Share Repurchase Decisions and Market Reaction : Accounting, Information Asymmetry, and Investment Opportunities

We test whether firms announce share repurchases and the announcement conveys good news, when firms have accounting assets reflecting less of firm value and high general information asymmetry, and bad news when firms have no attractive investment opportunities and idle cash. Proxies for accounting and idle cash are significantly positively related to share repurchase likelihood; general information asymmetry proxies are significantly negatively associated. Returns tests support the accounting and general information asymmetry hypotheses, but not the idle cash hypothesis. Findings are consistent with firms using repurchases to convey firm value not reflected in accounting assets, and the market reacting accordingly