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Stock Repurchases in Canada: Performance and Strategic Trading

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  • David Ikenberry
  • Josef Lakonishok
  • Theo Vermaelen

Abstract

During the 1980s, U.S. firms that announced stock repurchase programs earned favorable long-run returns. Recently, concerns have been raised regarding the robustness of these findings. This comes at a time of explosive worldwide growth in the adoption of repurchase programs. This study provides out-of-sample evidence for 1,060 Canadian repurchase programs announced between 1989 and 1997. As in the U.S., the Canadian stock market seems to discount the information contained in repurchase announcements. Value stocks announcing repurchase programs have particularly favorable returns. Canadian law requires companies to report how many shares they repurchase on a monthly basis. We find that managers are sensitive to mispricing as completion rates are higher in cases where undervaluation may be a more important factor. Moreover, trades are linked to price movements; managers buy more shares when prices fall and reduce their buying when prices rise.

Suggested Citation

  • David Ikenberry & Josef Lakonishok & Theo Vermaelen, 1999. "Stock Repurchases in Canada: Performance and Strategic Trading," NBER Working Papers 7325, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7325
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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