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Ownership Structure And Stock Repurchase Policy: Evidence From France

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  • Rim El Houcine

Abstract

This article studies the relationship between ownership structure of French companies and their stock repurchase policy. According to financial theory, the presence of institutional investors negatively influences repurchasing policy because the preference of these investors is to reinvest in projects. The theoretical hypotheses of interest alignment and entrenchment have been used to justify the relationship between management stockholding and repurchasing policy. We tested the validity of our hypotheses on a sample of 40 French companies using data from 2004-2008. The results show that institutional investors positively affect the repurchase because institutional investors can control managers by forcing them to repurchase stocks to pay their excess cash flows. Moreover, we found a positive relationship between management stockholding and the repurchase. This finding is explained by the power of entrenchment from the repurchase that can raise the stockholding percentage of managers who repurchase the stocks.

Suggested Citation

  • Rim El Houcine, 2013. "Ownership Structure And Stock Repurchase Policy: Evidence From France," Accounting & Taxation, The Institute for Business and Finance Research, vol. 5(2), pages 45-54.
    • Handle: RePEc:ibf:acttax:v:5:y:2013:i:2:p:45-54
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    References listed on IDEAS

    as
    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    2. Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2004. "The ownership structure of repurchasing firms," Working Paper 2004/7, Norges Bank.
    3. Benartzi, Shlomo & Michaely, Roni & Thaler, Richard H, 1997. "Do Changes in Dividends Signal the Future or the Past?," Journal of Finance, American Finance Association, vol. 52(3), pages 1007-1034, July.
    4. Franklin Allen & Antonio E. Bernardo & Ivo Welch, 2000. "A Theory of Dividends Based on Tax Clienteles," Journal of Finance, American Finance Association, vol. 55(6), pages 2499-2536, December.
    5. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    6. repec:bla:jfinan:v:58:y:2003:i:3:p:1301-1327 is not listed on IDEAS
    7. P. Raghavendra Rau & Theo Vermaelen, 2002. "Regulation, Taxes, and Share Repurchases in the United Kingdom," The Journal of Business, University of Chicago Press, vol. 75(2), pages 245-282, April.
    8. Ronald C. Anderson & David M. Reeb, 2003. "Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1328, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stock Repurchases; Ownership Structure; Institutional Investors; Managerial Ownership;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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