Open‐Market Stock Repurchases by Insurance Companies and Signaling

23 Pages Posted: 27 Mar 2013

See all articles by Gow‐Cheng Huang

Gow‐Cheng Huang

Alabama State University

Kartono Liano

Mississippi State University - Department of Finance and Economics

Ming-Shiun Pan

Shippensburg University - Department of Finance and Management Information & Analysis

Herman Manakyan

Salisbury University

Date Written: Spring 2013

Abstract

The signaling hypothesis of share repurchases implies that management uses repurchases to signal either that their firm's future operating performance will improve or that shares of their stock are simply underpriced by the market. This study examines which of the two interpretations can better explain open‐market share repurchase programs announced by insurance companies. We find no evidence that future‐operating performance of insurers improves following the repurchase announcement. In addition, changes in future operating performance cannot explain the announcement‐period abnormal return. Instead, the stock undervaluation prior to the repurchase announcement can significantly explain the announcement‐period abnormal return, particularly for life insurers. Overall, our results suggest that the positive market reaction to insurers’ open‐market share repurchase announcements is due to the stock undervaluation by the market, but not due to positive information content about future operating performance conveyed in the repurchase announcement.

Suggested Citation

Huang, Gow‐Cheng and Liano, Kartono and Pan, Ming-Shiun and Manakyan, Herman, Open‐Market Stock Repurchases by Insurance Companies and Signaling (Spring 2013). Risk Management and Insurance Review, Vol. 16, Issue 1, pp. 47-69, 2013. Available at SSRN: https://ssrn.com/abstract=2240104 or http://dx.doi.org/10.1111/rmir.12003

Gow‐Cheng Huang (Contact Author)

Alabama State University ( email )

P. O. Box 271
Montgomery, AL 36101-0271
United States

Kartono Liano

Mississippi State University - Department of Finance and Economics ( email )

P.O. Box 9580
Mississippi State, MS 39762
United States
601-325-1981 (Phone)
601-325-1977 (Fax)

Ming-Shiun Pan

Shippensburg University - Department of Finance and Management Information & Analysis ( email )

Shippensburg University
Shippensburg, PA 17257
United States
717-477-1683 (Phone)
717-477-4067 (Fax)

Herman Manakyan

Salisbury University ( email )

1101 Camden Ave
Salisbury, MD 21801
United States

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