The Conditional Performance of REIT Stock Repurchases

Abstract

This paper uses a conditional performance measure to test whether real estate investment trust (REIT) managers announcing stock repurchases have private information about their firms' prospects. We use stock price to condition for public information and measure the managers' implied private information by the covariance between repurchase size and subsequent stock payoffs (or operating performance). Results show that managers have private information but mostly with respect to long-term as opposed to near-term payoffs. We also find that repurchase size is positively related to a stock's idiosyncratic return volatility, perhaps because noisy stocks deviate farther from fundamental value, offering informed managers larger profit potential. Copyright Springer Science + Business Media, Inc. 2006REITs, Conditional performance, Noisy rational expectations, Stock repurchases,

REIT Dividend Determinants: Excess Dividends and Capital Markets

“…5 5 A number of recent studies investigating the impact of stock repurchases imply that their use has a positive effect on stock performance. These include articles by Giambona, Giaccotto and Sirmans (2005), Adams, Brau and Holmes (2007), Giambona, Giaccotto and Sirmans (2005), Brau and Holmes (2006) and Giambona, Golec and Giaccotto (2005). Other articles, including Hartzell, Sun and Titman (2005), show that repurchase activity is related to investment options and share performance.…”

REIT Open-Market Stock Repurchases and Profitability

“…Brau and Holmes (2006) use 6-month stock return and 4-week stock return to capture management's private information and find that they are significantly correlated with the 3-day abnormal return surrounding the share repurchase announcement. Giambona et al (2006) find that REIT repurchases contain information about the firms' stock and operating performance in 3 to 9 months. However, Adams et al (2007) find negative abnormal returns for REITs beginning in the 8th month after the repurchase announcement.…”

“…Their results suggest that the long-horizon abnormal returns are mainly due to market undervaluation. Giambona et al (2006) show that repurchase size is positively related to subsequent stock price appreciation as well as to future (three to nine months) operating performance. However, neither Giambona, Giaccotto, and Sirmans nor Giambona, Golec, and Giaccotto investigate whether or not operating performance improves after stock repurchase announcement.…”

Market Reaction to Buyback Announcement: Evidences from Select Indian Manufacturing Companies

“…The study also observed no indication of undervaluation influencing buyback choices of Australian firms. (Giambona, Golec, & Giaccotto, 2006) the author observes the long horizon performance of open market share buyback for real estate investment trusts (REITs) and reveals the sturdy to the traditional buy-and-hold AR and wealth relation estimators. (Dann, 1981)study observed 143 events over the years from 1962 to 1976 fromThe Wall Street journal and the investment dealers' digest indicating the significant growthin firms value appears in the next day of share repurchase announcement.…”