Information Asymmetry and the Market Response to Open Market Share Repurchases

This paper proposes a new measure of firm information asymmetry. The information asymmetry measure is based on causality tests relating repurchase information to firm returns. Our results indicate that firms with greater information asymmetry show larger abnormal returns surrounding the announcement of an open market share repurchase. This new information asymmetry proxy remains a significant explanatory factor for announcement abnormal returns after controlling for other conventional information asymmetry proxies, such as firm size, number of analysts following, and analyst forecast dispersion. Further, our measure of information asymmetry is positively related to long-term abnormal returns at one, two, and three-year windows.