The Effects of Open-Market Stock Repurchases by Insurance Companies

Journal of Insurance Issues, Vol. 28, No. 2, pp. 167-182, 2005

Posted: 3 Mar 2006

See all articles by James M. Miller

James M. Miller

University of Washington, Bothell - Business

S. Gowri Shankar

University of Washington, Bothell School of Business

Abstract

We examine the effects of stock repurchase annnouncements on the value of the announcing insurance firms and on the value of rival insurance firms. We find that insurance firms experience a significant increase in value at the time of the announcement. Repurchasing firms continue to earn excess returns for several months after the announcement. We study the intra-industry effect of the announcements and find that there is a significant decrease in value of rival insurance firms. This suggests that perceived changes in the competitive positions of repurchasing firms occur at the expense of rival firms and dominate any signals of favorable industry conditions. Cross-sectional tests show that the increase in the value of repurchasing firms is related to the relative size of the buyback, stock returns prior to the announcement and the market-to-book ratio.

Keywords: Repurchase announcements, insurance stocks, stock buyback, intra-industry effects

Suggested Citation

Miller, James M. and Shankar, S. Gowri, The Effects of Open-Market Stock Repurchases by Insurance Companies. Available at SSRN: https://ssrn.com/abstract=886146

James M. Miller (Contact Author)

University of Washington, Bothell - Business ( email )

18115 Campus Way NE
Bothell, WA 98011-8246
United States

S. Gowri Shankar

University of Washington, Bothell School of Business ( email )

18115 Campus Way NE
Bothell, WA 98011-8246
United States

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