Voluntary Disclosures Regarding Open Market Repurchase Programs

Abstract

This paper studies firms’ voluntary disclosure behavior using discretionary announcements that firms have suspended, resumed, or completed their open market repurchase programs. We document that such disclosures are common and value-relevant, as evidenced by significant stock market reactions to these disclosures. We find that voluntary disclosures about repurchase programs are also informative about subsequent repurchase activities. Firms that voluntarily disclose repurchase suspensions are significantly more likely to ultimately complete their current repurchase programs and initiate new repurchase programs than firms that could have voluntarily announced suspensions but did not. Consistent with voluntary disclosures of bad news helping firms to establish reputations for repurchase transparency, firms voluntarily disclosing repurchase suspensions experience larger positive average abnormal returns around subsequent repurchase authorizations. We also exploit a change in mandatory reporting requirements for repurchases to document that voluntary updates are more frequent when there are fewer mandatory disclosures regarding repurchase activities, with an important exception during times of particularly high macroeconomic uncertainty such as during the Great Recession and the COVID-19 pandemic.

Keywords: Voluntary disclosure; Payout policy; Share repurchases; Payout flexibility

JEL Classification: G35, M41