The effect of repurchase regulations on actual share reacquisitions and cost of debt

Abstract

Share repurchase regulations are increasingly important in disciplining repurchasing firms as share repurchases gain popularity across the world. We evaluate the level of strictness in firms’ share repurchase regulations from three respects, approval, separate disclosure, and time limit. Among the repurchase regulations studied, the stricter ones feature additional requirements in all three respects. Drawing from examples in thirteen countries across Europe, North America, and Asia, the results show that strict repurchase regulations are negatively associated with actual share repurchases and the cost of debt. Moreover, the results show that the association between the strict repurchase regulations and actual share repurchases is positive in code-law countries as compared to the common-law countries while its association with the cost of debt is more negative in code-law countries with weaker legal protection. Thus, our study provides evidence that tightening repurchase regulations complements the weak legal protection provided by code-law countries.