The main purpose of this paper is to investigate the announcement effects of stock repurchase on the stock prices and operating performance of firms listed on the Taiwan Stock Exchange by application of signaling theory and free cash f10w theory. Our primary finding is that the stock repurchases are mostly motivated by the intention of stabilizing and maintaining firm's stock prices. Stock repurchase announcement is accompanied with positive abnormal return. For firms with problem in liquidity, their operation performance has downtrend after stock repurchase. Furthermore, these firms have decrease in capital investment, return on assets and gross margin.