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Open market stock repurchases: the Canadian experience

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During the 1980s, US firms announcing open market stock repurchase programs earned favorable long-run stock returns. Recently, concerns have been raised regarding the robustness of these findings. This comes at a time of explosive growth worldwide in the adoption od repurchase programs. This study further investigates long-run performance following repurchase announcements using a recent sample of Canadian programs. As in the US, the Canadian stock stock market seems to discount the informaiton contained in repurchase announcements. Toronto Stock Exchange firms announcing repurchase programs between 1989 and 1995 show excess performance measured relative to a Fama-French (1993) three-factor model of approximately 5% per month ove a period of three years following the announcement. Canadian value stocks announcing repurchase programs, as weel as firms announcing large repurchase programs, have particularly favorable abnormal long-run performance. Interestingly, despite regulatory oversight in the approval of repurchase programs, the copletion rate is low in Canada. Completion rates are higher among value stock stocks. For Canadian firms increasing shares outstanding, either through a seasoned equity offering or stock-financed acquisition, the authors observe a downward drift in returns.

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