Equity Ownership and Firm Value: Evidence from Targeted Stock Repurchases

Authors


  • We thank Hank Bessembinder, Jeff Brookman, Kathy Farrell, David Mayers, Wayne Mikkelson, Megan Partch, Myron Slovin, two anonymous referees, and seminar participants at Arizona State University, University of Nevada, Las Vegas, and University of Oregon for helpful comments. We also thank Beth Baugh for editorial assistance.

* Corresponding author: Department of Finance, University of Nevada, Las Vegas, Las Vegas, NV 89154; Phone: (702) 895-3967, Fax: (702) 895-4650; E-mail: schang@ccmail.nevada.edu

Abstract

In contrast to the negative average abnormal return associated with the announcement of a control-related targeted repurchase (greenmail transaction), we find that the announcement of a noncontrol-related targeted repurchase is associated with a positive and significant average abnormal return. Cross-sectional analysis indicates that the change in firm value at the announcement of a noncontrol-related targeted repurchase is negatively related to the resulting changes in both insider ownership and outside blockholdings. We also find significant differences in announcement-period stock price effects depending on the identity of the selling shareholder.

Ancillary