Share Buybacks

Table of Contents

1. Introduction

2. The State of Affairs in Buybacks

2.1. Reasons and Motivations

2.1.1. Long-term Shareholders

2.1.2. Managers

2.1.3. Short-term Shareholders

2.2. Requirements

2.2.1. German Law

2.2.2. Types of Share Buybacks

2.3. Effects

2.3.1. Market Price Effects

2.3.2. Earnings per Share Effects

2.3.3. Other Effects

3. Empirical Research

3.1. Sample Description and Empirical Method

3.2. Findings

4. Conclusion

Objectives & Core Themes

This thesis examines the practice of share buybacks, focusing on the motivations behind corporate repurchases and evaluating their empirical effects on stock performance, particularly within the German DAX 30 market.

• Analysis of theoretical motivations for share buybacks from the perspective of different interest groups.
• Investigation of legal and organizational requirements for share buybacks in Germany.
• Empirical study of short-term price effects of buybacks among DAX 30 companies in 2006 and 2007.
• Evaluation of the impact of share repurchases on Earnings per Share (EPS) and capital structure.

Excerpt from the Book

Summary of Chapters

1. Introduction: Outlines the economic context of share buybacks, the shift in payout methods since 1998, and the research objectives regarding DAX 30 firms.

2. The State of Affairs in Buybacks: Provides a theoretical foundation by discussing the motivations for buybacks, legal requirements in Germany, and the perceived effects on market prices and EPS.

3. Empirical Research: Describes the methodology for analyzing DAX 30 share buybacks in 2006-2007 and presents the findings regarding short-term abnormal price returns.

4. Conclusion: Summarizes the key insights, noting that undervaluation is less of a driver for German blue chips compared to other firms and that buybacks offer varied benefits depending on the investor type.

Keywords

Share buybacks, Stock repurchase, Dividends, Payout policy, Capital structure, DAX 30, Market price, Earnings per share, Agency costs, Undervaluation, Signaling, Empirical research, Investment management, Financial leverage, Corporate finance.

Frequently Asked Questions

What is the core subject of this thesis?

The thesis explores the phenomenon of corporate share buybacks, analyzing why companies choose to repurchase their own shares and what consequences this has on firm value and market perception.

What are the primary themes discussed?

The work covers theoretical motivations from diverse stakeholder perspectives, the regulatory framework governing buybacks in Germany, and the empirical measurement of market reactions to these announcements.

What is the main objective of the research?

The study aims to provide an updated understanding of how share buyback announcements affect the market prices of German DAX 30 companies, testing whether the findings align with existing literature.

Which methodology is applied in the empirical part?

The study utilizes event study methodology, specifically calculating abnormal returns using the Capital Asset Pricing Model (CAPM) for a sample of 12 buyback events in 2006 and 2007.

What topics are covered in the main section?

The main section details reasons like undervaluation signaling, reduction of cash and agency costs, optimization of capital structure, and the use of shares for employee stock option programs.

What are the characterizing keywords of the work?

The work is defined by terms such as share buybacks, payout policy, DAX 30, signaling theory, agency costs, and capital structure optimization.

How does the German market differ regarding buyback publicity compared to the US?

Due to stricter legal requirements in Germany, such as the obligation to publish ad-hoc messages, repurchase announcements are generally considered more binding and informative than in the US.

Does the author find that DAX 30 buybacks are driven by undervaluation?

No, the empirical findings suggest that undervaluation is not a primary driver for DAX 30 companies, as the informational penetration by analysts is much higher for these large firms.