Normal view MARC view

Mimicking repurchases

Author: Massa, Massimo ; Rehman, Zahid ; Vermaelen, TheoINSEAD Area: FinanceIn: Journal of Financial Economics, vol. 84, no. 3, June 2007 Language: EnglishDescription: p. 624-666.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: We study the tendency of firms to mimic the repurchase announcements of their industry counterparts. We argue that a firm, by repurchasing its shares, sends a positive signal about itself and a negative one about its competitors. This induces the competing firms to mimic the behavior of the repurchasing firm by repurchasing themselves. By using a broad sample of US firms for the period 1984 to 2002, we show that in concentrated industries, a repurchase announcement lowers the stock price of the other firms in the same industry. The other firms then retaliate by repurchasing themselves in order to undo these negative effects. When repurchases do occur, they are chosen mostly as a strategic reaction to other firms' initiating repurchases, and are not motivated by the desire to time the market, i.e., to take advantage of a significantly undervalued stock price. We show that repurchasing firms in more concentrated industries, therefore, experience a lower increase in value in comparison to their less concentrated counterparts in the post-announcement era. Alternative methodologies used to estimate long-term performance confirm that it is only the low concentration firms that outperform the market, their non-repurchasing peers and their more concentrated counterparts by amounts that are economically and statistically significant.
Tags: No tags from this library for this title. Log in to add tags.
Item type Current location Call number Status Date due Barcode Item holds
INSEAD Article Europe Campus
Available BC007879
Total holds: 0

Ask Qualtrics

We study the tendency of firms to mimic the repurchase announcements of their industry counterparts. We argue that a firm, by repurchasing its shares, sends a positive signal about itself and a negative one about its competitors. This induces the competing firms to mimic the behavior of the repurchasing firm by repurchasing themselves. By using a broad sample of US firms for the period 1984 to 2002, we show that in concentrated industries, a repurchase announcement lowers the stock price of the other firms in the same industry. The other firms then retaliate by repurchasing themselves in order to undo these negative effects. When repurchases do occur, they are chosen mostly as a strategic reaction to other firms' initiating repurchases, and are not motivated by the desire to time the market, i.e., to take advantage of a significantly undervalued stock price. We show that repurchasing firms in more concentrated industries, therefore, experience a lower increase in value in comparison to their less concentrated counterparts in the post-announcement era. Alternative methodologies used to estimate long-term performance confirm that it is only the low concentration firms that outperform the market, their non-repurchasing peers and their more concentrated counterparts by amounts that are economically and statistically significant.

Digitized

There are no comments for this item.

Log in to your account to post a comment.
Koha 18.11 - INSEAD Catalogue
Home | Contact Us | What's Koha?