What do market participants learn from share repurchases? Evidence from a return decomposition
Publisher DOI
Abstract
This paper analyzes cash flow and cost of capital dynamics around share repurchase announcements of publicly traded US firms by decomposing stock returns into news related to cash flows and discount rates. After repurchase announcements, the cost of capital decreases significantly, while cash flows do not change. The decrease in the cost of capital is largest for firms that appear underpriced. These firms also experience the highest long-term returns after repurchase announcements. The findings suggest that market participants learn about a temporary overestimation of the cost of capital when firms announce share repurchases.
Date Issued
2023-10
Publication Type
Article
Subject(s)
Subjects
Share repurchases
•
Return Decomposition
•
Cost of Capital
•
Buyback Anomaly
Language(s)
en
Additional Credits
Journal
Journal of Corporate Finance
Publisher
Elsevier
ISSN
0929-1199
Access(Rights)
open.access