Equity Undervaluation and Signaling Power of Share Repurchases with Legal Restrictions

Jung-Hua Hung and Yi-Pei Chen

Emerging Markets Finance and Trade, 2010, vol. 46, issue 2, 101-115

Abstract: This paper analyzes share repurchase programs, which are subject to specific legal restrictions in Taiwan, to determine whether the unique item repurchase price range conveys information regarding the degree of undervaluation and future prospects of a firm. We find that the price range conveys such information, not only about the past, but also the future. Companies with a higher upper bound of the repurchase price range experience better abnormal returns than do companies that do not. The lower bound of the price range does not efficiently convey the undervaluation effect, owing to the exemption clause in the announcement. Finally, the announced price range, in turn, conveys favorable information about the repurchasing firm and is a more powerful signal of future prospects than is the legal price range.

Keywords: price range; repurchases; signaling; undervaluation (search for similar items in EconPapers)
Date: 2010
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