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Share Repurchases
Author(s): Theo Vermaelen
Source:
Journal:Foundations and Trends® in Finance
ISSN Print:1567-2395, ISSN Online:1567-2409
Publisher:Now Publishers
Volume 1 Number 3,
Document Type: Article
Pages: 98 (171-268)
DOI: 10.1561/0500000007
Abstract: This text provides an overview of research on stock repurchases. The author presents a personal interpretation of the numerous research results published during the last 25 years starting with a description of the various methods to repurchase stock and the growing importance of buybacks around the world. The review discusses the importance of the institutional environment (i.e. regulation and taxes) for the emergence of share repurchase activity and provides an overview of short-term event-studies around repurchase announcements. The general conclusion is that, regardless of the repurchase method, stock prices increase significantly. The author discusses the extent to which various theories can explain this price increase. He also shows that managers are able to time the market buy buying back stock when the shares are undervalued. In addition, the text compares dividends and repurchases. Finally, it summarizes the main findings and implications for corporate financial policy.
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