Share Repurchase: Does it Increase the Informativeness of Market Prices?

30 Pages Posted: 9 Jan 2014

Date Written: January 8, 2014

Abstract

Share repurchases are transactions which are supposed to cause a market reaction through a signaling approach. However looking only at cumulated abnormal returns (CARs) is insufficient and the results are sometimes contradictory. We introduce the concept of informativeness to assess if repurchases improve the private information content of stock prices. Our empirical test comprises American and European buybacks in the period 1990–2011. We use the synchronicity measure introduced by Roll (1988) to follow the change in informativeness before and after the announcement of a transaction. The determinants of informativeness and CARs are also investigated. Our results are negative: Informativeness does not systematically improve, but may sometimes if a change of dividend policy jointly occurs.

Keywords: Share repurchase, buybacks, market efficiency, informativeness

JEL Classification: G14, G30, G35

Suggested Citation

de La Bruslerie, Hubert, Share Repurchase: Does it Increase the Informativeness of Market Prices? (January 8, 2014). Available at SSRN: https://ssrn.com/abstract=2376255 or http://dx.doi.org/10.2139/ssrn.2376255

Hubert De La Bruslerie (Contact Author)

Université Paris Dauphine ( email )

DRM Finance
Paris, 75116
France
(33) 1 44 05 44 05 (Phone)

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