Determinants of share repurchases in Finland : Evidence from Nasdaq Helsinki

Abstract

The aim of this study is to find out what the determinants of share repurchases are in Finland in the 2010s. Emphasis is on determinants, which have not been studied in Finland prior to this thesis. Repurchases have historically been a popular payout method in the United States, where the literature handling the risen popularity of repurchases started to appear in the 1990s and the early 2000s. Repurchases have only become legal in Europe later on, which is why the literature is rather young. In Finland, the reporting environment offers a good precondition for studies but until now, the repurchase literature has concentrated mostly on corporate governance and taxation issues. Literature has identified several motives behind repurchases, the inherent stickiness of dividends being one of the most obvious reasons behind preferring them over dividends. Other motives identified include undervaluation and signalling, the lack of investment opportunities, foreign and insider ownership, and capital structure adjustments, among others. The research questions are studied first through reviewing the relevant theoretical base on corporate payouts and the institutional environment in Finland. Secondly, an overview on the literature is presented. The empirical part of the study is performed quantitatively through running two regressions. The main regression model is a logit model regression which enables the analysis of factors affecting the likelihood of a repurchase. A tobit model regression is conducted to analyse factors affecting the value of a repurchase. To summarize the findings, Finnish repurchasing firms are larger, more profitable and have larger cash holdings than non-repurchasing firms. They are less likely to pay dividends and have a higher proportion of foreign ownership, which indicates their preference of capital gains over dividends. Additionally, firms with stable cash flows are more likely to repurchase than those with volatile cash flows. The results shed light on repurchasing practices in Finland; they confirm points noticed in studies conducted in the avoir fiscal system era, but also bring new information about current practices. There is room for further studies, especially around ownership concentration, leverage, earnings management or the substitution effect of payouts, for instance.