Open Market Share Repurchases in Germany: A Conditional Event Study Approach

Forthcoming Abacus, A Journal of Accounting, Finance and Business Studies

35 Pages Posted: 18 Jul 2014 Last revised: 8 Apr 2016

See all articles by Christian Andres

Christian Andres

WHU - Otto Beisheim School of Management

André Betzer

BUW- Schumpeter School of Business and Economics

Markus Doumet

BUW- Schumpeter School of Business and Economics

Erik Theissen

University of Mannheim - Finance Area

Multiple version iconThere are 2 versions of this paper

Date Written: December 2, 2015

Abstract

We analyze the decision to announce an open market share repurchase and the share price reaction to the announcement. We use a conditional estimation approach which takes into account that the repurchase decision is made rationally and that, consequently, there is a potential selection bias. This approach requires a "non-event sample" of firms that could reasonably be expected to announce a repurchase but did not. The specific institutional rules for share repurchases in Germany allow us to construct such a sample. We find that a conditional approach yields results that are qualitatively comparable but differ in detail from those obtained using a non-conditional approach. We confirm earlier findings of negative share price performance prior to the repurchase announcement and positive and significant announcement day abnormal returns. The results of our probit models are consistent with the free cash flow hypothesis and provide at least partial support for the rent extraction, signalling, and capital structure hypothesis. The results of the cross-sectional regressions provide support for the signalling hypothesis once we control for selection bias.

Keywords: Repurchases, Event Study, Selection Bias

JEL Classification: G14, G35

Suggested Citation

Andres, Christian and Betzer, André and Doumet, Markus and Theissen, Erik, Open Market Share Repurchases in Germany: A Conditional Event Study Approach (December 2, 2015). Forthcoming Abacus, A Journal of Accounting, Finance and Business Studies. Available at SSRN: https://ssrn.com/abstract=2467543 or http://dx.doi.org/10.2139/ssrn.2467543

Christian Andres

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

André Betzer (Contact Author)

BUW- Schumpeter School of Business and Economics ( email )

Gaußstraße 20
Wuppertal
Germany

HOME PAGE: http://finance.uni-wuppertal.de/index.php?id=1153

Markus Doumet

BUW- Schumpeter School of Business and Economics ( email )

Gaussstrasse 20
Wuppertal, 42119
Germany

HOME PAGE: http://finance.uni-wuppertal.de/

Erik Theissen

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

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