Essays in share repurchases of the UK

The thesis is centred on the open market share repurchases of the UK that were undertaken in the period 1985-2014. The investigation has been conducted through the production of three independent empirical essays, which individually focus on the different aspects related to repurchases. Thus, upon combining the findings of the essays, it is seen that macroeconomic circumstances influence the decision of undertaking repurchases, and once the decision has been taken firm-specific factors strongly determine the size of the repurchase. Further, upon announcing a repurchase non-financial firms witness unexpected short-term stock price gains. The first empirical essay tests the impact of a corporate announcement stating that the firm intends to undertake a share repurchase on the stock performance. This involved testing the factors that determine the instant price change due to the announcement, and the unexpected stock price change in the short-term and long-term periods. The results reveal that upon realizing a repurchase announcement, a scenario of the tax framework making repurchases tax friendlier than dividends has a negative influence on stock price, which is supported by the finding that a good dividend distribution history has a positive influence. The level of globalisation within the economy also has a negative influence on the stock price, and such an inquiry is novel to the best of knowledge. Further, in the case of non-financial firms a repurchase announcement has shown to cause unexpected stock price gains in the short-term, however in the long-term their stock price witnesses an unexpected loss. The second empirical essay investigates the determinants of repurchase size after a decision of undertaking a repurchase has been made. The testing primarily aims to see if the motivational hypotheses, which existing literature finds are influential in the decision of undertaking repurchases, also influence the size of the repurchase. The key results state that the size of the repurchases increases if a firm is undervalued, has negative earnings or possesses surplus cash reserves, and these are the leading three determinants. These findings are consistent with Dhanani (2016)’s survey, which finds that the top three intentions of British managers to repurchase shares are to distribute excess cash, improve the reported EPS and signal stock undervaluation. The third empirical essay primarily investigates the influence of the macroeconomy on the decision if a repurchase must be undertaken. To the best of knowledge, no prior study directly tests the repurchase-macroeconomy relationship for the UK. The results reveal that overall an economic upswing positively influences the frequency of repurchase undertaking. However, there are differences in the influences of individual macroeconomic indicators during economic Expansion and Contraction. During both periods the influences of Term Structure and Short-Term Risk remains positive while that of Default Risk remains negative, however the GDP and Unemployment have negative influences during Expansion but positive influences during Contraction. Further, the aggregate Stock Market performance has a positive influence during Expansion and a negative influence during Contraction. Thus, it is documented that based on the particular stage of the business cycle, different components of the macroeconomy have different influencing patterns on the decision whether a repurchase must be undertaken