Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v16y2023i9p403-d1235364.html
   My bibliography  Save this article

Determinants of Repurchase Size: Evidence from the UK

Author

Listed:
  • 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)

Abstract
The paper focuses on the factors that determine the size of an open market share repurchase in the UK. The testing covers the time period 1985–2014 and tests if the traditional motives for repurchasing shares also determine the size of the repurchase. The testing also checks if the influences of these determinants are non-linear, U-shaped or inverted U-shaped, which, to the best of our knowledge, is also a novel empirical approach. The consideration of non-linear influences on repurchase size is relevant due to the overlapping of repurchase determinants. For instance, if the distribution of excess cash is the motive for undertaking the repurchase and not replacing dividend distribution, then the influence of dividend distribution on repurchase size may conflict with the traditional expectation of repurchases being used as dividend replacements. The testing finds that the motive of using repurchases for signalling stock undervaluation has the most consistent influence on repurchase size, followed by the motives of adjusting the reported EPS when earnings are negative and for distributing surplus cash. The motive for using repurchases to adjust the capital structure to increase the debt exposure has a U-shaped influence on repurchase size, while board independence has an inverted U-shaped influence. Overall, when compared to the current literature, this paper is able to demonstrate that there is a strong consistency between the motives that lead to repurchases in the UK, and the determinants of repurchase size.

Suggested Citation

  • Adhiraj Sodhi & Cesario Mateus & Irina Mateus & Aleksandar Stojanovic, 2023. "Determinants of Repurchase Size: Evidence from the UK," JRFM, MDPI, vol. 16(9), pages 1-29, September.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:9:p:403-:d:1235364
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/16/9/403/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/16/9/403/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mitchell, Jason D. & Dharmawan, Grace V., 2007. "Incentives for on-market buy-backs: Evidence from a transparent buy-back regime," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 146-169, March.
    2. Rangan Gupta & Sheung-Chi Chow & Tahir Suleman & Wing-Keung Wong, 2019. "Long-Run Movement and Predictability of Bond Spread for BRICS and PIIGS: The Role of Economic, Financial and Political Risks," Journal of Reviews on Global Economics, Lifescience Global, vol. 8, pages 239-257.
    3. Andy Wui-Wing Cheng & Nikolai Sheung-Chi Chow & David Kam-Hung Chui & Wing-Keung Wong, 2019. "The Three Musketeers Relationships between Hong Kong, Shanghai and Shenzhen Before and After Shanghai–Hong Kong Stock Connect," Sustainability, MDPI, vol. 11(14), pages 1-20, July.
    4. Guest, Paul M., 2008. "The determinants of board size and composition: Evidence from the UK," Journal of Corporate Finance, Elsevier, vol. 14(1), pages 51-72, February.
    5. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    6. Dennis Oswald & Steven Young, 2004. "What Role Taxes and Regulation? A Second Look at Open Market Share Buyback Activity in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1‐2), pages 257-292, January.
    7. Akbar, Saeed & Poletti-Hughes, Jannine & El-Faitouri, Ramadan & Shah, Syed Zulfiqar Ali, 2016. "More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation," Research in International Business and Finance, Elsevier, vol. 38(C), pages 417-429.
    8. Dennis Oswald & Steven Young, 2004. "What Role Taxes and Regulation? A Second Look at Open Market Share Buyback Activity in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1-2), pages 257-292.
    9. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, vol. 89(1), pages 62-82, July.
    10. repec:bla:jfinan:v:58:y:2003:i:2:p:895-920 is not listed on IDEAS
    11. William F. Maxwell & Clifford P. Stephens, 2003. "The Wealth Effects of Repurchases on Bondholders," Journal of Finance, American Finance Association, vol. 58(2), pages 895-919, April.
    12. B. Douglas Berhheim, 1991. "Tax Policy and the Dividend Puzzle," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 455-476, Winter.
    13. Ikenberry, David & Lakonishok, Josef & Vermaelen, Theo, 1995. "Market underreaction to open market share repurchases," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 181-208.
    14. Andonova, Veneta & Ruíz-Pava, Guillermo, 2016. "The role of industry factors and intangible assets in company performance in Colombia," Journal of Business Research, Elsevier, vol. 69(10), pages 4377-4384.
    15. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    16. Ishikawa, Masaya & Takahashi, Hidetomo, 2011. "Testing the managerial timing ability: Evidence from stock repurchases in Japan," Finance Research Letters, Elsevier, vol. 8(1), pages 21-27, March.
    17. Bai, Zhidong & Wong, Wing-Keung & Zhang, Bingzhi, 2010. "Multivariate linear and nonlinear causality tests," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(1), pages 5-17.
    18. De Cesari, Amedeo & Ozkan, Neslihan, 2015. "Executive incentives and payout policy: Empirical evidence from Europe," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 70-91.
    19. Ji, Philip Inyeob, 2016. "Is corporate payout taxation a long run phenomenon? Evidence from international data," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 84-100.
    20. Lee, Chun I. & Ejara, Demissew Diro & Gleason, Kimberly C., 2010. "An empirical analysis of European stock repurchases," Journal of Multinational Financial Management, Elsevier, vol. 20(2-3), pages 114-125, July.
    21. Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-313, June.
    22. Mazzi, Francesco & Slack, Richard & Tsalavoutas, Ioannis, 2018. "The effect of corruption and culture on mandatory disclosure compliance levels: Goodwill reporting in Europe," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 31(C), pages 52-73.
    23. Dittmar, Amy K, 2000. "Why Do Firms Repurchase Stock?," The Journal of Business, University of Chicago Press, vol. 73(3), pages 331-355, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andriosopoulos, Dimitris & Hoque, Hafiz, 2013. "The determinants of share repurchases in Europe," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 65-76.
    2. Andriosopoulos, Dimitris & Lasfer, Meziane, 2015. "The market valuation of share repurchases in Europe," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 327-339.
    3. Ni‐Yun Chen & Chi‐Chun Liu, 2021. "Share repurchases and market signaling: Evidence from earnings management," International Review of Finance, International Review of Finance Ltd., vol. 21(4), pages 1203-1224, December.
    4. Renneboog, L.D.R. & Trojanowski, G., 2005. "Patterns in Payout Policy and Payout Channel Choice of UK Firms in the 1990s," Discussion Paper 2005-002, Tilburg University, Tilburg Law and Economic Center.
    5. Angeliki Drousia & Athanasios Episcopos & George N. Leledakis & Emmanouil G. Pyrgiotakis, 2023. "EU Regulation and open market share repurchases: new evidence," The European Journal of Finance, Taylor & Francis Journals, vol. 29(9), pages 1022-1042, June.
    6. Tai-Yuan Chen & Lie-Jane Kao & Hsing-Yu Lin, 2011. "The Long-Term Wealth Effect Of Share Repurchases Evidence From Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(2), pages 21-33.
    7. Andriosopoulos, Dimitris & Andriosopoulos, Kostas & Hoque, Hafiz, 2013. "Information disclosure, CEO overconfidence, and share buyback completion rates," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5486-5499.
    8. De Ridder, Adri, 2015. "Additional evidence on the frequency of share repurchases and managerial timing," The Quarterly Review of Economics and Finance, Elsevier, vol. 56(C), pages 154-164.
    9. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.
    10. Paul Tanyi & David B. Smith & Xiaoyan Cheng, 2021. "Does firm payout policy affect shareholders’ dissatisfaction with directors?," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 279-320, July.
    11. Drousia, Angeliki & Episcopos, Athanasios & Leledakis, George N., 2019. "Market reaction to actual daily share repurchases in Greece," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 267-277.
    12. Warwick Anderson & Wen Kang, 2018. "The Relative Announcement Effects of Ordinary Dividends, Special Dividends and Share Buybacks in New Zealand," Working Papers in Economics 18/02, University of Canterbury, Department of Economics and Finance.
    13. Chen, Ni-Yun & Chen, Kun-Chih & Liu, Chi-Chun, 2019. "Debt-financed repurchases and credit ratings with the respect of free cash flow and repurchase purpose," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 23-36.
    14. Mai, Nhat Chi, 2012. "Market timing, taxes and capital structure: evidence from Vietnam," OSF Preprints t3mvs, Center for Open Science.
    15. Zoubeida Benhamouda & Robert Watson, 2010. "A research note on the determinants of UK corporate share repurchase decisions," Applied Financial Economics, Taylor & Francis Journals, vol. 20(7), pages 529-541.
    16. Farrugia, Damien & Graham, Michael & Yawson, Alfred, 2011. "Economic conditions and the motives for multiple open-market share buybacks," Research in International Business and Finance, Elsevier, vol. 25(2), pages 156-168, June.
    17. Jacob, Martin, 2010. "Taxation, Dividends, and Share Repurchases: Taking Evidence Global," Working Paper Series, Center for Fiscal Studies 2010:10, Uppsala University, Department of Economics.
    18. Chuan‐San Wang & Norman Strong & Samuel Tung & Steve Lin, 2009. "Share Repurchases, the Clustering Problem, and the Free Cash Flow Hypothesis," Financial Management, Financial Management Association International, vol. 38(3), pages 487-505, September.
    19. Dimitris Andriosopoulos & Chrysovalantis Gaganis & Fotios Pasiouras, 2016. "Prediction of open market share repurchases and portfolio returns: evidence from France, Germany and the UK," Review of Quantitative Finance and Accounting, Springer, vol. 46(2), pages 387-416, February.
    20. Ndayisaba, Gilbert A. & Ahmed, Abdullahi D., 2021. "Demystifying the paradoxical popularity of stock buybacks in a market environment characterised by high stock prices," International Review of Financial Analysis, Elsevier, vol. 78(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:16:y:2023:i:9:p:403-:d:1235364. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.