Share Repurchase Motives by Taiwanese Firms

Abstract

Taiwanese firms must follow strict regulations when implementing repurchase programs. The mean (median) of completion rates is 69.2% (82.7%) for the purpose of cancelling and 68.0% (80.0%) for the purpose of transferring. We try to identify the factors determining the completion rate of a repurchaser. We find that OTC firms tend to be younger and are on the stage of expansion; hence they are less likely to write off its shares. In contrast, TSE firms are more mature and are more ready to cancel the shares when they decide to buy back shares. Besides, a repurchaser is characterized by higher ratio retained earning to total equity, lower leverage. There exist a complementary relation between dividends and repurchases. It is highly unlikely to find a firm buying back shares without history of paying dividends. Finally, we find no evidence supporting the free cash flows hypothesis; that is, the ratio of cash to total assets has no association with the repurchase decision.