Why Share Repurchases are Not a Panacea for Increasing Share Prices

This research examines factors deteriorating share price performance before and after repurchase announcements. We find share price performance before announcements can be attributed to operating performance and agency problems. But, operating performance is the primary factor determining undervaluation. We also find that, regardless of whether firms are undervalued before repurchase announcements, those that experience negative abnormal returns after repurchase announcements have inferior operating performance and lower buyback premiums. Our regression analysis shows that an improvement in future operating profits determines prosperous share price performance after repurchase announcements. Lack of investment, or those made with agency problems, better explain poor share-price performance