Beginning with the subprime credit crunch in the USA in late 2007, which subsequently affected financial products all over the world, the global markets entered a period of severe economic downturn. The gravity of this downturn can be seen in the fact that the euro zone entered a recession, i.e., the shrinking of the gross domestic product in two consecutive periods, in late 2008.
In this context, recent finance literature (e.g., Rhodes and Stelter, 2009) advises companies to concentrate on cash management. The demand of the hour is to reduce or postpone outflows and guarantee inflows. That is, besides other measures, payouts to shareholders will be reduced. After years of two digit growth rates (Grullon and Michaely, 2002), share buybacks much sooner than dividends will therefore see substantial cutbacks.
In Germany, payouts via buybacks have only gained significant importance since 1998 . However, in the short time since then, a great deal of listed companies have been making use of the buyback method. Especially some of the larger firms listed in the DAX 30 such as DaimlerChrysler (7.5 bil. €), Deutsche Bank (5 bil. €), Münchener Rück (5 bil. €) and Siemens (10 bil. €) have recently announced sub-stantial buyback volumes (Haslauer, 2008). In this respect Sommer (2007) finds that in the approximately 10 years from the first of May 1998 to the end of 2007 the total amount of repurchased shares accounts for 50 bil. €.
Using the pause for breath that can be expected during the time of the recession, this text gives an up-to-date overview of share buy-backs as a means of payout.
In doing so, the focus lies on the question what motivates companies to pursue a buyback and which advantages in comparison to dividends exist. Furthermore I describe effects of share repurchases, on the announcement day as well as in later periods.
In critically evaluating the relevant literature, I describe the multiple motivations for performing buybacks in section 2.1. In order to do so I assign possible reasons to the three interest groups long-term shareholders, managers and short-term shareholders. I then state both legal and methodical requirements with a focus on the German market (2.2.) and show effects as stated in previous literature in part 2.3.
An empirical study in part three attempts to give a more recent understanding of market price changes as the result of buybacks performed by German blue chip companies listed in the DAX 30.
Inhaltsverzeichnis (Table of Contents)
- 1. Introduction
- 2. The State of Affairs in Buybacks
- 2.1. Reasons and Motivations
- 2.1.1. Long-term Shareholders
- 2.1.2. Managers
- 2.1.3. Short-term Shareholders
- 2.2. Requirements
- 2.2.1. German Law
- 2.2.2. Types of Share Buybacks
- 2.3. Effects
- 2.3.1. Market Price Effects
- 2.3.2. Earnings per Share Effects
- 2.3.3. Other Effects
- 3. Empirical Research
- 3.1. Sample Description and Empirical Method
- 3.2. Findings
- 4. Conclusion
- Motivations for Share Buybacks: Examining the perspectives of different stakeholders, including long-term shareholders, managers, and short-term shareholders.
- Legal Framework and Types of Buybacks: Analyzing the legal requirements and different types of share buyback transactions within the German context.
- Impact of Buybacks on Market Price and Earnings: Investigating the potential effects of buybacks on stock price and earnings per share.
- Empirical Research: Conducting an empirical study on a selected sample of companies to analyze the actual effects of buybacks in practice.
- Implications for Company Performance: Assessing the overall implications of share buybacks for company performance and shareholder value.
- Chapter 1: Introduction - This chapter provides an overview of the research topic and its significance, outlining the objectives and structure of the thesis.
- Chapter 2: The State of Affairs in Buybacks - This chapter explores the theoretical framework surrounding share buybacks, examining the reasons and motivations behind them, the legal requirements, and the potential effects on company performance.
- Chapter 3: Empirical Research - This chapter presents the empirical research conducted in the thesis, including the sample description, research method, and findings related to the effects of buybacks.
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This thesis provides a comprehensive analysis of share buybacks, critically evaluating their motivations, requirements, and effects on company performance. It explores the theoretical framework surrounding buybacks and conducts empirical research on selected companies, aiming to understand the practical implications of these financial transactions.
Zusammenfassung der Kapitel (Chapter Summaries)
Schlüsselwörter (Keywords)
Share buybacks, corporate finance, shareholder value, market price effects, earnings per share, empirical research, German law, financial transactions, company performance, stakeholder perspectives, long-term shareholders, managers, short-term shareholders.
- Quote paper
- David Wagener (Author), 2009, Share Buybacks, Munich, GRIN Verlag, https://www.grin.com/document/142579
