Premium
Share Repurchase Reasons and the Market Reaction to Actual Share Repurchases: Evidence from A ustralia
Author(s) -
Akyol Ali C.,
Foo Chi Chong
Publication year - 2013
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/j.1468-2443.2012.01159.x
Subject(s) - share repurchase , business , monetary economics , sample (material) , stock (firearms) , control (management) , stock price , open market operation , economics , finance , corporate governance , shareholder , management , mechanical engineering , chemistry , chromatography , series (stratigraphy) , biology , engineering , monetary policy , paleontology
Using repurchase reasons provided by Australian companies for their stock repurchase programs, we ask if the market's response is different across repurchase motivations by examining actual daily share repurchases. We find that firms with the undervaluation motive experience a more positive stock price reaction when they report their repurchases to the market. We show that undervaluation motive firms repurchase fewer shares and have a lower program completion rate than other motives firms. During the 1‐year period following the repurchases, undervaluation motive firms do better than their control sample firms whereas other motive firms do not perform better or worse than their control sample firms. Overall, our results suggest that the undervaluation motive is a stronger signal than other repurchase motives, and contrary to the predictions of the standard signaling theories, management statements carry some value for the market. We also present some evidence suggesting that a costly action may not be needed for a signal to be credible.