Managerial Commitment to Open-Market Repurchases and Announcement Returns

Abstract

Open-market repurchase (OMR) announcements are non-committal because the percentage and timing of actual share repurchases are uncertain. Based on these observations, this study postulates that market participants can infer managerial commitment based on a firm’s record of executing prior programs and will respond to the subsequent announcements accordingly. Using simple average and time-weighted methods to measure a firm’s record, this study shows that the larger the percentage of shares repurchased and the shorter the time to complete prior programs, the greater the announcement returns for a firm’s subsequent OMR announcements. In addition, market participants consider share and time records simultaneously when inferring managerial commitment to subsequent OMRs. We provide several directions for future studies to conclude this paper.