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Targeted Repurchases and Common Stock Returns

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  • Wayne H. Mikkelson
  • Richard S. Ruback

Abstract

We examine whether the actions of the blockholder and repurchasing managers in targeted repurchases of common stock benefit the repurchasing firm's stockholders. Positive stock returns from the time of the initial investment through the repurchase indicate that blockholders' actions benefit stockholders. We argue that the negative stock price reaction to a repurchase does not resolve whether the decision to repurchase helps or harms stockholders. That determination depends on the alternatives forgone by the repurchasing managers. A low incidence of reported takeover events before and after block repurchases suggests that repurchases typically are not undertaken in place of a takeover of the firm.

Suggested Citation

  • Wayne H. Mikkelson & Richard S. Ruback, 1991. "Targeted Repurchases and Common Stock Returns," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 544-561, Winter.
  • Handle: RePEc:rje:randje:v:22:y:1991:i:winter:p:544-561
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    Cited by:

    1. Jafarinejad, Mohammad & Jory, Surendranath R. & Ngo, Thanh N., 2015. "The effects of institutional ownership on the value and risk of diversified firms," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 207-219.
    2. Byungmo Kim, 2011. "Do Foreign Investors Encourage Value-Enhancing Corporate Risk Taking?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(3), pages 88-110, May.
    3. Parrino, Robert, 1997. "Spinoffs and wealth transfers: The Marriott case," Journal of Financial Economics, Elsevier, vol. 43(2), pages 241-274, February.
    4. Byungmo Kim, 2011. "Do Foreign Investors Encourage Value-Enhancing Corporate Risk Taking?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(3), pages 88-110, May.
    5. Pearce II, John A. & Robinson, Richard Jr., 2004. "Hostile takeover defenses that maximize shareholder wealth," Business Horizons, Elsevier, vol. 47(5), pages 15-24.
    6. Firth, Michael & Leung, T.Y. & Rui, Oliver M., 2010. "Double signals or single signal? An investigation of insider trading around share repurchases," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 376-388, October.
    7. Karyn L. Neuhauser & Wallace N. Davidson & John L. Glascock, 2011. "An analysis of failed takeover attempts and merger cancellations," International Journal of Managerial Finance, Emerald Group Publishing, vol. 7(4), pages 347-376, September.
    8. Harris, Oneil & Glegg, Charmaine, 2009. "Governance quality and privately negotiated stock repurchases: Evidence of agency conflict," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 317-325, February.
    9. Peyer, Urs C. & Vermaelen, Theo, 2005. "The many facets of privately negotiated stock repurchases," Journal of Financial Economics, Elsevier, vol. 75(2), pages 361-395, February.
    10. James M. Mahoney & Chamu Sundaramurthy & Joseph T. Mahoney, 1995. "The differential impact on stockholder wealth of various antitakeover provisions," Research Paper 9512, Federal Reserve Bank of New York.
    11. Hadani, Michael & Goranova, Maria & Khan, Raihan, 2011. "Institutional investors, shareholder activism, and earnings management," Journal of Business Research, Elsevier, vol. 64(12), pages 1352-1360.

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