The Many Facets of Privately Negotiated Stock Repurchases

39 Pages Posted: 29 Nov 2003  

Urs Peyer

INSEAD - Finance

Theo Vermaelen

INSEAD - Finance

Date Written: January 2004

Abstract

We investigate the causes and consequences of 737 privately negotiated share repurchases in the years 1984-2001. In contrast to the negative announcement returns and positive repurchase premiums reported by past research, we find positive announcement returns and premiums that are not significantly different from zero. Only when we investigate the 60 "greenmail" events separately, we find results similar to past research. However, for this sub-sample, we find long-horizon excess return that are comparable to the average 18% repurchase premium, challenging the widely accepted opinion that managers overpay in "greenmail" repurchases. Moreover, we also find that our understanding of the event improves when we split the non-greenmail repurchases according to the price paid. Repurchases at a premium can be modeled as signals, while other repurchases are mere wealth transfers between the corporation and the selling stockholders the extent of which is determined by the relative bargaining power of the seller and the repurchasing firm.

Suggested Citation

Peyer, Urs and Vermaelen, Theo, The Many Facets of Privately Negotiated Stock Repurchases (January 2004). EFA 2004 Maastricht Meetings Paper No. 1731; AFA 2004 San Diego Meetings. Available at SSRN: https://ssrn.com/abstract=472200 or http://dx.doi.org/10.2139/ssrn.472200

Urs C. Peyer (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4178 (Phone)
+33 1 6072 4045 (Fax)

Theo Vermaelen

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
33 1 60 72 42 63 (Phone)
33 1 60 72 40 45 (Fax)

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