TITLE
"The Effects of Open-Market Stock Repurchases by Insurance
Companies," Journal of
Insurance Issues, James M. Miller and S. Gowri Shankar,
Fall 2005, Vol. 28, No. 2, pp. 167-182. Full-text articles soon
will be available through ABI/INFORM and EBSCO. Entire
article in Acrobat format.
ABSTRACT
We examine the effects of stock repurchase annnouncements on the
value of the announcing insurance firms and on the value of rival
insurance firms. We find that insurance firms experience a significant
increase in value at the time of the announcement. Repurchasing
firms continue to earn excess returns for several months after
the announcement. We study the intra-industry effect of the announcements
and find that there is a significant decrease in value of rival
insurance firms. This suggests that perceived changes in the competitive
positions of repurchasing firms occur at the expense of rival
firms and dominate any signals of favorable industry conditions.
Cross-sectional tests show that the increase in the value of repurchasing
firms is related to the relative size of the buyback, stock returns
prior to the announcement, and the market-to-book ratio.
[Key words: Repurchase announcements; insurance stocks; stock
buyback; intra-industry effects]
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