Information signalling of common stock repurchase announcements: Australian evidence

Ekanayake, Samson 2004, Information signalling of common stock repurchase announcements: Australian evidence, ICFAI journal of applied finance, vol. 10, no. 3, pp. 5-15.

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Title Information signalling of common stock repurchase announcements: Australian evidence
Author(s) Ekanayake, Samson
Journal name ICFAI journal of applied finance
Volume number 10
Issue number 3
Start page 5
End page 15
Publisher ICFAI University Press
Place of publication Hyderabad, India
Publication date 2004
ISSN 0972-5105
Summary Stock repurchases (or share buy-backs) have become increasingly popular among Australian companies. One of the main aims of announcing a stock repurchase by a listed company is signalling the market that its shares are currently underpriced. When market reacts to the signal, price of the shares is expected to increase immediately after the announcement. While there are several ways of repurchasing shares, 'on-market buy-backs' is the most popular method of stock repurchases in Australia. Australian listed companies have announced more than two hundred on-market share buy-backs over the past three years. The aim of this paper is to examine the information signalling effects of these on-market buy-back announcements. If the signal is considered positively (negatively) by the market, the price of the repurchasing company's shares should increase (decrease) immediately after the announcement. If there is no information content in the announcement, the price will remain the same. In this study, signalling effect of share buy-back announcements was examined using most recent Australian data. The total population of on-market buy-back announcements during the period from January 1, 2000 to March 10, 2003 was included. The abnormal market return over the short-run (announcement day and 9 trading days centred on the announcement date) was computed using the All Ordinaries Accumulation Index as the reference portfolio. The daily Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR) during the event period were computed. The results strongly support the information-signalling hypothesis of share buy..backs. Australian market generally considers announcement of on~market share repurchases as signalling of insider information that shares are currently underpriced.
Language eng
Field of Research 150201 Finance
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2004, ICFAI University Press
Persistent URL http://hdl.handle.net/10536/DRO/DU:30002401

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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