Transformations  in
Business & Economics

MARKET REACTION AND FINANCIAL EFFECTS OF SHARE REPURCHASES[1]⁵
Qing Zhao, Lingfu Kong, Juntao Lan

ABSTRACT: As an effective way of capital operation, share repurchase is increasingly favoured by company managers, market investors, and regulatory departments. However, the study on the effect of share repurchase is still questionable. To identify the effect of share repurchase, using the sample data of Chinese listed companies from 2007 to 2018, event study method, and multiple regression analysis method, the market and financial effects of share repurchase in the emerging capital market of China were explored. Results show that (1) the share repurchase announcements of listed companies trigger a positive reaction, and the cumulative average abnormal return is significantly positive around the announcement date; however, information leakage can be observed in advance. (2) Compared with agreement share repurchase, open market share repurchase significantly increases the cumulative average abnormal return of a company. A greater proportion of share repurchases corresponds to a more intense market reaction and a greater cumulative average excess return. (3) A larger proportion of share pledges correspond to a weaker market reaction to share repurchase and a smaller cumulative average abnormal return. (4) Compared with agreement share repurchase, open market share repurchase can significantly improve the long-term financial performance of a company, and such an effect is more significant in those groups with a higher level of share pledge. Conclusions provide a useful reference for listed companies when making scientific and reasonable share repurchase decisions and guide government authorities in formulating effective regulatory policies.

KEYWORDS:  share repurchase, cumulative average abnormal return, financial performance, share pledge.

JEL classification:  G14, G12, G34.

⁵Acknowledgments:  This study was supported by General Project of Humanities and Social Sciences Research in Colleges and Universities of Henan, China (Grant No. 2023-ZDJH-030)，Soft Science Research and Development and Promotion Special Project of Henan, China (No.232400412032)