Who Is Signalling Whom With Stock Repurchases?

Abstract

This research develops a model to justify share repurchase and presents consistent empirical data to justify the model. IN the model signals travel both ways form the managers to the market and back from the market to the managers. Share repurchases result from the backward signals when managers receive signals from the market to revise expectations for future investment opportunities and reassess their beliefs downward. The excess cash that results from lower investment levels being undertaken than planned is used to repurchase their own stock.