The Determinants of Buyback Decisions (Evidence from Developed and Emerging Markets)

The present research is devoted to share repurchases - the increasingly widespread phenomenon in the modern financial world. The comprehensive theoretical introduction and literature review provided by the paper enable to form a list of explanatory variables to be picked for the further regression analysis as the determinants for repurchases: dividends, leverage, excess cash, EPS, market-to-book ratio and non-controlling interest. We also add squared dividends to the model in order to trace potential dependence character change over the magnitude of dividends and build the model concerned for two samples representing developed (US) and emerging (Brazil, Mexico) markets. The analysis with respect to developed markets shows that only market-to-book ratio turned to be insignificant, which could be explained either by the US stock market efficiency, or by the fact that this proxy is not monotonous. Dividends turned to be significant with the dependence character changing over their magnitude (complements below 8% of market cap, substitutes above 8% of market cap). The regression for emerging markets showed that only EPS, leverage and dividends are significant, with dividends being pure substitutes for repurchases. Finally, stationarity analysis allowed us to infer that for the developed markets, within 2 year horizon, repurchases are unlikely to be determined by the policy just being a reaction towards the altering fundamentals.