Dr. Jacob Oded
Do Firms Buy Their Stock at Bargain Prices? Evidence from Actual Stock Repurchase Disclosures+
Azi Ben-Rephael,* Jacob Oded,** and Avi Wohl
Using new monthly data we investigate open-market repurchase executions of US firms. We find that firms repurchase at prices which are significantly lower than average market prices. This price discount is negatively related to size and positively related to market-to-book ratio. Firms’ repurchase activity is followed by a positive and significant abnormal return. Importantly, the market response occurs when firms disclose their actual repurchase data in earnings announcements, and this positive response is followed by a one month drift. Consistent with these results, we find that insider trading is positively related to actual repurchases.
Keywords: Stock Repurchases; Payout Policy; Timing; Liquidity; Insider Trading.
JEL classification: G14; G30; G35
+ We are grateful for helpful comments from an anonymous referee, Emanuele Bajo, Zahi Ben-David, Alice Bonaime, Henk von Eije, Andrew Ellul, Jacques Hamon, Ohad Kadan, Avner Kalay, William McNally, Roni Michaely, Allen Michel, Urs Peyer, Brian Smith, Dan Weiss, and from seminar participants at BI Norwegian School of Management, Indiana University, and Tel Aviv University, as well as conference participants at the European Finance Association Meeting (2011), World Finance Conference (2011), and Wuppertal International Payout Policy Conference (2011). Financial support from Israel Science Foundation and Henry Crown Institute of Business Research is gratefully acknowledged.
* Kelley School of Business, Indiana University, Tel: 812-856-0749 firstname.lastname@example.org
** The Leon Recanati Graduate School of Business Administration, Tel Aviv University Tel: 972-3640-6301 email@example.com
*** The Leon Recanati Graduate School of Business Administration, Tel Aviv University Tel: 972-3640-9051 firstname.lastname@example.org