlling for governance, earnings management, and firm characteristics. We document significantly positive long-run postannouncement returns for opaque firms, but not for transparent firms. We find that takeover activity and premiums rise with repurchase activity by opaque firms, which may explain some of the wealth effects. Our results suggest that asymmetric information plays an important role in the wealth effects around OMRs.

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