Mixed Messages: Open-Market Repurchases Following Stock Acquisitions
Posted: 10 May 2004
Management decisions and market reactions to those decisions do not occur in isolation. Despite this fact, little or no research has examined two events when they occur in a sequence, even when theory suggests that those two events convey opposite signals. We examine firms that do a stock-based acquisition then announce an open-market repurchase program. These two actions, according to signaling theory, signal conflicting valuation errors. This paper is the first to examine a sequence of events that convey seemingly conflicting signals. Among other results, we find that repurchasers who had previously made a stock-based acquisition have a less positive market reaction than do otherwise comparable repurchasers with no previous acquisition. These results indicate that the market reactions to events are tempered by previous information-releasing events.
Keywords: Repurchases, acquisitions, managerial decision making
JEL Classification: G32, G34
Suggested Citation: Suggested Citation