The Supply Effect and the Share Repurchase Puzzle: A Fresh Look with Evidence from Japan
نویسندگان
چکیده
Open-market repurchases reduce the supply of a stock’s shares in the market. Japanese stock repurchase data allows us to successfully isolate the supply effect from information effects of the stock repurchase. We focus on stock price behavior during the actual repurchase period when no new information is released and find that the excess stock returns are significantly positive only during actual repurchase periods. Our evidence supports the presence of a supply effect indicating downward-sloping demand curves, consistent with Miller’s (1977) divergence of opinion model. We do not find evidence supportive of managers’ ability to time the repurchases. JEL classification: G14, G15, G32
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