Stock price reaction to share repurchase announcements by banks in normal and crisis times
DOI:
https://doi.org/10.18533/jefs.v3i02.156Keywords:
Banks, Financial crisis, Share repurchase, Signaling.Abstract
This paper studies stock price reaction to share repurchases announced by U.S. banks between January 2002 and December 2008. Using the standard event study method, we find that the average abnormal return around share repurchase announcements is positive in both normal and crisis times. We also find that the average abnormal return is significantly higher in crisis times. Our results are consistent with the signaling hypothesis for share repurchases.References
Abreu, J., Gulamhussen, M., (2013). Dividend payouts: Evidence from U.S. bank holding companies in the context of the financial crisis. Journal of Corporate, 22: 54-65. http://dx.doi.org/10.1016/j.jcorpfin.2013.04.001
Akhigbe, A., Madura, J., (1999). Intra-industry effects of bank stock repurchases. Journal of Financial Services Research, 15: 23-36. http://dx.doi.org/10.1023/A:1008082202141
Billett, M.T., Yu, M., (2012). Asymmetric information and open market share repurchases. Working Paper.
Billingsley, R.S., Fraser, D.R., Thompson, G.R., (1989). Shareholder wealth and stock repurchases by bank holding companies. Quarterly Journal of Business and Economics, 28: 3-25.
Brown, S.J., Warner, J.B., (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14: 3-31. http://dx.doi.org/10.1016/0304-405X(85)90042-X
Comment, R., Jarrell, G.A., (1991). The relative signaling power of Dutch-auction and fixed-price self-tender offers and open market share repurchases. Journal of Finance, 46: 1243-1271. http://dx.doi.org/10.1111/j.1540-6261.1991.tb04617.x
Constantinides, G.M., Grundy, B.D., (1989). Optimal investment with stock repurchase and financing as signals. Review of Financial Studies, 2: 445-465. http://dx.doi.org/10.1093/rfs/2.4.445
D’Mello, R., Shroff, P.K., (2000). Equity undervaluation and decision related to repurchase tender offers: An empirical investigation. Journal of Finance, 55: 2399-2424. http://dx.doi.org/10.1111/0022-1082.00292
Dann, L.Y., (1981). Common stock repurchases: An analysis of returns to bondholders and stockholders. Journal of Financial Economics, 9: 113-138. http://dx.doi.org/10.1016/0304-405X(81)90010-6
Dittmar, A.K., (2000). Why do firms repurchase stock? Journal of Business, 73: 331-355. http://dx.doi.org/10.1086/209646
Flannery, M.J., Kwan, S.H., Nimalendran, M., (2013). The 2007-09 financial crisis and bank opaqueness. Journal of Financial Intermediation, 22: 55-84. http://dx.doi.org/10.1016/j.jfi.2012.08.001
Gorton, G., (2009). The subprime panic. European Financial Management, 15: 10-46. http://dx.doi.org/10.1111/j.1468-036X.2008.00473.x
Grullon, G., Michaely, R., (2002). Dividends, share repurchases, and the substitution hypothesis. Journal of Finance, 57: 1649-1684. http://dx.doi.org/10.1111/1540-6261.00474
Grullon, G., Michaely, R., (2004). The information content of share repurchase programs. Journal of Finance, 59: 651-680. http://dx.doi.org/10.1111/j.1540-6261.2004.00645.x
Hirtle, B., (1998). Bank holding company capital ratios and shareholder payouts. Current Issues in Economics and Finance, 4 (9): 1-6. http://dx.doi.org/10.2139/ssrn.997395
Hirtle, B., (2004). Stock repurchases and bank holding company performance. Journal of Financial Intermediation, 13: 28-57. http://dx.doi.org/10.1016/S1042-9573(03)00028-7
Hirtle, B., (2014). Bank holding company dividends and repurchases during the financial crisis. Federal Reserve Bank of New York Staff Reports, no. 666. http://dx.doi.org/10.2139/ssrn.2423384
Howe, J.S., Jain, R., (2006). Share repurchase programs by banks. Banks and Bank Systems, 1: 90-102.
Ikenberry, D., Lakonishok, J., Vermaelen, T., (1995). Market underreaction to open market share repurchases. Journal of Financial Economics, 39: 181-208. http://dx.doi.org/10.1016/0304-405X(95)00826-Z
Jensen, M., (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76: 323-329.
Kahle, K., (2002). When a buyback isn’t a buyback: Open market repurchases and employee options. Journal of Financial Economics, 63: 235-261. http://dx.doi.org/10.1016/S0304-405X(01)00095-2
Louis, H., White, H., (2007). Do managers intentionally use repurchase tender offers to signal private information? Evidence from firm financial reporting behavior. Journal of Financial Economics, 85: 205-233. http://dx.doi.org/10.1016/j.jfineco.2006.08.003
Maxwell, W.F., Stephens, C.P., (2003). The wealth effects of repurchases on bondholders. Journal of Finance, 58: 895-920. http://dx.doi.org/10.1111/1540-6261.00550
Miller, M.H., Rock, K., (1985). Dividend policy under asymmetric information. Journal of Finance, 40: 1031-1051. http://dx.doi.org/10.1111/j.1540-6261.1985.tb02362.x
Ofer, A.R., Thakov, A.V., (1987). A theory of stock price responses to alternative corporate cash disbursement methods: Stock repurchases and dividends. Journal of Finance, 42: 365-394. http://dx.doi.org/10.1111/j.1540-6261.1987.tb02572.x
Peyer, U., Vermaelen, T., (2009). The nature and persistence of buyback anomalies. Review of Financial Studies, 22: 1693-1745. http://dx.doi.org/10.1093/rfs/hhn024
Skinner, D., (2008). The evolving relation between earnings, dividends, and stock repurchases. Journal of Financial Economics, 87: 582-609. http://dx.doi.org/10.1016/j.jfineco.2007.05.003
Stephens, C.P., Weisbach, M.S., (1998). Actual share reacquisitions in open-market repurchase programs. Journal of Finance, 53: 313-333. http://dx.doi.org/10.1111/0022-1082.115194
Vermaelen, T., (1981). Common stock repurchases and market signaling: An empirical study. Journal of Financial Economics, 9: 139-183. http://dx.doi.org/10.1016/0304-405X(81)90011-8
Vermaelen, T., (1984). Repurchase tender offers, signaling, and managerial incentives. Journal of Financial and Quantitative Analysis, 19: 163-181. http://dx.doi.org/10.2307/2330896
Wang, C., (2013). Bailouts and bank runs: Theory and evidence from TARP. European Economic Review, 64: 169-180. http://dx.doi.org/10.1016/j.euroecorev.2013.08.005
Webb, E., (2008). Bank stock repurchase extent and measures of corporate governance. International Journal of Managerial Finance, 4: 180-199. http://dx.doi.org/10.1108/17439130810878785
White, H., (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48: 817-838. http://dx.doi.org/10.2307/1912934
Zhang, X.F., (2006). Information uncertainty and stock returns. Journal of Finance, 61: 105-137. http://dx.doi.org/10.1111/j.1540-6261.2006.00831.x
Downloads
Published
Issue
Section
License
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) after official publication, as it can lead to productive exchanges as well as greater citation of published work (See The Effect of Open Access).
