A Study on Whether U.S. Bank Holding Companies Buyback Shares: Impact of Motives and Regulation

Since the mid-1980s, share repurchases gradually became one important method for firms to distribute free cash flow to shareholders. The prior literatures suggest that firms repurchase shares to distribute excess cash flow, to reveal undervaluation of firms’ stock, to avoid unwanted takeover, to adjust firms’ capital structure, to counter the dilution effects of employee and management stock options and so on. Because the regulatory environment of banking industry is very specific, most researches excluded bank holding companies from their sample data. The main purpose of this study is to examine whether the results of prior literature can apply to bank holding companies, and the impacts of motives and regulations on whether bank holding companies in United States buyback shares.
The samples contain 380 bank holding companies, and the sample period starts from 1994 to 2005. The empirical results that bank holding companies having more free cash flows or less investment opportunities, under the threat of hostile takeovers, or with more securitization activities would be more likely to actually repurchase shares.