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The Intra-Industry Effect of Share Repurchase Deregulation: Evidence from Taiwan

Author

Listed:
  • Shao-Chi Chang

    (Institute of International Business, National Cheng Kung University, No. 1 University Rd., Tainan, Taiwan, R.O.C.)

  • Jung-Ho Lai

    (Southern Taiwan University of Technology, Taiwan, R.O.C.)

  • Chen-Hsiang Yu

    (National Cheng Kung University, Taiwan, R.O.C.)

Abstract

Share repurchases were deregulated in Taiwan in 2000. The regulatory provisions and the government's stated aim of market stabilization provide a setting in which share repurchases are exclusively motivated by undervaluation. This study investigates if deregulation of share repurchases is an effective method of market stabilization by investigating the intra-industry effects of repurchase deregulation in Taiwan. We find that repurchasing firms and their corresponding rivals both experience strong value creation upon the repurchase announcements. The evidence suggests that the intra-industry effect of share repurchases is negatively associated with rivals' firm size, and positively associated with the announcing firm's abnormal return, the size of share repurchases and the similarity of business operation between rivals and repurchasing firms. These findings hold even after taking into account other effects that could influence the valuation of the rival firms.

Suggested Citation

  • Shao-Chi Chang & Jung-Ho Lai & Chen-Hsiang Yu, 2005. "The Intra-Industry Effect of Share Repurchase Deregulation: Evidence from Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 251-277.
    • Handle: RePEc:wsi:rpbfmp:v:08:y:2005:i:02:n:s0219091505000361
    DOI: 10.1142/S0219091505000361
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    References listed on IDEAS

    as
    1. George W. Fenn & J. Nellie Liang, 1997. "Good news and bad news about share repurchases," Finance and Economics Discussion Series 1998-04, Board of Governors of the Federal Reserve System (U.S.).
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    Citations

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    Cited by:

    1. Wang, C. Edward & DeGennaro, Ramon P., 2019. "Overshooting: Evidence from share repurchases and subsidiary selling," Research in International Business and Finance, Elsevier, vol. 49(C), pages 41-54.
    2. Jonathan Ross & David Ziebart & Anthony Meder, 2019. "A new measure of firm-group accounting closeness," Review of Quantitative Finance and Accounting, Springer, vol. 52(4), pages 1137-1161, May.
    3. Chao, Ching-Hsiang & Huang, Chih-Jen, 2022. "Firm performance following actual share repurchases: Effects of investment crowding out and financial flexibility," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    4. Wang, Li-Hsun & Lin, Chu-Hsiung & Fung, Hung-Gay & Chen, Hsien-Ming, 2013. "An analysis of stock repurchase in Taiwan," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 497-513.
    5. Joanna Golden, 2018. "The Effect of Shareholder Rights and Information Asymmetry on Stock-Option-Related Repurchase Activity," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-41, June.

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    More about this item

    Keywords

    Share repurchase; competitive effect; contagion effect;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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