A Study on Whether U.S. Bank Holding Companies Announce to Repurchase: Impact of Motives and Regulation

This study examines the decision of stock repurchase announcements specifically for U.S. bank holding companies. A sample of 380 U.S. bank holding companies over the period from 1994 to 2004 is investigated. All of the motives for share repurchase announcement are simultaneously captured and analyzed by binary Logit regression. The following hypotheses are tested: substitution hypothesis, undervaluation hypothesis, takeover deterrence hypothesis, optimal capital ratio hypothesis, management incentive hypothesis, and free cash flow hypothesis. In addition, bank characteristics as securitization, risk, and investment opportunity are also thoroughly researched factors.
The results reveal diverse motivations behind share repurchase announcements by bank holding companies. Whether bank holding companies announce to repurchase is related with generous dividend payout policy, undervalued return, large size, takeover threat, excessive capitalization, lower level of management incentives, free cash flow, low systematic risk, and limited growth opportunity.