Open Access Article

Title: Stock Repurchases as a Long-Term Investment Strategy

Authors: Khaled Abdou; Paramita Gupta

Addresses: Author address listing can be found in the "About the Authors" section at the end of the article.

Abstract: Purpose - This paper investigates the long-term investment strategy in a company following a stock repurchase announcement. Method - The paper uses a long-term event study to measure Cumulative Abnormal Returns (CAR). The empirical analysis combines the buyback announcement and execution level with how companies use repurchased shares in the future. The analysis is based on three post-repurchase corporate events, including mergers & acquisitions (M&A), seasoned equity offerings (SEOs), and fulfillment of stock option grants. Findings - The long-term event study results indicate that complete implementation of the repurchase program followed by the use of the acquired stock to fulfill stock option grants has a significant positive impact on stockholders' wealth over 1-, 2-, and 3-year periods, but the impacts are insignificant for SEOs and M&As. Limitations - Individual shareholder's risk preference can affect their wealth. Hence, risk-taking behavior (risk aversion) may change the individual's investment strategy. As inherent with all long-term studies, the study might not address all the factors that could potentially contribute to abnormal returns. Implications - The result implies that stockholders should monitor and incorporate postrepurchase corporate actions in their investing decisions. Originality - The paper focuses on 3-year long-term returns (CAR) after the repurchase announcement. Specifically, through three corporate events, the study conducts longterm event studies that incorporate companies' actions, from implementing the repurchase program to utilizing acquired stock.

Keywords: Stock repurchase; event study; stock options; mergers and acquisitions; seasoned equity offerings.

DOI: 10.1504/JBM.2021.141285

Journal of Business and Management, 2021 Vol.27 No.1, pp.1 - 22

Published online: 05 Sep 2024 *