Returns Over the Life-Cycles of Open Market Repurchase Programs

60 Pages Posted: 17 Mar 2012 Last revised: 9 Dec 2012

See all articles by Leonce Bargeron

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics

Alice A. Bonaime

University of Arizona

Shawn Thomas

University of Pittsburgh - Katz Graduate School of Business

Date Written: December 6, 2012

Abstract

We construct a large sample of announcements that firms have authorized, suspended, resumed, or completed open market repurchase (OMR) programs. Starting or continuing repurchases is associated with positive average announcement period abnormal returns. Stopping repurchases, either by suspending uncompleted programs or by not immediately following completed programs with new programs, is associated with negative average announcement period abnormal returns. We find that excess returns are not significantly different from zero over the periods between initial authorizations and program completions, i.e., the life-cycles of the OMRs; however, consistent with prior literature, we find excess returns are positive and significant over standard long-run event windows. We then document that the excess returns over standard long-run windows are substantially attributable to positive and significant announcement returns to repurchase authorizations and takeover attempts that occur after the completions of the OMR programs. We confirm that these results generalize to the entire population of OMR programs. Further analysis suggests that the positive post-OMR abnormal returns documented in prior literature are a product of misspecification of the model for expected returns that, once corrected, no longer yields evidence of excess returns. Thus, we conclude that the positive long-run excess returns in prior literature do not represent evidence of market inefficiency.

Keywords: Payout policy, Share repurchases, Long-run performance

JEL Classification: G35, G32

Suggested Citation

Bargeron, Leonce and Bonaime, Alice A. and Thomas, Shawn, Returns Over the Life-Cycles of Open Market Repurchase Programs (December 6, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2023898 or http://dx.doi.org/10.2139/ssrn.2023898

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4397 (Phone)

Alice A. Bonaime

University of Arizona ( email )

Eller College of Management
Department of Finance
Tucson, AZ 85721
United States

Shawn Thomas (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

246 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1648 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~shthomas/index.htm

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