The Determinants of Implementing and Completing Share Repurchases

Abstract

Open-market repurchase is a popular corporate payout method that public limited company (PLCs) use, and once they have made this decision an announcement is made. However, the announcement does not necessarily mean that the firm will implement the payout, or if it is initiated that they will buy back the entire announced volume of shares. Thus, using a sample of firms listed on the London Stock Exchange that announced an open-market repurchase between 1993 and 2014, we test the determinants of repurchase implementation using probit regressions, and if their influence also extends to the payout’s completion using Tobit regressions. The results are not identical in nature, but largely indicate a consistency between the influence patterns. Positive influences are exhibited by firm leverage, the balance sheet’s asset base, independent directors and the repurchase’s tax efficiency over dividends. Additionally, the volume of shares announced for repurchasing has a positive influence on the payout’s implementation, but not its completion, while market capitalisation has a positive influence on the payout’s completion, but not its implementation. The findings are most useful for financial practitioners to optimise their portfolio following a repurchase announcement.