Seeking Alpha: An Event Study of Share Repurchase and Issuance Announcements

Abstract

This thesis tests the extent to which share repurchase announcements and share issuance announcements affect the market value of companies in the STOXX 600 Europe index in the short-run and how an investment strategy constructed on these announcements performed relative to the index between 2005 and 2023. An event study methodology, including the market model, tests the impact of the events. Selected return statistics are used to evaluate the investment strategy's performance. Share repurchase announcements positively affect the market value with a significantly positive average abnormal return on the event day of 0.51 percent and a Cumulative Average Abnormal Return (CAAR) that is significantly positive at the 99 percent significance level over the event window. Conversely, share issuance announcements negatively affect the market value with a significantly negative average abnormal return on the event date and the first day after the event of -1.01 and -0.99 percent, respectively. The CAAR of share issuance announcements is significantly negative at the 99 percent significance level over the event window. Both share repurchase and issuance announcements exhibit a modest post-event drift consistent with the initial market reaction. It is concluded that an investment strategy constructed solely on repurchase or issuance announcements outperforms the STOXX 600 Europe index when disregarding trading costs and that combining both announcement types is the most optimal strategy in a theoretical scenario. When including trading costs to replicate a real-world scenario, the investment strategy solely constructed on share repurchase announcements underperforms the index, and the investment strategy solely constructed on share issuance announcements outperforms the index. However, a noted timing discrepancy between the indexation of returns data and calendar dates may pose an issue in connection with this result.