The Wealth and Information Effects of Insurers' Open Market Stock Repurchase Announcements

16 Pages Posted: 7 Jul 2004

See all articles by Patricia Born

Patricia Born

Florida State University - College of Business; Florida State University - College of Law; California State University, Northridge - Department of Finance, Real Estate, & Insurance

Carmelo Giaccotto

University of Connecticut - Department of Finance

Titos E. Ritsatos

Omega Insurance

Abstract

This article examines the use of an increasingly popular method of cash disbursement in the insurance industry: stock repurchase programs. Using a sample of stock repurchase announcements between 1981 and 1997, we examine the motivation for stock repurchase, estimate the market reaction to the repurchase announcement, and evaluate the magnitude of the reaction as it relates to particular insurance industry and firm characteristics. We examine the abnormal returns around the announcement day and find a significant positive wealth effect associated with repurchase announcements - a result that is consistent with that of other studies of both nonfinancial and financial firms. However, we suspect that the nature of the insurance product and the highly regulated status of the insurance industry might serve to mitigate the magnitude of an announcement effect. In fact, we find that the effect for all insurers is smaller than that obtained in samples of industrial firms. Finally, we examine the relationships between the magnitude of the announcement effect and various firm characteristics and test the significance of information signaling and Jensen's free cash flow theories in the insurance setting.

Suggested Citation

Born, Patricia H. and Giaccotto, Carmelo and Ritsatos, Titos E., The Wealth and Information Effects of Insurers' Open Market Stock Repurchase Announcements. Risk Management and Insurance Review, Vol. 7, No. 1, pp. 25-40, March 2004. Available at SSRN: https://ssrn.com/abstract=548101

Patricia H. Born

Florida State University - College of Business ( email )

250 Rovetta Business Building
Tallahassee, FL 32306-1110
United States

Florida State University - College of Law

425 W. Jefferson Street
Tallahassee, FL 32306
United States

California State University, Northridge - Department of Finance, Real Estate, & Insurance ( email )

Northridge, CA 91330-8379
United States

Carmelo Giaccotto

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
202-486-4360 (Phone)
202-486-0349 (Fax)

Titos E. Ritsatos

Omega Insurance ( email )

11523 Athens
Greece

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
15
Abstract Views
1,737
PlumX Metrics