Research On The Causes And Effects Of Share Repurchases By Listed Companies In My Countr

From the practice of foreign capital markets,the share repurchase system of listed companies is a fundamental institutional arrangement of the capital market,which plays an important role in optimizing the capital structure,stabilizing the share price,enhancing the investment value of the company and giving back to investors.Compared with mature foreign capital markets,the reform of China’s share repurchase system started late and was initially more restrictive.Looking back on history,early share repurchases in China were mainly used to complement the share split reform and optimize the shareholding structure of state-owned enterprises,thus leading to a low number of repurchase events in the early years.The policy on share repurchases of listed companies in China was only gradually improved after several changes until the revision of the Company Law in October2018,after which the enthusiasm of listed companies to conduct share repurchases also rapidly increased.According to the Guotaian database,based on the year in which the repurchase completion date is located,a total of 80 companies completed open market share repurchases from 2010-2017,while the number of companies completing repurchases from 2018-2020 is 814,with the latter three years being more than 10 times of the first eight years,thus showing that share repurchases by listed companies have become a regular system in China’s capital market.With the rapid growth of the scale of share repurchases in the public market of listed companies in China,the motives of share repurchases have become more complex and diversified,and the impact of share repurchases on the stock market has become increasingly prominent.Against this background,research on the motives and market effects of share repurchases has received increasing attention from both practical and academic circles.In the process of China’s listed company share repurchase system gradually moving from the beginning to maturity,has the policy objective been achieved? How to improve the system in the future to guide and regulate the repurchase transactions of listed companies? These questions urgently need to be studied.At the same time,in reality,the open market repurchase behavior of listed companies in China has revealed some problems,and some enterprises have used repurchases to mislead investors and even manipulate share prices and conduct insider trading,which has brought negative impact on the stable operation of the stock market.In addition,some creditors of listed companies have raised concerns that share repurchases will harm the interests of creditors.Then the above-mentioned problems of share repurchase in practice and the related controversies have not been fully discussed and reasonably concluded,which constitute the research content that this paper is concerned with.Based on the special institutional background environment in China,this paper will use a combination of theoretical and empirical approaches to study share repurchases of listed companies in China from the perspective of market microstructure and wealth transfer.First,this paper systematically compares the existing domestic and international literature and analyzes the implementation process and development status of share repurchases in China;second,this paper analyzes which factors drive share repurchases,tests the applicability of classical hypotheses and existing findings in the A-share market,and exploratively analyzes the impact of creditor risk and stock liquidity on share repurchase decisions of listed companies;then,this paper uses manually collated repurchase data at daily and monthly levels,combined with high-frequency trading data,this paper analyzes the impact of share repurchases on stock liquidity and explores the intrinsic impact mechanism;finally,this paper focuses on the wealth transfer effect induced behind share repurchases and answers the question of whether share repurchases infringe on creditors’ interests through the analysis of bond market transactions and corporate default risk.The main findings from the study are as follows.Firstly,among the classical hypotheses,the signaling hypothesis,the financial leverage hypothesis,and the financial flexibility hypothesis have stronger explanations in the Chinese market.Meanwhile,both the overall characteristics of the board of directors and the individual characteristics of the board members have a significant impact on the share repurchase decision of listed companies.In addition,there is a peer effect on share repurchases of listed companies in China.Secondly,after controlling for the classical hypothesis and other influencing factors,listed companies will consider the interests of creditors when making share repurchase decisions,i.e.,the lower the risk of debt default,the higher the probability of listed companies to implement share repurchases and the larger the expected repurchase size.And there is no significant influence of stock liquidity on the share repurchase decision of listed companies and the scale of repurchase.Thirdly,the implementation of share repurchases by our listed companies reduces stock liquidity.The results of the event study method show that the bid-ask spread during the period when listed companies implement repurchases is 2% higher than the normal period on average;the analysis of the fixed-effect model finds that the larger the monthly repurchase size of listed companies,the larger the relative quoted spread and the relative effective spread.Fourth,the mechanism by which share repurchases reduce stock liquidity lies in the fact that the implementation of share repurchases by listed companies raises the cost of adverse selection,leading to the widening of bid-ask spreads and the decline of stock liquidity.The impact of share repurchases on stock liquidity is relatively small among listed companies with higher quality of information disclosure,indicating that improving the quality of information disclosure of listed companies can effectively mitigate the negative impact of share repurchases on stock liquidity.Fifth,the theoretical model for the analysis of creditors’ interests in share repurchases suggests that when management implements open market share repurchases based on undervaluation,the change in creditors’ interests depends on the positive signaling effect and the wealth transfer effect,where the positive signaling effect can enhance the market value of debt and the opposite wealth transfer effect;while when the firm is not undervalued,share repurchases exhibit a negative signaling When the value of the company is not undervalued,share repurchase shows negative signaling effect and wealth transfer effect,which will seriously damage the interests of creditors.Sixth,after the announcement of share repurchase plans by listed companies,there is a significant positive overall response in stock and bond prices.At the same time,the default risk of listed companies implementing buybacks significantly decreases in the long run,and the business performance is significantly improved.Further,in the subsample with higher risk of wealth transfer,no evidence is found that share repurchases make creditors’ wealth transfer to shareholders.The results of the empirical study support the first scenario of the theoretical model,where the positive signaling effect prevails over the wealth transfer effect.The marginal contribution of this paper is that it comprehensively expands the academic research on share repurchases in China,fills the research gap in the related field,and provides an empirical interpretation from China for the international academic disagreement.Specifically: first,this paper uses the latest data to re-test the explanatory strength of the classical hypothesis on the motivation of share repurchases of Chinese listed companies,and on this basis,it explores the impact of creditor risk and stock liquidity on the share repurchase decision of listed companies,which have received less attention from existing studies;second,compared with the existing domestic literature that focuses only on the impact of share repurchases on stock price returns and Second,compared to the existing domestic literature,which focuses only on the impact of share repurchases on stock price returns and volatility,this paper analyzes the impact of share repurchases on stock liquidity from the perspective of market microstructure by manually compiling daily and monthly repurchase data combined with high-frequency trading data.At the same time,this paper provides empirical evidence based on the Chinese stock market for the international academic debate on whether share repurchases increase or decrease stock liquidity.Third,this paper explores the impact of share repurchases on creditors from a wealth transfer perspective based on Chinese A-share data for the first time.Domestic studies have focused only on the impact of share repurchases on shareholders,while no literature has focused on the impact of share repurchases on creditors’ interests.At the same time,this paper provides in-depth theoretical and empirical analysis of the wealth transfer effect of share buybacks of listed companies,and provides empirical evidence based on the Chinese stock market for the academic debate on whether share buybacks infringe on creditors’ interests.In conclusion,based on the perspective of market microstructure and wealth transfer,this paper systematically analyzes the motives and market effects of share repurchases of listed companies,and reveals the effects and internal mechanisms of share repurchases on the stock market and various market players.The findings of the paper have important implications for regulators,listed companies and investors: first,at the regulatory level.The regulator needs to strongly support high-quality listed companies to implement repurchases,increase the cost of violation of share repurchases,and pay attention to the protection of creditors in repurchases.Second,listed companies need to make reasonable use of share repurchase tools and pay attention to process management in the implementation of share repurchases,while also paying attention to the protection of small and mediumsized shareholders and creditors,strengthening positive publicity and improving the quality of information disclosure.Third,small and medium-sized investors and creditors should pay attention to the progress of the implementation of share repurchases(such as the number of repurchases and average price),research reports of securities analysts,self-media and related news in a timely manner after the listed company releases the repurchase proposal to form a rational judgment on the repurchase behavior of the listed company.