The Intra-Industry Effects of Open Market Share Repurchases: Contagion or Competitive?

Posted: 30 Aug 1998

See all articles by Gayle R. Erwin

Gayle R. Erwin

University of Virginia - McIntire School of Commerce

James M. Miller

University of Washington, Bothell - Business

Abstract

We examine the extent to which announcements of open market share repurchase programs affect the valuation of competing firms in the same industry. On average, although firms announcing open market share repurchase programs experience a significantly positive stock price reaction at announcement, portfolios of rival firms in the same industry experience a significant and contemporaneous negative stock price reaction. This suggests that perceived changes in the competitive positions of the repurchasing firms occur at the expense of rival firms and dominate any signals of favorable industry conditions. Thus, the competitive intra-industry effects of open market repurchases outweigh any contagion effects. In addition, cross-sectional tests indicate that these competitive effects are more pronounced in industries characterized by a lower degree of competition and the less correlated the stock returns of the repurchasing firm and its rivals.

JEL Classification: G31, G32, G34

Suggested Citation

Erwin, Gayle R. and Miller, James M., The Intra-Industry Effects of Open Market Share Repurchases: Contagion or Competitive?. Journal of Financial Research, Available at SSRN: https://ssrn.com/abstract=109388

Gayle R. Erwin (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
804-924-7552 (Phone)
804-924-7074 (Fax)

James M. Miller

University of Washington, Bothell - Business ( email )

18115 Campus Way NE
Bothell, WA 98011-8246
United States

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