Ownership Structure, Board Composition and the Market Reaction to the Repurchase Announcement
Date Issued
2010
Date
2010
Author(s)
WU, AI-FENG
Abstract
This study investigates the impact of ownership structure and board composition on the market reaction surrounding share repurchase announcement.
This thesis examines various ownership structure such as cash flow rights of controlling shareholders, the deviation between cash flow right and control right, shareholdings of insiders, and shareholdings of foreign institutional investors. Moreover, I also use the different measures of board composition, including board size, independent directors, and the percentage of seats held by the controlling shareholders. In sum, this research aims to investigate whether different corporate governance mechanism affects the market reaction surrounding the share repurchase announcement.
Empirical results show that firms with higher shareholdings of insiders or higher shareholdings of foreign institutional investors experience a significant positive abnormal return when share repurchase is announced. From board composition perspective, board size and independent directors have positive significant impact on the market return surrounding share repurchase announcement. In addition, the higher percentage of seats held by the controlling shareholders, the less abnormal return surrounding the share repurchase announcement. However, I find the negative market reaction of control—cash flow right deviation is offset by independent directors and foreign institutional investors.
Subjects
Corporate governance
Ownership structure
Board composition
Open market stock repurchase
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