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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Share Buybacks around the World |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 71 |
| Date | 2023 |
| Zusammenfassung | This thesis examines the short- and long-term share buyback announcement effect in international stock markets. While various research on share buybacks exists, it is predominantly limited to individual developed markets. This thesis adds value to the existing literature by investigating the presence for a large cross-section of 34 countries, which presents the largest study of share buyback announcements to date and enables a comparison of the results in a global context. As a consequence, this thesis provides the most extensive overview of the available evidence on share buyback announcements from the literature in the last decade. Furthermore, this thesis analyzes to what extent short- and long-term share buyback abnormal returns are related to differences in company- and country-specific characteristics. This thesis distinguishes itself from other studies by additionally considering time and risk preferences around the world. The evolution of share buybacks through time is also shown. Lastly, the author is one of the first to provide an implementable investment strategy on share buybacks in Switzerland and compares it with traditional dividend yield and dividend growth strategies. Share buyback announcements from 01.01.2010 until 25.10.2022 were selected, resulting in a sample size of 18’875 share buyback announcements from 34 countries. In a first step, the short-term announcement effect was examined by calculating abnormal returns with a market adjusted return model around 3-day, 5-day, and 7-day event windows around the share buyback announcement date. In a second step, the calendar time method by Fama (1998) was employed to evaluate the long-term announcement effect. Calendar-time returns were calculated at country and region level over 12-, 24-, 36-, and 48-month horizons, respectively, following the announcement date of a share buyback. The monthly average abnormal returns were then estimated by applying the Fama and French's (2012) regional factors and a 4-factor model. All models were estimated with weighted least squares. In a third step, the short- and long-term abnormal returns were cross-sectionally regressed by several company-, country-specific, and behavioral finance variables. Cluster-robust standard errors were applied (Cameron and Miller (2015)) and year, country, and industry fixed effects were added to the regression models. In a fourth step, differences in time and company-specific characteristics were examined. In a last step, the trading strategies were backtested in a total sample period from 01.01.2000 until 31.12.2022 against the Swiss Performance Index (SPI). Henceforth, the main findings of this thesis can be summarized as follows: The short-term share buyback announcement effect is positive in all the event windows for all the countries except for Norway, ranging from 0.04% to 4.41%. The 3-day cumulative abnormal return around the share buyback announcement is significantly positive in 29 out of 34 countries. The author finds that the region Asia-Pacific exhibits the strongest short-term announcement effect, whereas European countries observe weaker abnormal returns, in line with previous findings of Gupta and Wagner (2018). Similar to the short-term share buyback announcement effect, the long-term announcement effect evinces positive abnormal returns after one, two, three, and four years, respectively. This finding refutes the claim that share buybacks are solely a method to drive short-term objectives and are destructive for long-term shareholder value. The author shows that within the 48-months horizon 30 out of 34 countries exhibit positive abnormal returns. However, only 12 out of the 34 countries present significant alphas and the effect differs by country. While the significance of the results weakens throughout the time horizons, the economic magnitude of the long-term announcement effect is quite eminent. At regional level, Japan exhibits the strongest positive 48-month excess return (1.27%), followed by the region Europe (0.65%), America (0.50%), and Asia-Pacific (0.23%), implying cumulative abnormal returns of 12% to 83%. Furthermore, the author presents significant differences in abnormal returns by companyspecific variables. For instance, highly undervalued companies generate up to 2.87% significantly higher abnormal returns compared to highly overvalued companies as measured by the book-to-market. |
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