OPEN MARKET STOCK REPURCHASE PROGRAMS AND LIQUIDITY

In this paper I examine the behavior of bid and ask spreads and depths around announcements of open market stock repurchase programs. For a sample of 195 announcements from 1988 to 1990, I find statistically significant evidence of a small decline in spreads and no evidence of a shift in depths following the announcement date. Results are similar for a subsample of firms experiencing post-announcement declines in the number of shares outstanding. I conclude that open market repurchase programs as used recently do not adversely affect market liquidity.     

Open‐Market Stock Repurchases by Insurance Companies and Signaling

The signaling hypothesis of share repurchases implies that management uses repurchases to signal either that their firm's future operating performance will improve or that shares of their stock are simply underpriced by the market. This study examines which of the two interpretations can better explain open‐market share repurchase programs announced by insurance companies. We find no evidence that future‐operating performance of insurers improves following the repurchase announcement. In addition, changes in future operating performance cannot explain the announcement‐period abnormal return. Instead, the stock undervaluation prior to the repurchase announcement can significantly explain the announcement‐period abnormal return, particularly for life insurers. Overall, our results suggest that the positive market reaction to insurers’ open‐market share repurchase announcements is due to the stock undervaluation by the market, but not due to positive information content about future operating performance conveyed in the repurchase announcement.     

Share Repurchase Offers and Liquidity: An Examination of Temporary and Permanent Effects

Open-market repurchase programs do not allow for precise estimates of share buy-back intensity to measure liquidity effects. To circumvent the uncertainty surrounding the quantity and timing of shares truly acquired in repurchase programs and to measure their long-term impact, we examine Dutch auctions and fixed-price tender offers. We investigate both the temporary and permanent liquidity effects of share repurchase programs and find that the improvement in liquidity is transitory and limited to the tender period when the firm's offer to repurchase shares is outstanding. Improvements in liquidity over longer intervals appear to be the result of an overall price improvement and a reduction in volatility rather than the result of structural change in market dynamics.     

Actual Share Reacquisitions in Open-Market Repurchase Programs

Unlike Dutch auction repurchases and tender offers, open-market repurchase programs do not precommit firms to acquire a specified number of shares. In a sample of 450 programs from 1981 to 1990, firms on average acquire 74 to 82 percent of the shares announced as repurchase targets within three years of the repurchase announcement. We find that share repurchases are negatively related to prior stock price performance, suggesting that firms increase their purchasing depending on its degree of perceived undervaluation. In addition, repurchases are positively related to levels of cash flow, which is consistent with liquidity arguments.     

Time for gift giving: Abnormal share repurchase returns and uncertainty

We study share repurchase announcements for nine European countries between 2000 and 2017. In contrast to previous studies, we address the role of market uncertainty as a market-based determinant of positive average abnormal announcement returns, while including governance, liquidity risk and firm related control variables. Economic policy uncertainty and financial uncertainty, individually as well as jointly, positively affect abnormal returns. We suggest that this relation is due to a stronger signaling effect under increased uncertainty, as both information asymmetry and underpricing tend to increase. Also, a potential hedge against adverse market movements is more valuable. Optimal timing of repurchase announcements should therefore consider market uncertainty conditions.     

A MICROSTRUCTURE ANALYSIS OF THE LIQUIDITY IMPACT OF OPEN MARKET REPURCHASES

We examine the liquidity impact of Canadian open market repurchases and find that spreads are smaller and depths greater during repurchase programs (as compared to the prerepurchase period) and on repurchase days (as compared to nonrepurchase days). We examine the types of orders used by repurchasing companies and find that all repurchase orders are limit orders and more than 70% of these unambiguously add liquidity to the limit order book. The improved liquidity is consistent with U.S. research but different from results from other markets. We attribute the difference to an uptick restriction that limits the aggressiveness of North American repurchases.     

The Option and Decision to Repurchase Stock

Open‐market repurchase programs provide firms with the flexibility to manage the cash and risk aspects of their operations. We examine at which stage cash and risk matter in the typical stages of a repurchase program: announcement, implementation, and withdrawal. Cash and risk considerations appear to matter only at the implementation stage, and partially negate the traditional signaling effect around program announcement.     

Open-Market Stock Repurchase and Stock Price Behavior When Management Values Real Investment

This paper provides a simple explanation of open‐market stock repurchases and the stock price behavior surrounding them. There is ex ante asymmetry of information with regard to the private benefits that corporate managers can attain from real investments. In our model, open‐market repurchase announcements reveal information about the managers' private benefits when real investment opportunities are unprofitable in terms of firm values. This study differs from previous studies in that we show that announcements of open‐market repurchase programs can be believable without the restriction that the announcements are commitments. Empirically, the model simultaneously predicts that a stock price will drop prior to an open‐market repurchase announcement and will rise in response to the announcement. These predictions are consistent with stylized facts.     

The Wealth and Information Effects of Insurers' Open Market Stock Repurchase Announcements

This article examines the use of an increasingly popular method of cash disbursement in the insurance industry: stock repurchase programs. Using a sample of stock repurchase announcements between 1981 and 1997, we examine the motivation for stock repurchase, estimate the market reaction to the repurchase announcement, and evaluate the magnitude of the reaction as it relates to particular insurance industry and firm characteristics. We examine the abnormal returns around the announcement day and find a significant positive wealth effect associated with repurchase announcements—a result that is consistent with that of other studies of both nonfinancial and financial firms. However, we suspect that the nature of the insurance product and the highly regulated status of the insurance industry might serve to mitigate the magnitude of an announcement effect. In fact, we find that the effect for all insurers is smaller than that obtained in samples of industrial firms. Finally, we examine the relationships between the magnitude of the announcement effect and various firm characteristics and test the significance of information signaling and Jensen's free cash flow theories in the insurance setting.     

Equity Ownership and Firm Value: Evidence from Targeted Stock Repurchases

In contrast to the negative average abnormal return associated with the announcement of a control‐related targeted repurchase (greenmail transaction), we find that the announcement of a noncontrol‐related targeted repurchase is associated with a positive and significant average abnormal return. Cross‐sectional analysis indicates that the change in firm value at the announcement of a noncontrol‐related targeted repurchase is negatively related to the resulting changes in both insider ownership and outside blockholdings. We also find significant differences in announcement‐period stock price effects depending on the identity of the selling shareholder.     

THE INTRA-INDUSTRY EFFECTS OF OPEN MARKET SHARE REPURCHASES: CONTAGION OR COMPETITIVE?

We examine the extent to which announcements of open market share repurchase programs affect the valuation of competing firms in the same industry. On average, although firms announcing open market share repurchase programs experience a significantly positive stock price reaction at announcement, portfolios of rival firms in the same industry experience a significant and contemporaneous negative stock price reaction. This suggests that perceived changes in the competitive positions of the repurchasing firms occur at the expense of rival firms and dominate any signals of favorable industry conditions. Thus, the competitive intra-industry effects of open market repurchases outweigh any contagion effects. In addition, cross-sectional tests indicate that these competitive effects are more pronounced in industries characterized by a lower degree of competition and less correlation between the stock returns of the repurchasing firm and its rivals.     

Information and Long‐Term Stock Performance Following Open‐Market Share Repurchases

We find that firm managers have private information when they decide on open‐market share repurchases, and that this information is significantly correlated with announcement period and post‐announcement abnormal returns. We further find that long‐term post‐announcement abnormal returns are related to private information differently for firms that actually repurchase shares when compared to firms that announce a repurchase program but do not acquire shares. Our results indicate that managers’ private information is only ambiguously revealed by the repurchase announcement, and that the market waits for the firm's subsequent actions, such as actual repurchase, to further interpret the private information.     

The effects of ownership and stock liquidity on the timing of repurchase transactions

We analyze detailed monthly data on U.S. open market stock repurchases (OMRs) that recently became available following stricter disclosure requirements. We find evidence that OMRs are timed to benefit non-selling shareholders. We present evidence that the profits to companies from timing repurchases are significantly related to ownership structure. Institutional ownership reduces companies' opportunities to repurchase stock at bargain prices. At low levels, insider ownership increases timing profits and at high levels it reduces them. Stock liquidity increases profits from timing OMRs.     

Stock repurchases and treasury share sales: Do they stabilize price and enhance liquidity?

Can companies reduce the volatility and increase the liquidity of their stocks by trading them? In the context of the Italian stock market, where companies have far more leeway to sell as well as buy their own stocks than in the U.S., the answer is yes. We examine the effects of trading (open-market share repurchases and treasury shares sales) on liquidity (bid-ask spread) and volatility (return variance). Further, we examine the impact of shareholder approvals of repurchase programs on liquidity and volatility. We find clear evidence that trading increases liquidity and reduces volatility. These results are consistent with our analysis of the motives Italian companies give for making share repurchases.     

INSIDER TRADING EFFECTS ON STOCK RETURNS AROUND OPEN-MARKET STOCK REPURCHASE ANNOUNCEMENTS: AN EMPIRICAL STUDY

In this paper we empirically examine the effects of insider trading activities, the percentage of common shares outstanding authorized for repurchase, and management ownership on stock returns around open-market stock repurchase announcements. The study is conducted on a sample of 204 firms that announced open-market stock repurchases between 1982 and 1990. Results show that insider trading activities during the month that immediately precedes the announcement have a significant effect. While stockholders of firms with insider net selling activities earn positive excess returns, those of firms with insider net buying activities earn larger and more significant excess returns. Insider trading activities during more distant periods do not show any effects on stock returns. Results also indicate that management ownership has a significant positive effect on stock returns, and this effect is more positive when the percentage of common shares outstanding authorized for repurchase is large.     

Stock Returns and Open-Market Stock Repurchase Announcements

Recent studies document stock price underreactions and overreactions. This evidence is extended by studying open-market stock repurchase announcements. Repurchase announcements were chosen for the study because of the uncertainty regarding the appropriate interpretation of the repurchase announcement. Cross-section regression models are used to test the relation between the reaction to the repurchase announcement and returns in subsequent periods. The results indicate that the market overreacts to repurchase announcements that are deemed to be “good news” by the market. Neither reversal nor drift is observed following repurchase announcements considered to be “bad news” by the market. The results are robust and are not driven by a few influential observations, beta shifts, or bid-ask bounce.     

The Effect Of Stock Splits On Liquidity And Excess Returns: Evidence From Shareholder Ownership Composition

We examine the influence of firm ownership composition on both the abnormal returns at the announcement of a stock split and liquidity changes following a stock split. We find three results. First, the largest post‐split increase in institutional ownership occurs for firms that had low institutional ownership before the split. Second, changes in liquidity are negatively related to the level of institutional ownership before the split. Last, the abnormal return following a split is negatively related to the level of institutional ownership before the split. These findings are important as they shed new light on the source of stock split announcement returns.     

Stock Repurchase and Agency Problems: New Evidence in Taiwan's Stock Market

This paper explores stock repurchase and agency issues in an emerging market with special regulations. Using match samples, agency-related variables are investigated for pre- and postannouncement periods. Our empirical evidence demonstrates that stock repurchase is related to agency cost mitigation. Agency problems are also significantly related to the preannouncement undervaluation of stock repurchase, after controlling for the effects of growth opportunity and asymmetric information. Finally, a company with a higher ratio of expected repurchase or higher agency costs normally enjoys better market response upon announcement.     

Earnings Virality

We examine the determinants and market consequences associated with earnings announcements going viral on social media, a phenomenon we label “earnings virality.” Using a comprehensive panel of historical Twitter data, we find that the typical earnings announcement receives relatively little social media coverage, but others go viral on social media, quickly reaching the feeds of millions of people. We find that viral earnings announcements generally have Twitter content that is more extreme in tone and contains less unique content. Further, earnings virality is positively associated with revenue surprises, investor recognition, retail investor ownership, and retail investor trading around the announcement. Earnings virality appears to be detrimental to markets, as it coincides with lower market liquidity and slower price formation. Overall, our evidence suggests that user-driven dissemination through social media platforms, when amplified and taken to extreme levels, may be harmful to markets.     

信息不对称对股票回购宣告效应的影响--基于A股市场公开市场回购事件的实证研究

本文以2011-2017年间发生在我国A股市场的公开市场回购事件为样本,探究了管理层与投资者之间信息不对称程度对股票回购宣告效应的影响。结果表明:上市公司可以通过公开市场回购取得显著正向的宣告效应,该效应与上市公司的信息不对称程度成正比,与既有估值水平成反比。这说明信息不对称程度对股票回购宣告效应具有较强的解释力,验证了"信号传递假说"在A股市场的适用性。