Research On Share Repurchase,information Environment And Capital Market Efficiency

Share repurchase has long been a classic and significant research topic in the field of accounting and finance,which has attracted a considerable amount of academic attention.With the deregulation of the share repurchase policies in various countries and regions,share repurchases have become increasingly prevalent around the world.Traditional share repurchase theories provide an overview of the reasons why listed companies implement share repurchase programs as well as the possible economic consequences.Contemporary empirical studies have further validated and expanded the share repurchase theory and deepened the understanding of the antecedents and consequences of share repurchase.As a result of differences in the specific provisions of the share repurchase policies in various countries and regions,and the availability of share repurchase data,scholars’ research on share repurchase is generally limited to the "front" and the "middle",that is,they tend to focus primarily on the reasons companies repurchase and the factors affecting the announcement returns.In contrast,there is a lack of research on the economic consequences of share repurchase.In this regard,a deeper exploration of the economic consequences of share repurchase not only adds to the existing academic literature but also assists in understanding the significance of share repurchase in the modern financial system.With the deregulation of share repurchase policies in 2018,the Chinese capital market has officially begun a "repurchase wave".In the period from 2018 to 2021,A-share listed companies issued 1,401 public market share repurchase programs.Given the rise of share repurchases in China,it is increasingly important to examine the effectiveness of share repurchase policies.According to the revised repurchase regulations,listed companies are required to disclose information regarding share repurchases throughout the repurchase process,creating complete and accurate data on the timing and number of repurchases in China.The institutional arrangement of share repurchases in China provides a natural advantage for studying the economic consequences of share repurchases.Share repurchase is an effective way for listed companies to convey value through their actions,enhancing investor confidence while maintaining corporate value.The repurchase behavior of listed companies is more persuasive than eloquent disclosures of information.This is because it is more likely to attract the attention of external market participants and have a strong impact on the information environment of the repurchase companies.By using manually collected stock repurchase data of listed companies in the open market,this study discusses how the stock repurchase behavior affects the company’s information environment and the efficiency of the capital market.Specifically,this paper examines the actual implementation effect of share repurchase from three perspectives: stock price information content,stock price crash risk,and asset mispricing risk.The main findings are as follows:First,the open market share repurchases significantly improve the information content of the stock price,which is reflected in the lower synchronicity of the stock price.Mechanistic analysis shows that share repurchases attract investors’ attention,prompting companies to reveal more idiosyncratic information,and increasing media coverage contribute to the increased information content of stock prices.Specifically,the repurchase program was able to generate a strong market reaction,with investors receiving an excess return of 2.13% on the date of the program,and the repurchasing company releasing more announcements and attracting more news coverage during the repurchase period.Additionally,in the heterogeneity analysis,the effect of share repurchases on increasing the information content of stock prices is more pronounced for companies with more severe information asymmetry.These conclusions provide an explanation from the "information" channel for understanding how repurchases of stock affect stock prices and the company’s investment and financing arrangements.Second,share repurchases significantly reduce stock price crash risk.In the mechanism analysis,share repurchases improve the firm’s information environment and reduce inefficient investment,both of which contribute to the decreased risk of stock price crashes.In the heterogeneity analysis,share repurchases reduce stock price crash risk more effectively for firms with fewer analyst reports,newly listed firms,and firms in high-tech industries.It appears that share repurchases can reduce stock price crashes more effectively in volatile conditions than in stable ones.The above findings provide empirical evidence for the effect of share repurchases on reducing irrational crashes and maintaining corporate value.It not only affirms the importance of share repurchase deregulation in the construction and consolidation of the endogenous stability mechanism of the capital market but also supplies useful guidance for listed companies on how to utilize share repurchases to maintain their market value.Third,share repurchases significantly reduce asset mispricing risk.In examining the impact of market valuation bias on the decision to repurchase shares of listed companies,the study found that companies with undervalued values were more likely to undertake open market share repurchases.In the mechanism analysis,share repurchases enhance investors’ confidence and improve the quality of information disclosure as factors contributing to the reduction of asset mispricing risk.In the heterogeneity analysis,the effect of share repurchases in reducing asset mispricing is more effective for newly listed companies and decentralized companies.However,the effect of open market share repurchases to decrease asset mispricing is undermined when public companies practice earning manipulation and take high financial risks.Additionally,the study found that share repurchases by high-tech companies reduce valuation bias and maintain firm value more effectively.According to the above findings,share repurchase is a powerful tool to enhance investor confidence,improve market pricing efficiency,and,therefore,protect company value.The findings not only verify the crucial role of share repurchase deregulation in enhancing market pricing efficiency but also provide useful guidance for listed companies to reduce valuation bias.In sum,the empirical research of the full text is centered around the "information environment" and rests on the "capital market efficiency".Research topics for each chapter are related and distinct.Specifically,Chapter 4 aims at investigating whether share repurchase can serve as an effective signal to convey information about the firm value,confirms that share repurchases contribute to the increased information content of stock prices,and lays the necessary "information" foundation for investors to find out the firm value.Chapter 5 further examines the impact of share repurchase on the risk of stock price crashes.It has been discovered that share repurchases can significantly reduce the extreme negative distribution of stock returns and achieve a "stabilizing" effect.Chapter 6 examines the impact of share repurchase on asset mispricing.Accordingly,share repurchases can considerably reduce valuation bias and make the market value more closely reflect the intrinsic value of the company.The innovation and contribution of this paper can be summarized in five aspects:First,this paper extends the literature on the economic consequences of share repurchases.It provides the first comprehensive and systematic examination of the market effects of share repurchase in China.The results indicate that open market share repurchases can improve the information content of stock prices,maintain stock price stability,and reduce valuation bias.The empirical study of this paper discusses the actual effect of share repurchase by Chinese listed companies from three aspects: stock price information content,stock price stability,and stock price pricing accuracy.The paper provides a logical framework for understanding how share repurchases improve the information environment and capital market efficiency.Second,the findings of this paper help resolve the controversy relating to the variable of stock price synchronicity,i.e.,whether the decline in synchronicity is due to an improvement in information efficiency or an increase in noise.Based on the empirical findings of the three chapters of this paper,stock price synchronicity can be used as a valid indicator of information efficiency.This paper examines how share repurchases affect firm-specific information and information quality in detail,showing that share repurchases improve firms’ information environments.Additionally,compared to the finding that negative news and negative analyst reports affect the information content of stock prices,the results of this paper suggest that share repurchases can also generate a strong market response and improve the information content of a stock price.Third,this paper provides empirical evidence regarding whether share repurchases can maintain the stability of share prices.In this study,I find that the implementation of share repurchase programs by listed companies can improve the firm’s information environment as well as limit inefficient investments,which reduces management’s incentives and the ability to hide the news,thereby reducing stock price crashes.There is no literature that systematically and comprehensively examines the importance of relaxing repurchase restrictions and addressing institutional shortcomings in preventing crash risks and ensuring market stability.In this paper,the research results confirm that the construction of stabilization mechanisms in the capital market is important to maintain corporate value and promote the stable development of the capital market.Fourth,this paper shows that the undervaluation theory is applicable to explaining the share repurchase behavior of Chinese listed companies,proving that undervalued companies are more likely to initiate share repurchases.On this basis,the paper extends the impact of share repurchases on subsequent valuation bias.The results suggest that share repurchases reduce valuation bias by increasing investor confidence and by improving the quality of information disclosed.This paper contributes to the understanding of how share repurchase can contribute to improving market pricing efficiency.Fifth,on the basis of the institutional background of emerging developing countries,this paper examines the effect of major national financial policy reforms.The purpose of this article is to explore whether share repurchase can enhance the information environment as well as improve the efficiency of capital markets.The empirical findings confirm the efforts and achievements made by the Chinese government in the past few years to establish a modern financial system.The research results of this paper provide not only inspiration for China to continue improving the level of the legal system,rectifying the regulatory shortcomings,and deepening financial reform,but they provide useful guidance for listed companies to actively repurchase shares to maintain corporate value and for investors to make investment decisions.