| Summary: | 碩士 === 中國文化大學 === 會計研究所 === 95 === This study mainly discusses whether the information content of stock repurchases meets signal hypothesis or free cash flow hypothesis. First, we use event study to examine whether positive abnormal returns will be generated after firms repurchase their stocks. Then we examine whether firms’ operating performances imply positive signal of firms’ ability of earning profit in the future, or expect firms’ ability of earning profit in the future will not improve, even will undermine after stock repurchase. Next, we examine the
relationship between the changing of operating performance and the proportion of
repurchasing stock. Three empirical results emerged from our study are described as follows:
1. A firm’s stock price has positive abnormal returns after the firm performs stock repurchases, which reveals that a firm conveys information content to market by performing stock repurchases, and positive responses of stock price will occur when market receives the firm’s signal.
2. A firm’s operating performance being gradually improved after the firm performs stock repurchases, which can continually be affected for two years. Therefore, the results of this study support Signal hypothesis, that is, stock repurchases imply positive signal of future profitability, which also forecasts the firm’s bright outlook.
3. the changing of operating performance in the future is not significantly with the proportion of repurchasing stock. It means the proportion of repurchasing stock can not be a tool to signal informance that firms’ ability of earning profit will be better in the future.
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