The Persistence of Long-Run Abnormal Stock Returns Following Stock Repurchases and Offerings

Abstract

The long-run abnormal returns following both stock repurchases and seasoned equity offerings disappear for the events in the most recent decade. The disappearance is associated with the changing market environment – increased institutional investment, decreased trading costs, improved liquidity, and enhanced regulations on corporate governance and information disclosure. In response to the changing market environment, firms become less opportunistic in stock repurchases and offerings. Recent events are motivated more for business operating reasons than to exploit mispricing. Both external market factors and internal firm factors contribute to the disappearance of the post-event abnormal returns. Our evidence on the recent events contrasts with the findings of earlier studies and sheds light on how the changing market environment affect both asset pricing and corporate behavior.