Effects of Legalizing Open Market Share Repurchases: International Evidence

Abstract

By constructing a unique dataset of deregulation laws from 38 countries and utilizing yearly variation in law passage for these markets, we causally identify the effects of legalizing open market share repurchases. After legalization, treasury shares and stock repurchases increase, while dividend, cash holding, capital expenditure, and acquisitions decrease, leading to an increase in post-legalization stock returns and firm value. The effects are weaker in countries with trading restrictions, in countries with lower net tax rates on dividends, for firms with higher target payout ratios, and for financially constrained firms. No macro variables are found to predict the timing of legalization.