Noisy Signaling through Open Market Share Repurchase Programs and Information Production by Institutions

67 Pages Posted: 29 Dec 2014 Last revised: 30 Jul 2018

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Yingzhen Li

The Brattle Group

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance

Anthony Zhu

Quantitative Equity, T. Rowe Price

Date Written: January 15, 2016

Abstract

We propose a “noisy signaling" hypothesis of open market share repurchase (OMSR) programs, where the equity market equilibrium that prevails after OMSR program announcements is a partial pooling rather than a fully separating equilibrium. We argue that two complementary mechanisms, namely, actual share repurchases by firms and information production by institutions, serve to reduce the residual equity market information asymmetry facing firms subsequent to OMSR program announcements. We test the implications of our noisy signaling hypothesis using transaction-level data on trading by institutions and by a subsample of identified hedge funds, and find strong support for the above hypothesis.

Keywords: Open-Market Repurchases, Institutional Trading, Information Production

JEL Classification: G23, G35

Suggested Citation

Chemmanur, Thomas J. and Li, Yingzhen and Xie, Jing and Zhu, Yuyuan, Noisy Signaling through Open Market Share Repurchase Programs and Information Production by Institutions (January 15, 2016). 2018 Asian Finance Association (AsianFA) Conference, 2016 Financial Intermediation Research Society (FIRS) conference, 2015 European Finance Association (EFA) conference. Available at SSRN: https://ssrn.com/abstract=2543397 or http://dx.doi.org/10.2139/ssrn.2543397

Thomas J. Chemmanur

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Yingzhen Li (Contact Author)

The Brattle Group ( email )

201 Mission Street
Suite 2800
San Francisco, CA 94105
United States

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Yuyuan Zhu

Quantitative Equity, T. Rowe Price

Baltimore, MD 21297-1215
United States

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