An empirical survey of the motivation for share repurchases in the UK

Abstract

2009),"Changing perspectives on distribution policy: The evolution from dividends to share repurchase", Managerial Finance, Vol. 35 Iss 6 pp. 479-492 http:// dx.If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -Most research on share repurchases is based on the USA. Recently, the rate of share repurchases by UK companies has increased significantly; such a marked increase in activity would suggest a change in strategic factors generating this activity. This paper aims to focus on UK practice, the motivations of UK companies to repurchase shares and compares similar research in the USA. Design/methodology/approach -Strategic motives for share repurchase activity are examined by a questionnaire survey of the finance directors of the top UK 200 companies. The outcome is compared to equivalent US research. The theoretical underpinning of the survey is based on six prominent hypotheses from the academic literature. Findings -The results indicate that a primary motive of share repurchases in the UK is to achieve an optimal capital structure, and that the requirement to cancel shares is fundamental to buy-back decisions in the UK. Research limitations/implications -USA/UK comparison has limitations, nevertheless it highlights differences and possible reasons. A follow-up study in the current market conditions may give further clarity. Also, a survey of smaller quoted companies may further enhance our understanding of the motives. Practical implications -The likelihood is of this trend being maintained, especially in view of legal development. Originality/value -Individual respondents indicated that finance directors have a genuine interest in this topic and that further research would be beneficial in both practical and academic use. Share buy-backs can be an effective part of the overall strategy of a company, however the effects of a repurchase are ultimately short term.

أثر التحفظ المحاسبی على قرار الشرکة بإعادة شراء أسهمها: دراسة تطبیقیة على الشرکات المدرجة فی سوق الأوراق المالیة المصری

“…‫اات‬ ‫اس‬ ‫الدر‬ ‫اث‬ ‫م‬ ‫اد‬ ‫الند‬ ‫ااوة‬ ‫ت‬ e.g., Givoly & Hayn, 2000;Caskey and Laux,2017;Alkhafaji et al, 2020;Lobo et al, 2020;Shin & Hong, 2020 ‫أو‬ ‫د‬ ‫ول‬ (e.g., Perales, 2004;Dixon et al, 2008;Griffin & Zhu, 2010;Alghamdi, 2018;Kurt, 2018;Li et al, 2019;Lobo et al, 2020…”

Share Repurchases, Signalling Effect and Implications for Corporate Governance: Evidence from India

“…5 In sum, repurchase is a strategic finance choice, which is a strong motivational factor in various long-term business decisions: capital reshuffle (e.g. Baker, Powell & Veit, 2003;Benhamouda & Watson, 2010;Dixon, Palmer, Stradling & Woodhead, 2008;Webb, 2008), 6 signaling share undervaluation (e.g. Ikenberry, Lakonishok & Vermaelen, 2000;Ikenberry & Vermaelen, 1996;Wansley, Lane & Sarkar, 1989), 7 distributing surplus cash flows (e.g.…”

“…When a firm buyback its overvalued shares, consequently it dilutes the outstanding shares and shifts wealth from long-term shareholders to sellers(Stowe et al, 2009).6 InDixon et al (2008) survey, the authors find that the important motive behind share repurchases is "to achieve optimum capital reshuffle", followed by to return excess cash to shareholders, to improve the company's earnings per share, as a method of increasing the firms gearing, and because the company lacked sufficient investment opportunities to use available cash, among others presented in a 14-point measurement.7 In addition,Wansley et al (1989) find that "to signal investors that managers are confident about the firm's future" is also a motive behind share repurchases.…”

Signaling mechanism of corporate payout policy: A case of Indian firms

“…It also signifies that the firms' repurchasing shares are in their mature stage of their life cycle to dispense excess free cash flow (Liang et al, 2011). 7.6. Share repurchases can be construed as a strategy/tactic that enables management to realign their business and should not be viewed as a replacement or substitution strategy (Dixon et al, 2008). The findings would help in providing the economic rationale behind the payout form chosen.…”

“…While share repurchases can be an effective restructuring strategy of a company, its effects are short-term. They can be construed as a strategy/tactic that enables management to realign their business and should not be viewed as a replacement or substitution strategy (Dixon et al, 2008). The more mangers are concerned for short run growth of stock prices and shareholder value, the more they might be interested in repurchases instead of dividend payments.…”