The credibility of open market share repurchase signaling

Ilona Babenka, Yuri Tserlukevich, Alexander Vedrashko

Research output: Contribution to journalArticle

35 Citations (Scopus)

Abstract

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.

Original languageEnglish (US)
Pages (from-to)1059-1088
Number of pages30
JournalJournal of Financial and Quantitative Analysis
Volume47
Issue number5
DOIs
StatePublished - Oct 2012

Fingerprint

Market share
Share repurchases
Announcement
Insider
Credibility
Purchase
Undervaluation
Firm value
Stock returns
Announcement returns
Equity
Repurchase

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

The credibility of open market share repurchase signaling. / Babenka, Ilona; Tserlukevich, Yuri; Vedrashko, Alexander.

In: Journal of Financial and Quantitative Analysis, Vol. 47, No. 5, 10.2012, p. 1059-1088.

Research output: Contribution to journalArticle

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