Takeover vulnerability and the credibility of signaling: The case of open-market share repurchases

Chia-Wei Huang

Journal of Banking & Finance, 2015, vol. 58, issue C, 405-417

Abstract: There is debate in the literature focuses on whether open market repurchases can be taken as a signal of stock undervaluation. This research argues that takeover pressures before a repurchase announcement can be a credible signal of undervaluation. The empirical results indicate that repurchasing firms with a higher probability of takeover experience greater announcement effects, improvements in operating performance and long-run abnormal return, positive forecast revisions by financial analysts, and enhanced agreement between management and shareholders. These findings suggest that takeover probability and open-market share repurchases appear to constitute a double-signal for conveying stock undervaluation to the market.

Keywords: Repurchases; Takeover likelihood; Signaling (search for similar items in EconPapers)
JEL-codes: G14 G34 G35 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:58:y:2015:i:c:p:405-417

DOI: 10.1016/j.jbankfin.2015.04.022

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