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| Author: | Isagawa, N. |
| Title: | Open-market repurchase announcements and stock price behavior in inefficient markets |
| Journal: | Financial Management
2002 : AUTUMN, VOL. 31:3, p. 5-20 |
| Index terms: | Financial markets Share prices Financial models |
| Language: | eng |
| Abstract: | The author asks why a firm would choose to buy back its outstanding shares after the stock price goes up in response to an open-market repurchase announcement. He introduces the subject of market inefficiency and establish a signaling equilibrium that does not assume that an announcement of open-market repurchase represents a commitment. Since the firm can earn capital gains by buying its outstanding shares at a bargain price, it has a strong incentive to execute stock repurchases even after it announces repurchase intention. The model predicts positive long-run stock return performance and positive announcement effects following open-market repurchase announcements. |
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