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Asymmetric Information, Financial Reporting, and Open-Market Share Repurchases

Published online by Cambridge University Press:  01 November 2016

Matthew T. Billett  and
Miaomiao Yu
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Abstract

We explore the link between open-market share repurchases (OMRs) and asymmetric information based on financial reporting quality and find that opaque firms experience positive abnormal returns of twice the magnitude of those of transparent firms. These significant differences remain after controlling for governance, earnings management, and firm characteristics. We document significantly positive long-run postannouncement returns for opaque firms, but not for transparent firms. We find that takeover activity and premiums rise with repurchase activity by opaque firms, which may explain some of the wealth effects. Our results suggest that asymmetric information plays an important role in the wealth effects around OMRs.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 4 , August 2016 , pp. 1165 - 1192
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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