The Impact of Cash, Debt, and Insiders on Open Market Share Repurchases

Journal of Applied Corporate Finance, Forthcoming

22 Pages Posted: 23 Dec 2012

See all articles by Liang Feng

Liang Feng

Concordia University, Quebec

Kuntara Pukthuanthong

University of Missouri, Columbia

Dolruedee Thiengtham

Concordia University, Quebec - John Molson School of Business; University of Exeter Business School - Department of Finance

Harry J. Turtle

Colorado State University, Fort Collins - Department of Finance & Real Estate

Thomas John Walker

Concordia University, Quebec - Department of Finance

Date Written: December 23, 2012

Abstract

We employ a conditional event study to analyze managers’ motives to announce a share repurchase in the context of a model of economic factors that impact a firm’s abnormal announcement return. Firms with greater free cash flow and less debt are more likely to initiate a repurchase. Share repurchases have greater impact on share prices when they are large and occur during the stock price downtrend – smaller, routine share repurchases have a lesser impact on share prices. Managing insiders in repurchasing firms tend to decrease their selling activity and increase their buying activity in a pronounced manner before repurchase announcements. After the announcement, the differences in insider trading activity between repurchasing firms and non-repurchasing firms are largely insignificant. The results suggest a repurchasing firm’s managers possess little to no private information advantage relative to the market; however, managing insiders trading behavior is consistent with short term profitable opportunities.

Keywords: share repurchases, insider trading, event studies

JEL Classification: G14, G35, L25

Suggested Citation

Feng, Liang and Pukthuanthong, Kuntara and Thiengtham, Dolruedee and Turtle, Harry J. and Walker, Thomas John, The Impact of Cash, Debt, and Insiders on Open Market Share Repurchases (December 23, 2012). Journal of Applied Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2193228

Liang Feng

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Kuntara Pukthuanthong

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: http://https://kuntara.weebly.com

Dolruedee Thiengtham

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

University of Exeter Business School - Department of Finance

Streatham Court
Exeter, EX4 4PU
United Kingdom

Harry J. Turtle (Contact Author)

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

Thomas John Walker

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

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