Two Chapters on Corporate Share Repurchases

Chapter One examines the role of activist investors in firms’ decisions to conduct open market share repurchases. Compared with firms making ordinary share repurchases, firms making activist-involved repurchases have more cash holdings, are more undervalued, experience better subsequent stock performance and similar improvements in operating performance, and eventually repurchase more shares. Moreover, repurchasing firms in which an activist investor claims to take a passive role exhibit no undervaluation, and repurchasing firms that make multiple repurchases exhibit share undervaluation only in repurchases where an activist is involved. In all, our findings suggest that activist-involvement is associated with improved corporate repurchase decisions. Chapter Two contributes to an emerging literature that examines the timing of actual open-market share repurchases as opposed to repurchase program announcements. The key distinction from prior research is that I classify a series of firm-month repurchases that occur in close proximity as a single repurchase decision. This approach yields new insights into the timing of actual repurchases. A typical firm experiences abnormal price declines before it begins repurchasing shares, no abnormal stock performance while it continues repurchasing, and abnormal price increases after it stops repurchasing. Additional tests reasonably rule out alternative explanations that changes in cash or growth opportunities (as opposed to timing motives) drive the observed relationship between series of repurchases and stock prices. Taken together, these findings suggest that firms time repurchases to periods when stock prices are low.