Share repurchase and stock price synchronicity

ABSTRACT

This paper explores the impact of open market share repurchases (OMR) on stock price synchronicity. We find that share repurchases significantly enhances the information content of stock prices, reflected in reduced price synchronicity. The mechanism includes repurchases drawing investor attention, encouraging more idiosyncratic information disclosures, and increasing media coverage. This effect is more pronounced in firms with high information asymmetry, those leveraging repurchases for reputation, or emphasizing R&D. Further analysis reveals that characteristics and execution of repurchase programmes impact differently.Overall, OMR acts as an effective signal, attracting attention from external market participants and improving the firm’s informational environment.

KEYWORDS:

• Share repurchase
• stock price synchronicity
• institution reform
• information environment

1. Introduction

As a fundamental function of capital markets, the price discovery process is heavily influenced by the information content of stock prices. Due to investor protection deficiencies in developing countries, stock prices have lower information content, which is reflected in higher stock price synchronicity (Morck et al., 2000). In China, the phenomenon of stock prices of listed companies rising and falling simultaneously is particularly severe (Eun et al., 2015; Morck et al., 2000), indicating that the Chinese capital market is still in a stage of continuous construction, development, and refinement. As part of the 13th Five-Year Plan, China committed to building a modern financial market, strengthening financial regulation, and carrying out a series of institutional reforms. Among them, the share repurchases, as an important capital arrangement to maintain the sustained, stable and healthy development of listed companies, protect the interests of investors, enhance investor confidence, and promote the reasonable return of company stock prices to their intrinsic value, has gradually received attention from regulatory authorities. The undervaluation hypothesis, which suggests that firms repurchase their stocks when the market price is significantly below the intrinsic value (Dittmar, 2000; Fenn & Liang, 2001; Stephens & Weisbach, 1998). The signalling hypothesis posits that share repurchases are actually a means for management to alleviate information asymmetry and enhance market confidence by signalling to the market that the current stock price is undervalued. Although theoretical research on share repurchase is abundant, empirical evidence regarding signalling effects remains relatively scarce. In this regard, an important question arises: are share repurchases capable of effectively conveying corporate information, enhancing the informational content of stock prices, as well as helping companies avoid the ‘universal rise and fall’ and retain their reasonable value in China?

The evolution of China’s share repurchase regulation could be categorised into three phases: (1) the initial phase with strict repurchase restrictions (2005–2014), (2) the trail phase (2015–2017), and (3) the mature phase (2018 and beyond). During the period of strict restrictions on share repurchase (2005–2014), China imposed rigorous restrictions on the conditions of share repurchase, hindering their effectiveness in preserving corporate value. The severe fluctuations in the stock market in 2015 prompted management to implement policies for active market intervention, with stock repurchases emerging as one of the important measures to stabilise the market. The number of open market share repurchase programmes issued in 2015 alone exceeded the sum of the past 10 years, reaching 39. However, the effect of OMR at that time was still minimal compared to the volume of the entire A-share market. China’s stock market has been at the bottom of the range since 2015, and has tumbled in 2018 as the country faces the dual pressures of severe external competition and slowing internal economic development. The regulatory authorities once again urged listed companies to actively utilise share repurchases for market value maintenance. The release of the ‘Opinions on Supporting Listed Companies in Share Repurchases’ on 9 November 2018, marked the overall liberalisation phase of share repurchases. According to available statistics, in 2018, listed A-share companies collectively announced a total of 508 repurchase programmes. The implementation of these new repurchase regulations sparked a huge ‘repurchase wave’ in China, providing a robust empirical basis for this study to explore the actual impact of share repurchases in the context of a developing country.

Existing research primarily focuses on the factors influencing companies’ decisions to repurchase stocks (Dittmar, 2000; Fenn & Liang, 2001), market reactions to share repurchase announcements (Ikenberry et al., 1995; Lie, 2005), factors affecting the returns of share repurchase announcements (Billett & Yu, 2016; Huang, 2015), and the determinants of the completion rate of share repurchase programmes (Andriosopoulos et al., 2013; Bonaimé, 2012, 2015). It is evident that the majority of existing studies concentrate on the ‘front’ and ‘middle’ of the share repurchase process, namely the reasons behind companies’ decisions to repurchase stocks and the factors influencing the returns from these announcements. However, there is a lack of research on the ‘back end’, i.e. the economic consequences of share repurchase. Using US share repurchase data, Hillert et al. (2016) discovered that the liquidity of stocks from companies engaging in repurchases was significantly higher in the months of repurchase compared to non-repurchase months. Building on this, Busch and Obernberger (2017) found that share repurchases provide price support for precise valuation, allowing for the rapid pricing of negative market news, timely integrate systemic risks, and an increase in stock price synchronicity. However, both of the above literature use companies that have implemented share repurchases as samples, comparing the differences between repurchased and non repurchased months, while ignoring the information transmission efficacy of share repurchases. Listed companies may choose to release repurchase programmes and implement share repurchase in order to convey their firm-specific information. As stated by Busch and Obernberger (2017), their study did not directly address whether share repurchases convey firm idiosyncratic information. Moreover, these studies are based in the context of the mature U.S. capital market and do not consider the impacts of different repurchase regulation designs and the varying levels of capital market effectiveness. This paper draws on the strengths of China’s repurchase regulation to answer the key questions of whether, how, and under what circumstances share repurchases increase the information content of stock prices in emerging market.

The design and operation of the share repurchase regulations varies greatly from countries and markets. Taking the United States as an example, after the issuance of a repurchase programme, U.S. listed companies are not required to make any separate announcement disclosure of the repurchase process, but only need to disclose the implementation of the repurchase in the quarterly report (10-Q) and annual report (10-K). Additionally, there are no specific time limits on repurchase in the U.S., and researchers often consider the total volume of repurchases within three years following the announcement of the programme, or until the next repurchase programme is announced, as the total amount repurchased (Bonaimé, 2015; Busch & Obernberger, 2017). Due to the absence of an actual completion date for repurchases, a company may perpetually be in a state of repurchasing, complicating the attribution of various economic consequences to the share repurchases. Compared with the U.S., China requires detailed disclosure of the whole process of repurchase, which is manifested in the following: repurchase proposal, repurchase programme, first repurchase, monthly progress of repurchase, repurchase of each over 1%, and repurchase completion, all need to disclose the details of the repurchase of the relevant announcements separately. Such detailed disclosure allows market participants to timely observe and value the progress of a company’s repurchase actions.

Share repurchase may have two totally different effects on stock price synchronicity. On one hand, the concrete action of repurchasing stocks by listed companies can be more persuasive than mere informational disclosures, attracting active attention from external market participants and facilitating the faster integration of firm-specific information into stock prices. Additionally, share repurchase might attract the attention and coverage of information intermediaries such as news media. The media can not only rapidly disseminate existing information but also unearth and process new information, thereby further increasing the total amount of information about the repurchasing company. At the same time, share repurchase, by consuming a company’s free cash flow, can help reduce agency problems and place the company under the ‘spotlight’, enhancing external oversight. This makes the information conveyed by repurchase actions more reliable, and the integration of idiosyncratic information into stock prices more accurate. Therefore, share repurchases implemented by listed companies may increase the informational content of stock prices and, in turn, reduce stock price synchronicity. On the other hand, share repurchase may be driven by executives’ self-interests and become a tool for misleading investors and concealing bad news, possibly leading to reduced idiosyncratic information content in stock prices. Furthermore, repurchase may provide price support to the fundamental value of stocks, accelerating the integration of negative market information into stock prices, increasing the systematic risk component, and thereby increasing stock price synchronicity. In summary, the question of whether share repurchases transmit firm-specific information and how they influence stock price synchronicity is an important issue that requires urgent empirical investigation.

This study examines the impact of share repurchase on stock price synchronicity. The results reveal that share repurchases significantly enhance the informational content of stock prices and notably reduce the synchronicity of stock prices. In the subsequent analysis, the study first investigates market reactions to the announcement of repurchase programmes. Secondly, this study further validates the specific channels through which share repurchases increase the informational content of stock prices. Latter, the effects of information asymmetry, repurchase reputation value differences, and management characteristics and behaviours are examined. Share repurchases effectively augment stock price informational content in firms facing significant information asymmetry, aiming to establish corporate reputation through repurchases, and prioritising R&D. Finally, we examine the differential impacts of share repurchase programme characteristics and execution process. It finds that companies utilising internal funds for stock buybacks, announcing repurchase programmes for the first time, exhibiting a stronger intent to repurchase, and successfully completing their buyback programmes have a more pronounced effect in enhancing the informational content of stock prices. The empirical results of this study remain consistent across a series of robustness tests.

The primary contribution of this study lies in the following aspects:

First, it verifies the effectiveness of the implementation of the share repurchase reform in China and extends the literature on the economic consequences of share repurchase. Differing from the findings of Busch and Obernberger (2017), who observed that share repurchases increased stock price synchronicity, this study, using data from Chinese listed companies, finds that share repurchases significantly reduce stock price synchronicity. This is the first empirical evidence that share repurchases can effectively transmit specific information and tests the mechanisms by which share repurchase affect stock price information content. The findings of this study not only offer an informational perspective on understanding how share repurchases influence stock pricing (Busch & Obernberger, 2017) and corporate investment and financing arrangements (Wang et al., 2021), but also underscore the significance of the design differences in repurchase regulations and the varying levels of capital market efficiency in explaining the diverse effects of repurchases.

Second, this study expands the literature on the factors influencing stock price synchronicity. Existing research primarily focuses on two dimensions: increasing the total amount of firm-specific information (Shi & Zhang, 2014; Xu et al., 2013; Yi et al., 2015, 2019), and improving the quality of information disclosure (An & Zhang, 2013; Gul et al., 2011; Huang & Guo, 2014). However, the above literature overlooks the impact of the behaviour of listed companies on their information environment. This study posits that active share repurchase actions, in contrast to simple written disclosures, are more compelling and garner greater engagement and scrutiny from market participants. Furthermore, unlike the findings that negative news (Huang & Guo, 2014) and negative analyst reports (Yi et al., 2019) have more substantial effects on changing stock price information content, this study finds that positive ‘good news’ like open market share repurchase can also elicit a strong market response and improve the informational content of stock prices. Our paper provides support for Chinese listed companies to actively use repurchase tools to maintain market value and protect investor interests.

Third, the Chinese government has been committed to developing an efficient, modernised capital market. The liberalisation of the share repurchase is in line with the comprehensive deepening reform of China’s capital market. This regulatory liberalisation aims to dismantle systemic hurdles, enabling listed companies to more effectively disseminate information about their value, protect corporate value, and boost the overall functioning efficiency of the capital market. Our study affirms the efforts and achievements of the Chinese government in recent years in building a modern financial market. The results align with research contributions on board reform (Liang & Zeng, 2016), new delisting rules (Lin & Zheng, 2016), refinancing and securities lending reforms (Chang et al., 2014), preventive regulatory measures through inquiry letters (Zhang et al., 2018), and capital market liberalisation (Zhong & Lu, 2018), offering insights for China’s continued improvement of financial legal systems, addressing institutional deficiencies, and deepening financial reforms.

2. Institutional background and hypothesis development

2.1. Institutional background

The evolution of China’s share repurchase regulation could be categorised into three phases: (1) the initial phase with strict repurchase restrictions (2005–2014), (2) the trail phase (2015–2017), and (3) the mature phase (2018 and beyond).

The initial phase with strict repurchase restrictions (2005–2014): ‘Measures for the Administration of Public Share Repurchases by Listed Companies’, issued in June 2005 by the China Securities Regulatory Commission (CSRC), marked the beginning of open market share repurchases (OMR). However, the previous edition of the ‘Company Law’ in China imposes stringent restrictions on the conditions and implementation process of OMR. List companies are only permitted to repurchase their outstanding shares in the following four circumstances: reducing registered capital, merging with companies holding the company’s shares, awarding shares to employees, and shareholders dissenting to resolutions made by the shareholders’ meeting regarding the company’s merger or division. Repurchased shares must be disposed of no later than 1 year from the date of repurchase.

The trail phase (2015–2017): In 2015, Chinese capital market experienced tremendous fluctuations. On 31 August 2015, the‘Notice on Encouraging Public Companies to Merge and Reorganize, Distribute Cash Dividends, and Repurchase Shares’ was issued, encouraging Chinese listed companies to actively engage in market rescue actions, including open market share repurchases. According to statistics, A-share listed companies announced a total of 39 open market share repurchase programmes in 2015, already more than the total of the past 10 years. The new notice acknowledges the positive effect of share buybacks on the market, marking a new phase in the development of open market share repurchases in China.

The mature phase (2018 and beyond): In October 2018, the Standing Committee of the National People’s Congress approved an amendment to the ‘Company Law’ regarding share repurchase. Later, on November 9, the ‘Opinions on Supporting Listed Companies in Share Repurchases’ became effective, further refining the institutional arrangement for share repurchase. The new Company Law mainly makes the following important amendments to the OMR: Firstly, an expansion of the conditions under which open market share repurchase can be implemented. Secondly, the decision-making procedure for OMR has been simplified. Furthermore, there is an increase in the upper limit of the proportion of shares that can be repurchased on the open market, along with an extension of the holding period for the repurchased shares, ensuring that the total repurchased shares do not exceed 10% of the company’s total issued shares, and they could be transferred or cancelled within 3 years. Finally, restrictions on the source of repurchase funds have been lifted. In contrast to the pre-reform period when repurchases were limited to after-tax profits, the new repurchase system explicitly allows the use of any legally obtained funds for share repurchases. Figure 1 reports the annual distribution of repurchase programmes for Chinese A-share listed companies.

Figure 1. Annual distribution of share repurchase programmes in China.

2.2. Hypothesis development

The use of stock price synchronicity as a proxy for informational content and the examination of specific factors underlying the informational content of stock prices are important threads in stock price synchronicity research. Since Morck et al. (2000) and L. Jin and Myers (2006) explored the impact on firm-specific information from the perspective of institutional protection and information opacity, numerous scholars have conducted a series of meaningful studies on factors influencing stock price synchronicity and its economic consequences. In the research on factors influencing stock price synchronicity, understanding how these factors affect the overall quantity of corporate disclosures and the perceived quality of disclosure, thereby reducing investors’ information search costs and accelerating the incorporation of firm-specific information into stock prices, forms a logical chain that cannot be bypassed in validating the specific factors influencing the stock price synchronicity.

Regarding the overall volume of firm-specific information, it can be delineated into two dimensions: voluntary corporate disclosure and external information intermediaries. In the realm of voluntary corporate disclosure, studies have explored factors such as female directors (Gul et al., 2011), the disclosure of XBRL financial reports (Shi & Zhang, 2014), the activation of corporate Weibo accounts (Hu & Wang, 2015), interactive platforms for investor communication (Tang et al., 2016), and conference calls (Jian et al., 2021). On the external information intermediaries front, the impact of star analysts (Xu et al., 2013), female analysts (Yi et al., 2015), analyst site visits (Cao et al., 2015), content and tone of analyst reports (Wu et al., 2020; Yi et al., 2019), news media (Dang et al., 2020; Huang & Guo, 2014), and key audit matters (Wang & Li, 2019) on the informational content of stock prices has been notably studied.

On one hand, share repurchases may increase the idiosyncratic information content in stock prices, thereby reducing stock price synchronicity. Firstly, based on the undervaluation and signalling theories, companies signal to the market that their stock is undervalued through share repurchases. Compared to routine information disclosure, repurchase actions are deemed more sincere. According to selective perception theory in psychology, investors tend to seek news that aligns with their investment expectations or ‘wishful thinking“. Due to the absence of a short-selling mechanism in China, positive news in the A-share market is more likely to attract investor attention and preference (Wu et al., 2020). OMRs meet investors” demand for positive news. Once a company announces a repurchase programme, both existing and potential investors may be drawn to the programme, leading to increased analysis, forecasting, and trading activities related to the repurchasing company, which enhances the information content of the stock prices. Secondly, to enhance the credibility of their repurchase signal, listed companies might provide an increased amount of firm-specific information, thus augmenting the total information accessible to investors in the market. Concurrently, share repurchase activities often draw attention and coverage from information intermediaries, such as analysts and media, who not only disseminate existing data rapidly but also unearth and process new information (Dang et al., 2020; Huang & Guo, 2014; Xu et al., 2013; Yi et al., 2019), thereby substantially increasing the information volume related to the repurchasing companies. Finally, share repurchases serve to consume firms’ free cash flow, aiding in reducing agency problems while simultaneously placing firms under the ‘spotlight’ to enhance external scrutiny (Huang & Guo, 2014), ensuring that the information conveyed by repurchase is more reliable and facilitating a more precise integration of idiosyncratic information into stock prices.

On the other hand, share repurchases might also decrease the amount of idiosyncratic information in stock prices. Firstly, repurchase programmes could be initiated due to executives’ self-serving actions, such as management using repurchase to acquire shares during periods of high insider trading (Bonaime & Ryngaert, 2013), or to inflate the company’s EPS to meet compensation targets (Kim & Ng, 2018) and analyst forecast benchmarks (Hribar et al., 2006). Given this, listed companies, having more information than external market participants, might intensify information disclosure management during buybacks, thereby reducing the transmission of firm-specific information. Second, share repurchase programmes are not mandatory commitments, and companies have great discretion whether to actually repurchase after announcing a repurchase programme, which may make it ‘cheap talk’ (Chan et al., 2010). Finally, share repurchase provide price support for accurate pricing and reduce abnormal stock price volatility (Hong et al., 2008), incorporating systemic risks quickly and pricing negative market news as soon as possible, which results in a higher correlation between the average return of individual stocks (Busch & Obernberger, 2017). As a result, share repurchase could increase the stock price synchronicity. Based on the aforementioned analysis, we propose two opposing hypotheses:

H1a:

Open market share repurchases increase the idiosyncratic information content in stock prices, significantly reducing stock price synchronicity.

H1b:

Open market share repurchases decrease the idiosyncratic information content in stock prices, significantly increasing stock price synchronicity.

3. Research design

3.1. Sample selection

This paper examines a sample of all A-share listed companies in Shanghai and Shenzhen from Q1 2017 to Q3 2021. The data on open market share repurchases was determined through the following steps: Firstly, retain the open market repurchase of A-shares from the WIND database, and delete the directional repurchase, over-the-counter transactions, and repurchase programmes for H-shares and B-shares. Next, a comprehensive table of repurchase programmes was obtained from the CSMAR share repurchase database, and the same filtering process was applied. Subsequent to this, we manually verify the announcements on the CNINFO securities news website (http://www.cninfo.com.cn) and yield our final sample of OMR programme announcements. In the announcement of repurchase progress, listed companies need to disclose at least the cumulative number of repurchased shares, the proportion of cumulative repurchased shares, the highest repurchase price, the lowest repurchase price, and the total repurchase amount paid as of the end of last month. We manually collect the actual repurchase data from the public repurchase progress reports. The company’s financial data, stock trading data, listed company announcements, and news data all originated from the CSMAR database. To mitigate the impact of outliers, the study winsorised at the 1% and 99% levels for continuous variables. After excluding observations from the financial and insurance sectors and those missing key variables, the study ultimately obtained 65,289 ‘firm-quarter’ observations.

The selection of the sample period for this study is primarily based on the following reasons: Firstly, in the context of the repurchase regulatory framework, during the phase of strict repurchase restrictions (2005–2014), there were very few repurchase programmes, with only 38 instances over a decade. This scarcity makes it difficult to conduct a comprehensive analysis for this period. Secondly, the Chinese stock market experienced severe fluctuations during 2015–2016, prompting the China Securities Regulatory Commission (CSRC) to require listed companies to choose one of five options to promote positive news for market rescue. To minimise the impact of these administrative directives on repurchase, this study excludes repurchase programmes from 2015–2016. Lastly, according to the annual distribution of repurchase programmes, there has been a gradual increase in such programmes since 2017, with 2018 marking the start of a ‘repurchase wave’ following the introduction of new repurchase regulation. To accurately assess the impact of these revised regulations on the market, the study includes data from the four quarters preceding the relaxation of restrictions, using these as the pre-event period for analysis.

3.2. Variable definitions

Dependent variable: Quarterly stock price synchronicity (SYN). Referring to existing literature (Gul et al., 2010; Xu et al., 2013; Yi et al., 2019), this paper uses daily stock trading data and uses Model 1 to regress the daily return data of stock $\mathit{i}$:

(1) $R_{\mathit{i},\mathit{d},\mathit{q}}={\beta }_0+{\beta }_1{R}_{\mathit{m},\mathit{d},\mathit{q}}+{\beta }_2{R}_{\mathit{m},\mathit{d}-1,\mathit{q}}+{\beta }_3{R}_{\mathit{I},\mathit{d},\mathit{q}}+{\beta }_4{R}_{\mathit{I},\mathit{d}-1,\mathit{q}}+{\epsilon }_{\mathit{i},\mathit{d},\mathit{q}}$(1)

Where $R_{\mathit{i},\mathit{d},\mathit{q}}$ represents the daily return of individual stock$\mathit{\hspace{0.17em}}\mathit{i}$ in quarter $\mathit{q}$ (considering reinvestment of cash dividends), $R_{\mathit{m},\mathit{d},\mathit{q}}$ represents the daily return of composite market $\mathit{m}$ in quarter $\mathit{q}$ (weighted average of market capitalisation outstanding) and $R_{\mathit{I},\mathit{d},\mathit{q}}$ represents the daily return of industry$\mathit{\hspace{0.17em}}\mathit{I}$in quarter $\mathit{q}$ excluding company $\mathit{i}$. Additionally, the model incorporates the lagged one-period composite market return and lagged one-period industry return in order to account for the impact of market and industry information from the previous trading day on the current trading day’s individual stock returns. The core idea of model 1 is to regress the daily return data of individual stocks with the overall market return and industry return, and obtain the $R^2$of the model, which is the part of the individual stock return that can be explained by the comprehensive market and the same industry. The larger the $R^2$of the regression model, the less characteristic information of individual stocks and the higher the synchronicity of stock prices. Given that $R^2$ takes values ranging from 0 to 1, legitimisation with reference to (Morck et al., 2000) yields the core explanatory variable of the paper, quarterly stock price synchronicity (SYN) of individual stocks. The paper also refers to (Ferreira & Laux, 2007; Sila et al., 2017) for the most primitive model of synchronicity of stock prices. The new model is based on the regression of the individual daily stock returns$R_{\mathit{i},\mathit{d},\mathit{q}}$ against the composite market daily returns $R_{\mathit{m},\mathit{d},\mathit{q}}$, and model 2 is used to calculate the robustness of the variable (SYN_Robust) for quarterly stock price synchronicity.

(2) $\mathit{SY}{N}_{\mathit{i},\mathit{q}}=\mathit{ln}\left[\frac{R_{i,q}^2}{1-R_{i,q}^2}\right]$(2)

Independent variable: quarterly actual share repurchases. This study employs two variables to measure the open market share repurchase by listed companies. The first is a dummy variable (Dummy_Rep), which is assigned a value of 1 if the company repurchases its shares in the open market during the quarter, and 0 otherwise. The second is the quarterly actual repurchase amount (LnRepSize), calculated as the natural logarithm of one plus the total monetary amount the firm spends in repurchasing shares in the open market during a given quarter. In subsequent robustness tests, this paper also considers alternative forms of the share repurchase variables.

Control variables: referring to Yi et al. (2019), Huang and Guo (2014), and Shi and Zhang (2014), this article controls for the quarterly market capitalisation size (LnCap), quarterly financial leverage (Leverage), quarterly firm profitability (ROA), quarterly market-to-book ratio (MB), quarterly stock turnover (Turnover), lagged one-period quarterly stock price synchronicity (Lag1SYN), quarterly largest shareholder ownership (Top1), and quarterly institutional ownership ratio (InsRatio). In addition, the paper controls for firm fixed effects (Firm) and quarter fixed effects (Quarter). The detailed definitions of all variables used in this study are reported in Appendix.

3.3. Empirical model

We use model 3 to examine the impact of share repurchases on stock price synchronicity:

(3) $\mathit{SY}{N}_{\mathit{i},\mathit{q}}={\alpha }_0+{\alpha }_1\mathit{Repurchas}{e}_{\mathit{i},\mathit{q}}+a_2\mathit{LnCa}{p}_{\mathit{i},\mathit{q}}+a_3\mathit{Leverag}{e}_{\mathit{i},\mathit{q}}+a_4\mathit{RO}{A}_{\mathit{i},\mathit{q}}+a_5\mathit{M}{B}_{\mathit{i},\mathit{q}}+a_6\mathit{Turnove}{r}_{\mathit{i},\mathit{q}}+a_7\mathit{Lag}1\mathit{SY}{N}_{\mathit{i},\mathit{q}}+a_8\mathit{Top}{1}_{\mathit{i},\mathit{q}}+a_9\mathit{InsRati}{o}_{\mathit{i},\mathit{q}}+{\mu }_i+{\eta }_q+{\mathit{\epsilon }}_{\mathit{i},\mathit{q}}$(3)

In the regression model, $\mathit{SY}{N}_{\mathit{i},\mathit{q}}$ is the firm’s quarterly stock price synchronicity and$\mathit{Repurchas}{e}_{\mathit{i},\mathit{q}}$ is the quarterly actual share repurchases, measured using a dummy variable (Dummy_Rep) as well as the quarterly actual repurchase amount (LnRepSize). ${\mu }_i$ is the firm fixed effect and ${\eta }_q$ is the quarter fixed effect.

4. Empirical results

4.1. Descriptive statistics

Panel A of Table 1 reports the distribution of repurchase programmes across industries and years. The distribution of repurchase programme is relatively uniform in other industries, but relatively large in manufacturing(C1\C2\C3\C4), information transmission and software industries(I).

Table 1. Descriptive statistics.

Industry code	2017	2018	2019	2020	2021	N	%
Panel A distribution of repurchase programmes across industries and years
A	0	2	3	0	2	7	0.49%
B	0	6	4	2	2	14	0.98%
C1	2	44	23	20	30	119	8.29%
C2	11	120	56	53	88	328	22.86%
C3	8	190	89	74	146	507	35.33%
C4	0	14	5	7	11	37	2.58%
D	0	4	5	5	8	22	1.53%
E	0	8	2	3	6	19	1.32%
F	3	21	8	14	15	61	4.25%
G	0	5	6	5	7	23	1.60%
H	0	0	0	1	0	1	0.07%
I	7	40	19	21	47	134	9.34%
J	1	6	5	4	5	21	1.46%
K	0	16	11	8	9	44	3.07%
L	1	9	4	2	8	24	1.67%
M	0	11	4	4	8	27	1.88%
N	0	3	3	4	8	18	1.25%
O	0	0	1	0	1	2	0.14%
P	0	1	1	1	1	4	0.28%
Q	0	4	0	1	3	8	0.56%
R	1	3	2	3	3	12	0.84%
S	0	1	2	0	0	3	0.21%
Total	34	508	253	232	408	1,435	100.00%

Notes: The industry classification is based on the 2012 SEC industry guidelines. The manufacturing sector is categorized using a secondary classification, while other industries are classified at a primary level. Additionally, samples from the financial industry have been excluded in the regression analysis.

Panel B of Table 1 provides a description of the repurchase programmes characteristics and the execution process. (i) Regarding the anticipated repurchase scale, the average minimum expected repurchase amount in the programmes is 187.7780 million yuan, and the average maximum expected repurchase amount is 375.4785 million yuan, with more than half of the programmes expecting a minimum repurchase amount exceeding 83 million yuan. (ii) As for the source of repurchase funds, 74.98% of the programmes explicitly state the use of internal funds only, while 94.56% indicate that, in addition to internal funds, other lawful funds including self-raised funds and bank loans will be used. (iii) Nearly 75% of the repurchase programmes are the first open market share repurchase programmes announced by listed companies. (iv) In terms of the repurchase period, from the announcement date of the repurchase programme to the disclosure of its completion, the average time span is 241 days, while the average time span from the announcement to the actual cessation of repurchase is 200 days. The median duration from the announcement to the disclosure of completion is approximately 7 months, and from the announcement to the actual completion, about 6 months. (v) The mean value of the percentage of shares actually repurchased was 1.62% and the median was 1.25%. (vi) The average actual repurchase amount is 232.9003 million yuan, with a median of 99.9212 million yuan. (vii) Approximately 85% of the repurchase programmes have actually repurchased at least the minimum anticipated amount, completing the repurchase programmes.

Panel C of Table 2 shows the descriptive statistics of the main variables in this paper. It is found that the mean value of quarterly stock price synchronicity (SYN) is − 0.7824 and the standard deviation is 0.9858, and there is a large difference between the maximum and minimum values, which indicates that there is a large difference in the content of stock price information among individual firms. The robust quarterly stock price synchronicity (SYN_Robust) further corroborates the substantial differences in price information content among listed companies. Dummy_Reperiod represents a dummy variable for the repurchase interval, where the time period between the announcement of the repurchase programme and the announcement of the completion takes the value of 1. The mean value of the repurchase period is 0.0620 implying that 6.20% of the observations in the sample are in the repurchase period. The core variable, Dummy_Rep, indicating actual share repurchase, has an average value of 0.0433, meaning that 4.33% of the observations in the sample involve actual repurchases.

(continued).

Variable	Obs	Mean	SD	Min	Median	Max
Panel B description of the repurchase programmes characteristics and the execution process
PlanRep_Size_Floor	1435	18777.88	46322.60	105.00	8300.00	750000.00
PlanRep_Szie _Celling	1435	37547.85	92796.77	210.00	20000.00	1500000.00
Rep_Only_OwnCapital	1435	0.7498	0.4333	0.0000	1.0000	1.0000
Rep_Include_OwnCapital	1435	0.9456	0.2268	0.0000	1.0000	1.0000
Rep_FirstPrograme	1435	0.7408	0.4384	0.0000	1.0000	1.0000
Repperiod	1398	241.0916	131.3622	2.0000	210.0000	772.0000
ActualRepTime	1398	200.6574	122.5991	2.0000	183.0000	679.0000
ActualRepRatio	1398	1.6230	1.3938	0.0000	1.2500	13.7400
ActualRepSzie	1398	23290.03	68769.77	0.0000	9992.12	1499998.51
DummyCompleted	1398	0.8541	0.3532	0.0000	1.0000	1.0000

Notes: (1) Between 2017 and 2021, a total of 1435 share repurchase programmes were announced by A-share listed companies in China, with 1398 of these programmes disclosing their implementation outcomes by the end of Q3 2022. (2) Within these 1435 programmes, 105 did not specify a minimum repurchase amount, merely citing an upper limit. this study estimates the missing minimum repurchase amounts as half of their maximum specified amounts. (3) Rep_Only_OwnCapital represents that the repurchase funds in the repurchase programme only come from its own funds, while Rep_Include_OwnCapital represents that the repurchase funds in the repurchase programme include its own funds as well as self-financing funds, bank borrowings and other legitimate funds. (4) The unit of measurement for the repurchase amount is ten thousand yuan (CNY).

Table

Variable	Obs	Mean	SD	Min	Median	Max
Panel C descriptive statistics of the main variables
SYN	65289	−0.7824	0.9858	−3.4038	−0.7147	1.9010
SYN_Robust	65289	−1.4785	1.4896	−7.3723	−1.1993	1.3563
Dummy_Repperiod	65289	0.0620	0.2412	0.0000	0.0000	1.0000
Dummy_Rep	65289	0.0433	0.2036	0.0000	0.0000	1.0000
LnRepSize	65289	0.7385	3.4818	0.0000	0.0000	18.2726
LnCap	65289	8.4270	1.0676	6.4509	8.3022	11.5690
Leverage	65289	0.4196	0.2091	0.0539	0.4080	0.9574
ROA	65289	0.0238	0.0411	−0.1475	0.0184	0.1523
MB	65289	1.9987	1.4080	0.8454	1.5697	10.3512
Turnover	65289	0.9576	0.8530	0.0731	0.6767	4.5051
Lag1SYN	65289	−0.8207	1.0729	−4.5322	−0.6978	1.2430
Top1	65289	33.0927	14.4785	8.4800	30.7300	73.4100
InsRatio	65289	41.4249	24.4847	0.4455	42.4300	90.1877

4.2. Baseline results

Table 2 reports the results of regressions of open market share repurchase on stock price synchronicity. In regressions (1) and (2), where the dummy repurchase variable (Dummy_Rep) yields a regression coefficient of − 0.0749 and the coefficient for the quarterly actual amount of repurchases (LnRepSize) is − 0.0043, it is observed that the coefficients of both repurchase variables are significantly negative at the 1% level. Economically, the coefficient for Dummy_Rep in regression (1) suggests that, compared to samples without repurchases, the stock price synchronicity of repurchasing companies is on average 9.57% lower (−0.0749/-0.7824, where − 0.7824 is the mean of SYN from the descriptive statistics).In regressions (3) and (4), using the robust quarterly stock price synchronicity (SYN_Robust) to repeat the baseline regression, the coefficients for dummy repurchase variable and the quarterly actual amount of repurchases remain significantly negative at the 1% level.

Table 2. Share repurchase and stock price synchronicity.

	(1)	(2)	(3)	(4)
	SYN	SYN	SYN_Robust	SYN_Robust
Dummy_Rep	−0.0749***		−0.0812***
	(−4.21)		(−3.26)
LnRepSize		−0.0043***		−0.0049***
		(−4.14)		(−3.31)
LnCap	0.1217***	0.1217***	0.3078***	0.3079***
	(9.21)	(9.21)	(15.75)	(15.75)
Leverage	−0.2168***	−0.2169***	−0.4697***	−0.4698***
	(−3.74)	(−3.74)	(−5.57)	(−5.57)
ROA	0.5901***	0.5903***	0.0143	0.0146
	(4.79)	(4.79)	(0.07)	(0.07)
MB	−0.0467***	−0.0467***	−0.1130***	−0.1130***
	(−6.65)	(−6.65)	(−9.82)	(−9.82)
Turnover	−0.2131***	−0.2131***	−0.4010***	−0.4010***
	(−35.09)	(−35.08)	(−41.76)	(−41.77)
Lag1SYN	0.0600***	0.0600***	0.0596***	0.0595***
	(14.15)	(14.15)	(9.45)	(9.44)
Top1	−0.0009	−0.0009	−0.0042**	−0.0042**
	(−0.68)	(−0.68)	(−2.28)	(−2.27)
InsRatio	−0.0077***	−0.0077***	−0.0096***	−0.0096***
	(−8.76)	(−8.76)	(−7.93)	(−7.93)
Constant	−1.0334***	−1.0337***	−2.6779***	−2.6782***
	(−8.66)	(−8.66)	(−16.14)	(−16.14)
Firm	Yes	Yes	Yes	Yes
Quarter	Yes	Yes	Yes	Yes
Adj. R^2	0.4259	0.4259	0.4786	0.4786
N	65289	65289	65289	65289

The reported t-statistics are based on robust standard errors adjusted for firm-level clustering. *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

4.3. Mechanism analysis

4.3.1. Share repurchase garners the attention of investors

Signalling theory emphasises that firms signal to the market that their shares are undervalued through open market share repurchases, a signal which has been proven to be effectively received by investors in international capital markets (Andriosopoulos & Lasfer, 2015; Ikenberry et al., 1995; Lie, 2005). Existing literature reveals that the market’s abnormal returns on the announcement day of share repurchase programmes are close to 3% in the US (Ikenberry et al., 1995; Lie, 2005), while the returns for repurchase announcements in the UK are 1.68%, in Germany 2.32%, and in France only 0.8% (Andriosopoulos & Lasfer, 2015). Examining the market’s reaction to the announcement of open market share repurchase programmes is crucial for this study, serving as a prerequisite for the overall findings. This is because proving that repurchase programmes can indeed act as an effective signal received by investors in the Chinese capital market – indicating that investors indeed respond to share repurchase signals and change stock prices accordingly – provides a solid empirical foundation for researching how share repurchase affect stock price synchronicity.

This study examines the market reaction to the announcement of open market share repurchase programmes by Chinese A-share listed companies. Using the event study method, we find that share repurchase programmes also generate substantial positive market reactions in China, suggesting that share repurchase can indeed attract investors as a ‘good news’. In Table 3, the cumulative abnormal returns (CAR) across different time windows are significantly positive, with the CAR on the disclosure day being 2.13%. Figure 2 shows the announcement returns of the repurchase programmes, where the solid line represents the daily abnormal returns (AR). It is observed that the daily AR is near zero prior to the announcement of the repurchase programme but rises sharply on the day of the announcement, indicating a real reaction from investors. The dotted line represents the cumulative abnormal returns (CAR), showing a gradual shift from negative to positive values following the announcement, with an increasing trend. The results of the event study method, demonstrating that open market share repurchases constitute an important value signal in China and effectively draw investor attention, provide a solid empirical basis for this paper’s in-depth exploration of the market effects of share repurchases.

Table 3. Market reaction to the announcement of repurchase programmes.

Event-window	CAR	T-value	P-value
[−10, 10]	1.3754***	3.6090	0.0003
[−5, 5]	1.2889***	4.3299	0.0000
[−3, 3]	1.5278***	6.2497	0.0000
[−1, 1]	2.0071***	12.0470	0.0000
[0- Disclosure day]	2.1344***	20.9824	0.0000
[0, 1]	2.1533***	15.9041	0.0000
[0, 3]	2.2630***	13.6597	0.0000
[0, 5]	2.6612***	13.9543	0.0000
[0, 10]	3.6756***	15.0483	0.0000

Figure 2. The announcement returns of the repurchase programmes.

4.3.2. share repurchase enhances information disclosure

In light of the disclosure requirements of China’s share repurchase regulation, share repurchases not only act as a signal to attract investor attention but also serve as a crucial channel for conveying firm-specific information. Furthermore, to enhance the credibility of the repurchase signal, listed companies may provide additional company-specific information, which can reduce the cost of information collection for investors and facilitate the absorption of more idiosyncratic information into stock prices. Using the methodologies provided by Gul et al. (2011), Tang et al. (2016), Sila et al. (2017), and Wu et al. (2020) in examining the practice of increasing information disclosure by companies, we collect announcement information from all listed companies and calculate the total number of announcements disclosed by each company per quarter (LnAnnouncement).

As required by the mediation effect model, the independent variable should be significantly correlated with the mediator variable, and the independent variable remains significant with a reduced coefficient upon including the mediating variable in the original model, it indicates the presence of a partial mediation effect. Regression (1) and Regression (3) in Table 4 report the relationship between share repurchase and corporate information disclosure. The repurchase dummy variable (Dummy_Rep) and the quarterly actual repurchase amount (LnRepSize) are both significantly positively correlated with the total number of quarterly corporate announcements (LnAnnouncement) at the 1% level, suggesting that repurchasing companies disclose more corporate information. In Regression (2), the coefficient of the total number of quarterly corporate announcements (LnAnnouncement) is significantly negative at the 1% level with quarterly stock price synchronicity, indicating that more information disclosed by listed companies is associated with higher information content in stock prices and lower stock price synchronicity. The mediation effect results show that the total effect of open market share repurchases is − 0.0749 (see Table 2, Regression 1), the direct effect is − 0.0639, and the mediation effect of information disclosure is − 0.0110 (calculated as 0.1726 × −0.0640). The Sobel test confirms the significance of the mediation effect at the 1% level, constituting 14.69% of the total effect. This suggests that increased information disclosure is indeed one of the key channels through which repurchasing companies enhance the information content of their stock prices.

Table 4. Share repurchase enhances information disclosure.

	(1)	(2)	(3)	(4)
	LnAnnouncement	SYN	LnAnnouncement	SYN
Dummy_Rep	0.1726***	−0.0639***
	(16.76)	(−3.59)
LnRepSize			0.0101***	−0.0037***
			(16.94)	(−3.51)
LnAnnouncement		−0.0640***		−0.0640***
		(−12.10)		(−12.11)
Indirect effect (Sobel Test)	−0.0110***		−0.0006***
	(−9.17)		(−9.18)
Proportion of total effect that is mediated	14.69%		13.95%
Controls	Yes	Yes	Yes	Yes
Firm	Yes	Yes	Yes	Yes
Quarter	Yes	Yes	Yes	Yes
Adj. R^2	0.4455	0.4274	0.4455	0.4274
N	65289	65289	65289	65289

The reported t-statistics are based on robust standard errors adjusted for firm-level clustering. *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

4.3.3. Share repurchase increases market news

As crucial information intermediaries, news media play a vital role in analysing, interpreting, and disseminating information about company buybacks. On one hand, when listed companies announce repurchase programmes, this ‘good news’, highly favoured by investors, not only attracts media coverage but may also prompt the media to uncover and process new firm-specific information, thereby further increasing the total amount of information available about the repurchasing company. On the other hand, the role of the news media in external supervision (Dang et al., 2020; Huang & Guo, 2014) implies that open market share repurchases place companies under intense scrutiny, thereby enhancing the quality of information disclosure.

We collected all media news related to A-share listed companies from the CSMAR database and calculated the total number of news reports per company for each quarter (LnNews). Continuing with the mediation effect test method, regressions (1) and (3) in Table 5 both confirm that share repurchases significantly increase market news for repurchasing companies. After incorporating market news as a mediating variable in the baseline model, the regression coefficient for Dummy_Rep changed from − 0.0749 (see Table 2, Regression 1) to − 0.0618. The mediation effect, as indicated by the Sobel test, is significant at the 1% level, with the mediating effect of market news accounting for 17.62% of the total effect. Additionally, the significant negative correlation between the total amount of market news (LnNews) and stock price synchronicity aligns with our expectations. In addition, using the size variable of news reports in the database, this paper also finds that share repurchases can increase the length of market news. These consistent results collectively demonstrate that share repurchases can increase market information for repurchasing companies, reduce the cost of information collection for investors, and thereby enhance the information content of stock prices.

Table 5. Share repurchase increases market news.

	(1)	(2)	(3)	(4)
	LnNews	SYN	LnNews	SYN
Dummy_Rep	0.1784***	−0.0618***
	(11.08)	(−3.47)
LnRepSize			0.0106***	−0.0035***
			(11.30)	(−3.38)
LnNews		−0.0738***		−0.0738***
		(−15.53)		(−15.53)
Indirect effect (Sobel Test)	−0.0132***		−0.0008***
	(−9.72)		(−9.83)
Proportion of total effect that is mediated	17.62%		18.60%
Controls	Yes	Yes	Yes	Yes
Firm	Yes	Yes	Yes	Yes
Quarter	Yes	Yes	Yes	Yes
Adj. R^2	0.4790	0.4286	0.4791	0.4286
N	65289	65289	65289	65289

The reported t-statistics are based on robust standard errors adjusted for firm-level clustering. *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

4.4. Additional heterogeneity analysis

4.4.1. From the perspective of information asymmetry

We anticipate that the effect of share repurchases in enhancing the information content of stock prices will be more pronounced in companies with greater information asymmetry. To better capture the information quality of the firm ‘before’ the buyback, this paper uses the information asymmetry variable from the prior 1 year.

In Table 6, the interaction term between the repurchase dummy variable (Dummy_Rep) and the number of analysts following the company (ANA) is significantly positive, indicating that in companies with a higher number of analysts, the effect of share repurchases in reducing stock price synchronicity is diminished. Conversely, in companies with fewer analysts, the effect of repurchases in increasing the information content of stock prices is stronger. According to regression (2), the interaction between Dummy_Rep and Dual is significantly negative at the level of 1%, indicating that firms with dual positions have a stronger ‘signaling’ function. The interaction terms involving the share repurchase dummy variable, earning management, and information disclosure rating exhibit significant negative at least at the 5% level, suggest that in companies with more severe earning management and lower quality of information disclosure, the effect of share repurchase in enhancing the information content of stock prices is more pronounced. The results of Table 6 demonstrate that in companies with greater information asymmetry, open market share repurchases effectively increase the information content of stock prices, resulting in lower stock price synchronicity.

Table 6. Impact of information asymmetry.

	(1)	(2)	(3)	(4)
	SYN	SYN	SYN	SYN
Dummy_Rep × ANA	0.0041***
	(3.02)
Dummy_Rep × Dual		−0.0961***
		(−2.70)
Dummy_Rep × H_DACC			−0.0725**
			(−2.27)
Dummy_Rep × Opacity				−0.1414***
				(−2.82)
Dummy_Rep	−0.1188***	−0.0416*	−0.0413*	−0.0560***
	(−5.16)	(−1.91)	(−1.79)	(−3.03)
ANA	0.0046***
	(5.09)
Dual		−0.0147
		(−0.94)
H_ DACC			−0.0126
			(−1.48)
Opacity				0.0128
				(0.94)
Controls	Yes	Yes	Yes	Yes
Firm	Yes	Yes	Yes	Yes
Quarter	Yes	Yes	Yes	Yes
Adj. R^2	0.4265	0.4260	0.4260	0.4260
N	65289	65289	65289	65289

The reported t-statistics are based on robust standard errors adjusted for firm-level clustering. *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

4.4.2. From the perspective of repurchase reputation

The effectiveness of share repurchases may vary due to different corporate characteristics. While the moderating effect of information asymmetry has been addressed earlier, this section further examines the differential impacts of enterprise nature, different capital market characteristics, market capitalisation size, and the need for reputation repair.

The results are as follow: (i) Compared to state-owned enterprises (SOEs), private companies face fewer restrictions in making repurchase decisions, allowing them more freedom to use share repurchases to convey firm-specific information. Moreover, private enterprises have a more urgent need to establish their market image and enhance corporate reputation through share repurchases compared to SOEs. In Table 7, Regression (1), the positive significant interaction of Dummy_Rep with SOEs indicates that the effectiveness of share repurchases in improving stock price information content is weaker in SOEs than in private companies. (ii) Listed companies on the ChiNext or SSE STARMarket, known for high growth and innovation, may use share repurchases to signal their growth and R&D investments. In Regression (2), the negative significant interaction between Dummy_Rep and ChiNext_STAR suggests that companies listed on these markets transmit more idiosyncratic information through share repurchases. (iii) Regarding market capitalisation, small-cap stocks, characterised by more volatile stock prices and a greater sensitivity to new information, are expected to exhibit stronger information effects from stock buybacks, and the interaction term in regression (3) further supports that stock buybacks implemented by small-cap stocks have stronger ‘signaling’ effects. (iv) Share repurchase can help convey the true value of a company when litigation risks and rumours of financial fraud damage its image. The result of regression (4) also indicates that for firms with reputation restoration needs, open market share repurchases convey more firm-specific information.

Table 7. Impact of repurchase reputation.

	(1)	(2)	(3)	(4)
	SYN	SYN	SYN	SYN
Dummy_Rep × SOE	0.0909*
	(1.82)
Dummy_Rep × ChiNext_STAR		−0.0783*
		(−1.92)
Dummy_Rep × SmallCap			−0.0819**
			(−2.34)
Dummy_Rep × ReputationDamage				−0.0707**
				(−1.98)
Dummy_Rep	−0.0858***	−0.0579***	−0.0402*	−0.0545***
	(−4.53)	(−2.86)	(−1.72)	(−2.65)
SOE	0.0665*
	(1.71)
SmallCap			−0.0017
			(−0.10)
ReputationDamage				−0.0239**
				(−2.06)
Controls	Yes	Yes	Yes	Yes
Firm	Yes	Yes	Yes	Yes
Quarter	Yes	Yes	Yes	Yes
Adj. R^2	0.4260	0.4260	0.4260	0.4260
N	65289	65289	65289	65289

The reported t-statistics are based on robust standard errors adjusted for firm-level clustering. *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

4.4.3. From the perspective of manager characteristics and manager behavior

Managerial personal traits, their desire to transmit information, and their behaviour may all have a differentiated impact on the effectiveness of share repurchases. Managers with a strategic investment perspective, who focus on long-term enterprise growth, are more likely to use share repurchases to convey idiosyncratic information compared to short-sighted ones. Following Lai et al. (2020), companies that increase their R&D investment in the current year are defined as strategic managers (Strategic). For R&D-intensive firms, whose intrinsic value takes longer to assess, share repurchases may have a greater signalling impact. Managers who disclose more varied content in the management discussion and analysis section of annual reports indicate a deeper contemplation and analysis of the company’s future strategies, reflecting a stronger willingness to communicate information to the market. Consequently, managers with a greater intent to communicate are more likely to utilise share repurchases as a tool for conveying information, especially when a company’s value is undervalued or strategic information needs to be transmitted. Nevertheless, share repurchases require the use of corporate cash reserves, increasing the financial burden on listed companies. If managers persist in repurchasing shares under conditions of excessive debt, this might raise investor scepticism regarding the motives behind the repurchases, thereby potentially weakening the effectiveness of the information transmission.

Table 8 shows that the interaction between the share repurchase dummy (Dummy_Rep) and strategic management (Strategic) is significantly negative, suggesting that managers with a strategic investment mindset more effectively use share repurchases to transmit company value information. In Regression (2), the interaction term between Dummy_Rep and higher R&D expenditure (H_R&D) is significantly negative at the 5% level, suggesting that manager can use share repurchases to communicate corporate R&D information externally. Based on CSMAR’s sentiment analysis database of management disclosure, we define companies with a textual similarity higher than 90% in management discussion and analysis over two consecutive years as having high similarity (H_Similarity). The interaction term is significantly positive at the 5% level suggests that when the willingness of manager to communicate is weaker, the effectiveness of share repurchases is likely to be diminished. Finally, according to the CSMAR excessive debt database, the interaction term between share repurchases and excessive debt is significant positive, indicating that repurchases conducted despite financial strain are likely to have a limited effect. It is evident from Table 8 that share repurchases are more effective when utilised by managers who are strategically invested, prioritise R&D, and have a strong desire to communicate, whereas repurchases by managers in situations of excessive debt tend to be less effective.

Table 8. Impact of manager characteristics and manager behaviour.

	(1)	(2)	(3)	(4)
	SYN	SYN	SYN	SYN
Dummy_Rep × Strategic	−0.0812**
	(−2.51)
Dummy_Rep × H_R&D		−0.0706**
		(−2.05)
Dummy_Rep × H_Similarity			0.1376**
			(2.27)
Dummy_Rep × ExcessiveDebt				0.0700**
				(2.09)
Dummy_Rep	−0.0215	−0.0432*	−0.2033***	−0.1086***
	(−0.81)	(−1.82)	(−3.48)	(−4.59)
Strategic	0.0108
	(1.21)
H_R&D		0.0040
		(0.23)
H_Similarity			0.0322**
			(2.01)
ExcessiveDebt				−0.0047
				(−0.38)
Controls	Yes	Yes	Yes	Yes
Firm	Yes	Yes	Yes	Yes
Quarter	Yes	Yes	Yes	Yes
Adj. R^2	0.4260	0.4260	0.4260	0.4260
N	65289	65289	65289	65289

The reported t-statistics are based on robust standard errors adjusted for firm-level clustering. *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

4.4.4. From the perspective of repurchase programmes characteristics and the execution process

The disclosure requirements for share repurchases in China enable this study to further explore the differential impact of repurchase programmes characteristics and repurchase execution on the economic consequences of repurchase. Drawing on Bae et al. (2021)‘s approach of segmenting the impact of board reform, this paper divides the share repurchase dummy variable (Dummy_Rep) based on the source of repurchase funds, whether it’s the companies first repurchase programme, the speed of repurchase implementation, the intensity of the repurchase, and whether the repurchase programme was completed, to deepen the research findings.

The results are as follow: (i) Source of Repurchase Funds: When a listed company announces the use of its own funds for repurchases, it not only sends a positive signal of sufficient cash reserves to the capital market but also helps reduce firm free cash flow, thereby lowering agency problem and improving information quality. The repurchase dummy variable is split into two categories: using only own capital (DummyRep_OwnCapital) and including other lawful funds (DummyRep_NonOwnCapital), the results of regressions (1) and (2) in Table 9 indicate that the repurchase programmes using own funds for repurchases enhance stock price information content more effectively. (ii) First-Time Repurchase Programmes: A listed company’s initial announcement of a repurchase programme presents a completely new signal to the market, potentially generating a larger information impact. Table 9 shows that DummyRep_FirstProgram is significantly negative, indicating stronger signal transmission from the first OMR. (iii) Speed of Repurchase Execution: The quicker the share repurchase execution (i.e. shorter interval between the first implementation and the announcement date), the more it reflects the company’s determination to repurchase shares and sends a clearer signal to the market. Regression results indicate that the coefficient of DummyRep_Quickly is more significant, with a more pronounced effect. (iv) Repurchase Intensity: The greater the actual intensity of the repurchase, the more it attracts the interest and attention of market participants. Under the new repurchase regulations, each increment of the actual share repurchase proportion exceeding 1% requires separate disclosure, so companies with greater repurchase intensity repeatedly send repurchase signals to the market. Regressions (7) and (8) of Table 9, show that companies with greater repurchase intensity convey more idiosyncratic information. (v) Completion of Repurchase Programmes: OMRs are not obligatory commitments. Completing an OMR implies that the company values its reputation. In regressions (9) and (10) of Table 9, the coefficients of DummyRep_Completed are significantly negative, while those of uncompleted OMRs are not significant, suggests that companies completing their repurchase programmes convey a greater amount of firm specific information.

Table 9. Analysis of repurchase programmes characteristics and execution process.

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)
	Only own funds	Including other funds	First repurchase programme	Non-First repurchase programme	Implement repurchase quickly	Implement repurchase slowly	Large-Scale repurchase	Small-Scale repurchase	Complete repurchase programme	Non-Complete repurchase programme
	SYN	SYN	SYN	SYN	SYN	SYN	SYN	SYN	SYN	SYN
DummyRep_OwnCapital	−0.0867***
	(−4.36)
DummyRep_NonOwnCapital		−0.0372
		(−1.09)
DummyRep_FirstProgram			−0.0742***
			(−4.03)
DummyRep_FirstProgram				−0.0518
				(−1.47)
DummyRep_Quickly					−0.0921***
					(−3.92)
DummyRep_NonQuickly						−0.0479*
						(−1.96)
DummyRep_Intense							−0.0930***
							(−3.97)
DummyRep_NonIntense								−0.0427*
								(−1.75)
DummyRep_Completed									−0.0879***
									(−4.66)
DummyRep_UnCompleted										0.0241
										(0.53)
Controls	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Firm	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Quarter	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Adj. R^2	0.4259	0.4258	0.4259	0.4258	0.4259	0.4258	0.4259	0.4258	0.4260	0.4257
N	65289	65289	65289	65289	65289	65289	65289	65289	65289	65289

The reported t-statistics are based on robust standard errors adjusted for firm-level clustering. *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

4.5. Robustness tests

4.5.1. Controlling for the effects of illiquidity

The research by Gassen et al. (2020) highlights that the illiquidity of a stock hinders the incorporation of market information into its price, resulting in inherently low synchronicity for illiquid stocks. Failing to account for illiquidity can lead to biased estimates in regression model. Their research further indicates that the estimation biases caused by illiquidity are the reason for the positive correlation found in previous studies between lower stock price synchronicity and poorer information environments. They suggest using nonlinear control variable methods in empirical research on stock price synchronicity to mitigate the effects of illiquidity.

Drawing from the approach of Gassen et al. (2020), this study incorporates linear illiquidity variables and creates multiple dummy variables to control for the impact of illiquidity in the baseline regression. AllZeroReturn_Quarter represents the sum of days in a quarter when a company’s individual stock daily return rate is zero and the days the stock is suspended from trading. AllZeroReturn_Dummies are dummy variables created based on the values of AllZeroReturn_Quarter. In Panel A of Table 10, Regressions (1) and (2) control for linear and nonlinear illiquidity variables, respectively. The regression coefficients of Dummy_Rep remain significantly negative at the 1% level, with a magnitude close to that in the baseline regression shown in Table 2. The significant negative correlation between AllZeroReturn_Quarter and the quarterly stock price synchronicity (SYN) indicates that illiquidity is indeed related to lower stock price synchronicity, consistent with the conclusions drawn by Gassen et al. (2020). Furthermore, in Panel B of Table 10, the study uses the average daily Amihud value of individual stocks per quarter as an alternative variable for linear illiquidity, which is then divided into 100 equal parts to create 100 dummy variables for inclusion in the baseline regression. The results of these regressions remain robust, further validating the method and findings of the study.

Table 10. Controlling for the effects of illiquidity.

	(1)	(2)	(3)	(4)
	SYN	SYN	SYN_Robust	SYN_Robust
Panel A Controlling illiquidity with AllZeroReturn
Dummy_Rep	−0.0735***	−0.0723***	−0.0735***	−0.0725***
	(−4.14)	(−4.08)	(−2.99)	(−2.96)
AllZeroReturn_Quarter	−0.0105***		−0.0545***
	(−6.57)		(−23.17)
AllZeroReturn_Dummies [nonlinear]		n=60		n=60
Controls	Yes	Yes	Yes	Yes
Firm	Yes	Yes	Yes	Yes
Quarter	Yes	Yes	Yes	Yes
Adj. R^2	0.4267	0.4318	0.4872	0.4884
N	65289	65289	65289	65289

Table

Panel B Controlling illiquidity with Amihud
Dummy_Rep	−0.0735***	−0.0701***	−0.0816***	−0.0782***
	(−4.14)	(−3.96)	(−3.28)	(−3.16)
Amihud_Quarter	−0.0105***		−1.1311***
	(−6.57)		(−10.25)
Amihud_Dummies [nonlinear]		n=100		n=100
Controls	Yes	Yes	Yes	Yes
Firm	Yes	Yes	Yes	Yes
Quarter	Yes	Yes	Yes	Yes
Adj. R^2	0.4267	0.4298	0.4803	0.4818
N	65289	65289	65289	65289

The reported t-statistics are based on robust standard errors adjusted for firm-level clustering. *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

4.5.2. Other robustness tests

We also carried out the following robustness tests:

1. Altering the time dimension, we examined the relationship between monthly share repurchases and monthly stock price synchronicity, utilising monthly repurchase data disclosed in the progress announcements made by repurchasing companies.

2. We replaced the share repurchase variable for robustness analysis. Initially, we used the dummy variable for being in the repurchase period (Dummy_Repperiod) to assess changes in the information content of company stock prices during repurchase periods. Additionally, we employed the cumulative repurchase amount (LnCumulateSize) reported in share repurchase progress announcements for robustness analysis, addressing potential shortcomings in actual repurchase data that may overlook the impact of cumulative repurchases. Finally, the study also considered the effect of relative share repurchase intensity, testing this by using the ratio of cumulative shares repurchased to total shares (RepVolRatio) and the ratio of cumulative repurchase amount to total market value (RepSizeRatio).

3. Permutation test. Drawing on the placebo test methods used by Huang et al. (2023), and Z. Jin and Huang (2021), this study conducted permutation tests by utilising Monte Carlo simulation techniques to randomly distribute the share repurchase dummy variable to each observation, and then repeatedly regressed this ‘randomly assigned repurchase dummy variable’ (Random_Dummy_Repurchase) against the quarterly stock price synchronicity (SYN/SYN_Robust) 1000 times.

4. GMM-Instrumental test. In line with classic share repurchase theories, list companies implement share buybacks when their stock prices are undervalued (Dittmar, 2000) and when they want to reduce their free cash flow (Brav et al., 2005). This study selected two instrumental variables: whether the listed company is undervalued relative to its industry peers (Undervalue) and whether it is financially healthier than its industry peers (H_ZScore). The Undervalue variable is set to 1 when valuation bias, calculated using the industry benchmark method (Berger & Ofek, 1995; Doukas, 2010). Similarly, H_ZScore is set to 1 if a company’s bankruptcy risk index, Z_Score, is higher than that of its peers in the same industry in the previous year.

5. To mitigate the impact of extreme events and strengthen the examination of the effects of new repurchase regulations, the study reconstructed the sample range and interval. The outbreak of COVID-19 in the first quarter of 2020 led to unusual fluctuations in the Chinese stock market. By removing the samples from the quarter of the pandemic’s outbreak and repeating the baseline regression, the relationship between the repurchase variable and stock price synchronicity remained significantly negative at the 1% level. Since China initiated a ‘repurchase wave’ in 2018, we confined our analysis to samples from 2018 and subsequent years to enhance the examination of the policy effects of the new repurchase regulations. The repurchase variables remained significantly negative at the 1% level, with the regression coefficients becoming even larger.

5. Conclusion

In China, the phenomenon of stock prices of listed companies rising and falling simultaneously is particularly severe (Eun et al., 2015; Morck et al., 2000). Addressing the shortcomings of the capital market institution, enhancing the functionality of the capital market, and accelerating the construction of a modern financial system are ongoing objectives pursued by Chinese regulatory authorities. The new repurchase regulations have removed institutional barriers, enabling listed companies to actively use share repurchases to convey idiosyncratic information. Actions speak louder than words, and the actual repurchase actions of listed companies are more persuasive than mere information disclosure. These actions are more likely to attract proactive attention from external market participants, thereby facilitating the faster integration of idiosyncratic information into stock prices.

The research findings of this paper hold significant practical value and policy implications:

In terms of practical value, since the issuance of the new share repurchase regulations, over a thousand listed companies have announced OMR, and open market share repurchases are thriving in the Chinese capital market. The results of this study can serve as a practical guide for listed companies engaging in share repurchases to a certain extent. We have conducted an initial examination of the impact of open market share repurchase on the information efficiency of the capital market, affirming the value of share repurchase in conveying firm-specific information. The liberalisation of the share repurchase regulations provides listed companies with an opportunity to optimise their financing decisions, fund arrangements, and dividend policies, allowing them to signal their corporate value through actual ‘actions’ in the market. Furthermore, our study reveals that companies with more severe information asymmetry, those needing to establish corporate reputation through repurchases, and those emphasising R&D experience more significant repurchase effects. This provides references for companies to decide whether to implement share repurchases based on their unique characteristics. We also find that the communication willingness of manager and the financial leverage level of the company have a significant impact on the effectiveness of OMR. Listed companies not only need to implement repurchases in line with their financial capabilities but also enhance communication with external market participants during the repurchase period to fully utilise the role of OMR. Lastly, our analysis of repurchase programme characteristics and execution suggest that once listed companies announce OMR, they should promptly implement them and strictly adhere to the repurchase schedule to enhance the signalling effect of OMR.

In terms of policy implications, the reform of the share repurchase is a crucial component of China’s efforts to deepen fundamental reforms in its capital market infrastructure. Examining the policy effects of the new repurchase regulations carries positive policy implications for regulatory authorities as they continue to promote the practical implementation of repurchases, refine repurchase rules, and enhance regulatory oversight. This study reveals that higher completion rates of repurchase programmes are more effective in conveying firm-specific information. By analysing the reasons behind listed companies’ failure to complete share repurchases, it becomes evident that the limited time window for executing repurchases and conflicts with refinancing schedules have become the primary policy constraints leading to incomplete OMR. Therefore, future repurchase regulations should aim to reduce policy constraints during the implementation process and improve its convenience. Furthermore, China’s share repurchase regulation requirements and operational effectiveness serve as a reference for other countries seeking to optimise information disclosure and strengthen repurchase regulation.

Acknowledgments

The authors appreciate the valuable comments from two anonymous reviewers and Donghua Chen (Associate Editor). Jin gratefully acknowledges support from the PRC Ministry of Education planning project fund for Humanities and Social Science Research (GrantNo. 22YJA790028). Chenghao Huang gratefully acknowledges support from the National Natural Science Foundation of China (GrantNo. 72372064; GrantNo.71962018), Jiangxi Province Social Science Foundation (No. 23GL24) and Humanities and Social Sciences Projects in Jiangxi Province (No.JJ23217).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the PRC Ministry of Education planning project fund for Humanities and Social Science Research [22YJA790028]; National Natural Science Foundation of China [72372064]; Humanities and Social Sciences Projects in Jiangxi Province [JJ23217]; Jiangxi Province Social Science Foundation [23GL24]; National Natural Science Foundation of China [71962018].

Appendix

Variables Definitions

Table

SYN	Quarterly stock price synchronicity, calculation process detailed in Model 1 and Model 2.
SYN_Robust	Robust quarterly stock price synchronicity.
Dummy_Rep	The indicator variable that equals one if a firm repurchase shares in the open market in a given quarter, and zero otherwise.
LnRepSize	The natural logarithm of one plus the total monetary amount the firm spends in repurchasing shares in the open market during a given quarter.
LnCap	Take the natural logarithm of the average circulating market value in a quarter.
Leverage	The total liabilities divided by the total assets in a quarter.
ROA	The net profit divided by the total assets in a quarter.
MB	The ratio of the market value to the book value of equity in a quarter.
Turnover	Equal to (total number of shares traded in the quarter – number of shares repurchased in the quarter)/total number of shares.
Lag1SYN	Lagged stock price synchronicity for one period.
Top1	The percentage of shares held by the largest shareholder in a quarter.
InsRatio	The percentage of shares held by all institutional investors in a quarter.
LnAnnouncement	The natural logarithm of one plus the number of announcements made by listed companies in a quarter.
LnNews	The natural logarithm of one plus the number of media news related to listed companies in a quarter.
ANA	The natural logarithm of one plus the number of analysts following the company
Dual	The indicator variable that equals one if the chairman and CEO are the same person in the previous year, and zero otherwise.
H_DACC	The indicator variable that equals one if earnings management is greater than the industry average in the previous year, and zero otherwise.
Opacity	The indicator variable that equals one for firms defined as having poor disclosure quality with ratings of C and D in the previous year, and zero otherwise.
SOE	The indicator variable that equals one if the listed company is a state-owned enterprise, and zero otherwise.
ChiNext STAR	The indicator variable that equals one if the company is listed on ChiNext or SSE STARMarket, and zero otherwise.
SmallCap	The indicator variable that equals one for the company size attribute categorised as small cap in the RESSET database, and zero otherwise.
ReputationDamage	The indicator variable that equals one if a listed company faced litigation or rumours of financial fraud in the previous year, and zero otherwise.
Strategic	The indicator variable that equals one if R&D investment in this year is greater than that in the previous year, and zero otherwise.
H_R&D	The indicator variable that equals one if the proportion of R&D expenses to operating revenue is higher than the industry average in the year, and zero otherwise.
H_Similarity	The indicator variable that equals one if the companies with a textual similarity is higher than 90% in management discussion and analysis over two consecutive years, and zero otherwise.
ExcessiveDebt	The indicator variable that equals one if the excessive debt is greater than the industry average in the year, and zero otherwise.
OwnCapital	If the source of repurchase funds is only self owned funds, the value is 1.
FirstProgram	If the programme is the first open market share repurchase programme issued by listed company takes the value of 1.
Quickly	If the interval between the date of the first implementation of the repurchase and the date of announcement is less than the median interval of all repurchases programmes, taking the value of 1.
Intense	If the proportion of its actual share repurchase exceeds the median of the actual repurchase proportions within all announced repurchases programmes, taking the value of 1.
Completed	If the final monetary amounts of shares repurchased by a listed company is greater than or equal to the minimum repurchase amount specified in it repurchase programme, taking the value of 1.