An Effect of R-square on Stock Repurchase Announcement Return

This study analyzed an effect of R2 of firms on stock repurchase announcement return. The more private information a firm has so that the lower correlation with the market it shows, the lower R2 the firm shows. I examined a hypothesis that the lower R2 a firm shows, the more positive reaction in the market for the stock repurchase announcement. The results are as follows. First, the firms showed significant positive abnormal returns right after repurchase announcements. Secondly, the firms showed significant positive abnormal return for three months after repurchase announcements, and the lower R2 the firms have, the higher positive return they show. Finally, the firms show significant rises in MB ratio, 1 year after repurchase announcements. Specifically, the lower R2 the firms have, the larger increases of the firm value they show. the results showed that the fact that firms have more private information caused excessive return on stock repurchase announcements, and this result is meaningful in that it has shown the correlation with the market estimated in R2 to be available as an indicator for future stock return.