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The Long-Term Wealth Effect Of Share Repurchases Evidence From Taiwan

Author

Listed:
  • Tai-Yuan Chen
  • Lie-Jane Kao
  • Hsing-Yu Lin

Abstract

This paper examines the long-term wealth effect of 948 share repurchase announcements in the Taiwan market. We also investigate what factors determine the wealth effect of share repurchases. Our findings show that share repurchases induce positive buy-and-hold abnormal returns during the 12-month post-announcement period. Undervaluation and unexpected operating profits are the two important factors explaining the wealth effect regardless of firms’ investment opportunities. In addition, for firms with poor investment opportunities, estimated repurchase ratio also explains the wealth effect for the two-month period after repurchase announcements but not for the long-term. By contrast, this study does not find the explanatory power of the changes in free cash flow on either the short- or the long-term wealth. The overall evidence supports the undervaluation and the signaling hypotheses, rather than the free cash flow hypothesis.

Suggested Citation

  • Tai-Yuan Chen & Lie-Jane Kao & Hsing-Yu Lin, 2011. "The Long-Term Wealth Effect Of Share Repurchases Evidence From Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(2), pages 21-33.
    • Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:2:p:21-33
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    References listed on IDEAS

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    Cited by:

    1. Chen, Ni-Yun & Chen, Kun-Chih & Liu, Chi-Chun, 2019. "Debt-financed repurchases and credit ratings with the respect of free cash flow and repurchase purpose," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 23-36.

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    More about this item

    Keywords

    Share Repurchase; Abnormal Return; Undervaluation; Signaling; Agency Theory;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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