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Corporate share repurchases in Sweden. Managerial motivation and timing

Dutchak, Andrii LU (2012) BUSP69 20121
Department of Business Administration
Abstract
Current study focuses on examining the determinants of share repurchases in Swedish firms listed on NASDAQ OMX Nordic during the period 2000-2011. We tested the variety of different hypotheses that were previously empirically shown to be associated with share repurchases in other countries (primarily U.S.). However, as expected, the majority of these hypotheses do not hold in case of Sweden which might be explained by the specificity of Swedish corporate governance system.
Thus, unlike the results of many empirical researches based on U.S. data we have found evidence that companies repurchase shares not at the expense of declining dividends but rather on top of dividends, hence rejecting the substitution hypothesis and supporting the view... (More)
Current study focuses on examining the determinants of share repurchases in Swedish firms listed on NASDAQ OMX Nordic during the period 2000-2011. We tested the variety of different hypotheses that were previously empirically shown to be associated with share repurchases in other countries (primarily U.S.). However, as expected, the majority of these hypotheses do not hold in case of Sweden which might be explained by the specificity of Swedish corporate governance system.
Thus, unlike the results of many empirical researches based on U.S. data we have found evidence that companies repurchase shares not at the expense of declining dividends but rather on top of dividends, hence rejecting the substitution hypothesis and supporting the view on these payout methods as complements. However considering the fact that share repurchases, unlike dividends, give extra benefits to the shareholders in form of tax savings and provide shareholders with significant flexibility, the question raises why Swedish companies do not favor share repurchases over dividends and what is the impact of such policy on shareholders’ wealth.
Next, our results show that different hypotheses hold for different groups of companies, namely companies with large shareholder concentration and companies that conduct share repurchases on occasional basis seem use share repurchases in order to signal to the market their undervaluation. Whereas companies with diffused ownership and companies that conduct share repurchases on frequent basis appear to follow excess cash and market competitiveness hypotheses.
Finally, our analysis of Swedish managers’ timing skills of share repurchases indicates that managers have the ability to time their share repurchasing decisions with the cost-minimization purpose and support their own stock liquidity by repurchasing share during the capital market downturns. (Less)
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author
Dutchak, Andrii LU
supervisor
organization
course
BUSP69 20121
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Payout policy, share repurchase, dividends, managerial motivation, managerial timing, liquidity, signaling, executives’ stock options, stock performance, cash holdings, excess cash.
language
English
id
2834970
date added to LUP
2012-06-25 14:11:30
date last changed
2012-06-25 14:11:30
@misc{2834970,
  abstract     = {Current study focuses on examining the determinants of share repurchases in Swedish firms listed on NASDAQ OMX Nordic during the period 2000-2011. We tested the variety of different hypotheses that were previously empirically shown to be associated with share repurchases in other countries (primarily U.S.). However, as expected, the majority of these hypotheses do not hold in case of Sweden which might be explained by the specificity of Swedish corporate governance system.
Thus, unlike the results of many empirical researches based on U.S. data we have found evidence that companies repurchase shares not at the expense of declining dividends but rather on top of dividends, hence rejecting the substitution hypothesis and supporting the view on these payout methods as complements. However considering the fact that share repurchases, unlike dividends, give extra benefits to the shareholders in form of tax savings and provide shareholders with significant flexibility, the question raises why Swedish companies do not favor share repurchases over dividends and what is the impact of such policy on shareholders’ wealth.
Next, our results show that different hypotheses hold for different groups of companies, namely companies with large shareholder concentration and companies that conduct share repurchases on occasional basis seem use share repurchases in order to signal to the market their undervaluation. Whereas companies with diffused ownership and companies that conduct share repurchases on frequent basis appear to follow excess cash and market competitiveness hypotheses.
Finally, our analysis of Swedish managers’ timing skills of share repurchases indicates that managers have the ability to time their share repurchasing decisions with the cost-minimization purpose and support their own stock liquidity by repurchasing share during the capital market downturns.},
  author       = {Dutchak, Andrii},
  keyword      = {Payout policy,share repurchase,dividends,managerial motivation,managerial timing,liquidity,signaling,executives’ stock options,stock performance,cash holdings,excess cash.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Corporate share repurchases in Sweden. Managerial motivation and timing},
  year         = {2012},
}