Credibility of Corporate Announcements and Market Reaction: Evidence from Canadian Share Repurchase Programs
54 Pages Posted: 20 Mar 2007 Last revised: 25 Nov 2010
Date Written: March 1, 2009
Do market participants evaluate the credibility of a firm's share repurchase announcement based on the firm's share repurchase history? Using a sample of 1,507 share repurchase programs for firms listed on the Toronto Stock Exchange from 1994 to 2005, we find that 69% of firms fail to acquire the target number of shares specified at announcement and many firms fail to repurchase any shares. We develop credibility indices and find a positive relationship between current announcement abnormal returns and completion credibility of previous announcements. We conclude that the market prices completion credibility of past share repurchase announcements in reacting to current repurchase announcements.
Keywords: Share Repurchases, Event Study, Payout Policy, Credibility, Market Reaction
JEL Classification: G1, G35
Suggested Citation: Suggested Citation