Why Do UK Firms Repurchase Their Own Shares?

42 Pages Posted: 6 Mar 2019

See all articles by Elisabeth Dedman

Elisabeth Dedman

Business School

Shan Hua

Surrey Business School

Thanamas Kungwal

Keele University - Keele Management School

Multiple version iconThere are 2 versions of this paper

Date Written: February 14, 2019


We examine the practice of share repurchases in the UK. We find that an important regulatory reform in 2003, which relaxed previously strict rules about repurchases, was followed by a significant increase in repurchase activity by UK listed firms. However, unlike in the US, repurchases remain a small proportion of total distributions to shareholders. We test five key hypotheses from prior literature. Our analysis of a large sample of firms from 2000 to 2016 provides strong support, across both regulatory regimes, for both the free cash flow and the investment hypotheses. We find some support for both the undervaluation and the leverage/capital structure hypothesis in the first regime only. In contrast to the US, the dividend substitution hypothesis is not supported. In the UK, the extent of share repurchases remains relatively small, and they appear to be used as a complement to regular dividends, being made regularly, in an amount positively associated with dividends paid.

Keywords: Payout Policy (Share Repurchases), Regulation

JEL Classification: G35, G38

Suggested Citation

Dedman, Elisabeth and Hua, Shan and Kungwal, Thanamas, Why Do UK Firms Repurchase Their Own Shares? (February 14, 2019). Available at SSRN: https://ssrn.com/abstract=3334423 or http://dx.doi.org/10.2139/ssrn.3334423

Elisabeth Dedman (Contact Author)

Business School ( email )

Edge Hill University
Edge Hill University
Ormskirk, L39 4QP
United Kingdom

Shan Hua

Surrey Business School ( email )

Guildford, Surrey GU2 5XH
United Kingdom

Thanamas Kungwal

Keele University - Keele Management School ( email )

Darwin Building
Staffordshire, ST5 5BG
United Kingdom

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