Stock resale: A mirror image of repurchase in Thailand.

Abstract

This study examines the resale of the stocks previously repurchased. Many literatures explains that the market responds positively to the repurchase because investor takes repurchase announcements as good signal and stock as undervalued. Similarly it is anticipated that the market responds negatively to the resale announcement because of the reverse signal and taking the stock as overvalued. This paper uses signaling hypothesis and the reverse signaling hypothesis to test the motivation behind the resale, which is believed to be the mirror image of repurchases. The result supports the reverse signaling hypothesis that the stock is overvalued before the resale announcement. It also indicate that the firms that implement repurchase without resale are not undervalued stocks whereas repurchases with resale these stocks are undervalued yet in both repurchases the market reacts positively to the announcement which supports our signaling hypothesis for repurchase. There are some reactions from investors to the resale, to repurchase with resale and to repurchase without resale announcements. We also find that investor trading do no effect the stock returns of the resale firms however we can better estimate the stock returns of the repurchase firm with resale than repurchase without resale from the investor type trading especially on the event period of repurchase announcement. We also check the market reaction to the actual resale day, however we find that market do not react to the actual resale activity as it does to the announcement. KEY WORDS: Stock resale / Resale / Repurchase / Mirror image of repurchase