Signaling theory is a heavily researched topic in the business field. This research uses the act of a stock repurchase and analyzes whether this provides a signal regarding the operating performance of the firm. Consistent with the market timing theory of stock repurchase, we find that companies experience better operating performance in the period with a repurchase. This effect is robust to multiple model specifications and estimation methods. The signaled effect of a stock repurchase is $109,601 on EBITDA for an average firm in our sample. Taken together, the results imply that stock repurchase can be used as a credible signal for firm performance. This result adds to the literature by identifying the commonly practiced activity of stock repurchase and demonstrating the significance of the information content in assessing firm performance.



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