Factors influencing the share repurchase decision : A look into Nordic firms

This thesis investigates the relationship between share repurchase decisions and severalfinancial variables the year before. We link financial theories such as signaling,substitution, leverage, excess capital, corporate governance, employee stock option, andlegitimacy theory to this relationship and create a hypothesis to test in a quantitative study.This study uses publicly listed firms headquartered in Nordic countries and uses mainlyfinancial data collected between 2015-2019. The study intends to define what factors mayaffect a share repurchase decision and by which degree. This study is also among the firstto test Refinitiv ESG pillar scores toward this relationship. The purpose of this is tounderstand the process better and could potentially allow management to understand betterwhen a share repurchase program can be initiated. It can also better inform stakeholders infirms' decisions on the market in regards to share repurchases. This deductive andquantitative research is based on secondary data gathered from the Eikon financial databaseto create an observational study.We find that share repurchasing firms have more cash flows, lower leverage ratio, morestock options programs, more board members, and fewer independent board members. Wefind that firms with excess cash flows are more likely to undertake a share repurchase eventfrom the regression analysis consistent with the excess cash flow theory. We find arelationship between having a high number of board members, where few are independent,increases the likelihood of a share repurchase event in the following year, which wasagainst our initial corporate governance hypothesis. We found that a higher governancepillar score increases the likelihood of a share repurchases event that shows value tolegitimacy theory but cannot conclusively answer that firms use sustainability disclosure asa tool to legitimize themselves. This result more likely links to corporate governancetheory. We did not find a relation for the undervaluation, substitution, leverage, employeestock options theory. We conclude that firms with more cash flows, lower leverage ratio,more stock options programs, more board members, and fewer independent board membersuse share repurchases more than their counterparts. We note that ESG scores are relativelynew and have seen more widespread use in the latest years.We look forward to reading more research in this field as more data is collected