Measuring Share Repurchases
41 Pages Posted: 20 May 2005
Date Written: August 2005
We examine the accuracy of various approximations of firms' repurchases of common stock used in previous studies, and find that decreases in shares outstanding as reported by CRSP and purchases of common stock and preferred stock (adjusted for changes in preferred stock) are good measures of actual repurchases. We also examine how characteristics such as option usage and the announcement of repurchase programs affect the measures. Compustat purchases of common and preferred stock (adjusted for the change in preferred stock) is the most accurate measure of actual repurchases, particularly for firms with high stock options. Further, the choice of proxy can significantly impact research results. Compustat purchases of common stock is the only estimate of actual repurchases that detects the positive relation between repurchases and employee stock options in a multivariate setting.
Keywords: stock repurchases, methodology
JEL Classification: G30, G35
Suggested Citation: Suggested Citation