Skip to main content
    • Aa
    • Aa
  • Get access
    Check if you have access via personal or institutional login
  • Cited by 20
  • Cited by
    This article has been cited by the following publications. This list is generated based on data provided by CrossRef.

    Caton, Gary L. Goh, Jeremy Lee, Yen Teik and Linn, Scott C. 2016. Governance and post-repurchase performance. Journal of Corporate Finance, Vol. 39, p. 155.

    Cheng, Peter Li, Lin and Tong, Wilson H.S. 2016. Target Information Asymmetry and Acquisition Price. Journal of Business Finance & Accounting, Vol. 43, Issue. 7-8, p. 976.

    Francis, Bill Hasan, Iftekhar and Li, Lingxiang 2016. A cross-country study of legal-system strength and real earnings management. Journal of Accounting and Public Policy, Vol. 35, Issue. 5, p. 477.

    Hillert, Alexander Maug, Ernst and Obernberger, Stefan 2016. Stock repurchases and liquidity. Journal of Financial Economics, Vol. 119, Issue. 1, p. 186.

    Iyer, Subramanian Rama Feng, Harry and Rao, Ramesh P. 2016. Payout flexibility and capital expenditure. Review of Quantitative Finance and Accounting,

    Liang, Woan-lih 2016. Sensitivity to investor sentiment and stock performance of open market share repurchases. Journal of Banking & Finance, Vol. 71, p. 75.

    Liu, Harrison and Swanson, Edward P. 2016. Is price support a motive for increasing share repurchases?. Journal of Corporate Finance, Vol. 38, p. 77.

    Michaely, Roni Rubin, Amir and Vedrashko, Alexander 2016. Are Friday announcements special? Overcoming selection bias. Journal of Financial Economics, Vol. 122, Issue. 1, p. 65.

    Andriosopoulos, Dimitris and Lasfer, Meziane 2015. The market valuation of share repurchases in Europe. Journal of Banking & Finance, Vol. 55, p. 327.

    Dittmar, Amy and Field, Laura Casares 2015. Can managers time the market? Evidence using repurchase price data. Journal of Financial Economics, Vol. 115, Issue. 2, p. 261.

    Huang, Chia-Wei 2015. Takeover vulnerability and the credibility of signaling: The case of open-market share repurchases. Journal of Banking & Finance, Vol. 58, p. 405.

    Li, Lingxiang 2015. New findings on repurchase anomaly — The first-month effect. International Review of Financial Analysis,

    Ben-Rephael, A. Oded, J. and Wohl, A. 2014. Do Firms Buy Their Stock at Bargain Prices? Evidence from Actual Stock Repurchase Disclosures. Review of Finance, Vol. 18, Issue. 4, p. 1299.

    Chen, Hsuan-Chi Chen, Sheng-Syan Huang, Chia-Wei and Schatzberg, John D. 2014. Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements. Journal of Business Finance & Accounting, Vol. 41, Issue. 1-2, p. 156.

    Farre-Mensa, Joan Michaely, Roni and Schmalz, Martin 2014. Payout Policy. Annual Review of Financial Economics, Vol. 6, Issue. 1, p. 75.

    Lin, Ji-Chai Stephens, Clifford P. and Wu, YiLin 2014. Limited attention, share repurchases, and takeover risk. Journal of Banking & Finance, Vol. 42, p. 283.

    Sun, Qian Yung, Kenneth and Rahman, Hamid 2014. Aborted stock repurchases and earnings quality. Managerial Finance, Vol. 40, Issue. 9, p. 846.

    Andriosopoulos, Dimitris Andriosopoulos, Kostas and Hoque, Hafiz 2013. Information disclosure, CEO overconfidence, and share buyback completion rates. Journal of Banking & Finance, Vol. 37, Issue. 12, p. 5486.

    Bonaimé, Alice A. and Ryngaert, Michael D. 2013. Insider trading and share repurchases: Do insiders and firms trade in the same direction?. Journal of Corporate Finance, Vol. 22, p. 35.

    Huang, Sheng and Thakor, Anjan V. 2013. Investor Heterogeneity, Investor-Management Disagreement and Share Repurchases. Review of Financial Studies, Vol. 26, Issue. 10, p. 2453.

  • Journal of Financial and Quantitative Analysis, Volume 47, Issue 5
  • October 2012, pp. 1059-1088

The Credibility of Open Market Share Repurchase Signaling

  • Ilona Babenko (a1), Yuri Tserlukevich (a2) and Alexander Vedrashko (a3)
  • DOI:
  • Published online: 07 June 2012

Open market share repurchase announcements are commonly associated with equity undervaluation, but their signal about firm value can often be misleading. We conjecture that executives who buy shares of their firm before an announcement add credibility to the undervaluation signal. Consistent with this hypothesis, we find that announcement returns are positively related to past insider purchases, especially for firms that are priced less efficiently. Firms whose insiders bought more shares are also more likely to complete their repurchase plans. Finally, we find that insider purchases predict post-announcement stock returns.

Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

D. Aboody ; J. Hughes ; J. Liu ; and W. Su . “Are Executive Stock Option Exercises Driven by Private Information?Review of Accounting Studies, 13 (2008), 551570.

I. Babenko Share Repurchases and Pay-Performance Sensitivity of Employee Compensation Contracts.” Journal of Finance, 64 (2009), 117150.

I. Babenko , and R. Sen . “Do Non-Executive Employees Have Information? Evidence from Employee Stock Purchase Plans.” Working Paper, Arizona State University (2011).

G. P. Baker , and B. J. Hall . “CEO Incentives and Firm Size.” Journal of Labor Economics, 22 (2004), 767798.

S. Banerjee ; R. Kaniel ; and I. Kremer . “Price Drift as an Outcome of Differences in Higher-Order Beliefs.” Review of Financial Studies, 22 (2009), 37073734.

B. M. Barber , and J. D. Lyon . “Detecting Long-Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics.” Journal of Financial Economics, 43 (1997), 341372.

L. Bebchuk ; A. Cohen ; and A. Ferrell . “What Matters in Corporate Governance?Review of Financial Studies, 22 (2009), 783827.

S. Benartzi ; R. Michaely ; and R. Thaler . “Do Changes in Dividends Signal the Future or the Past?Journal of Finance, 52 (1997), 10071034.

M. T. Billett , and H. Xue . “The Takeover Deterrent Effect of Open Market Share Repurchases.” Journal of Finance, 62 (2007), 18271850.

A. Brav ; J. R. Graham ; C. R. Harvey ; and R. Michaely . “Payout Policy in the 21st Century.” Journal of Financial Economics, 77 (2005), 483527.

P. Brockman , and D. Y. Chung . “Managerial Timing and Corporate Liquidity: Evidence from Actual Share Repurchases.” Journal of Financial Economics, 61 (2001), 417448.

P. Brockman ; I. K. Khurana ; and X. Martin . “Voluntary Disclosures around Share Repurchases.” Journal of Financial Economics, 89 (2008), 175191.

S. J. Brown , and J. B. Warner . “Using Daily Stock Returns: The Case of Event Studies.” Journal of Financial Economics, 14 (1985), 331.

B. Cadman ; S. Klasa ; and S. Matsunaga . “Determinants of CEO Pay: A Comparison of ExecuComp and Non-ExecuComp Firms.” Accounting Review, 85 (2010), 15111543.

K. Chan ; D. L. Ikenberry ; I. Lee ; and Y. Wang . “Share Repurchases as a Tool to Mislead Investors.” Journal of Corporate Finance, 16 (2010), 137158.

R. Comment , and G. A. Jarrell . “The Relative Signalling Power of Dutch-Auction and Fixed-Price Self-Tender Offers and Open-Market Share Repurchases.” Journal of Finance, 46 (1991), 12431271.

G. M. Constantinides , and B. D. Grundy . “Optimal Investment with Stock Repurchase and Financing as Signals.” Review of Financial Studies, 2 (1989), 445465.

J. E. Core , and D. F. Larcker . “Performance Consequences of Mandatory Increases in Executive Stock Ownership.” Journal of Financial Economics, 64 (2002), 317340.

S. A Corwin . “The Determinants of Underpricing for Seasoned Equity Offers.” Journal of Finance, 58 (2003), 22492279.

K. B. Diether ; C. J. Malloy ; and A. Scherbina . “Difference of Opinion and the Cross-Section of Stock Returns.” Journal of Finance, 57 (2002), 21132141.

A. K Dittmar . “Why Do Firms Repurchase Stock?Journal of Business, 73 (2000), 331355.

R. D’Mello , and P. K. Shroff . “Equity Undervaluation and Decisions Related to Repurchase Tender Offers: An Empirical Investigation.” Journal of Finance, 55 (2000), 23992424.

E. F. Fama , and K. R. French . “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 356.

G. W. Fenn , and N. Liang . “Corporate Payout Policy and Managerial Stock Incentives.” Journal of Financial Economics, 60 (2001), 4572.

J. P. Fidrmuc ; M. Goergen ; and L. Renneboog . “Insider Trading, News Releases, and Ownership Concentration.” Journal of Finance, 61 (2006), 29312973.

J. M Fried . “Open Market Repurchases: Signaling or Managerial Opportunism?Theoretical Inquiries in Law, 2 (2001), 865894.

G. Gong ; H. Louis ; and A. X. Sun . “Earnings Management and Firm Performance Following Open Market Repurchases.” Journal of Finance, 63 (2008), 947986.

G. Grullon , and R. Michaely . “Dividends, Share Repurchases, and the Substitution Hypothesis.” Journal of Finance, 57 (2002), 16491684.

G. Grullon , and R. Michaely . “The Information Content of Share Repurchase Programs.” Journal of Finance, 59 (2004), 651680.

J. Helwege ; C. Pirinsky ; and R. M. Stulz . “Why Do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership.” Journal of Finance, 62 (2007), 9951028.

H. Hong ; T. Lim ; and J. C. Stein . “Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies.” Journal of Finance, 55 (2000), 265295.

H. Hong , and J. C. Stein . “A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets.” Journal of Finance, 54 (1999), 21432184.

K. M. Howe ; J. He ; and G. W. Kao . “One-Time Cash Flow Announcements and Free Cash-Flow Theory: Share Repurchases and Special Dividends.” Journal of Finance, 47 (1992), 19631975.

D. Ikenberry ; J. Lakonishok ; and T. Vermaelen . “Market Underreaction to Open Market Share Repurchases.” Journal of Financial Economics, 39 (1995), 181208.

N. Isagawa Open-Market Repurchase Announcements and Stock Price Behavior in Inefficient Markets.” Financial Management, 31 (2002), 520.

M. Jagannathan ; C. P. Stephens ; and M. S. Weisbach . “Financial Flexibility and the Choice between Dividends and Stock Repurchases.” Journal of Financial Economics, 57 (2000), 355384.

M. C Jensen . “Agency Cost of Free Cash Flow, Corporate Finance, and Takeovers.” American Economic Review, 76 (1986), 323329.

L. Jin CEO Compensation, Diversification, and Incentives.” Journal of Financial Economics, 66 (2002), 2963.

K. John , and B. Mishra . “Information Content of Insider Trading around Corporate Announcements: The Case of Capital Expenditures.” Journal of Finance, 45 (1990), 835855.

M. Kahl ; J. Liu ; and F. A. Longstaff . “Paper Millionaires: How Valuable Is the Stock to a Stockholder Who Is Restricted from Selling It?Journal of Financial Economics, 67 (2003), 385410.

K. M Kahle . “When a Buyback Isn’t a Buyback: Open Market Repurchases and Employee Options.” Journal of Financial Economics, 63 (2002), 235261.

S. Krishnaswami , and V. Subramaniam . “Information Asymmetry, Valuation, and the Corporate Spinoff Decision.” Journal of Financial Economics, 53 (1999), 73112.

J. Lakonishok , and I. Lee . “Are Insider Trades Informative?Review of Financial Studies, 14 (2001), 79111.

L. H. P. Lang , and R. H. Litzenberger . “Dividend Announcements: Cash Flow Signaling vs. Free Cash Flow Hypothesis?Journal of Financial Economics, 24 (1989), 181191.

H. E. Leland , and D. H. Pyle . “Information Asymmetries, Financial Structure, and the Intermediation.” Journal of Finance, 32 (1977), 371387.

E. Lie Excess Funds and Agency Problems: An Empirical Study of Incremental Cash Disbursements.” Review of Financial Studies, 13 (2000), 219247.

E. Lie , and H. J. Lie . “The Role of Personal Taxes in Corporate Decisions: An Empirical Analysis of Share Repurchases and Dividends.” Journal of Financial and Quantitative Analysis, 34 (1999), 533552.

T. Loughran , and J. R. Ritter . “Uniformly Least Powerful Tests of Market Efficiency.” Journal of Financial Economics, 55 (2000), 361389.

H. Louis , and H. White . “Do Managers Intentionally Use Repurchase Tender Offers to Signal Private Information? Evidence from Firm Financial Reporting Behavior.” Journal of Financial Economics, 85 (2007), 205233.

M. Massa ; Z. Rehman ; and T. Vermaelen . “Mimicking Repurchases.” Journal of Financial Economics, 84 (2007), 624666.

W. F. Maxwell , and C. P. Stephens . “The Wealth Effects of Repurchases on Bondholders.” Journal of Finance, 58 (2003), 895919.

M. L. Mitchell , and E. Stafford . “Managerial Decisions and Long-Term Stock Price Performance.” Journal of Business, 73 (2000), 287329.

W. K. Newey , and K. D. West . “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703708.

J. Oded “Why Do Firms Announce Open-Market Repurchase Programs?Review of Financial Studies, 18 (2005), 271300.

E. Ofek , and D. Yermack . “Taking Stock: Equity-Based Compensation and the Evolution of Managerial Ownership.” Journal of Finance, 55 (2000), 13671384.

A. R. Ofer , and A. V. Thakor . “A Theory of Stock Price Responses to Alternative Corporate Cash Disbursement Methods: Stock Repurchases and Dividends.” Journal of Finance, 42 (1987), 365394.

M. A Petersen . “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches.” Review of Financial Studies, 22 (2009), 435480.

U. C. Peyer , and T. Vermaelen . “The Nature and Persistence of Buyback Anomalies.” Review of Financial Studies, 22 (2009), 16931745.

E. Ravina , and P. Sapienza . “What Do Independent Directors Know? Evidence from Their Trading.” Review of Financial Studies, 23 (2010), 9621003.

P. Schultz Pseudo Market Timing and the Long-Run Underperformance of IPOs.” Journal of Finance, 58 (2003), 483517.

H. N Seyhun . “Insiders’ Profits, Costs of Trading, and Market Efficiency.” Journal of Financial Economics, 16 (1986), 189212.

A. Shleifer , and R. W. Vishny . “The Limits of Arbitrage.” Journal of Finance, 52 (1997), 3555.

D. J Skinner . “The Evolving Relation between Earnings, Dividends, and Stock Repurchases.” Journal of Financial Economics, 87 (2008), 582609.

C. P. Stephens , and M. S. Weisbach . “Actual Share Reacquisitions in Open-Market Share Repurchase Programs.” Journal of Finance, 53 (1998), 313333.

T. Vermaelen Common Stock Repurchases and Market Signaling.” Journal of Financial Economics, 9 (1981), 139183.

X. F Zhang . “Information Uncertainty and Stock Returns.” Journal of Finance, 61 (2006), 105137.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *