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Predictability of Earnings Following Equity Issues and Buyback Announcements

36 Pages Posted: 6 Apr 2015 Last revised: 8 Oct 2017

Shahram Amini

Virginia Tech

Vijay Singal

Virginia Tech

Date Written: October 7, 2017

Abstract

We find that earnings announcements that follow equity issues and buyback announcements have predictable market reactions. Four-factor abnormal returns to earnings following buyback announcements are higher by 5.14% than similar returns to earnings following equity issues over the (-1, 30) window; the difference is 2.16% when unadjusted returns are used. The drift in these returns is unrelated and distinct from the post-earnings announcement drift, and less affected by benchmarking issues that may in influence long horizon returns. The evidence is consistent with the notion that markets do not fully and quickly incorporate information in corporate actions, though the degree of information asymmetry can explain part of observed abnormal returns.

Keywords: Repurchases, buybacks, equity issues, SEOs, information asymmetry, earnings predictability, market inefficiency

JEL Classification: G14, G32, G35

Suggested Citation

Amini, Shahram and Singal, Vijay, Predictability of Earnings Following Equity Issues and Buyback Announcements (October 7, 2017). Available at SSRN: https://ssrn.com/abstract=2589966 or http://dx.doi.org/10.2139/ssrn.2589966

Shahram Amini (Contact Author)

Virginia Tech ( email )

Blacksburg, VA 24061
United States

Vijay Singal

Virginia Tech ( email )

Blacksburg, VA 24061
United States
5402317750 (Phone)

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