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An Empirical Investigation of Share Buybacks in Hong Kong

Author

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  • Michael Firth

    (Michael Firth (corresponding author) is at the School of Accounting and Finance, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong. E–mail: afmaf@inet.polyu.edu.hk)

  • Canna S.F. Yeung

    (Canna S.F. Yeung is at The Hong Kong Polytechnic University, Hung Hum, Kowloon, Hong Kong.)

Abstract

This study examines various aspects of open market share buybacks using data from Hong Kong. One advantage of using data from Hong Kong is that details of actual share repurchases are disclosed. Our results suggest that firms initiating share repurchases have surplus cash and are undervalued. Furthermore, the number of shares repurchased in a quarter is a function of the cash flow of the firm, undervaluation and the number of shares repurchased in the prior period. We find that market-adjusted stock returns surrounding the first share repurchase are a function of undervaluation, as proxied by prior abnormal stock returns, and the number of shares acquired. The general tenor of the results is consistent with the hypotheses that managers engage in share buybacks to return ‘surplus’ cash to shareholders and to signal and correct undervaluation.

Suggested Citation

  • Michael Firth & Canna S.F. Yeung, 2005. "An Empirical Investigation of Share Buybacks in Hong Kong," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 4(3), pages 207-225, December.
    • Handle: RePEc:sae:emffin:v:4:y:2005:i:3:p:207-225
    DOI: 10.1177/097265270500400301
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    References listed on IDEAS

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    1. Ikenberry, David & Lakonishok, Josef & Vermaelen, Theo, 1995. "Market underreaction to open market share repurchases," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 181-208.
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    Cited by:

    1. Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2013. "Share repurchases, signaling effect and implications for corporate governance: Evidence from India," MPRA Paper 60147, University Library of Munich, Germany.

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