Skip Navigation


RFS Advance Access originally published online on March 26, 2004
Review of Financial Studies 2005 18(1):271-300; doi:10.1093/rfs/hhh004
This Article
Right arrow Full Text
Right arrow Full Text (PDF)
Right arrow All Versions of this Article:
18/1/271    most recent
hhh004v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Similar articles in ISI Web of Science
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrow Search for citing articles in:
ISI Web of Science (1)
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Oded, J.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

The Review of Financial Studies Vol. 18, No. 1 © 2005 The Society for Financial Studies; all rights reserved.

Why Do Firms Announce Open-Market Repurchase Programs?

Jacob Oded
Boston University

Address correspondence to: Jacob Oded, School of Management, Boston University, 595 Commonwealth Avenue, Boston, MA 02215, or e-mail: oded{at}bu.edu.

Empirically, a price increase accompanies the announcement of an open-market stock repurchase program, even though the announcement is not a commitment. In fact, for many announced programs no shares are ever actually repurchased. This article explores this puzzle. In the single-firm-type version of the model, the option that a firm grants itself by announcing a program does not generate announcement returns. In equilibrium, long-run gains from the informed trading that the option creates are offset by short-run costs from the market's accounting for this adverse selection. Based on this trade-off, I construct a signaling (two-type) model that can deliver announcement returns. In the separating equilibrium, good firms do not incur any cost when they announce programs. Their gains from informed trading in the long run offset the cost of announcement incurred in the short run. Mimicry is costly, because a bad firm's long-run gains from informed trading cannot compensate for the short-run cost of announcing.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 Review of FinanceHome page
A. M. Buffa and G. Nicodano
Should Insider Trading be Prohibited when Share Repurchases are Allowed?
Review of Finance, May 6, 2008; (2008) rfn009v1.
[Abstract] [Full Text] [PDF]


Disclaimer:
Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.