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An empirical analysis of European stock repurchases

  • Lee, Chun I.
  • Ejara, Demissew Diro
  • Gleason, Kimberly C.
Registered author(s):

    In this paper, we examine the share price effects and determinants of share repurchase programs for French, German, Italian, and British firms. Like US firms, we find that German and Italian share repurchases are met with a positive and significant share price response. However, British repurchase announcements exhibit small positive abnormal returns, and abnormal returns for French share repurchases are insignificantly different from zero, both results being quite different from results found in studies of US firms. We also investigate the determinants of the size of the share repurchase program. Our results indicate support for the Undervaluation Hypothesis and the Takeover Deterrence Hypothesis, and provide partial support for the National Investment Opportunity Set Hypothesis. Our results from our analysis of cumulative abnormal returns are also consistent with the Undervaluation, Takeover Deterrence, and National Investment Opportunity Set Hypotheses. However, we do not find support for the Excess Capital Hypothesis, the Intangibility Hypothesis or the Optimal Leverage Ratio Hypothesis.

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    File URL: http://www.sciencedirect.com/science/article/B6VGV-50KWFY9-2/2/33a4c979e2956a9f258f67e610dd7301
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    Article provided by Elsevier in its journal Journal of Multinational Financial Management.

    Volume (Year): 20 (2010)
    Issue (Month): 2-3 (July)
    Pages: 114-125

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    Handle: RePEc:eee:mulfin:v:20:y:2010:i:2-3:p:114-125
    Contact details of provider: Web page: http://www.elsevier.com/locate/mulfin

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    1. Renneboog, L.D.R. & Trojanowski, G., 2005. "Patterns in Payout Policy and Payout Channel Choice of UK Firms in the 1990s," Discussion Paper 2005-22, Tilburg University, Center for Economic Research.
    2. Ikenberry, David & Lakonishok, Josef & Vermaelen, Theo, 1995. "Market underreaction to open market share repurchases," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 181-208.
    3. Clifford P. Stephens & Michael S. Weisbach, 1998. "Actual Share Reacquisitions in Open-Market Repurchase Programs," Journal of Finance, American Finance Association, vol. 53(1), pages 313-333, 02.
    4. Stehle, Richard & Seifert, Udo, 2003. "Stock Performance around Share Repurchase Announcements in Germany," SFB 373 Discussion Papers 2003,48, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    5. Ginglinger, Edith & L'Her, Jean-Fran├žois, 2006. "Ownership structure and open market stock repurchases in France," Economics Papers from University Paris Dauphine 123456789/399, Paris Dauphine University.
    6. Nohel, Tom & Tarhan, Vefa, 1998. "Share repurchases and firm performance:: new evidence on the agency costs of free cash flow," Journal of Financial Economics, Elsevier, vol. 49(2), pages 187-222, August.
    7. Vermaelen, Theo, 1984. "Repurchase Tender Offers, Signaling, and Managerial Incentives," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(02), pages 163-181, June.
    8. repec:dgr:kubtil:2005002 is not listed on IDEAS
    9. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    10. Smith, Roy C. & Walter, Ingo, 2003. "Global Banking," OUP Catalogue, Oxford University Press, edition 2, number 9780195134360, March.
    11. Dittmar, Amy K, 2000. "Why Do Firms Repurchase Stock?," The Journal of Business, University of Chicago Press, vol. 73(3), pages 331-55, July.
    12. P. Raghavendra Rau & Theo Vermaelen, 2002. "Regulation, Taxes, and Share Repurchases in the United Kingdom," The Journal of Business, University of Chicago Press, vol. 75(2), pages 245-282, April.
    13. repec:dgr:kubcen:200522 is not listed on IDEAS
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