Asymmetric Information, Financial Reporting, and Open Market Share Repurchases

52 Pages Posted: 15 Mar 2011 Last revised: 13 Feb 2015

See all articles by Matthew T. Billett

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Miaomiao Yu

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Date Written: January 1, 2015

Abstract

We explore the link between open market share repurchases (OMRs) and asymmetric information - based on financial reporting quality - and find opaque firms experience positive abnormal returns twice the magnitude of transparent firms. These significant differences remain after controlling for governance, earnings management, and firm characteristics. We document significantly positive long-run post-announcement returns for opaque firms, but not for transparent firms. We find takeover activity and premiums rise with repurchase activity by opaque firms and may explain some of the wealth effects. Our results suggest that asymmetric information plays an important role in the wealth effects around OMRs.

Keywords: Payout, Share repurchases, Asymmetric information, Accruals quality

JEL Classification: G35, G14, D82, M41

Suggested Citation

Billett, Matthew T. and Yu, Miaomiao, Asymmetric Information, Financial Reporting, and Open Market Share Repurchases (January 1, 2015). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; Kelley School of Business Research Paper No. 15-20. Available at SSRN: https://ssrn.com/abstract=1785708 or http://dx.doi.org/10.2139/ssrn.1785708

Matthew T. Billett (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Miaomiao Yu

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

LA 70803-6308
United States

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