Open-Market Repurchase Announcements,Actual Repurchases,and Stock Price Behavior in Inefficient Markets

Nobuyuki Isawaga

Financial Management, 2002, vol. 31, issue 3

Abstract: I ask why a firm would choose to buy back its outstanding shares after the stock price goes up in response to an open-market repurchase announcement.I introduce the subject of market inefficiency and establish a signaling equilibrium that does not assume that an announcement of open-market repurchase represents a commitment.Since the firm can earn capital gains by buying its outstanding shares at a bargain price,it has a strong incentive to execute stock repurchases even after it announces repurchase intention.Empirically,my model predicts positive long-run stock return performance and positive announcement effects following open-market repurchase announcements.

Date: 2002
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