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The Information Content of Common Stock Repurchases: An Empirical Study 1
Author(s) -
Oyon Daniel,
Markides Constantinos C.,
Ittner Christopher D.
Publication year - 1994
Publication title -
british journal of management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.407
H-Index - 108
eISSN - 1467-8551
pISSN - 1045-3172
DOI - 10.1111/j.1467-8551.1994.tb00131.x
Subject(s) - share repurchase , business , stock (firearms) , cash , cash flow , monetary economics , stock market , sample (material) , empirical evidence , common stock , financial economics , economics , finance , corporate governance , mechanical engineering , paleontology , horse , biology , engineering , shareholder , philosophy , chemistry , context (archaeology) , chromatography , epistemology
SUMMARY Share repurchase announcements are known to be associated with significant positive abnormal stock returns. Past studies have argued that the main explanation of this value creation is that share repurchases signal new (and favourable) information about the repurchasing firms' future cash flows. This paper examines this hypothesis and provides evidence on the nature of the information revealed by share repurchases. Using a sample of 41 repurchase announcements from the USA, we show that the new information signalled to the stock market through share repurchasing is not only about changes in the level of future cash flows but also about changes in the riskiness of these cash flows.