Keywords
Citation
Massa, M. (2007), "Mimicking repurchases", Strategic Direction, Vol. 23 No. 10. https://doi.org/10.1108/sd.2007.05623jad.004
Publisher
:Emerald Group Publishing Limited
Copyright © 2007, Emerald Group Publishing Limited
Mimicking repurchases
Mimicking repurchases
Massa M., Rehman Z., Vermaelen T. Journal of Financial Economics, June 2007, Vol. 84 No. 3, Start page: 624, No. of pages: 43
Purpose – to explain why the repurchase of stock by one firm in an industry is followed by repurchases by others. Design/methodology/approach – looks at the changes in share price after repurchase announcements, and at the information revealed about competitors as a result of repurchase. Uses market concentration as a proxy for strategic interaction in the industry. Contrasts the mimicking hypothesis to the “similarity” hypothesis (where firms follow suit because of market conditions). Applies the Herfindahl Index to 28,636 US firm-years from 1984 to 2002 and regresses 679 repurchase announcements for each of concentrated and non-concentrated industries. Controls for firm maturity and corporate governance, and focuses on share prices for 36 months. Findings – finds that stock repurchase raises the price of the repurchasing firm’s stock and reduces that of its rivals, who are then forced to mimic the repurchaser to avoid market judgements that they have worse prospects. Shows that the effect is more intense, the more concentrated the industry. Research limitations/implications – reveals that corporate finance and industrial organization are interlinked. Originality/value – presents new evidence explaining why repurchases are clustered.
Keywords: Competition, Financial information, Share repurchase, Strategy, USA