The information content of share repurchases – evidence from Poland

Abstract

Announcements of open market repurchase programmes have recently become common not only in the United States but also in many other, less developed countries. The aim of the paper is to examine the market reaction to share repurchase announcements and to investigate the reasons for the market reaction. There is a good deal of research referring to the share repurchases, even in Poland, the originality of our approach is that we conducted our research on an alternative system of trading to the Warsaw Stock of Exchange, namely NewConnect. NewConnect is dedicated to young, small and innovative companies. We found it extremely interesting that such companies in need of external financing take the decision to distribute cash and implement share repurchase. The data was collected for 64 share repurchase announcements over the period 2007-2016. In this study cumulative average abnormal returns are applied to identify the market reaction. To investigate the factors which drive investor behaviour we applied the regressions model. We employed some explanatory variables describing the agency theory and signalling hypotheses: relative payout, market to book ratio, operational cash fl ow, and debt ratio. We found that cumulative average abnormal returns around the share repurchase date are significant at standard levels of confidence in all the analysed event windows. The results of the multivariate and univariate regression analyses do not support the undervaluation hypothesis, as we expected.