The Decision to Repurchase, Announcement Returns and Insider Holdings: A Conditional Event Study
نویسندگان
چکیده
This study examines the role of insider holdings in affecting the decision to announce a repurchase and the associated announcement period stock returns using a conditional event study methodology. We find that firms are more likely to buy back shares if the insiders have large shareholdings and we find that the announcement period returns are greater for firms where insiders have larger holdings. We examine the role of insider holdings in the context of several hypotheses, which explain why firms repurchase and why the market reacts to the announcement. We find considerable support for Isagawa's (2000) model, which argues that firms repurchase to signal that they will not waste their free cash flow.
منابع مشابه
Open market share repurchases in Germany : A conditional event study approach
We analyze the decision to announce an open market share repurchase and the share price reaction to the announcement. We use a conditional estimation approach which takes into account that the repurchase decision is made rationally and that, consequently, there is a potential selection bias. This approach requires a ‘non-event sample’ of firms that could reasonably be expected to announce a rep...
متن کاملInsider Trading Behavior and News Announcement: Evidence from the Stock Exchange of Thailand
The purpose of this paper is to examine insider trading behavior reaction to news announcement by using firms listed on the Stock Exchange of Thailand during 2000 to 2008. By employing event-study approach, the results show that the information contents are significant to insider purchases but not to insider sales. In other words, only insider purchases can create abnormal returns. Moreover, co...
متن کاملInsider Trading after Repurchase Tender Offer Announcements: Timing versus Informed Trading
Abnormally high net insider selling is commonly observed after repurchase tender offer (RTO) announcements although, on average, firms experience positive abnormal returns in the years after the repurchases. We explore two potential explanations: liquidity trade timing and informed trading. Consistent with the notion that fixed price RTOs are more likely than Dutch-auction RTOs to signal underv...
متن کاملInformational Interaction of Insider Trading and Share Repurchases: A Theoretical and Empirical Analysis
We theoretically and empirically explore the interaction between repurchases and insider trading as signaling devices about private information on firm valuation. Our theory predicts that repurchases, when coupled with insider buying, further the signal of firm undervaluation; insider selling signals the opposite. We find that for the following quarter, repurchases generate 1.2% abnormal return...
متن کاملOpen-market Repurchase Announcements, Actual Repurchases, and Stock Price Behavior in Inefficient Markets
In the efficient market framework, it seems difficult to explain why a firm would actually buy back its outstanding shares after the stock price goes up in response to an open-market repurchase announcement. We introduce the subject of market inefficiency in a way similar to the explanation of Shleifer and Vishny (1990, 1997) and reexamine corporate open-market repurchase strategy and stock pri...
متن کامل