| Abstract: | We test the proposition that announcements of open market stock repurchases improve the flow of positive information regarding the firm's prospects, particularly for financially weak firms. For financially strong firms with already good prospects for cash flows, the role of stock repurchases is less important. We provide evidence for an inverse relationship between financial risk, measured by bond rating, and the magnitude of stock repurchase-induced abnormal returns. Results also suggest that the value of information implied by announcements of open market repurchases about increases in cash flows and leverage, is more important for financially weak firms than for financially strong firms. |
