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The Effects of Stock Repurchases on Rival Firms

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  • Hertzel, Michael G

Abstract

This paper investigates the stock price behavior of rival firms in the same industry as firms announcing stock repurchase tender offers. Using a sample of 134 repurchase announcements, the author finds that rival firms on average realize insignificant announcement-period abnormal returns. Negative rival stock price performance is detected over longer intervals surrounding the announcement period and for a subset of announcements which ex ante were identified as most likely to affect rivals. This evidence, however, is statistically weak and does little to alter the overall conclusion that the information in repurchase announcements is primarily firm-specific. Copyright 1991 by American Finance Association.

Suggested Citation

  • Hertzel, Michael G, 1991. " The Effects of Stock Repurchases on Rival Firms," Journal of Finance, American Finance Association, vol. 46(2), pages 707-716, June.
  • Handle: RePEc:bla:jfinan:v:46:y:1991:i:2:p:707-16
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    Cited by:

    1. Slovin, Myron B. & Sushka, Marie E. & Ferraro, Steven R., 1995. "A comparison of the information conveyed by equity carve-outs, spin-offs, and asset sell-offs," Journal of Financial Economics, Elsevier, vol. 37(1), pages 89-104, January.
    2. Xin Yu & Peng Zhang & Ying Zheng, 2015. "Corporate Governance, Political Connections, and Intra-Industry Effects: Evidence from Corporate Scandals in China," Financial Management, Financial Management Association International, vol. 44(1), pages 49-80, March.
    3. Balachandran, Balasingham & Faff, Robert & Nguyen, Tuan Anh, 2004. "The intra-industry impact of special dividend announcements: contagion versus competition," Journal of Multinational Financial Management, Elsevier, vol. 14(4-5), pages 369-385.
    4. Beatty, Randolph P. & Bunsis, Howard & Hand, John R. M., 1998. "The indirect economic penalties in SEC investigations of underwriters," Journal of Financial Economics, Elsevier, vol. 50(2), pages 151-186, November.
    5. Erwin, Gayle R & Miller, James M, 1998. "The Intra-industry Effects of Open Market Share Repurchases: Contagion or Competitive?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(4), pages 389-406, Winter.
    6. Chod, Jiri & Lyandres, Evgeny, 2011. "Strategic IPOs and product market competition," Journal of Financial Economics, Elsevier, vol. 100(1), pages 45-67, April.
    7. Liao, Tsai-Ling & Lin, Wen-Chun, 2016. "Product market competition and earnings management around open-market repurchase announcements," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 187-203.
    8. Aigbe Akhigbe & Jeff Madura, 1999. "Intraindustry Effects of Bank Stock Repurchases," Journal of Financial Services Research, Springer;Western Finance Association, vol. 15(1), pages 23-36, February.
    9. Otchere, Isaac, 2005. "Do privatized banks in middle- and low-income countries perform better than rival banks? An intra-industry analysis of bank privatization," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2067-2093, August.
    10. Francis, Bill B. & Hasan, Iftekhar & Kostova, Gergana L., 2016. "When do peers matter?: A cross-country perspective," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 364-389.
    11. Massa, Massimo & Rehman, Zahid & Vermaelen, Theo, 2007. "Mimicking repurchases," Journal of Financial Economics, Elsevier, vol. 84(3), pages 624-666, June.
    12. Arturo Bris & Christos Cabolis, 2002. "Corporate Governance Convergence by Contract: Evidence from Cross-Border Mergers," Yale School of Management Working Papers ysm293, Yale School of Management, revised 01 Jan 2003.
    13. Bris, Arturo & Brisley, Neil & Cabolis, Christos, 2008. "Adopting better corporate governance: Evidence from cross-border mergers," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 224-240, June.
    14. Akhigbe, Aigbe & Martin, Anna D., 2000. "Information-signaling and competitive effects of foreign acquisitions in the US," Journal of Banking & Finance, Elsevier, vol. 24(8), pages 1307-1321, August.
    15. Jeff Madura & Thanh Ngo, 2012. "Re-examination of industry effects due to withdrawn mergers," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(3), pages 613-633, July.
    16. Hung, Weifeng, 2014. "Institutional trading and attention bias," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 71-91.
    17. Gygax, André F. & Otchere, Isaac, 2010. "Index composition changes and the cost of incumbency," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2500-2509, October.

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