The Market Reaction to Repurchase Announcements

Adhiraj Sodhi (), Cesario Mateus, Irina Mateus and Aleksandar Stojanovic
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Adhiraj Sodhi: The Business School, University of Greenwich, London SE10 9LS, UK
Cesario Mateus: The Business School, Aalborg University, 9220 Aalborg, Denmark
Irina Mateus: The Business School, Aalborg University, 9220 Aalborg, Denmark
Aleksandar Stojanovic: The Business School, University of Greenwich, London SE10 9LS, UK

JRFM, 2023, vol. 16, issue 10, 1-28

Abstract: This paper investigates the drivers of the market’s reaction to share repurchase announcements in the UK and the related abnormality in stock performance. It uniquely captures the impact of globalisation in tandem with a variety of firm-level and macro-level determinants. We undertake multivariate OLS regression to test the determinants of the market’s reaction and find a negative influence when repurchases are tax-friendlier than dividends if there is high debt exposure and economic globalisation is rising, with a positive influence when the company has a history of distributing above average dividends. To quantify the short-term price abnormality, we employ event study analysis, and the findings compute positive (insignificant) stock price abnormality for nonfinancial (financial) firms. For long-term stock price abnormality, we compare against the FTSE 100 by computing annual geometric stock performances. The findings indicate a negative (insignificant) stock price abnormality for nonfinancial (financial) firms. The results can aid corporate management in improving repurchase timing, aid in the decision making of financial practitioners when trading or investing in repurchasing firms, and assist policymakers in mapping more efficient fiscal and cross-market trade frameworks.

Keywords: repurchases; reaction; abnormal returns (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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