Open-Market Common Stock Repurchases and Subsequent Market Performance

Abstract

This article reexamines the evidence supporting long-term performance after announcements of open-market repurchase plans. Ikenberry et al. (1995, 2000) support the existence of long-term performance using two samples of U.S. and Canadian firms. However, differences in regulatory environment might have a confounding effect on their inference. This study reexamines post-event performance through buy-and-hold abnormal returns (BHAR) and cumulative abnormal returns for a single sample of 723 announcements of openmarket repurchases of common stock by U.S. firms. The results are mixed. BHAR of 23 and 14 percent strongly supports the existence of significant abnormal returns in the first two years after the event, respectively. Small firms appear to drive the results; value firms do not. After correcting for multicollinearity, the three-factor model's insignificant alpha of 0.27 percent per month, or approximately 3 percent per year, fails to support the existence of long-term abnormal performance after repurchase plan announcements.