Abstract
Share repurchases have been widely used in global markets for years for various purposes such as to pay out cash, to stabilize stock prices, and so on. However, their use has recently been challenged due to the economic and financial uncertainty imposed by the COVID-19 outbreak. Not only governments have put bans or restrictions on the repurchasing transactions but also some major companies themselves have suspended their buyback programs to preserve cash. On the other hand, repurchase activity has manifested itself in Turkish capital markets somewhat unexpectedly under uncertain market conditions. This study is one of the first attempts to explore the impact of share repurchase transactions on stock returns in an emerging market severely hit by COVID-19. Our analyses reveal that market reaction to repurchase activity in the aftermath of the pandemic declaration of March 11, 2020 was significantly positive. Moreover, short-term stock performance of repurchasing firms was far greater than that of their non-repurchasing peers. These results have important policy implications in terms of corporate payout decisions which have recently been challenged by the new coronavirus.
Highlights
Stock markets that have already been showing a sharp declining trend for some time under the uncertainty of the COVID-19 outbreak, literally collapsed almost everywhere with the declaration of pandemic alert by the World Health Organization1 3 Vol.:(0123456789)Eurasian Economic Review (2021) 11:381–402(WHO) on March 11, 2020
Zhang et al (2020) point out the great uncertainty caused by the pandemic which has led to increased volatility and unpredictability in global markets
Data used in the event study regarding stock prices and share repurchase transactions are retrieved from Borsa Istanbul and Public Disclosure Platform,11 respectively
Summary
Stock markets that have already been showing a sharp declining trend for some time under the uncertainty of the COVID-19 outbreak, literally collapsed almost everywhere with the declaration of pandemic alert by the World Health Organization. We are of the view that the signaling power of share repurchases should not be ignored since they may serve as a credible tool for managers in conveying to investors that the true value of their firm is higher than its current market value (Hackethal & Zdantchouk, 2006), in turbulent times (Stonham, 2002) such as the global financial crisis of 2008–2009 (Chen et al, 2018) In this regard, it is worth exploring why firms may have preferred to buy their shares back instead of holding cash for precautionary purposes. This limitation was extended for a further three months with a Presidential Decree (Decree No 2948, Date: 18.09.2020) until 31.12.2020 and was eventually repealed as of 1.1.2021. 6 Note that, there is one strand of literature arguing that share repurchases complement cash dividends (Dittmar, 2000; Jagannathan and Stephens, 2003). 7 Capital Markets Board of Turkey is the public authority responsible for regulating the Turkish securities markets with functions analogous to those of the SEC
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