Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 2004 erstellt
Description:
The positive stock price reaction to stock buyback announcements reported in many previous studies is commonly interpreted as a signal that the firm's future profitability will rise, or that the firm is decreasing its agency costs by dispersing free cash flow, or that the firm is increasing its leverage toward a more optimal capital structure. We examine a sample of 7,079 buybacks (open market and tender offers) announced between 1981 and 1995, and follow each firm for five years after their buyback announcement. Consistent with prior work, we find that our sample firms repurchase most (and more in many cases) of the shares that they target in their announcements. We also find, however, that our sample firms issue shares following buyback announcements. In fact, our average sample firm increases its shares outstanding 23.73 percent following its buyback announcement, and our typical sample firm has an insignificant change of -0.88 percent. With no change in shares outstanding, our results are generally not supportive of commonly accepted buyback theories. For example, we find no consistent evidence of positive long-term abnormal operating performance or stock returns following buybacks; we also find no consistent evidence of a decrease in cash flow from financing, or an increase in the firm's debt ratio or default risk. Instead, we find that the buying and selling of their own shares that firms do following buyback announcements increases their stock's liquidity and this explains the positive stock price reaction to these announcements