Share Price Performance Following Actual Share Repurchases

24 Pages Posted: 4 Jun 2003

See all articles by Hua Zhang

Hua Zhang

The Chinese University of Hong Kong (CUHK) - Department of Finance

Date Written: November 25, 2002

Abstract

Using actual share repurchase data from Hong Kong, this paper investigates share price performance following actual share repurchases. On average, repurchasing firms do not exhibit superior abnormal performance either initially or over long horizons when they make actual share repurchases. However, the price performance of repurchasing firms varies across firm size and market-book value ratios, and shows a clear and consistent pattern. The market responds the most favorably to repurchases that are made by small and value (high book-to-market value) firms. Over a long horizon, there is strong evidence that managers of value firms can deliver superior performance to long-term shareholders. The three-year buy-and-hold abnormal return, which is measured against a portfolio of control firms that are matched by size and book-to-market value ratios, is over 20%. At least, repurchases made by high book-to-market value firms, for which undervaluation is more likely to occur, can benefit long-term shareholders.

JEL Classification: G32, G35

Suggested Citation

Zhang, Hua, Share Price Performance Following Actual Share Repurchases (November 25, 2002). Available at SSRN: https://ssrn.com/abstract=392604 or http://dx.doi.org/10.2139/ssrn.392604

Hua Zhang (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

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