Informed Repurchases, Information Asymmetry and the Market Response to Open Market Share Repurchases

Bong Soo Lee and Nathan Mauck
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Bong Soo Lee: Department of Finance, Florida State University, Tallahassee, FL 32306, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2018, vol. 21, issue 03, 1-32

Abstract: This paper relates informed repurchases to firm information asymmetry. We propose a new measure of informed repurchases, which is based on causality tests relating repurchase information to firm returns. Our results indicate that informed repurchases show larger abnormal returns surrounding the announcement of an open market share repurchase, which suggests the market at least partially recognizes informed repurchases. This holds after controlling for conventional information asymmetry proxies, such as firm size, number of analysts following, and analyst forecast dispersion, indicating that the market is aware of repurchase specific information not captured by traditional information asymmetry proxies. Informed repurchases demonstrate larger long-term abnormal returns at one, two, and three-year windows than high traditional information asymmetry repurchases.

Keywords: Payout policy; open market share repurchases; information asymmetry; time series; causality (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219091518500212

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