Market Reaction to Actual Share Repurchase in Malaysia

Abstract

This paper examines share price reaction surrounding actual sharerepurchases made by Malaysian listed firms from 2001 until 2005.Using event study methodology and the market model, the evidenceindicates that a significant increase in share prices occurs in a threedayperiod beginning from the repurchase day. We also findevidence that there is a general price decline in the pre‐purchaseperiod that suggests that firms made their repurchase after a periodof consecutive price declines. This evidence clearly indicates theexistence of a signalling effect and is consistent with theundervaluation hypothesis. It also indicates that the share repurchaseprogramme can be used as an effective tool for price stabilisation.Keywords: Open Market Repurchase, Signalling Hypothesis, ShareRepurchase