Economic Shocks and Share Repurchases

Abstract

The external environment affects firm payout policies. A firm’s behavior during positive and negative external shocks could be different from what theories have postulated. Several theories have been proposed for share repurchases. Using the financial crisis and quantitative easing period as a background, we test these theories. Based on our empirical tests, we find firms that have higher cash flows, lower leverage, fewer financial constraints, pay smaller/or no dividends, or higher takeover probabilities are more likely to announce repurchase programs across both periods. However, the popular motives for share repurchase are inconsistent in explaining related aspects such as size of the repurchase program, actual share repurchases, and completion.

Keywords: Share Repurchases, Economic Shocks