Share repurchases and stock market reactions: Messages from the restaurant industry |
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| Institution: | 1. Department of Finance, National Kaohsiung University of Science and Technology, No.1, University Rd., Yanchao Dist., Kaohsiung City 824, Taiwan, ROC;2. College of Finance and Banking, National Kaohsiung University of Science and Technology, No.1, University Rd., Yanchao Dist., Kaohsiung City 824, Taiwan, ROC;3. Department of Banking, National Kaohsiung University of Science and Technology, No.1, University Rd., Yanchao Dist., Kaohsiung City 824, Taiwan, ROC;4. Professor at Feng Chia University, Director-general, Finance Bureau of Taichung City Government, Taiwan, ROC;5. Department of Finance, Feng Chia University, No. 100, Wenhwa Rd., Seatwen, Taichung 40724, Taiwan, ROC;1. Surrey International Institute, Dongbei University of Finance and Economics, China;2. School of Business Administration, Nanzan University, Japan |
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| Abstract: | It is generally accepted that investors tend to react favorably to share repurchases. However, it is actually not uncommon for investors to underreact to some share repurchases. Recently, a number of restaurant firms have spent huge amounts of internal cash on share repurchases but little is known regarding the market’s underreaction to share repurchases in the restaurant industry. Hence, this study attempted to identify factors that could mitigate market reactions to share repurchases. Analyzing U.S. restaurant firms, this study revealed that growth opportunities, franchising, dividend payments, and spending excessive free cash flows on share repurchases negatively impacted market reactions. However, the negative impact of growth opportunities was weaker for franchise restaurants than for non-franchise restaurants. This study provides useful managerial information regarding the timing of and the amount that can be spent on restaurant firms’ share repurchases. |
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| Keywords: | Share repurchase Market reaction Restaurant firms Franchising Event study method |
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