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Stock Repurchases in Canada: Performance and Strategic Trading

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Author Info
David Ikenberry
Josef Lakonishok
Theo Vermaelen

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7325.

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Date of creation: Aug 1999
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Handle: RePEc:nbr:nberwo:7325

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mark L. Mitchell & Erik Stafford, 1997. "Managerial Decisions and Long-Term Stock Price Performance," CRSP working papers 453, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
    Other versions:
  2. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March. [Downloadable!] (restricted)
  3. Ikenberry, David & Lakonishok, Josef & Vermaelen, Theo, 1995. "Market underreaction to open market share repurchases," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 181-208. [Downloadable!] (restricted)
    Other versions:
  4. Womack, Kent L, 1996. " Do Brokerage Analysts' Recommendations Have Investment Value?," Journal of Finance, American Finance Association, vol. 51(1), pages 137-67, March. [Downloadable!] (restricted)
  5. Lakonishok, Josef & Vermaelen, Theo, 1990. " Anomalous Price Behavior around Repurchase Tender Offers," Journal of Finance, American Finance Association, vol. 45(2), pages 455-77, June. [Downloadable!] (restricted)
  6. Ibbotson, Roger G., 1975. "Price performance of common stock new issues," Journal of Financial Economics, Elsevier, vol. 2(3), pages 235-272, September. [Downloadable!] (restricted)
  7. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February. [Downloadable!] (restricted)
  8. Merton, Robert C., 1985. "On the current state of the stock market rationality hypothesis," Working papers 1717-85., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  9. Clifford P. Stephens & Michael S. Weisbach, 1998. "Actual Share Reacquisitions in Open-Market Repurchase Programs," Journal of Finance, American Finance Association, vol. 53(1), pages 313-333, 02. [Downloadable!] (restricted)
  10. Spiess, D. Katherine & Affleck-Graves, John, 1995. "Underperformance in long-run stock returns following seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 38(3), pages 243-267, July. [Downloadable!] (restricted)
  11. Raghavendra Rau, P. & Vermaelen, Theo, 1998. "Glamour, value and the post-acquisition performance of acquiring firms1," Journal of Financial Economics, Elsevier, vol. 49(2), pages 223-253, August. [Downloadable!] (restricted)
  12. David L. Ikenberry & Theo Vermaelen, 1996. "The Option to Repurchase Stock," Financial Management, Financial Management Association, vol. 25(4), Winter.
  13. Loughran, Tim & Ritter, Jay R., 2000. "Uniformly least powerful tests of market efficiency," Journal of Financial Economics, Elsevier, vol. 55(3), pages 361-389, March. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jong, A. de & Dijk, R. van & Veld, C.H., 2001. "The Dividend and Share Repurchase Policies of Canadian Firms," Research Paper ERS-2001-88-F&A Revision_, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  2. Gunnar Bårdsen & Jurgen Doornik & Jan Tore Klovland, 2004. "A European-type wage equation from an American-style labor market: Evidence from a panel of Norwegian manufacturing industries in the 1930s," Working Paper 2004/8, Norges Bank. [Downloadable!]
    Other versions:
  3. Tung Liang Liao & Mei-Chu Ke & Hsiang-Tai Yu, 2005. "Anomalous price behaviour around stock repurchases on the Taiwan stock exchange," Applied Economics Letters, Taylor and Francis Journals, vol. 12(1), pages 29-39, January. [Downloadable!] (restricted)
  4. Ming Dong & Chris Robinson & Chris Veld, 2004. "Why Individual Investors Want Dividends," Finance 0412009, EconWPA. [Downloadable!]
    Other versions:
  5. Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2004. "The ownership structure of repurchasing firms," Working Paper 2004/7, Norges Bank. [Downloadable!]
  6. Maher Kooli & Jean-François L'Her & Jean-Marc Suret, 2003. "Do IPOs Underperform in the Long-Run? New Evidence from the Canadian Stock Market," CIRANO Working Papers 2003s-16, CIRANO. [Downloadable!]
  7. Andreas Hackethal & Alexandre Zdantchouk, 2006. "Signaling Power of Open Market Share Repurchases in Germany," Financial Markets and Portfolio Management, Springer, vol. 20(2), pages 123-151, June. [Downloadable!] (restricted)
  8. Ron Bird & Lorenzo Casavecchia & Paul Woolley, 2008. "Insights into the Market Impact of Different Investment Styles," Working Paper Series 1, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney. [Downloadable!]
  9. Jong, A. de & Dijk, R. van & Veld, C., 2000. "The dividend and share repurchase policies of Canadian firms : empirical evidence based on a new research design," Discussion Paper 16, Tilburg University, Center for Economic Research. [Downloadable!]
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