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Open‐Market Stock Repurchases by Insurance Companies and Signaling

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  • Gow‐Cheng Huang
  • Kartono Liano
  • Herman Manakyan
  • Ming‐Shiun Pan

Abstract

The signaling hypothesis of share repurchases implies that management uses repurchases to signal either that their firm's future operating performance will improve or that shares of their stock are simply underpriced by the market. This study examines which of the two interpretations can better explain open‐market share repurchase programs announced by insurance companies. We find no evidence that future‐operating performance of insurers improves following the repurchase announcement. In addition, changes in future operating performance cannot explain the announcement‐period abnormal return. Instead, the stock undervaluation prior to the repurchase announcement can significantly explain the announcement‐period abnormal return, particularly for life insurers. Overall, our results suggest that the positive market reaction to insurers’ open‐market share repurchase announcements is due to the stock undervaluation by the market, but not due to positive information content about future operating performance conveyed in the repurchase announcement.

Suggested Citation

  • Gow‐Cheng Huang & Kartono Liano & Herman Manakyan & Ming‐Shiun Pan, 2013. "Open‐Market Stock Repurchases by Insurance Companies and Signaling," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 16(1), pages 47-69, March.
    • Handle: RePEc:bla:rmgtin:v:16:y:2013:i:1:p:47-69
    DOI: 10.1111/rmir.2013.16.issue-1
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    File URL: https://doi.org/10.1111/rmir.12003
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    References listed on IDEAS

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    Cited by:

    1. Dinis Santos & Paulo Gama, 2017. "Can firms time the market? Evidence using own stock transactions," Proceedings of Business and Management Conferences 5608038, International Institute of Social and Economic Sciences.

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