A Reexamination of Magnitude of U.S. Bank Holding Company Share Repurchase Announcement

Since the 1990s, bank holding companies started to engage in the repurchase activities. Whereas, there is not a rich literature on bank repurchases because of their quasi-public character and highly regulated by government. In this paper, using a sample of 380 bank holding companies in the United States from 1994 to 2006, I examine how each motivation affects the magnitude of share repurchase announcements. Motivations include the following: to substitute for dividends; to signal stock is undervalued; to manage capital adequacy ratio; to solve the agency costs of free cash flow; to deter the takeover threat. Besides, there are three newly-constructed motivations: business cycle influence, accounting loan default variables, and loan composition. Empirical results show that bank holding companies will announce larger magnitude of share repurchase programs when the dividend payout ratios are higher; when have more volatile cash flows; when sizes are larger; when capital adequacy ratios are higher; when have more cash in hand; when under takeover threat; when banking industry is during the boom period.