Mixed Messages: Open-Market Repurchases Following Stock Acquisitions

Management decisions and market reactions to those decisions do not occur in isolation. Despite this fact, little or no research has examined two events when they occur in a sequence, even when theory suggests that those two events convey opposite signals. We examine firms that do a stock-based acquisition then announce an open-market repurchase program. These two actions, according to the signaling theory, signal conflicting valuation errors. This paper is the first to examine a sequence of events that convey seemingly conflicting signals. Among other results, we find that repurchasers who had previously made a stock-based acquisition have a less positive market reaction than do otherwise comparable repurchasers with no previous acquisition. These results indicate that the market reactions to events are tempered by previous information-releasing events. Copyright 2004 by the Eastern Finance Association.