What Role Taxes and Regulation? A Second Look at Open Market Share Buyback Activity in the UK

36 Pages Posted: 23 Mar 2004

See all articles by Dennis R. Oswald

Dennis R. Oswald

University of Michigan - Ross School of Business

Steven Young

Lancaster University - Department of Accounting and Finance

Abstract

This paper re-examines the evidence on open market share repurchase activity reported by Rau and Vermaelen (2002) for the UK. Using data from the Securities Data Corporation (SDC), Rau and Vermaelen conclude that the level of repurchase activity is trivial. They attribute the low repurchase volume to regulatory restrictions that limit companies' ability to take advantage of an undervalued stock price and conclude that the bulk of repurchase activity that does occur is driven by the desire to generate tax credits for pension funds. Using data collected from a variety of sources, we find that the SDC substantially understates UK open market buyback activity. Based on our more comprehensive dataset we conclude that (a) pension funds' tax considerations are not the primary cause of UK share repurchases and (b) despite the prevailing regulatory environment, underpricing still represents an important determinant of repurchase activity.

JEL Classification: G35, H25, G12

Suggested Citation

Oswald, Dennis R. and Young, Steven, What Role Taxes and Regulation? A Second Look at Open Market Share Buyback Activity in the UK. Available at SSRN: https://ssrn.com/abstract=513629

Dennis R. Oswald

University of Michigan - Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109-1234
United States

Steven Young (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+441 5245-94242 (Phone)
+441 5248-47321 (Fax)

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