Share Repurchases, Risk, and Underpricing

47 Pages Posted: 26 Jul 2021

See all articles by Philip Valta

Philip Valta

University of Bern

Sascha Jakob

affiliation not provided to SSRN

Date Written: July 23, 2021

Abstract

This paper analyzes changes in firms' cash flows and discount rates around share repurchase announcements. Both cash flow and discount rate volatility decrease significantly after repurchase announcements. The decrease in volatility is smallest for firms that are likely to be underpriced and that experience the highest initial market reactions and long-term returns after the announcement. Firms with the largest decrease in volatility do not experience significantly positive long-term returns. Moreover, the level of the discount rate decreases from one quarter before until up to three years after the repurchase announcement for firms that are likely to be underpriced. The findings suggest that financial market participants learn about firms' systematic risk when firms announce share repurchases.

Keywords: Share repurchases, Buyback Anomaly, Return Decomposition, Underpricing

JEL Classification: G14, G32, G35

Suggested Citation

Valta, Philip and Jakob, Sascha, Share Repurchases, Risk, and Underpricing (July 23, 2021). Available at SSRN: https://ssrn.com/abstract=3892063 or http://dx.doi.org/10.2139/ssrn.3892063

Philip Valta (Contact Author)

University of Bern ( email )

Engehaldenstrasse 4
Bern, 3012
Switzerland

HOME PAGE: http://https://www.ifm.unibe.ch/about_us/people/prof_dr_valta_philip/

Sascha Jakob

affiliation not provided to SSRN

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