Faculty of Economics and Business Administration Publications Database

Signaling Power of Open Market Share Repurchases in Germany

Zdantchouk, Alexandre
Volume: 20
Number: 2
Pages: 123 - 151
ISSN-Print: 1555-4961
Year: 2006
Keywords: Open market share repurchases; Event study; Undervaluation signaling; Repurchase policy and regulation
Abstract: This paper shows that abnormal stock price returns around open market repurchase announcements are about four times higher in Germany than in the US (12% versus 3%). We hypothesize that this observation can be explained by country differences in repurchase regulation. Our empirical evidence indicates that German managers primarily buy back shares to signal an undervaluation of their firm. We demonstrate that the stringent repurchase process prescribed by German law attributes a higher credibility to such a signal than lax US regulations and thereby corroborate our hypothesis.