The convey information regarding a share’s fundamental or

price support argument fulfills a central role in this thesis. Busch and
Obernberger (2016) assert that price support is one way by which repurchases
can improve the price efficiency of shares. In particular, they build on the
work of Hong, Wang and Yu (2008) whom model repurchases as a channel via which
firms can intervene when share prices drop and when other investors drive share
prices down to sub-fundamental levels. By this intuition repurchases can
improve efficiency as intervening at a certain price level provides a lower
bound for the share below which the price should not drop (Busch and Obernberger,
2016). Repurchases thereby convey information regarding a share’s fundamental or
intrinsic value. The price adjustment will contain less noise as the dropping
share price, conveying new negative systematic information, now has a lower
limit as a result of the share repurchase intervention (Busch and Obernberger,
2016). Hence, providing price support thereby increases a stock’s price
efficiency and reduces its idiosyncratic risk. The price support argument does
not imply managerial timing ability per se. Busch and Obernberger (2016) argue
that exhibiting timing ability is conditional on whether firms repurchase
shares above or below the intrinsic value. If firms repurchase above intrinsic
value, they merely manipulate stock prices. If firms repurchase below or at intrinsic
values they exhibit timing ability (Busch and Obernberger, 2016). Busch and
Obernberger (2016) provide empirical evidence that share repurchases indeed
support prices at intrinsic values and therefore improve price efficiency. Furthermore,
they find no evidence that managers manipulate prices. Repurchasing shares to
provide price support is an example of how the timing of repurchases can be
essential in achieving a desired impact.                                     Busch and Obernberger (2016) also
theorize about the potential impact share repurchases may have on the
information content of share prices. By blending the management incentive hypothesis with price impact, Busch and
Obernberger (2016) propose that share repurchases may in fact reduce the
information content of shares. Specifically, when managers use share
repurchases as a means to improve their own compensation, they intentionally
increase the share price          beyond intrinsic
values. This increase introduces noise into the share price, which ultimately
delays the assimilation of both idiosyncratic and market information (Busch & Obernberger, 2016). As a result, the
idiosyncratic risk of a share increases and the price efficiency decreases.  Busch and Obernberger (2016) reject this notion
as they find that US firms repurchase shares at and not above fundamental
values.     Both the motivation for and
the timing of share repurchases might induce a price impact on shares. The
ultimate price impact of a repurchase in relation to a share’s intrinsic value
largely determines whether a share repurchase has an adverse or a favorable
effect on the information content and price efficiency of shares.


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