Share Repurchase Behavior and Its Impact on Investors: Differences Between the Automotive and Retail Industry
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Date
2019-05
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The Ohio State University
Abstract
The ownership of a publicly traded company is spread amongst the public via the trading of its shares. These share prices are influenced by several factors including simple supply and demand, economic factors, internal company factors, and industry trends. A company can and will try to influence their own share prices, most commonly through a profit motive. Another method is through a share repurchase program whereby a company purchases its own shares from other holders. Since the 2009 low of the stock market, the frequency and size of share repurchases has significantly increased (Abbott, Quintana, & Yardeni, 2018). In 2018, the frequency and size of share repurchase programs hit a record high, and already eighteen repurchase programs have been announced in 2019. Broadly, the announcement of a repurchase program may signal that a firm believes its stock is undervalued. However, the motivations behind, and implications of, share repurchases may differ across industries.
I began my research by conducting a literature review to determine existing studies related to motives behind share repurchases. I analyzed two variables: frequency of repurchases within the retail and automotive industries, and the stock return when repurchases are announced. I chose companies within these industries that announced share repurchase programs and compiled this research to determine how share repurchase behavior, and its implication on share price, differs across industries. Preliminary results indicate that the retail industry engages in more frequent share repurchase programs than the automotive industry. In aggregate, investors perceive that an announcement of a share repurchase program indicates that a share price is undervalued, as recent data reveals an increase in share price following an announcement. Further, most of the automotive firms that engaged in repurchase programs were found to be retailers of automotive
parts, not the automotive manufacturers themselves. This project intends to explain share price movement as a result of repurchase announcements across two unique industries. The observed differences may encourage further research in the share price movement post share repurchase announcement across these and other sectors.
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Keywords
repurchase, buyback, finance, investors