Insiders Trading around Open Market Share Repurchases: Evidence from the Taiwanese Stock Market

Transcription

1 Insiders Trading around Open Market Share Repurchases: Evidence from the Taiwanese Stock Market Chia-Cheng Ho Department of Finance National Chung Cheng University 168, University Rd., Min-Hsiung Chia-Yi 621, Taiwan, R.O.C Tel ext Fax.: Su-Yin Cheng Department of Banking and Finance Kainan University No. 1 Kainan Road, Luchu, Taoyuan 33857, Taiwan s @mail.knu.edu.tw Tel ext Fax.: Walayet A. Khan * Schroeder School of Business Administration University of Evansville 1800, Lincoln Avenue, Evansville, IN 47722, USA wk3@evansville.edu. Tel.: , Fax: * Corresponding author 1

2 Insiders Trading around Open Market Share Repurchases: Evidence from the Taiwanese Stock Market Abstract We investigate insiders trading around 554 open market repurchases in the Taiwanese stock market. Our results indicate that insiders of a repurchasing firm tend to buy their firm s shares prior to the repurchase announcements and sell the shares after the announcements when the stock price goes up. The insiders trading pattern suggests that insiders have privative information to identify the undervaluation of their equity and they take advantage of the repurchase program. Furthermore, such trading behavior is likely to be observed for repurchasing firms with small size, high book-to-market, high proportion of small shareholders, and undervaluation of their share being the reason for the repurchase. JEL classification: G14; G39 Keywords: Insider trading; open market repurchase; firm characteristics 2

3 1. Introduction Empirical evidence shows that the announcements of stock repurchases tend to be accompanied by an abnormal increase in stock prices (e.g., Comment and Jarrell, 1991; Ikenberry et al., 1995). Researchers have offered numerous explanations including tax savings, benefits arising from expropriation of creditors, and asset undervaluation, to explain the positive market reaction upon the repurchase announcements. However, the information signaling effect appears to be the most widely accepted explanation (e.g., Dann, 1981; Vermaelen, 1981; Comment and Jarrell, 1991; Ikenberry et al., 1995). That is, insiders are equipped with private information and consequently are in a better position to observe the fundamental value of their firm. Therefore, if managers feel that their stock prices deviate downwards from fundamental value, they convey the undervaluation of stock via the purchase of their firm s shares. Many studies offer a complementary evidence of a strong link between the insider transaction pattern and the information contained in an upcoming corporate event. For example, Elliot et al. (1984), Karpoff and Lee (1991), Iqbal and Shetty (2002) reveal that insiders tend to purchase (sell) stocks prior to the release of favorable (unfavorable) news. Given the prior evidence, it is reasonable to suspect that insiders may possess privative information about stock repurchases programs to generate similar trading behaviors. 3

4 In this paper, we intend to provide a clearer picture of how insiders with private information trade around open market repurchase programs in the Taiwanese stock market. Although the literature related to insiders trading around corporate events is now quite extensive, but most of it concentrates on the events in the U.S. market. The market environment in Taiwan provides a good opportunity to shed light on that regard. Individual investors have been the predominant players in the Taiwanese stock market. Although there has been a downward trend, the portion of transactions by individual investors is still high. For example, in 2005, nearly 70 percent of total equity transactions were from retail investors. Individual investors are less informed and poorly trained (e.g., Arbel and Strebel, 1983). This (a relatively immature market) gives the informed insiders more room and opportunities to trade on private information. Our results indicate that insiders of a repurchasing firm tend to increase holdings of their firms shares prior to the repurchase announcements and decrease their holdings when stock prices pick up after the announcements. Furthermore, such trading pattern tends to be observed for repurchasing firms which claim to be undervalued, are informationally opaque, have a higher book to market ratio, or have a high proportion of small shareholders, suggesting that the finding of the study might not be solely due to the immaturity of a financial market. 4

5 The rest of the paper is organized as follows. Section 2 describes the repurchasing sample and data source for the study along with a background of repurchases programs in Taiwan. Section 3 discusses the methodology and section 4 presents the empirical results of the study. Section 5 concludes the paper. II. Data and Sample Selection In the United States, firms have three methods for buying back their own shares: privately negotiated transactions, tender offers, and open market repurchases. However, in Taiwan, the open market repurchase program is the only method for firms to buy back their shares. Firms intending to repurchase their shares must first obtain the approval from the board of directors and then file petition for permission from the Securities and Futures Commission (SFC). Upon receiving the permission, firms are mandated to announce the details of the program and start the open market repurchase program subsequently. With the announcements, the announcing firms have to specify the reason for the repurchase, the price range within which they will buy back their own shares and the target number of shares they plan to buy back. The announcing firms are required to complete the repurchase programs within two months after the announcement. Insiders of repurchasing firms are prohibited from selling their shares during this period. Furthermore, at the end of the repurchase programs, the firms must 5

6 make a statement regarding the average purchasing price and the actual number of shares repurchased. In addition, a reason must be given if the firms do not repurchase 100% of the target shares. Our sample includes stock repurchasing firms listed on the Taiwan Stock Exchange during the sample period from August 2000 to June We exclude firms that do not have complete data for the study. We also exclude firms whose repurchase programs occur within one year after their initial public offerings. Given the well-known evidence of abnormal price behavior of newly listed stocks, we do not want to mix our results with the IPO effects. In addition, to prevent the confounding effect of multiple stock repurchase announcements, we exclude those repurchase announcements made by the same firm whose event periods overlap. After imposing these restrictions, the final sample includes 544 stock repurchases initiated by 345 firms during the sample period. All the data used in the study are obtained from the Taiwan Economic Journal Data Bank (TEJDB), the primary provider of financial data in Taiwan. III. Measuring Abnormal Insiders Trading and Stock Returns According to the rules set by the Taiwan Stock Exchange, insiders, referring to directors, managers, supervisors, or substantial shareholders holding 10% or more of 6

7 the company s shares, are required to report their holdings each month. We therefore define monthly net change of insiders holding as follows: NCTOV = ( IH IH )/ OUT (1) it it it 1 it where IHit and it 1 IH are number of shares held by insiders for observation i in months t and t 1 respectively, and OUT it is number of shares outstanding for firm i in month t. A positive monthly net change implies a net buying in the given month while a negative change implies a net selling. We use standard event study methodology to measure abnormal insiders trading around open market repurchase announcements. The event month, month 0, is defined as the calendar month in which a repurchase announcement occurs. The event window consists of 6-months preceding the event month and the other 6-month following the event month. Following the approach of Cooper et al. (2001) and Ching et al. (2006), monthly abnormal insiders trading within the event period is calculated as follows: 30 NCTOV i, m m= 7 AVit = NCTOVit t = 6, 5,, 5, 6 (2) 24 where AV it is the abnormal change in insiders holdings for observation i in event month t, NCTOV it is the net change in insiders holdings in month t, and m is used to number the months in the estimation period. The cumulative average abnormal insiders holdings for the period spanning from event month t to event month t is 1 2 then computed as follows: 7

8 CAV ( t1, t2 ) t = 2 t1 AV t (3) Where AV = 1 N t AV it N i= 1 Note that N denotes the number of open market repurchase programs. Another important measure for the study is the cumulative average abnormal stock returns for the announcing firms. We first calculate the average abnormal returns of the sample firms in event month t in the following manner: AR t N 1 1 = ARit = ( R N N i= 1 N i= 1 it ˆ α ˆ β R ) t = 6, 5,, 5, 6 (4) i i mt where ARit is the abnormal return of observation i in event month t, Rit is the stock return of observation i in event month t, αˆ i and βˆi are estimates for observation i based on the market model using monthly data from the 2-year period preceding the event period, and Rmt is the market return in event month t. We then aggregate the monthly average abnormal returns to obtain the cumulative average abnormal return form event month t to event month t as follows: 1 2 t = 2 CAR ( t1, t2 ) AR t. (5) t1 IV. Empirical Results Summary Statistics Panel A of Table 1 presents the sample distribution according to the motivation for the stock repurchases (Insert Table 1 Here). In Taiwan firms buy back their own shares 8

9 for three main reasons. First, a firm wants to transfer outstanding shares to employees as a part of their total compensation. Second, a firm believes that shares are undervalued. Lastly, a firm intends to issue stock options by acquiring outstanding shares. In our sample there are 362 (65.34%) repurchases for the first motivation, 190 (34.34%) for the second motivation and only 2 (0.47%) for the third motivation. Obviously, firms involved in repurchase programs are more likely motivated for transferring outstanding shares to employees. It is quite different from the motivation of repurchases in USA where managers generally cite undervaluation as a reason for repurchasing shares (Brav et al., 2005). Panel B of Table 1 reports descriptive statistics of the variables that will be used for further analysis in the study. The mean (median) value is (8.550) for variable size and % (22.934%) for variable insiders holding ratio respectively. Firm size is measured by the logarithm of market capitalization at the end of the calendar year preceding the repurchase announcement. Insiders holding ratio is defined as the ratio between number of shares owned by insiders and number of shares outstanding at the end of the calendar year preceding the repurchase announcement. These observations suggest that Taiwanese firms are smaller in size than U.S. firms but have a higher level of insider ownership (e.g., Cho, 1998; D mekko and Shroff, 2000). Furthermore, these statistics also reflect the emerging nature of Taiwanese economy and the prevalence of 9

10 family-owned companies in Taiwan. We also calculate book-to-market ratios of the sample firms. The book-to-market ratio for an announcing firm is defined as the ratio of the firm s book equity to market capitalization, both measured at the end of the calendar year preceding the firm s repurchase announcement. As shown, the mean and median book-to-market ratios are and respectively. The average book-to-market ratio is quite close to 1, implying that announcing firms on average are not likely to be among the true favors of the market. With regard to the target volume of the repurchases, the mean (median) of the target repurchase volume is 3.217% (2.641%) of outstanding shares which is smaller than the average of 7% in the United States (See Comment and Jarrell, 1991). Comment and Jarrell (1991) report that larger repurchase programs take longer time to complete. The smaller size of a stock repurchase program in Taiwan is, therefore, probably due to the shorter execution period of the program. The repurchase program must end within two months in Taiwan compared to three years in the United States. In addition, firms in Taiwan are allowed to buy back up to ten percent of their outstanding shares and we do have firms in our sample hitting the maximal limit. Following Stephens and Weisbach (1998), we define the completion rate to be the ratio of the actual number of shares purchased to the target number. The mean (median) 10

11 completion rate of the sample is % (74.906%) and is lower than those in the USA and Korea. Stephens and Weisbach (1998) estimate that the actual number of shares repurchased is about 74% to 82% of announced shares in the USA and Jung et al. (2005) indicate that 90% of the announced shares are actually repurchased in Korea. In our sample, the maximum completion rate is 100%, indicating that some firms bought back the target amount. On the other hand, the minimum completion rate is 0. Our un-tabulated statistics reveal that 20 repurchase programs did not buy back any share. Insiders Trading and Stock Returns around Repurchase Announcements Table 2 reports average abnormal monthly changes in insiders holdings and abnormal monthly stock returns during the 13-month period centering round the announcement month (Insert Table 2 Here). Insiders start to increase their share holdings 4 months prior to the announcement month and continue to do so until month 1. Besides, insiders holdings exhibit a decreasing trend from months 2 to 5. Therefore, insiders tend to buy shares of their firm prior to the repurchase announcement and do the opposite afterwards. Table 2 also presents the average abnormal monthly returns over the event period. Starting from 5 months prior to the announcement, announcing firms experience a decrease in their stock prices until the announcement month. Stock prices exhibit an upward trend following the announcement till the end of the 4th month, except month two. Month four abnormal returns are highly significant. 11

12 We calculate cumulative average abnormal (CAV) insiders trading and cumulative abnormal stock returns (CAR) in order to evaluate the significance of the two abnormal measures for the period preceding and following the announcement. We choose month -5 to be the beginning of the pre-announcement period since it coincides with the starting point of a run of six positive abnormal monthly returns prior to the repurchase program. Similarly, the post-announcement period ends in month 5, for it is the ending point of the streak of 4 months with negative abnormal trading after the repurchase program. As shown in Table 2, CAV (-5,-1) is significantly positive and CAV (1,5) is significantly negative. The observation in pre-announcement period is consistent with the finding of Lee et al. (1992) that insiders tend to increase the frequency of buying their firm s shares and decreases the frequency of selling prior to the repurchase announcement. However, the finding during the post-announcement period is in contrast with the finding of Lee et al. (1992) who find no unusual pattern of insiders trading of their firm s shares after the repurchase announcement. CAR (-5,-1) are significantly negative, while CAR (1, 5) are significantly positive. This suggests that the repurchasing firms are likely to be undervalued by the market and investors gradually adjust their valuation on the repurchasing firm. The finding is in line with Comment and Jarrell (1991), Ikenberry et al. (1995) for the U.S. market. 12

13 Putting together our results of CAV and CAR gives us a clear picture of the behavior of insiders trading around the repurchase announcements. Prior to the repurchase announcements, insiders who possess private information to identify the true fundamental value of their firm increase holdings of their firm s shares. After the repurchase announcements, stock prices of the repurchasing firms start to gradually pick up. During the same period, insiders decrease holdings of their firm s shares. As denoted by [CAV (1, 5)-CAV (-5,-1)] and [CAR (1, 5)-CAR (-5,-1)] in Table 2, the reversing pattern of the insiders trading and the stock price between the pre- and post-announcement periods is statistically significant. The Regression Analysis In this section, we provide regression examinations and additional insight to the results. We regress the cumulative abnormal change in insiders holdings of a repurchasing firm prior to (subsequent to) the announcement on the cumulative abnormal returns of the firm in pre- announcement (post-announcement) period. Panel A of Table 3 shows that there is a significant negative relation between the abnormal change in insiders holdings and the abnormal stock returns in the pre-announcement period (Insert Table 3 Here). The result is corroborated with the finding in last section. In the following step, we extend the analysis to see whether the negative relation between changes in insiders holdings and changes in stock prices is 13

14 associated with the characteristics of the repurchases and the firms. Small firms are typically believed to be less transparent than the large firms. Lakonishok and Vermaelen (1990) document that small firms and large firms induce discrepant market reactions around the stock repurchase announcements. Therefore, we examine how firm size affects the insiders event-driven trading. If the market capitalization of a repurchasing firm is above (below) the median capitalization of all the listed firms at the same yearend, the repurchasing firm is assigned into the large-size (small-size) group. Panel B of Table 3 shows a significantly negative relation between insiders holdings and abnormal returns in both the pre and post announcement periods but only for small firms. The finding suggests that information asymmetry could provide insiders with an opportunity to generate the event-driven trading. Ikenberry et al. (1995) suggest that announcing firms with higher book-to-market ratio are accompanied with much larger abnormal performance following the repurchase announcements. Therefore, we examine the effect of book-to-market ratio on insiders event-driven trading. Panel C of Table 3 shows a significantly negative relationship between insiders holdings and the abnormal returns in both the pre- and post-announcement periods for firms with high book to market ratio. It suggests that the undervaluation of repurchasing firms, symbolized by high book-to-market ratios, provides an opportunity for insiders to make event-driven trading. 14

15 Hauser et al. (2003) indicate that minority insiders may have an incentive to trade on inside information in order to extract short-term capital gains, while majority insiders may not do so because they take the long-term view of controlling the company. We further investigate if the insiders holding ratio of a repurchasing firm can affect the relation between insiders trading and stock returns. Panel D of Table 3 shows that the estimated coefficients are significantly negative both in the pre- and post-announcement periods but only for repurchasing firms with lower insiders holdings. Our finding is consistent with Hauser et al. (2003) that minority insiders are more likely to take advantage of their private information through event-driven trading. Vermaelen (1981), and Comment and Jarrell (1991) find a significant positive association between the abnormal stock returns and the target repurchasing amount surrounding repurchasing announcements, suggesting that the target repurchasing amount may signal the extent of the undervaluation of a repurchasing firm. Panel E of Table 3 shows that for firms with larger target repurchasing amount, abnormal changes in insiders holdings are significantly and negatively related to abnormal stock returns in the pre-announcement period. Ikenberry et al. (2000) find that that repurchasing activity of the firm increases when stock prices decrease in the previous period, suggesting that the completion rate may indicate the extent of the undervaluation of the repurchasing firm. Panel F of Table 15

16 3 shows insignificantly negative results across the two sub-groups and the two sub-periods. Since, in Taiwan, a repurchase program has to be finished within two months after the announcement, the execution rate may only reflect the information during the two-month period and hence may bear little relation with the stock returns over the post-execution 5-month period. We now examine if the reported reason for a repurchase program is related to the association between insiders trading and stock returns. The regression results in Panel G of Table 3 show that the estimated coefficients are significantly negative in both sub-periods for firms citing undervaluation as their reason for repurchasing their shares. The result indicates that the event-driven trading is clustered in firms with proclamation of undervaluation as the reason for a repurchase program. V. Summary and Conclusion We investigate insiders trading around 554 open market repurchase announcements in Taiwan. We find that insiders significantly increase holdings of their firm s shares prior to the repurchase announcements while they significantly decrease their holdings after the announcements. Similarly, stock prices of the repurchasing firms experience a significant fall prior to the repurchase announcements but a significant pick up after the repurchase announcements. To investigate if abnormal changes in insiders holdings and stock prices are 16

17 related, we regress the abnormal change in insiders holdings on the abnormal stock returns. In the pre-announcement period, the abnormal increase in insiders holdings is significantly and negatively related to the abnormal fall in stock prices. A significantly negative relation is also found for the post-announcement period between the abnormal decrease in insiders holdings and the abnormal rise in stock prices. These results seem to suggest that insiders have privative information to identify the undervaluation of their equity and they take advantage of the stock repurchase programs. We then further examine if the negative relation between insiders holdings and stock prices is sensitive to characteristics of the repurchasing firms. We find that the negative relation between insiders holdings and stock prices is mostly driven by repurchasing firms which claim to be undervalued, are informationally opaque, have higher book to market ratios, have a high proportion of small shareholders, suggesting that the finding of the study might not be solely due to the immaturity of a financial market. 17

18 REFERENCES Arbel, A., Strebel, P., 1983, Pay attention to neglected firms. Journal of Portfolio Management 9, Brav, A., Graham, J. R., Harvey, C. R., Michaely R., 2005, Payout policy in the 21st century. Journal of Financial Economics 77, Ching, K. M.L., Firth, M., Rui, O. M., 2006, The information content of insider trading around seasoned equity offerings. Pacific-Basin Finance Journal 14, Cho, M.-H., 1998, Ownership structure investment, and the corporate value: an empirical analysis. Journal of Financial Economics 47, Comment, R., Jarrell, G., 1991, The relative signaling power of Dutch-auction and fixed-price self-tender offers and open-market share repurchases. Journal of Finance 46, Cooper, R. A., Day, T. E., Lewis, C. M., 2001, Following the leader: a study of individual analysts earnings forecasts, Journal of Financial Economics 61, Dann, L., Common stock repurchases: an analysis of returns to bondholders and stockholders. Journal of Financial Economics 9, D mello, R., Shroff, P., 2000, Equity undervaluation and decisions related to 18

19 repurchase tender offers: an empirical investigation. Journal of Finance 55, Elliot, J., Morse, D., Richardson, G.., 1984, The association between insider trading and information announcements. The Rand Journal of Economics, 15, Hauser, S., Elli K., Dahan, R., 2003, Price behavior and insider trading around seasoned equity of offerings: the case of majority-owned firms. Journal of Corporate Finance, 9, Ikenberry, D., Lakonishok, J., Vermaelen, T., Market underreaction to open market share repurchases. Journal of Financial Economics 39, Ikenberry, D., Lakonishok, J., Vermaelen, T., Stock repurchases in Canada: performance and strategic trading. The Journal Finance 55, Iqbal, Z., Shetty, S., 2002, Insider trading and stock market perception of bankruptcy. Journal of Economics and Business, 54, Jung, S.C., Lee, Y.G.., Thornton, J. Jr., 2005, An empirical comparison between operations of stabilization funds and stock repurchases in Korea. Pacific-Basin Finance Journal 13, Karpoff, Jonathan M., Lee, D., 1991, Insider trading before new issue announcements. Financial Management 20, Lakonishok, J., Vermaelen, T., Anomalous price behavior around repurchase 19

20 tender offers. Journal of Finance 45, Lee, D. S., Mikkelson W. H., Partch, M. M., 1992, Managers trading around stock repurchases. The Journal of Finance, 47, Newey, W.K., West, K. D., 1987, A simple, positive semi-definitive heteroskedasticity and autocorrelation consist covariance matrix. Econometrica 55, Stephens, C., Weisbach, M., 1998, Actual share reacquisitions in open-market repurchase programs. Journal of Finance 53, Vermaelen, T., 1981, Common stock repurchases and market signaling: Anempirical study. Journal of Financial Economics 9,

21 Table 1. Summary Statistics Panel A: Sample distribution N % Transferring shares to employees Price undervalued Stock option Total 554 mean median Std. Dev. Max. Min. Panel B: Variables statistics Size Insiders holding ratio (%) Target repurchasing amount (%) Completion rate (%) Book-to-market ratio Size is the natural logarithm of the market value of equity at the end of the calendar year preceding the announcement year. Insiders holding ratio is the ratio of number of shares held by insiders to number of shares outstanding at the end of the calendar year preceding the announcement year. Target repurchasing amount is the ratio of number of shares to be repurchased to number of shares outstanding. Completion ratio is the ratio of number of shares actually repurchased to number of shares to be repurchased. Book-to-market ratio is the ratio of book equity value to market equity value at the end of the calendar year preceding the announcement year. 21

22 Table 2. Abnormal Insiders Trading and Abnormal Stock Returns around Repurchase Announcements Event month Average abnormal stock returns Average abnormal insiders buying Panel A: Monthly abnormal returns and abnormal insiders buying (0.33) (-1.52) * (-2.29) (-0.83) (-1.38) (0.69) ** (-5.56) (1.32) ** (-6.47) (0.84) ** (-9.33) (1.08) ** (-1.68) (0.61) (3.57) (0.24) (-0.14) (-1.48) (0.89) (-0.19) * (4.08) * (-2.14) (-0.86) * (-1.82) (-1.19) (-0.35) Panel B: Cumulative abnormal returns and cumulative abnormal insiders buying (-5,-1) ** (-10.62) * (1.69) (1,5) ** (2.98) ** (-2.91) (1,5)-(-5,-1) ** (10.38) ** (-3.55) Abnormal insiders buying for a repurchasing firm in an event month is the firm s insiders buying in the month minus its average monthly insiders buying in the 2-year period preceding the event period. Average abnormal insiders buying for an event month is the simple average of abnormal insiders buying in the month across the 554 repurchasing firms. The cumulative average abnormal insiders buying from event month t 1 to event month t 2 is obtained by summing up the monthly average abnormal insiders buying during the period. Abnormal stock return for a repurchasing firm in an event month is the difference between the firm s stock return and the benchmark return. The benchmark return is calculated based on the market model using monthly data from the 2-year period preceding the event period. Average abnormal stock return for an event month is the simple average of abnormal stock returns for the 554 repurchasing firms. Cumulative abnormal stock return from event month t1 to event month t2 is the sum of the monthly average abnormal returns for the period. Numbers in the parenthesis are t-statistics. * and ** denote significance at the 5% and 1% levels respectively. 22

23 Table3. Relations between Insiders Trading and Stock Returns in the Preand Post-announcement Periods Panel A: The full sample (0.18) N CAVi( 5, 1) = α + β CARi( 5, 1) + εi CAVi(1,5) = α + β CAR(1,5) i + εi α ˆ ˆβ Adj R 2 (%) ˆ α ˆβ Adj R 2 (%) * (-2.02) * (-1.78) * (-1.65) Panel B: Grouped by firm size Large (0.19) Small (0.39) (-0.98) ** (-2.41) (-1.65) (-0.50) (-0.78) ** (-2.32) Panel C: Grouped by book-to-market ratio High (-0.13) Low (0.51) ** (-3.31) (-0.85) (-0.36) ** (-2.65) ** (-3.12) (-0.23) Panel D: Grouped by insiders holding ratio High (-0.52) Low (0.81) (-1.30) * (-2.28) * (-2.22) (-0.43) (0.40) ** (-2.94) Panel E: Grouped by target repurchasing amount Large (0.21) ** (-2.61) Small (1.16) (0.68) (-1.600) * (-2.10) (-1.26) (0.78) Panel F: Grouped by completion rate High (1.13) Low (0.02) (-1.43) (-1.58) (-1.31) ** (-3.28) (-0.43) (-1.14) Panel G: Grouped by reasons for repurchase Compensations * (0.09) (-1.56) (-2.00) (-0.98) undervaluation * * (0.21) (-1.96) (-0.44) (-2.18) CAVi ( t1, t 2 ) is firm i' s cumulative abnormal insiders buying from event month t1 to event month t 2, defined in equation (3). CAR i ( t 1, t 2 ) is firm i' s cumulative abnormal stock return from event month t 1 to event month t2,defined in equation (5). A repurchasing firm is classified into the large (small) group if its market capitalization at the end of the calendar year preceding the announcement year is above (below) the median of all the listed firms at the same yearend. Grouping based on book-to-market ratio and insiders holding ratio is done in a similar way. With regard to target repurchasing amount and completion rate, we evenly divide the repurchasing sample into two groups according to these two measures respectively. Size is the natural logarithm of the market value of equity at the end of the calendar year preceding the announcement year. Book-to-market ratio is the ratio of book equity value to market equity value at the end of the calendar year proceeding the announcement year. Insiders holding ratio is the ratio of number of shares held by insiders to number of shares outstanding at the end of the calendar year preceding the announcement year. Target repurchasing amount is the ratio of number of shares to be repurchased to number of shares outstanding. Completion ratio is the ratio of number of shares actually repurchased to number of shares to be repurchased. All reported t-statistics in parenthesis are student statistics and are corrected for autocorrelation and heteroscedasticity using the Newey-West (1978) algorithm. * and ** denote significance at the 5% and 1% levels respectively. 23