The Timing of Actual Share Repurchases

60 Pages Posted: 9 May 2014 Last revised: 17 Jun 2014

See all articles by Stefan Obernberger

Stefan Obernberger

Erasmus University Rotterdam - Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

Date Written: June 11, 2014

Abstract

Numerous studies document that firms buy back below average market prices. I model two hypotheses explaining the timing of actual share repurchases and test their predictions using a unique data set for the U.S. for the period 2004-2010. The market-timing hypothesis postulates that firms anticipate returns and thus buy back before stock price increases. The contrarian-trading hypothesis proposes that firms buy back more at lower stock prices simply because repurchases are negatively related to realized returns. While contrarian-trading firms have no timing ability ex-ante, their trading behavior generates empirical patterns suggesting ex-post that firms are able to buy back below average market prices. The empirical finding that firms buy back shares below average market prices can be entirely explained by contrarian-trading. Actual share repurchases are not followed by positive abnormal returns.

Keywords: actual share repurchases, managerial timing, long-run performance, repurchase costs, buyback anomaly

JEL Classification: G14, G30, G32, G35

Suggested Citation

Obernberger, Stefan, The Timing of Actual Share Repurchases (June 11, 2014). Available at SSRN: https://ssrn.com/abstract=2434214 or http://dx.doi.org/10.2139/ssrn.2434214

Stefan Obernberger (Contact Author)

Erasmus University Rotterdam - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
527
Abstract Views
1,962
rank
56,840
PlumX Metrics