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Determinants of share returns following repurchase announcements in China

Journal: Investment Management and Financial Innovations (Vol.14, No. 2)

Publication Date:

Authors : ; ; ; ;

Page : 4-18

Keywords : leverage hypothesis; market response; operating performance; repurchase announcements; share repurchase; signaling hypothesis;

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Abstract

By combining the market model with the three-factor model, this study investigates firms' share returns after the announcement of share repurchase. Employing data for China's A-share market, this study's sample utilizes 417 share repurchase announcements over the period of 2000 to 2012. Empirical results show that firms with higher sales growth rates are more likely to send a positive signal to the market through their share repurchase efforts. Analysis also shows that the higher a firm's price-to-earnings ratio (utilized as a measure of overvaluation), the lower the firm's cumulative abnormal returns. These results imply that Chinese share markets put more emphasis on the firm's future growth and share overvaluation.

Last modified: 2018-03-14 18:50:01