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Information Asymmetry and the Market Response to Open Market Share Repurchases

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  • Lee, Bong Soo
  • Mauck, Nathan

Abstract

This paper proposes a new measure of firm information asymmetry. The information asymmetry measure is based on causality tests relating repurchase information to firm returns. Our results indicate that firms with greater information asymmetry show larger abnormal returns surrounding the announcement of an open market share repurchase. This new information asymmetry proxy remains a significant explanatory factor for announcement abnormal returns after controlling for other conventional information asymmetry proxies, such as firm size, number of analysts following, and analyst forecast dispersion. Further, our measure of information asymmetry is positively related to long-term abnormal returns at one, two, and three-year windows.

Suggested Citation

  • Lee, Bong Soo & Mauck, Nathan, 2014. "Information Asymmetry and the Market Response to Open Market Share Repurchases," MPRA Paper 54066, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:54066
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    File URL: https://mpra.ub.uni-muenchen.de/54066/1/MPRA_paper_54066.pdf
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    References listed on IDEAS

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    Cited by:

    1. Gerald J. Lobo & Ashok Robin & Kean Wu, 2020. "Share repurchases and accounting conservatism," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 699-733, February.

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    More about this item

    Keywords

    Payout policy; Open market share repurchases; Information asymmetry; Time series; Causality;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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