Buybacks Around the World

Buybacks Around the World

Alberto Manconi, Urs Peyer, Theo Vermaelen

Series number :

Serial Number: 
436/2014

Date posted :

September 01 2014

Last revised :

September 05 2014
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Keywords

  • buyback • 
  • share repurchase • 
  • governance • 
  • market timing • 
  • agency problems • 
  • global regulation
Outside the U.S. short-term and long-term excess returns around share repurchase announcements are positive. Long-term (as well as short-term) abnormal returns are positively related to an undervaluation index (Peyer and Vermaelen, 2009, RFS) which suggests that managers are able to time the market when markets overreact to bad news.
While short-term and long-term excess returns are positively related to country governance quality, company-specific measures of governance quality tell a different story. While we find some evidence that firm-level governance quality is positively related to short-term and long-run excess returns outside the U.S., this relation vanishes among U.S. buybacks. This is consistent with the hypothesis that U.S. abnormal returns are at least partially driven by a reduction in agency costs of free cash flow. Finally, in countries where buybacks have to be approved by shareholders, short-term and long-term excess returns are smaller. However these also tend to be the countries with lower governance quality.

Authors

Real name: 
Alberto Manconi