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Share repurchase: Does it increase the informativeness of market prices?

  • de La Bruslerie, Hubert
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    Share repurchases are transactions which are supposed to cause a market reaction through a signaling approach. However looking only at cumulated abnormal returns (CARs)is insufficient and the results are sometimes contradictory. We introduce the concept of informativeness to assess if repurchases improve the private information content of stock prices. Our empirical test comprises American and European buybacks in the period 1990 – 2011. We use the synchronicity measure introduced by Roll (1988) to follow the change in informativeness before and after the announcement of a transaction. The determinants of informativeness and CARs are also investigated. Our results are negative : Informativeness does not systematically improve, but may sometimes if a change of dividend policy jointly occurs.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/11381/1/149.pdf
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    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/11381.

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    Date of creation: May 2013
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    Handle: RePEc:dau:papers:123456789/11381
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    1. B. Douglas Berhheim, 1991. "Tax Policy and the Dividend Puzzle," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 455-476, Winter.
    2. Artyom Durnev & Randall Morck & Bernard Yeung & Paul Zarowin, 2003. "Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing?," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 797-836, December.
    3. Dittmar, Amy K, 2000. "Why Do Firms Repurchase Stock?," The Journal of Business, University of Chicago Press, vol. 73(3), pages 331-55, July.
    4. repec:dgr:kubcen:201082 is not listed on IDEAS
    5. Franklin Allen & Antonio E. Bernardo & Ivo Welch, 2000. "A Theory of Dividends Based on Tax Clienteles," Journal of Finance, American Finance Association, vol. 55(6), pages 2499-2536, December.
    6. Vermaelen, Theo, 1984. "Repurchase Tender Offers, Signaling, and Managerial Incentives," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(02), pages 163-181, June.
    7. Art Durnev & Randall Morck & Bernard Yeung, 2004. "Value-Enhancing Capital Budgeting and Firm-specific Stock Return Variation," Journal of Finance, American Finance Association, vol. 59(1), pages 65-105, 02.
    8. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
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