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Market Reactions to Share Repurchase Announcements in Malaysia

Author

Listed:
  • Mansor Isa

    (Capital Market Authority, Riyadh, Kingdom of Saudi Arabia)

  • Siew-Peng Lee

    (Faculty of Accountancy and Management, University Tunku Abdul Rahman, Bandar Sungai Long, 43000 Selangor)

Abstract

This paper examines share price behaviour surrounding share repurchase announcements in the context of information asymmetry and signalling hypothesis. We use event-type analysis to examine abnormal returns around three related repurchase announcements: announcement of the board’s decision, announcement of shareholder approval and announcement of actual share purchase. The results show that stock prices increase significantly in response to each of the three repurchase announcements, but there is no significant difference in the market reaction to firms that eventually make a repurchase versus firms that do not. We conclude that our results are consistent with the underpricing signalling hypothesis. Our results also show that small firms earn greater abnormal returns than large firms during each of the announcements, lending support to the information asymmetry hypothesis. Our multivariate regressions indicate that firm characteristics such as firm size, return on assets and the market-to-book ratio are found to be significantly related to the announcement-related abnormal returns. Finally, logit and probit results indicate that firms’ repurchase decision depends on firm size, profitability and price changes during announcements.

Suggested Citation

  • Mansor Isa & Siew-Peng Lee, 2014. "Market Reactions to Share Repurchase Announcements in Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(1), pages 45-73.
    • Handle: RePEc:usm:journl:aamjaf01001_45-73
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    Citations

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    Cited by:

    1. Gamage, Charith B., 2023. "Do adjustment costs influence firms’ target adjustment speeds? International evidence from share repurchase legalization," Journal of International Money and Finance, Elsevier, vol. 131(C).
    2. Wang, Zigan & Yin, Qie Ellie & Yu, Luping, 2021. "Real effects of share repurchases legalization on corporate behaviors," Journal of Financial Economics, Elsevier, vol. 140(1), pages 197-219.
    3. Alquhaif, Abdulsalam & Al-Gamrh, Bakr & Abdul Latif, Rohaida, 2020. "An overview of share buybacks: A descriptive case from Malaysia," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).

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