Isa, Mansor and Siew , Peng Lee
(2014)
Market Reactions To Share Repurchase
Announcements In Malaysia.
Asian Academy of Management Journal of Accounting and Finance, 10 (1).
pp. 1-29.
ISSN 1823-4992
Abstract
This paper examines share price behaviour surrounding share repurchase
announcements in the context of information asymmetry and signalling hypothesis. We
use event-type analysis to examine abnormal returns around three related repurchase
announcements: announcement of the board’s decision, announcement of shareholder
approval and announcement of actual share purchase. The results show that stock prices
increase significantly in response to each of the three repurchase announcements, but
there is no significant difference in the market reaction to firms that eventually make a
repurchase versus firms that do not. We conclude that our results are consistent with the
underpricing signalling hypothesis. Our results also show that small firms earn greater
abnormal returns than large firms during each of the announcements, lending support to
the information asymmetry hypothesis. Our multivariate regressions indicate that firm
characteristics such as firm size, return on assets and the market-to-book ratio are found
to be significantly related to the announcement-related abnormal returns. Finally, logit
and probit results indicate that firms’ repurchase decision depends on firm size,
profitability and price changes during announcements.
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