An Empirical Investigation of Share Buybacks in Hong Kong

Michael Firth and Canna S.F. Yeung
Additional contact information
Michael Firth: Michael Firth (corresponding author) is at the School of Accounting and Finance, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong. E–mail: afmaf@inet.polyu.edu.hk
Canna S.F. Yeung: Canna S.F. Yeung is at The Hong Kong Polytechnic University, Hung Hum, Kowloon, Hong Kong.

Journal of Emerging Market Finance, 2005, vol. 4, issue 3, 207-225

Abstract: This study examines various aspects of open market share buybacks using data from Hong Kong. One advantage of using data from Hong Kong is that details of actual share repurchases are disclosed. Our results suggest that firms initiating share repurchases have surplus cash and are undervalued. Furthermore, the number of shares repurchased in a quarter is a function of the cash flow of the firm, undervaluation and the number of shares repurchased in the prior period. We find that market-adjusted stock returns surrounding the first share repurchase are a function of undervaluation, as proxied by prior abnormal stock returns, and the number of shares acquired. The general tenor of the results is consistent with the hypotheses that managers engage in share buybacks to return ‘surplus’ cash to shareholders and to signal and correct undervaluation.

Keywords: Share repurchases; firm characteristics; abnormal stock returns (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:4:y:2005:i:3:p:207-225

DOI: 10.1177/097265270500400301

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