What do market participants learn from share repurchases? Evidence from a return decomposition

Sascha Jakob and Philip Valta

Journal of Corporate Finance, 2023, vol. 82, issue C

Abstract: This paper analyzes cash flow and cost of capital dynamics around share repurchase announcements of publicly traded US firms by decomposing stock returns into news related to cash flows and discount rates. After repurchase announcements, the cost of capital decreases significantly, while cash flows do not change. The decrease in the cost of capital is largest for firms that appear underpriced. These firms also experience the highest long-term returns after repurchase announcements. The findings suggest that market participants learn about a temporary overestimation of the cost of capital when firms announce share repurchases.

Keywords: Share repurchases; Return decomposition; Cost of capital; Buyback anomaly (search for similar items in EconPapers)
JEL-codes: G14 G32 G35 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923001001

DOI: 10.1016/j.jcorpfin.2023.102451

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