Accounting and Finance Seminar Series on Deregulating the Open Market Stock Repurchase Restriction Around the World: The Effects on Firm Value and Behaviours

Wednesday 12 June 2019
Dr Zigan Wang; Assistant Professor of Finance; University of Hong Kong



We construct a unique dataset of 38 countries’ deregulation laws that remove the restrictions of the open market stock repurchase. We utilize the yearly variation across the international market on the restrictions to explore the causal impact of the open market stock repurchase on firm value and behaviours. We first find that the deregulation increases firm value and decreases firms’ cash holding. We then investigated several channels that firms may spend cash, and find that the deregulation significantly reduces capital expenditure and activities on mergers and acquisitions. The effects on dividend payment are mixed: the dividend-to-net-income and dividend-to-sales ratios significantly decrease when not controlling for firm financials, but the relationships become insignificant after adding the controls. Meanwhile, firms’ purchase of treasury stocks significantly increases, which boosts up the buy-and-hold return of the stocks. We conclude that the deregulation of stock repurchase on the open market provides an additional channel for firms to use cash, reduces the inefficient investment that the literature documents, and therefore enhances the firm value.