The Market Valuation of Share Repurchases in Europe. A Cross Country Analysis

Abstract

We analyse a uniquely constructed data set of share repurchases in France, Germany and the UK. We find significant differences across the three countries in the popularity of this strategy, in the market reaction and its determinants, and in the likelihood of subsequent share repurchase announcements. We show that in the UK, fundamental factors such as initial announcement, size, past returns, ownership concentration, and changes in regulations during our sample period explain the market reaction to the announcement of intention to repurchase shares. In the remaining countries, the excess returns are not persistent in the post-event period, and the fundamental factors do not consistently explain the market reaction and the probability of subsequent repurchases announcements. Our results suggest that institutional settings affect the value creation of share repurchases.

Keywords: Share repurchases, information asymmetry, undervaluation, ownership structure, regulatory frameworks

JEL Classification: G14, G15, G35