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Open-Market Repurchase Announcements,Actual Repurchases,and Stock Price Behavior in Inefficient Markets

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  • Nobuyuki Isawaga

Abstract

I ask why a firm would choose to buy back its outstanding shares after the stock price goes up in response to an open-market repurchase announcement.I introduce the subject of market inefficiency and establish a signaling equilibrium that does not assume that an announcement of open-market repurchase represents a commitment.Since the firm can earn capital gains by buying its outstanding shares at a bargain price,it has a strong incentive to execute stock repurchases even after it announces repurchase intention.Empirically,my model predicts positive long-run stock return performance and positive announcement effects following open-market repurchase announcements.

Suggested Citation

  • Nobuyuki Isawaga, 2002. "Open-Market Repurchase Announcements,Actual Repurchases,and Stock Price Behavior in Inefficient Markets," Financial Management, Financial Management Association, vol. 31(3), Fall.
    • Handle: RePEc:fma:fmanag:isawaga02
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    Cited by:

    1. Weston, J. Fred & Siu, Juan A., 2003. "Changing Motives for Share Repurchases," University of California at Los Angeles, Anderson Graduate School of Management qt9146588t, Anderson Graduate School of Management, UCLA.

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