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Managerial Responses to Initial Market Reactions on Share Repurchases

Author

Listed:
  • Hung-Kun Chen

    (Department of Finance, National Taiwan University, 106 Taipei, Taiwan)

  • Yan-Shing Chen

    (Department of Finance, National Taiwan University, 106 Taipei, Taiwan)

  • Chia-Wei Huang

    (Department of Finance, National Taiwan University, 106 Taipei, Taiwan)

  • Yanzhi Wang

    (Department of Finance, Yuan Ze University, 320 Taoyuan, Taiwan)

Abstract

While most papers in finance literature investigate how the stock market reacts to announcements of corporate events, very few study the opposite, how namely, the manager responds to the information from outside investors. In this paper, we examine this issue, using open market share repurchases. Open market share repurchase offers flexibility for the manager to decide whether or not to buy back shares. Therefore, the manager may refer to the opinions of outside investors and make the decision, based on actual buyback activities. We propose learning, over-confidence and timing hypotheses to interpret the behavior of the managerial response to initial market reaction on the share repurchase announcement. Empirically, if a repurchase announcement abnormal return is low, then the manager tends to achieve the repurchase announced ratio by purchasing more shares. In addition, the investor will positively react to this repurchase in the long run. These empirical findings are consistent with the market timing hypothesis, which implies that managers know the true value of their firms better than the market at the moment of the share repurchase announcement.

Suggested Citation

  • Hung-Kun Chen & Yan-Shing Chen & Chia-Wei Huang & Yanzhi Wang, 2009. "Managerial Responses to Initial Market Reactions on Share Repurchases," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 12(03), pages 455-474.
    • Handle: RePEc:wsi:rpbfmp:v:12:y:2009:i:03:n:s0219091509001708
    DOI: 10.1142/S0219091509001708
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    Citations

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    Cited by:

    1. Yue Liu, 2019. "Shareholder wealth effects of M&A withdrawals," Review of Quantitative Finance and Accounting, Springer, vol. 52(3), pages 681-716, April.
    2. Sheng-Syan Chen & Robin K. Chou & Yun-Chi Lee, 2020. "The effects of executive compensation and outside monitoring on firms’ pre-repurchase disclosure behavior and post-repurchase performance," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 111-158, January.
    3. 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.

    More about this item

    Keywords

    Repurchase; managerial response; market timing;
    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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