Credibility of corporate announcements and market reaction : evidence from Canadian share repurchase programs
Date
2006-10-27
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
ORCID
Type
Degree Level
Masters
Abstract
Firms that announce open-market share repurchase programs are not obligated to follow through in the actual acquisition of shares. In fact, we find that the majority of firms fail to acquire the target number of shares specified at announcement and many firms fail to repurchase any shares at all. Therefore, the announcement of a share repurchase program has a degree of uncertainty regarding the announcing firm’s credibility. This study examines the possibility that market participants evaluate the credibility of a firm’s share repurchase announcement based on the firm’s previous share repurchase history. We examine 1,507 share repurchase programs for firms listed on the Toronto Stock Exchange (TSX) from 1995 to 2005 and find that firms that have completed a higher proportion of previous share repurchase programs experience larger abnormal returns on the announcement of subsequent repurchase programs. Therefore, we conclude that the market reacts more favorably to the share repurchase announcements of credible firms compared to firms that lack credibility.
Description
Keywords
stock buyback, stock repurchase, share repurchase, payout policy
Citation
Degree
Master of Science (M.Sc.)
Department
Finance and Management Science
Program
Finance and Management Science