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OPEN MARKET REPURCHASES: THE VALUE FROM BUYING SHARES AT A DISCOUNT
Author(s) -
Porter Gary E.,
Roenfeldt Rodney L.,
Sicherman Neil W.
Publication year - 2000
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/j.1745-6622.2000.tb00047.x
Subject(s) - business , shareholder , share repurchase , stock (firearms) , net asset value , value (mathematics) , shares outstanding , asset (computer security) , enterprise value , market value , monetary economics , economics , finance , corporate governance , mechanical engineering , computer security , machine learning , computer science , engineering
This article shows that share repurchase announcements create value for shareholders when the shares of the industrial firm sell at a discount from the value of the underlying assets, even when shareholders and managers share full information about the firm's prospects and the firm's operating performance is not expected to improve. The value created by capturing the discount on the repurchased shares is a function of only two variables: the percentage discount prior to the announcement and the proportion of shares to be repurchased. For a sample of 100 companies selling below net asset value, the authors report that the excess stock returns surrounding their announcements of open market repurchases are (significantly) positively associated with the authors' estimates of the value captured from buying shares at a discount. Moreover, the stock market's response to repurchase announcements by companies that are selling at a discount is considerably more positive than to announcements by firms selling at a premium.