Repurchases, Reputation, and Returns

Abstract

This paper examines whether a firm’s reputation is a determinant of repurchase completion rates (the ratio of actual to announced repurchases) and whether the stock market discounts announcements made by less reputable firms. Prior completion rates are positively correlated with current completion rates and announcement returns, suggesting consistency in repurchases and implying a reputational effect. Further, a nascent literature regarding accelerated share repurchases finds them to be more credible than open market repurchases. I show that the probability of announcing an accelerated share repurchase is greater for firms likely to be concerned about reputation because of low past completion rates.

Keywords: Open market share repurchase, accelerated share repurchase, completion rate, credibility, reputation, announcement returns

JEL Classification: G30, G35