Abstract
To examine the market reaction of a share repurchase announcement and try to determine a proper explanation for the reaction pattern, this paper uses the traditional event study method with 148 UK cross-sectional observations between 11th January 2010 and 11th December 2011. We choose average abnormal return and cumulative abnormal return as dependent variables respectively, and market to book value (MTBV) and repurchase size as independent variables. Two robustness regressions are going to be run for each dependent variable. PE ratio and Tobin’s q will replace the MTBV to make sure the models are reliable. Through the regressions, there is a positive relationship between the average abnormal return and MTBV and a negative relationship between the average abnormal return and repurchase size. The same relationships apply to the cumulative abnormal return, MTBV and repurchase size. However, even we observed the positive relationship between abnormal return and company’s growth prospect, the results are not statistical significant. Therefore, through my data, I cannot prove the signaling theory or agency theory of free cash flow.
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Zheng, Y., Gong, R. (2014). Market Reaction to Repurchase Announcement-A Study for UK 2010–2011 Stock Market Reaction. In: Xu, J., Fry, J., Lev, B., Hajiyev, A. (eds) Proceedings of the Seventh International Conference on Management Science and Engineering Management. Lecture Notes in Electrical Engineering, vol 242. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-40081-0_89
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DOI: https://doi.org/10.1007/978-3-642-40081-0_89
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