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The Relative Signaling Power of Open-Market and Subsidiary Share Repurchases in Taiwan Stock Market

Journal of Financial Studies

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Title The Relative Signaling Power of Open-Market and
Subsidiary Share Repurchases in Taiwan Stock Market
 
Creator C. Edward Wang
 
Description The coexistence period of open-market repurchases and subsidiary buybacks provides a valuable
opportunity to test signaling power of share repurchases in Taiwan. Given the findings that the
announcements for both types of share repurchases incur positive market responses and possess the
information contents of undervalued share prices, this paper strongly supports the signaling hypothesis. The
evidence also confirms that open-market repurchases have stronger signaling power than subsidiary buybacks.
In addition, we find that open-market repurchases can reduce agency cost of equity through the distribution of
excess capital to stockholders, while subsidiary buybacks help current management keep controlling the firm.
Finally, this paper reveals that the announcement effect is more pronounced when the probability of stock
undervaluation is higher and the management has less incentive to send false signals, both of which then
further increase the possibility of choosing open-market repurchases as financial signals.

Key words: Financial Signaling, Open-Market Share Repurchase, Subsidiary Buyback for Parent Stock
 
Publisher Journal of Financial Studies
財務金èžå­¸åˆŠ
 
Date 2011-05-27
 
Type —
 
Format application/pdf
 
Identifier http://www.jfs.org.tw/index.php/jfs/article/view/2011121
 
Source Journal of Financial Studies; Vol 16, No 4 (2008); 1
財務金èžå­¸åˆŠ; Vol 16, No 4 (2008); 1
 
Language —