THE INFORMATION CONTENT OF SHARE REPURCHASES – EVIDENCE FROM POLAND
Share repurchase is a phenomenon that has recently been thoroughly studied around the world. Despite being seen as a substitution for dividends and a tool for distributing excess cash, it would appear that there are more reasons for repurchasing shares and more complex problems than only distributing excess cash to shareholders. The bulk of the research concerns the market reaction to the announcement and implementation of share repurchase programmes. We attempt to ascertain the market reaction to the announcement of share repurchases and to determine the reasons for the reaction. We assume that share repurchase programmes might be explained by the agency theory or signalling theory. We expect that share repurchases convey valuable information to the investors because of the separation of ownership and management. We seek to identify what kind of information the share repurchase conveys.
Jméno a příjmení autora:
Elżbieta Wrońska-Bukalska, Bogna Kaźmierska-Jóźwiak, Jiří Rozkovec
Share repurchase, event study, market reaction, signaling theory, agency theory
DOI (& full text):
Announcements of open market repurchase programmes have recently become common not only in the United States but also in many other, less developed countries. The aim of the paper is to examine the…více
Announcements of open market repurchase programmes have recently become common not only in the United States but also in many other, less developed countries. The aim of the paper is to examine the market reaction to share repurchase announcements and to investigate the reasons for the market reaction. There is a good deal of research referring to the share repurchases, even in Poland, the originality of our approach is that we conducted our research on an alternative system of trading to the Warsaw Stock of Exchange, namely NewConnect. NewConnect is dedicated to young, small and innovative companies. We found it extremely interesting that such companies in need of external ﬁnancing take the decision to distribute cash and implement share repurchase.
The data was collected for 64 share repurchase announcements over the period 2007-2016. In this study cumulative average abnormal returns are applied to identify the market reaction. To investigate the factors which drive investor behaviour we applied the regressions model. We employed some explanatory variables describing the agency theory and signalling hypotheses: relative payout, market to book ratio, operational cash ﬂow, and debt ratio. We found that cumulative average abnormal returns around the share repurchase date are signiﬁcant at standard levels of conﬁdence in all the analysed event windows. The results of the multivariate and univariate regression analyses do not support the undervaluation hypothesis, as we expected.