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

Thanh T. Nguyen (Department of Accounting and Finance, University of Wisconsin-Eau Claire, Eau Claire, South Carolina, USA)
Ninon K. Sutton (Department of Finance, University of South Florida, Tampa, Florida, USA)
Dung (June) Pham (Department of Finance, Shippensburg University, Shippensburg, Pennsylvania, USA)

Managerial Finance

ISSN: 0307-4358

Publication date: 9 February 2015

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.

Keywords

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

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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