An empirical analysis of European stock repurchases

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.