Intraindustry effects of bank stock repurchases

Bank stock repurchases have become increasingly popular over time. Because of the unique capital requirements and regulatory constraints on the use of bank funds, the intraindustry effects of bank stock repurchases may differ from intraindustry effects of stock repurchases by other firms. We find th at bank stock repurchases result in a positive and significant valuation ef fect for the repurchasing banks. Moreover, we find positive significant int raindustry effects of bank stock repurchases, unlike previous research by H ertzel on firms from numerous industries that found no evidence of intraind ustry effects in response to stock repurchases. We attribute the difference in results to the unique characteristics of the banking industry, which re sults in a less ambiguous signal emitted from the stock repurchase announce ment. In addition, we find that the intraindustry effects are more favorabl e when the valuation effect for the repurchasing bank is more favorable. Th is implies that the degree of signal to the industry is conditioned on the degree of signal about the bank that is repurchasing its shares. Furthermor e, intraindustry effects are more favorable when the capital position of ri val banks is high, when the proportion of residential loans of rival banks is low, and when the announcing bank is a money center bank.