Buying high and selling low: stock repurchases and persistent asymmetric information

Bond, Philip and Zhong, Hongda (2016) Buying high and selling low: stock repurchases and persistent asymmetric information. Review of Financial Studies, 29 (6). 1409 - 1452. ISSN 0893-9454

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Abstract

Share prices generally fall when a firm announces a seasoned equity offering (SEO). A standard explanation is that an SEO communicates negative information to investors. We show that if repeated capital market transactions are possible, this same asymmetry of information between firms and investors implies that some firms also repurchase shares in equilibrium. A subset of these firms directly profit from repurchases, while other firms repurchase in order to improve the terms of a subsequent SEO. The possibility of repurchases reduces both SEOs and investment. Overall, our analysis highlights the importance of analyzing SEOs and repurchases in a unified framework.

Item Type:	Article
Official URL:	http://rfs.oxfordjournals.org/
Additional Information:	© 2016 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance
Date Deposited:	24 Jun 2016 16:16
Last Modified:	12 Dec 2024 01:11
URI:	http://eprints.lse.ac.uk/id/eprint/67011

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