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The Wealth and Information Effects of Insurers' Open Market Stock Repurchase Announcements

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  • Patricia Born
  • Carmelo Giaccotto
  • Titos Ritsatos

Abstract

This article examines the use of an increasingly popular method of cash disbursement in the insurance industry: stock repurchase programs. Using a sample of stock repurchase announcements between 1981 and 1997, we examine the motivation for stock repurchase, estimate the market reaction to the repurchase announcement, and evaluate the magnitude of the reaction as it relates to particular insurance industry and firm characteristics. We examine the abnormal returns around the announcement day and find a significant positive wealth effect associated with repurchase announcements—a result that is consistent with that of other studies of both nonfinancial and financial firms. However, we suspect that the nature of the insurance product and the highly regulated status of the insurance industry might serve to mitigate the magnitude of an announcement effect. In fact, we find that the effect for all insurers is smaller than that obtained in samples of industrial firms. Finally, we examine the relationships between the magnitude of the announcement effect and various firm characteristics and test the significance of information signaling and Jensen's free cash flow theories in the insurance setting.

Suggested Citation

  • Patricia Born & Carmelo Giaccotto & Titos Ritsatos, 2004. "The Wealth and Information Effects of Insurers' Open Market Stock Repurchase Announcements," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 7(1), pages 25-40, March.
    • Handle: RePEc:bla:rmgtin:v:7:y:2004:i:1:p:25-40
    DOI: j.1098-1616.2004.00034.x
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    References listed on IDEAS

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    1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
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    Cited by:

    1. Nicos Scordis, 2020. "A note on risk and value from an underutilized dataset: Consolidated disclosures," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 23(1), pages 105-112, March.

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