Underreaction to open market share repurchases,
ABSTRACT This article aims to investigate the long-term performance of a portfolio of firms that announced the repurchase of their own stocks in the Brazilian market from 2003 to 2014. Open market stock repurchase is a means to distribute cashflow to shareholders. Some of the reasons for a firm to b...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Universidade de São Paulo
2018-09-01
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| Series: | Revista Contabilidade & Finanças |
| Subjects: | |
| Online Access: | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772018005013102&lng=en&tlng=en |
| _version_ | 1819049860704239616 |
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| author | F. Henrique Castro Claudia Yoshinaga |
| author_facet | F. Henrique Castro Claudia Yoshinaga |
| author_sort | F. Henrique Castro |
| collection | DOAJ |
| description | ABSTRACT This article aims to investigate the long-term performance of a portfolio of firms that announced the repurchase of their own stocks in the Brazilian market from 2003 to 2014. Open market stock repurchase is a means to distribute cashflow to shareholders. Some of the reasons for a firm to buy back its own stocks are: to adjust its capital structure; to reduce excessive cash levels; as an alternative to dividends; and signaling to the market in order to reduce information asymmetry between the firm and its investors. If the signaling hypothesis is true, then forming a portfolio with shares that announce repurchases generates abnormal returns in the long run. Our results show that repurchase announcements in the open market signal stock underpricing, and abnormal returns can be earned using this strategy. Results are inconsistent with the semi-strong form of the efficient markets hypothesis, which states that one cannot earn abnormal returns with publicly available information. We obtained abnormal returns using the capital asset pricing model (CAPM) and Fama and French three-factor model. Additionally, we divided the sample in growth and value firms. We found that the average abnormal return for firms that announce repurchase programs ranges from 5.4% to 7.9% for up to a 3-year period after the announcement. For value companies (more likely to repurchase stocks due to undervaluation), abnormal returns can reach up to 11.5% per year. |
| first_indexed | 2024-12-21T11:38:52Z |
| format | Article |
| id | doaj.art-e83037569df7493293919af3187f9ba7 |
| institution | Directory Open Access Journal |
| issn | 1808-057X |
| language | English |
| last_indexed | 2024-12-21T11:38:52Z |
| publishDate | 2018-09-01 |
| publisher | Universidade de São Paulo |
| record_format | Article |
| series | Revista Contabilidade & Finanças |
| spelling | doaj.art-e83037569df7493293919af3187f9ba72022-12-21T19:05:22ZengUniversidade de São PauloRevista Contabilidade & Finanças1808-057X2018-09-01010.1590/1808-057x201806230S1519-70772018005013102Underreaction to open market share repurchases,F. Henrique CastroClaudia YoshinagaABSTRACT This article aims to investigate the long-term performance of a portfolio of firms that announced the repurchase of their own stocks in the Brazilian market from 2003 to 2014. Open market stock repurchase is a means to distribute cashflow to shareholders. Some of the reasons for a firm to buy back its own stocks are: to adjust its capital structure; to reduce excessive cash levels; as an alternative to dividends; and signaling to the market in order to reduce information asymmetry between the firm and its investors. If the signaling hypothesis is true, then forming a portfolio with shares that announce repurchases generates abnormal returns in the long run. Our results show that repurchase announcements in the open market signal stock underpricing, and abnormal returns can be earned using this strategy. Results are inconsistent with the semi-strong form of the efficient markets hypothesis, which states that one cannot earn abnormal returns with publicly available information. We obtained abnormal returns using the capital asset pricing model (CAPM) and Fama and French three-factor model. Additionally, we divided the sample in growth and value firms. We found that the average abnormal return for firms that announce repurchase programs ranges from 5.4% to 7.9% for up to a 3-year period after the announcement. For value companies (more likely to repurchase stocks due to undervaluation), abnormal returns can reach up to 11.5% per year.http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772018005013102&lng=en&tlng=enrecompra de açõesretornos anormaisinformaçãounderreactionretornos de longo prazo |
| spellingShingle | F. Henrique Castro Claudia Yoshinaga Underreaction to open market share repurchases, Revista Contabilidade & Finanças recompra de ações retornos anormais informação underreaction retornos de longo prazo |
| title | Underreaction to open market share repurchases, |
| title_full | Underreaction to open market share repurchases, |
| title_fullStr | Underreaction to open market share repurchases, |
| title_full_unstemmed | Underreaction to open market share repurchases, |
| title_short | Underreaction to open market share repurchases, |
| title_sort | underreaction to open market share repurchases |
| topic | recompra de ações retornos anormais informação underreaction retornos de longo prazo |
| url | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772018005013102&lng=en&tlng=en |
| work_keys_str_mv | AT fhenriquecastro underreactiontoopenmarketsharerepurchases AT claudiayoshinaga underreactiontoopenmarketsharerepurchases |