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Why Share Repurchases Are Not A Panacea For Increasing Share Prices

Author

Listed:
  • Tai-Yuan Chen
  • Ching-Hua Yu
  • Lie-Jane Kao

Abstract

This research examines factors deteriorating share price performance before and after repurchase announcements. We find share price performance before announcements can be attributed to operating performance and agency problems. But, operating performance is the primary factor determining undervaluation. We also find that, regardless of whether firms are undervalued before repurchase announcements, those that experience negative abnormal returns after repurchase announcements have inferior operating performance and lower buyback premiums. Our regression analysis shows that an improvement in future operating profits determines prosperous share price performance after repurchase announcements. Lack of investment, or those made with agency problems, better explain poor share-price performance

Suggested Citation

  • Tai-Yuan Chen & Ching-Hua Yu & Lie-Jane Kao, 2016. "Why Share Repurchases Are Not A Panacea For Increasing Share Prices," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 10(3), pages 61-73.
    • Handle: RePEc:ibf:ijbfre:v:10:y:2016:i:3:p:61-73
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    More about this item

    Keywords

    Share Repurchase; Abnormal Returns; Operating Performance; Agency Problems;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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