Sensitivity To Investor Sentiment And Long-run Market Effect Following Open Market Share Repurchase

As an important means of capital operation and value distribution,the research of share repurchase behavior has been extended to many direction including influencing factors,influencing path and economic consequences.However,previous studies are based on two important assumptions of traditional finance:market effectiveness and investor rationality,that is,smart and rational investors can respond promptly to market information.This means that there is no continuous arbitrage opportunity in the market.The equilibrium price only reflects the discounted value of the future cash flow.The fluctuation of the stock price depends only on the change of system risk.The realistic environment tends to reduce the persuasion of traditional financial theories.The market anomalies have caused scholars to study the psychological deviation and behavior motivation of market participants.The development of behavioral finance has broken through the restrictive frame of the economic entities' rational behavior.The investors are the main part of the market response.In order to get closer to a more real capital market,researching the company's financial behavior from the perspective of irrational behavior of economic entities has gradually become the frontier of the academic field.This paper will relax human economic rational behavior and effective market assumptions based on the behavioral corporate finance.We also construct the logical relationship framework between "economic environment-influence motivation and factor-economic consequence" based on the institutional background and related theories.We first investigate the influence of sensitivity to investor sentiment on the long-run market effect following share repurchases from 2006 to 2015.As well as how the impact of the above effects is played under the signal transmission hypothesis and the free cash flow hypothesis.Then explore the impact of this effect on whether there are differences in the companies with different cash holding levels.The results show that investor sentiment is one of the driving forces of long-run market effect following share repurchases.The higher the sensitivity to investor sentiment is,the better the long-run market effect following share repurchases.If a firm with a higer sensitivity to investor sentiment buy back shares,its stock may face the greater information asymmetry and the greater agents cost prior to the repurchase and then its long-run market effect will be higer after the repurchase.Compared with low cash holding companies,the sensitivity to investor sentiment in high cash holding companies has a greater impact on the long-run market effect following share repurchases.The conclusions of this paper enrich the literature on the impact path,influencing factors and economic consequences of irrational behavior on open market share repurchase and also have important reference value for expanding and integrating the research path of corporate financial theory.