Abstract
We analyze a uniquely constructed data set of open market share repurchases across a sample of European firms. We find that the announcement date market reaction is lower than that in the US, mainly because of (i) the relatively large number of recurring announcements which generate significantly lower returns than the initial announcements of intention to repurchase shares; (ii) the rather low market reaction in France, due probably to specific governance and corporate cultural issues; and (iii) the regulatory reform that allowed UK firms to keep the repurchased shares as treasury stock, which decreased their market impact. Across our countries, taxation, shareholder protection, and the European Union’s Market Abuse Directive do not affect significantly the market valuation of repurchases. Our results imply that ultimately, domestic institutional specificities and reforms play significant roles in the market valuation and popularity of share repurchases.
Highlights
Previous studies document a positive stock price reaction to the announcement of intention to repurchase shares
We find that the November 2003 regulatory change in the UK, which allowed repurchases to be kept as treasury stock, affected substantially the market valuation of share repurchases as the announcement date market reaction decreased significantly from 2.95% to 0.72%
We analyze the impact of various cross-country institutional settings on the market reaction to the announcement of open market share repurchases across major European countries
Summary
Previous studies document a positive stock price reaction to the announcement of intention to repurchase shares. Since Panel B shows that the announcement date excess returns are not statistically different across these two periods, we conclude that the implementation of this reform does not have a significant effect on the market reaction to repurchases in the UK, in line with France, above This is probably because most of the directive’s new requirements, including the disclosure of the objective of the program, the maximum number of shares to be acquired, and the duration of the period for which authorization for the program has been given, are similar to the national regulation, and, they were already undertaken by firms in these countries.
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