Market Reaction to Actual Share Repurchase in Malaysia

Abstract

This paper examines share price reaction surrounding actual share
repurchases made by Malaysian listed firms from 2001 until 2005.
Using event study methodology and the market model, the evidence
indicates that a significant increase in share prices occurs in a threeday
period beginning from the repurchase day. We also find
evidence that there is a general price decline in the preâ€purchase
period that suggests that firms made their repurchase after a period
of consecutive price declines. This evidence clearly indicates the
existence of a signalling effect and is consistent with the
undervaluation hypothesis. It also indicates that the share repurchase
programme can be used as an effective tool for price stabilisation.
Keywords: Open Market Repurchase, Signalling Hypothesis, Share
Repurchase