How Does Regulation Fair Disclosure Affect Share Repurchases? Evidence from an Emerging Market

  •  Jin-Young Jung    
  •  Hyung-Eun Choi    


This paper analyzes how Regulation Fair Disclosure (Reg FD hereinafter) affects share repurchases in an emerging market where information asymmetry problem is severe. The results indicate that the frequency of bad news disclosures and the size of negative excess return in the KOSDAQ market increase in a statistically significant manner prior to share repurchase, while the frequency of good news disclosures increases after share repurchase. This is consistent with the hypothesis that firms show opportunistic behavior of buying their own stocks at a low price by taking advantage of fair disclosures. In order to analyze the cause of the opportunistic behavior, we examine variables, such as the number of stock options held by the management and the ratio of shareholding by CEO and related parties. We find empirical evidence that the stock compensation ratio for the management shows a positive relationship with good news disclosures following the completion of share repurchase. Our findings suggest that there exists information distortion in Reg FD in order to protect the management’s ownership interest in Korean stock market.

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