Dividends vs. Share Repurchases: Market reactions and the role of economic uncertainty

Sammanfattning

The study examines market reactions to dividend and share repurchase announcements with a particular focus on differences between the two and the role of market uncertainty. The study investigates whether market reactions differ between share repurchases and dividends and whether these reactions are influenced by market uncertainty. The sample includes companies in the OMX Stockholm 30 index during the time period 2013-2023. The methodology consists of an event study to estimate cumulative abnormal returns over an event window of 7 days, followed by regression analysis to examine the role of market uncertainty. Market uncertainty is proxied by the VSTOXX index. The results show positive market reactions to repurchase announcements, and no significant reaction to dividend announcements. Uncertainty appears to have no effect on dividends, although a negative effect is observed for repurchases. The latter was found to be sensitive to the event window. All in all, the results indicate that the payout methods are not equivalent and that uncertainty affects how investors interpret payout related signals.