| How Are Stock Prices Affected by the Cheap Talk? |
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Wonn Ho Choi, Jin Young Jung |
| How Are Stock Prices Affected by the Cheap Talk? |
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최원호, 정진영 |
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| Abstract |
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This study examines whether cheap talk affects the stock market over short-term and long-term time periods. Cheap talk, which is neither costly nor binding, can be defined as a kind of non-fundamental sentiment shock. A good example of cheap talk is the disclosure of repurchase motives in the Korean stock market in that repurchasing companies are required to report their repurchase motives, however, not forcing the ex post implementation. To check how the stock market reacts to cheap talk, we divide cheap talk into good and bad talk. Cheap talk classified as good talk involves repurchase motives that support outside investors, such as stabilizing stock prices and share retirement, whereas bad talk involves repurchase motives intended for insiders, such as to provide employee and executive incentives and to entrench management. After controlling for firm characteristics, we found that over the short-term time period, repurchase motives grouped as bad talk deliver significantly negative signals to the market. However, over long-term time periods, again controlling for firm characteristics, the market`s reactions to both good talk and bad talk on stock repurchase disclosures are indistinguishable. These results imply that market participants react partially to cheap talk in the short-term only. |
| Key Words:
시장 반응,자사주 매입,자사주 매입 목적,행태 재무학,Behavioral Finance,Cheap talk,Cheap Talk,Market Reaction,Repurchase Motives,Share Repurchase |
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