Share Repurchases Research Articles

The Heterogenous causality of repurchases: Analysis from the aspect of share collateralization

We explore the unique heterogeneity feature of the Chinese market to examine the relationship between firms' share collateralization by its largest shareholders and corporate repurchases. Furthermore, we analyze the divergent incentives resulting in different consequences for the performance of private firms and state-owned enterprises (SOEs). The policy effect of an amendment to the Company Law of the People's Republic of China is studied using the difference-in-differences method. The measure is changed to ensure the reliability and robustness of the causality results between collateralization and repurchases. The results show that higher collateralization increases the likelihood of firms' share repurchases. The repurchase incentive of firm performance diverges between private firms and SOEs. Some SOEs even attempt to support the policy and blindly herd to repurchase shares; however, when SOEs are assured of their operational efficiency, repurchases increase their profitability. Private firms use repurchases as a share price stabilizer to protect the interests of their large shareholders rather than to benefit minority and small shareholders. These results provide policy feedback and demonstrate the complexity of controlling for corporate incentives when market interests are highly mixed.

Multivariate Regression Analysis of the Impact of Open Market Share Repurchase Activity on the Malaysian Market

This research thesis revolves around the need to understand the relationship between share repurchases and the share price behavior of companies listed on Bursa Malaysia on a more recent basis given the economic stability in Malaysia and throughout the world from 2017 to 2021. It started in the West and reached maturity in the 1980s in the United States, but it only began in Malaysia in the 1990s. The studies of share repurchase are still considered an infant in Malaysia as in other countries throughout the world, companies pursue share repurchases for several reasons mainly to signal undervaluation, reward shareholders, defend against the takeover, utilize financial resources efficiently, and many more motives that are interesting for researchers to look at. Unlike other studies that look at announcement dates, since an announcement does not mean the companies will implement the transactions, this research is important since it looks at and analyzes the actual effective repurchase day done by established firms which is are most crucial aspect in analyzing the consequences and the results are that it shows positive abnormal mean returns for most of the companies. Event study methodology was used since this is the best empirical research method and as empirical evidence to analyze abnormal returns from all the other studies. The days observed are 120 days before and after the announcement. Returns for the estimation window, event window (repurchase day), and post-event window were analyzed to see the effects of price movement on repurchase activities at Bursa Malaysia (BSKL).

Why Do Companies Share Buybacks? Evidence from the UK

We examine the key drivers behind management decisions on share repurchase from various theoretical perspectives, including the free cash flow theory and the signaling theory/hypothesis. Specifically, we investigate the relationship between share repurchase and three key drivers: surplus cash, undervaluation, and leverage, along with several control variables. Using a sample of UK-listed non-financial companies from 2012 to 2022, we apply logistic regression, standard OLS regression, and Tobit regression to identify the factors influencing share repurchase. Our findings reveal that firms repurchase shares to distribute cash to shareholders with surplus cash and Surplus investing cash flow. This study also finds that undervalued smaller firms with lower market-to-book ratios and lower leverage are more likely to repurchase shares. Our study highlights the key factors motivating companies’ share repurchases, such as undervaluation, surplus cash, and leverage, examined from various theoretical perspectives, including the free cash flow theory and signaling theory. Focusing on the UK context, as well as adding a new angle in regard to applying logistic regression, standard OLS regression, and Tobit regression in combination, this research contributes to the existing body of knowledge in corporate finance. The outcome of the study has plausible implications for financial managers and investors in selecting stocks. Its practical implications will help investors gain a better understanding of the factors and forces influencing share repurchase decisions.

How Do Short-Term Incentives Affect Long-Term Productivity?

Abstract Previous research shows that incentives to meet short-term earnings targets can cause firms to increase share buybacks, leading to cuts in investments and employment. Using plant-level census data, we find that incentives to engage in earnings-per-sharemotivated buybacks result in lower productivity at both the plant and firm level. We attribute this productivity drop to two mechanisms: reduced investment in productivityaugmenting technology, and inefficient allocation of resources across a firm’s plants. We identify multiple frictions—including labor unions, financial constraints, agency problems, and adjustment costs—that can constrain efficient reallocations across plants and thus exacerbate the consequences of firms’ short-term incentives. (JEL G32, G35, J23).

Conflicting signals: A study on firms announcing share repurchases soon after seasoned equity offerings

Conflicting signals: A study on firms announcing share repurchases soon after seasoned equity offerings

Do dividends and share repurchases convey information about financial strength? An exploration of the disparities between banks and industrial firms

AbstractDiffering from prior literature, this article suggests dividends are positively associated with financial strength for both financial institutions (i.e., banks) and non‐financial firms (i.e., industrials), and that this relationship is much more pronounced for banks. We also find that the signaling impacts of dividend changes on financial strength are asymmetric for these two groups as a decrease (increase) in dividends is more powerful than an increase (decrease) for banks (industrials). This suggests that dividend cuts send a more significant negative signal of bank financial strength than similar decreases by industrial firms, and that dividend increases say more about industrials' improvements in financial strength than those by banks. Similar to dividends, share repurchases are indications of financial strength for industrials but not for banks. This suggests that share repurchases serve more as a buffer (substitute) of dividends for banks (industrials).

The business cycle’s influence on share repurchases of the UK

<p style="text-align: justify;"><span style="font-family: 'times new roman', times, serif; font-size: 14pt;">The UK fully legalised open market share repurchases in 1981, and to our knowledge no study has investigated the business cycle’s influence on repurchase decision-making. We address this aspect and investigate the period 1985-2014. This is relevant as the business cycle factors impact the firm-specific variables such as cash flow, profitability, dividends and capital structure, and these factors traditionally influence repurchase decisions. This forms the paper’s theoretical intuition, and the empirical objectives test the business cycle’s influence on the decision to undertake a repurchase, and also its influence on repurchases values. The results find that the business cycle influences both the decision of undertaking repurchases and repurchases’ values, and this influence has aggregately remained positively associated with economic prosperity. Thus, the frequency of repurchase announcements by British firms is more probable during prosperous economic circumstances. The results also reveal that the repurchase-business cycle relationship witnessed a structural break in 1996:Q2, and the real difference following this break is the increase in the business cycle’s influence on the decision regarding repurchase values. The paper thus contributes to existing literature by directly testing the UK’s repurchase-business cycle relationship, and providing detailed empirical evidences that business cycle conditions strongly impact the repurchase decision-making.</span></p>

Family performance following share repurchases, information asymmetry and interest alignment

Little attention has been paid to how the information asymmetry, agency costs of free cash flow and the controller involvement in the board contribute to the difference in the performance between family and non-family firms following share repurchase announcements. This study aims to make clear the above associations. This study uses OLS multiple regressions to examine the difference in the operating and market performance between family and non-family firms over two years following the repurchase announcements in a sample that contains 3800 announcements over the period 2000 and 2017. We find that family firms have better performance than non-family firms. We also find that free cash flow is positively associated with performance, and the association between performance and free cash flow is weaker for family firms than for non-family firms. Furthermore, these findings become increasingly significant when family controllers have a lower degree of involvement. Our results indicate that family firms, especially those with a lower degree of controller involvement, prefer repurchases to mitigate information asymmetry and increase interest alignment.

Deregulating the Volume Limit on Share Repurchases

We empirically advocate for UK regulators to increase the volume limit of 15% outstanding shares on open market repurchases. Our main framework initially tests the determinants of share repurchases based on their size, Small, Medium and Large. The findings reveal that consistent with extant literature, the payout is primarily determined by its capability of distributing excess cash to shareholders and signaling undervaluation. We then check the viability of increasing the volume limit by testing new levels at 2.50% increments, up to 30%. The results indicate that any increase does not broadly change the determinants’ relationship with the payout, rather increased efficiency is realized at every interval, with the 20% and 30% levels being the most favorable.

Passive Investment and Share Repurchases

SYNOPSIS We investigate the association between passive investment and share repurchases, both of which are at historically high levels and the subject of increased scrutiny. We first document that firms with more passive ownership exhibit higher levels of repurchase activity. Next, and more importantly, we find that firms with passive ownership conduct more “suspect” repurchases that result in reported earnings that meet or beat analysts’ earnings forecasts, and this effect is more pronounced for firms with performance-based equity compensation incentive plans. We also find that repurchase activity more negatively affects firms’ future employment, capital expenditures, and performance when the firm has more passive owners. We conclude that passive investment is associated with an increase in the quantity and a reduction in the quality of firms’ repurchase activities. Our study provides evidence that passive institutional investment may allow opportunistic management behavior rather than serving the monitoring role traditionally associated with institutional ownership. Data availability: Data are available from the public sources cited in the text. JEL Classifications: M41; G32; G35.

Analysis of Motivation and Financial Effects of Stock Repurchase by Listed Companies Based on Tencent Holdings

With the gradual improvement of various systems in China's securities market, the advantages of stock buybacks have emerged, and the research object of this paper is the stock buyback event of Tencent Holdings in 2022. Through a comparative study of the financial data of Tencent Holdings, it is found that the motivation of Tencent Holdings' share repurchase includes (mainly potential motivation) the following, i.e., to improve the stock price, to improve the earnings per share, to optimize the capital structure of the enterprise, and to make full use of the cash flow. Tencent Holdings attempts to signal to investors that the company's share price is severely undervalued through share repurchases, attracting the attention of market investors, stabilizing and enhancing the share price, and increasing the overall market value of the enterprise. After analyzing the relevant financial indicators, this paper finds that share buybacks have no impact on Tencent Holdings' good solvency and profitability, which can enhance its operating capacity, and have not affected its shareholding structure. Against this background, this paper focuses on the motivation of Tencent Holdings' large-scale share buybacks on the Hong Kong Stock Exchange, as well as the chain reaction after the buybacks, and whether it can bring a positive financial effect to the enterprise is of significant significance to the maintenance of the listed company's market capitalization.

Share repurchase and cash holdings: Evidence from China

This paper empirically examines the impact of share repurchase on corporate cash holding decisions by selecting A sample of stock repurchase of A-share listed companies in Shanghai and Shenzhen from 2007 to 2020. The results show that share repurchase can reduce the level of corporate cash holdings, and there is heterogeneity in financing constraints, dividend distribution and investment opportunities.

Examining the Decision Matrix between Dividends and Share Repurchases in Corporate Finance

Examining the Decision Matrix between Dividends and Share Repurchases in Corporate Finance

Announcement effect of tender offer share buyback around turmoil period – evidence from India

The announcement of a buyback informs the market about the company’s decision to repurchase its own shares. This announcement highlights the company’s price valuation and the inefficiencies that exist in the market. This study examines the share buyback announcement effect during the COVID-19 period. The study considered the stocks listed in the National Stock Exchange (NSE) that offered share buyback under tender offer mode during the pre-pandemic period between April 2016 and February 2020 and the post-pandemic period between March 2020 and March 2022. 75 firms in the pre-pandemic period and 43 in the post-pandemic period that announced share buyback under the tender offer method were analyzed. The event study methodology using a market model was employed to determine the presence of abnormal returns during the event period, which consisted of –21 days and +21 days. The findings of the study revealed the existence of abnormal returns in and around the announcement date. Besides, statistically significant cumulative abnormal average returns (CAAR) were also found on the event day, i.e., on Day 0. The study found that the impact of buyback announcements on stock returns significantly differed before and after COVID-19 for 10 and 21-day periods, with no significant differences for shorter periods. These insights can help traders and fund managers make informed portfolio adjustments during turbulent market periods surrounding buyback announcements. AcknowledgementThe authors express their sincere gratitude and special thanks to Dr. Krishna T.A., Assistant Professor, Department of Professional Studies, School of Commerce, Finance and Accountancy, CHRIST (Deemed to be University), Bangalore, India, for encouraging, motivating and providing all the required support throughout this empirical investigation and to accomplish this research task.

The quality of political signals and corporate payouts

ABSTRACT This study contributes to the broader field of financial economics by highlighting the important role of the quality of political signals in shaping corporate financial strategies. Using a sample of 17,635 US firms over the period 2001–2021, this paper examines how corporate payouts respond to low-quality political signals. We find evidence that such signals trigger corporate precautionary behaviour, leading to more conservative payout policies. Given the stickiness of dividends, we find that firms prefer cutting share repurchases over cash dividends.

Performability of Valuation Adjustment Mechanism: Value Judgements at the Normative Level

On the occasion of a valuation adjustment mechanism, the main conflict of profit occurs between the shareholders of the repurchasable shares and the creditors of the target company. Since the introduction of the Minutes of the national courts' civil and commercial trial work conference (Minutes), the academic debate on the valuation adjustment mechanism has centred on the enforceability of the share repurchase clause therein. If the dispute is dealt with according to the literal meaning of Article 5(2) of the Minutes, it is not only detrimental to the maintenance of transaction security, but also systematically in conflict with Article 579 of the Civil Code of the Peoples Republic of China (hereinafter referred to as Civil Code) systematically. Therefore, by means of systemic interpretation, Article 5(2) of the Minutes can be limited to the case of insufficient distributable profits in order to achieve the harmonisation of the normative system.

Stock Liquidity Sidedness and Share Repurchase

We show that stock liquidity sidedness plays a vital role in share repurchase decisions. Specifically, we investigate whether share repurchases are affected differently by upside and downside liquidity, which respectively correspond to positive and negative return days. Using a sample of U.S. publicly-listed firms over four decades, we demonstrate that upside liquidity has a larger effect on repurchase initiation, amount, and ratio. Managers of repurchasing firms are more concerned with upside liquidity because they expect their repurchase activities to propel stock prices upward rather than down. The relationship between liquidity sidedness and repurchase decisions is more pronounced for financially constrained firms but less so for firms with higher stock price informativeness. We mitigate potential endogeneity concerns by using the market and industry liquidity sidedness as instruments and exploiting the 2003 Amendment to SEC Rule 10b-18 as an exogenous shock to the information advantages of repurchasing firms. Overall, our findings underscore the importance of market microstructure in shaping corporate policies.

Research on the Motivation and Effect of "Deceptive" Share Repurchase—Take Orient Group Incorporationas an Example

With the continuous improvement of China's share repurchase system, the policy optimization actively promotes the application of share repurchase in the capital market, and makes it become a common way for listed companies to manage market value. However, the problems presented by listed companies in the implementation of share repurchase plans have gradually been exposed, especially the frequent occurrence of "deceptive" repurchase, which has become the focus of the market. In order to solve this problem, China has issued detailed rules for the implementation of share repurchase, clearly emphasizing the prevention of "deceptive" repurchase, aiming at guiding listed companies to operate in compliance. However, due to the low cost of violation, most listings still fail to comply with the standards and continue to appear "deceptive" buyback behavior. Therefore, by analyzing the motivation of listed companies to implement "deceptive" share repurchase behavior and the economic consequences, this paper provides a warning for investors, urges listed companies to self-examine the share repurchase plan, and puts forward regulatory suggestions for the regulatory authorities to be optimized.

Better things to do or doing nothing at all? – the implications of incomplete share repurchase programs

Better things to do or doing nothing at all? – the implications of incomplete share repurchase programs

Assessing the Factors Influencing the Choice between Dividends and Share Repurchases

Assessing the Factors Influencing the Choice between Dividends and Share Repurchases