Buybacks Around the World

"We document the consequences of open market share repurchases in a global setting, using over 20,000 announcements from 32 countries. Non-U.S. buybacks are associated, on average, with smaller announcement returns, and larger long-term excess returns. Governance quality matters: both short term and long term excess returns are positively related to country governance quality. The hypothesis that managers buy back shares to take advantage of an undervalued stock price explains long run returns around the world: long term returns are positively related to an undervaluation index (Peyer and Vermaelen, RFS 2009). In contrast to U.S. buybacks, however, they are unrelated to subsequent takeover activity or takeover risk. We also find strong evidence that long run excess returns in the U.S. are partly driven by the benefits from a reduction in agency costs of free cash flow. Finally, shareholders are better off when the buyback only requires board approval, rather than shareholder authorization, suggesting that the insistence of e.g. European regulators on shareholder approval as a tool for shareholder protection from buybacks is misplaced."


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