In search for the determinants of share repurchases policies in the Italian equity capital market: an event study

In the last decade the number of buyback transactions involving listed companies in the Italian equity capital market has experienced a huge growth. However, no clear understanding of this phenomenon has yet been reached, also because of the limited information available on such financial decisions. The purpose of this paper is to check the main hypotheses behind the determinants of share repurchases, analysing the effect of own share buyback announcements specifically on the performance of the listed companies before and after the discontinuity introduced in Italy through the Reform of the financial markets. The first major outcome coming from the empirical analysis deals with the strong incentive played by the reform mentioned above, which introduced stricter corporate governance criteria, leading to a sharp increase in the volume and frequency of share buyback announcements, as well as in the number of companies getting access to this instrument. Secondly, the analysis strongly supports the replacement hypothesis theory, which states that buybacks have become a better substitute for dividends as a remuneration policy for shareholders.