Share Repurchase Strategies and Market Reactions
Summary
Share repurchases have become a principal mechanism by which firms return surplus cash to investors and adjust their capital structure. Common modalities include open market repurchases, fixed-price tender offers and accelerated share repurchase programmes. Executives often deploy buybacks to signal management’s confidence in future earnings, to offset dilution from equity-based compensation or to optimise leverage. Market responses typically manifest as positive short-term abnormal returns driven by a perceived reduction in cost of capital and reassurance of firm value, although long-term performance varies across contexts. Empirical evidence highlights that timing decisions, managerial incentives and firm reputation all mediate the scale and sustainability of returns following repurchase announcements. Globally, buybacks have influenced corporate payout norms, regulatory debates and investor strategies, underscoring their evolving role in financial markets and policymaking discussions.
Research from Nature Portfolio
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Share Repurchase Strategies and Market Reactions publication trend
The graph below shows the total number of articles in share repurchase strategies and market reactions across all publications each year (not limited to Nature Index journals).
Technical terms
Share repurchase: A corporate action in which a company buys back its own shares from the market, reducing outstanding equity.
Open market repurchase: A buyback conducted through regular trading venues over time, allowing price and volume flexibility.
Cost of capital: The required return rate investors expect for committing funds to a firm, incorporating both equity and debt costs.
Signalling: The process by which management actions convey private information about firm quality or valuation to the market.
Reputation: The accumulated credibility a firm holds based on past disclosures or completed transactions, which influences investor interpretation of new announcements.
References
- What do market participants learn from share repurchases? Evidence from a return decomposition. Journal of Corporate Finance (2023).
- The timing of stock repurchases: Do well-connected CEOs help or harm?. Journal of Banking & Finance (2024).
- Does reputation matter? Evidence from share repurchases. Journal of Corporate Finance (2019).
- Executive incentives and payout policy: Empirical evidence from Europe. Journal of Banking & Finance (2015).
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