Share Repurchases and Creditor Risk Evidence From Sweden

Sammanfattning

Share repurchases have become an increasingly important component of shareholder distributions, yet evidence on their effects outside of the United States remains limited. This thesis examines the consequences of the 2000 legalization of share repurchases in Sweden, focusing on shareholder payout and creditor risk. Using firm-level data for Swedish listed firms from 1995-2010, the reform is used as an exogenous shock to firms’ available distribution mechanisms. Firms with different expected exposure to the reform are identified through sector-level cash holdings and analyzed using ordinary least squares estimation inspired by a difference-in-differences approach. The findings indicate that high cash firms increased total shareholder payout relative to low cash firms following the reform. However, the increase is primarily suggested to be driven by higher dividend payments, indicating that repurchases complemented rather than replaced dividends. In contrast, the results provide no evidence indicating that repurchase activity is related to increased creditor risk, as repurchasing firms did not experience significantly higher leverage or lower cash positions than non-repurchasing firms. Rather, repurchasing firms could be associated with higher operating profitability. Overall, the findings suggest that the legalization of share repurchases increased shareholder payout without observable increases in creditor risk.