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Information content of repurchase signals: Tangible or intangible information?

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  • Liang, Woan-lih

Abstract

The outperformance of repurchasing firms with a high book-to-market (B/M) ratio is usually explained by investors’ undervaluation of the firm’s past performance. However, several studies suggest that the underestimation of future intangible value may explain the high return associated with the share repurchase. To better understand the actual information content of repurchases, I decompose the B/M ratio into past tangible information and future intangible information and find that repurchase signals an undervaluation of the intangible return. In addition, I investigate several potential proxies for intangible information—R&D expenses, intangible assets, and future operating performance. My results show that intangible information signals the undervaluation of future operating performance.

Suggested Citation

  • Liang, Woan-lih, 2012. "Information content of repurchase signals: Tangible or intangible information?," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 261-274.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:1:p:261-274
    DOI: 10.1016/j.jbankfin.2011.07.004
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    1. repec:spr:rvmgts:v:11:y:2017:i:4:d:10.1007_s11846-016-0206-z is not listed on IDEAS
    2. Liang, Woan-lih, 2016. "Sensitivity to investor sentiment and stock performance of open market share repurchases," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 75-94.
    3. Chen, Sheng-Syan & Ho, Kim Wai & Huang, Chia-Wei & Wang, Yanzhi, 2013. "Buyback behavior of initial public offering firms," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 32-42.
    4. Huang, Chia-Wei, 2015. "Takeover vulnerability and the credibility of signaling: The case of open-market share repurchases," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 405-417.
    5. Ma-Ju Wang, 2014. "A Study on the Differences in Adopting Cash Refund Capital Reduction and Stock Repurchase By Companies in Bull and Bear Stock Markets," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(9), pages 1237-1253, September.

    More about this item

    Keywords

    Repurchase; Book-to-market ratio; Tangible information; Intangible information;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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