Mixed Messages: Open-Market Repurchases Following Stock Acquisitions

Posted: 10 May 2004

See all articles by Jann C. Howell

Jann C. Howell

Iowa State University - Department of Accounting and Finance

Janet D. Payne

Texas State University, San Marcos - Department of Finance and Economics

Abstract

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

Howell, Jann C. and Payne, Janet D., Mixed Messages: Open-Market Repurchases Following Stock Acquisitions. Available at SSRN: https://ssrn.com/abstract=544713

Jann C. Howell

Iowa State University - Department of Accounting and Finance ( email )

Carver Hall
Ames, IA 50011-2063
United States

Janet D. Payne (Contact Author)

Texas State University, San Marcos - Department of Finance and Economics ( email )

San Marcos, TX 78666
United States

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