The post-repurchase announcement drift: an anomaly in disguise?

Abstract

Purpose

The purpose of this paper is to reexamine the stock price drifts after open-market stock repurchase announcements by differentiating actual repurchases from repurchase announcements and by controlling for the repurchasing firms’ earnings improvement in the announcement year relative to the prior year.

Design/methodology/approach

The authors use the calendar-time method and matching method based on different criteria to calculate the post-announcement abnormal returns.

Findings

The results show that only firms actually repurchasing their shares exhibit a positive post-announcement drift. More importantly, the authors find that these repurchasing firms have the same post-announcement drift as their matching firms that have similar size and earnings performance but do not repurchase. This supports the argument that the post-repurchase announcement drift found in previous studies is not a distinct anomaly but the post-earnings announcement drift in disguise.

Social implications

The post-repurchase announcement drift found in previous studies is the post-earnings announcement drift in disguise.

Originality/value

The study shows that because high earnings performance positively relates to real repurchase activities, controlling for earnings performance in examining whether a drift occurs after repurchase announcements.

Citation

Nguyen, T.T., Sutton, N.K. and Pham, D.(J). (2015), "The post-repurchase announcement drift: an anomaly in disguise?", Managerial Finance, Vol. 41 No. 2, pp. 205-224. https://doi.org/10.1108/MF-02-2014-0038