A Study on the Differences in Adopting Cash Refund Capital Reduction and Stock Repurchase By Companies in Bull and Bear Stock Markets

This paper investigates the characteristic differences of variables relating to financial performance and corporate governance of companies in Taiwan implementing the policies of cash refund capital reduction or stocks repurchase, under considerations of market situations of bull and bear markets. Conversely, this paper employs Logistic regression to analyze how financial performance and corporate governance variables affect company decisions to choose the policies of cash fund capital reduction or stocks repurchase. According to the statistics, companies are more likely to conduct cash refund capital reduction in a bullish market period and stock repurchase in a bear market. The evidence results find that, companies have better profitability, lower debt ratio, higher foreign ownership, and increased potential growth opportunities in the period of cash refund capital reduction. Especially, in a bear market, the excellent characteristics of the sample company can be better highlighted by cash refund capital reduction. In the period of stock repurchase, the characteristic of a relatively higher level of privy ownership can be observed. According to the regression results, companies tend to adopt cash refund capital reduction when corporate profitability is better and have higher levels of foreign ownership. A company with greater cash flow per share and equity pledge ratio is more likely to adopt stock repurchase.