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Can The Open Market React To Stock Repurchases Announcement Correctly?

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  • Chun-An Li
  • Tse-Mao Lin
  • Ching-Han Chuang

Abstract

In this study, we explore the market reaction to the announcement of stock repurchase plans, and the mutual influence between the actual fulfillment rate of stock repurchase plans and the degree of earnings management. From the perspective of earnings management behavior, this paper also analyzes the actual fulfillment rate, and discusses the information asymmetry, firms may carry out earnings management before stock repurchases, to mislead the investors into believing the prettified financial statements, to induce the investors to invest, and convey false signals to the market. The empirical results demonstrate that the cumulative abnormal return (CAR) resulting from true signals is higher than that resulting from false signals. Further, the phenomenon is more significant in the hi-tech industry than in traditional industries, and the firms with Purpose 3(support the stock prices to maintain firm credit and shareholders' equity), a significant, positive abnormal return is observed on the day before and the day after the announcement day. In bullish periods, abnormal returns are not significant; in bearish periods, a significant, positive abnormal return is observed. These findings are applicable not only to the research samples but also to the samples when the extreme values are removed. Therefore, the empirical results are still robust

Suggested Citation

  • Chun-An Li & Tse-Mao Lin & Ching-Han Chuang, 2019. "Can The Open Market React To Stock Repurchases Announcement Correctly?," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 13(1), pages 31-52.
    • Handle: RePEc:ibf:ijbfre:v:13:y:2019:i:1:p:31-52
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock Repurchases; Abnormal Returns; Earnings Management;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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