Stock Repurchase Motivation and Effect of Signaling: A Comparative Analysis between U.S. and China

This paper compares different methods used for stock repurchase and examines the role of signaling in the U.S. and Chinese capital markets. We find that the ways to buyback stocks are very difference in two countries. Most U.S. stocks are repurchased through open market and the signal sent to the market through open market repurchase is getting weaker. Even though stock repurchase is at its early stage in the Chinese stock market and the dominated way to buyback is through a negotiated repurchase agreement for non-floating shares, the power of signaling seems much stronger. Examining stock prices pre- and post-repurchase, we find that stock repurchase records an average abnormal return of 3.42% on the announcement date and 3.24% on the date of actual repurchase.