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Influence of reason to repurchase on company performance

Otten, Maurice (2017) Influence of reason to repurchase on company performance.

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Abstract:In this study the question how does the reason to repurchase shares influence company performance is answered. Company performance is assessed through its market-to-book ratio (MTB) and earnings before interest and taxes (EBIT). Both performance measures are looked at in the year of the repurchase and the following year. The reasons discussed are the distribution of excess cash (DEC), neutralizing the dilutive effect of stock option exercises (NDE), undervaluation (UND), reduction of capital (RCL) and the funding of employee stock options (FEO). Positive relations between MTB and the reasons DEC, NDE and UND are expected, and negative relations for RCL and FEO. For EBIT a positive relation is expected for DEC and a negative for FEO. I find statistically significant results for DEC and FEO. The MTB for both reasons are in accordance with my predictions. For EBIT, only FEO is in accordance with my prediction, the results of DEC are contradicting. The results for NDE, UND and RCL did not show statistical significance. The MTB of companies repurchasing for reasons NDE and RCL moved in the opposite direction than expected. For UND, in the year of the repurchase a negative relation is found, turning into positive the following year.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:International Business Administration BSc (50952)
Link to this item:http://purl.utwente.nl/essays/72693
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