Determinants of share returns following repurchase announcements in China

Abstract

By combining the market model with the three-factor model, this study investigates fir ms' share returns after the announcement of share repurchase. Employing data for Chi na's A-share market, this study's sample utilizes 417 share repurchase announcements over the pe riod of 2000 to 2012. Empirical results show that firms with higher sales gro wth rates are more likely to send a positive signal to the market through their share repur chase efforts. Analysis also shows that the higher a firm's price-to-earnings ratio (utilized as a measure of overvaluation), the lower the firm's cumulative abnormal returns. These results imply that Chinese share markets put more emphasis on the firm's future growth and share overvaluation.