Stock Repurchase in Korea: Market Reactions and Operating Performance

Youngkyu Park and Kooyul Jung ()
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Youngkyu Park: Graduate School of Management, Korea Advanced Institute of Science and Technology, Seoul, Korea
Kooyul Jung: Graduate School of Management, Korea Advanced Institute of Science and Technology, 207-43 Chongyangni2-dong, Dongdaemoon-gu, Seoul 130-722, Korea

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2005, vol. 08, issue 01, 81-112

Abstract: This study examines the motive for stock repurchase. We examine four hypotheses — undervaluation, signaling, free cash flow, and optimal leverage hypotheses — using both short-run and long-run market reactions. We find that the undervaluation hypothesis is most consistent with both short-run and long-run tests. Improvement in operating performance following repurchase suggests the signaling hypothesis. However, the signaling hypothesis is supported only in the long-run test, not the short-run test, suggesting that market underreaction exists to the signaling initially. Of the control variables, the target purchase ratio and ownership by the largest shareholders are found significant, suggesting that the magnitude of repurchase and the ownership increase motive by the largest shareholders are also important factors that explain the repurchase.

Keywords: Stock repurchase; undervaluation; signaling; free cash flow (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2005
References: View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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DOI: 10.1142/S0219091505000300

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