Equity Ownership and Firm Value: Evidence from Targeted Stock Repurchases

Abstract

In contrast to the negative average abnormal return associated with the announcement of a control-related targeted repurchase (greenmail transaction), we find that the announcement of a non-control-related targeted repurchase is associated with a positive and significant average abnormal return. Cross-sectional analysis indicates that the change in firm value at the announcement of a non-control-related targeted repurchase is negatively related to the resulting changes in both insider ownership and outside blockholdings. We also find significant differences in announcement-period stock price effects depending on the identity of the selling shareholder.

Keywords: Targeted stock repurchases, managerial entrenchment, insider holdings, event study

JEL Classification: G32, G34, G35