Stock Repurchase Purposes, Firm Valuation, and Market Reactions: Evidence from Korea

This study examines stock market reactions to share repurchase announcements by firms listed on the Korean Stock Exchange from 2015 to 2024. Unlike the U.S. market, where share repurchases are generally viewed as a shareholder-friendly signal of strong firm performance, Korea’s institutional environment permits relatively discretionary treasury stock transactions, potentially leading to heterogeneous investor responses. Using an event-study methodology, we analyze short-term abnormal returns around repurchase announcements, differences across stated repurchase motives, and the moderating role of firm valuation. We document significantly positive short-term abnormal returns following repurchase announcements, consistent with signaling-based explanations. However, these positive market reactions are driven exclusively by repurchases explicitly intended to enhance shareholder value. Furthermore, the market response to shareholder-value-oriented repurchases is significantly stronger among firms with lower valuation levels, suggesting that undervaluation enhances the credibility of repurchase signals. Overall, our findings indicate that repurchase announcements are not interpreted uniformly in the Korean market. Instead, investors condition their reactions on both managerial intent and firm-specific valuation contexts. By jointly considering repurchase motives and valuation effects, this study contributes to the literature by showing that the informational content of repurchase announcements is contingent rather than universal, and that signaling effects materialize primarily when managerial actions align with credible undervaluation signals.