Credibility of Corporate Announcements and Market Reaction: Evidence from Canadian Share Repurchase Programs
Firms that announce open-market share repurchase programs are not obligated to follow through in the actual acquisition of shares. In fact, we find that the majority of firms fail to acquire the target number of shares specified at announcement and many firms fail to repurchase any shares at all. Therefore, the announcement of a share repurchase program has a degree of uncertainty regarding the announcing firms credibility. This study examines the possibility that market participants evaluate the credibility of a firms share repurchase announcement based on the firms previous share repurchase history. We examine 1,507 share repurchase programs for firms listed on the Toronto Stock Exchange (TSX) from 1995 to 2005 and find that firms that have completed a higher proportion of previous share repurchase programs experience larger abnormal returns on the announcement of subsequent repurchase programs. Therefore, we conclude that the market reacts more favorably to the share repurchase announcements of credible firms compared to firms that lack credibility.
Advisor:Tannous, George; Racine, Marie; Mishra, Dev R.; Entwistle, Gary
School:University of Saskatchewan
School Location:Canada - Saskatchewan
Source Type:Master's Thesis
Keywords:stock buyback repurchase share payout policy
Date of Publication:11/06/2006