The purpose of this paper is to examine motivations underlying UK repurchase activity. Specifically, the paper inquires into the relevance of a range of different explanations for repurchases and perceptions of regulation surrounding them. Emphasis of the paper is, however, on motives linked specifically to repurchases rather than income distribution, more generally.
The study uses a survey approach to capture the views on repurchases of corporate managers and investors. It supplements the survey data with secondary information about the companies to better understand repurchase behaviour.
Results indicate that repurchase use is influenced by motives linked specifically to this tool rather than those associated with income distribution, more generally. In particular, repurchases are used to return surplus cash to investors, signal undervaluation and influence gearing and earnings per share levels. In the latter case, companies appear to use repurchases to perform a value added role, alongside manipulating the EPS level and thus the latter may simply be a by-product of the former. Private investors may nevertheless be vulnerable to such manipulation, given their limited financial literacy.
The study relied on a survey of managers and investors and univariate analysis. In the former case, respondent numbers, particularly for the investor community were low, raising questions as to the generalisability of the data. In the latter, the results may be mis-stated owing to the simplicity of the analysis.
Overall, the survey results suggest that firms use repurchase programmes in different contexts to dividend payments and in appropriate circumstances. While managers and investors broadly share similar views, private shareholders may be in a vulnerable position given their limited financial literacy.
This is the first UK study on repurchases that examines the relative importance of a range of motives underlying repurchases. Moreover, it assesses in detail the core hypotheses that are linked specifically to repurchase programmes to better understand UK repurchase behaviour. It does so by supplementing the survey data with additional company information and comparing the views of the different audiences surveyed.
The author would like to acknowledge the funding received from the Institute of Chartered Accountants of Scotland (ICAS) in support of this research and thank participants at the BAFA (2013) conference in Newcastle for their useful and insightful comments. This paper is based on the work presented in the research monograph Corporate Share Repurchases: the Perceptions and Practices of UK Financial Managers and Corporate Investors (2009), ICAS. It supplements the descriptive material in the monograph aimed at a practitioner audience with additional statistical analysis for an academic audience. Roberts, a co-author of the monograph, has permitted the author to use the material from the original survey for the purposes of this paper.
Dhanani, A. (2016), "Corporate share repurchases in the UK: Perceptions and practices of corporate managers and investors", Journal of Applied Accounting Research, Vol. 17 No. 3, pp. 331-355. https://doi.org/10.1108/JAAR-09-2014-0096Download as .RIS
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