Anomalous price behaviour around stock repurchases on the Taiwan stock exchange

Abstract

This study examines the impact of stock repurchases on a repurchasing firm's stock returns on the Taiwan Stock Exchange (TWSE). It is clear that significant negative abnormal returns are observed most days prior to the announcement day and that significant positive abnormal returns are detected on the announcement day and during the first few days of the post-announcement period. The total sample is further divided into various sub samples on the basis of the purpose of repurchasing, the industrial sector, firm size and the size of the repurchase. On account of the feature of industrial development in the last ten years in Taiwan, the peculiar finding is that the book-to-market ratio, which has been used to partition the repurchasing sample in the USA and Canada in previous studies, may be more appropriately substituted by the industrial sector. This finding indicates that the stock repurchase announcements of financial firms or conventional firms generate a greater impact on stock returns than do electronics firms.

Are Buybacks Good for Long-Term Shareholder Value? Evidence from Buybacks around the World

“…Italy Lee et al (2010) 1.93% (−1, +1) 1990-2005 India Bhargava and Agrawal (2015) 1.00% (−1, +1) 2010-2014 Chatterjee and Dutta (2015) 1.81% (−1, +1) 2009-2013 Japan Zhang (2002) 6.00% (−1, +2) 1995-1999 Hatakeda and Isagawa (2004) 2.43% (−1, +1) 1995-1998 Liao, Ke, and Hu (2005) 2.90% (−1, +1) 2000-2001 Wang, Lin, Fung, and Chen (2013) 1.91% (−1, +2) 3,022 2000-2010 Thailand Nittayagasetwat and Nittayagasetwat (2013) 2.82% (−1, +1)…”

The information content of open-market repurchase announcements in Taiwan

“…8 Nohel and Tarhan (1998) argue that leverage information may help investigate how repurchases are financed. 9 Liao et al (2005) conclude that technique firms generate smaller market reaction than non-technique firms in Taiwan. 10 Jung et al (2005) argue that insider ownership is linked with the announcement effect of an OMR program.…”

“…Following past literature such as Vermaelen (1984), Nohel andTarhan (1998), McNally (1999), Ikenberry et al (1995Ikenberry et al ( , 2000, Maxwell and Stephens (2003), Hatakeda and Isagawa (2004), Howell and Payne (2004), Jung et al (2005), Liao et al (2005), Massa et al (2007), and Firth et al (2010), we include firm size (Size), 5 book-to-market ratio (BTM), 6 stock return volatility (StdRtn), 7 leverage ratio (Leverage), 8 binary variable for technique sector (Tech), 9 insider ownership (Insider), 10 cumulative abnormal returns prior to the announcement (CAR20B), 11 and return of assets (ROA) 12 as control variables emphasized by the aforementioned studies. The data used here to calculate control variables are adopted; Table A1 shows a detailed description of the construction of all variables used in this study.…”

Anomalous Price Behaviour around Open Market Stock Repurchase Announcements in India

“…Majority of the studies on share repurchases have been conducted in the developed economies like the US, Canada, and the UK. Several studies have examined the underlying motives behind share repurchase announcement, and the most common motives emerging out of those studies are returning surplus cash to shareholders, capital structure redesign, antitakeover mechanism, and the application of preferential tax rates (Liao et al, 2005). Badrinath and Varaiya (2000), Western and Siu (2002), Financial Executive Internationals (1999), etc., also report similar motives behind share repurchase announcements.…”

“…Share repurchase is believed to inject some buoyancy into stock prices since the repurchase price is set at a level higher than the prevailing market price and, thus, it is considered as an essential measure to 'rescue a plunging stock market' (Liao, Ke, & Yu, 2005). Preventing undervaluation of stocks in the market is considered to be one of the most prominent objectives behind share repurchases.…”