Informed Repurchases, Information Asymmetry and the Market Response to Open Market Share Repurchases

42 Pages Posted: 2 Mar 2014 Last revised: 2 Jun 2014

See all articles by Bong-Soo Lee

Bong-Soo Lee

Florida State University

Nathan Mauck

University of Missouri - Kansas City

Date Written: June 2, 2014

Abstract

This paper relates informed repurchases to firm information asymmetry. We propose a new measure of informed repurchases, which is based on causality tests relating repurchase information to firm returns. Our results indicate that informed repurchases show larger abnormal returns surrounding the announcement of an open market share repurchase, which suggests the market at least partially recognizes informed repurchases. This holds after controlling for conventional information asymmetry proxies, such as firm size, number of analysts following, and analyst forecast dispersion, indicating that the market is aware of repurchase specific information not captured by traditional information asymmetry proxies. Informed repurchases demonstrate larger long-term abnormal returns at one, two, and three-year windows than high traditional information asymmetry repurchases.

Keywords: Payout policy; Open market share repurchases; Information asymmetry; Time series; Causality

JEL Classification: D82, G35

Suggested Citation

Lee, Bong-Soo and Mauck, Nathan, Informed Repurchases, Information Asymmetry and the Market Response to Open Market Share Repurchases (June 2, 2014). Available at SSRN: https://ssrn.com/abstract=2403377 or http://dx.doi.org/10.2139/ssrn.2403377

Bong-Soo Lee

Florida State University ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-4713 (Phone)

HOME PAGE: http://www.cob.fsu.edu/fin/display_faculty_info.cfm?pID=401

Nathan Mauck (Contact Author)

University of Missouri - Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

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