Market Reaction to Open Market Share Repurchases with Intra-Industry Comparison, Evidence From Finland
Lähdemäki, Jukka (2007)
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Purpose of this study is to examine how companies in Finland perform at the presence of share repurchase announcements. First purpose of the study was to investigate if Finnish companies experience any positive abnormal returns around the share repurchase announcement. Second research question was to examine if repurchasing companies experience negative abnormal returns prior the announcement, which would give support to the signalling hypothesis. In addition intra-industry comparison will be made in order to see if repurchase announcements have contagious or competitive effect on rival firms or whether the information in repurchase announcements is mainly firmspecific. Also it is investigated whether there are differences between different industries on how markets react to repurchase announcements.
Research was done for the companies which made a share repurchase announcement during years 1998 to 2005 in the Helsinki stock exchange. Study included 161 samples and 59 clean samples. Standard Event Study method was used when estimating abnormal returns and statistical significance was observed with the help of t-test. Event window ranged from twenty days before to ten days after the announcement. HEXportfolio index was used as a benchmark when investigating abnormal returns for the announcing firms and for the reference portfolio of rival firms.
Results indicate that abnormal return for the five-day event window around the share repurchase announcement for the clean samples was 2.26 % and on day zero it was 1.30 %, with same time periods for all the samples results were 0.93 % and 0.62 % respectively. Also negative abnormal returns were observed ranging from twenty to six days prior the announcement which gives support for the signalling hypothesis. In the intra-industry comparison there were not observed any competitive effect for rival firms and evidence for contagious effect was quite weak as well so conclusion was that positive market reaction from share repurchases is mainly firm-specific. In addition, there were not observed any differences between different industries on the reactions to repurchase announcements.
Research was done for the companies which made a share repurchase announcement during years 1998 to 2005 in the Helsinki stock exchange. Study included 161 samples and 59 clean samples. Standard Event Study method was used when estimating abnormal returns and statistical significance was observed with the help of t-test. Event window ranged from twenty days before to ten days after the announcement. HEXportfolio index was used as a benchmark when investigating abnormal returns for the announcing firms and for the reference portfolio of rival firms.
Results indicate that abnormal return for the five-day event window around the share repurchase announcement for the clean samples was 2.26 % and on day zero it was 1.30 %, with same time periods for all the samples results were 0.93 % and 0.62 % respectively. Also negative abnormal returns were observed ranging from twenty to six days prior the announcement which gives support for the signalling hypothesis. In the intra-industry comparison there were not observed any competitive effect for rival firms and evidence for contagious effect was quite weak as well so conclusion was that positive market reaction from share repurchases is mainly firm-specific. In addition, there were not observed any differences between different industries on the reactions to repurchase announcements.