Managerial Responses to Initial Market Reactions on Share Repurchases

Hung-Kun Chen, Yan-Shing Chen, Chia-Wei Huang and Yanzhi Wang ()
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Hung-Kun Chen: Department of Finance, National Taiwan University, 106 Taipei, Taiwan
Yan-Shing Chen: Department of Finance, National Taiwan University, 106 Taipei, Taiwan
Chia-Wei Huang: Department of Finance, National Taiwan University, 106 Taipei, Taiwan
Yanzhi Wang: Department of Finance, Yuan Ze University, 320 Taoyuan, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2009, vol. 12, issue 03, 455-474

Abstract: While most papers in finance literature investigate how the stock market reacts to announcements of corporate events, very few study the opposite, how namely, the manager responds to the information from outside investors. In this paper, we examine this issue, using open market share repurchases. Open market share repurchase offers flexibility for the manager to decide whether or not to buy back shares. Therefore, the manager may refer to the opinions of outside investors and make the decision, based on actual buyback activities. We propose learning, over-confidence and timing hypotheses to interpret the behavior of the managerial response to initial market reaction on the share repurchase announcement. Empirically, if a repurchase announcement abnormal return is low, then the manager tends to achieve the repurchase announced ratio by purchasing more shares. In addition, the investor will positively react to this repurchase in the long run. These empirical findings are consistent with the market timing hypothesis, which implies that managers know the true value of their firms better than the market at the moment of the share repurchase announcement.

Keywords: Repurchase; managerial response; market timing (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2009
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091509001708

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